Preferred provider organizations (PPOs) are a type of managed health care insurance. PPOs enroll members who pay fees and receive medical care from participating physicians, hospitals, pharmacies, and other healthcare providers.
A preferred provider organization is the second most popular type of managed care health insurance. It is similar to a health maintenance organization (HMO), which is the most popular type of managed care. A PPO is a group of doctors and hospitals that provides medical service only to a specific group or association. The PPO may be sponsored by a particular insurance company, by one or more employers, or by some other type of organization. Many PPOs participate in the Medicare Advantage Program for seniors and people with disabilities. PPO physicians provide medical services to the policyholders, employees, or members of the sponsor at discounted
rates and may set up use control programs to help reduce the cost of medical care. In return, the sponsor increases patient volume by creating an incentive for employees or members to use the physicians and facilities within the PPO network. Instead of prepaying for medical care, PPO members pay for services as they are provided. The PPO sponsor (employer or insurance company) generally reimburses the member for the cost of the treatment, less any co-payment. In some cases, the physician may submit the bill directly to the PPO for payment. The PPO then pays the covered amount directly to the healthcare provider, and the member pays his or her co-payment amount. The price for each type of service is negotiated in advance by the healthcare providers and the PPO. Unlike HMOs, PPOs usually do not require members to select a primary care physician who must approve all referrals to specialists, such as a cardiologist, oncologist, or endocrinologist. PPO members usually can go directly to a specialist without a referral. In 2006, 81.3 million Americans belonged to a PPO, including more than 20 million in Medicare PPOs.
A usual PPO insurance policy contains several types of coverage. Basic insurance includes hospital, surgical, and physicians' expenses. In addition, major medical coverage is available in case of a catastrophic accident or illness. This coverage usually can be purchased separately. The three basic areas of coverage are:
- Physicians—Physicians' expense insurance, sometimes called “regular medical expense insurance,” pays for visits to a doctor's office, including specialists, or for a doctor's visits to a patient in a hospital. Typically, the policy specifies a maximum benefit per visit, as well as a maximum number of visits per injury or illness. It usually covers blood, urine, and other tests performed in a doctor's office, clinic, or outpatient laboratory.
- Hospitals—Hospital expense insurance pays the cost of room and board if a PPO member is hospitalized. Some plans pay on an indemnity basis, meaning the insurer pays a specific amount per day for a specified maximum number of days. Other plans may pay the actual charges, or a percentage of the actual charges, regardless of what those charges might be. In addition to room and board, hospital expense insurance typically covers incidental fees, such as use of the operating room, x rays, drugs, anesthesia, and laboratory charges. PPO plans almost always require that the patient stay in a shared room, rather than a private room.
- Surgery—Surgical expense insurance pays surgeons' fees and related costs associated with surgery. Related costs usually include fees for an assistant surgeon, anesthesiologist, or even the operating roomif it is not covered as a miscellaneous hospital item. Surgical expense benefits are generally paid according to a set schedule, although some plans pay surgical benefits based on what is considered “usual, customary, and reasonable” in a particular geographic area.
Advantages of PPOs
Members of preferred provider organizations are not required to seek care from PPO physicians. However, there are generally strong financial incentives to do so. For example, members may receive 90% reimbursement for care obtained from PPO network physicians and hospitals but only 60% for non-network treatment. In order to avoid paying an additional 30% out of their own pockets, most PPO members choose to receive their healthcare within the PPO network. Healthcare costs paid directly by PPO members, such as co-payments and deductibles, are usually limited.
Disadvantages of PPOs
There are strong financial incentives for members to use PPO network physicians. Therefore, if a PPO member has a family doctor or primary care physician who is not part of the PPO network, the member can continue seeing that physician but will have to pay more through a higher co-payment. Also, PPO members usually are required to fill out paperwork in order to be reimbursed for their medical bills and reimbursement can take six to eight weeks or longer. Additionally, most PPOs have larger co-payment and deductible amounts than HMOs.
Since the mid-1990s, there have been an increasing number of physicians and physician groups—especially specialists—who refuse to associate with a PPO or any managed care organization, primarily because of dissatisfaction with the amount of money that PPOs pay healthcare providers. This is especially true among younger physicians, several surveys have shown. Privately insured adults, not in a managed care plan, consistently give high ratings to their own health plans. However, people in managed care plans , such as PPOs, give their plans lower ratings, according to a Kaiser Family Foundation report. The report found that a majority of PPO members believe managed care has decreased their access to specialists, decreased the amount of time doctors spend with patients, and decreased the overall quality of care sick patients receive. Also, 60% of adults surveyed said managed care and HMOs had not resulted in
significant reductions in the cost of healthcare for them. The only positive response the report found was of increased access to preventive healthcare services.
Cardiologist —A physician who specializes in cardiovascular (heart) conditions.
Endocrinologist —A physician who specializes in diseases of the endocrine (gland) system, including diabetes and thyroid conditions.
Managed care —Health plans that that coordinate a member's healthcare through a network of healthcare providers that participate in a specific plan, such as a preferred provider organization (PPO.)
Oncologist —A physician who specializes in cancer treatment.
Primary care physician —A family practice doctor or general practitioner who diagnoses and treats a variety of conditions and who refers patients to a specialist when appropriate.
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Ken R. Wells