Advanced Search

Medicare Compliance & Reimbursement

Health Plans:

Can PPOs Really Save Medicare?

Published on Fri May 07, 2004

PPOs may not be up to the challenge, new study says.

Based on the experience of preferred provider organizations in the private sector, PPOs may not be able to perform all the tasks lawmakers set for them in last year's Medicare legislation. That's the finding of a report from the nonpartisan research group Center for Studying Health System Change (HSC), based on interviews from HSC's latest round of site surveys in 12 health-care markets.
 
By promoting development of a large-scale PPO sector in Medicare, legislators hoped to offer beneficiaries sustainable coverage options with more benefits and lower out-of-pocket costs than in traditional government-run Medicare, expand private-plan options nationwide including in rural areas, more closely manage care for beneficiaries with chronic comorbidities, and ultimately restrain program costs, the HSC analysts say.

PPOs are an increasingly widespread and popular option for employer-based coverage, with an enrollment of around 110 million people in 2003. Their broader provider networks have made them popular with enrollees, who chafed at the tighter management imposed by health maintenance organizations. Cash-strapped employers also are finding that "PPO designs easily allow them to add more cost sharing for employees," thus helping companies hold down their costs, the report says.

Despite their growing popularity, however, PPOs' design probably is not very well suited to achieving Congress' Medicare goals, the HSC analysts say. Among facts that suggest PPOs are a questionable fit with the ambitious role lawmakers envisioned in the 2003 Medicare Modernization Act are the following:
 

  • When PPOs enter Medicare in large numbers beginning in 2006, lawmakers expect them to bear insurance risk and, as a consequence, rein in costs much more assiduously than they otherwise might. In the private sector, however, few PPOs have much experience with insurance risk, and PPOs aren't generally regulated as risk-bearing entities by states.
     
  • In Medicare, PPOs also will have to come quickly up to speed on quality improvement and care management. But "most PPOs have far less performance reporting and monitoring capability than HMOs and make limited efforts to influence provider behavior or enhance quality."
     
  • When it comes to cost containment, PPOs also may have fewer tools than more tightly managed plans, say the analysts. In interviews, surveyors heard from PPO network developers that they "struggle to get favorable rates or even desirable payment terms" and are experiencing "fierce contracting pushback from hospitals," some of which "have demanded a return to percent-of-charges contracts from fixed-payment methods like case rates or per diems."

  • Private-sector PPOs attract enrollees because they offer wider provider choice and fewer restrictions than the only alternative most workers have: tightly managed HMOs. But in Medicare, the alternative will be the traditional fee-for-service program, with its nearly limitless choice of providers, thus making Medicare PPOs' "appeal ... less clear."

    The existence of traditional Medicare as an alternative for providers also could decrease Medicare PPOs' clout in negotiating prices, the HSC analysts note.

    • Other Articles in this issue of

    Medicare Compliance & Reimbursement

    View All