The Impact of Tiered Physician Networks on Patient Choices

In a tiered network, health insurers sort providers into tiers based on cost and quality performance, and patients have a financial incentive (they pay lower cost-sharing) to see a provider in a higher performing tier. Cost-efficiency is typically gauged using episode-level costs and utilization, while quality is judged through claims-based process measures, external certification, and, in some cases, use of health information technology (Draper, Liebhaber, and Ginsbug 2007; Oldenburg 2011). Tiered provider networks thus encourage consumers to choose “higher value” providers while maintaining consumer choice of provider. In addition, tiered networks may spur quality improvement and cost control by motivating providers to attain a higher tier-ranking. Today, most major commercial health insurers offer a tiered network product, 20 percent of employers include a tiered provider network in their health plan with the largest enrollment (Brennan et al. 2008; Kaiser Family Foundation/Health Research and Educational Trust 2011; Kowalczyk 2011), and some state-level policy makers (e.g., Massachusetts, Minnesota, Maine) have required health plans to begin development of or offer tiered network products. The Massachusetts Group Insurance Commission (GIC), a quasi-state agency that provides health benefits to approximately 375,000 public employees, retirees, and their dependents, was one of the first large employers to implement tiered physician networks in all of its non-Medicare health plans. The impact of these tiered physician networks on the choice of physician and health plan among GIC members is the focus of this paper. The potential impact of tiering on consumer behavior depends on two sources of influence: the effective price differences induced by the tiered copayments and the quality and cost information conveyed by tier status. Few studies have assessed consumer response to differences in cost sharing among providers. With regard to the informational mechanism, the literature suggests that there may be modest behavioral effects in response to the quality or value of information provided by tiered networks, especially to the extent that provider tier-rankings provide patients with new information about provider quality (Dranove and Sfekas 2008; Kolstad and Chernew 2009). There is only one other published study of tiered provider networks and it evaluated the effect of hospital tiering on choice of institution. Findings for hospital choice were mixed, with no effect for some types of admissions and subpopulations (Scanlon, Lindrooth, and Christianson 2008). Our own preliminary work suggests that responses to physician tiering will vary according to the nature of the health problem for which physician services are sought and whether patients have seen the physician in the past (Sinaiko 2011). To our knowledge, this is the first study of the impact of tiered networks on consumer choice of physician or of health plan. To assess whether patient decisions to see a physician were affected by tier-rankings of their physicians, we test whether physicians with preferred tier-rankings captured greater market share of new patient visits and have had a lower percentage of existing patients switch to other physicians than other physicians. It is also possible, due to the importance of physician network in health plan choice (Scanlon, Chernew, and Lave 1997; Kolstad and Chernew 2009), that instead of switching physicians, patients could respond to the introduction of tiered physician networks by instead changing health plans. Thus, we also test whether patients with nonpreferred physicians were more likely to switch plans than patients who have a relationship with a top- or middle-ranked physician.