Narrow Networks in California?

In the nothing new under the sun department, Covered California, the California health insurance exchange is “threatening to cut hospitals from its networks for poor performance or high costs.” Kaiser Health News reports that Covered California’s board will vote next month on proposed policies designed to “chang[e] the underlying delivery system to make it more cost effective and higher quality.” If approved, hospital cost and quality outliers would be identified by payors and potentially excluded from exchange plans starting in 2018; physician reviews would be phased in later.

The news report describes this proposal as “novel,” “the first proposal of its kind in the country.” It may be the first such proposal put forth by a health insurance exchange established under the ACA, but it is hardly novel. It goes to the heart of the deep American ambivalence about health reform. The American public wants “gummint outta my Medicare” but also wants government to protect healthcare as a right. The public wants unfettered access to health care resources but also wants to pay less. We know that we pay more than any other country for health care and don’t have much to show for it in terms of things like life expectancy and health status.

The proposal, at least in its broad outlines, applied rationally, makes perfect sense, and HMOs and other third party payors have been doing this for years: cost and quality control at the system level depends in large part on building narrow networks where provider participation is predicated largely on compliance with cost and quality requirements. (Put another way, there is a system of rewards and penalties in health care finance which is the new normal: value-based payment. The federales are pushing this idea — and say they’re hitting their goals — but, as may be said about most things in health care, per Gibson, the future is already here, it’s just not evenly distributed.) The failure to mandate narrow networks as part of the MSSP/ACO provisions in the ACA may have had good intentions behind it but is, to my mind, one of its key failings. (Technically, narrow networks are mandated, but member use of the networks is not.)

So without some sort of narrow network controls it seems unlikely that all this can work, right? How can we expect unfettered access to all providers (well, the good providers that we want to go to) to yield cost savings and quality improvements? Holding into that expectation may perhaps be described as a health care manifestation of the Lake Wobegone Effect.

Welcome to California, where everyone is above average.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting