Last fall, Seattle Children's Hospital received some unpleasant news about Washington state's new insurance exchange: four of the six participating carriers did not include the landmark children's hospital in their provider networks.

The 105-year-old hospital, which offers specialty pediatric care to patients across four Pacific Northwest states, has since launched legal battles against the state insurance commissioner and insurers to fight the exclusion. In the meantime, more than 350 children covered by exchange plans but who are considered out of network have sought treatment at the hospital so far this year.

"The notion that payer denials could threaten our promise to the community has been a defining moment for us," says Sanford Melzer, M.D., senior vice president and chief strategy officer for Seattle Children's.

Indeed, for many hospitals and systems, changes to the insurance market mandated by the Affordable Care Act have brought new challenges. The prospect of providing care to the newly insured — more than 8 million so far via the state and federal exchanges — is a welcome development. However, the reality is that many of these plans offer narrow provider networks, high deductibles and prescription drug restrictions that could adversely impact providers and patients.

"From a hospital perspective, there are a lot of challenges with the exchange plans and a lot of benefits as well," says Caroline Pearson, vice president at Avalere Health, a consulting firm.

Narrow Networks Emerge

The prominence of narrow networks in the exchanges is an issue that has come to the fore in recent months — and it is a challenge for providers both included and excluded, Pearson says. About 70 percent of hospital provider networks on the exchanges are either narrow (networks in which 30 to 69 percent of the largest 20 hospitals are not participating) or ultranarrow (at least 70 percent of the largest 20 hospitals are not participating), according to a December 2013 report by McKinsey & Co. The study included 20 urban areas and data from 120 Silver-level exchange plans offered by 80 carriers.

Insurers typically restrict provider networks to keep costs down. In the McKinsey study, wide hospital networks increased median plan costs by 26 percent. Insurers have been under pressure to keep product costs down in the exchanges to draw new members. But for some providers like Seattle Children's, the outcome has resulted in being left out in the cold.

Since its exclusion from four of six insurer networks in the Washington state exchange, Seattle Children's successfully has been added to two payer networks. A lawsuit against the state insurance commissioner over the issue is pending. One major insurer, Premera Blue Cross, has agreed to cover patients who require care at Seattle Children's on a case-by-case basis under so-called "spot contracts." Premera did not respond to requests for comments, but in a report in The Seattle Times, a spokesman said that 88 percent of services offered at Seattle Children's can be obtained via providers within Premera's network.

Until this year, spot contracts were relatively rare, Melzer says. Out of 330,000 single-case encounters at Seattle Children's in 2013, just 80 spot contracts for coverage were executed. But now, with hundreds of out-of-network patients seeking care, these contracts require additional manpower. Melzer says Seattle Children's has had to add three to five full-time equivalents to handle spot contracts with Premera Blue Cross this year.

"This has added hundreds of thousands of dollars in administrative costs to our bottom line," Melzer says. "The whole point of health reform was to reduce health care costs. It is not a good outcome when all these claim denials end up in a huge new exemption."

The costs of providing care to out-of-network patients also can be substantial. But with these spot contracts, Seattle Children's has avoided the bulk of uncompensated care it could have amassed so far. Still, denials of spot coverage are occurring, and the hospital is not turning patients away. "Our uncompensated care funds are not supposed to be for patients with insurance," Melzer says.

To reign in these costs, hospital leaders and the board of trustees made the decision to require insurance approval before scheduling patients for surgery, except for emergencies.

Premera has asserted that it needs to exclude Seattle Children's from the network to keep the pricing of its products competitive on the exchange.

"We are digging deep into the assertions about costs," Melzer says. "It's not clear we are more expensive."

Washington state Insurance Commissioner Mike Kreidler last summer blocked five insurers from participating in the state-run exchange, mostly due to network inadequacy. One rejected carrier failed to include a pediatric hospital in its network.

States Push Back

The issue around narrow networks has reached a fever pitch, with patient advocacy groups lobbying state insurance commissioners and the White House to ensure that patient choice is protected in the exchanges. Responding to the complaints, the Obama administration in March tightened health plan standards for 2015. Under the new rules, health plans must include at least 30 percent of area "essential community providers," up from 20 percent in 2014. The administration also said it would look closer at health plan networks instead of relying on state insurance commissioners and private groups that accredit health plans to do so.

