Practice Management Alert

You may deal with preferred provider organizations every day - but understanding them is the key to successful negotiations

If you struggle with PPO contracts, an independent physicians association (IPA) may be just what you need to help negotiate better payment rates and other benefits.

Billers constantly have to deal with preferred provider organizations (PPOs), but many billers are still confused about how a PPO operates and interacts with providers. Check out these three Q&As to improve your know-how:

1. What is the difference between a PPO and an HMO?

PPOs and health maintenance organizations (HMOs) are both managed-care plans, says Rosemary Broderick, FACHE, chief corporate executive of Advanced Imaging Specialists in Dunmore, Pa. "PPO plans are managed-care plans based upon an organized network of independent physicians and hospitals who provide care at reduced or discounted fee-for-service," she says. "HMO plans are also managed-care plans based upon an organized network of healthcare providers," but patients with an HMO plan select a "gatekeeper" (usually a primary-care physician) who is in-network and who "directs the patient's use of healthcare resources," she says.

Autonomy: The basic difference between the two plans is that PPOs offer patients more freedom of choice. With an HMO, a patient must get a referral from his gatekeeper before he can proceed to see a specialist. With a PPO, a patient can see any in-network provider he wishes. In fact, the managed-care industry is now trying "to move away from the gatekeeper model because of market pressures and the consumer's desire to choose or access services on his own," Broderick says.

Fee freedom: "From a provider's perspective, the PPO is less restrictive" and sometimes more lucrative than an HMO, Broderick says. That's because HMOs usually pay capitated rates plus incentives for providers who meet quality indicators throughout the year. Capitation only produces revenue if you have "very high, consistent patient volume," says Donna Joseph, practice manager for Mercy MedCare - Mercy Health Partners at Mercy Hospital in Scranton, Pa. PPOs, on the other hand, "typically negotiate a fee for service," Broderick adds.

2. Can a single physician or an IPA negotiate better payment rates and benefits with a PPO?

"Typically, a single physician has little bargaining power with a health plan unless he/she is the only provider in town or meets the health plan or payer's unique needs," Broderick says. Handling contract negotiations "in a 'single file' manner" can be very difficult for a PPO or other payer, she says.

Helpful: Contract negotiations are where an IPA comes in handy. When an IPA decides to contract with a PPO or other payer, the IPA typically has all its member physicians sign a participation agreement and then allows a 10-day period in which providers can decide whether they want to participate with that payer, Broderick says. Therefore, an IPA is very attractive to a PPO because an IPA can deliver a whole network of providers under one contract in a short time, she says. This convenience is why PPOs are more willing to negotiate with IPAs for better payment rates, longer claim-filing time limits, and other benefits.

How IPAs work: First, an individual physician who belongs to an IPA informs the IPA he has received a contract offer from a PPO. The IPA then contacts the PPO to discuss contract negotiations. Because physicians typically pay a membership fee to belong to an IPA, they defer all the contracting work to the IPA staff, Broderick says.

Larger practices: Small practices usually have little bargaining power with PPOs because they represent such a small percentage of the regional market. However, larger practices that command a sizeable amount of the local area's market may have much better luck negotiating lower prices, etc., without the help of an IPA.

3. How does a PPO determine which providers to accept into its organization?

PPOs often look at the local market and consider their desire to compete for business. Sometimes there is a limit to the number of providers with whom a PPO will participate in a specific region, Broderick says. But "if the payer is nonexclusive, [the number of participating providers in an area] may not matter to them," she says. "If, on the other hand, the payer enters an exclusive relationship with an IPA that calls for mutual exclusivity in the service area, only the physicians in the IPA network are allowed to participate in the contract."

Expansion OK: Usually, if you expand your practice the PPO will automatically include your new providers or services, Broderick says. Providers should make sure to "include a provision in the contract that states all new credentialed members automatically participate in the contract agreement," she says. 
 
Next month: Doing your own contracting? Stay tuned for more information on the best contract negotiating tactics.