Caring is Good. Doing Something is Better.
Medicare and PPOs
VP, Provider Network Strategy
PacifiCare Health Systems
PPO Value Proposition for Providers
• Discounts to standard fee-for-service rates offered
in return for preferred access to patient population
that would otherwise face higher out-of-network
• Provider trades lower profit margin per service in
return for potential of greater volume.
• PPO payments generally prompt and predictable vs.
challenge of collecting from self-pay or high
Medicare PPO Demonstration
• RFP Issued by CMS April 2002
• Plans to be paid greater of Medicare+Choice rates
or 99% of FFS Medicare
• Reciprocal risk-sharing option offered by CMS
• 35 PPOs offered in 22 states during 2004 contract
Secure Horizons Medicare PPO
• Targeted for Southern California, Arizona and
• Southern California initiative unsuccessful in
contracting adequate provider network
• Current total Arizona/Nevada PPO membership
• Challenges include positioning between
Medicare+Choice and Medicare supplement benefit
Medicare PPO (PoS) Benefits vs
Medicare HMO (Pima County, AZ)
Secure Horizons HMO Secure Horizons PoS
Monthly Premium $0 $49
Office Visits $10 PCP/$30 Specialist $10 In-Network/20% OON
Inpatient Hospital $300/Admit $0 In-Network/$840 OON
Medicare PPO Provider Network
Challenges in California
• Targeted provider rates ~ 90% of FFS Medicare.
• Providers were not satisfied with FFS Medicare
rates; not willing to trade discounts for volume.
• Collection issues mitigated for Medicare members
with Med Supp policies.
• California organized provider groups generally
successful in Medicare HMO; concerned about
• No current Medicare PPO competition meant no
downside if demonstration did not move forward.
Medicare Physician Payments Have
Lagged Behind Practice Inflation
Source: AMA Website
Future Outlook for Medicare PPOs
• Medicare Modernization Act of 2003 changes
• Medicare Advantage revitalizes Medicare HMOs,
allowing expansion of benefits and entry or re-entry
into new markets.
• Medicare Part D benefit replaces Medicare PPO as
key opportunity for 2006 and beyond.
• Medicare PPOs likely to remain a viable option in
certain geographies, but not to replace HMOs as
Success Criteria for Medicare PPO
• Medicare FFS rates perceived as generous enough
to allow mainstream providers to discount for
• Current health plan PPO rates/fee schedules yield
sufficient discounts to Medicare to allow program to
be financially viable.
• Absence of Medicare HMO competition provides
greater flexibility for benefits.
Overall, how dissatisfied are you with your family’s health care?
People who People who Think PPO, People who People who Think HMO,
think they’re actually are but actually think they’re actually are but actually
in an HMO in an HMO in an HMO in an PPO in an PPO in an PPO
Source: J. Reschovsky, J. L. Hargraves, CSHSC Issue Brief No. 30, September 2000