The Value of Healthcare Networks
In today’s healthcare market there are three basic policies provided to enrollees:
- HMO (Health Maintenance Organization)
- EPO (Exclusive Provider Organization)
- PPO (Preferred Provider Organization)
The HMO and EPO policy constitute the smaller percentage of policies that are sold because they do not provide as many options or choices when utilizing those benefits (e.g. there are no out-of-network provisions which allow patients to see the doctor of their choice).
PPO policies constitute the majority of policies (roughly 85%, depending on area) because patients want choices and typically prefer not be told which healthcare provider to utilize. PPO policies have in-network and out-of-network provisions. Premiums are typically higher when purchasing one of these policies because there are out-of-network provisions.
When utilizing a PPO policy, a patient can either select an in-network or out-of-network provider of their choice. If the patient utilizes an in-network provider, the deductible, copay, and coinsurance amount is typically less. Therefore, it would be assumed the patient assumes less financial responsibility. If a patient utilizes out-of-network care, the deductible, copay, and coinsurance amount is typically higher. Therefore, it would be assumed that the patient assumes greater financial responsibility. The only reason one would assume higher risk or financial responsibility when utilizing out-of-network care is because the cost of care is assumed to be higher. It would make no logical sense for a patient to pay a higher cost-sharing amount when utilizing out-of-network care if the cost was actually the same or less than the cost of care provided in-network.
The value of the health care network is two-fold. Since health insurance companies do not want to pay what is billed for particular procedures, negotiations occur so that the healthcare providers billed charges will be reduced thus providing a financial benefit or value to the insurer’s policyholder. The insurer, through these negotiations, is able to pay less and provide a benefit to their enrollees; this is why patients are steered or prompted to utilize in-network, because it is supposed to be the greatest value.
Healthcare providers are only willing to reduce their billed charges because of the benefit(s) provided by the insurer. This negotiation is simply put, a quid pro quo. The insurer provides marketing, patient steerage, and prompt pay so that the healthcare provider “charge less” and accept the reimbursed amount as payment in full. This type of provider network and negotiation is clearly of value and benefit to the insured’s policyholder.
When conversations arise about healthcare legislation and making changes to how health insurance operates in regards to reimbursements and relationship towards out-of-network providers and their patients, one must ask the question, “is the current system providing value to patients”?
Currently, what we are told is that most all legislative initiatives introduced during legislative sessions around the country are going to either hurt or destroy healthcare networks. The simple truth of the matter is that networks are no longer providing meaningful value and benefit to patients.
As stated above, not many individuals would contest the value networks provide in decreasing healthcare costs while simultaneously providing benefits to those healthcare providers that have become a network participant. The problem arises when the veil is pulled back and the public becomes aware of how networks actually work in today’s healthcare market.
Healthcare Networks Today
While the number of policies that have out-of-network provisions have remained unchanged in the sense that the majority of patients prefer these types of health insurance benefits, what has changed is how health insurance companies treat in-network and out-of-network providers.
At the current moment, and as an example, when a patient utilizes care provided by an in-network provider, the patients cost-sharing (e.g. deductible, copay, and coinsurance amount) is less than when utilizing out-of-network care. Coinsurance is based on percentages. The insurer pays a specific percentage of the bill and the patient pays the remainder. The question that should be asked in this scenario is not what the percentage is, but what the percentage is based on. When a patient utilizes care in-network, their coinsurance amount is based on an “agreed” amount. The agreed amount is the negotiated rate where the healthcare provider has reduced their billed charges in return for the insurer providing benefits for reducing the cost of care for their enrollee.
When a patient utilizes care out-of-network, the cost-sharing amount is greater (e.g. deductible, copay, and coinsurance). As was stated previously, the coinsurance amount is based on percentages. The insurer pays a specific percentage (a lesser amount than if care were provided in-network) and the patient pays the remainder. The question that must be asked in this scenario is, “what the coinsurance percentage(s) are based on”? Since the out-of-network provider has not entered into an agreement with the insurer and reduced their billed charges for some particular benefit in return (e.g. patient steerage, marketing, prompt pay, ect.) one would naturally assume the coinsurance amount(s) are based on a higher amount than the “negotiated” in-network charge.
When utilizing out-of-network care, the coinsurance amount(s) are actually not based on a higher amount than the in-network “negotiated” amount, but is routinely based on an amount less than the in-network rate.
The situation plays out accordingly:
As a patient, I assume greater risk in the form of deductible, copay and coinsurance when utilizing out-of-network care. My coinsurance amount is based on an amount less than what was negotiated as an in-network “negotiated” charge. I am routinely told that in-network is the greatest benefit because my insurer has negotiated with the healthcare provider so that they will accept less money for their services, therefore costing me less money. Logically speaking, how then does my health insurance company get away with basing my coinsurance and theirs, on an amount less than what was negotiated in-network? If my health insurance company can base payment on an amount less than what is negotiated in-network, isn’t utilizing out-of-network care of greater financial value?
The short answer is, no! As a patient who utilizes out-of-network care, my financial risk increases in the form of deductible, copay, and coinsurance yet my health insurance company bases the coinsurance percentage on an “allowed” amount that is less than what has been negotiated in-network. This is called cost-shifting and it happens almost every time a patient utilizes out-of-network care. As a patient, I end up bearing more financial risk in the form of deductible, copay, and coinsurance percentage, but it is based on a charge that is less than the negotiated in-network rate.
The delta (difference) between what was paid by myself, the health insurance company, and what was charged by the healthcare provider, ends up being an additional bill I am required to “also” pay.
