Which of the following defines preferred provider organization (ppo) health insurance?

Introduction

In most countries, private health care insurance is provided by managed care organizations (MCOs). They appeared in the late 1990s as an alternative to the traditional fee-for-service health insurance contract. Their main role is to administer and manage the provision of health care services to their clients within a general objective of cost containment in the health care sector. In this sense, an MCO is a middleman contracting with health care providers on the one side and with enrollees on the other. The latter obtain advantageous fees when visiting in-plan providers and the former guarantee a larger base of clients. The most common types of these organizations are preferred provider organizations (PPOs) and health maintenance organizations (HMOs).

An HMO offers health care insurance to individuals as a liaison with providers (hospitals, doctors, etc.) on a prepaid basis. HMOs require members to select a primary care physician, a doctor who acts as a gatekeeper to direct access to specialized medical services whenever the guidelines of the HMO recommend it.

A PPO offers private health insurance to its members (health benefits and medical coverage) from a network of health care providers contracted by the PPO. The main characteristics of a PPO are:

health care providers contracted with the PPO are reimbursed on a fee-for-service basis;

enrollees in a PPO do not require referral from a primary care physician to access specialized care;

enrollees sign a contract defined by a fixed premium, a co-payment on the health care services received, and possibly, a deductible;

enrollees have freedom to visit out-of-plan providers (with a possible penalty in the form of the payment of a greater share of the provider's fees);

drug prescription may be covered as well when enrollees patronize participating pharmacies; and

preventive care procedures (check ups, cancer screenings, prenatal care, and other services) may also be available.

To summarize, a PPO is a particular instance of integration between upstream providers and downstream third-party payers. The aim of this article is to describe how providers compete to become preferred providers.

Participation

First ascertain which specific plans are covered by this contract. It is typical to include the HMO, POS, PPO, and similar products that the MCO has, but be careful about “all-products” clauses that commit you to signing up with any product the company may offer now or may develop in the future. The companies are always adding new plans and “deeming” that existing participating physicians are automatically part of the new product. Although often the practice may wish to participate in the new offering, that plan's specific rules or other provisions may make it unwise to do so. The contract should give the physician group notice of any new products and the opportunity to accept or reject that offering. If the group participates with the plan, it should not be on less favorable terms than the current participation unless there is mutual agreement. In addition, be careful about agreeing to participate in traditional indemnity insurance plans, because the MCO is receiving a much higher premium for those plans and there is no ability of the plan to steer patients or otherwise affect patient or referring-physician behavior in the indemnity structure. In this type of plan there is no in-network or out-of-network concept, and the co-insurance is the same for all providers. Thus, you should expect to receive your full charge for each service rendered.

This power of steerage gives the MCO its greatest leverage. Therefore, if you agree to participate with the plan, the MCO should agree to not steer or direct any patients away from your practice (e.g., to a lower cost provider). There is little value in having finalized a contract and having your practice listed in the participating provider book, yet still not be seeing any patients.

The next contract issue to consider is that of credentialing. Frequently the MCO will agree to include a physician or group in the network and then take as long as 6 months to credential them for billing purposes. Usually this is not a conscious decision on the company's part but rather part of the overall inefficiency that seems to mar the business practices of these organizations. One should try to understand their credentialing process and perhaps see if another organization (e.g., the local IPA) has been delegated to perform this review on the plan's behalf. Regardless, the contract should stipulate that a physician who provides services under the plan will be paid retroactively for services provided from the date the credentialing data are submitted to the MCO, no matter when the plan finalizes that credential. This protects the physician or group and places the economic risk where it belongs, with the plan. It does not, however, address the headache of delayed payment.

Now that the physicians are covered, you need to make sure that all sites are included. Ideally the MCO should agree that patients seen in any of the practice's current or future sites will be considered as in the network. More likely, they will insist on at least a site assessment before inclusion. This usually is a review of the facility, its equipment, technical staff credentials, cleanliness, and the like. So long as the practice is afforded the opportunity to make corrections to any deficiencies noted, then this is a reasonable condition of participation.

