The Effect of Tiered Provider Networks on Health Care Demand and Spending

University Of Pennsylvania, Philadelphia PA

Investigators

Abstract

? DESCRIPTION (provided by applicant): Health insurance plans with tiered provider networks, in which consumers' out-of-pocket costs for care vary across providers, are increasingly being deployed in an effort to control health care costs and improve quality. Tiered-network plans may reduce costs and improve quality by steering patients to lower-cost, higher-quality health care providers and by strengthening insurers' bargaining position when negotiating prices with providers. However, there is little evidence on how responsive consumers are to the financial incentives in these plans, and virtually no evidence on how they affect insurer-provider negotiations. The prevalence of tiered provider networks on the health insurance exchanges set up by the Affordable Care Act makes understanding their effects on the health care system especially important. This study will fill these gaps by studying the effects of tiered provider networks on patients and prices in Massachusetts, where penetration by tiered-network plans leads national trends. The dataset to be used for the study consists of longitudinal private health insurance claims data from the Massachusetts Center for Health Information and Analysis' All-Payer Claims Database, combined with data on hospitals' tier placements in Massachusetts insurers' networks. The empirical analysis has two primary components: the estimation of patient response to tiered networks, and the estimation of the effect of tiered networks on price negotiations between insurers and providers. Patient response to tiered networks is estimated by first estimating a discrete choice model of demand for providers, given a cost-sharing structure; and subsequently estimating demand for insurance plans with different network tiers. The insurer-provider component takes the patient component as an input, since the effect of tiered networks will depend on how insurers can leverage reduced patient demand for a provider that results from unfavorable tier placement. The estimation of the price negotiation process uses an economic model of insurer-provider bargaining. The results of the study will provide estimates of the effect of tiered-network plans on health care utilization, prices, and overall spending. This study will improve understanding of how patient choices affect health care costs by determining whether value-based cost-sharing for patients can reduce overall prices in addition to affecting utilization. The outcomes of the study will have a positive impact on public health by producing evidence for enhancing health care quality and affordability.