Why Do Medicare Advantage Plans Have Narrow Networks?

Research Report

Why Do Medicare Advantage Plans Have Narrow Networks?


In contrast to commercial markets, narrow networks in Medicare Advantage (MA) markets are not motivated by unit-price discounts for insurers in exchange for higher patient volume for health systems. Through 15 interviews with MA experts, MA insurers, and health systems, we confirmed that the Medicare fee schedule is the basis for most provider payments in MA regardless of network breadth. Cost savings from narrow networks in MA derive from established health systems’ lower utilization and higher quality. MA star ratings, in particular, are a key consideration when forming networks, as high star ratings provide financial benefits.
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