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Analysis

Employer Health System Networks to Become More Exclusive

By Bruce Japsen  
   December 20, 2018

Employers and health insurers are becoming more selective about the doctors, hospitals, and health systems they offer to workers in hopes of boosting quality and reducing healthcare costs.

This article appears in the January/February 2019 edition of HealthLeaders magazine.

The nation's employers and health insurers are becoming more selective about the doctors, hospitals, and health systems they are offering their workers in hopes of boosting quality and reducing the cost of healthcare.

It's likely to mean some winners and losers among U.S. health systems as such trends escalate.

These strategies are narrowing medical care provider networks and, in some cases, shutting out some health systems in favor of others for hip, knee, and spine surgeries; transplants; and cancer treatments. The strategies will place a significant hurdle to a worker's ability to choose the hospital or health system that they want but employers say they are guiding them to the higher-quality health systems with the best outcomes.

A snapshot of this trend can be seen in an analysis out this month from health research and consulting firm Avalere Health that finds "health plans with more restrictive networks … continue to be the most common types of plans" in the 2019 public exchange market for individuals purchasing coverage under the Affordable Care Act, with "72% of the market comprised of such plans." This trend has increased from three years ago when 60% of plans offered on the ACA's exchanges had narrow networks.

These narrow network plans include health maintenance organizations and exclusive provider organizations (EPO) that limit medical care provider choices to their networks. The remaining 27% of ACA health plan choices for 2019 are preferred provider organizations (PPO) or point-of-service plans that allow patients to go outside of a network for treatment but generally not for a discount.

"Plans are increasingly deploying narrow provider networks," Avalere Health founder Dan Mendelson said.  "This is a trend that we see elsewhere in health insurance markets and is being deployed by plans to reduce cost and gain more control over patient outcomes."

Centers of Excellence

The trend is taking various forms from employers, who are increasingly becoming savvier purchasers of healthcare services and demanding quality choices of hospitals, doctors, and health systems to make sure care is done right the first time.

"Fundamental change is coming to delivery systems in many areas as a result of more sophisticated outcomes-based contracting," Avalere's Mendelson said.

The National Business Group on Health (NBGH), which represents some of the nation's largest employers, said employers are increasingly sending more patients to Centers of Excellence (COE) for even more treatments, surgeries, and procedures than ever before.

COEs are designed to coax employees in need of surgeries and complex specialized treatments to medical care providers with the highest-quality care, NBGH executives say.

The use by employers of some form of COE is jumping to 88% next year (2019) from 79% in 2016, according to NBGH's 2019 Large Employers' Health Care Strategy and Plan Design Survey of 170 large U.S. employers. And while most of these contracts are between providers working with health plans, NBGH said direct contracting between employers and COEs are "rising rapidly" to 18% of employers next year from 12% this year.

"For a health system … you should be wanting to make sure that you are going to be a part of this because that is going to be a trend that is going to continue to grow," said Steve Wojcik, NBGH's vice president of public policy. "You want to at least put your toes in the water. You could be missing out on a lot of volume."

Among employers, COEs were first used for workers who needed transplants with 74% of employer-sponsored health plans contracting for such procedures.

Increasingly, though, employers are tailoring COE programs for other "conditions or procedures, such as bariatric surgery (58%) and surgical procedures to treat musculoskeletal problems (38%)," NBGH said in its survey. "COE growth has been up across a number of procedures/conditions over the last two years, but COEs for cancer (up 10%) and fertility treatments (up 7%) will experience the greatest growth in 2019."

COE convert: Walmart

One convert to the COE movement is Walmart, which employs more than 1 million U.S. employees.

Related: Walmart Escalates Strategy to Solve Employee Healthcare

Walmart has doubled the number of health system partners in its Centers of Excellence Program in just the last two years. "Whether you're a cashier in Wyoming who's been with the company for six months or you're a 20-year associate running a store in Miami, if you have Walmart health insurance, you have this benefit," the giant retailer said in announcing an expansion of the Centers of Excellence program two years ago.

Walmart today has health system partners in 15 cities across the country, establishing relationships with more than a dozen systems including Cleveland Clinic, Mayo Clinic, Geisinger Health System, Johns Hopkins, and Memorial Hermann.

There's a significant financial incentive for an employee that is willing to participate and get care from a COE, Walmart executives say.

Evaluation and care of the patient is covered at 100% "with exception of bariatric," Walmart's Center of Excellence program says. If someone goes outside of the COE network for a spine, knee, or hip surgery, those procedures would be "considered out of network with a 50% coinsurance," the Walmart program says.

In addition, Walmart pays for "all travel, lodging, and a daily allowance is provided for the recipient and a caregiver for all services covered under the Centers of Excellence program except weight loss surgery," a company spokesperson said.

Walmart won't disclose exactly how many of the procedures and surgeries are being taken from community hospitals and sent to Walmart's health system partners, but it's clear there are some winners and losers.

One winner is Mayo Clinic, which gets about 80 to 100 transplant patients a year from Walmart employees at Mayo locations in Rochester, Minnesota; Jacksonville, Florida; and Phoenix, Mayo executives say. Mayo has had a relationship with Walmart to do transplant procedures of the retailer's workers for more than 20 years.

But in the last two years, the relationship has expanded from transplants and cancer care to hips, knees, and spine surgeries.

"They trust us to get the diagnosis right," Dr. Charles Rosen, medical director of Mayo's contracting and payer relations group. "That value of getting that diagnosis right is incredibly high."

To be sure, the move from fee-for-service medicine to value-based care that reimburses doctors and hospitals based on outcomes is key to the Centers of Excellence strategy.

In Walmart's case, they have sent workers to facilities in its COE network who haven't ended up needing surgeries. That is key for an employer facing higher costs year after year only to find out the fee-for-service system historically may have been leading to unnecessary procedures.

Beginning in January 2019, Walmart said it will begin requiring its health plan participants to travel to one of eight COE locations for spine surgeries that will be covered. The requirement comes after the program generated positive outcomes for prospective spine surgery patients.

"Travel will be mandated after finding that about half of the participants who went to these locations were able to avoid the extensive surgery altogether," Walmart spokesperson Justin Rushing said. "As you can imagine, we're always reviewing potential partnerships that help us ensure our associates and their families are getting access to the highest quality of care possible."

Bruce Japsen is a contributing editor for HealthLeaders.


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