Medigap preferred provider organizations: issues, implications, and early experience

The Health Care Financing Administration is sponsoring the Medicare Physician Preferred Provider Organization (PPO) Demonstration to assess the feasibility and desirability of including a PPO option under Medicare. Two sites are currently operational. At one site, Blue Cross and Blue Shield of Arizona is offering a PPO linked with a medigap insurance plan. This "medigap PPO" and its initial experience are described, and a preliminary assessment of the viability and effectiveness of medigap PPOs nationally is provided. Impediments to the development and effectiveness of medigap PPOs are identified and possible government actions discussed.     

Silent PPOs: the stealth discounting of provider reimbursement

Physicians are losing millions of dollars per year from payers engaging in abusive discounting practices. One of the worst of these practices is the silent PPO. This article explains what a silent PPO is and how it unlawfully reduces a provider's reimbursement. The article discusses how providers can recognize silent PPOs and how to protect their practices from this discounting. The article also reviews statutes that prohibit or regulate silent PPOs and recent court decisions finding in favor of providers and against silent PPOs.     

Preferred provider organizations and physician fees

Preferred provider organizations (PPOs) represent a form of managed care in which providers agree to accept discounted fees in exchange for the expectation that their patient volume will increase or at least be maintained. Managed care plans that rely on discounted fee-for-service (FFS) payments have increased from about 10 plans in 1981 to over 700 plans in 1994. In this study, we document levels of discounts achieved by two large national insurers and discuss how the size of the discount varies by type of service and how the discounted rates relate to Medicare fees. Our results show that, despite achieving large discounts (approximately 10 20 percent) relative to their indemnity plans, the two nationwide PPOs studied here pay at rates substantially above Medicare levels.     

Physicians Contracting with Managed Care

It has been observed that enrollees in managed care systems such as HMOs and PPOs have lower expenditures and utilization rates than those in conventional insurance plans. Few studies have investigated this issue by examining providers. This paper studies whether physicians with low costs are more likely to sign contracts with HMOs and PPOs in order to help explain the observation of lower expenditures and utilization rates by HMO and PPO enrollees. A logistic regression is applied to the data from the 198401985 Physician Practice Costs and Income Survey. The results do not show strong evidence that a physician's likelihood of contracting with HMOs and PPOs is related to the physician's practice costs and utilization decision of contracting with managed care systems are the physician's socio-demographics, the physician's practice region, and the market conditions.     

The effects of market structure and bargaining position on hospital prices

PPOs and HMOs have gained widespread acceptance due in part to the belief that excess capacity and competitive market conditions can be leveraged to negotiate lower prices with health care providers. We investigated prices obtained in different types of markets by the largest PPO in California. Our findings indicate that greater hospital competition leads to lower prices. Furthermore, as the importance of a hospital to the PPO in an area increases, the price rises substantially. Our testing of alternative methods for defining hospital geographic markets reveals that the common practice of using counties to define the market leads to an underestimate of the price-increasing effects of a merger.     

Continuity and change in preferred provider organizations

This paper presents the results from a national survey of preferred provider organizations (PPOs) that was conducted in 1988. It is based on telephone interviews conducted by the authors with executives in over 170 PPOs in the United States. We compare the survey results with those obtained from similar surveys conducted in 1985 and 1986, allowing us to assess the extent to which PPOs have grown and changed. We found that PPOs have continued to grow at an extremely rapid rate. During the Summer and Fall of 1988, the time in which the survey took place, 37.6 million people were eligible to use PPO benefits, compared to the 16.5 million figure we obtained two years earlier. We did not find, however, that PPOs are moving in the direction of providing more innovative forms of health care cost containment. Most PPOs still rely on discounts from providers and utilization review to achieve savings. There is little trend towards using incentive reimbursement techniques and choosing preferred providers that have shown themselves to be cost-efficient. We conclude that in the coming years PPOs must demonstrate the ability to control rising health care costs. To accomplish this, they will need to put more pressure on providers to use resources more sparingly. Otherwise, they may lose their market share to other forms of managed care.     

Physicians contracting with managed care

It has been observed that enrollees in managed care systems such as HMOs and PPOs have lower expenditures and utilization rates than those in conventional insurance plans. Few studies have investigated this issue by examining providers. This paper studies whether physicians with low costs are more likely to sign contracts with HMOs and PPOs in order to help explain the observation of lower expenditures and utilization rates by HMO and PPO enrollees. A logistic regression is applied to the data from the 1984-1985 Physician Practice Costs and Income Survey. The results do not show strong evidence that a physician's likelihood of contracting with HMOs and PPOs is related to the physician's practice costs and utilization pattern. Instead, major factors that significantly affect a physician's decision of contracting with managed care systems are the physician's socio-demographics, the physician's practice region, and the market conditions.     

