The cost of acute outpatient primary care in a preferred provider organization

This report is a case study analysis of the relative costs of preferred provider organization (PPO) and non-PPO managed episodes. Results indicate that the episode costs of PPO providers are not significantly different from the episode costs of non-PPO providers for general acute primary outpatient health care. PPO provider episode costs were 3.12% higher for acute upper respiratory illness. Higher PPO physician charges of 10-16% appear to be the main reason for relatively higher PPO episode costs. For general primary health care, drug charges are 23% higher in PPO episodes than in non-PPO episodes. Higher physician and drug charges are partially compensated for by diagnostic charges, which are 14-18% lower in PPO-managed episodes. In light of these findings and the cost-sharing arrangement with the PPO, it is likely that the employer/insurer plan paid expenditures for outpatient care will increase, contrary to expectations.