Increasingly as MCOs try to limit their networks, they may choose to accept some sites and not others depending on their real or perceived geographic needs. You should note any contract language limiting site inclusion and try to negotiate the broadest acceptance possible. Moreover, the term “site” should be carefully defined. If a practice wishes to expand an existing location by adding a modality or additional space within a relatively limited geographic radius (less than a mile usually), that should not be considered a new site but instead expansion of the existing one (Box 22-4).

Managed care

Managed care reimbursement is an alternative strategy that can give payers more control over on the cost of healthcare as well as the quality of the service that a patient will expect to receive. Different models of managed care are in place that vary in the nature and stringency of control exerted by the payers. Four typical models include Health Maintenance Organizations (HMOs), Exclusive Provider Organization (EPOs), Point-of-Service Plans (POSs), and Preferred Provider Organizations (PPOs). HMOs exert greatest control, PPOs the least.

HMO: An HMO provides each insured individual with a primary physician who serves as a gatekeeper for any further specialist service. It establishes a healthcare network of contracted providers who are often employees of the HMO. By covering only the services of those providers (except in emergency situations), the HMO encourages an insured person to stay in the plan. A good example of an HMO is Kaiser Permanente, which has a strong presence in California. Kaiser Permanente has its own facilities, physicians and hospitals, and thus plays a dual role as traditional insurance payer and healthcare provider at the same time.

EOP: An EOP is sponsored by self-insured employers or associations. Like the HMO, a network of physicians will act as gatekeepers. However, EOP members can also use services outside the network, although that care may be reimbursed at a lower rate or may not be reimbursed at all.

POS: A POS plan allows its members to choose how to receive services. They will decide if they want an HMO, PPO or a fee-for-service plan at the time that they need the service. Thus, POS plans are also known as open-ended HMOs.

PPO: Although a PPO plan can have its own network of healthcare providers, it is more decentralized. Members can be more flexible when it comes to choosing which hospital and physician from which they want to receive medical service. However, a PPO will encourage its members to stay in-network by lowering the out-of-pocket expenses within the network.

Of all the reimbursement methods, the HMO may be best able to deal with the reimbursement of treatments using engineered ore regenerative products. Because engineered products at this stage are relatively new, uncommon and costly, an insurer would be reluctant to take on the financial risk of reimbursing such products without first knowing the associated cost. Because the HMO approach exerts the tightest control over its patterns of expenditure, it is in a better position to minimize the financial risk of any unknown or unnecessary charges. However, HMOs, like any other insurers, must balance patient demands for the most comprehensive medical treatment with the best approach to optimize the financial return to the organization. Thus, an expensive and novel technology will have its best chance of being reimbursed if it can demonstrate value in terms of reducing other medical costs that also must be borne by that HMO, or other insurer.

The United States

The federal government became interested in managed care in the late 1960s and, in 1973, the U.S. government passed the HMO Act, which provided incentives for HMO growth. Between 1970 and 1975, the number of HMOs increased from 37 to 183 and HMO membership doubled, though from a very low base.

In 1982, California relaxed laws that limited the ability of health plans to selectively contract with a subset of providers. This led to the emergence of PPOs and between 1981 and 1984, 15 other states passed laws encouraging the growth of PPOs. Almost immediately, growth in PPO plans escalated rapidly. By the late 1990s, about 85% of those receiving employment-based health insurance benefits were enrolled in managed care. Most were enrolled in PPOs and similar open-access plans, not in traditional HMOs with highly restrictive provider access. In 2013, a total of about 80 million Americans were enrolled in HMOs and some 150 million were enrolled in PPO-type products.

Managed care has also grown in the U.S. public sector. Medicare permitted enrollment in HMOs from its inception, but plans had few incentives to participate. In 1983, only 1.5% of Medicare beneficiaries belonged to HMOs. From 1982 on, changes in Medicare legislation made managed care participation somewhat more attractive to Medicare beneficiaries, so that by 1990, 5.4% of Medicare beneficiaries belonged to HMOs. Further legislative action, and rising premiums for supplementary insurance, made managed care a more attractive option for Medicare beneficiaries during the 1990s. By 1996, one in eight Medicare beneficiaries belonged to a managed care plan. In 2014, over 19% of Medicare enrollees belonged to HMOs and a further 11% belonged to other Medicare plans.

