Paid Claims Loss Ratio

Paid claims divided by premiums. See also Loss Ratio.

Part A Medicare

Refers to the inpatient portion of benefits under the Medicare Program, covering beneficiaries for inpatient hospital, home health, hospice, and limited skilled nursing facility services. Beneficiaries are responsible for deductibles and copayments. Part A services are financed by the Medicare HI Trust Fund, which consists of Medicare tax payments. Part B, on the other hand, refers to outpatient coverage.

Part B Medicare

Refers to the outpatient benefits of Medicare. Medicare Supplementary Medical Insurance (SMI) under Part B of Title XVII of the Social Security Act covers Medicare beneficiaries for physician services, medical supplies, and other outpatient treatment. Beneficiaries are responsible for monthly premiums, copayments, deductibles, and balance billing. Part B services are financed by a combination of enrollee premiums and general tax revenues.

Partial Capitation

A contract between a payer and a sub-capitor, provider or other payer whereby payments made are a combination of capitated premiums and fee for service payments. The proportion of the ratios determine the amount of risk. Sometimes certain outliers are paid as fee for service (difficult childbirth, cardiac care, cancer) while routine care (preventative, family, simple surgeries and common diagnoses) are capitated.

Partial Hospitalization Program (PHP)

Acute level of psychiatric treatment normally provided for 4 or more hours per day. Normally includes group therapies and activities with homogeneous patient populations. Is used as a referral step-down from inpatient care or as an alternative to inpatient care. Unlike intensive outpatient or simple outpatient services, PHP provides an attending psychiatrist, onsite nursing and social work. Reimbursed by payers at a rate that is roughly one half of inpatient psychiatric hospitalization day rate. Patients do not spend the night at the partial hospital.

Partial Risk Contract

A contract between a purchaser and a health plan, in which only part of the financial risk is transferred from the purchaser to the plan. Forms of this are often seen in “self-funded” plans, competitive bidding arrangements and new health plans.

Participating Physician

A primary care physician in practice in the payer’s managed care service area who has entered into a contract.

Participating physician or Participating

Simply refers to a provider under a contract with a health plan. A physician or hospital that has agreed to provide services for a set payment provided by a payer, or who agrees to other arrangements, or who agrees to provide services to a set of covered lives or defined patients. Also refers to a provider or physician who signs an agreement to accept assignment on all Medicare claims for one year. See also Assignment, Preferred Provider or Network.

Participating Provider

Any provider licensed in the state of provision and contracted with an insurer. Usually this refers to providers who are a part of a network. That network would be a panel of participating providers. Each payer assembles their own provider panels.

Patient Liability

The dollar amount which an insured is legally obligated to pay for services rendered by a provider.

Patient Origin Study

A study, generally undertaken by an individual health program or health planning agency, to determine the geographic distribution of the residences of the patients served by one or more health programs. Such studies help define catchment and medical trade areas and are useful in locating and planning the development of new services.


Primary care physician who often acts as the primary gatekeeper in health plans. That is, often the PCP must approval referrals to specialists. Particularly in HMOs and some PPOs, all members must choose or are assigned a PCP.

PCP Capitation

A reimbursement system for healthcare providers of primary care services who receive a pre-payment every month. The payment amount is based on age, sex and plan of every member assigned to that physician for that month.

Peer Review

The mechanism used by the medical staff to evaluate the quality of total health care provided by the Managed Care Organization. The evaluation covers how well services are performed by all health personnel and how appropriate the services are to meet the patients’ needs. Evaluation of health care services by medical personnel with similar training. Generally, the evaluation by practicing physicians or other professionals of the effectiveness and efficiency of services ordered or performed by other members of the profession (peers). Frequently, peer review refers to the activities of the Professional Review Organizations, and also to review of research by other researchers. This is the most common method utilized in managed care for monitoring the utilization by physicians. In other words, the decisions made by a physician will be reviewed by other physicians. Much controversy has surfaced in this area in recent years. Some physicians are reluctant to be reviewed by physicians over the phone or by having their written records read. Some consumers suspect that peer review is not true peer review since both the providers and the reviewers often have personal financial incentives to reduce or increase medical care. See fiduciary. Nonetheless, peer review is utilized in all managed care settings.

