Economics of PPO participation

Adele Palmer

Expert InsightsPublished 1984

This paper examines the economics of Preferred Provider Organizations (PPOs) from the perspective of each type of participant--providers (hospitals and physicians), payors, and beneficiaries--by considering the economic gains and concessions of each participant group. A central argument is that a PPO will best meet all its participants' expectations if it channels patients to the community's most efficient providers. The concepts of rechanneling patients into a PPO and consequent effects on demand (utilization) by subscribers are central to the author's discussion of various strategies for determining PPO economic outcomes. Among the strategies discussed are: utilization control; copayments, including a "reward structure" based on reduced copayments and a "penalty structure" based on increased copayments; and shifting costs from PPO payors to non-PPO payors. Throughout, the author cautions that advantages of a PPO, for all participants, must be based on comparison between alternative futures, with and without the PPO, and not between and previous options.

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Document Details

  • Copyright: RAND Corporation
  • Availability: Web Only
  • Year: 1984
  • Pages: 35
  • Document Number: P-6989

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Chicago Manual of Style

Palmer, Adele, Economics of PPO participation. Santa Monica, CA: RAND Corporation, 1984. https://www.rand.org/pubs/papers/P6989.html.
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