Fee-for-service Medicare in a competitive market environment

Since its inception, the Medicare Program has allowed for the participation of private health plans, but the relationship of private plans to the government-sponsored fee-for-service (FFS) plan has been the subject of debate. Increased payments to private plans, the introduction of regional preferred provider organizations (PPOs), and a mandated demonstration of price competition that includes FFS Medicare reflect an ongoing attempt to define the role of private plans. The purpose of this article is to explore the roles of private plans and FFS Medicare and to attempt to identify the advantages and disadvantages of each.     

Evaluation of a preferred provider organization

Preferred provider organizations (PPOs) have emerged as a new approach to organizing health care services; the promise of melding the primary strengths of indemnity insurance with HMO plans was rapidly embraced. The performance of PPOs has not yet been measured critically, despite their growth to over 250 plans. A single, large case study of PPO design and performance is examined, revealing a mixed but hopeful picture of administrative challenges, physician response, patient use patterns, and cost reductions, PPOs offer fertile ground for future research.     

Employer perspectives on the preferred provider organization concept

The goal of preferred provider organizations (PPOs) is to identify cost effective physicians, hospitals and other providers and form them into healthcare delivery systems. Widespread interest in PPOs stems from the belief that they can contain costs while offering consumers a choice of physicians and hospitals. But there is little information available about the demand by employers to offer PPOs as a health plan option. This study gathered information on employers' attitudes toward PPOs through a survey of companies in the Minneapolis metropolitan area. Most of the surveyed firms were found to be self-insured and offered a choice of healthcare plans, including HMOs. Contrary to some previous studies, healthcare costs are a major concern by all of the firms. PPOs are viewed as one part of an overall strategy to reduce those costs while maintaining quality of care and convenient access to providers. Although somewhat skeptical about potential savings and concerned over the administrative costs of offering a new health plan, most of the firms indicated support for the PPO concept. The greatest market opportunity for PPOs is to offer the plan as an alternative within the company's existing indemnity plan, wherein employees who use the preferred providers are exempt from at least a portion of the coinsurance and deductible requirements.     

How can PPOs control prices without violating antitrust laws?

Preferred provider organizations (PPOs) have caused concern because they raise the question whether providers can establish mechanisms to control the price of medical care without violating antitrust laws. The U.S. Supreme Court recently decided in Arizona v. Maricopa County Medical Society that the practices of a physicians' organization which set fee schedules by majority vote constituted price fixing because "independent competing entrepreneurs" made the agreements. The decision implies that PPOs must carefully structure collective efforts to set prices in order to avoid unlawful agreement among competitors. To avoid antitrust exposure, hospitals may independently determine prices and contract individually with providers, or they may act as brokers for individual physicians, establishing fees and claims-processing procedures and then contracting with physicians who agree to these requirements. Setting fees independently may be difficult, however, since hospitals need to know what payment physicians will accept. Thus some physician involvement is probably inevitable. No antitrust liability results, however, if individual physicians are sampled in an information-gathering process but do not collectively set fees. In addition, a PPO that is structured as a partnership or other joint arrangement involving true risk sharing should withstand antitrust challenge. In recent business review letters, the Department of Justice approved two different PPO structures: A Hospital Corporation of America subsidiary would contract (nonexclusively) with providers, hospitals, and third party payers to treat the third party payers' beneficiaries at discounted rates. The charges would be negotiated individually with each physician and hospital. A management consultant firm would act as an intermediary between providers and third party payers, negotiating patient discounts but not participating in fee setting. A PPO need not be structured in every respect like these programs. Individual situations vary, and with sound antitrust advice, PPOs can avoid legal pitfalls.     

