Definition extracted with permission from American Academy of Family Physicians: Family Physicians and Managed Care
PPOs are entities through which employer health benefit plans and health insurance carriers contract to purchase health care services for covered beneficiaries from a selected group of participating providers. Typically, participating providers in PPOs agree to abide by utilization management and other procedures implemented by the PPO, and agree to accept the PPOs reimbursement structure and payment levels. The employer health benefit plans and/or insurance carrier then establish financial incentives in the form of increased benefits for their employees to use the participating preferred hospitals and physicians. In contrast to typical HMO coverage, PPO coverage permits members to use non-PPO providers, although higher levels of coinsurance or deductibles routinely apply to services provided by these non-participating providers. PPOs are often formed as a competitive response to HMOs. Some PPOs are now emerging that require providers to share in the financial risk, and others are employing the Gatekeeper concept.