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I have a new story out in today’s print edition of IBJ that advances a counter-intuitive notion—at least for the world of health care—that the hospital building boom of the last decade could actually lead to lower costs in the future.
That’s because Indianapolis-area hospitals, which used to each dominate a separate territory in the metro area, have now built in one another's backyards. And that has diluted their bargaining power with health insurers.
Insurers are clearly willing to leave hospitals out of their networks if those hospitals don’t play ball on better pricing. If you doubted that before, just check out the health insurance plans recently approved to be offered on the health insurance exchange in California.
According to the Los Angeles Times, all 13 of those plans exclude the renowned—but very expensive—Cedars-Sinai Medical Center in Los Angeles. And all but one of the plans exclude the UCLA Medical Center. (The one exception was Anthem Blue Cross, the California subsidiary of Indianapolis-based WellPoint Inc.)
But the real test of these so-called narrow networks will come not with the Obamacare exchanges, which cater to individuals, but with employers, who control a far bigger slice of the health benefits pie.
Especially in Indiana, employers have been highly reluctant to limit their workers' choice of hospitals and doctors. HMOs, which were built on narrow networks of health care providers, never gained nearly as much traction here as in other states.
Even when Hoosier employers did offer HMO plans, they often did things that muted their impact, say two veterans of the movement in Indiana, Alex Slabosky and Dave Kelleher. If employers react the same way to this latest version of narrow network plans, those narrow-network plans will probably attain the same limited penetration they did in the 1980s and 1990s.
First of all, few Hoosier employers ever offered an HMO plan as its exclusive health plan to its workers. Most of them offered an HMO as one option among two or three. The most common competing plan was Anthem’s, which featured a broad network of hospitals and doctors.
“One of the big issues was that Anthem could go in and say to an employer, 'We have every doctor and every hospital',” said Slabosky, who was CEO of the M-Plan HMO for nearly 20 years.
A second impediment for HMOs came from the fact that most employers applied the same employee cost-sharing formula to HMO plans as they did to Anthem’s PPO plans or other plans. So if the HMO plan held costs down low enough to offer a 20 percent discount on premiums, if the employer only made employees pay 10 percent of the total premiums, then the HMOs price savings was only a 2 percentage point difference to en employee.
For many, it was worth a slightly higher premium to get the additional choice of doctors and hospitals.
“The narrow networks worked real hard to control costs,” Slabosky said. “But in many case, many cases, with the big employers, they negated the difference with their contributions.”
Kelleher, who was part of the founding team at Metro Health in the 1970s, which offered a prepaid health pan based on a limited network of clinics, noted that fewer employers today offer multiple health plans to their employees. And that may give narrow networks an advantage they didn’t enjoy 20 years ago.
“I don’t see the appetite coming back for multiple offerings,” said Kelleher, who now directs the Employers Forum of Indiana.
But he still has some skepticism that narrow networks will take hold. That's because, even with hospitals' expanded geographies, there still is no single hospital system that perfectly covers the entire metro area. Speaking of employers, he said, “They still have to face employee pushback.”