Aug 22, 2011

Evaluating Managed Care Proposals: Network Adequacy

To properly understand competing health plan alternatives and to select an appropriate managed care option, a plan sponsor may hire an agent, broker, or consulting firm that specializes in evaluating group/health and managed care plans. This analysis typically results in the development of a request for proposal (RFP), which is a detailed document that provides information to managed care companies about the plan sponsor and invites those companies to offer proposals in response to the request. Thoroughly evaluating and comparing multiple RFP responses can be an exhausting process and this is where the assistance of a qualified professional can be most valuable. Managed care consultants each have their own method of evaluating proposals depending on the plan sponsor's objectives and their own experience. Commonly, different weights are assigned in the evaluation of various portions of the RFP, with competing companies being compared on the weighted results of their total proposals.
Typically, the first step is to conduct a review of network adequacy which helps determine each managed care company's access to providers. This first step, often called a request for information (RFI) is a shorter, less formal document than the RFP. The RFI usually focuses on producing a "site match" process which maps member home or work locations against proposed geographic provider networks. Later, in the RFP process, the site match is supplemented with a more detailed "disruption analysis," which compares members' most commonly used physicians to those in competing networks. The results will show the number of members who would need to switch providers in the new managed care plan.
Minimizing member disruption is important for two reasons: to improve member acceptance of the managed care program since fewer members will need to switch providers in order to receive favorable network benefits, and to increase the probability of increased network utilization. On the other hand, a close provider match should not be the sole basis for network selection, especially if the managed care company otherwise fails to demonstrate proper price management and utilization controls. A broad network does not necessarily mean effective cost control or provision of quality health care.
Network configuration and provider adequacy are also important criteria in examining the adequacy of a network. Networks must be well-dispersed geographically and include the necessary medical disciplines to be able to deliver services at all levels of care. That is a difficult challenge in many parts of the country since managed care network development varies significantly across the United States. Differences in population demographics, availability of medical care and hospital facilities, the influence of local provider associations, and the statutory regulations of medical providers have influenced the ability of managed care vendors to build viable, cost-effective networks and products.
Broadly speaking, those areas with higher HMO member penetration have a greater degree of developed provider networks for all managed care products. Figure 1 shows a 2003 InterStudy analysis of the 10 highest (over 30-percent HMO penetration) and 10 lowest states (less than 10 percent penetration).
Top 10 States
HMO Penetration
Lowest 10 States
HMO Penetration
North Dakota
New York
Rhode Island
South Carolina
New Mexico

Figure 1: 2003 HMO Penetration for Selected States
Not too surprisingly, managed care networks have flourished in more populated metropolitan areas, and thus in the larger states along the east and west coasts. However, there are some pockets of networks in some select less populated areas (e.g., New Mexico). To the extent HMO market penetration is indicative of the availability and acceptance of managed care alternatives, these data show that managed care plans are evolving at different paces across the country. This presents a very real challenge for the plan sponsor with multiple employee locations across the country that wants to maintain a uniform approach to its health plan offerings. This challenge is significant, since over 30 percent of the population in most metropolitan areas are covered by health plans for companies which are headquartered elsewhere.
Although most national managed care organizations are able to provide uniform administrative systems for managed care plans, the underlying delivery platform may vary from area to area in order to conform to accepted practices within those areas. Plan sponsors need to be aware of these possible differences in advance of committing to a given managed care product so they can be prepared to accept modifications in plan design or product offerings and thus take advantage of the best offerings available in each geographical area. Frequently, this may result in selecting several different managed care organizations, depending on which is strongest in a given geographic area of the country.
The plan sponsor also may consider whether to seek bundled versus unbundled managed care services. The bundled approach provides as many services as possible—access to a network, contract negotiations, UM, QA, claims and reporting—from a single vendor, such as a national managed care company or regional HMO. A bundled approach simplifies administration by reducing the number of organizations and contracts to be managed.
Conversely, the unbundled approach allows the plan sponsor to contract directly with a variety of organizations for different services or to develop its own network through direct negotiations with providers. In an unbundled approach, one company may be used for utilization management and quality assurance, another for claims payment. Sometimes, the plan sponsor handles some functions internally, hiring staff to assume the new responsibilities. Some plan sponsors feel that the unbundled approach is the best way to obtain the best quality services because the different vendors theoretically have specialized expertise in the area chosen. Unbundling is more common with prescription drug and mental health services. An obvious disadvantage to this approach is the resulting administrative complexity occurring with multiple vendors.
Some larger employers find themselves somewhere in the middle between the purely bundled and the purely unbundled approach. For example, an employer may contract with one vendor to insure the indemnity plan and one or more HMOs and/or PPOs to serve the employer's different geographic locations.


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