PPO Discounts – Kind of Confusing Gertrude!


A large South Texas school district is in a quandry. Confusion reigns. The courts are involved. Everyone has an opinion, and none are compatible.

PPO “A” had the case first. An independent out-of-state auditing firm was hired (Audit Firm #1) to audit claims and determined that the overall provider PPO discount was 41%.

PPO “B” subsequently gained the account. Another out-of-state independent auditing firm (Audit Firm #2) was retained to audit the claims and determined that the overall provider PPO discount was 37%, a “loss” to the district.

PPO “A” regained the account. After the first year a report was generated by the TPA showing that the overall provider PPO discount was almost 59%. This represents a gain in discounts from when PPO “A” first had the account of +18%.

Local newspapers printed the story. Readers were mislead. In actuality, this district’s claims over a three year period went up over 56% despite increasing “discounts.”

In a three year period, PPO “A” increased their PPO discounts from 41% to almost 59%, a gain of 18%. Yet the district’s health costs increased.

Did PPO providers agree to reduce their fees by 18%?  If so, then they gave up almost $13,000,000 in annual fees for this school district. (Audit company #2 estimated that for each 1% PPO discount = $700,000 in savings).

In reviewing information gained from the Texas Open Records Act, a contending PPO guaranteed a minimum of an overall PPO discount of 62% and even put their administration fees at risk should the benchmark of 62% not be reached.  They even included out-of-network claims in their guarantee offer. Yet, this carrier was not successful in gaining the account. Using the formula provided by Audit Company #2, this contract would have saved the district over $ 17,000,000 over PPO “B”‘s contract less than two years before.

So here is a summary: PPO “A” had the account first, and saved the district on average 41% in claims. PPO “B” gained the account and saved the district an average of 37% in claims. PPO “A” regains the account and now has an overall PPO discount of almost 59%, up from 41%, for a gain in savings to the district of +18%. Yet a contending PPO network guaranteed their discounts to be 62% or better, and did not gain the business although it was supposed that the savings to the district would exceed $17,000,000.

Kind of confusing, isn’t it?

Editor’s Note: Fuzzy math reigns supreme in South Texas these days. Forget the discounts – they mean nothing.