The PPO Contract—Beneficial or the Sleeves from a Vest?

Generally speaking, a Preferred Provider Organization (PPO) contract is an agreement between a medical provider and a managed care organization.  This managed care organization creates, on the one hand, a network of doctors, hospitals, and other health care providers, and, on the other, a group of insurance carriers who presumably will be the payers to those medical providers when those providers render medical services to customers of those carriers.  The medical providers generally agree to reduced rates in exchange for expeditious and predictable reimbursements; the carriers agree to pay more quickly in exchange for paying less. This is mutually beneficial, in theory, as the insurer will be billed at a reduced rate when its customers utilize the services of the PPO-member medical provider and the provider will be paid promptly.

 

Insurance carriers certainly prefer these arrangements.  If they did not, it is unlikely these arrangements would be as pervasive as they are.  The question medical providers need to ask is whether the PPO’s to which they are committed are worth it.  Are you receiving a benefit or simply the sleeves from a carrier’s vest?

 

Membership in a PPO network allows for a substantial discount below the medical provider’s regularly charged rates, often ranging from 10% to 35% below billed charges or 10% to 20% below applicable fee schedule amounts. Sometimes PPO’s call for flat rate payments for particular services or treatment, whereby a provider might receive a few hundred or a few thousand dollars for treatment they would normally bill at two or three or four times that amount. The point is these agreements can call for very significant reductions.  More often than not there is a very substantial downside to these arrangements for medical providers.  In the motor vehicle accident arena, otherwise known as PIP, there already are state-imposed fee schedules in place for most services.  If that is the case, why allow for an additional PPO reduction from those already relatively low reimbursements?

 

Also, signing up with a PPO network could “spider web” into being forced into unseen arrangements, also known as Silent PPOs, which are not fully communicated to the provider upon presentation of the agreement.  A provider might bill a carrier expecting 100% reimbursement only to find that the carrier, unbeknownst to the provider, is signed up with that managed care organization or is submitting bills to a third-party administrator who has essentially “leased” the PPO.  The result is that a medical provider might end up offering substantial discounts to numerous carriers it never anticipated and from which is derives no benefit.

 

The bottom line is that medical providers need to analyze whether the supposed upside of such an arrangement outweighs the downside described above.  Let us examine that supposed upside.

 

Carriers in these networks usually agree to pay within a defined timeframe, 60 or 90 days for example.  If the carrier fails to pay within this timeframe, the carrier is usually required to pay the full billed charges or the full fee schedule amount, whichever one was applicable; basically, the carrier forfeits its right to a discount.  But is this a penalty at all?  The carrier would be required to pay the billed amount (assuming it is the provider’s usual and customary charge) or the full fee schedule amount without being a signatory to the agreement.  Also, in the context of PIP claims, carriers are required to pay within 60 days anyway, otherwise a claim can be arbitrated, and if the provider is successful, the carrier can be liable for the interest, legal fees and costs as well as any provider reimbursement.  In the PIP arena, the PPO timeframe is redundant and unnecessary.

 

Does the provider receive referrals that make the PPO worth it?  Perhaps they do receive referrals, but are they enough to outweigh the downside of reduced payments?  It is possible, perhaps likely, that the referrals are not nearly as beneficial as the provider thought they would be or was promised they would be.  Also, there are instances where referrals are not a relevant consideration.  For example, hospital emergency room treatment is not referral-based.  A patient is brought to the nearest emergency room, regardless of whether that hospital is part of the carrier’s PPO network.  Why make reimbursement for emergency room treatment subject to reduced PPO payments when there is little to no gain in the way of referrals to that hospitals’ emergency room.

 

Providers need to be more vigilant in scrutinizing, on an ongoing basis, the benefits versus the disadvantages of their PPO agreements.  The downside to these agreements is substantial; the upside needs to be more substantial.  Additionally, Providers need to be sure that PPO contracts do not open the floodgates to other networks or carrier obtaining a discount through a Silent PPO arrangement.  It is only through a thorough, ongoing cost/benefit analysis that providers can be sure they are in an advantageous PPO contract, and, before signing onto and continuing in any PPO, providers should have experienced legal counsel review the proposed or existing agreement.

 

For more information please visit:

www.callagylaw.com

www.callagycounsel.com

 

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