Peer Review Organization (PRO)

An organization established by the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 to review quality of care and appropriateness of admissions, readmissions, and discharges for Medicare and Medicaid. These organizations are held responsible for maintaining and lowering admission rates, reducing lengths of stay, while insuring against inadequate treatment. PROs can conduct review of medical records and claims to evaluate the appropriateness of care provided. PROs also exist within private carriers and providers. Peer Review itself is a process whose confidentiality in private organizations is protected by law. This allows hospitals and groups to conduct internal investigation and monitoring of care decisions and outcomes without the production of related documents in court proceedings. Providers have fought for these protections.

Per Diem Rates

A form of payment for services in which the provider is paid a daily fee for specific services or outcomes, regardless of the cost of provision. Per diem rates are paid without regard to actual charges and may vary by level of care, such as medical, surgical, intensive care, skilled care, psychiatric, etc. Per diem rates are usually flat all inclusive rates.

Per Employee Per Month (PEPM)

PEPM stands for “per employee per month”. It has multiple definitions:
-In the health care industry, PEPM is the rate a company pays for each participant on a monthly basis.
-In insurance, PEPM is a method some carriers use to price their coverage or benefits.
-In the benefits marketplace, PEPM is a pricing convention for COBRA services

Per Member Per Month (PMPM)

Applies to a revenue or cost for each enrolled member each month. The number of units of something divided by member months. Often used to describe premiums or capitated payments to providers, but can also refer to the revenue or cost for each enrolled member each month. Many calculations, other than cost or premium, use PMPM as a descriptor.

Per Thousand Members Per (PTMPY)

A common way of reporting utilization. The most common example of hospital utilization, expressed as days PTMPY.

Performance Standards

Standards set by the MCO or payer which the provider will need to meet in order to maintain its credentialing, renew its contract or avoid penalty. These will vary from payer to payer, and contract to contract. Standards an individual provider is expected to meet, especially with respect to quality of care. The standards may define volume of care delivered per time period. Thus, performance standards for obstetrician/gynecologist may specify some or all of the following office hours and office visits per week or month, on-call days, deliveries per year, gynecological operations per year, etc.

Physician Contingency Reserve (PCR)

Portion of a claim deducted and held by a health plan before payment is made to a capitated physician. Revenue that is withheld from a provider’s payment to serve as an incentive for providing less expensive service. A typical withhold is approximately 20 percent of the claim. This amount can be paid back to the provider following analysis of his/her practice and service utilization patterns. See also Withhold.

Physician Current Procedural Teminology (CPT)

List of services and procedures performed by providers, with each service/procedure having a unique 5-digit identifying code. CPT is the health care industry’s standard for reporting of physician services and procedures. Used in billing and records.

Physician Organization

This term describes physician linkages and alliances that allow physicians to manage risk and capitation. Information systems, physician relationships, and financial integration allow these organizations to be more integrated than the traditional solo practice or IPA relationship between healthcare providers and/or managed care organizations that are working to develop a “seamless” continuum of healthcare services.

Physician Payment Review Commission

Established by Congress in 1986 to advise it on reforms of Medicare policies for paying physicians. Submits a report to Congress annually.

Physician Practice Management Company (PPMC)

A company that provides management and administrative support, often with capital for clinical expansion. The usual management fee is 15-30% of net revenue minus the non-provider related clinic expenses.

Physician-Hospital Organization (PHO)

An organization representing hospitals and physicians as an agent. A legal entity formed by a hospital and a group of physicians to further mutual interests and to achieve market objectives. A PHO generally combines physicians and a hospital into a single organization for the purpose of obtaining payer contracts. A contracted arrangement among physicians and hospital(s) wherein a single entity, the PHO, agrees to provide services to insurers’ subscribers. The PHO serves as a collective negotiating and contracting unit. A PHO may be structured to share the risk of contracting between hospital(s) and doctors. PHOs may also own, operate or subcontract MSOs, health plans or providers. A PHO can manage risk. It is typically owned and governed jointly by a hospital and shareholder physicians.

