News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel
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Ongoing shift to narrow provider networks excludes many medical laboratories, thus causing them to lose access to patients served by these networks

If there is any single trend that has worked against the clinical and financial interests of community clinical laboratories and hospital/health system lab outreach programs, it is the trend of narrow networks. When medical laboratories and other providers find themselves excluded from a payer’s provider network, they lose access to the patients served by that network.

Thus, it won’t be good news that a major consulting company has confirmed that the trend of narrow payer networks is intensifying. The study was conducted by healthcare consulting firm McKinsey and Company.

McKinsey concluded that insurers participating in the government’s Healthcare Exchanges continue to move toward narrow networks of healthcare providers. This trend often leaves smaller clinical laboratories, hospital lab outreach programs, and anatomic pathology groups on the sidelines as insurers attempt to reduce costs.

Narrow Network Trend Favors Largest Clinical Laboratory Companies

The McKinsey analysis of exchange plans included findings from 50 states and Washington, DC. Researchers found a “majority of carriers are continuing to shift toward managed offerings,” such as health maintenance organizations (HMOs) or exclusive provider organizations (EPOs), which have narrow provider networks.

Narrow networks enable insurers to negotiate a lower cost for services and keep premiums low, a process that favors the nation’s largest medical laboratory companies. When smaller regional laboratories, community laboratories, and hospital laboratories with outreach programs, are excluded from payer networks, they lose access to patients covered by the networks’ health plans and won’t be reimbursed for the tests they perform.

According to the Wall Street Journal (WSJ), narrowing a network holds down costs “in part, because hospitals and specialists with the highest reimbursement rates can be cut out.”

For example, Premera Blue Cross will no longer sell PPO plans on Washington State’s exchange after losing money last year on its 49,100 participants. In 2017, Premera will offer EPOs that do not include out-of-network coverage, the WSJ noted.

“We believe this will help lower costs for our members and improve quality,” Jim Havens, a Premera Vice President, stated in the WSJ article. “We want to look at how we can be a sustainable model in the state.”

HMO and EPO Plans to Dominate Exchanges in 2017

The shifting mix of plans available on the Affordable Care Act (ACA) insurance exchanges is dramatic. In 2014, when exchanges first opened, broader network plans, such as preferred provider organizations (PPOs) and point-of-service offerings, had a 58% share of the total ACA marketplace, McKinsey found. By 2016, that percentage fell to 45%, before tumbling another 8% in 2017, to 37%.


Above excerpted from McKinsey’s 2017 OEP Plan Type Trends Infographic. It shows health insurance exchange trends in plan types across 50 states and Washington, DC. Click on the image to view the entire infograph. (Graphic copyright: McKinsey Center for U.S. Health System Reform.)

In 2017, HMOs are expected to make up 52% of all plans available on exchanges, a jump from 33% in 2014.

When McKinsey looked at plans priced within 10% of the lowest price plans in the same metal tier, which they labeled “competitively priced plans,” they found that in 2017 60% of exchange-eligible consumers will have access to only HMO or EPO plans. Only 27% will be offered a menu of HMO, EPO, PPO, and point-of-service plans.

“You don’t want to be the last carrier standing with a PPO,” stated Sean Mullin, Senior Director at Leavitt Partners, a healthcare consulting firm with offices in Salt Lake City, Washington DC, and Chicago, in the WSJ article.

While PPOs are popular with consumers because they provide access to more doctors and hospitals, high utilization rates have made them money losers for insurers and have led to numerous major insurers decreasing their ACA participation in 2017, FierceHealthcare reported.

By limiting options on healthcare exchanges, insurers are mitigating their financial losses and appealing to consumers’ push for lower premiums. Insurers offering HMO-style exchange plans “tend to have higher margins and lower rate increases,” stated Erica Hutchins Coe, a McKinsey partner who leads the firm’s health-reform research effort, in the WSJ article.

Keep Your Primary Care Physician (Really!)

A study by the Leonard Davis Institute of Health Economics at the University of Pennsylvania revealed that narrow networks (defined as covering care by less than 10% of physicians) charged 6.7% lower premiums than plans with networks covered by up to 60% of physicians. A New York Times (NYT) article noted that the lower premium amounts resulted in annual savings for individuals of between $212 and $339, depending on age and family size. For a family of four, savings could reach nearly $700 per year.

“Marketplace consumers are looking for value,” stated Daniel Polsky, PhD, Executive Director at the Leonard Davis Institute, in the NYT article. Polsky led the McKinsey study. “That level of savings could be a very good deal for consumers, but whether these plans provide value depends on how they are achieving those savings.”

Daniel Polsky, PhD (above), Executive Director, Leonard Davis Institute of Health Economics at the University of Pennsylvania, speaking at The Fourth Annual Leonard Davis Institute of Health Economics (LDI) Health Insurance Exchanges Conference. Polsky led the McKinsey study that shows insurers offering narrow provider networks charged 6.7% lower premiums than plans with networks covered by up to 60% of physicians. (Photo copyright: University of Pennsylvania.)


According to the NYT, recent studies indicate the success of narrow networks hinges on whether networks can be narrowed without sacrificing quality, with a key to savings being the ability for enrollees to keep their primary care physician.

“The savings were concentrated among enrollees who retained their primary care physicians as they switched plans,” the NYT reported. “And the distance that narrow network enrollees traveled for primary care visits—but not for specialists—fell. This suggests that plans that narrow their networks of costly specialists, but maintain or increase their network of primary care doctors, are on the right track.”

Brian Caveney, MD, JA, MPH, Chief Medical Officer of Blue Cross Blue Shield of North Carolina (BCBSNC), argues the trend toward narrow network plans does not mean consumers are getting lower quality care. In fact, he says the opposite may be true since narrow networks “allow doctors to work together for a better health outcome.”

“In addition,” Caveney writes in a BCBSNC blog, “research shows that many high-priced hospitals don’t necessarily score better in objective quality measures, such as mortality rates after surgery. We’re beginning to break down the misconception in healthcare that a higher price tag means high quality of services.”

The implications for the medical laboratory industry are clear: narrow networks mean cost savings for both health insurers and health consumers. That strong motivation also could mean exclusion for smaller clinical laboratories and pathology groups.

—Andrea Downing Peck

Related Information:

McKinsey Infographic: 2017 Exchange Market Plan Type Trends (PDF)

Narrow Networks Are Becoming the Norm, And That’s OK

Insurers Move to Limit Options in Healthcare Exchange Plans

Financial Struggles Will Alter Payer Exchange Composition

Savings? Yes. But Narrow Physician Networks Also Show Troubling Signs

Marketplace Plans with Narrow Physician Networks Feature Lower Monthly Premiums than Plans with Larger Networks

LDI 2016 Health Insurance Exchanges Conference