The American Cancer Society's Cancer Action Network, which had been among the most vocal advocate for rules changes, said in an emailed statement that it "strongly supports" the move. It is also urging state insurance commissioners to evaluate plan provider choice. "Like other complicated laws, this one will require continuous fixes and improvements over time," said Steven Weiss, spokesman for the ACS Cancer Action Network.

Pearson of Avalere Health says that the administration could have gone further in its provider network requirements for next year. "I don't think we are going to have huge improvement on this issue," she says.

Several states this year considered legislative action to ensure broader provider networks — or at least to better inform patients and providers about network coverage. South Dakota, Pennsylvania and Mississippi are discussing "any willing provider" laws that would require insurers to accept as in-network providers who agree to meet a plan's contract terms and conditions. In New Hampshire, where Anthem is the only insurer operating in the exchange, bills were introduced to require broader networks. Anthem excluded 10 out of 26 hospitals in New Hampshire in its exchange plans. Also on the docket is a bill that would require the state insurance commissioner to hold public hearings before approving any plans sold on the exchange.

In Maine, the state legislature has passed a bill that would require carriers to disclose to consumers which doctors and hospitals are excluded from networks. Upon request, carriers also would have to disclose to excluded providers the reasons why they were left out. The bill came about after Anthem BlueCross BlueShield excluded six hospitals from its health plan network offered via the state-based exchange. Anthem is only one of two carriers offering coverage to Maine residents on the state's exchange.

Central Maine Healthcare, a three-hospital system left out of Anthem's network, said the bill is a good step forward because providers will be able to learn why they are excluded, and patients will have more information prior to selecting a plan. Anthem did not respond to a request seeking comment.

Chuck Gill, spokesman for Central Maine Healthcare, says Anthem's exclusion was disruptive to the communities it serves, especially for patients seen at two rural hospitals in Rumford and Bridgton. "It was definitely unfair to these communities and organizations that had provided care for the past 100 years," Gill says. The organization has a separate community-based board for each hospital, and board members have been very active on the issue of network exclusion, he says.

The only other insurer participating in the exchange, Maine Community Health Options, a co-op seeded with money from the ACA, has claimed 80 percent of total individual enrollment so far. The co-op includes all Maine hospitals in its network. "The moral of the story is: Don't interfere with the doctor-patient relationship because it will backfire," Gill says.

A handful of providers are considering the narrow networks trend when pursuing new growth and business strategies. Sutter Health, based in Sacramento, Calif., in January launched Sutter Health Plus, a regional HMO. In the works for two years, the HMO is viewed inside the organization as part of a growth strategy.

"If you are a provider out of network, it can impact your ability to transform," says Steve Nolte, chief executive officer of Sutter Health Plus.

Watching the Bronze Plans

Even if a hospital is included in an exchange network, patients may face high deductibles, co-payments and coinsurance, hampering their ability to pay out-of-pocket costs. This is especially true for the cheapest plans offered on the exchanges, known as the Bronze-level plans.

Hospitals contacted for this article said they don't know yet the impact of high-deductible health plans on their finances, and their overall bad debt totals. The American Hospital Association is watching the issue closely, and issued an advisory to members on the topic, said Jeffrey Goldman, vice president of coverage policy for the AHA.

"We want to make sure that patients are aware of what subsidies are available through the exchanges and make sure people who are eligible for subsidies are getting them," Goldman says.

Cost-sharing subsidies offered by the federal government are only available for Silver plans. "We want to make sure people eligible are choosing the Silver-level plans so we see less debt and bankruptcies," he notes. "If patients choose a less expensive Bronze plan, there is a greater risk of their not being able to pay at point of service."

According to monthly enrollment data released in May, Silver plans were by far the most popular, chosen by 65 percent of enrollees. Another 20 percent chose a Bronze plan and 9 percent selected a Gold plan. Goldman said these figures are encouraging for hospitals.

On another positive note, if patients have adequate coverage and see providers who are in network, hospitals could see their bad debt decline, says Pearson of Avalere Health. "The out-of-pocket cap on expenses offers really significant bad debt protection," she explains. "It's a big change from treating the previously uninsured." The per person out-of-pocket maximum is $6,500 this year.

