SOA Blog

Have provider networks and network discounts outlived their value?

by Shiraz Jetha, FSA, CERA, MAAA

Provider networks originally started as a way to control patient steerage to network providers in return for price discounts. In other words, lower price for anticipated higher volumes. And they caught on!

Over the years, this aspect of networks (discount for volume) has become deeply ingrained in the insured payor model, to the extent that possibly the majority of providers (at least those in urban areas) of the United States are in one or even several networks.

I wonder if provider networks continue to serve their original premise – i.e. do they provide patient volume to providers and do they bring a pricing advantage to insurers?

I can understand that not being on insurers’ provider directories could have severe consequences for patient traffic for a provider, but it seems that the network “system” also has inefficiencies like contract negotiations, management of several fee schedules both at the insurer and at the provider, higher expenses, etc.

It would appear that under this system, the only segment paying full (and not contracted) fees is the population that can probably least afford it – the uninsured. Sure there is some revenue from walk-ins and out-of-network services to the providers, but there’s also the sense of unfairness, the difficulty recovering balance bills, etc. This article on revealing actual health care costs provides some additional insight.

Is the network idea something that we just have to put up with?

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One response to "Have provider networks and network discounts outlived their value?"

  • Mac McCarthy says:

    I’ve always felt that charging uninsured folks grossly inflated prices, particularly for ER services, is morally akin to charging $100 for a bag of ice during the aftermath of a hurricane. We have anti-price gouging laws for the latter, but not the former.

    I have long advocated Mr. Miller’s proposition in the article you link to, “let hospitals charge whatever they want but require them to charge everyone the same amount regardless of what kind of insurance they have, and to make their prices public”. But I would extend it to physicians and other medical services as well.

    While I could justify modest discounts for volume, related to admin savings for bulk billing, etc. the level of inequity has gotten out of hand and no longer serves a legitimate purpose, so I say yes, networks have outlived their purpose.

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