8 Points on How Narrowing Payor Networks Impacts Surgery Centers

Rita NumerofInsurance companies are changing their business model, which has an impact on how they interact with providers and negotiate contracts. According to Rita Numerof, PhD, President of Numerof & Associates, Inc., both in-network and out-of-network options are evolving. Here, Dr. Numerof discusses the insurance company's traditional business model, the recent trend of narrowing networks and how this will affect out of network contract for ambulatory surgery centers.

Insurance companies

1. Old model: Insurance companies wanted big networks to attract group employers. For years, providers aggressively negotiated in-network contracts because insurance companies and employers valued the ability to give patients a wide variety of provider options. They preferred to bring providers in-network, creating a large provider base for their members, and negotiated reasonable rates with each provider.

"Having an extensive network that includes hospital providers, physicians and other clinicians has really been an important part of what insurers 'sell' to their employer customers," says Dr. Numerof. "The employees are much more likely to be able to see their physicians and other care providers, thus maintaining their clinicians of choice under this model."

The ability to choose also allowed more new employees entering the group plan to keep their current physicians, which could be a valuable recruitment asset.

"The continuity of care is really important and with the larger network, historically, the better it was for the insurance company to offer their products to employers because employees wanted a big network available to them," says Dr. Numerof. "However, I see a trend toward narrowing this network as the business model of healthcare is changing."

2. New model: Payors will now become more selective about who contracts with them. Insurance companies are now beginning to flip that traditional model of expanded networks to become much more exclusive about who can be in-network. They are demanding quality and cost data, and providers that aren't able to deliver will be left behind.

"We are seeing payors narrow their networks because they only want to include providers performing at a certain level of cost and quality," says Dr. Numerof. "It's about narrowing the networks so you have fewer options. Ostensibly, you have your best performers and those that don't make the grade don't stay."

This new trend has made it increasingly difficult for providers to negotiate out-of-network contracts because they must convince insurance companies their services will be better than those who are in-network, and payors are only allowing in the best or those negotiating favorable rates assuming outcomes can't be differentiated among providers.

"If you are a high cost provider, until you can connect the cost with outcomes, there will be serious problems," says Dr. Numerof. "It's really problematic when people just talk about cost and they don't tie it to the outcomes component. We really need to bring the economic and clinical quality elements together when we're talking about value."


3. Old Model: Employers wanted expansive coverage to keep employees happy.
Employers valued the traditional model of large in-network coverage from the insurance companies because expanded coverage allowed employees more provider options. Employees appreciated the ability to continue seeing their current providers after beginning a new job, and they liked being covered for "best physician in town" according to their family and friends.

"Extensive networks have been attractive because staff members are happy to see the physicians they want and employers don't have to negotiate single case agreements," says Dr. Numerof. "If an employee wanted to see a physician who was out-of-network, there would have to be a special agreement and the employee would have to pay more out of pocket. Then the employee ends up in HR complaining — now multiply that times thousands of employees and you get a picture of unhappy employees and a very unhappy benefits manager."

There were still opportunities to go out-of-network in this business model, but employees had to pay more and often spend extra time negotiating the contracts. "Extensive networks were part of what insurance companies sold to employers, who negotiated the terms of the deal and then sold it to their employees as part of a benefits package," says Dr. Numerof. "This made it attractive to employees to join that particular company."

4. New model: Employers are becoming more interested in quality and cost effectiveness.
As insurance rates increase, employers want to make sure they receive a superior product for higher premiums. Insurance companies attract employers by showing their ability to cover employees' visits to the highest quality, lowest cost provider possible.

"Payors are concerned about differentiating themselves in the market," says Dr. Numerof. "They want ways of saying that we have a particular type of network that is able to demonstrate a quality outcome at a cost that is very competitive, or define their outcomes if they charge more to make the premium worthwhile."

Theoretically, this business model will attract the best clinicians. As a result, insurance companies have begun rating providers with a "star" system to prove their quality and maintain their product.

"More costly providers that are not demonstrating the outcomes could be asked to go out-of-network, or patients will be steered in a different direction," says Dr. Numerof. "Assuming the star system is legitimate, it raises the quality of everyone involved because physicians are competitive — they don't want to have outcomes that don't measure up."


