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 [...]