PPOs Run Silent, Run Deep Beneath Regulators' Radar

California may take action against fraudulent "discount plans" that rip off consumers by promising them access to healthcare providers with whom they have no contractual arrangements. But there's no indication that the state is going to do anything about "silent PPOs," which are prevalent across the nation and cut deeply into some physicians' revenues.

California's Department of Managed Health Care, which has been investigating the discount plans for four years, says it has received thousands of consumer complaints about them. Some of the estimated 150 companies operating in the state are legitimate, but many others are not, a department spokesman says. The fraudulent ones offer consumers discounts that range up to 80 percent for office visits and prescription drugs. Gullible patients pay monthly premiums to these firms. When they present their "insurance cards" to physicians or pharmacists, they find out that they're worthless.

The department wants to stop this practice by requiring that discount health insurers get state-issued licenses. After a comment period, the new regulations are expected go into effect by the end of this year. At that point, the state will get out the word to consumers, so they will avoid making payments to any unlicensed company.

Unfortunately, these discount plans are only the tip of a very large iceberg. What are known as "silent PPOs" take between $750 million and $3 billion out of the pockets of physicians each year, according to the AMA. Silent PPOs are provider networks leased to smaller health plans, workers' comp plan, auto liability insurers, and other entities that don't have their own networks. They are legal because many health-plan contracts with physicians contain clauses giving the insurers the right to lease their networks, including the rates that the physicians have agreed to. A doctor with such a contract will see an insurance card from a plan that he has never heard of and will be forced to give the same rate to that company.

Why do physicians sign these contracts? For the same reason they sign agreements that contain many other objectionable clauses: because they believe they have no other choice, or because they don't bother to read them.

Another wrinkle on silent PPOs is even more worrisome to doctors, because it involves much larger carriers and self-insured employers. The big payers want to reduce their out-of-network bills, which are more expensive than in-network charges on a per-unit basis. So, going through a middleman known as a "repricer," they arrange temporary leases of other networks that a doctor outside of their network belongs to. The repricer has data on all of the networks a physician belongs to, so he can give the big payer the lowest contracted price for that doctor.

There's nothing new about any of this--it's been going on for years. But according to my former colleague Wayne Guglielmo, who wrote an excellent article on this for Medical Economics, North Carolina is the only state that bans silent PPOs.