Taking PPO’s into the 21st Century

March 21, 2016

In response to the continued relentless rise in health care costs, Insurers are taking a long, hard look at the value PPOs deliver versus their ability to contain medical costs.

The issues around PPOs

Introduced in the 1970s, PPOs have been the predominant health care model in the United States since the late 1980s. Consumers demanded greater freedom to choose providers, and insurers were looking at strategies to control costs.

PPOs addressed both issues, offering steerage to providers in exchange for discounts, providing financial incentives to patients, ensuring quality metrics through credentialing, differentiating benefits (i.e., in-network versus out-of-network providers), and delivering payment within a defined time frame.

When the model first appeared, it was based on several high quality contracting methodologies:

  • Fee-for-service-based contracts and fee schedules
  • Per diem rates
  • Diagnosis-related, group-based contracts
  • Case rates

As the PPO model evolved, however, the interests of providers and insurers began to diverge. Insurer efficiency began to outweigh complex fee schedules, and contracted discounts migrated to a percentage-based methodology. In essence, the evolution of the contracting methodology allowed providers to effectively control reimbursement.

Over time, participation in PPOs has grown substantially. In fact, as of 2014, 58% of U.S. consumers were enrolled in a PPO plan, according to Kaiser/HRET, KPMG, and the Health Insurance Association of America. As popularity of the PPO model grew, increases in provider participation resulted in PPO networks that are no longer based an exclusive provider model, and higher pay for patient quantity, over patient care quality, continues to expose the PPO model to fraud.

Why what’s happening matters

A number of insurers are looking for alternative cost management strategies, and are leading an industry trend, moving away from PPOs.  The reduction in PPO plan offerings is an example of challenges that face insurers across the U.S. as they adapt to working in the public health care marketplace.

The Patient Protection and Affordable Care Act (ACA) ushered in many changes to the way insurers conduct business in the United States. One of the most notable changes prohibited insurers from denying or limiting coverage to high-risk individuals or those with chronic health conditions.

This and other ACA requirements led to financial challenges for insurers that offer PPO plans, and many reported substantial losses in 2014. The federal government, in an effort to stabilize premiums and prevent insurers from dropping out of the federal exchange, has implemented reinsurance, risk adjustments, and risk corridor programs. Even with such plans in place, insurers are looking at combinations of rate increases and lower-cost plans to keep their offerings competitive. Moving away from PPOs toward lower-cost network models is one of those options.

Will PPOs survive?

Probably, but change is imperative. To remain viable in today’s health care market, Stakeholders and PPOs will need to take action.  The following are some of the strategies Insurers are employing when considering PPO value:

  • Engagement of professional evaluators to determine network selection;
  • Reviewing the size of  their networks to get back to the model’s original intention;
  • Retain the right to reasonable audit provisions;
  • Conduct ongoing evaluation of their contract structures; and
  • Require prior notification of existing contract modifications

In addition, PPOs can look at modeizing reimbursement and establish limits for rational pricing tied to outcomes and Medicare data. PPOs will have to return the emphasis to quality of care and reduce — or, where possible, eliminate — price inflation.

PartnerRe can help insurers revise and streamline their PPO plan offerings. PartnerRe’s PULSE + Plus™ Medical Management is an integrated, state-of-the-art program that helps insurers manage health care risk exposure and find solutions for evolving health care challenges.

PULSE + Plus™ delivers an array of services including high-dollar claim review and negotiation, contracting services, network evaluation services, and comprehensive audit and review. For more information about how this program’s tools can help your business, contact the experts at PartnerRe online or by phone at (415) 354-1551.

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