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What We Learned (Part 1): What Hospitals Need to Know About Narrow Networks Before Joining
Greg Kay

By: Greg Kay on August 10th, 2017

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What We Learned (Part 1): What Hospitals Need to Know About Narrow Networks Before Joining

The path toward financial stability for healthcare organizations can be a bumpy road. Due to a surplus of big data, providers can utilize this information to search for any areas (aka. opportunities) where they can lower their costs by working together to create a solution that all parties can agree on. This process usually requires some give-and-take from both sides but the goal is to find new innovative means of lowering their costs, without sacrificing the quality of patient care. 

In an effort to provide patients with more affordable and centralized healthcare, providers and the payers (commercial, governmental, etc.) have begun negotiations into agreements known as narrow networks. Its goal is to establish a provider network that limits members to a specific group of healthcare providers with whom the payer has negotiated contracted rates for their medical services.

[Want to find out whether Narrow Networks are right for your hospital? Sign up for the free webinar on August 15th “Intro to Narrow Networks: What’s the Impact on Healthcare Providers” to learn more]

What are the Benefits of Joining a Narrow Network?

This process goes by many names- high performance networks, direct care networks, or provider-centric networks. Regardless of which terminology is used, however, the concept is the same throughout. Here’s a list of just a few of those benefits for adopting this model into your healthcare organization:

  • It steers more patients to your network based on the limited number of providers (hospitals and professionals) available to a payer’s enrollees for services.
  • Your network becomes the lower cost option which should lead to higher patient volume.
  • As a result, the premiums for these plans are much lower which encourages patients to stay in-network.

If negotiated properly, there’s no debating that these benefits will help hospitals to lower costs for patients, but like anything else, there are some drawbacks to this model. While the premiums are significantly lower for patients in-network, the model tends to favor relatively healthy individuals because the plan does not accommodate specialists (i.e. ENTs, surgeons, psychiatrists, etc.) or other out-of-network doctors. The financial benefits vary depending on a list of factors including membership volume, level of discount required to participate in the network, and the impact of the discounts on future negotiations.

Why the Resurgence?

Despite this model being relatively new and unfamiliar for many healthcare providers, its popularity continues to grow as patient deductibles continue to rise. With the Affordable Care Act (ACA) still in effect, nearly 70% of all ACA plan networks are narrow, which means that they include only 25% or less of physicians in that area.

From the prospective of the employers, they’re interested in providing more affordable healthcare for their employees but are skeptical about its future financial implications/responsibilities on their company. In fact, in 2016 only 7% of employers with health plans offered a narrow network in part because there are few records showing the year-to-year track record of sustained cost savings combined with the concern that it will lead to higher interest rates in other cost-saving strategies.

However, narrow networks have picked up traction among larger employers (5,000+ employees) that can offer larger patient volume. Recent polls show that 30% of large employers are now offering some type of alternate network and even national carriers are offering narrow networks in several dozen metropolitan areas throughout the country. Combined with the factor of soaring-high deductibles that significantly outweigh the rise in inflation, premiums and wages, providing a narrow network plan is becoming more and more common among large companies.

Providers Must Do Their Homework First

For healthcare professionals, understanding your goals and the payer contract terminology before negotiations begin can be key to making sure the agreed terms allow for your healthcare organization to stay profitable for future negotiations. To better understand the payer contract language, here’s a list of terms that you’ll want to watch out for:

  • Terms that allow payers to create narrow networks
  • Separate contracts/rate schedules for each product line
  • Terms that allow payers to unilaterally designate providers as participating or non-participating in a narrow network product.
Not only will these terms help to prep you for contract negotiations but it’s equally important to understand the future potential impact of the agreement. Establish a clear understanding of the financial implications by modeling all contract product lines. Once you understand the projected financial impact, you’ll be able to determine if joining a narrow network will lower medical costs or if your organization is not the right fit for this arrangement, which is ok too.Remember to keep this in mind: don’t feel obligated to join a narrow network if it’s not appropriate for your organization. Narrow networks can work against you if you aren’t in need of lowering your patients’ costs because of the level of discount required to participate along with the duration of participation.      

At the end of the day, regardless of which terms are agreed upon during negotiations, the success of this model largely depends on the staff’s leadership and ability to consistently monitor its progress using reliable contract management and modeling analytics.


About Greg Kay

Greg has managed and consulted in healthcare for 28 years. He has been with PMMC for the past 20 years and prior to that was the VP of Sales for PCA (Beverly Enterprises’ pharmacy division). Greg has experience in multisite operations management, managed care negotiation from a healthcare provider’s vantage point, and product development/implementation. Greg is a University of South Carolina finance and marketing graduate. Greg was recognized in 2012 as a Business Leader Top 50 Entrepreneur.