Tiered and Limited Networks – Trends and Evidence

1. Tiered and Limited Networks – Trends and Evidence Anna D. Sinaiko, Ph.D. Examining Health Care Competition An FTC-DOJ Workshop February 24, 2015

2. Ancestors of Value-Based Network Design • HMOs, PPOs introduced selective contracting to health insurance • HMOs – closed networks • PPOs – richer benefits for in-network providers • Criteria for provider inclusion: acceptance of fee schedule; pre-authorization requirements

3. Logic of Tiered Networks • Allow broad networks, but identify providers that offer the greatest value (note: concept and practice may differ) • Use differential cost sharing to steer patients to preferred providers • Those with the lowest willingness to pay for the “non-preferred” providers will switch • Threat of switching may affect provider behavior in ways that are consistent with payer objectives

4. Limited Network plans • Exclude lowest quality providers, least cost-efficient providers or both • Lower premiums for consumers but little to no coverage for care from out-of-network • Stronger incentives for providers

5. Increasing prevalence of tiered and limited network plans • Tiered network plans • All firms, 2014: 19% • 18% of large employers (over 200 employees) • 19% of small employers (3-199 employees) • Most major commercial insurance firms now offering a tiered network product • More prominent role in certain geographies • Limited network plans • Prominent in the ACA exchanges Source: Kaiser Family Foundation/Health Research & Educational Trust. 2014 Employer Health Benefits Survey. http://kff.org/health-costs/report/2014-employer-health-benefits-survey/

6. What Do We Know about the Cross-Price Elasticity of Demand for a Specific Provider? • Despite the long history and penetration of PPO/POS plans there is almost no previous literature on responsiveness of patients to tiered provider copays • Importance of trust suggests that influence of copay differences will be less than for drugs

7. A Few Recent Data Points • Introduction of tiered and narrow networks designed using quality and cost information has led to several recent studies • Three natural experiments offer a glimpse at early results

8. Culinary Fund Narrow Network • Taft-Hartley Fund examined its physician network using efficiency and quality metrics and claims data • ~5% of physicians excluded from PPO • Patients notified of exclusion, informed that deductible and coinsurance would apply (a price increase of roughly $50 or more per visit) • 81% of patients who had seen excluded physician in prior year did not return compared to baseline level of attrition of 54% (a 27 percentage point difference) Source: Rosenthal MB, Li Z, Milstein A. Do Patients Continue to See Physicians Who Are Removed From a PPO Network? American Journal of Managed Care 2009;15(10):713-719

9. Massachusetts Group Insurance Commission Tiering Initiatives • Combination of GIC and state regulation created favorable environment for tiering • All-payer data from six participating health plans used to create physician performance profiles • Specialist physicians most commonly tiered • Early survey suggests: • 50% of members know about the tiering • 19% know which tier their doctor is in • 48% of those who knew the tier said it mattered • 40% trust the tiers to signal good value Source: Sinaiko AD, Rosenthal MB. Consumer Experience with a Tiered Physician Network: Early Evidence. American Journal of Managed Care 2010; 16(2): 123-130.

10. Tiered networks affect patient choices of new doctors • Significant loyalty to physicians seen previously -- in contrast to prescription drugs • New (and unknown) physicians are more likely to be viewed by patients as substitutable • The effect of tiering may be at the lower end of the distribution rather than moving patients to the “best” performers • Physicians in the worst-performing tier experienced 12% loss in share of new patients Source: Sinaiko AD, Rosenthal MB. The Impact of Tiered Physician Networks on Patient Choices. Health Services Research 2014, 49(4): 1348-1363. doi: 10.1111/1475-6773.12165

11. Massachusetts Group Insurance Commission Limited Network Initiative • Narrow network plans excluded the worst-performing tier from the network • Following a “premium holiday” 12% of GIC members enrolled in a narrow network health plan • 4% decrease in spending overall Source: Gruber J and McKnight R. Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from Massachusetts State Employees. NBER Working Paper Series WP 20462; www.nber.org/papers/w20462

12. Policy Issues • Suggests that network design is one important component of efforts to increase value in health care spending • How to educate consumers about the tiers so they can make informed choices • Further work on effects of these designs on quality/access, and variation in impact is needed