Preferred Provider Organization (PPO)

What is a PPO?

A Preferred Provider Organization (PPO) is offered by insurance companies and is a group, or network, of providers of all specialties who, in exchange for greater access to plan members, have agreed to provide healthcare at discounted fees, or contracted rates.

The contracted rates are determined by the insurance company and are agreed to, by contract, between them and the provider. To ensure that providers are able to capture their share of patients, they usually will participate in numerous PPO networks.

As an incentive for patients to use PPO providers, they can expect no/low deductible and a higher level of reimbursement if in network providers are used. Services by out of network doctors are subject to a higher deductible and a lower level of reimbursement. 

PPO providers have agreed not to bill the patient and write off any amounts over the contracted rate. PPO providers are allowed to collect any deductible and co-insurance amounts required. Non-participating providers may have their claims adjudicated based on the Usual, Customary, or Reasonable (UCR) allowance, a percentage of the contracted rate or any other method as determined by the insurance company. Non-participating providers can collect any amount not paid by the insurance company.

EXAMPLE OF A PPO PLAN DESIGN

Let's look at two examples on how a claim will be processed with In-network and
Out-of-Network providers.

IN-NETWORK SCENARIO:

James goes to the doctor and with a office visit, lab and x-rays. He incurs $540.00 in medical expenses. The claim was billed to the health carrier and they allowed $440.00 of the claim.

So what did James have to pay out of his pocket for this visit?

Provider was paid: $44.00 (patient) + $396.00 (carrier) = $440.00

Note: $100.00 over contracted rate is adjusted off


OUT-OF-NETWORK SCENARIO:

James goes to a doctor and with an office visit, lab and x-ray, he incurs $550.00 in medical expenses. The claim was billed to the health carrier and they allowed $450.00 of the claim.  Let's assume that none of the deductible was met.

So what did James have to pay out of his pocket for this visit?

Provider was paid $305.00 (patient) + $245.00 (carrier) = $550.00


ADVANTAGES & DISADVANTAGES OF PPO PLANS

Advantage to Members Participating in PPO Plans 

  • Members have the freedom to select any doctor, in network or out of network. 
  •  They can see any doctor, any specialist, without having to wait for a referral or pre-approval.
  • Members who use in network providers can expect higher reimbursement with low or no deductible.

Disadvantages to Members Participating in PPO Plans

  • If out of network treatment is sought, the member can expect to pay higher out of pocket expenses.

Advantages to Providers Participating in PPO Plans

  • Doctors may be listed in the directories of several different networks, which may result in an increase in the number of new patients.

Disadvantages to Providers Participating in PPO Plans

  • The reality is that doctors maybe working harder, seeing more patients, because reimbursement based on contracted rates is normally lower than what the provider may bill for a same service and they cannot make the patient responsible for the difference.

Back to Chapter Two

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