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Evaluation of a preferred provider organization.

Preferred provider organizations (PPOs) have emerged as a new approach to organizing health care services; the promise of melding the primary strengths of indemnity insurance with HMO plans was rapidly embraced. The performance of PPOs has not yet been measured critically, despite their growth to over 250 plans. A single, large case study of PPO design and performance is examined, revealing a mixed but hopeful picture of administrative challenges, physician response, patient use patterns, and cost reductions, PPOs offer fertile ground for future research.

Adolescent

The effect of injecting price competition into the hospital market: the case of preferred provider organizations.

Preferred provider organizations (PPOs) and other discount health care purchasers are injecting price competition into the hospital market, which has hitherto been insulated from price competition by comprehensive and generous insurance coverage. Providing the discounts demanded by PPOs thus poses unaccustomed and difficult problems for hospitals. We constructed a model to study the choices forced by PPOs on the hospital market. We predict that prices will fall, excess capacity will be reduced, and some hospitals may develop financial problems. In the extreme case, prices will fall substantially, some hospitals will go bankrupt, excess capacity will be eliminated, and an unprecedented price volatility will be introduced into the market.

Costs and Cost Analysis

An assessment of the anticompetitive effects of preferred provider organizations.

Although preferred provider organizations (PPOs) sponsored by third parties are likely to offer benefits to society through increased competition, those sponsored by providers may generate a risk of anticompetitive collusion. Such cartellike collusion could result in price fixing, less aggressive utilization review, and restrictions on entry and innovation in the market. In this article, we provide guidance on the potential risks posed by provider-sponsored PPOs. We suggest that public policy should generally promote PPOs and remove regulatory barriers to their growth because of their cost containment potential. Policy design should, however, reflect an awareness of the potential anticompetitive outcomes of provider-sponsored PPOs and should promote antitrust oversight of their activities.

Economic Competition

Preferred provider organizations: options for Medicare.

Preferred Provider Organizations (PPOs) offer purchasers of care several benefits, including expenditure reduction, utilization control, improved quality of care, and efficient management. Although Medicare could benefit from these outcomes, the program lags behind the private sector in PPO development. The Health Care Financing Administration (HCFA) must address several policy issues and constraints as it develops PPOs for Medicare beneficiaries. The agency must identify services and providers to include in the PPO, develop program sponsorship and administration methods, create viable provider and beneficiary incentives to participate, identify sources of PPO cost savings, and examine the role of medigap insurance policies in PPO development. In this article we discuss three possible PPO models for Medicare: a service or population specific PPO, an integrated PPO/medigap policy, and a Medicare Part A/B PPO. We conclude by identifying several issues that require further research before these PPO models can be tested.

Cost Control

Feasibility analysis of preferred provider organizations.

Hospital management frequently considers diversification into Preferred Provider Organizations (PPOs) as a strategy for responding to intense competition for patients. The author presents a feasibility analysis framework for determining the potential success of such an action. Knowledge of this technique allows nursing executives to significantly contribute to the work of committees overseeing these analyses.

Decision Making

Preferred provider organizations: today's models and tomorrow's prospects.

Preferred provider organizations (PPOs) have recently attracted much attention as an alternative to both traditional fee-for-service medicine and health maintenance organizations. To examine their development and structure, we conducted a telephone survey with executives of more than 130 operational PPOs. We describe typical examples of the three most common types of PPOs-those sponsored by providers, insurers, and entrepreneurs-and identify problems each faces in the increasingly competitive health care environment. We then cite approaches that innovative PPOs are using to deal expressly with these problems.

Blue Cross Blue Shield Insurance Plans

Pharmacy preferred-provider organizations.

The structure, features, and evolution of pharmacy preferred-provider organizations (PPOs) are described. Pharmacy PPOs may be sponsored by insurers, employers, providers, or independents (wherein the PPO functions as a third-party administrator); insurer and provider sponsorship are the most common. The advantages and disadvantages of these four types of sponsorship are described. Ways that pharmacy PPOs contain costs include the following: using drug product selection formularies (wherein providers are paid at prospective prices for generic products, regardless of the product dispensed or prescribed), reducing drug use by employing use-review mechanisms, and eliminating fraud and abuse through audits. Another cost-management feature being planned is the use of prescribing protocols. PPOs benefit pharmacies by increasing patronage and traffic flow, protecting market share, and improving cash flow by expediting payment of claims. Factors to consider in choosing a pharmacy PPO include the organization's market share, financial health, payment record, quality of claims processing, and long-term goals. As the pharmacy PPO industry matures, PPO financing will evolve from fee-for-service arrangements to moderate-risk contracting to full-risk contracting with plan buyers, using a negotiated amount per subscriber per month. Increasing competition and adoption of a credentialing process should result in more specific quality-of-care and performance standards for pharmacy PPOs.

Cost Control

Use of ambulatory health care services in a preferred provider organization.

