PPO’s are a further attempt to reduce medical costs.  A group of independent hospitals and medical practitioners may enter into an agreement  to provide certain services at a prearranged rate.

The organizers and providers also have an agreement with regard to the medical service charges. These charges are usually less than patients pay who are not associated with the PPO.
 
PPO’s differ from HMO’s because the medical service providers are paid on a fee for service basis rather than receiving an agreed flat monthly amount.  Organizers or the contracting agency might be:

 

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Usually the PPO distributes a list to members of preferred medical service providers.  The member must choose his provider from that list.  PPO members usually have much more extensive choices in medical service providers than members of HMO’s.

Occasionally both PPO's and HMO's are included together in what is called a managed care system.  HMO's have increasingly been required to meet more stringent state requirements as well as federal standards. PPO’s are less tightly regulated because any group that can agree on the arrangements can call itself a PPO.