Health Reform for
The Doctors Networks
Doctor Network Changes under California health reform
A seldom discussed topic regarding the effects of California
health reform is that on doctor or provider networks. Granted, much of how this
all play out is conjecture at this point but we need to think out the most
probably outcomes and the doctor networks will figure heavily into this
discussion in ways that many pundits aren't really discussing owing primarily to
California's political environment. Let's walk through our view of how this
will play out.
What's your flavor of California managed care
First, why do doctor networks matter in the California health
insurance marketplace? The vast majority of health plans available to both
individual/family and small businesses are "managed care". Essentially, they
come in two basic types...PPO or HMO. The old indemnity (go anywhere) plans
have basically disappeared from the market due to cost issues. The PPO and HMO
plan models are based around doctor networks or providers (including hospitals
and labs) that "participate" in the plan. HMO is much more strict in this
requirement than PPO but both favor using certain providers to get the best
benefits (or any benefit at all). PPO networks tend to be much larger than HMO
networks as the re-imbursement is higher. Okay, so that sets the stage. What
about Health Reform's effect on these networks?
Here I am, stuck in the middle with you.
Providers (mainly doctors) are going to find themselves stuck
in between political rate increase control and
escalating medical inflation.
Health reform mandates a certain level of benefits which is much higher than
what anyone is really buying on today's market (again, due to cost). This will
drive up California health insurance rates although those making less than
of poverty will receive subsidies. Our State is very political in all things
health insurance and there will be an outcry to politicians when the rates go
up. The politicians and the insurance commissioner will feel pressure to reduce
the increases and may even get a mandate legally to do so. Anthem Blue Cross
just announced that they expect to lose money in 2013 for individual family
California health insurance and even in the best of times, their margin is
3-4%. So what's going to give?
The carriers will turn to the doctors and provider to
re-negotiate re-imbursement rates. Right now, Medicare reimburses about 60% of
what private insurer do to providers. For example, if a private insurer will
pay $100 for a given service, Medicare will pay $60. Expect the private
re-imbursement to fall closer to Medicare. Keep in mind that the providers and
carriers routinely engage in brutal negotiations along this line but it will be
very different this time. It's either reduce the re-imbursement or go out of
business for the carriers. Doctors have two responses. They can accept the
lower re-imbursement or leave the network. We expect a mixture of both which
means that the networks will shrink. Doctors will likely consolidate and the
day of the private small, private doctor practice may be numbered. Expect
hospitals to start hiring or purchasing doctor practices. It's not like these
doctors can see more patients to make up for the lower re-imbursement. There's
only so many hours in the day.
Why have out of Exchange plans?
This brings up an interesting dichotomy we may start to see.
You may find the better doctors and hospitals participating in expanded networks
in non-Exchange plans. We'll essentially have a two tier health care delivery
system with the best doctors in non-exchange plans similar to the current case
for Medi-Cal (albeit not as severe). Time will tell and we'll update as we go
along but doctors are clearly in for a great deal of pricing pressure as
financial gravity pulls their way.