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The underhanded practice of larger insurance companies subcontracting healthcare providers to smaller insurance companies, known as silent PPOs, is a business blight straining the medical industry. As defined by the American Medical Association (AMA), a silent PPO refers to a situation where unbeknownst to its contracting physicians, a managed care provider (MCO) "sells" or "rents" its Preferred Provider Organization's (PPO) network of providers to a third party and that third party gets the advantage of whatever discount the MCO has negotiated with the physician.

"Usually what happens is a patient walks in the door with a funny looking card that you've never seen," explained Dr. Charles Handorf, president of the Tennessee Medical Association and chair of the department of pathology and laboratory medicine at the University of Tennessee Health Science Center. "We'll say we're not on that plan and (the patient) has a book that says we are on that plan."

Another way physicians find out they've been enrolled unknowingly is after they receive underpaid claims. After filing a claim on a patient who is not covered by the MCO PPO contract, the physician receives less than full payment and an explanation of benefits (EOB) referencing the original discount with the MCO PPO. AMA literature states that both the "seller" and the "purchaser" of the discount rely heavily on the fact that a busy physician practice will have difficulty spotting this anomaly on an EOB.

Depending on the terms of the physician's contract, silent PPO activity may constitute a breach of contract and could also be fraudulent, although there is currently no legal protection for physicians in Tennessee. The AMA suggests that because of the significant amounts of money involved, physicians should take special precautions to assure their managed care agreements do not contain "all payor" clauses that allow the MCO to sell or lease its physicians' services to non-contracted entities.

"Can you imagine any other industry being asked to participate and not having any idea what you're going to be paid?" Handorf speculated. "In any other industry, how does that make sense? But we're expected to put up with it and that happens with commercial insurance companies all the time."

Silent PPOs are harmful to physicians and hospitals and violate fundamental concepts in fair business dealing. Across the state there has been an outcry, especially from smaller practices, about the problems they are facing in appealing numerous underpaid claims. The silent PPO takes discounts to which it is not entitled, without negotiation and without the physician's consent or knowledge. Ultimately, this activity is harmful to patients because it can lead to restricted access.

"Large and small practices are affected and (either) don't know it or don't know how to deal with it," said Gary Zelizer, director of government affairs for TMA.

Part of TMA's 2007 legislative agenda will be focused on developing a bill that would establish appropriate oversight of silent PPO arrangements. So far, only a handful of states have legal protections against silent PPO activity.




December 2006

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