PPOs were created to allow for more flexibility in provider choice and to create incentives for members to obtain health care services from providers participating in the network (i.e., stay “in plan”). PPOs may be insured, self-insured, or HMO risk-bearing plans in which members are covered for care at a higher level of reimbursement if services are obtained from participating network providers; they also are covered for care from providers outside of the network, but at a lower benefit level.
Providers/hospitals sign contracts with PPOs to provide care for PPO members. Providers agree to accept a set fee schedule for rendering medical care, and follow guidelines established by the PPO. Generally PPOs do not require the selection of a Primary Care Provider (or “gatekeeper”) and no referral is required to receive health care services from other in-network providers or from out-of-network providers.
PPO in-network coverage may require members to pay co-payments or a reduced coinsurance at each visit, as well as meet an upfront prescribed deductible. PPO out-of-network services do not require a referral from a PCP, but members are likely to be responsible for a higher deductible and a greater portion of the fee. PPOs eliminate the HMO “lock-in”: members receive a higher level of benefit if benefits are provided in-network, although benefits are available out-of-network.
Generally, PPOs provide indemnity type coverage similar to insurance companies. PPOs offer freedom of choice of providers and generally have had fewer utilization management constraints (e.g., prior authorization before certain types of health care services will be reimbursed).
Many state laws govern PPOs directly, or by amendment to general insurance laws. PPOs are licensed or registered by many states. Some states regulate provider-payor arrangement rather than require proactive PPO licensure/registration.
“Closed PPOs” are becoming popular in some markets. These plans generally have the features of the PPO in-network level of benefits with no gate-keeper, but do not provide coverage for out-of-network services except for emergency care.
Excerpt from Lois Dehls Cornell, Managed Care Nuts and Bolts, Fundamentals of Health Law (American Health Lawyers Association Nov. 2011).