Developing a PPO: challenges and benefits

When deciding upon which kind of alternative delivery system to develop, Saint Vincent Charity Hospital and Health Center, Cleveland, selected the preferred provider organization (PPO) mode because of four basic advantages: (1) the health care consumer's freedom to choose providers; (2) effective cost containment; (3) coordination of services among allied providers; and (4) health promotion programs. More specifically, the Ohio Health Choice Plan (OHCP) benefits hospitals by assisting to maintain or increase market share, facilitating prompt claims payments, and improving financial mix. Physicians benefit not only because they receive prompt payment and are not a risk but also because the fee-for-service system is retained and their market shares can also be preserved or enhanced. Employers' advantages include savings through controlled utilization, positive employee relations, and improved management information. Employees' benefits include lower out-of-pocket costs and freedom of choice. As a full-service PPO, the organization provides benefits plans designed to meet each employer's needs as well as actuary services, claims screening and processing, benefits coordination, utilization control, management reporting, health promotion activities, and networking capabilities. Four major challenges do confront PPOs: 1. Start-up and operating costs can be significant; 2. The administrative skills required are different from those used in traditional health care systems; 3. The commitment in implementing and operating a PPO; and 4. All participating providers must genuinely accept the PPO. A PPO's success also can be measured in three ways: the development of a strong network; size of enrollment; and effectiveness in utilization control.(ABSTRACT TRUNCATED AT 250 WORDS)     

The puzzling popularity of the PPO

Surging growth in preferred provider organization (PPO) participation has been fueled by migration away from the undesirable features of health maintenance organizations (HMOs). While employers, consumers, and providers seem to know what it is they do not want from HMOs, the advantages offered by PPO design are not so clear. This is attributable in part to difficulties in determining what a PPO arrangement actually is. But it may also reflect a lack of strong evidence that PPOs control costs, provide active care management, or promote quality improvement.     

Competitive bidding for Medicare Part B clinical laboratory services

The traditional Medicare fee-for-service program may be able to purchase clinical laboratory test services at a lower cost through competitive bidding. Demonstrations of competitive bidding for clinical laboratory tests have been twice mandated or authorized by Congress but never implemented. This article provides a summary and review of the final design of the laboratory competitive bidding demonstration mandated by the Medicare Modernization Act of 2003. The design was analogous to a sealed bid (first price), clearing price auction. Design elements presented include covered laboratory tests and beneficiaries, laboratory bidding and payment status under the demonstration, composite bids, determining bidding winners and the demonstration fee schedule, and quality under the demonstration. Expanded use of competitive bidding in Medicare, including specifically for clinical laboratory tests, has been recommended in some proposals for Medicare reform. The presented design may be a useful point of departure if Medicare clinical laboratory competitive bidding is revived in the future.     

PPOs. Implications for management

The development of preferred provider organization (PPOs) is relatively recent--largely since 1980--and there is little definitive experience to date. The PPO concept does, however, address the major concerns of all involved in health care today: the cost of medical care, the projected physician surplus, and increased competition. It provides a way of working with major purchasers of health care, within the context of a fee-for-service practice, to jointly address these concerns. While PPOs are unlikely to be the "wave of the future" (any more than HMOs were), the concept contains idea which are likely to be of continuing value to medical group managers, as they seek to improve the competitive status of their groups. The author addresses the present situation, implementation of a PPO, alternatives available to medical groups, and implications for medical group management.     

The effects of predetermined payment rates for Medicare home healthcare.

OBJECTIVE: To assess the effects of an alternative method of paying home health agencies for services to Medicare beneficiaries, based on a demonstration program. DATA SOURCES/STUDY SETTING: Primary and secondary data collected on participating home health agencies in five states and their patients during the three-year demonstration period. Primary data included patient surveys at discharge and six months later, and two rounds of interviews with executive staff of the agencies. Secondary data included agencies' Medicare cost reports, quality assurance reviews, Medicare claims data, demonstration claims data, demonstration patient intake forms, and plan of treatment forms. STUDY DESIGN: The 47 agencies volunteering to participate in the demonstration were each randomly assigned to the treatment or control group. Treatment group agencies were paid a predetermined rate based on their inflation-adjusted cost per visit during the year preceding the demonstration; control group agencies were paid under Medicare's conventional cost reimbursement method. Demonstration impacts were estimated by comparing outcomes for the two groups of agencies and their respective patients, using regression models to control for any remaining differences. PRINCIPAL FINDINGS: Agencies paid under prospective rate setting were slightly better at holding per-visit cost increases below inflation than were control group agencies. The change in payment method had no effect on agencies' volume of Medicare visits or quality of care, nor on patients' use of Medicare services or other formal or informal care services. CONCLUSION: Changing from cost-based reimbursement to predetermined payment rates for Medicare home healthcare visits would not lead to large savings for the Medicare program, but would not increase costs to Medicare or adversely affect patients or their caregivers.     

Medicare P4P demonstration project shows significant QI. Participants improve in all five clinical areas over three-year period

In demonstration project, Medicare offers bonuses based on how well hospitals meet quality measures. Median performance composite score for all hospitals was up 7.5% in project's first year. Incentives may not have been the only reason for improvement, observers say.