This post will be a bit wonky and it is tied to the question of an insurance company building networks outside of its “home base” area. Expanding service areas for current or future insurers is important as it allows for greater competition which theoretically should mean lower prices or at least more choices at a given price point with slightly different selling features.
There are three basic ways an insurer can build out a network. The first is an organic growth push, the second is delegated credentialing, and the final is renting repricer networks. Each have their advantages and disadvantages. Organic growth is the cheapest, while renting and repricing is the most expensive.
In the organic growth model, insurers send their field reps to start talking with doctors, facilities, hospitals and other providers. The providers are offered contracts and some of them sign on. Some don’t and then the insurer decides whether their current iteration of the expanded network is sufficient for both regulatory and marketing requirements. Marketing requirements almost always needs more doctors/hospitals than regulatory requirements.
Organic growth or direct contracting growth is usually a slow process as the pricing process can take a while, especially for a new insurer entering a new area as there is an administrative cost to providers to sign up for a new insurer as they have to submit their credentialling paperwork yet again, plus learn whatever company specific rules plus open their medical records and data to someone else without any compensating new income or patients until they are credentialed and the insurer has membership in the region. The advantage of this process is that the cost per service tends to be the lowest and ongoing network maitenance costs are lower on average.
This strategy works nicely when the expansion area is just outside of the current service area as a doc who is now newly in network can treat and make money from patients/members who live one county over while waiting for the insurer to start selling in the new service area.
Delegated credentialling is an effective strategy for doing a fast expansion that hops over some non-service area to get to a new service area. The insurer contracts with a local credentialing body and gains access to all of their docs for a fixed fee. The docs will have a contract with the local credentialing body that mandates that they also contract with the new insurer at a given rate. The credentialing entity receives a set fee for network construction (say $200 per doc, $3,000 per hospital etc) while all claims payments go straight to the doctor’s accountants. This strategy tends to produce higher administrative costs as well as higher claims costs for the insurer, but it is often the only way an insurer can expand into a new region in less than eighteen months of network construction.
Finally, there is the Assurant model of renting repricer networks. There are several vendors who have assembled a national network of providers who agree to a very high reimbursement rate. The repricer networks receives claims from one of their providers at the chargemaster or usual and customary rate and then the repricer takes a chunk off of the top. The local insurer pays the remainder plus a proportion of the difference between the billed rate and the repricer rate.
Repricing networks are a viable business decision for companies that mainly have a regional presence but need to be able to pay emergency room claims anywhere in the United States. Repricer networks allow for national emergency room coverage at less than chargemaster effective pricing. Relying on repricers like Assurant did means very high claims cost per unit of service received.
The Blues have a fourth model that is available to them to some degree. They share and blend networks, so Blue Cross and Blue Shield of Michigan members can use Blue Cross and Blue Shield North Carolina providers at a repriced rate that is far better than they could get from repricing vendors.
All of these strategies for expanding service area provider networks have their place. Organic direct contracting growth is often the prefered method if the providers are not tightly organized and there is time for outreach while delegate credentialing allows for big chunks to be brought on quickly but more expensively. Repricing providers a backstop of national coverage for regional insurers.