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Preferred Provider Organizations and Medicare: No Panacea for Cost, Quality Issues
Despite Private-Sector Success, PPO Model Will Face Challenges in Medicare
FURTHER INFORMATION, CONTACT:
ASHINGTON, D.C.—While policy makers hope that private plans—especially preferred provider organizations (PPOs)—can increase benefits, improve quality and slow cost growth in Medicare, Medicare PPOs likely will face serious challenges to achieving these goals, according to a study released today by the Center for Studying Health System Change (HSC).
"For the under-65 population, much of the appeal of PPOs lies in the fact that they are not health maintenance organizations and offer more choice of physicians and hospitals and fewer restrictions on access to services—typically for a higher premium than an HMO," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.
"But the very reasons PPOs are so popular for privately insured Americans—more choice and less oversight of care than HMOs—will make it difficult for PPOs over the long haul to slow cost growth and improve quality in Medicare, especially since traditional Medicare already provides wide choice of providers and few restrictions on care," Ginsburg said.
Initially, substantial payment increases to private plans in the new Medicare managed care program, now called Medicare Advantage, will help retain many Medicare HMOs and draw in new private plans, including PPOs. If private plans can provide enhanced benefits, then enrollment is likely to increase. But if Medicare private plans have to pay higher rates to providers, cost savings are unlikely.
"When Medicare cost concerns rise to the forefront again—as they inevitably will—private plan payments will be targeted for refinement, potentially triggering a new round of instability that discredited Medicare private plan options in the late 1990s," Ginsburg said. "Indeed the prospect of tighter rates is likely to discourage insurers from investing in developing new products for the Medicare market."
The studys findings are detailed in a new HSC Issue Brief—Preferred Provider Organizations and Medicare: Is There an Advantage? The study by Robert E. Hurley, Ph.D., an HSC consulting researcher from Virginia Commonwealth University, HSC Research Analyst Bradley C. Strunk and HSC Associate Director Joy M. Grossman, Ph.D., is based on HSCs 2002-03 site visits to 12 nationally representative communities: Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. Key study findings include:
The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nations changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.