Fine line between PPos, HMOs growing finer

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At the start of the '90s, the future of health care delivery was managed care, and the ultimate form of managed care was the health maintenance organization. But while HMOs continue to grab the headlines most of them negative the preferred provider organization (PPO), is en route to capturing the largest share of worker enrollment, according to a survey on employer-sponsored health benefits from William M. Mercer Incorporated.|ret||ret||tab|

Enrollment in the classic closed-panel HMO has been flat at 30 percent for two years while enrollment in the open-ended HMO or "point-of-service plan" (POS) has declined from 20 percent to 16 percent, Mercer reported in a press release. |ret||ret||tab|

Enrollment in PPOs, on the other hand, rose from 35 percent to 43 percent during this period. Further, when asked to predict the direction of their HMO enrollment over the next three years, the majority of employers offering HMOs believe it will stay the same or decrease; a third (36 percent) predict an increase.|ret||ret||tab|

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PPO 2000 A better mousetrap?|ret||ret||tab|

Once merely a vehicle for obtaining provider discounts, PPOs are adopting the elements of managed care that control cost while avoiding those that drive participants away or have a low return on investment. One of the keepers is sharing risk with hospitals by paying a set amount per day or per diagnosis, no matter how many services are provided. |ret||ret||tab|

This tactic, a cornerstone of HMO cost management strategy, proved to be effective in reducing inpatient costs. PPOs also have borrowed a cost-sharing strategy from HMOs the fixed-dollar employee copayment as a way to encourage participants to use in-network doctors. In 1999, 83 percent of PPO plans require an in-network copayment, something that was all but unheard of 10 years ago.|ret||ret||tab|

In addition, in 1999 there was a big jump (from 47 percent to 58 percent) in PPO plans providing one or more disease management programs for conditions such as heart disease, diabetes, asthma, back pain and depression. |ret||ret||tab|

What PPOs don't do is require participants to get referrals to specialists from primary care physician gatekeepers, a feature that has proven generally unpopular. And they don't conduct prospective review (requiring doctors to get the plan's approval before beginning a specific treatment) to the same extent as do HMOs, although many PPOs do require precertification of elective surgery. |ret||ret||tab|

PPOs are more likely to monitor physician performance after the fact, avoiding the risk of denying care that should have been given. PPOs also avoid the administrative expense of extensive prospective review and gatekeeper referrals. |ret||ret||tab|

In 1999, the average administrative cost of a PPO was $17 per employee per month, while in an open-ended HMO it was $25.|ret||ret||tab|

The average per-employee cost of PPOs and open-ended HMOs was virtually identical in 1999, at $3,742 and $3,732, respectively. Given the negative publicity surrounding the gatekeeper function, in many markets there's not a lot of financial incentive for employers to offer an open-ended HMO over a PPO.|ret||ret||tab|

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HMOs becoming more like PPOs|ret||ret||tab|

Faced with mounting consumer dissatisfaction and legislative interference, some HMOs are beginning to shed managed care features that PPOs can simply avoid. The introduction of the open-ended HMO in the early 1990s was a first step in that direction. |ret||ret||tab|

Now a growing number of HMOs are offering open-access products, which do away with the gatekeeper provision. In 1999, 16 percent of employers with HMOs offered an open-access plan, up from 13 percent last year. Others are permitting year-long specialist referrals, or self-referral to OB/GYN providers. |ret||ret||tab|

Recently, a major health care company announced the discontinuation of prospective medical necessity review in its HMO plans because it had determined that the return on investment was not justified. |ret||ret||tab|

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Employers gamble on PPO cost control|ret||ret||tab|

Employers like PPOs, in part because they don't limit coverage to a closed panel of providers and they're less likely than HMOs to be sued. Mercer's survey showed that the percentage of large employers who said they were concerned about the threat of litigation by plan participants rose from 48 percent in 1998 to 70 percent in 1999.|ret||ret||tab|

But the million-dollar question literally, the billion-dollar question is whether the care and cost management tactics adopted by the new PPO can prevent a return of the cost inflation that plagued employers in the '80s. |ret||ret||tab|

While even its critics acknowledge that managed care has eliminated some of the fat in the health care delivery system and reduced the incidence of unnecessary or ineffective treatments, the fundamental forces pushing up medical costs remain. Chief among these is the aging of the American population and the rapid introduction of expensive drugs and treatments.|ret||ret||tab|

Technology may be best hope for long-term cost management. Ultimately, the success of PPOs may hinge on yet-to-be-developed applications of information technology that make health care delivery more efficient even as new medical technologies increase cost. |ret||ret||tab|

William M. Mercer Incorporated is one of the nation's leading consulting organizations in the areas of human resource strategy and implementation. |ret||ret||tab|

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