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Hard Lessons for Building a Provider Network

November 08, 2019

I have been the senior executive in a managed care company with accountability for the provider network. I found that the two most challenging issues in building a network in the real world are the quality and the cost of that network. Because networks today for both medical and behavioral care are far from ideal, it is important to understand these difficulties.

A network “in the real world” must be distinguished from one “on paper only.” The paper network would presumably conform to the phrase “any willing provider.” This makes sense given that the premise for such a network is that any duly credentialed clinician or facility should be contracted for in-network status.

In the spirit of the old riddle “what do they call the person finishing last in their medical school class?”, I can see the logic of not differentiating among licensed clinicians in a network. This non-judgmental tenet quickly bumps up against an even older question, “tell me, which doctor can you recommend?” The “any willing provider” rule seems to not be adequate when care is needed for a loved one.

Contract negotiations would logically extend from the any willing provider rule to a single contracted rate for services. This requirement gets turned upside down for hospitals with no regional competition. They suggest that the rate for contracting is whatever they decide it should be. It turns out that those with clout in a negotiation are not enamored with standard fees.

Practitioner networks

My personal and professional experience tells me that all clinicians are not created equal. The question from a professional perspective is whether that opinion can be validated. What do we measure to find the best among us? The history of quality improvement departments in healthcare is littered with many easy answers, but few good ones. We should not regard those most popular as the best.

Among the few good answers for clinicians would be those with the fewest complaints from consumers. While an important metric for weeding out those with multiple complaints, any utility disappears upon realizing that the overwhelming majority have none. The most informative metric that gets to the heart of clinical practice is clinical outcomes. This domain can be measured and compared to benchmarks.

My experience assessing clinical outcomes for a large multidisciplinary network is that it can be done at relatively low cost for all involved. A clinician must treat many patients with pre- and post-treatment measures to qualify for a comparative network rating. Clinicians can then be ranked on clinical outcomes – our model was to just identify those making an “honor roll” – but it should be stressed that this can only be done for a fraction of network providers who treat enough cases to be rated.

A consistent finding from measuring real-world clinical outcomes for many years is that the best results were achieved for clinicians organized into some type of group practice. The aggregated outcome rating for these group practices was typically well above mean results. One is left to conjecture why.

I would speculate that groups informally select above-average clinicians who have no qualms about having their clinical work scrutinized within case conferences or clinical outcome reports. Group leaders also use informal mechanisms for matching clinicians with new patients.

This approach still leaves most individual clinicians outside groups unrated on their outcomes. Lacking measures that can differentiate a large network based on quality, clinicians become valued along other dimensions. Payment, for example, devolves to market supply and demand, which means there is a steady increase in rates for low-supply psychiatrists and unchanging rates for high-supply psychotherapists.

Facility networks

The quality and cost challenges for building a network of facilities are quite different from those with clinicians. Complaints about quality of care are more common due to the smaller size of the network and the higher acuity of those treated, and so this is a useful metric. Process metrics such as ensuring follow-up treatment after hospitalization are also measurable and meaningful. It is more feasible to develop a genuine quality report for facilities.

Cost is a contentious dimension. Facilities have contracting specialists who review existing rates every year. They often have leverage based on the unavailability of other facilities in their service area. Furthermore, while consumers cannot unite to create strong demand for specific clinicians, they can rally for specific facilities in both rural and crowded urban settings. Contracting with facilities is commonly an actual negotiation.

The issue of payment for quality is real and important for facility care. Quality and cost often intersect, as epitomized in a common story told by benefit managers working for large employers. I will give a med/surg illustration. A center of excellence (CoE) gets paid for all billed charges for surgery versus minimal payment everywhere else. The CoE has the best quality outcomes and it reduces the cost of surgery for the population. Why? A substantial percentage referred are found to not need surgery.

This same focus on CoE has been embraced by psychiatry with complex, high cost conditions like eating disorders. However, mood disorders are most prevalent and account for most costs in any population, and so this is a very narrow solution. Quality differentiation of facilities is still new. The primary reward for top quality facilities is a marginal increase in referral volume. Rates are left for negotiation.


Two conclusions emerge: We should embrace the formation of group practices for outpatient clinicians and hold facilities accountable for quality performance. The group practices would presumably select from a large pool of credentialed providers for affiliation, and facilities would negotiate enhanced fees based on quality performance metrics.

It is also possible to develop incentive payments with group practices. However, the total reimbursement must be great enough that the group practice leaders and the clinicians within them are satisfied. There was a brief heyday for group practices in the 1990s, but an adequate reimbursement model was never developed. Managed behavioral healthcare never established a reimbursement model for solo or group practices that sustains a strong outpatient network.

The acquisition of physician practices over the past decade is a harbinger of things to come for behavioral healthcare. Healthcare systems will eventually own more capacity for delivering behavioral healthcare services. Group practices are attractive acquisitions for those systems to the extent that they represent specialty services that are organized and proven. Group practice leaders will be paid little for the businesses they create (deals generally guarantee only employee salaries), but in any event the behavioral healthcare field needs business-minded clinicians groomed for positions of authority.

I conclude with a comment on out-of-network (OON) rates. The federal parity law created an explosion in OON payments. A 2017 Milliman study found that in 2015 OON providers were paid for nearly 19% of behavioral office visits, as opposed to 5% or fewer for primary and specialty care providers. The OON rates currently being paid to outpatient practitioners exceed the in-network rate, but the existing anomaly will likely be short-lived. I suggest that enterprising clinicians take advantage of this moment to start a group practice and figure out a sustainable financial model where everybody wins.

Ed Jones, PhD, is senior vice president for the Institute for Health and Productivity Management.

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