Business Case for Narrow Networks

1. Back to the Future: An Update on Narrow Networks, Network Adequacy Litigation, and Related Issues July 2, 2014 | 12:00-1:15 pmThis luncheon is brought to you by the Payers, Plans, and Managed Care Practice Group.Faculty: KazKikkawaCigna-HealthSpring, Franklin, TN Kaz.Kikkawa@healthspring.comJack RovnerThe Health Law Consultancy, Chicago, IL jrovner@hlconsultancy.com

2. Business Case for Narrow Networks

3. Lower Premium to Capture Market Share • New and under-insured purchasing on exchanges: • Premium price sensitive, even with exchange subsidies; • Little to no pre-established provider relationships or loyalties; • Little to no insurer or provider “brand” recognition or loyalty; • Little to no sophistication for selecting health plan products or providers; • Little to no access to meaningful health plan orprovider quality metrics; • Narrow network bronze, silver, and catastrophic plans; and • Broad network gold and platinum plans (maybe higher-priced silver).

4. Promote Provider Competition and Cost Reduction • Spur provider price/quality competition for steerage. • Challenge provider market power. • Disrupt “must-have” providers. • Re-channel referral patterns to lower-cost alternatives: • Urgent care vs. emergency room; • Independent labs vs. hospital labs; • Ambulatory surgery centers vs. hospital outpatient; and • Generics vs. brand.

5. Co-brand Health Plan Products • Insurer-provider co-branded products: • Pave way to “Accountable Care Organization” risk-sharing/risk-management arrangements; • Attract stable enrollment population through brand adherence; and • Competing co-branded products for price and quality market differentiation: • Promotes consumer choice and branded product loyalty; • Allows “quality” perception to drive pricing and marketing; and • Tests consumer “brand image” perception.

6. Satisfy Employer Demands • Construct tailored networks for employers: • Structure access acceptable to employees; • Save money for employer andemployees; and • Offer directly and through private exchanges. Note: Employee Retirement Income Security Act (ERISA) preemption insulates self-funded employer plans from state Any Willing Provider (AWP), other state network adequacy regulation.

7. Enter and Expand Markets • Challenge incumbent health insurers: • Efficient means to build adequate network to support entry/expansion; and • Low-cost challenge to incumbents’ expansive PPO products; • Integrated provider system expansion: • Direct contracting with self-funded employers; • Joint venture with licensed health insurer • Insurer gains provider’s clinical integration/coordination and risk-sharing; • Provider gains insurer’s population risk management, financial solvency, analytics, out-of-service area coverage, etc.; • Insurance licensure for financially and clinically integrated delivery; and • Strategy for geographic expansion.

8. Legal Challengesfor Narrow Networks

9. Satisfy Network Adequacy • Qualified Health Plans (QHPs) must have “adequate” provider access: • “sufficient in number and types . . . to assure . . . services . . . accessible without unreasonable delay” (45 CFR 156.230; see ACA 1311(c)(1)(B)); and • “sufficient number and geographic distribution of essential community providers” (45 CFR 156.235; see ACA 1311(c)(1)(C)); • Exchanges must ensure QHP provider network adequacy: (45 CFR 155.1050) • States generally determine network adequacy for state-based exchanges; • The U.S. Department of Health and Human Services (HHS) assesses network adequacy for federally facilitated exchanges with “State input” • Applies “reasonable access” standard; and • Particular attention to hospitals, primary care physicians, oncology, and mental health.

10. Avoid De Facto Health Status andPopulation Discrimination • QHP network structure cannot disadvantage specific health conditions or populations (PHSA 1557; 45 CFR 156.200 & 156.230): • Scrimp on high-cost specialties (e.g., oncology; obstetrics); • Lack sufficient mental health or substance abuse specialists; • Avoid providers in low-income, high-crime, high-health risk areas; and • Skew based on age, race, color, national origin, disability, sex, gender identity, or sexual orientation. • ERISA prohibits benefits discrimination in insured andself-funded employer plans: • Cannot structure networks that discriminate on health factors(See ERISA 702; 29 CFR 2590.702).

