Why PPO Litigation is Increasing

This article was written by Joe Paduda (www.joepaduda.com)

PPOs, or Preferred Provider Organizations, have been around for a couple dozen years. They are networks of credentialed (with varying degrees of rigor) doctors, hospitals, and ancillary providers that have agreed to provide lower rates for ‘members’ in return for some measure of exclusivity/promise that patients will be directed to use them. I’d note that this ‘promise’ is often not fulfilled, at least in the eye of the provider. That’s a whole separate issue, one we will likely get to in a future post.

As one good friend puts it, ‘PPOs are a box of contracts’, and not many PPO firms do much more than recruit, credential, negotiate, and contract.

Their popularity waxes and wanes, roughly in line with the underwriting cycle (as cost trends decrease, PPOs tend to grow, as cost trends increase, buyers seek more controlled networks and medical management systems).

Typically PPOs are owned by a large group health plan or specialty company such as a workers comp managed care firm. Many PPOs were built to market/sell to health plans and workers comp payers – Rockport, Coventry, and Interplan are examples of ‘vended PPOs’, as opposed to those built for the exclusive use of a healthplan.

The problem

There can be several issues with PPOs; lack of direction by the payer, inaccurate data, failure to maintain credentialing standards and ‘stacking’ are some of the more prevalent.

But of late another issue has been appearing more and more frequently – providers claiming they are not subject to a PPO contract and therefore should be reimbursed at U&C, or in the case of workers comp in many states, the state fee schedule.

Digging into the disagreements that arise when payers assert the providers are subject to a contracted discount, it looks like there are a few contributing factors.

First, some providers have contracts with many health plans and networks, and it canbe tough to keep them all straight. And, the PPO may have changed its name, merged with another firm, or been acquired since the original PPO contract was signed.

Those are the easy ones.

A knottier issue is caused by the mechanism of ‘provider selection’. When the provider’s bill comes into the healthplan/bill repricer, it is ‘checked’ against a database to determine if it is from a contracted, or participating, provider (known as a ‘par’ provider). This checking could occur either at the health plan/repricer, or the bills could be electronically sent to the PPO for the PPO to check par status and apply the discount.

What determines ‘par’ status is often the source of the problem. For example, PPOs want as many ‘hits’ as possible, so they err on the side of counting a provider as par if at all possible. The more hits, the more money they make (often), and the better they look to the payer. Payers like more hits because then the managed care folks can show the savings they deliver due to the discounts. So the payer side of the equation is motivated to use logic that assigns as many bills as possible to the par bucket.

To do that, payers often use a provider TIN (tax identification number) as the only criterion to determine par status. If a bill is from a provider with a TIN that matches some contract somewhere in the PPO company’s database, than the discount is taken. Payers may also use address, provider first name last name, and/or phone, but most try to use as few criteria as possible.

But large provider groups and hospitals and health systems often use the same TIN for many different service areas – outpatient surgery, inpatient, rehab, pharmacy, hospitalists, occupational medicine. And they rarely offer the same discount deal across all service types and locations. Some service types may not even participate due to the internal structure and demands of the health system.

Here’s real world example, provided by a consulting client. A bill from an occ med clinic hits a payer, who determines it is a par provider due solely to the TIN match. A 30% discount is taken, and the check cut. But the occ med clinic is not part of the original contract, which specifically states that discount is for inpatient medical services only.

The provider complains to the payer, who contacts the PPO, who eventually pulls the contract, says ‘oh, yeah, here’s the problem’, asks the occ med clinic to resubmit the bill, after which the bill may – or may not – be paid correctly.

Now multiply this by the hundreds, and it is easy to understand why some providers, fed up by the paperchase, are getting downright litigious. This leads to providers suing payers over a few dollars on an office visit – not to get those few dollars, but to force the payer to apply the correct repricing methodology.

If the PPO is the one doing the repricing (as is often the case), there is considerably less incentive to fix the problem. The PPO doesn’t have to handle all the calls (although in many cases they are involved at some level), figures many providers will not fight it as it isn’t worth it, and even if they do that’s a small price to pay for all those fees.

And that’s one major reason there’s so much litigation in the PPO world these days.