The advent of leased PPO networks in the late eighties has had a significant impact on the healthcare industry - some good, some bad.
In the health care industry, a preferred provider organization (PPO) is a type of managed care organization. Much like a Health Maintenance Organization (HMO), a PPO provides health care coverage through a network of doctors, hospitals and other health care providers with whom it has a contract.
The health care providers in a PPO network contract to provide their services at a significant discount below their regular rates, to members of the PPO. The PPO, in turn, contracts to pass on some of the savings to its members to encourage them to use in-network providers. If a PPO member chooses to use an out-of-network provider, it will cost more.
As such, the contract provides a win-win relationship between the PPO and its network of providers. The doctors and hospitals benefit from a larger volume of business, because most all the PPO members will come to them to get discounted rates. On the other hand, the PPO benefits from lower costs, and from the ability to offer its members more affordable, competitive health insurance premiums.
However, this symbiotic relationship can breakdown when the PPO leases out its network to another insurance company.
How Leased PPO Networks Work
A PPO can generate extra income by leasing access to its network of providers. In this case, it charges another insurer a fee to let the insurers' clients use the services of the PPOs providers at the same discounted rate as the PPO's members.
In theory and, sometimes, in practice, this is another win-win situation for the PPO and its providers, as well as the insurer who leases this access. However, some unscrupulous PPOs take advantage of the complexity of the industry and loopholes in their contracts to the detriment of their providers.
Three practices, in particular, have significantly affected doctors, hospitals and other healthcare providers - silent PPOs, cherry picking and stacking.
The silent PPO refers to a scheme in which a real PPO leases access to the services of its provider network to another insurer or entity that does not offer PPO policies. The insurer who buys this lease can now take advantage of the discounted rates of the provider network without having to sign a contract with any of the providers.
Secondly, there is no obligation to encourage their members to use providers within this network, thus denying the providers the benefit of increased business from offering discounted rates. What's more, the leased access is often given without the knowledge or approval of the healthcare provider.
When a doctor or other provider enters into a contract with multiple PPOs at different rates, it creates the opportunity for cherry picking. A non-PPO insurer may subscribe to a more than one leased PPO network. Often, this means that there will be an overlap of contracts in which, for example, the same doctor offers different discounts to two different PPOs. In the event of a claim, the insurer will simply pick the least expensive of the rates offered by the doctor. In this case, the doctor will receive payment at the lower discounted rate from a party he or she does not even have a contract with in the first place. In fact, the PPO listed on the patient's card does not reflect the rate that is used to re-price the claim.
The non-PPO contracts with different leased networks, but fails to honor exclusivity requirements with any of them to limit "out-of-network" claims. Instead, the non-PPO uses whichever provider suits its purposes. This, in effect, greatly undermines the requirement that the PPO channel its members to the provider in exchange for a substantial discount.
Leased PPO networks are probably here to stay. However, with vigilance on the part of providers, and with better legislation to regulate the industry, the harmful effect some leased PPOs have can be minimized and even eliminated.