Under Medicaid, a joint state-federal program, states have always been permitted to contract with managed care plans that could provide services to those who voluntarily enrolled. These voluntary plans attracted very few beneficiaries (only 1.3% of all beneficiaries in 1980) both because of difficulties in administering the plans and because Medicaid fee-for-service beneficiaries already received comprehensive services and had little cost sharing. Legislation in 1981 created the possibility of waivers for mandatory HMO enrollment. By 1991, nearly 10% of Medicaid beneficiaries were enrolled in managed care plans. Since then, states have been increasingly turning to managed care. By 1996, all states except Utah and Alaska used managed care as a component of their Medicaid programs, and nearly 40% of Medicaid beneficiaries were enrolled in managed care. The 1997 Balanced Budget Act eliminated the requirement that states seek a federal waiver to begin mandatory Medicaid managed care programs. While HMOs dominate the Medicaid managed care business, other forms of managed care are also in use. For example, California implemented a system of selective contracting for its Medicaid fee-for-service program in 1982.

The rapid growth of managed care, its effects on provider incomes and on the practice of medicine, and the restrictions placed on enrollees eventually generated a legal backlash against managed care. In 1995, 27 states required state-regulated insurers to permit ‘any willing provider’ to participate in a health plan, and some states require managed care plans to permit those holding coverage a free choice of provider or mandate that plans must offer a point-of-service option. Overall, by 1996, nearly one-third of the states had strong or medium-strong restrictions on the operations of state-regulated managed care plans. States are continuing to pass laws through the 2000s. Since 2000, legal restrictions on selective contracting, consumer interest in looser forms of care management, and legislation promoting the use of high-deductible plans as a response to rising health-care costs have all contributed to a flattening in the growth of managed care in the United States.

Passage of the Affordable Care Act in 2010 generated new opportunities for expansion of managed care. Under the law, individuals without access to acceptable employer coverage may buy coverage with income-related premiums in State Marketplaces. Low income people are eligible for an expanded Medicaid program. In both the Marketplaces and in the Medicaid program, managed care plans predominate. Many of the plans newly available in the Marketplaces have used selective contracting very aggressively, offering consumers plans with narrow networks of providers at lower cost. The Affordable Care Act has also encouraged the development of Accountable Care Organizations in Medicare, a new form of managed care that holds providers accountable for costs and quality but places fewer restrictions on patients. Evidence to date has shown mixed outcomes for this new form of managed care.

Changes in the market have also generated new organizational strategies for managed care plans. Today, fully vertically integrated plans are rare. Rather, under emerging models, health plans, medical groups, and hospital systems focus on those services they perform best while coordinating with other services primarily through contractual (rather than ownership) relationships. The consumer role has also changed, with a growing emphasis on consumer cost-sharing as a means of limiting the demand for services.

The American Health Care System

The greatest portion of all patient services, approximately 80%, is provided in the offices and clinics by physicians who sell their services on a fee-for-service basis. About two-thirds of all active physicians – out of a total of about 795 000 medical doctors – are involved in direct patient care in an office- or clinic-based practice, while the remainder are mostly full-time staff members of hospitals, residents in training researchers, educators, or administrators.

The next most prominent form of health care delivery consists of services provided by hospitals. With the exception of tax-supported government institutions, hospitals, like physicians, charge patients according to a fee-for-service system. Nonprofit hospitals charge patients for hospital services using the standard of recovering the full cost of services provided and meeting the hospital's general expenses. Profit-making or proprietary hospitals not only calculate the cost of services rendered but also operate to realize a profit from those services. Nonprofit and profit-making hospitals, as well as physicians, rely heavily on third-party sources, either private health insurance or government agencies, to pay most or all of a patient's bill.

