Moody's: Provider Network Expansion Would Benefit Safety-Net Hospitals

A federal proposal that would require health plans sold through the exchanges to expand their provider networks would discourage narrow networks and benefit nonprofit hospitals that treat large shares of low-income patients, according to a report from Moody's Investors Service.

Growing numbers of narrow networks — which health insurers use to manage costs and drive down premiums — have been a negative development for nonprofit hospitals, according to Moody's. Hospitals included in the networks face potentially decreased revenue by accepting lower payment rates than what they would receive from broader contracts, while those that are excluded risk losing market share.

However, a recent proposal from CMS could stop networks from narrowing further. Last month, CMS issued guidance for health insurers looking to sell health plans through the federally facilitated marketplace or federally run small business health options program in 2015 under the Patient Protection and Affordable Care Act.

That guidance includes proposed 2015 certification requirements for qualified health plans offered through the marketplace and SHOP. For instance, qualified health plans with provider networks must have networks containing sufficient numbers and types of providers. CMS intends to propose that qualified health plan provider networks include at least 30 percent of available essential community providers, up from 20 percent in 2014. Essential community providers are those that serve predominantly low-income and medically underserved individuals, according to CMS.

If enacted, this requirement will broaden the number and types of providers in exchange networks and subsequently protect certain essential hospitals from losing revenue or market share, according to Moody's. Nonprofit hospitals that have high exposure to Medicaid and treat large numbers of low-income patients stand to benefit the most, since the proposal specifically calls for the inclusion of safety-net hospitals.

"It gives the hospitals that might have been excluded a little more leverage," says Beth Wexler, vice president and senior credit officer for Moody's. "It takes a little more power away from the payer at the negotiating table."

Still, the overall 2014 outlook for nonprofit hospitals remains negative because of the challenges stemming from PPACA implementation, according to Moody's.

Although hospitals stand to benefit from it, the requirement could ultimately thwart the PPACA's goal of providing affordable, less costly care through the exchanges, according to the report. Ms. Wexler says health insurance products being sold through the exchanges that were previously less expensive than others because of narrow networks may lose their ability to drive down premiums.

"If, in fact, this proposal is adopted and it moves forward, those networks have to include more of those providers that may have more costly structures because of the type of patients that they see and the level of services they provide," she says. "Those exchange products may become less viable if they aren’t less expensive."