Silence of the PPOs: A stealthy way to pay you less

A "silent PPO" is actually a process in which physicians suddenly find themselves on a health plan they didn't sign up for. And it's bigger than ever. Here's why, and what physicians can do about it.

By Bob Cook — Posted Sept. 19, 2005

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Silent PPOs are the leaky faucet of the health plan world. They drip, drip, drip money away from physicians' practices, slowly enough that it seems as if fixing the leak is not worth the expense.

But a leaky faucet eventually turns into a running faucet, which turns into a gusher. And that's what's starting to happen with silent PPOs. Organized medicine, including the American Medical Association, is reporting a skyrocketing number of complaints about silent PPOs, a term used to describe when physicians think they're treating a patient under one contract, only to get a statement later that puts the patient on some other, lower-reimbursing plan. The AMA estimates anywhere from a $750 million to $3 billion annual loss to physicians caused by silent PPOs.

Fixing the leak is now very much worth it. Organized medicine has launched campaigns for increased state regulation or legislation aimed at unsilencing the silent PPOs.

"It's an issue of fairness," said J. James Rohack, MD, the AMA's immediate past board chair, who in the past few months has spoken before the National Assn. of Insurance Commissioners and the National Council of Insurance Legislators on silent PPOs, among other contract issues.

Silent PPOs are not making health care more affordable, but instead are "taking money out of what could be paid for health care. ... It's affecting the doctors, and it will affect more and more the citizens of every state. It's a system that's evolved to be difficult to understand and shrouded in secrecy," he said.

Silent PPOs have been a source of physician chagrin for about 10 years, but depending on which physicians, organized medicine representatives, consultants or other industry-watchers you talk to, their re-emergence can be blamed on some combination of insurer consolidation, growing patient PPO membership, a lack of PPO regulation and corporate pressure to reduce rising health care costs.

That last point -- corporate pressure to reduce rising health care costs -- is what makes a market in the first place for companies who call themselves "repricers," said Joseph Paduda, a Madison, Conn.-based health care consultant who formerly was a health plan executive handling workers' compensation -- a popular target for silent PPOs.

"What's happening is employers are looking for any way they can to save money," Paduda said. "And silent PPOs are going to get bigger, because it's a very high-margin business."

Stacking contracts

A silent PPO works kind of like that 1970s ad for shampoo, the one in which a sudsy-haired woman said the world would be beautiful if "you tell two friends, they tell two friends, and so on, and so on." In a silent PPO, you sign a contract with one plan, which can rent your name to another network, which can rent your name to another network, and so on, and so on.

That's a gross oversimplification, but detailing the exact particulars of how your name gets shopped around can be eye-glazingly difficult. Here's a couple of examples of how it works in practice.

Say you're treating a patient under a worker's compensation or auto insurance claim. In most states, there's a price, dictated by law, as to what you must be paid for your work by the insurance carrier. But if the insurance carrier can glom onto a PPO network you've enrolled in, then it can pay you a lot less. So the carrier goes to a contracted repricer, whose job it is to reduce a company's health costs by affiliating with many networks and selecting the least expensive one in which a physician's name pops up. So you've just unwittingly given a discount to someone you never intended.

Also, say you're treating a patient who is part of a corporation's self-insured PPO. It's similar to the workers' compensation scenario -- the third-party administrator handling the PPO's administration goes to a contracted repricer to see if you're part of another, cheaper PPO network. If so, then you've just unwittingly given a discount to someone you never intended.

In any case, you don't realize that you've been put in a silent PPO until you get an explanation-of-benefits form carrying the name of an insurer you've never heard of. Those insurers, Dr. Rohack says, are counting on the fact that you won't do the legwork to figure out where they came from. That's because physicians generally judge, correctly, that the time and money they would spend to track down such individual claims isn't worth the nickels and dimes lost on them.

"With so many transactions, it's easy to screw 4.5% out of billing," said Mark Piasio, MD, an orthopedic surgeon in DuBois, Pa., who has noticed some silent PPO activity in his practice.

Dr. Rohack blames insurer consolidation for the rise in silent PPO activity. Paduda explains it like this: As WellPoint and United Health Group grow into massive national companies, independent PPOs don't have the resources to build their own insurance plans. So independent PPOs instead "rent" names from other PPOs to build their own networks, then sell the use of those networks.