The organization of the delivery of health care can have significant cost-saving implications, but few of the available studies have made adequate comparisons of costs across plans. Furthermore, new organizational types such as independent practice associations and preferred provider organizations have not yet been studied in detail. This paper examines ambulatory utilization in a preferred provider organization (PPO) for Uniformed Services beneficiaries at Pacific Medical Center (PMC) in Seattle. The utilization in the PPO is compared with the results of a recently reported study of three other organizationally different Seattle plans: a Blue Cross/Blue Shield plan (BC), a closed-panel health maintenance organization (HMO), and an independent practice association (IPA). The PPO was similar to the IPA and the HMO in having a high percent of patients with any ambulatory use and had standardized ambulatory costs per user which were lower than BC but higher than the HMO. Thus, this particular type of PPO may have cost-saving features, particularly because the Uniformed Services population is known to use more health services than the general population. Methodological issues for future utilization research across organizations are also discussed.

Adolescent

The cost of acute outpatient primary care in a preferred provider organization.

This report is a case study analysis of the relative costs of preferred provider organization (PPO) and non-PPO managed episodes. Results indicate that the episode costs of PPO providers are not significantly different from the episode costs of non-PPO providers for general acute primary outpatient health care. PPO provider episode costs were 3.12% higher for acute upper respiratory illness. Higher PPO physician charges of 10-16% appear to be the main reason for relatively higher PPO episode costs. For general primary health care, drug charges are 23% higher in PPO episodes than in non-PPO episodes. Higher physician and drug charges are partially compensated for by diagnostic charges, which are 14-18% lower in PPO-managed episodes. In light of these findings and the cost-sharing arrangement with the PPO, it is likely that the employer/insurer plan paid expenditures for outpatient care will increase, contrary to expectations.

Adult

Preferred provider organizations one year later.

One year ago we conducted the first comprehensive national survey of preferred provider organizations (PPOs). Results of this study demonstrated that, contrary to popular belief, there did indeed exist a "generic" PPO with clearly defined characteristics. Furthermore, we found that this new form of health delivery organization was rapidly expanding. A new national survey, completed in September 1986, shows continued brisk growth in the number of persons eligible to use PPO services. Utilization review programs have become more stringent and increasingly focus on physician practice patterns. One striking finding is that joint ventures between provider-sponsored PPOs and commercial insurers are multiplying.

Cost Control

A performance-based quality evaluation system for preferred provider organizations.

This article describes a performance-based quality evaluation program developed by a partnership of insurers for a nationwide preferred provider organization (PPO) which uses indicators to monitor for practice deviations from PPO standards representing four components of patient care--administrative efficiency, patient satisfaction, medical practice standards, and clinical outcome. Quality improvement efforts to eliminate deviant practices through indirect organizational strategies and direct communication with preferred physicians are also described. The program's strengths are its effective use of available data, its potential application to other organizations with a loosely connected network of providers, and its ability to simultaneously monitor care received over time by individual patients in various settings (hospitals, physician offices).

Humans

Patient choice of providers in a preferred provider organization.

This article is an analysis of patient choice of providers by the employees of the Security Pacific Bank of California and their dependents who have access to the Med Network Preferred Provider Organization (PPO). The empirical results show that not only is the PPO used by individuals who require relatively little medical care (as measured by predicted office visit charges) but that the PPO is most intensively used for low-risk services such as treatment for minor illness and preventive care. Also, the most likely Security Pacific Health Care beneficiary to use a PPO provider is a recently hired employee who lives in the south urban region, has a relatively low income, does not have supplemental insurance coverage, and is without previous attachments to non-PPO primary care providers. In order to maximize their ability to reduce plan paid benefits, insurers who contract with PPOs should focus on increasing PPO utilization among poorer health risks.

Adolescent

A computer-assisted health care cost management system.

To our knowledge, First Chicago has developed and implemented the first operational integrated health data computer system that includes the traditional occupational medicine data base together with medical claims and health risk appraisal data. OMNIS has combined medical claims, personnel, disability, employee assistance program, wellness program participation, administrative functions, laboratory, periodic health evaluation data, and health risk appraisal data in a single system. OMNIS provides data that are being used to more accurately predict health care and disability costs and design intervention strategies. Clearly, the integrated health data computer system provides information to manage increasingly complex issues of health care quality and cost. For companies concerned about the quality as well as the cost of health care, an integrated health data computer system (OMNIS) may be a valuable tool to objectively assess quality of care. For example, a company could evaluate how effectively various providers (eg, health maintenance organizations, preferred provider organizations, indemnity plan) control medical conditions such as hypertension. Integrated health data management systems have the potential to assist in the selection of the highest quality and most cost-effective health care plans.

Chicago

Hospital utilization review: past experience, future directions.

Utilization review (UR) programs seek to determine whether specific services are medically necessary and whether they are delivered at an appropriate level of intensity and cost. Although UR programs have been operating for more than 40 years, they have changed dramatically during the past two decades. Today, many health care providers, analysts, and policymakers view UR as a possible solution to hospital inpatient cost and quality problems. This paper addresses how UR has evolved, how UR is used today by different delivery mechanisms (i.e., Medicare, health maintenance organizations, preferred provider organizations, Blue Cross, and commercial insurers), the cost effects of various UR approaches, and how UR will be used in the future.

Blue Cross Blue Shield Insurance Plans

Alternate delivery systems.

Alternate delivery systems have made significant inroads in the delivery of health care services in the United States. The emergence of health maintenance organizations (HMOs), preferred provider organizations (PPOs) and other integrated delivery systems have changed the way patients and providers relate to each other. This paper reviews the various types of alternate delivery systems and discusses issues of concern to optometrists who wish to participate in these plans.

Delivery of Health Care