HMO and PPO insurance type - basics for medical billing

Managed Care Plans are operated by private companies, which act as the payer. Examples are Prudential Health Care (an HMO) and Independent Health (a PPO). Physicians sign a contract with a managed care plan to accept the plan’s fee schedule, which is usually lower than the prevailing market rate. The physicians are considered part of a MCO (managed care organization’s panel of providers).

The following are the major managed care plans.

Health Maintenance Organization (HMO):

This is regulated by the State HMO laws. The laws require an HMO to cover benefits for preventive care, which includes routine physician examinations, and other services. Co-ordination of care by a PCP (primary care physician) is required for patients to receive benefits. HMOs also do not provide any benefits for patients unless medical services are provided by contracted physicians. There are two types of payments by HMOs, Capitation and Fee-For-Service. HMOs were the first plan to place the physician’s payment at risk by either Capitation or Withhold. Capitation means HMO’s prepay the doctor for the care of a population assigned to the practice. Withhold means that a certain proportion of the payment due to a physician will be withheld by the HMO (e.g. 10-40%) for a defined period, until the HMO has had time to pay all the claims for that period. If an HMO exceeds its budget for the payment of claims for a period, the withheld money is not paid to the doctor.

Preferred Provider Organization (PPO):

This may or may not be regulated by state insurance laws. It is regulated by State Insurance laws if they are owned by a private insurance plan or the PPO operates within a state, which has an insurance law that regular PPOs. PPOs do not cover preventive benefits unless they are regulated by a state, which requires this. PPOs do not generally require co-ordination of care by a PCP. If a patient seeks services outside the panel of contracted physicians, benefits are reduced and the patient must pay out-of-pocket expenses that usually range from 20-30 % of the total costs. If the PPOs are not owned by a private insurance then they are not the payers. They only act as repricing centers for the payers. They decide the fee-for-service that needs to be paid to the providers and forward them to the insurer for payment.

Third Party Administrators (TPA):

This is an organization which contracts with self-insured employers and other insurance mechanisms to provide administrative methods such as provider contracting, utilization controls, enrollment services and claims processing.

Methods of Payment:

Fee for Service: This is fixed charge for the service performed. Either the doctor or the patient submitted a claim and received payment.

Capitation: This is a fixed pre-paid amount based on the number of patients assigned to a practice for a specified period of time.
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