Q&A WITH TEAH CORLEY
Direct provider contracts may be an option to health plan network changes
Q: Numerous health plan patients statewide recently received letters from their hospitals letting them know that their hospitals or physicians soon may be going out of network with their insurance company’s preferred provider organization (PPO) network. Is this patient communications method a new approach in managed health care?
A: It’s nothing new for health care providers and PPOs to be at odds or reach a stalemate when negotiating managed care network contracts. The PPO networks want hospitals and physicians to offer high quality standards of care to their members at the lowest possible reimbursement. This is the value they deliver. Hospitals and physicians are squeezed with increasing costs of providing health care in an evolving regulatory environment, often caring for the uninsured or underinsured, and decreasing reimbursements on the Medicare side. That said, it used to be insurance companies controlled the majority of the communication by sending notice to employer-sponsored health plans — letting them know that negotiations were getting tough, and to alert the health plan sponsors that a particular health care provider contract might not renew. In more recent years, we’re seeing the physicians and hospitals pre-emptively provide notice to their patients directly. This likely is not only an effort to keep patients informed so they can prepare, but perhaps also to prompt patients to put pressure on the insurance company to keep their physicians and hospitals in network.
Q: What are the underlying drivers of a physician or hospital leaving a preferred provider organization (PPO)?
A: There can be a variety of factors involved, but like any other business negotiation, cost is almost always a driving factor. Healthcare providers are vying for fair and reasonable provider reimbursements and insurance companies are vying for fair and reasonable provider reimbursements. The challenge is in how each defines fair and reasonable. Other factors that can cause a provider to lose in-network status can be that a health care provider may not be meeting certain quality of care standards set by the PPO to ensure quality care for members, or that a provider is conducting themselves in a way that the insurance company or PPO believes could be detrimental to its membership. An example of this might be a provider who is overprescribing care or promoting excessive services that aren’t considered medically necessary.
Q: What can employer-sponsored health plans do to prepare in the event a major provider goes out of network?
A: There was a time when employers could do very little about a provider going out of network with their health plan insurance company’s PPO. Smaller, fully insured plans still are limited somewhat in what action they can take. Even smaller employers have options for creating custom health plan alternatives that didn’t exist until recent years. Self-funded health plans have the option of entering into direct contracts with a provider who may have determined it’s no longer going to contract with the PPO network.
The key to an employer determining the best path forward lies first in identifying the underlying reason for the provider leaving the PPO network. In addition to asking both the PPO network and provider what is driving the disruption, there are an increasing number of independent, third-party tools available in the marketplace that can help employers evaluate and monitor provider performance from both a cost and quality perspective. If the physician or hospital is being dropped by the network due to material quality concerns, it’s likely that the employer would be better off keeping the health care provider out of network. If the provider is going out of network due to cost or reimbursement differences, or disagreements around the PPO network’s managed care terms or restrictions, an employer may wish to take a closer look to understand the underlying factors and determine whether a direct contract makes sense. Excessive costs may be a reason to keep a provider out of network, but sometimes there may be alternative contract arrangements available with a given provider.
A growing number of physicians and hospitals are willing to offer bundled pricing where the facility, physician and anesthesia is covered in a single, bundled fee. Some will accept value-based reimbursements or lower costs for more timely reimbursements. Many of these options can be facilitated seamlessly through a direct contract between the health care provider and the employer and offered alongside the PPO network, to create a win/win. There are a number of complex aspects to consider, but these types of contracts are becoming much more streamlined and easier to implement in a way that is favorable for both the provider and the plan, while protecting the PPO network, health plan and its members. The key is in understanding the underlying drivers and leveraging the best of what the PPO network and provider has to deliver before blindly accepting the outcome.