A preferred provider organization is a subscription-based medical care arrangement. A membership allows a substantial discount below the regularly charged rates of the designated professionals partnered with the organization. Preferred provider organizations themselves earn money by charging an access fee to the insurance company for the use of their network. They negotiate with providers to set fee schedules, and handle disputes between insurers and providers. PPOs can also contract with one another to strengthen their position in certain geographic areas without forming new relationships directly with providers. This will be mutually beneficial in theory as the PPO will be billed at the reduced rate when its insureds utilize the services of the "preferred" provider, and the provider will see an increase in its business as almost all insureds in the organization will only use providers who are members. PPOs have gained popularity because, although they tend to have slightly higher premiums than HMOs and other more restrictive plans, they offer patients more flexibility overall.
History
In 1980, an early PPO was organized in Denver at St. Luke's Medical Center at the suggestion of Samuel Jenkins, an employee of the Segal Group who consulted with hospitals for Taft-Hartleytrust funds. By 1982, 40 plans were counted and by 1983 variations such as the exclusive provider organization has arisen. In the 1980s, PPOs spread in cities in the Western United States, particularly California due to favorable state laws.
PPO
Other features of a preferred provider organization generally include utilization review, where representatives of the insurer or administrator review the records of treatments provided to verify that they are appropriate for the condition being treated rather being largely, or solely, being performed to increase the number of people due. Another near-universal feature is a pre-certification requirement, in which scheduled hospital admissions, and in some instances, outpatient surgery, must have the prior approval of the insurer and must often undergo "utilization review" in advance.
Comparison to exclusive provider organization (EPO)
A PPO is a healthcare benefit arrangement that is similar to an exclusive provider organization in structure, administration, and operation. Unlike EPO members, however, PPO members are reimbursed for using medical care providers outside of their network of designated doctors and hospitals. However, when they use out-of-network providers PPO members are reimbursed at a reduced rate that may include higher deductibles and co-payments, lower reimbursement percentages, or a combination of these financial penalties. EPO members, on the other hand, receive no reimbursement or benefit if they visit medical care providers outside of their designated network of doctors and hospitals. EPOs do allow reimbursement outside of the network in emergency cases, per the Affordable Care Act.
