June 22, 2016

Broad Examination of Narrow Networks: First-of-Its-Kind Study Examines Hospitals in Medicare Advantage Plans

On June 20, 2016, The Kaiser Family Foundation issued the first ever broad-based study of Medicare Advantage hospital networks. The study — "Medicare Advantage Hospital Networks: How Much Do They Vary?"— analyzed 409 plans in 20 counties across the country in 2015.

Among the key findings:

  • On average, Medicare Advantage plan networks included 51 percent of all hospitals in the studied counties.
  • One in five networks didn't include an academic medical center.
  • Two in five plans with an NCI-designated center in the area did not include the center in their networks.
  • 23 percent of Medicare Advantage plans had broad hospital networks (i.e., 70 percent or more of hospitals); 16 percent had narrow or ultra-narrow networks (i.e., below 30 percent).
  • In nine of the 20 counties, no plan offered a broad hospital network.
  • Among HMOs, broad and narrow network plans had very similar premiums and quality star ratings.

This last point challenges conventional wisdom, which has assumed that narrow networks should have lower premiums and broad networks should have higher star ratings. In fact, with studied HMOs, narrow network plans had higher overall star ratings than broad network plans. The study also found that per-capita Medicare spending isn't associated with the size of the hospital network. Another finding was that plans in high-cost areas are no more likely than those in low-cost areas to use narrow networks to reduce their costs.

One finding came as no surprise: researchers found that in all 20 counties, provider directories were "riddled with errors." In one glaring example, outpatient centers and rehabilitation facilities were listed as acute care hospitals. A hospital was listed by different names in different directories. One directory listed a hospital that was closed down a decade ago. These errors have the potential to distort network size and, in a worst case scenario, mislead enrollees, who may consult a directory when selecting a plan.

This study arrives at a critical time. The rationale for narrowing networks is stronger than ever — not only to contain costs, but also to drive members to providers of high-value care. But across insurance markets, not just Medicare Advantage, regulators are putting new rules and audits in place to prevent health plans from going too far — which means that 2016 will continue to see unprecedented researcher and regulator interest in health plan provider networks.

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