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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 400% 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?

Provider haircuts

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.





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