Also, those in the business of building networks and repricing health care are themselves getting larger, as witnessed by Texas-based Concentra Operating Corp.'s August announcement that it would buy Beech Street, an independent, California-based PPO company, for $165 million. Concentra, which among other things collects a percentage from corporate clients for every dollar it can reprice and save them on health care costs, did not return calls seeking comment.

Finding doctors on PPO lists, too, has become much easier as, in the last few years, a majority of private-pay patients have enrolled in those plans over HMOs.

The idea of a PPO, for a physician, was to give a discount in exchange for patient volume, but with so much horse-trading of contracts going on, Paduda says, "if everybody's in a network, you're not getting volume."

Regulating the silent PPOs

Companies in the business of renting networks and repricing services don't call themselves "silent PPOs" -- that's a pejorative term that comes from physicians. Generally, the companies claim they wring savings out of the health care system, though physicians argue that the savings goes nowhere but those companies' own pockets.

Physicians ask themselves: Why do insurers do this, and how do they get away with it? The answer to both questions is because they can. "It's a situation where an industry like the insurance industry, if they get away with a manner of reducing medical expenses, they'll do it," said Carlin Phillips, a North Dartmouth, Mass., attorney who has represented numerous parties filing lawsuits regarding silent PPO activity.

North Carolina is considered to be the only state defining silent PPOs as an "unfair trade practice," and the AMA was successful a few years ago in getting silent PPOs banned from all Federal Employee Health Benefits Plan contracts. In other states that regulate silent PPO activity, such as Texas and Florida, the laws don't ban silent PPOs outright, but they do try to make them less silent.

For example, a few years ago, Texas passed a Texas Medical Assn.-backed bill that requires any insurer to put on the back of a patient's card any secondary insurer it has for repricing. "I can look and say, 'I didn't sign up for that group,' and I know the discount is not properly applied," says Dr. Rohack, a cardiologist in Temple, Texas.

Florida requires that any personal-injury claim can pay physicians based on a PPO discount only if the worker's compensation or auto insurer or other such company has a direct PPO contract with the physician. But "direct" means different things to different courts in Florida, with rulings stating that an insurer must have a signed deal with a physician, and others ruling that a physician getting lumped in with a company-affiliated repricer can be deemed to have a "direct" contract.

Still, other states are considering legislation to put some sort of reins on silent PPOs. Dr. Piasio, in his role as vice president of the Pennsylvania Medical Society, testified to the Pennsylvania House of Representatives Insurance Committee about silent PPOs and other contracting practices in support of a bill promoting contract reform in health care. The California Medical Assn. is pushing legislation in its home state that would require more insurer disclosure on repricing contracts, limit how many times a network may be sold, and create other means to cut down the reach of silent PPOs. Both bills are pending.

For now, Phillips says, the best protection physicians have against silent PPOs is their own vigilance. First, in making sure the PPO contracts they want are defined as specifically as possible to ensure that the plan is not given carte blanche to sell a physician's name -- and discounts -- to as many networks as possible. For example, Phillips says on his Web site that the word "payer" should not be left to include "every possible payer under the sun. If you do that, you may as well open up your wallet and start handing out money to every insurer in the country."

Phillips also advises physicians to watch their EOBs, and to send them out for audits to see if there are patterns emerging as to where the silent PPOs are coming from. After all, one of the best ways to take care of a leaky faucet is to know what's causing it to drip.

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For every dollar that a physician bills for a medical service, about two-thirds is eaten up by health plan "pricing edits."

Unauthorized discounts and
other fee schedule adjustments
54 cents
Payer's adjustments and denials 3 cents
Adjustments based on CPT,
CCI and Medicare
3 cents
Patient's co-pay 6 cents
Payer's check to you 34 cents
Total $1

Source: AMA report using National Healthcare Exchange Services data

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External links

Phillips & Garcia law firm's guide to silent PPOs (link)

June 13 testimony of past AMA Chair J. James Rohack, MD, to the National Assn. of Insurance Commissioners regarding contract transparency, in pdf (link)

May 12 testimony of Mark Piasio, MD, to Pennsylvania legislators regarding silent PPOs and other contracting issues (link)

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