5. Old model: Providers enjoyed a bigger patient base in-network.
Going in-network under the traditional model gave providers access to a large patient base because insurers direct their members to in-network providers. This model is particularly useful for a young physician or new specialty group just starting out in town.

"If you are new to a city, you may want to go in-network so patients don't have to pay the additional costs to see you," says Dr. Numerof. "The provider doesn't pay on a per patient basis, but pays because they agree to negotiate a rate for their services. Going out of network has always meant a lower volume of patients but a higher payment rate. If you are going out-of-network as a consumer, it's going to be higher out-of-pocket expenses for you."

However, with the recent focus on quality data and cost effectiveness, just agreeing to negotiate with an insurance company won't always equal success. By narrowing their networks, insurance companies will rely on cost and quality data to decide whether to include providers in their networks, bringing great benefit to some and forcing others out of network completely.

6. New model: Members are calling for harder cost and quality data.
Just a recommendation from the primary care physician or best friend won't drive patients to your doorstep anymore. The savviest patients are looking for the same data insurance companies are: cost and quality rates. The internet and social media will also play a role in driving patients to providers, whether they are in-network or not.

"An individual that has a good experience will likely share it with their 100 friends on Facebook; a negative experience will be posted on a ranking website and reach 3,000 people," says Dr. Numerof. "That negative report may not accurately reflect the actual quality of the practice. It will be incumbent on the physicians to demonstrate their clinical value and have evidence behind it."

Reported infection rates, patient satisfaction and average cost data are also making their way to the center stage. Make sure this data reflects accurately and positively on your practice, especially if you are seeking negotiating power with insurance companies for out-of-network contracts.

"You are going to see more and more information in the popular press about cost and quality," says Dr. Numerof. "Consumer Reports has created a whole division associated with healthcare and healthcare outcomes. They are very serious about that; my concern is that in certain markets, I see a lot of comparative prices and I'm not sure what kind of quality you are seeing in those practices behind the published costs."

Out-of-network contract perspectives

7. Old model: Providers accepted lower volume as a tradeoff for higher per-case prices.
Traditionally, providers could stay out-of-network with a lower volume of patients and charge higher prices, if patients felt their care would be superior. There is still an opportunity to negotiate out-of-network contracts, if providers have the clinical data justifying their higher costs and out-of-network status.

"The data should demonstrate why the consumer is going to get better care and have better outcomes," says Dr. Numerof. "This could be defined as better clinical outcomes, more amenities, better service, more sophisticated technology or a more integrated approach to care. Whatever the clinician is offering, they will need documented evidence substantiating their claims; this has to be compelling or the patients and payors won't pay for it."

Surgery centers and physicians should have data packaged for the payor or consumer justifying the extra expense. "If you have this, you will have a successful business model," says Dr. Numerof. "There are some premium opportunities for providers that are really negotiating for better quality. Those opportunities exist but you have to have the data available."

8. New model: Providers must offer more attractive services than others.
Out-of-network contracts were challenging when the insurance companies worked within the traditional care model, and have become even scarcer as they narrow their networks.

"I think the general trend for out-of-network contracts is going south," says Dr. Numerof. "There are lots of pressures to reduce reimbursement because there have been increased costs incurred across the board as more consumers are assuming more risk with higher premiums or higher deductible plans."

When patients are taking more risk and spending more for their care, they will expect a higher level of service if they decide to go out of network.

"Insurance companies are even offering HMO members a point of service arrangement where you can go out-of-network and pay more money," says Dr. Numerof. "There is more sensitivity, which creates more market awareness; I see that as a positive trend because it will temper the cost increase in this country. I also think utilization will be appropriately challenged so people are getting services they really need clinically and we won't have services offered for people who won't benefit from them. We can shift those services to people who will — market discipline across the board will be extremely important and helpful for everyone."

More Articles on Surgery Centers:

Evolving Strategies for Surgery Centers to Reach Savvy Healthcare Consumers: Q&A With Dr. Arvind Movva, CEO of Regional SurgiCenter

8 Steps to Cut Cost Per Case in Surgery Centers

Bundled Payments, Narrow Networks & Acquisitions: 5 ASC Reimbursement Trends to Expect in 2013

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