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In health insurance in the United States, a preferred provider organization (or "PPO", sometimes referred to as a participating provider organization or preferred provider option) is a managed care organization of medical doctors, hospitals, and other health care providers who have covenanted with an insurer or a third-party administrator to provide health care at reduced rates to the insurer's or administrator's clients.
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A preferred provider organization is a subscription-based medical care arrangement. A membership allows a substantial discount below the regularly charged rates of the designated professionals partnered with the organization. Preferred provider organizations themselves earn money by charging an access fee to the insurance company for the use of their network (unlike the usual insurance with premiums and corresponding payments paid either in full or partially by the insurance provider to the medical doctor). 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. This will be mutually beneficial in theory, as the insurer will be billed at a reduced rate when its insureds utilize the services of the "preferred" provider and the provider will see an increase in its business as almost all and or insureds in the organization will use only providers who are members. PPOs have gained popularity in the past decade because, although they tend to have slightly higher premiums than HMOs and other more restrictive plans, they offer patients more flexibility overall.[1]
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. 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.
An exclusive provider organization (EPO) is a type of managed care plan that combines features of HMOs and PPOs. It is referred to as exclusive because the employers agree not to contract with any other plan.