In This Issue:

- The Driving Forces Behind the Trend Toward Narrower Networks

- The Trade-Off

- Regulatory, Legislative and Litigatious Responses to Narrower Networks Across the Nation

- Judicial and CMS Consideration of Narrower Networks for Medicare Advantage

- Considerations for the Future

- Excerpt from The Driving Forces Behind the Trend Toward Narrower Networks:

Generally, exchange plans reimburse providers at significantly lower rates than nonexchange plans. Insurers attribute this difference to several factors, including the Affordable Care Act (ACA) requirement that Qualified Health Plans (QHPs) sold through the FFM and state-based exchanges must offer broad health care benefit coverage and cannot vary premiums based on age. Faced with the prospect of receiving comparatively lower reimbursement for patients insured through exchange plans (as well as delays in receiving payment and increased administrative expenses attendant to those delays), a number of providers have declined to participate in exchange plans’ provider networks. For instance, several highly esteemed institutional and physician providers have opted out of the exchanges.

Also, as insurers find that consumers perceive price to be the paramount factor in differentiating the plans offered on the exchanges, insurers are trying to lower their premiums by reducing payments to providers. Smaller networks facilitate insurers offering lower premiums because insurers can negotiate lower reimbursement rates with some hospitals and physicians in return for increased patient volume. Higher cost providers that are unwilling to accept lower payments in return for more patients are excluded from these networks. Consequently, these narrow networks allow for more price control in the face of recent provider consolidations, which could have allowed certain providers (e.g., hospital systems) to achieve greater market power and thereby raise prices for their services. The increasing exclusion of higher cost providers from exchange plans’ networks, whether by choice of the provider or the insurer, fuels the dual trends towards narrower networks and lower reimbursement rates received by providers participating in exchange plans’ networks.