Plan Administration

A term often used to describe the management unit with responsibility to run and control a managed care plan – includes accounting, billing, personnel, marketing, legal, purchasing, possibly underwriting, management information, facility maintenance, servicing of accounts. This group normally contracts for medical services and hospital care.

Plan Document

The document which contains all of the provisions, conditions, and terms of operation of a pension or health or welfare plan. This document may be written in technical terms as distinguished from a summary plan description (SPD) which, under ERISA, must be written in a manner calculated to be understood by the average plan participant.

Play or Pay

Proposal to make employers provide health care coverage for employees or pay a special government tax.

Point-of-Service Plan (POS)

Managed care plan which specifies that those patients who go outside of the plan for services may pay more out of pocket expenses. A health insurance benefits program in which subscribers can select between different delivery systems (i.e., HMO, PPO and fee-for-service) when in need of health care services and at the time of accessing the services, rather than making the selection between delivery systems at time of open enrollment at place of employment. Typically, the costs associated with receiving care from the “in network” or approved providers are less than when care is rendered by non-contracting providers. Or the costs are less if provided by approved providers in either the HMO or PPO rather than “out of network” or “out of plan” providers. This is a method of influencing patients to use certain providers without restricting their freedom of choice too severely.


Combining risks for groups into one risk pool. See Also Risk.


Requirement that health plans guarantee continuous coverage without waiting periods for persons moving between plans. This is a new protection for beneficiaries involving the issuance of a certificate of coverage from previous health plan to be given to new health plan. Under this requirement, a beneficiary who changes jobs is guaranteed coverage with the new plan, without a waiting period or having to meet additional deductible requirements. Primarily, this refers to the requirement that insurers waive any pre-existing condition exclusion for beneficiaries previously covered through other insurance.

PPS Inpatient Margin

A measure that compares DRG based operating and capital payments with Medicare-allowable inpatient operating and capital costs. It is calculated by subtracting total Medicare-allowable inpatient operating and capital costs from total PPS operating and capital payments and dividing by total PPS operating and capital payments.

PPS Operating Margin

A measure that compares PPS operating payments with Medicare-allowable inpatient operating costs. This measure excludes Medicare costs and payments for capital, direct medical education, organ acquisition, and other categories not included among Medicare-allowable inpatient operating costs. It is calculated by subtracting total Medicare-allowable inpatient operating costs from total PPS operating payments and dividing by total PPS operating payments.

PPS Year

A designation referring to hospital cost reporting periods that begin during a given Federal fiscal year, reflecting the number of years since the initial implementation of PPS. For example, PPS1 refers to hospital fiscal years beginning during Federal fiscal year 1984, which was the first year of PPS. For a hospital with a fiscal year beginning July 1, PPS 1 covers the period from July 1, 1984, through June 30, 1985. (See also Fiscal Year)

Practical Nurses

Practical nurses, also known as vocational nurses, provide nursing care and treatment of patients under the supervision of a licensed physician or registered nurse. Licensure as a licensed practical nurse (L.P.N.) or in California and Texas as a licensed vocational nurse (L.V.N.), is required.

Practice Parameters

The American Medical Association defines practice parameters as strategies for patient management, developed to assist physicians in clinical decision making. Practice parameters may also be referred to as practice options, practice guidelines, practice policies, or practice standards.

Pre-existing condition, Preexisting Condition

A medical condition developed prior to issuance of a health insurance policy which may result in the limitation in the contract on coverage or benefits. Some policies exclude coverage of such conditions is often excluded for a period of time or indefinitely. Federally-qualified HMOs cannot limit coverage for pre-existing conditions. New statutes in 1997 and 1998 altered the freedom other health plans have enjoyed in setting preexisting time limits. Certification of prior coverage may mean new insurers would need to waive preexisting clauses for some subscribers.

