A primer on "silent PPOs"

By Dennis Hursh, Esq.

Preferred Provider Organizations (PPOs) are frequently among the best payors. However, physician practices must be vigilant to assure that only patients entitled to a discount are receiving the negotiated fee. Otherwise, your practice will be extending a discount to individuals and payors who should be paying your billed charges in full.

Assume the following scenario: An individual insured by a small regional insurance company in Montana is visiting Pennsylvania and becomes ill. He calls your practice because he saw your ad in the Yellow Pages. Your scheduling person “squeezes him in,” and he is treated by you.

Since your practice does not have an agreement with the patient’s insurance company, you should receive your total billed charge. (The insurance company would generally pay an amount it determines to be the usual, customary and reasonable fee, and the patient is liable for the balance of your charges.) Many practices will not require any payment from the patient at the time of the encounter (other than co-payments noted on the insurance card), but will wait for the payment from the insurance company, and then “balance bill” the patient for the difference between the billed charges and the amount paid by the insurance company.

Instead, your practice receives an explanation of benefits for that patient claiming a discount based on the PPO fee schedule of MegaHealth (a PPO your practice has contracted with). Since you have contractually agreed not to bill MegaHealth enrollees for amounts in excess of the negotiated fee, this discounted fee is all you get.

Here is what happened. The Montana insurance company, when it received the bill from your practice, began shopping for a discount. MegaHealth provided its list of preferred providers, and they saw they had a match with your practice. The Montana insurance company sent the claim to MegaHealth for “repricing” (insurance talk for applying the MegaHealth discount to your claim). MegaHealth sent your practice an explanation of benefits on the usual MegaHealth forms, with payment at the MegaHealth discounted rate. MegaHealth billed the insurance company for the discounted fee paid to your practice, plus an extra fee. The extra fee is often based on a percentage of the savings to the insurance company, based on the MegaHealth discount as opposed to your billed charges. Your practice was just victimized by a “silent PPO.”

There are several ways a practice can protect itself from silent PPOs. One of the most obvious ways is to heed the old saying that if something appears to be too good to be true, it probably is. Insurance is a very competitive industry, and most employers base their purchasing decision predominately on price. To keep prices competitive, networks and insurers use their purchasing power to reduce fees to physicians and other providers of health care. If a network offers fees significantly above those of other payors in the area, you must be especially vigilant. How can they compete if they are paying you so much more than other networks or insurers? One possible (perhaps probable) answer is that they are not competing at all. Their business plan is simply to reduce the fees otherwise paid by insurers to your practice, and to take a profit from selling the discount they have obtained from your practice through the preferred provider agreement.

You should have competent legal counsel review each managed care agreement. In this regard, the definition of “Payor” in the PPO participating provider agreement is critical. Many plans define a “Payor” as “an individual, organization, firm or governmental entity, or self-insured account that has executed an agreement with MegaHealth.” This definition would allow MegaHealth to “rent” its network in the manner set forth above. In other words, the contractual language quoted would give MegaHealth the authorization needed from your practice to run a “silent PPO.” Presumably, you granted MegaHealth a discounted fee in return for inclusion in a provider directory, which “steers” patients to you. Of course, in the scenario discussed above, it was your Yellow Page ad that drove the patient into the office.

To address this issue, the definition of “Payor” should very clearly provide that the term relates solely to MegaHealth, affiliated entities in the insurance company holding group, and self-funded employee benefit plans that use MegaHealth as an administrator. It would be helpful if the definition of “Payor” specifically provided that the discounts being negotiated will not be accessible to any party other than those described above. Even better, some health plans are willing to provide a list of self-funded employers which have access to these discounts. It would be prudent to assure that such a list is given, and to check the list regularly against explanations of benefits received, to assure that the discounts negotiated with MegaHealth are not being “rented” to other parties.

In addition, the participating provider agreement should provide that the MegaHealth discount is only available to enrollees who present an insurance card with the MegaHealth logo on the card. If your practice copies the patient’s insurance card at the initial encounter (especially when the patient is a new patient) and compares the card to the explanation of benefits received, a silent PPO can be detected relatively quickly. If the MegaHealth logo was not on the insurance card, then no MegaHealth discount should be allowed. This precaution will help your practice administrator focus quickly on which preferred provider agreements to focus on first.

In many areas of Pennsylvania, physician practices are being pushed to the limit with escalating costs and declining reimbursements. Make sure that your practice only provides a discount to payors that are entitled to the discount.

Dennis Hursh, Esq., is a principal in Hursh & Hursh, P.C., a Middletown, Pennsylvania law firm concentrating on representation of physicians and physician group practices.