Use of tiered networks prompts hospitals to cut prices

Hospitals now operate in a world of increasingly narrow provider networks and tiered preferences. How do those elements impact their bottom line? They take a fairly significant bite, according to a recent study conducted by Harvard University on behalf of the Commonwealth Fund.

The study noted that enrollees in Blue Cross and Blue Shield of Massachusetts are significantly more likely to obtain care in those hospitals considered preferred or in the middle tier. That's likely because of the dramatic differences in cost-sharing for patients: They averaged only $170 at preferred hospitals, but 10 times that at the non-preferred facilities.

As a result, hospital admissions drop 7.6 percent at non-preferred hospitals after tiers are put into place, and rise by 0.9 percent in middle-tier hospitals and 6.6 percent among preferred hospitals. And that has pushed hospital pricing downward: 44 percent of the hospitals in the three-year study wound up switching tiers because they cut their charges. Most of the hospitals changed from the middle to preferred tier, suggesting they swapped pricing for significantly greater revenue, according to the study. 

Although the use of tiered networks can prompt hospitals to cut costs, there have been concerns about how the tiers are arranged. Some healthcare industry observers have expressed concerns that there is not enough transparency of data that details quality and pricing methodologies used in creating tiered networks. And the use of tiering has also caused confusion among both providers and patients.

However, experts such as former White House health adviser Ezekiel Emanuel, M.D., observed that there are a variety of parameters available to ensure that tiers are not just based on pricing, and that the industry can look to patient access, blends of tiered providers and other straightforward criteria to guage networks.

To learn more:
- check out the Commonwealth Fund study

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