Patients used to navigating the differences between in-network and out-of-network providers might soon learn another distinction: tier one and tier two.

A new Aetna program divides hospitals in the insurer’s network into tiers based on cost and requires patients to pay significantly higher out-of-pocket charges if they go to those deemed less affordable. A woman who gives birth at the “tier one” John Dempsey Hospital, for example, might pay 10 percent coinsurance under the plan. But if she had her baby at MidState Medical Center, a “tier two” hospital, she might pay closer to 35 percent of the total bill.

The Hospital of Central Connecticut: Now in Aetna’s second tier

The program, “Choose and Save,” is small so far, with only a handful of employers, including Aetna, using it for their workers. But it is part of a larger push toward making patients more active in controlling medical costs. And in rating hospitals, the program represents something that even critics say is likely to become more common as employers and insurers seek ways to stem the growth of health care costs.

Martha Temple, president of the New England market for Aetna, recalled that she paid $5 toward the bill when she had her first child and $10 for her second–flat rates that don’t give patients much reason to pay attention to the total cost.

But the cost of childbirth and other procedures varies by thousands of dollars between hospitals, she noted, and many patients now pay significantly larger shares of their medical bills as employers raise copayments and coinsurance levels.

The tier system further reinforces the cost differences, steering patients to the hospitals Aetna considers less costly. Out-of-network hospitals are considered “tier three,” and patients who use them would pay the highest rates.

The concept is controversial among health care providers. Physician groups in multiple states, including Connecticut, have sued insurers over efforts to rate doctors in the past, and Connecticut hospital officials have raised questions about the method used to determine the tiers. Even some who embrace the concept said the rankings should be more tied to quality than cost.

“I think that we’re really at the infancy of this, and that what’s going to happen over the longer run, which I think will be a better way to think about this, is that it just won’t be about the hospital costs,” said James M. Blazar, senior vice president and chief strategy officer for Hartford Hospital, a tier one hospital.

Increasingly Common, But Effects Vary

In Connecticut, 22 hospitals are in Aetna’s tier one, and eight are in tier two. Aetna officials would not say which hospitals were in each category, but according to the hospitals, tier one facilities include Dempsey, St. Francis Hospital and Medical Center and Bristol Hospital. Tier two hospitals include Midstate and The Hospital of Central Connecticut.

Some hospital officials are puzzling over their rankings and noted that the program was not discussed as part of negotiations over rates. Hospital of Central Connecticut officials have asked Aetna for data to explain the tier placement. MidState Chief Financial Officer Ralph Becker called the tier criteria “very subjective.”

“This is an initiative by Aetna to renegotiate and reduce what it pays to hospitals,” he said in a statement.

Becker predicted that employers would avoid the program “when they find that their employees are not able to go to their community hospital.” Some payers tried the strategy in the past, he said, but the concept did not sell.

But other hospital officials say similar programs are likely to take hold. While tiered hospital networks are new to Connecticut, they already exist in other states. In Massachusetts, a law passed last year requires insurance carriers to offer individuals and small businesses at least one plan with either a tiered or selective provider network. And Massachusetts uses tiered networks of hospitals and doctors in the health plans offered to state employees.

“With the cost pressures for health care, we’ll probably see more of this,” said Dr. Mike Summerer, hospital director at UConn’s Dempsey Hospital. “It’s my hope, though, that we’ll be able to do it scientifically, and in a way that’s valid. The problem when an insurance company does it using a methodology that’s exclusive to them, it makes it very, very difficult to be assured that it’s a valid measurement, that it’s a valid comparison.”

Summerer previously worked in Massachusetts, and said tier systems changed patient behavior “to a degree,” but not profoundly, in part because the rankings change from one year to the next, which can confuse patients.

Research suggests the effects tiered plans have on consumer behavior and overall medical costs vary.

In a survey of Massachusetts state employee plan members, 49.5 percent of respondents said they did not know about the tiers. Fewer than half–42 percent–said they trusted the tiers to tell them which doctors are better than others.

Asked who they would trust to decide which doctors should be in the preferred tier, only one in five respondents said their health plan.

But the survey authors noted that Massachusetts state employee plan members face only modest consequences for picking lower-tier physicians, averaging $10 in copayments.

Larger financial incentives can have more of an effect on patient choices, Aetna’s experience indicates. The company rates specialists, designating those who meet clinical performance and efficiency standards as “Aexcel” providers, and offers employers health plans that give patients incentives to use those doctors.

Whether patients used the designated specialists varied by how significant the incentives were. Those whose plans called for no cost difference or a small one used the designated specialists at a 2 percent to 3 percent higher rate than those whose plans did not use the specialist designation. But patients whose plans had larger cost differences–up to 30 percent–used Aexcel specialists at between 9 percent and 20 percent higher rates, according to Aetna.

What effect does it have on overall costs?

The company says steering patients to designated specialists saved up to 4 percent for plan sponsors in 2008 and 2009. In Connecticut, where 65 percent of specialists have the Aexcel designation, the savings were modest. Plans that covered only Aexcel specialists saved about 1.9 percent on total medical costs, according to Aetna.

Rating Methods

About 115,000 people are enrolled in Choose and Save programs nationwide, all through self-funded employers, which pay their workers’ medical claims. Temple said the company plans to offer the program for fully-insured companies–which pay the insurer money that is used to pay claims–next year.

To assign the hospitals to tiers, the company looked at historical data, the rates Aetna pays the hospitals and expectations for 2011. The examination was done market-by-market, Temple said, to determine which hospitals were at or below average costs, and which were above them.

Dr. Mike Summerer

Aetna also looked at the mix of services each hospital offers to avoid penalizing hospitals that offer higher-cost services. And Temple said the tier assignments took into account regions, making sure not to cut the only hospital with a maternity ward in a given area from the top tier.

She said the company is working with hospitals that want to move up a tier, which they can do through care management programs or contracting.

As for decisions about quality, she said, those are made in the decision to include a hospital in Aetna’s network.

In response to hospital officials’ concerns, Aetna spokeswoman Susan G. Millerick said, the company is working with hospitals to add a quality component to the tiering system for the future.

“However, it is important to note that we absolutely stand by the overall quality of all hospitals in our network, which are each credentialed and accredited,” she said. “That is why we felt comfortable initiating this new tiering based on cost, took this important first step. Hospitals remain the fastest growing portion of medical costs today, rising at rates that exceed physician and other professional services and it is critical that we all work together to make hospital care more affordable without sacrificing quality.”

Susanne Madden, president and CEO of The Verden Group, which advises medical practices, said ratings based on cost can penalize providers who were able to command higher rates through negotiations with insurers, even if they were able to do so because they provided high-quality care or were in demand for other reasons.

A better system, she said, would be to use pay-for-performance programs that focus on measurable outcomes, such as incentivizing a medical practice to improve diabetics’ glucose screenings.

Physician groups have challenged rating systems in the past. In 2007, the Fairfield County Medical Association filed a class-action lawsuit against CIGNA over its physician ratings. They ultimately settled, with an arrangement that allows the company to continue rating physicians but gives doctors some recourse to appeal their rankings.

Mark Thompson, the medical association’s executive director, considers provider ratings problematic, but he does not expect them to go away. He pointed to the public’s appetite for ratings for movies, restaurants and books.

“It’s what the employers want and it’s what the public wants,” he said.