Employers Shift to High-Performance Networks

Heart surgery is complicated, costly, and prone to wide variations in quality—so choosing where to have the procedure is an important decision for anyone to make.

But increasingly it’s not just the patient who is weighing the results. Employers, who typically have a major financial stake in the health interests of their workers, are beginning to partner with specific hospitals that can deliver the best care at a lower cost.

This represents a sea change among businesses that offer health coverage. Previously, the practice among employers was to make the broadest number of hospitals and physicians available to give employees as much choice as possible. But this has started to change as more employers move to narrow or “high-performance” provider networks.

Right now, only 4 percent of large businesses are attached to a high-performance network, according to a recent PwC survey of employers. But that’s poised to change in a big way. Nearly one-third of large employers say they are considering narrow provider networks and direct contracting as a way to drive down costs and empower employees to make wiser decisions about their care.

That’s what happened at Kroger. The grocery chain tapped Hoag Orthopedic Institute as its provider of choice for certain types of medical care. Employees treated at the health system enjoyed lower out-of-pocket expenses, and for its part, Kroger saw a 25 percent reduction in surgical costs. Studies show savings can range anywhere from 10 percent to 25 percent in these more narrow networks. But that’s not all—in most instances, quality and patient satisfaction tend to be high, too.

If an employee at Lowe’s has a heart condition, he or she has an incentive to go to the Cleveland Clinic for treatment. The hardware giant partnered with the health system in 2010. Under the deal, the company pays for the entire out of pocket costs of care, including travel for the employee and a companion. The results so far have been impressive—98 percent patient satisfaction and no deaths. The company also saves money by using a bundled payment model that includes all follow-up treatments.

Interest in pursuing these employer-provider relationships so far has been contained to a small number of large businesses—those companies with access to cost and quality data, and the ability to redesign employee health benefits. But the outcomes and savings are compelling enough to likely sway other employers. ¬

The rise of health insurance exchanges under the ACA may be another catalyst for narrow networks. According a separate PwC Health Research Institute survey, 69 percent of insurance executives are in discussions with providers around narrow network contracts. Early reports on health plans being sold through exchanges reveal that some are limiting access to more expensive academic medical centers, which tend to treat high-risk patients.

In response, health systems will need to prepare for the shift to more narrow networks by playing up the quality of care they deliver while exploring alternative contracting and payment models. New competitors may arise across the country as more companies urge their employees to use these networks.

Insurance companies will also need to act by providing these types of options for employers. The challenge is not just getting providers to lower their contracted rates, but also in monitoring quality and the consumer experience so employees have the best outcomes.

And while employers may be driving this trend, they also have much work to do. Companies need to expand outside their city limits—and possibly across state lines—as they search for high-value providers. Travel expenses may be worth the cost if the quality of care and patient satisfaction are high.

After all, money and employee productivity is at stake.

Benjamin Isgur is a director in the PwC Health Research Institute.

Posted in Expert Opinions.