What Is a PPO?

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What Is a PPO?
What Is a PPO? (Image: The Onion)

A PPO is a Preferred Provider Organization within the framework of the managed care health insurance industry. A PPO is a group of doctors, hospitals, and other health care providers who create a network and negotiate predetermined fees with a given health insurance carrier. The largest (and oldest) PPO network in the United States is MultiPlan. Founded in 1980, MultiPlan has over a half million health care providers under contract and processes over 65 million claims per year.

History

The history of Preferred Provider Organizations can be traced back to the Health Maintenance Organization Act of 1973. Until that point, health insurance was provided on an indemnity basis, meaning that the insurance company would pay whatever the billing doctor charged the patient. This type of indemnity coverage was ideal for major medical expenses but often didn't cover simple things like routine check-ups and doctor office visits. Insurance companies saw an opportunity to get better control over medical costs after the passage of the HMO Act of 1973. The HMO was born and now major medical procedures had to be referred by a primary care physician and authorized by the insurance company in advance of the procedure. Insurance companies also introduced capitation fees which paid a doctor a fixed annual amount based upon the number of that insurance company's members who were in the doctor's care whether he actually treated them or not. The HMO became problematic for both patients and doctors, and the Preferred Provider Organization was born. The PPO enabled patients to see the doctor of their choice as long as he was "in network" and it streamlined the billing process so doctors would be paid faster on claims. The PPO is the most common type of major medical insurance in place today.

Function

The function of a PPO is to allow patients to see specialists without a referral from their primary care physician, to control medical costs through oversight, and to streamline the claims process by agreeing to doctor's charges in advance. A Preferred Provider Organization will usually renew their contract with an insurance carrier annually or bi-annually, adjusting fees to reflect the prevailing market costs of medical care.

Considerations

Insurance companies offer many different PPO plans. A consumer considering enrolling in a PPO must do a personal cost analysis by determining how often they go to the doctor and how much they want to have covered. Obviously, better coverage, lower deductibles, and lower co-pays for doctor office visits will mean higher monthly premiums.

Misconceptions

Just because a PPO is not an HMO doesn't mean the PPO doesn't contain some aspects of an HMO. There is still a good deal of cost oversight, and many procedures need to be pre-authorized. Also, prescription benefits vary greatly from plan to plan and some prescriptions may require secondary approval from the insurance company before they can be filled.

Warning

PPO benefits change drastically when the member goes "out of network." While a given procedure may be covered 90 percent in network, the same procedure may only be covered 50 percent out of network. Also, it is important to verify that all your health care providers are in network before major surgery. It is all too common for a patient's doctor and hospital to be in network, but the anesthesiologist is not, resulting in costly and unexpected charges.

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