Medical service provider networks

Area of Science:

• Health economics
• Healthcare management
• Market competition

Background:

• Health insurers utilize various contracting mechanisms, including any willing provider (AWP) and preferred provider organization (PPO) arrangements.
• Understanding the economic implications of these contracting strategies is crucial for healthcare policy and market efficiency.

Purpose of the Study:

• To compare the economic outcomes of any willing provider versus selective contracting for health insurers.
• To analyze the impact of these mechanisms on prices, provider profits, insurer profits, and overall healthcare expenses.

Main Methods:

• Economic modeling of a healthcare market with two imperfectly substitutable medical services.
• Analysis of provider reimbursement strategies and patient choice between in-network and out-of-network providers.

Main Results:

• Both AWP and PPO contracting result in higher reimbursement when patients choose in-network providers.
• These contracting mechanisms lead to lower prices, reduced profits for providers and insurers, and decreased overall expenses compared to uniform reimbursement.
• A not-for-profit insurer benefits from selective contracting, aiming for zero out-of-pocket expenses for patients.

Conclusions:

• Selective contracting, especially with zero patient out-of-pocket costs, is economically advantageous for not-for-profit insurers.
• AWP contracting may lead to an asymmetric equilibrium, impacting market dynamics even when all providers join the network.