PPOs overtaking HMOs, at least for now

Though PPOs are gaining popularity and claim to be physician-friendly, they still have most of the familiar problems of managed care.

By Leigh Page, amednews staff. March 5, 2001.

Preferred provider organizations are surpassing HMOs as the dominant form of managed care, but are they good for physicians?

"The PPOs are kind of 'managed care lite' -- there's a little less management and more choice," said David Rogers, MD, a solo ob-gyn in the Dallas suburb of Allen, Texas.

Dr. Rogers has sworn off HMOs altogether and cast his lot with PPOs. But they are far from ideal, he said. "PPOs are like the devil with a breath mint."

Preferred provider payments are often from 5% to 15% higher than HMOs, and PPOs do not require referrals to see other doctors. But Dr. Rogers said some PPOs do many of the things that physicians hate about HMOs: downcoding, bundling payments, making retroactive adjustments of claims and paying claims late.

The industry, however, bills itself as the physician's friend.

Because they don't interfere in a patients' choice of doctor, "PPOs understand and respect the sanctity of the doctor-patient relationship and realize that preserving this relationship is the crux of a successful health care model," said Bill Hale, president of Lake Forest, Calif.-based Beech Street Corp., one of the largest PPOs, with 342,000 contracts with physicians and other professionals.

PPOS take the lead

Whatever physicians think of PPOs, they are now the dominant form of managed care.

PPO enrollment has risen three-fold since 1995, to about 100 million, according to the American Assn. of PPOs. HMO enrollment in that time increased a more modest 51%, to 80.9 million, according to InterStudy, an HMO research firm.

The average PPO premium is $4,032 a year, or just $319 more than the average HMO premium.

Though PPOs still cost patients and employers more than HMOs do, the gap has been narrowing. The average PPO premium is $4,032 a year, or just $319 more than the average HMO premium, the PPO association said.

The association said the key reason for the narrowing gap is that HMOs imposed double-digit premium increases in 2001 to make up for artificially low rates set in the late '90s, while PPOs set their rates closer to inflation. All premiums are rising near double-digit rates, due to increased utilization of such services as pharmaceuticals, but PPO increases have been lower than HMOs' for the past three years, the association said.

As PPOs rise, HMOs are becoming more like them, but it's hard to predict whether PPOs' dominance will last.

HMOs have shifted most of their payments from capitation to the discounted fee for service that PPOs have always used. And point-of-service HMOs, which pay for out-of-network care as PPOs do, have been popular in recent years.

It's all managed care

As physicians well know, PPOs and HMOs generally use the same managed care techniques. The PPO association reports that its members increasingly rely on three-tier co-payments for pharmacy benefits, disease management and utilization review. And while UnitedHealthcare and some other big-name insurers have dropped prior authorization requirements, physician offices report that few PPOs have done so.

But as the economy tightens and both PPO and HMO premiums keep rising, some employers are trying to coax their employees back into HMOs, which are still substantially less expensive in some markets.

"I know that the physicians are wishing that HMOs would go away," said Marianne Faze, executive director of the Dallas-Fort Worth Business Group on Health, "but when the costs go up this much, they're a good business decision."

William Ross, a board member of the PPO association and the manger of two large group practices near Los Angeles, conceded that PPOs' dominance may be threatened by rising costs, but their popularity with patients may keep enrollment strong. Companies can try to herd employees back into HMOs, but "frankly, they don't want to go back," he said.

Patients have good reason to prefer the wider access that PPO networks afford, said Paul B. Handel, MD, a Houston urologist who is a member of the Texas Medical Assn.'s committee on socioeconomic affairs. He said he recently treated a businessman who was enrolled in an HMO plan. The patient's primary care physician found a prostate nodule but could not schedule a network urologist to discuss treatment for another month. The man opted to see Dr. Handel, even though he had to pay for the out-of-network care himself.