Silent PPOs/Unregulated Rental Networks

When physicians contract to join a health plan network, they agree to accept a discounted rate in return for steerage of patients to their practice through a listing in the health plan’s directory. This arrangement worked fine until the early 1990s when “silent” preferred provider organizations (PPOs) began inappropriately accessing physicians’ contract rates began through a deceptive market practice.

A silent PPO is not insurance offered by an insurance company to clients. Instead, it is a secondary or rental network that obtains the physician’s contract rates without direct authorization from, or oftentimes, knowledge of the physician. The network basically “shops” around to find the lowest rates a physician has agreed to with any insurer, then “rents” that discounted rate to another entity. This occurs without regulation or transparency.

Additionally, a third-party administrator (TPA) may inappropriately use rental network contract rates to pay a claim on behalf of a self-insured plan (i.e., an ERISA plan). An insurer often will operate under different “hats” on behalf of an employer. It can collect premiums and take full risk as the insurer or only act in the capacity of a TPA providing administrative functions such as claim payment or providing networks for a self-funded plan. Regardless of its hat, if an insurer/TPA inappropriately uses discounts or pays claims based on a contracted amount to which it is not a party, it should be subject to regulation. This activity is wrong and deceptive to both physicians and patients. Lawmakers should not ignore or pardon it. (See illustration on reverse side.)

The American Medical Association estimates physicians and hospitals lose up to $3 billion a year to this sly practice. And yet this practice is not well regulated. Eighteen states have taken steps to prohibit these arrangements.  

Medicine’s 2011 Agenda

  • Support legislation that requires insurers/TPAs and PPOs operating within Texas to register with the Texas Department of Insurance.
  • Support a registration and application process that makes the relationships between insurers/TPAs and rental networks transparent.

Medicine’s Message

  • Silent PPOs provide absolutely no benefit to patients or physician practices. This activity only serves to make physicians reluctant to sign insurance and network agreements, which may lead to greater out-of-pocket costs for patients and decrease their access to network physicians.
  • Insurers, as TPAs who develop networks and pay claims on behalf of self-insured plans with inappropriately accessed contract rates, have not been addressed by statute. This means more than 50 percent of the market today remains unregulated. A new Texas law is needed to regulate and stop this inappropriate practice, altogether.
  • Patients can suffer financially and end up paying more toward the unpaid balance if the payment applied to their medical treatment is based on an inappropriately accessed and lowest contract rate.