Squeezing into Closed or Narrow Networks

ChallengesClosed or narrow networks can provide a substantial challenge for ASC or urgent care operators entering what has become a saturated space.  Although a network may be closed or nearing closing, getting into narrow networks is not necessarily impossible.  The Ambulatory M&A Advisor discusses some of the reasons behind why networks become closed or narrow and how providers can potentially get a foot in the door with the networks currently flashing a “closed” sign.

Steven Selbst, CEO, HealthCents explains that closed or narrow networks are payor networks that already have enough participants for a particular set of services in its network.  Therefore, it is not looking to add additional providers with the same set of services.  Selbst says that for clarity, the distinction between closed and narrow is that narrow means there is a small number of providers in the network, and there may be a slightly better chance that they are willing to expand; whereas a closed network means they are just not accepting applications for additional providers of that type into the network.

Paul Van Den Heuvel, vice president of legal affairs and general counsel for Mercy Health Corporation delves deeper into why narrow or closed networks come about.  He says this situation occurs when a network becomes too broad so as to have key providers balk at providing deeper discounts, service commitments, etc. necessary to offer a premium discount to the insurance product purchaser (employer or individual subscriber).

“The typical rule of thumb identified by network experts is that the market needs to see a 10-15% discount when compared with a broad network offering.  This discount is necessary to compensate the end purchaser (employers, their employees, individual insurance product buyers) for the loss of provider choice,” Van Den Heuvel says.

Tracey Klein, chair of the healthcare department at Reinhart Boerner Van Deuren says that while the chances of getting into a closed or narrow network may seem slim to none, getting into a network that is closed or narrow could depend on the relationship between the provider and the insurer.

“Some of these relationships are extremely akin to partnerships.  In that context, the relationship on the narrow network product is almost like the HMOs in the past, except there is a quality and cost reduction at the center of it all,” Klein says.

“If you are dealing with a large integrated healthcare system and a large payor, the incentives to try and include something like an ASC provider are probably very low.”

Selbst says the challenge comes in with figuring out how providers can “open the door” when a payor says they are not interested in more providers into the network.

“I think the best way is to work collaboratively with the provider and the person in charge of provider network development within the large health system.  I think the ASC should initiate the conversation and focus on areas like geographic areas of coverage, cost effectiveness data, etc.  I would try to figure out a way to be included in the network as a part of the overall cost reduction strategy that can be passed on to employers and used to market the network,” Klein says.

Aside from Klein’s advice, Selbst says there are a number of ways to crack that door open and work on getting into a hard to reach network.

“First off, even if you have knowledge that a payor’s network may already be closed or have the necessary participants, it’s a good idea to start off by writing a very heavy hitting, page to page and a half, value proposition proposal letter to the payor contracting manager.  A couple of key points are, it needs to be heavy hitting; another is to emphasize value to the payor contracting manager.  Make sure that that letter is written in a way that gets right to the point about what your intention is.  Also, you need to do as much research as possible up front about who the participants may be that are in the network.  This way, the provider can write this letter in a way that differentiates the unique value that the provider brings to the table,” Selbst says.

In past experiences with performing this action, Selbst says he has found that payors ultimately look for the same things regardless of the provider type.  That is, first and foremost, they are going to assess whether there are cost savings, efficiency, and treatment benefits associated with making an exception to add that provider to the network.

“If you know a network is narrow or closed, as a provider, you really need to be willing to compete based on the market mix, with price as one of the elements that you compete on.  That’s not going to be the end all be all, but if you go in there 50 percent more requirement for reimbursement for your fee of services, than the existing par providers, that’s most likely not going to crack the door in, because you have basically excluded yourself based on the price variable.  I would recommend that you start off to address that in your letter and discuss how you are willing to beat the pricing of your nearest competitor by at least X percent, you can choose based on your providers profit model what that percent is, but then quickly get to the second point which focuses on service and/or products and benefits,” Selbst says.

“There are a wide range of differentiators in this area.  For example, I work with companies that have basically had commoditized products but were able to differentiate based on the fact that they were able to build networks of therapy specialists  who actually went door to door to deliver the products to make sure that the patients were using the products correctly and in compliance with the intended use.  The payors really found that to be a huge advantage, even though they were selling a lot of the same products of other distributors in the network, they were differentiating themselves based on service.”

Van Den Heuvel says in his opinion, perhaps the best technique is that health systems need to be position themselves as the provider of choice in their particular specialty and geographic area.

“When patients insist that their provider or health system of choice must be in network, an opportunity for a narrow network will likely present itself.  Of course, integrated health systems with insurance operations are also well-positioned to offer a narrow network product.  For those systems or providers interested in such offerings, building relationships with select commercial insurers is critical,” Van Den Heuvel says.

Selbst says another important thing that payors often look at is PR benefits.

“Payors really do care about how they are perceived in the marketplace by employer groups and by the beneficiaries.  Is the payor perceived as caring about the treatment and high quality of care received by beneficiaries.  To the extent that your differentiating factors may help is beneficiary and also helps the payors continue its perception and PR  campaign  as being a payor that differentiates itself from its competitors based on providing PR benefits to the employers that utilize that payor’s services,” Selbst says.

Working into a closed or narrow network can be hard to do, but Selbst says putting in the effort can be an advantage if the provider is in an area that is sparsely populated and there aren’t providers of your type in the area.

Van Den Heuvel adds that getting into closed or narrow networks presents a potential for greater market share and building of your brand identity.

“Of course, any health system or provider would need to weigh that potential in light of larger discounts granted as a condition of participating in the narrow offering, as well as any additional costs of participating in the network,” Van Den Heuvel says.


If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.

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