Preferred provider organizations and Medicare: is there an advantage?

A key component of the new Medicare reform law is an overhaul of Medicare managed care, including a strong emphasis on recruiting private plans--especially preferred provider organizations (PPOs)--to participate in the new Medicare Advantage program. Citing the popularity of PPOs for privately insured Americans, proponents have touted PPOs as critical to injecting more and better competition into Medicare. This study, based on findings from the Center for Studying Health System Change's (HSC) site visits to 12 nationally representative communities, explores the reasons for the strong growth in commercial PPO enrollment and examines whether PPOs--as currently structured--can add value to Medicare. The available evidence suggests that the PPO model will face challenges in achieving the policy goals set forth in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), including increasing benefits, improving quality and slowing cost growth.