● Part 1


Why major change is on the way


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n recent years, network management has been some- what overlooked as a function and considered more administrative than strategic. With healthcare reform, however, value-based networks of select providers (e.g.,


high-performing or tiered networks) are becoming essential for delivering better quality care while also driving down costs and supporting advanced reimbursement and delivery options. Accordingly, network management is returning to promi-


nence as a core function that helps a health plan differentiate itself from the competition and deliver on its competitive strategy. In this new way of doing business, network manage- ment will also serve as the nexus point at which providers and payers partner to coordinate around products, care delivery models and payment approaches. In this three-part series, we’ll look at what forces are driving the need to reexamine the function, what technology infra- structure will be necessary for providers and payers to meet the challenges of reform, and how an integrated approach to network management can transform cost and operational ef- ficiencies to help establish a significant competitive advantage.


The rise and fall and rise of a function As a function, network management has waxed and waned in focus and importance depending on how healthcare has been delivered. Its advent was linked to the introduction of managed care. Health management organizations (HMOs) required patients to select a primary care physician, who would, with the support of the network management team, help that patient navigate the wider system of available providers. Basic network management functions included selecting and recruit- ing providers and then communicating and strictly monitoring adherence to utilization, referral and other care delivery rules. A decade later, when preferred provider organizations


(PPOs) became dominant, the role of the network management function was to ensure that the health plan offered whatever coverage was necessary to be competitive in a given market. Te network itself was essentially an aggregation of provider data rather than any integrated system. Choice was far more important than cost, “any willing provider” was included in the network, and coordination was minimal. Indeed, a given network of providers could even be leased across multiple plans. Such broad networks may provide adequate coverage, but they do a poor job of managing the cost, quality and access pressures we now confront.


Four disruptions Today, most health plans rely on network management as


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a means of fulfilling their PPO product portfolio. However, a series of market disruptions will soon force major changes in the way payers manage networks and the way providers participate in them. Te first disruption is from new models of care delivery, such as patient-centered medical homes (PCMHs) and accountable care organizations (ACOs), which are becoming increasingly common. Te goal is to deliver higher quality care, but achiev- ing that goal requires tighter, more selective networks, with more coordination between providers and stricter adherence to care protocols. Te second disruption comes from advanced reimburse- ment models, such as episodes of care or pay for performance. Health plans are experimenting with small groups of providers to test new approaches, and those strategies will never be rolled out to an entire PPO network since the variability of quality and approach inherent in a loose network would make the risk of the proposition untenable. If such strategies are to succeed at scale, tighter networks will again be necessary. Te third disruption is demand from plan sponsors, both large and small, for new products and benefit designs. As value-based insurance design becomes more prevalent, tailored products and tiered networks are exploding in the market. Te appeal is not only the promise of better outcomes for mem- bers at a lower cost for plan sponsors. Plans can more readily demonstrate value to their clients, and those clients in turn can more easily communicate value to those who use the products. Te fourth and arguably most important disruption is im- minent. Health insurance exchanges (HIXs) must be certified and operational by January 1, 2014. Although many organiza- tions are dithering on whether or not they will participate, the reality is that a market of 50 million new customers (arriving through Medicare and HIXs) cannot be ignored. Major plans will need to participate in exchanges to remain competitive, and even niche or regional players will see significant opportunity for financial gain. Health plans are already highly skilled at managing at-risk business and have many tools needed to participate in the new market. As we’ll see, however, better network management will be fundamental to their success.


The healthcare consumer: another worry, or a new opportunity? To gain business, health plans must be able to clearly ar- ticulate their competitive differentiation to customers in the government or in the employer space based on product, price or the provider network, or some combination of the three.


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