A Preferred provider organization (PPO) plan is a Managed care type of Insurance that consist of a Network of medical doctors, hospitals, diagnostic laboratories, pharmacies, and other health care providers who have contracted with a health care insurance carrier or third-party administrator to provide various health care services rates to the insurer's or administrator's clients.

The basic concept of PPO is that the member providers will provide the insured with a substantial discount below their regularly-charged rates. This will be mutually beneficial, in theory, as the insurer will be billed at a reduced rate when its policyholders utilize the services of the "preferred" provider.  The member providers may also benefit by an increase in business as policyholders will seek out providers in the network to minimize their costs.  The insured should also benefit, as lower costs to the insurer should result in lower rates of increase in premiums.

Preferred provider organizations themselves earn money by charging an access fee to the insurance company for the use of their network. They negotiate with providers to set fee schedules, and handle disputes between insurers and providers. PPOs can also contract with one another to strengthen their position in certain geographic areas without forming new relationships directly with providers.

Add statement about some policies having big difference in reimbursement between PPO and non-PPO providers which can seriously impact quality of care and financial impact to the insured.   You should be careful to review these issues with a local licensed Broker/Agent because not all PPO networks are equally endowed and not all PPO policies treat expenses the same way.  Be careful of any policy that reimburses on other than a Usual Customary Reasonable (UCR) basis.

To help you get a better feel for why other people have selected a PPO we conducted a survey of those who purchased PPO and our licensed certified field broker/agents.  The consumers were asked to explain why they made a decision on PPO coverage and the broker/agents were simply asked to provide a profile of their PPO clients.  The net result is we can now present you will a Profile of Who Buys a PPO Plan (Click Here). Click Here    

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A PPO plan differs from the traditional Health Maintenance Organizations (HMO), in that and HMO is technically not insurance, but a prepaid medical care plan and HMO plans do not provide for payment of medical treatment for providers not par to the HMO (See HMO Type Health Care Coverage Plans for a more detailed treatment).   PPO insurance provides for payment of medical treatment whether the providers are in the PPO network or not, albeit at a reduced rate which may include higher deductibles, co-payments, lower reimbursement percentages, or a combination of the above.   Some state regulations place a limit on the amount and what circumstances an insurance plan reduce the benefit in the event the insured needs or chooses non-preferred provider (non-network).  This is often an overlook feature of PPO policies and can leave the policyholder open to significant unanticipated Out-of-Pocket medical expenses.  It could be as drastic and leaving the policyholder in a position where they are responsible for more of the medical cost than the insurance company actually covers.  It is recommended that you contact a local licensed broker/agent who can clarify this provision as it is often listed only in the fine print of policy brochures Licensed Certified Field Broker/Agent ( Click Here).


Other features of a preferred provider organization generally include Utilization Review, where representatives of the insurer or administrator review the records of treatments provided to verify that they are appropriate for the condition being treated rather than largely or solely being performed to increase the amount of reimbursement due, a procedure that many providers resent as second-guessing. Another near-universal feature is a pre-certification requirement, in which scheduled (non-emergency) hospital admissions and, in some instances outpatient surgery as well, must have prior approval of the insurer and often undergo "utilization review" in advance.

Some credit the creation and rise in popularity of PPOs as a result of the expansion of HMOs and rate of medical care inflation in the U>S> in the 1980-1900’s.  However, as most providers are members of most of the major preferred provider organizations, the competitive advantages discussed above have largely evaporated.   Medical care related costs are once again increasing at a rate 1.5-2.0 times the overall rate of inflation.  Furthermore, passive third-party PPO organizations are now a part of the marketplace. These PPOs obtain discounts for insurance companies on indemnity and out-of-network claims, and often take as their fee a portion of the discount obtained. The aspects of utilization review and pre-certification are now widely used even in traditional "indemnity" plans, and are widely regarded as being essentially permanent features of the American health care system.

PPOs can also create inefficiencies and ironies in the health care industry. Though PPOs often require insurers to pay a claim within a certain timeframe in order to take the PPO discount, calculating the PPO discount and having the insurer pay the PPO's access fee is still one more step-- and one more opportunity for mistakes and delays--in the already-complex process of paying for health care in the United States. Since PPOs have more power in their relationship with providers, they can still provide a benefit to insured patients.   

An Exclusive Provider Organizations (EPO) is similar to a PPO, except that they do not provide any benefit if the insured chooses a provider not enrolled in the EPO network (except in certain special circumstances receiving prior approval).   The term Point-of-service (POS) is basically synomous with EPO except EPO is used in conjunction with some group plans and POS is used with some Individual/Family and now Medicare MAP plans.  See more detailed description of POS Type HealthCare Insurance Plans.