9.6 Preferred Provider Organizations (PPOs)
A Preferred Provider Organization (PPO) is a health care arrangement in which a network of independent hospitals, physicians, and other medical providers agree to offer services to plan members at negotiated, discounted rates. Unlike Health Maintenance Organizations (HMOs), PPO providers typically operate on a discounted fee-for-service basis, meaning providers perform services and are paid directly after treatment is rendered according to a negotiated fee schedule.
The organization that establishes or administers a PPO may include a commercial insurance company, Blue Cross or Blue Shield organization, a group of hospitals and physicians, a Health Maintenance Organization (HMO), large employers, or labor unions.
One of the primary advantages of a PPO is that it provides greater flexibility and choice of health care providers. Subscribers may receive treatment from either preferred (in-network) providers or nonpreferred (out-of-network) providers. When subscribers choose a preferred provider, they receive services at the negotiated rate with lower out-of-pocket costs. If a subscriber chooses an out-of-network provider, the PPO will typically pay a reduced portion of the expenses, and the subscriber is responsible for a higher share of the cost.
Like HMOs, PPOs seek to control medical costs through managed care practices. However, PPOs differ in several important ways. PPOs do not operate their own medical facilities, and they are generally less strictly regulated, since a PPO may be formed by any group of providers or organizations that agree to the network arrangement.
Exclusive Provider Organization (EPO)
An Exclusive Provider Organization (EPO) is a variation of a PPO in which subscribers are required to receive medical services exclusively from providers within the network. Unlike HMOs, EPO plans do not require the use of a Primary Care Physician (PCP) and referrals to specialists are generally not necessary. Health care providers in an EPO network are typically paid according to a negotiated fee-for-service arrangement.
Quiz
1. Which statement best describes a Preferred Provider Organization (PPO)?
A. A system in which medical services are provided only through government facilities
B. A network of providers who agree to deliver services at negotiated, discounted rates
C. A plan that requires all treatment to occur within HMO-owned facilities
D. A plan that reimburses only emergency services
Correct Answer: B
Rationale: A PPO is a network of independent hospitals, physicians, and medical providers who agree to provide services to plan members at prearranged discounted rates. This negotiated fee arrangement helps reduce overall health care costs.
2. How are health care providers typically compensated in a PPO plan?
A. Through capitation payments
B. Through salary payments from the insurer
C. Through a discounted fee-for-service arrangement
D. Through subscriber copayments only
Correct Answer: C
Rationale: In a PPO, providers are usually paid according to a discounted fee-for-service schedule, meaning they receive payment for each service performed based on negotiated rates with the PPO organization.
3. What is one major advantage of PPO plans compared to HMOs?
A. PPO plans eliminate copayments.
B. PPO plans allow greater flexibility in choosing health care providers.
C. PPO plans require treatment only at network facilities.
D. PPO plans provide unlimited lifetime benefits.
Correct Answer: B
Rationale: PPOs provide greater provider choice. Subscribers may use in-network providers at lower costs or out-of-network providers at higher out-of-pocket expenses, offering more flexibility than most HMO plans.
4. What typically occurs when a PPO subscriber receives treatment from an out-of-network provider?
A. The PPO pays the full cost of services.
B. The subscriber is denied all benefits.
C. The PPO pays a reduced amount and the subscriber pays a larger portion of the cost.
D. The subscriber must obtain a referral from a primary care physician.
Correct Answer: C
Rationale: PPO plans allow out-of-network care, but the insurer generally pays a smaller percentage of the costs, leaving the subscriber responsible for higher out-of-pocket expenses.
5. Which statement accurately describes an Exclusive Provider Organization (EPO)?
A. Subscribers may freely use both network and non-network providers.
B. Subscribers must use network providers but are not required to obtain referrals from a PCP.
C. Subscribers must obtain referrals from a primary care physician before seeing specialists.
D. Providers are paid through capitation payments.
Correct Answer: B
Rationale: An EPO requires subscribers to use providers within the network, similar to an HMO. However, unlike HMOs, EPO plans typically do not require a Primary Care Physician (PCP) or referrals to specialists, and providers are paid based on negotiated fee-for-service arrangements.