Many PPOs-the nation's most popular form of managed care-are forging new arrangements with providers now that the Clinton administration's plan to match huge mandatory purchasing alliances with large medical networks is losing favor with many payer and business groups.
The president has called for the creation of regional PPO-like networks of providers whose spending on medical care would be curtailed largely by instituting limits on premiums.
However, most managed-care groups oppose health alliances because they would "stifle innovation and competitive pricing," according to the American Managed Care and Review Association, a Washington-based trade group.
With a large crop of alternative proposals pending, Congress is likely to devise less restrictive ways to curtail costs while enhancing access, many observers believe.
As a result, some PPOs are looking for ways to form links with HMOs, which control costs mainly by forcing clients to use specially selected panels of providers.
Others are emulating HMOs by developing quality-measurement systems that grade how well their network providers are delivering care to their clients' employees.
PPOs' failure to increase their appeal to a broader range of customers could be fatal, said Vivian R. Wohl, research analyst for Robertson Stephens & Co., San Francisco.
Nearly 20% of the population-about 55 million Americans-receive healthcare through some 900 PPOs, AMCRA data show. Another 44 million are enrolled in 566 HMOs (See chart). Those numbers are increasing as more healthcare purchasers embrace managed care as the solution to quelling rising medical costs.
PPOs generally offer clients a wider choice of providers while relying chiefly on negotiated discounts from hospitals and physicians to limit costs.
Average PPO discounts ranged from 17% of billed charges at participating hospitals to 20% for physicians in 1991, according to a report by Marion Merrell Dow, a Kansas City, Mo.-based drug manufacturer that compiles managed-care data.
PPOs typically are paid a percentage-usually 3% or 4%-of savings realized by the consumers who use their networks. Those savings can be substantial.
For example, a recent study of a group of 143,000 patients covered by private insurance in Ohio suffering from acute myocardial infarction showed that utilization review helped reduce hospital admissions and lengths of stay, compared with national averages.
The cost of treatment was $13,000 per 1,000 lives, compared with a national average of $15,500, according to Med-Value, a Dublin, Ohio-based third-party administrator that produced the comparisons.
PPOs also have been popular with employers because they help ease the transition of employees from conventional health plans into managed care without severely restricting provider choice.
However, many HMOs, which have superior cost-containment controls, have begun offering PPO-type arrangements to fuel new growth at the expense of PPOs.
In defense, some PPOs are establishing joint ventures with HMOs to help provide care below fee-for-service rates to enrollees when they're traveling on business or on vacation outside of the HMOs' service areas.
For example, HealthCare Compare Corp., Downers Grove, Ill., recently struck such a multi-year deal with United HealthCare Corp., Minnetonka, Minn., which has 2.5 million enrollees in 18 health plans.
The pact will benefit both parties, said James C. Smith, Compare's president and chief executive officer. The PPO has provider contracts in more than 700 markets that will "enable United HealthCare to offer its clients complementary managed-care services on a national basis," he said.
The agreement could provide new revenues of $5 million by 1996 for Compare, which had earnings of $38.5 million, or $1.08 per share, on net revenues of $157.7 million in 1993.
Gauging the impact of this contract on Compare's revenues is difficult, Ms. Wohl said. That's because Compare doesn't have any sales incentives in place, and the degree of commitment by United to the agreement won't be known for some time, she said.
Compare has similar agreements with other large HMOs, including Oxford Health Plans, Darien, Conn.; Foundation Health Corp., Sacramento, Calif.; Wellpoint Health Network, Woodland Hills, Calif.; and Blue Cross and Blue Shield of Iowa, Des Moines.
She said the company hopes to sign agreements with two or three more HMOs by year-end. If that happens, the HMO business could generate as much as $20 million in revenues by 1996, which would equal as much as 8% of Compare's total revenues by then, she said.
PPOs also are beginning to invest in new technology that will enable them to catch up with HMOs in getting on the "electronic health information highway" that's under development around the country.
In Denver, for example, a unit of Portland, Ore.-based Ethix Corp. is testing an electronic claims submission system that will link physicians with the PPO through personal computers.
Ethix Sloans Lake will rely on banking and telephone technology to speed claims processing and reduce administrative costs. Eventually, data that profile local hospitals and physicians will be added to the system so consumers can use it for quality comparisons.
Ethix recently unveiled a quality "report card" for its operations in Denver based in part on guidelines used by the Washington-based National Committee for Quality Assurance to compile its measurements (Feb. 28, p. 17).