Drug Coverage Barriers

Another issue to emerge over exchange coverage is access to prescription drugs. Consumers with health plans purchased through the exchanges face more hurdles to access medications than those with commercial health plans, according to a March report by Avalere Health.

The analysis of 21 classes of drugs found that utilization controls — including prior authorization and step therapy — are twice as common in exchange plans. For instance, 70 percent of covered drugs for oncology or mental health require utilization management in exchange plans.

This issue can affect hospitals because barriers to accessing drugs create more administrative work for physicians and nurses, and also can result in lower adherence, increasing unnecessary hospitalizations, Pearson says.

Also problematic is the lack of clear information about medication coverage for exchange plans. "There's not good transparency on this," Pearson says. Some state exchanges link directly to drug lists. Nevada is the only state exchange that allows consumers to type in a drug and find which plans cover it. No pricing on drugs is available, however, Pearson says.

Melzer of Seattle Children's says that the experience with the exchange policies has raised interesting governance questions. "What's the appropriate response when something like this comes up?" he asks. "You want to make a smart decision and you don't want to throw out what [has made] you tick for the past 100 years. You need to ensure the financial viability of the organization. Health care reform implementation will raise both practical issues and issues around our mission that we haven't seen before."

Rebecca Vesely is a freelance writer in San Francisco.

Global Payments Spread Across States

Global payment initiatives are getting a lot of attention these days, as hospitals embark on innovative payment changes that are taking them out of their comfort zones.

In states around the country, including Maryland, Massachusetts, Oregon, California and Alabama, fee-for-service payments are being usurped by payment reform initiatives that are changing the way care is delivered in these markets.

In January, Maryland began a five-year Medicare waiver that builds on the state's unique payment system, in place for 40 years. Maryland is the only state where an independent commission sets hospital rates. The new waiver requires providers to meet quality metrics and financial goals in a global payment framework.

"The linchpin is that every hospital in Maryland will move to global payments," says Carmela Coyle, president of the Maryland Hospital Association. "This is the transformational piece. This is the innovation piece."

Instead of being rewarded for keeping beds full, Maryland hospitals will be rewarded for keeping beds empty. "Hospitals will have incentives to keep patients healthy as well as avoid duplication of services," Coyle says.

The waiver places a cap of 3.58 percent per patient per year for the rate of hospital spending growth in Maryland. In addition, Medicare is guaranteed a $330 million savings over the five years, and hospitals agree to hold Medicare spending to national average levels, which can shift over time. On the quality side, hospitals must reduce complication rates by 30 percent at the end of the five years and bring the readmission rate down to the national average each year.

The penalties for not achieving these goals are severe. If Maryland hospitals exceed the agreed-upon spending cap, they will revert to traditional Medicare and lose their 40-year-old Medicare waiver. This would cost Maryland hospitals more than $1.5 billion in federal funds annually.

Hospitals in the state are preparing by acquiring health information technology systems and personnel that can help them perform sophisticated analytics to track patient populations, and design effective interventions for chronic conditions and inpatient care. "Before, it was about following the right steps after a patient has a heart attack," Coyle explains. "Now, it is about knowing the overall cardiac health of the community and where to intervene before a patient shows up in the hospital."

Massachusetts is at the forefront of payment reform through the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract, or AQC. Some 85 percent of its in-state HMO primary care physicians and 86 percent of specialists participate in the AQC, caring for approximately 85 percent of the health plan's in-state HMO members. In the first two years of the contract, groups in the AQC spent 3.3 percent less than fee-for-service groups in the second year, the study showed. Provider groups who entered AQC from a traditional fee-for-service contract model achieved even greater spending reductions of 9.9 percent in Year 2, up from 6.3 percent in the first year, according to a 2012 study by Harvard Medical School researchers. The health plan is now exploring expanding the AQC to include preferred provider organization members.

Similarly, Oregon has implemented a global payments program for Medicaid patients with encouraging results. The Oregon state legislature passed a bill in 2011 creating incentives for providers to develop integrated care networks for Medicaid patients to reduce costs and improve outcomes. Called Coordinated Care Organizations, or CCOs, these are multilevel care teams responsible for assigned Medicaid patients. In the first nine months of the program, primary care visits rose by 18 percent among Medicaid participants while emergency department visits fell by 9 percent. — R.V.

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