Maximizing value in high-performance networks

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With healthcare costs in America continuing to rise and an increasing number of value-conscious employers and consumers making explicit choices about healthcare coverage, the time is ripe for payors to focus on the development of lower-cost, high-perfor­mance provider networks. Although these value networks can take a variety of forms, they all give members access to only a limited number of quality-credentialed pro­viders, in return for lower premiums, lower out-of-pocket costs, or both.

Over the past two years, most major payors have begun creating value networks or have expanded their portfolio of such networks. These efforts were undertaken, in large part, to ensure that payors could offer affordable options to individuals who will be purchasing health insurance on the new state and federal exchanges, especially those with lower in­come levels. In many cases, however, devel­opment of the new networks was accelerated to meet the timelines specified in the Afford­able Care Act (ACA), resulting in some cases in network designs that address basic require­ments but are but not necessarily optimal— they are, in essence, version 1.0 value networks. Now that this deadline has been met, payors have the opportunity to think more carefully about the optimal design of their value net­works and their overall portfolio of networks. There are a number of reasons for doing this. For example, attitudes toward value networks are changing. Until recently, most employers and individual consumers have chosen broad networks as a way to maximize choice and minimize patient/provider disrup­tions. However, McKinsey’s market research (described in the appendix) has found that when consumers are exposed to a simulated exchange environment and then asked to select their own health benefits, up to 80 percent of them are willing to trade access for a lower premium. (The percentage varied in different simulations, depending on the size of the premium reduction and the specific providers involved.) Even many purchasers in the gold and platinum tiers were willing to make this trade-off.

Furthermore, value networks could play an important role outside the individual exchange market. These networks could, for example, help hold down premiums in the growing (but potentially reimbursement­rate-constrained) Medicare Advantage and managed Medicaid markets. They could also be an attractive option for employers looking to control benefits costs to their employees.

Thus, as payors begin to design their net­works for 2015 and beyond, they should ask themselves how they can maximize value in high-performance networks. To address this issue effectively, payors must carefully appraise the dynamics of each local market to determine which type (or types) of value network would work best in each region. They must also decide on the approaches they want to use with providers in the near term to hold down premiums. In addition, they must contemplate the types of innova­tions they are willing to adopt over the longer term to hold down overall healthcare spend­ing and improve care quality.

We believe that, over the next few years, there will be a dramatic increase in the prevalence, profile, and importance of value networks. However, careful stake­holder communication and dialogue will be critical for payors that want to expand their use of these networks. High-perfor­mance networks entail a substantial change in the way payors interact with providers, and some providers (especially those not participating in these networks) may react negatively. Furthermore, a range of other stakeholders, including regulators, legis­lators, advocacy groups, and the general public, will be following the development of these networks closely. Payors that pro-actively communicate to all stakeholders the benefits a new value network can deliver to the community will likely increase the chances  of successful implementation significantly. The message should be clear: value networks help give patients access to more affordable, high-quality care.

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