As the 1990s got under way, many thought the future of American health care delivery lay in managed care, particularly in the health maintenance organization (HMO). Alas, HMOs are still garnering a large press, but mostly a negative one; they’re being particularly lambasted for depriving participants of much-needed, sometimes lifesaving care.

At the same time, another type of managed care—the preferred provider organization (PPO)—seems to be quietly winning favor with American employers, reveals a new survey released by William M. Mercer Inc. Mercer is a New York City–based consulting organization assisting employers in human resource strategies. The survey, which was conducted in 1999 according to rigorous statistical standards, included 3,166 respondents and represented some 600,000 employers offering health coverage to more than 90 million full- and part-time workers.

Enrollment in classic closed-panel HMOs, which requires participants to get referrals from primary care physician gatekeepers if they want to visit a specialist, has been flat at 30 percent during 1998 and 1999, the survey shows. In fact, enlistment in the open-ended HMO, or point-of-service plan (POS), which does away with the gatekeeper function, actually declined from 20 percent to 16 percent during these two years. Enrollment in PPOs, in contrast, rose from 35 percent to 43 percent during this period. What’s more, most of the employers surveyed foresaw these trends continuing through 2002.

One reason PPOs are being increasingly sought after by employers, the survey reveals, is that PPOs are avoiding, or at least toning down, some of the features that have made HMOs unpopular, such as requiring participants to get referrals to specialists from primary care physician gatekeepers and making doctors get the plan’s approval before starting a specific treatment.

In contrast, it appears, more employers are courting PPOs because PPOs are adopting some of those elements of HMOs that dampen costs. For instance, PPOs are sharing risk with hospitals by paying a set amount per day or per diagnosis, no matter how many services are provided. This tactic, a cornerstone of HMO cost-management strategy, has proven effective in reducing inpatient costs. Still another example: PPOs have pirated HMOs’ cost-sharing strategy—the fixed-dollar employee copayment (generally $10). Because this copay is less than the copay of going outside the network, participants are more likely to use in-network doctors. Last year, 83 percent of PPO plans had an in-network copayment policy, something all but unheard of a decade ago.

Yet another ground for more employers—or at least for large employers—
favoring PPOs over HMOs has to do with concern over legal liability, the survey demonstrates, since one-fifth of those with 20,000 or more employees have been named in one or more legal actions related to medical care provided through one of the health plans with which they contract. In other words, large employers reason, since PPOs do not limit coverage to a closed panel of providers, PPOs are less likely to be sued than HMOs are, and if PPOs are less likely to be sued, then the employers contracting with them are less likely to be sued as well.

When Psychiatric News asked Mitchell Stein, manager of this Mercer survey, whether it had any mental health or behavioral health implications, he replied that Mercer had collected some data about mental health and behavioral health services during the survey, but the data divulged no particular trends.

Nor does the survey give any inkling of whether the latest care and cost-management tactics adopted by PPOs can thwart a return of the double-digit health cost inflation that plagued employers during the 1980s. PPO costs rose 7.1 percent in 1999, an increase that employers may consider acceptable, but just barely. Thus, while managed care has undoubtedly pared some fat from the American health care delivery system, it is doubtful whether even the savviest PPOs can put the brakes on all the forces that are upping American medical costs, such as the aging of the American population and the swift introduction of fantastic new drugs and treatments, the costs of which can be out-of-sight.