11. Manage “Any Willing Provider” and“Practitioner Nondiscrimination” • State AWP laws require contracting with any provider willing to accept price and terms: • Some 32 states have some form of AWP law; and • AWP laws vary substantially in scope, application, and particulars. • Federal prohibition against excluding practitioner “acting within scope” of license (PHSA 2706): • Prohibits network exclusion based solely on practitioner type(e.g., chiropractors, nurse practitioners, midwives, and psychologists); • Not AWP—not required to contract based on practitioner “willing to abide” by health plan’s “terms and conditions for participation”; and • Not mandate to include all practitioner types in network.

12. Furnish Consumers Network Information • QHPs “must make” provider directories available to exchanges and potential enrollees (45 CFR 156.230(b)): • Directories “must identify providers not accepting new patients”; and • Exchanges “must” furnish online each QHP’s provider directory (45 CFR 155.205(b)(1)(viii)): • Element of required online “standardized comparative information on each available QHP.”

13. Litigation Against Narrow Networks

14. “It’s Like Déjà Vu, All Over Again”* Observation from 1987about selective provider contracting litigation • “Increasingly, sellers of health care goods and providers of health care services invoke antitrust law to attack customers who refuse to pay as much or to buy in the same way as they had in the past.” Rovner, Monopsony Power in Health Care Markets: Must the Big Buyer Beware Hard Bargaining?, 18 Loy. U Chi. L.J. 857 (1987) • Footnote 1 collects 20 lawsuits from ‘80s challenging selective provider contracting, including: • Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F2d 1325 (7th Cir. 1986), and Kartellv. Blue Shield of Mass., 749 F2d 922 (1st Cir. 1984). * Lawrence Peter "Yogi" Berra

15. Back to the Future Narrow network litigation—attacks on the “modern” type of selective provider contracting • Seattle Children’s Hosp.v. Office of Ins. Comm’r (Wash. Super. Ct.): Network adequacy challenge; • In re Frisbee Mem. Hosp. & Mary McCarthy (N.H. Ins. Dep’t): Network adequacy challenge; • Fairfield Cty. Med. Ass’n v. United Healthcare of New England (D. Ct.): Medicare Advantage participating provider contract terminations; • In re Discriminatory Florida QHP Pharmacy Benefits Design (HHS OCR): Discriminatory HIV/AIDS drug tiering; and • Simon v Blue Cross Blue Shield of Kansas City (Mo. Cir. Ct.): Deceptive practices class action based on inaccurate QHP provider directory.

16. Reality Checks • Consumers choose price over provider: • “PreferredOne [in Minn] offered an inexpensive plan with a network of 13 hospitals [resulting in] low premiums [for] 60% of the individual insurance market.” Abelson, “More Insured, but the Choices Are Narrowing, New York Times 5/12/14 • Regulators won’t compel provider contracts: • “carrier’s decision not to contract with a particular medical provider is not subject to [DOI] review” Order, In re Frisbee Mem. Hosp. & Mary McCarthy (N.H. Ins. Dep’t, 3/28/14) • “If you like your doctor, you can keep your doctor”: • Ifyou can pay your doctor!

17. Provider Considerations Source: The Clarion Ledger, July 19, 2013

18. Relevant Contract Provisions • All products language; • Express limits on narrowing, tiering, and steerage; • Express no-volume guarantee; • Non-solicitation and non-disparagement; • Use of plan name and trademarks; • Termination; • Confidentiality; and • Dispute resolution.

19. Other Potential Contract Hedges • Tiered Pricing—one rate if admissions do not exceed X over some defined time period and another (lower) rate if admissions do exceed X over that period; and • Network Configuration—one rate if the network includes all competitor hospitals and another (lower) rate if the network includes some or none of those other competitors.

20. Thank You Kaz KikkawaSenior CounselCigna-HealthSpringFranklin, TN(615) 236-6267 Kaz.Kikkawa@healthspring.com Jack RovnerAttorney & Founding MemberThe Health Law ConsultancyChicago, IL(312) 332-7711 jrovner@hlconsultancy.comwww.hlconsultancy.com