PPO’s and Their Overarching Effect

Preferred Provider Organization (PPO) Agreements—what are they exactly?  You, hospital or surgery center, are a preferred provider, meaning the insurance carrier, the one who desperately wants you signing such an agreement, affords you preferential treatment when you sign up.  Well, for the most part, the most significant aspect of these agreements is lower reimbursement to the medical provider.  Some preference!

Let’s examine a bit more closely the effects of these contracts.

The overarching effect of these agreements is to create fee schedules, where they otherwise would not exist.  In the normal course, a medical provider would be reimbursed at the rates established by a government-created fee schedule, such as the federal Medicare fee schedules or the New Jersey No-Fault fee schedules, or, in the absence of an applicable fee schedule, at the provider’s usual and customary rate (UCR).  Insurance carriers welcome government-imposed fee schedules, because they tend to reimburse medical providers at rates lower than the provider’s UCR, in effect cutting the carrier’s costs.

Carriers also realize they could benefit even more by creating their own fee schedules, where there were no government fee schedules, as long as they could get providers to agree to accept the lower reimbursements.  Hence, the creation of networks.  Carriers like to promise patient referrals in exchange for signing up to the lower reimbursement rates; they also like to promise quicker payments.  It is impossible for anyone other than the provider itself to determine whether these promised benefits exceed the detriment of lower reimbursements, or even whether the promised benefits exist.  And, of course, some PPO agreements are better than others.  But, it is possible–perhaps very possible–the reality of the PPO the medical provider is committed to is not nearly as beneficial to the medical provider as the carrier promised.

This would seem to be especially true in areas where patient referrals do not even come into play, such as hospital emergency room (ER) claims.  ER patients usually have no choice as to the hospital they will go to for treatment.  They head, in most instances, whether by ambulance or other means, to the nearest ER facility.  They do not choose a facility based on whether or not the facility is part of their insurance carrier’s network.  Accordingly, commercial insurance ER claims should not even be subjected to a PPO arrangement.  These claims should be paid at UCR by commercial carriers.  The same is true of Workers Compensation ER claims, since there is no government-imposed Workers Compensation fee schedule in New Jersey.  Likewise, the rules and regulations governing No-Fault exempt ER treatment from the relevant fee schedules, maintaining a history of hospital ER claims being paid at UCR.  The only thing enabling reimbursement to hospitals at rates lower than UCR in all three of these circumstances is the existence of PPO’s.

Understand, too, why these agreements are so important to carriers.  Regardless of how effective or ineffective you think government action can be, we can all agree at least that when a government entity promulgates fee schedules, it does so in order to keep down the related insurance rates.  For example, the no-fault fee schedules were created in an attempt to reduce auto insurance premiums for the consumer.  Whether they did so or not is another question, but, at least this was the intent.  When carriers create their PPO fee schedules and rates, they do so to improve their bottom lines.  There is nothing wrong with profit, but I state things this way, so that medical providers make informed choices when deciding whether or not to become a “preferred” provider.