Health insurers may be poised to leave hospitals and physicians out of their networks, thus potentially cutting out pathologists and clinical laboratories

Clinical laboratory companies that find themselves excluded from health insurers’ provider networks do not need to feel like they were singled out. That’s because health insurers are narrowing their networks by also excluding hospitals and physicians.

Years ago, the “narrow network” strategy was used by HMOs and health insurers to extract rock bottom prices from hospitals, physicians, and medical laboratories. Now this strategy is returning as health insurers develop what they call narrow networks.

Narrow Networks Strategy to Exclude High-Cost Hospitals, Doctors

Health insurers are motivated because they need to keep costs low. Payers anticipate that, as January 1 approaches and the Affordable Care Act (ACA) becomes fully implemented, only those health insurers contracting with low-cost hospitals, physicians, and other providers will have the cost structure required to be financially viable.

Health plans are seeking to control costs prior to the implementation of key provisions of the ACA. Their strategy is to offer fewer hospitals and physicians in networks. Pathologists and clinical laboratories may feel the effects of this strategy if their affiliated hospitals and physicians are excluded. But labs will not be alone because health plans intend to also exclude high-cost institutions, ranging from community hospitals, academic medical centers and medical groups, to other types of providers.

Shown above is a map that identifies how individual states are responding to the section of the Affordable Care Act (ACA) that addresses the establishment of a state health insurance exchange. Just 18 states are planning to introduce and manage their own state health exchange. In response to this development, many private health insurance plans are narrowing their networks. In particular, private payers want to exclude high-priced hospitals, physicians, and even local medical laboratories that do not offer lab test prices that are as cheap as national labs. (Graphic by Obamacarefacts.com.)

In May, Modern Healthcare magazine reported that large safety-net hospitals and academic medical centers are worried about being left out of these new offerings. “Narrow networks—where a limited set of providers are fully covered by an insurance plan—have emerged as a common theme in recent negotiations between hospitals and insurers, participants say. The restricted networks are likely to exclude public and academic medical centers because of their generally higher rates, which those hospitals say are due to their treating more seriously ill patients,” wrote Modern Healthcare in an article, “Hospitals fear disruptions from limited networks”.

Health Insurers Narrowing Networks in California

This strategy was evident in California recently when health insurers offered limited choices for the state’s public insurance exchange, Covered California. For example, Cedars-Sinai Medical Center was not included in any Covered California plans. Similarly the UCLA Medical Center’s network also was mostly excluded, according to California Healthline. The website also reported that charges for both facilities are above average.

The City of Los Angeles saved $7.6 million in premiums when it adopted a narrow network plan from Anthem Blue Cross that excludes doctors affiliated with Cedars-Sinai Medical Center and UCLA Medical Center, The Los Angeles Times reported. This was not met with favor by the city’s employees.

When city workers complained about having fewer choices, the city added a full network option at an additional cost. However, fewer than 100 employees chose this higher-cost plan, the newspaper reported in an article, “Blue Shield may take L.A. contract from Anthem Blue Cross”. Since 2008, California businesses have chosen narrow-network plans in an effort to keep health costs down, the LA Times said.

Open Enrollment for State Health Exchanges Starts in Fall Months

Narrow networks are expected to play a prominent role in the exchanges that states will be opening in the coming months, noted Kaiser Health News in an article, “HMO-Like Plans May Be Poised To Make Comeback In Online Insurance Markets“. Open enrollment for the health exchanges begins October 1.

Even before ACA implementation was looming, national health insurers such as Health Net, Aetna, and UnitedHealthcare were actively developing narrow networks. This was a direct response to their customers—including large and small employers and individuals—wanting to achieve lower costs, according to an article in Managed Healthcare Executive, “Return of the narrow network”. Narrow-network offerings cost 10% to 25% less than traditional plans, the article said.

Narrow Networks Pay Less to Participating Providers

Costs are lower because these networks have fewer providers. Blue Shield of California said its narrow network would have only 40% to 45% of the hospitals and providers that are in its wider network offerings, according to The Wall Street Journal. Also, narrow networks will pay less, such as rates that are similar to Medicare and Medicaid payments, the journal reported in an article, “Another Big Step in Reshaping Health Care”.

Another issue could make narrow networks troublesome for clinical laboratories and pathology groups. It involves self-paying patients. Public hospitals and academic medical centers are concerned that narrow networks could reduce the number of insured patients they get, thus raising uncompensated-care costs and boosting bad debt, Modern Healthcare reported.

“Patients in narrow network plans who seek care at out-of-network, safety-net hospitals will be more likely to fail to pay the high patient copays that federal rules allow in such cases,” the article said.

Experts Warn Clinical Labs of Increased Bad Debt due to Higher Copays

Billing experts are warning that pathology groups and clinical labs may find it difficult to collect these larger copays and deductibles directly from patients. That will lead to more bad debt and increased costs to collect these funds.

For their part, consumer advocates worry that limited networks could translate into inadequate care or big bills for those who develop complicated health problems, Kaiser Health News reported.

—By Joseph Burns

Related Information:

Hospitals fear disruptions from limited networks

Low Costs and Narrow Networks: Inside Covered California

Blue Shield may take L.A. contract from Anthem Blue Cross

Cedars-Sinai stands out for steep pricing

HMO-Like Plans May Be Poised To Make Comeback In Online Insurance Markets

Another Big Step in Reshaping Health Care

Return of the narrow network