How does keeping a narrow provider network reduce costs to insurance companies?

[DebJ]

I keep reading this in various places but I don't understand what are likely some obvious reasons.

Edification would be appreciated, thanks!

[djean111]

1. Maybe because only so many people can be seen?

Or only that many providers would agree to their terms?

[unblock]

2. i suppose if i'm a doctor, i might agree to charge less for a steady stream of patients

[Recursion]

3. Complexity, mostly

It's an unavoidable inefficiency of multiple-payer. Insurers have individual deals worked out with most providers, and each of those has a sunk cost of negotiating and administering it. Weird thing I learned running even a very small business: a higher, predictable, expense is better than an often lower, unpredictable expense.

Oddly enough, as much as I hate Wal~Mart, their health clinic model offers a way out. If the providers have as much clout as "Wal~Mart with a Nurse Practitioner in every store" will (and CVS/Rite Aid/etc. are moving that way too) then that will take the network issue largely out of the picture, and other providers will just have to match the chains' prices.

[GeorgeGist]

4. In many cases the doctors/medical facility won't agree to terms.

I've seen a local hospital advertise that they DONT accept certain insurance.

[DebJ]

5. Thanks for the replies. I guess we can hope that this might put some downward

pressure on some of the insane and random pricing that goes on in many hospitals.