Preferred Provider Organizations (PPOs)

A preferred provider organization is formed when a group of medical providers such as hospitals and doctors contract with employers, insurance companies, or other plan sponsors to provide various medical services. The medical providers usually offer discounted pricing because of the volume of business received from the contracting organizations. The medical providers are reimbursed on a fee-for-service basis, but the fees are lower than in a traditional plan because of the negotiated discounts.

Preferred Provider Organization Benefits

Benefits provided through a preferred provider organization vary depending on the capabilities of the providers in the organization and the overall size of the PPO. A PPO could be the only source of medical care for an employee group, or the PPO may be one choice among several medical plans the employer offers. Alternatively, a PPO may provide the in-network benefit for a point of service plan, described below.

Point of Service (POS) Programs

Another type of managed care program is the point of service program. This managed care product is somewhat of a cross between an HMO and the comprehensive major medical plan. Essentially, the plan sponsor either contracts with a number of health care providers or a managed care company to provide cost-effective medical care through a preferred provider organization of health care providers. Plan participants are free to use the network of preferred providers when they need health care. Alternatively, the plan participants can decide to utilize other medical providers who are not included in the network. However, if the participant uses out-of-network providers, he or she incurs additional expense in the form of greater deductibles and copayments. It is at the point of service that the plan participant is making the decision whether to remain in-network and receive a higher level of coverage or, alternatively, to select a medical provider who is out-of-network and be personally responsible for a larger share of the cost for this care. The POS program can be an attractive delivery system for participants who do not want to be restricted to receiving medical care only from network providers yet still would like to receive the same coverage and wellness benefits provided through a managed care system. This system of health care delivery suits some medical providers who are willing to join the PPO and provide medical services for discounted fees but are unwilling to assume the financial risks of HMO participation where a monthly fee is often paid to the doctor for each member regardless of the frequency of visits and the care provided. However, the particular financial arrangement and whether service providers bear any financial risk can be determined in various ways. 

Point of Service Plan Benefit

The POS plan is a hybrid of sorts, offering managed care case-management features and health maintenance approaches to medical care within the network but allowing plan participants the added flexibility of going outside the network if they are willing to bear a larger share of the cost for such flexibility. The extent to which subscribers are either penalized for going outside the network, or rewarded for staying within the network, can be determined by the deductible and coinsurance levels that are set. An organization could have varying reasons for setting the deductible and coinsurance levels either low or high. Also, these coinsurance levels can vary by various types of medical services. For instance, if the network of medical providers is not particularly well-developed in certain specialty areas, such as pediatrics, a company would find it difficult to penalize employees for not utilizing an in-network benefit. Another example could be that on certain types of medical services, for instance, psychiatric benefits, a company may perceive it as intrusive to require use of an in-network benefit. This may be particularly true if the POS plan is newly installed and would result in disruption of ongoing treatment. Some organizations have used POS plans as a means to transition from an indemnity plan to an HMO. In this situation, deductibles and coinsurance might initially be set slightly lower than in the traditional indemnity plan for employee relations reasons and later be increased as utilization grows in the managed care environment and employees become more comfortable with using in-network providers.

Integrated Health Systems

As the managed care delivery structures continue to grow, what started out as HMOs or PPOs are evolving into larger health systems that may include a managed care company, various physician and multispecialty practices, as well as entire hospitals and ancillary service providers. The preceding discussion of health care delivery structures is not meant to provide strict classifications into which each health plan must be distinctly assigned. Rather, it is hoped this characterization will be helpful in understanding basic differences between existing health care delivery systems and a starting point for understanding the relative merits of alternative designs. An employer's health plan should be configured matching the plan sponsor's objectives and assisting in meeting total compensation and human resource objectives.

POINT-OF-SERVICE PLANS

A newer and fast-growing type of managed care arrangement is the POS plan. A POS plan is a hybrid arrangement that combines aspects of a traditional HMO and a PPO. With a POS plan, participants in the plan elect, at the time medical treatment is needed, whether to receive treatment within the plan's tightly managed network, usually an HMO, or outside the network. Expenses received outside the network are reimbursed in the same manner as described earlier for nonnetwork services under PPO plans.

There are two basic types of POS plans: the open-ended HMO and the gatekeeper PPO. An open-ended HMO is by far the most common form and is the HMO industry's response to the demand for more consumer flexibility in the choice of providers, even though it increases costs somewhat. It essentially consists of traditional HMO coverage with an endorsement for nonnetwork coverage. It can take the basic form of any of the HMOs previously described. However, at any time a subscriber can elect to go outside the HMO network of medical care providers.

It can be argued that any PPO is actually a POS plan. However, the normal usage of the term POS implies a higher degree of managed care than is found in most PPOs. A gatekeeper PPO requires that the PPO participant elect a primary care physician in the manner of an HMO participant. This physician acts as a gatekeeper to control utilization and refer members to specialists within the PPO network. However, any time that care is needed a covered person can elect to go outside the network. This type of PPO has generally been formed by a traditional PPO or insurance company that does not own an HMO.

Under some POS plans, a covered person can go outside the plan's network without informing the plan of this fact. In other POS plans, the person must notify the gatekeeper that such treatment will be sought. Even though the gatekeeper has no power to prevent the nonnetwork treatment, the gatekeeper may be able to convince the person that proper treatment is available within the network. Furthermore, the gatekeeper can better manage future medical care by being aware of all medical treatment that a person is receiving.