Introducing the Preferred Provider Organization Option into Health Benefit Plans

This Note describes preferred provider organization (PPO) arrangements of employers in three different locales. For each of these case studies, the Note describes the context in which the PPO arrangement was constituted and first marketed, including the existing health care marketplace, the program objectives of the various PPO participants, and their initial negotiating efforts. It also examines the features tailored to attract the participating subscribers, payers, and providers, giving specific attention to the channeling incentives offered to attract subscribers and guarantee volume to providers. It also examines the discounting practices adopted to meet the cost-containment objectives of the payers. Finally, it explores the utilization review procedures — a second cost-containment device — for each case study. The findings suggest that the original PPO concept's distinct outlines are now blurring, and that it may still be too early to describe the PPO's ultimate shape and function.