Improving Value

Tiered-Provider Networks

Provider networks are the doctors and hospitals that an insurance company contracts with to provide healthcare to enrollees at negotiated rates, typically resulting in lower enrollee costs compared with using out-of-network providers. In recent years, health plans are increasingly turning to provider network variations to keep costs low and sometimes to steer patients to high quality providers.

Unwarranted variation in price and quality across providers is well documented.¹ This suggests that if patients can be directed to the higher-value providers, the system as a whole can achieve cost savings and better quality.  At their best, provider networks would signal to consumers which providers meet high standards for quality and value.  Unfortunately, it is more often the case that the typical healthcare consumer cannot readily identify the high-value physicians and hospitals.

Notes

1. See for example: Wennberg, John E., and Peggy Y. Thomson, “Time to tackle unwarranted variations in practice,” BMJ (March 2011); Office of Massachusetts Attorney General Martha Coakley, Examination of Healthcare Cost Trends and Cost Drivers, Report for Annual Public Hearing.