1. 1 Tiered and Limited Networks – Trends and Evidence Anna D. Sinaiko, Ph.D. Examining Health Care Competition An FTC-DOJ Workshop February 24, 2015

2. Ancestors of Value-Based Network Design HMOs, PPOs introduced selective contracting to health insurance HMOs – closed networks PPOs – richer benefits for in-network providers Criteria for provider inclusion: acceptance of fee schedule; pre-authorization requirements 2

3. 3 Logic of Tiered Networks Allow broad networks, but identify providers that offer the greatest value (note: concept and practice may differ) Use differential cost sharing to steer patients to preferred providers Those with the lowest willingness to pay for the “non-preferred” providers will switch Threat of switching may affect provider behavior in ways that are consistent with payer objectives

4. Limited Network plans Exclude lowest quality providers, least cost- efficient providers or both Lower premiums for consumers but little to no coverage for care from out-of-network Stronger incentives for providers 4

5. Increasing prevalence of tiered and limited network plans Tiered network plans –All firms, 2014: 19% 18% of large employers (over 200 employees) 19% of small employers (3-199 employees) –Most major commercial insurance firms now offering a tiered network product –More prominent role in certain geographies Limited network plans –Prominent in the ACA exchanges Source: Kaiser Family Foundation/Health Research & Educational Trust. 2014 Employer Health Benefits Survey. http://kff.org/health-costs/report/2014-employer-health-benefits-survey/

6. 6 What Do We Know about the Cross-Price Elasticity of Demand for a Specific Provider? Despite the long history and penetration of PPO/POS plans there is almost no previous literature on responsiveness of patients to tiered provider copays Importance of trust suggests that influence of copay differences will be less than for drugs

7. 7 A Few Recent Data Points Introduction of tiered and narrow networks designed using quality and cost information has led to several recent studies Three natural experiments offer a glimpse at early results

8. 8 Culinary Fund Narrow Network Taft-Hartley Fund examined its physician network using efficiency and quality metrics and claims data ~5% of physicians excluded from PPO Patients notified of exclusion, informed that deductible and coinsurance would apply (a price increase of roughly $50 or more per visit) 81% of patients who had seen excluded physician in prior year did not return compared to baseline level of attrition of 54% (a 27 percentage point difference) Source: Rosenthal MB, Li Z, Milstein A. Do Patients Continue to See Physicians Who Are Removed From a PPO Network? American Journal of Managed Care 2009;15(10):713-719

9. 9 Massachusetts Group Insurance Commission Tiering Initiatives Combination of GIC and state regulation created favorable environment for tiering All-payer data from six participating health plans used to create physician performance profiles Specialist physicians most commonly tiered Early survey suggests: –50% of members know about the tiering –19% know which tier their doctor is in –48% of those who knew the tier said it mattered –40% trust the tiers to signal good value Source: Sinaiko AD, Rosenthal MB. Consumer Experience with a Tiered Physician Network: Early Evidence. American Journal of Managed Care 2010; 16(2): 123-130.

10. Tiered networks affect patient choices of new doctors Significant loyalty to physicians seen previously -- in contrast to prescription drugs New (and unknown) physicians are more likely to be viewed by patients as substitutable The effect of tiering may be at the lower end of the distribution rather than moving patients to the “best” performers –Physicians in the worst-performing tier experienced 12% loss in share of new patients 10 Source: Sinaiko AD, Rosenthal MB. The Impact of Tiered Physician Networks on Patient Choices. Health Services Research 2014, 49(4): 1348-1363. doi: 10.1111/1475-6773.12165

11. Massachusetts Group Insurance Commission Limited Network Initiative Narrow network plans excluded the worst- performing tier from the network Following a “premium holiday” 12% of GIC members enrolled in a narrow network health plan 4% decrease in spending overall 11 Source: Gruber J and McKnight R. Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from Massachusetts State Employees. NBER Working Paper Series WP 20462; www.nber.org/papers/w20462

12. 12 Policy Issues Suggests that network design is one important component of efforts to increase value in health care spending How to educate consumers about the tiers so they can make informed choices Further work on effects of these designs on quality/access, and variation in impact is needed