Narrow Networks: Counterintuitive Assertions About Cost and Quality

The common sentiment among healthcare policy wonks is that consumers choose health plans on the basis of premium prices first, out-of-pocket costs next, and quality last; and research suggests that narrow networks with lower premiums provide quality care equivalent to more expensive plans with wider networks. What a crock. The idea that consumers would prefer to get lower-quality care in order to save money might be true for those who never expect to get sick; but for anyone who has had to rely on healthcare for anything more serious than walking pneumonia, the quality of care provided by a physician or hospital comes first, not third. Even when employers purchase healthcare insurance for their employees, they are sensitive to quality issues. As the trend to narrow networks of physicians and hospitals that are willing to accept deeply discounted payments from health plans continues to grow, the question of whether these narrow networks can provide not just adequate access but also adequate (or better) quality of care has become ever more important to consumers and policy makers. Surprise: recent studies suggest that there is no difference in quality between narrow networks and wider networks.
However, there is something that seems counterintuitive about the assertion that narrow networks can provide better care at lower costs with cheaper providers. You would not normally expect that less expensive services would generally yield better quality, and that reduced access to providers of distinction would result in better outcomes. To accept the findings of these studies at face value, you have to accept certain precepts that mitigate or invert the economic factors that would normally apply to the supply/cost/quality equation.
First, you would have to acknowledge that higher-cost hospitals and physicians do not necessarily provide higher-quality care. As to hospital care, I would have to say that there may be some truth to this, as there is a great range of charges from hospital to hospital that could not possibly reflect such small differences in measured quality. Yet hospital charge variations are much wider than variations in what hospitals actually get paid by government and third-party payers; and many of the choices made by health plans in selecting hospitals to participate in their networks are based on relatively small differences in negotiated rates. You would expect that hospitals that are able to negotiate higher rates in competitive markets probably have a wider range of specialized services and perhaps more qualified staff and better reputations. You wouldn’t expect this to equate to poorer care. The thing that distinguishes physicians in terms of quality of care is even more about reputation and range of services, and price is more likely to reflect this. Physicians with excellent reputations who offer services that require exceptional skill or reflect superior knowledge and patient satisfaction can fill their offices and surgical schedules without having to accept deeply discounted payments. Unless such services result in lower costs for plans over the long-term, why would narrow network plans be willing to pay more for this care if short-term cost savings is their primary consideration? They wouldn’t, because it is.
This brings me to the second mitigating assertion: that better outcomes over the long-term for patients equate to lower costs long-term, thus allowing plans to charge lower premium rates for higher-quality care. This is a population health question. For example, if screening all baby boomers for Hep C results in overall lower costs by reducing the need for even more expensive liver transplants despite the very high cost of treating Hep C with the newer drugs, etc.; then good care (screening and treatment) would be an example of this mitigation of normal economic principles. However, this only applies if the enrollee sticks with the plan over the long-term, otherwise the plan would profit from avoiding providers who screen their patients and treat the positives. The fact is, with the exception of seniors in Medicare Advantage plans, most enrollees change plans every few years, too quick for many plan investments in preventative care to pay off. This is why regulators require plans to pay for these services, but that doesn’t prevent plans from using "economic credentialing" for participation in narrow networks to selectively exclude providers that tend to offer more expensive tests and treatments to more of their patients.
So here is the third mitigation: depending on how you measure quality and costs, you may or may not be able to demonstrate that you can get better quality at lower cost. Most of the studies that claim that you can get better quality at lower cost tend to look at short-term measures of quality, like fewer hospital acquired infections, fewer hospital readmissions, fewer surgical complications, etc. Makes sense, but if you look at such statistics and fail to make adjustments for the types of patients treated and the complexity of the services rendered, you may get the wrong answer. Is the orthopedic surgeon who declines to provide hip surgery to patients with obesity, and other medical complications like diabetes or vascular disease, providing better care than the surgeon operating at a tertiary hospital on very complicated patients who are far more likely to have less than optimal outcomes? Is a hospital caring for a larger percentage of indigent patients providing worse care because its patients are readmitted more often because they can’t afford adequate post-discharge care and lack access to such services in their community? To really assess whether low-cost providers offer high-quality care, you need to look beyond 30-day readmissions and complication rates and assess long-term, risk-adjusted outcomes and lifetime costs.
I have no doubt that by providing less unnecessary care, changing the fee-for-service incentive, improving end-of-life care, and other strategies; we can maintain quality at lower cost. Plans like Kaiser might be considered a "narrow network," but their enrollees often remain in the plan for a lifetime; and their policies certainly couldn’t be considered cheap. The type of narrow networks that I question are those that recently evolved in the health exchanges and that set a deeply discounted rate for in-network providers and then went fishing for any physicians and hospitals in their area willing to sign up, while professing a commitment to access and quality they can only back up with questionable short-term metrics. The success of plans in forcing CMS to back off on requiring that narrow networks meet minimum transparent standards for adequate access serves only to reinforce doubts about this commitment.

This post was originally published at The Fickle Finger healthcare blog on March 1, 2016.