Tiered Physician Networks - a Promising Development in Ethics and Economics

The most recent issue of the American Journal of Managed care features an interesting article on "Consumer Experience with a Tiered Physician Network" (here), by Anna Sinaiko and Meredith Rosenthal, at Harvard Medical School and School of Public Health, and an accompanying editorial by Peggy O'Kane, President of the National Committee for Quality Assurance (here).

The public thinks of "managed care" as a form of insurance. But on the ground care is managed by physicians and the institutions within which they practice. When insurers actually tried to manage care in the 1990s they succeeded in slowing the cost trend significantly, but they were blown out of the water by provider and patient backlash.

We in the U.S. have a very childlike understanding of health care and a very immature health system. This makes it relevant to consider how children morph into responsible, "well managed" adults.

Children learn through "soft power" - values, incentives, well-timed nudges, and peer influence. Insurance tiering is an effort to influence health care quality and cost by using the same kind of soft power. Here's what Peggy O'Kane says about pharmacy tiering in her editorial:

Tiered pharmacy benefits are one of the few successful cost containment strategies in the past 2 decades. Evidence indicates success on 2 fronts: (1) a positive impact on pharmacy costs and (2) acceptance by members that their choices will affect their own out-of-pocket costs. Against the background of other health plan cost-containment strategies, some of which were subsequently thwarted by public policy and others of which suffered from poor execution and/or lack of provider and patient acceptance, drug tiering stands out as a singular success. It is both ethical and logical to structure choices so that costs are more transparent to consumers and to ask them to bear at least part of the differential cost for a comparable but more expensive product, as long as individuals are not forced to accept lower quality in the favored product. As Americans, we are used to the idea that if we choose a more expensive product, we pay more for it. Third-party payment interrupts the connection between purchasing choices and resultant costs to the individual, but the idea of reference pricing (the third-party payer pays for an equivalent choice at the lowest price, and if the individual chooses a more expensive version, he or she pays the difference) is familiar, and well accepted by customers, in scenarios like auto insurance.

Sinaiko and Rosenthal surveyed consumers about their responses to tiered networks that were part of the insurance offered by the Massachusetts Group Insurance Commission (GIC), a state agency that provides health insurance and other benefits to 300,000 state employees and family members. Here's what GIC Executive Director Dolores Mitchell says about tiering in the 2009 Annual Report:

Throughout Fiscal Year 2009, the GIC was in the forefront of efforts to frame the debate on how best to control rising health care costs while improving quality. The GIC’s Clinical Performance Improvement (CPI) Initiative continued its ground-breaking work -- analyzing differences in provider efficiency and quality and giving members incentives through lower copays to see better performing providers. The program has helped spark debate in the health care community about the role providers must play in improving quality and cutting the overuse of resources...the GIC’s Clinical Performance Improvement (CPI) Initiative, now in its fifth year, seeks to:

Share responsibility– providers, members, health plans, and the GIC - for reducing costs and improving quality

Maintain comprehensive benefits and choice

Emphasize health care quality and safety

Adopt modest member share increases

Educate members about provider performance

Encourage healthy behavior

Under the CPI Initiative, the GIC requires our health plans to provide de-identified claims for their entire book of business to our consultants for aggregation and analysis for each provider’s efficiency and quality relative to his or her peers. After this process, the results of the analysis are given to the health plans who then use the information to develop tiered networks in which members are given modest co-pay incentives to use better performing doctors.

***Tier 1 (excellent) – lowest copay
**Tier 2 (good) – middle copay
*Tier 3 (standard) – highest copay

In general, approximately 20% of physicians earned a Tier 1 rating, 65% were in Tier 2 and 15% were in Tier 3.

(Tiering is largely limited to the specialties for whom enough claims data is available, but some plans tier primary care physicians as well.)

Sinaiko and Rosenthal's basic finding was that as of 2007, only half of the employees enrolled in tiered networks realized that tiering was part of their plan. Of concern for those who believe in tiering, 58% didn't trust the tiers to tell them which doctors were best. Only 20% would trust either their employer or their health plan to establish the tiers. The highest level of trust for tiering (49%) would go to a medical society.

There was, however, some evidence for use of tiering in ways that the GIC hoped to see. Of the 20% who knew the tier rating of at least one of their doctors, 50% learned about the tier rating before their first visit and reported that the information was important to their choice of who to see.

Patients may not yet be paying much attention to tiering, but physicians are intensely aware of the ratings they receive. The Massachusetts Medical Society has brought a suit against the GIC tiering program (here) - a court hearing on the merits of the suit is pending.

Most physicians who have thought deeply about how best to manage quality and cost believe we need to establish a budget for health care, with physicians responsible for providing the best possible care within that budget. This is the vision Grumbach and Bodenheimer argued for 20 years ago in their seminal Health Affairs article "Reins or Fences: A Physician's View of Cost Containment." In our current political climate, however, budgets are seen as part of "socialized medicine" and "government intrusion." Tiering of providers is a second best approach to the effort to improve value (quality per unit of cost) in health care. It's an ethically solid concept for which the key challenge is getting the tiering system right. The Sinaiko/Rosenthal study shows that we're just putting our national toe into the tiering waters. But it's an experiment well worth working on!