Grant Description: What is the current or planned use of tiered hospital and/or physician networks in employer-sponsored health plans? In such networks, an individual's out of pocket cost differs depending on the "tier" to which the provider is assigned. This creates a financial incentive for individuals to select among providers based on the price, maximizing choice for individuals while still promoting cost savings. This study focused on tiered network design and implementation, plan marketing and enrollment, and responses to tiered networks. The objective of the project was to provide important baseline data and early impact analyses to begin tracking the evolution of tiered network products over time, allowing public and private payers to make decisions about how best to design and implement future tiered network reimbursement structures.
Policy Summary: The concept underlying tiered networks is that health plans may be able to reduce costs and/or improve quality by providing financial incentives for enrollees to choose certain hospitals and/or physicians and to avoid others. The purpose of the project was to use both quantitative research (surveys of employer-sponsored health plans) and qualitative research (a set of market area case studies) to develop information on tiered networks being implemented in the U.S. For this study, the researchers defined TPNs to involve partitioning one or more categories of in-network providers in a geographic area into two or more subgroups called “tiers,” and providing structured financial incentives to encourage health plan members to utilize providers in more preferred tiers. •In 2007, all of the largest national health plans and many regional plans were offering tiered network products to their employer customers. •The impetus for partitioning provider networks into performance tiers comes primarily from large employer clients and the consulting community that advises these companies. Employer interest in TPNs is usually associated with efforts to control health care expenditures. Although improving quality is often described as a motivating factor – and is the most important motivating factor for a minority of plans and employers – in almost all cases cost reduction or control of cost increases is a primary determinant of tier definitions. Concerns about adequacy of member access to care, especially in rural geographic areas, may trump other criteria when determining tier membership. •In spite of employers’ enthusiasm for the assumed cost saving and quality improvement potential of TPNs, many are unwilling to utilize financial “steerage” to encourage employees to choose higher quality and/or lower cost provider tiers. As a consequence, point-of-care TPNs – those in which employees are free at the time of service to choose any provider, albeit with higher or lower co-pay requirements – are more common than tiered premium plans in which employees must limit themselves at time of enrollment to specific provider tiers. •The term “tiered provider network” is not used with consistency by health plans and employers. It is sometimes used as a synonym for PPOs, narrow provider network, or exclusive provider organization, all of which involve designating one group of “in-network” providers whose service costs are reimbursable by the health plan at a relatively high level, as compared with “out-of-network” providers whose services are either not reimbursed or are reimbursable at a lower rate. •Tiered network plans vary in terms of criteria used in tier definitions, as well as magnitude of deductibles, co-pays, and co-insurance used to motivate health plan members to utilize preferred tier providers. Significant differences also exist among TPNs in the percentage of providers included in the high performance tier. Because of variability among health plans in tier definition criteria, a provider may be included in the high performance tier by one health plan, and excluded from the high performance tier by a second plan. Such inconsistency can exacerbate consumer confusion, add to a plan’s and employers’ communication challenges, and contribute to provider skepticism and resistance. •While there is some evidence that tiered networks actually control health care cost increases, there is no evidence that the quality of care is impacted. Financial incentives may, at some level, be sufficient to motivate providers to improve performance, but it is not clear that the incentives by themselves are sufficient to enable providers to do so. Identification of a provider as substandard in quality performance is, from the provider’s perspective, not actionable information. Perhaps performance improvements will come only if and when plans begin working more closely with providers to identify specific changes in the care processes that can lead to improved effectiveness.