Besides office-based medical practices and hospitals, the other types of organizations involved in the delivery of health care to the American public are official agencies, voluntary agencies, health maintenance organizations, preferred provider organizations, and allied health enterprises in the business community.

Official agencies are public organizations supported by tax funds, such as the U.S. Department of Health and Human Services, the Centers for Disease Control and Prevention, the U.S. Public Health Service, and the Food and Drug Administration, which are intended to support and conduct research, develop educational materials, and provide services designed to minimize public health problems. Official agencies also have the responsibility for the direct medical care and health services required by special populations like reservation Indians, the military, veterans, the mentally ill, lepers, tuberculosis patients, alcoholics, and drug addicts.

Voluntary agencies are charitable organizations, such as the Multiple Sclerosis Society, the American Cancer Society, and the March of Dimes, who solicit funds from the general public and use them to support medical research and provide services for disease victims.

Health maintenance organizations (HMOs) are managed care prepaid group practices in which a person pays a monthly premium for comprehensive health care services. HMOs are oriented toward preventive and ambulatory services intended to reduce rates of hospitalization. Under this arrangement, HMOs derive greater income from keeping their patients healthy and not having to pay for their hospital expenses than they would if large numbers of their subscribers were hospitalized. HMOs and other managed care organizations have been able to reduce hospital stays and produce lower overall medical costs than the traditional open-market fee-for-service model, although their costs have been rising in recent years. Most of the savings are due to lower rates of hospitalization, but surgical rates and other fees may be lower for HMO populations. Physicians participating in HMOs may be paid according to a fee-for-service schedule, but many are paid a salary or on a capitation (set amount per patient) basis. Membership entitles patients to receive physicians' services, hospitalization, laboratory tests, X-rays, and perhaps prescription drugs and other health needs at little or no additional cost.

There are some disadvantages to HMOs, namely that patients (especially at night or on weekends) may be treated by whoever is on duty rather than their personal doctor, and a patient may need a referral from his or her primary care practitioner to consult a specialist. HMOs have attracted considerable attention because of their cost control potential and emphasis on preventive care. The number of HMOs and their enrollment have been rapidly increasing in the last few years. In 1970 there were 37 HMOs serving 3 million people; in 2012 there were 545 HMOs enrolling 73 million people. HMOs sometimes include individual practice associations (IPAs) that are solo practitioners or small groups of physicians who contract independently with HMOs to provide care to patients enrolled in their plans.

Preferred provider organizations (PPOs) are a form of managed care health organization in which employers who purchase group health insurance agree to send their employees to particular hospitals or doctors in return for discounts. PPOs have the advantage of being imposed on existing networks of hospitals and physicians without having to build clinics or convert doctors into employees. Doctors and hospitals associated with a PPO are expected to provide their usual services to PPO members, but lower charges are assessed against the members' group health insurance. Thus, the health care providers obtain more patients and in return charge less to the buyer of group insurance.

Allied health enterprises are the manufacturers of pharmaceuticals and medical supplies and equipment which play a major role in research, development, and distribution of medical goods.

The majority of Americans under the age of 65 years have health insurance benefits provided through their place of employment and paid for by contributions from both the employee and employer. In 1984, some 96% of all insured workers were enrolled in traditional health plans that allowed them to choose their own doctors and have most of their costs for physician and hospital services covered in an unmanaged fee-for-service arrangement. However, this situation changed dramatically because of soaring costs of health care and limitations being placed on the insurance benefits provided. By 2014, only a few insured workers had unmanaged fee-for-service health plans, while the great majority (over 90%) had managed fee-for-service plans in which utilization was monitored and prior approval for some benefits, like hospitalization, was required. The day in which doctors and their patients decided just between themselves what care was needed without considering cost appears over, as financial concerns are increasingly influencing how patients are cared for.

Some features of the health care delivery system in the United States remain unchanged. The system is pluralist in that it has more than one major client – including the federal government, health insurance companies, private business corporations as employers, and patients as consumers of services. It serves a substantial private sector, the elderly and the poor with government-sponsored health insurance (Medicare and Medicaid), and those without health insurance.

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