To understand and appreciate the looming PPO crisis, it is necessary to review why PPOs work, the types of PPOs that exist, and the various ways in which access to them is obtained.

PPOs are managed care organizations through which provider’s contract with payers to provide medical services to certain covered persons.  The key operating principles that enable PPOs to be effective are:

Providers who elect to participate in a PPO agree to accept discounted payments from payers, and to adhere to various practice and administrative protocols, in return for

• Payer-directed increased patient volume (steerage),
• Administrative efficiencies, and
• Expedited claim payments

Steerage occurs when payers employ deliberate means to differentiate the use of in-network versus out-of-network providers and encourage participants to use preferred provider with

• Financial incentives, including reduced co-payments and deductible amounts that make the use of a preferred provider attractive to plan participants, and
• Targeted benefit communication efforts designed to encourage the use of a preferred provider, including the distribution of preferred provider directories.

The use of preferred providers is also encouraged because they have been credentialed, screened and seek to promote quality, cost-effective healthcare treatment by adhering to industry accreditation standards and by generally promoting the control of healthcare expenses.
PPOs use identification cards having a distinctive network logo designed to inform providers in advance that a patient is eligible for the PPO discount and that the provider is a network member.

In the absence of such assurances and incentives, PPOs cannot achieve their intended purpose.