This type of cost-shifting occurs all the time and when brought to the attention of health insurance companies and their lobbyists, all that is regurgitated is, “those out-of-network providers charge too much and that’s why the networks are so important”.
If the negotiated rate an insurer achieves by contracting with a healthcare provider is a greater amount than what out-of-network cost-sharing amounts are based on, how can my health insurance company, in good faith, claim that they negotiated with the “in-network” healthcare provider so that they are less expensive than their out-of-network counterpart?
Although there are network and non-network providers pertaining to non-emergency care, emergencies fall under a different category. Due to EMTALA (Emergency Medical Treatment and Active Labor Act) all ER’s must provide care to all patients regardless of their ability to pay.
Congress also established a payment metric so that there would be a uniform reimbursement of all emergency care. The sole purpose of this is two-fold in that it ensures patients are “never” turned away in emergency care situations as well as prohibiting insurers from reimbursing a relatively low amount for those services, thus causing financial hardship for patients.
When thinking of networks and emergency care, it is commonly perpetuated by insurers that there are out-of-network ER’s. The only truly out-of-network emergency care situation is that which is caused by insurers who refuse to abide by state and federal law. Emergency care is “always” to be treated according to in-network cost-sharing amounts (e.g. deductible, copay, coinsurance) and the insurer is required to reimburse for those services, at a minimum, at the Greater of Three methodology. The Greater of Three payment methodology states that all emergency care shall be provided reimbursement at the greater of:
- Medicare Rate,
- Median In-Network Rate, or
- Usual, Customary, and Reasonable Rate
This payment metric ensures equal treatment of healthcare providers who provide emergency services and financial protection for patients. However, the sad truth of the matter is that insurers disregard this payment requirement and reimburse at subpar rates, thus causing surprise medical billing to occur.
The problem arises when the following occurs:
- Insurers “do not” apply emergency services towards the patients in-network cost-sharing amounts (e.g. deductible, copay, coinsurance).
- Insurers “do not” abide by the Greater of Three payment methodology and subsequently reimburse at a Medicare rate; Since insurers will not provide transparency of median in-network rates, healthcare providers have a difficult time justifying a higher rate.
- Insurers discriminate against emergency care providers by steering patients “away” from particular facilities; this clearly defeats the purpose of providing accessibility to emergency services and deceives patients into “assuming” there is out-of-network emergency care.
If insurers would treat emergency care fairly and uniformly, there would far less surprise billing situations and patient confusion would drastically decrease.
HOW SHOULD OUT-OF-NETWORK REIMBURSEMENTS BE DETERMINED?
If the goal of networks is to provide financial value to policyholders, there must be an incentive for health insurance companies to provide meaningful contract negotiations. If a health insurance company can reimburse out-of-network at a rate less than in-network, what is the
incentive to negotiate meaningful contracts? For negotiations to be fair and meaningful, there must be leverage for both parties. Health insurance companies have leverage in the sense that they can provide patient steerage, marketing, and prompt payment. Healthcare providers must be assured of reimbursement that resembles the market. Obviously, health insurers will not want to reimburse based on charged amounts, but this is what incentivizes meaningful contract negotiations so that patients are actually provided benefit by staying in-network.
At the current juncture, healthcare providers have zero leverage unless a large market share is controlled (e.g. large health systems). Smaller independent providers have no such leverage and therefore negotiate from a posture of weakness and are afforded reimbursement rates based on what health insurers are “willing” to pay. It’s a take it or leave it strategy for health insurers. If the small independent healthcare provider does not accept the contract that is offered, a lesser rate will be paid for all services provided out-of-network. Although these out-of-network providers may bill a patient the difference in what was paid by the insurer and patient cost-sharing amount(s), this practice not only “pits provider against patient”, but it is mostly futile in regards to collecting the remaining balance. Out-of-Network healthcare providers would be willing to accept reimbursement as payment in full and forego balance billing the patient if insurers would provide meaningful contracts that reimburse in accordance with the market.
This type of network limits access and decreases any competition among healthcare providers. It limits access because patients DO NOT desire to utilize out-of-network care because their insurer pays too little and the patient ultimately gets “stuck” with an unreasonable bill. It decreases competition because healthcare providers are not competing with one another, but are begging insurers to pay a reasonable amount.
The current healthcare market includes in-network providers that have negotiated particular rates, but what is unknown to patients is that those contract rates can widely differ from one In-Network healthcare provider to the next. Even if the patient were to demand price transparency among in-network providers, insurers would refuse to disclose those costs because they are deemed “proprietary”.
Health Insurance policies are sold that include out-of-network provisions at an increased cost to the policyholder yet insurers routinely underpay. Patients are under the assumption that
network providers are of the greatest value and out-of-network providers charge more. Unbeknownst to them, the network providers actually get paid more than their out-of-network counterparts which subsequently causes their out-of-network provisions to be of limited value.
Out-of-network providers as a whole DO NOT want to balance bill (surprise bill) their patients, but when an insurer pays sub-par rates, they have no choice but to write it off as a loss or seek additional payment from their patients.
The solution to this problem requires insurers be transparent about what is reimbursed in-network, but also establish meaningful out-of-network payment schedules so that insurers are incentivized to negotiate meaningful contracts. Rural and independent healthcare providers across this country, as well as their patients, are suffering and it’s solely due to insurers refusing to treat them fairly and provide meaningful contracts. Networks “could” be a solution to rising healthcare costs, but at this current moment, they are the problem.
Based on polling among healthcare providers, collections of money owed for goods and services that had already been provided, can constitute up to 40% of overhead costs associated with the practice of medicine. Couple this high percentage with rising malpractice costs, healthcare is becoming more expensive, but the actual cost of care isn’t.