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.