The Impact of a Tiered Network on Hospital Choice

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    Researchers explore how tiered networks affect hospital admission choices
    Study finds tiered hospital networks could potentially offer great savings for employers

The Issue

Employers are increasingly using tiered-network health plans to steer employees toward lower-priced, higher-quality care providers. In these plans, cost-sharing is lowest if members choose providers from the preferred tier and increases significantly if they use providers in middle or nonpreferred tiers. Tiered hospital networks could potentially offer great savings for employers, given the high costs and price variation associated with hospital services. Commonwealth Fund–supported researchers at Harvard University explored how tiered networks affiliated with Blue Cross Blue Shield of Massachusetts (BCBSMA), the state’s largest insurer, affect hospital admission choices.

What the Study Found

For each hospital admission, average cost-sharing was $1,070 for nonpreferred hospitals, $360 for hospitals in the middle tier, and $170 for preferred hospitals. Tiered-network members were more likely than control group members, who were enrolled in nontiered plans, to receive care at preferred and middle-tier hospitals compared with nonpreferred hospitals. Over the course of the study period (2009–2012), 44 percent of hospitals changed tiers, mostly from middle to preferred, and nearly all because they decreased their prices.

The authors predicted that if all BCBSMA members were in a tiered plan instead of a nontiered plan, scheduled admissions to hospitals in the nonpreferred tier would drop by 7.6 percentage points, while admissions to middle- and preferred-tier hospitals would rise by 0.9 and 6.6 percentage points, respectively.

Conclusions

Tiered-network designs that feature large cost differences between tiers are successful at steering patients toward preferred hospitals—those offering lower costs and higher quality—while preserving a greater degree of provider choice. The authors warn, however, that tiered networks have potential drawbacks. For example, they may transfer risk to patients in the form of higher out-of-pocket payments for lower-tiered providers.

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Publication Details

Publication Date:
April 22, 2015
Authors:
Michael Chernew, Matthew B. Frank, John Hsu, and Mary Beth Landrum
Summary Writer:
Naomi Freundlich
Citation:
M. B. Frank, J. Hsu, M. B. Landrum et al., “The Impact of a Tiered Network on Hospital Choice,” Health Services Research, published online March 9, 2015.
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