Preadmission Review, Pre-Admission Certification, Pre-Certification, or Pre-authorization

Review of “need” for inpatient care or other care before admission. This refers to a decision made by the payer, MCO or insurance company prior to admission. The payer determines whether or not the payer will pay for the service. Most managed care plans require pre-cert. This is a method of controlling and monitoring utilization by evaluating the need for service prior to the service being rendered. The practice of reviewing claims for inpatient admission prior to the patient entering the hospital in order to assure that the admission is medically necessary. A method of monitoring and controlling utilization by evaluating the need for medical service prior to it being performed. The process of notification and approval of elective inpatient admission and identified outpatient services before the service is rendered. An administrative procedure whereby a health provider submits a treatment plan to a third party before treatment is initiated. The third party usually reviews the treatment plan, monitoring one or more of the following: patient’s eligibility, covered service, amounts payable, application of appropriate deductibles, copayment factors and maximums. Under some programs, for instance, predetermination by the third party is required when covered charges are expected to exceed a certain amount. Similar processes: preauthorization, precertification, pre-estimate of cost, pretreatment estimate, prior authorization.

Preferred Provider Organization (PPO)

Some combination of hospitals and physicians that agrees to render particular services to a group of people, perhaps under contract with a private insurer. The services may be furnished at discounted rates and the insured population may incur out-of-pocket expenses for covered services received outside the PPO if the outside charge exceeds the PPO payment rate. A PPO can also be a legal entity or it may be a function of an already formed health plan, HMO or PHO. The entity may have a health benefit plan which is also referred to as a PPO. PPOs are a common method of managing care while still paying for services through an indemnity plan. Most PPO plans are point of service plans, in that they will pay a higher percentage for care provided by providers in the network. Many insurers will offer PPOs as well as HMOs. Generally PPOs will offer more choice for the patient and will provide higher reimbursement to the providers. See also point of service.


Amount paid to a carrier for providing coverage under a contract.

Prepaid Capitation

A prospectively paid, fixed, annual, quarterly, or monthly premium per person or per family which covers specified benefits. A cost containment alternative to fee-for-service usually employed by HMOs.

Prepaid Group Practice

Prepaid Group Practice Plans involve multi-specialty associations of physicians and other health professionals, who contract to provide a wide range of preventive, diagnostic and treatment services on a continuing basis for enrolled participants.


A method providing in advance for the cost of predetermined benefits for a population group, through regular periodic payments in the form of premiums, dues, or contributions, including those contributions which are made to a Health and Welfare Fund by employers on behalf of their employees.

Prevailing Charge

One of the factors determining a physician’s payment for a service under Medicare, set at a percentile of customary charges of all physicians in the locality.


The number of cases of disease, infected persons, or persons with some other attribute, present at a particular time and in relation to the size of the population from which drawn. It can be a measurement of morbidity at a moment in time, e.g., the number of cases of hemophilia in the country as of the first of the year.

Preventive Care

Health care which emphasizes prevention, early detection and early treatment, thereby reducing the costs of healthcare in the long run.

Primary Care

Basic or general health care usually rendered by general practitioners, family practitioners, internists, obstetricians and pediatricians — who are often referred to as primary care practitioners or PCPs. Professional and related services administered by an internist, family practitioner, obstetrician-gynecologist or pediatrician in an ambulatory setting, with referral to secondary care specialists, as necessary.

Primary Care Physician (PCP)

A “generalist” such as a family practitioner, pediatrician, internist, or obstetrician. In a managed care organization, a primary care physician is accountable for the total health services of enrollees including referrals, procedures and hospitalization.

Primary Coverage

Plan that pays its expenses without consideration of other plans, under coordination of benefits rules.

Primary Physician Capitation

The amount paid to each physician monthly for services based on the age, sex and number of the Members selecting that physician.

Principal Diagnosis

The medical condition that is ultimately determined to have caused a patient’s admission to the hospital. The principal diagnosis is used to assign every patient to a diagnosis related group. This diagnosis may differ from the admitting and major diagnoses.

Prior Authorization

A formal process requiring a provider obtain approval to provide particular services or procedures before they are done. This is usually required for nonemergency services that are expensive or likely to be abused or overused. A managed care organization will identify those services and procedures that require prior authorization, without which the provider may not be compensated.

Professional Standards Review (PSRO)

A physician-sponsored organization charged with reviewing the services provided patients who are covered by Medicare, Medicaid and maternal and child health programs. The purpose of the review is to determine if the services rendered are medically necessary; provided in accordance with professional criteria, norms and standards; and provided in the appropriate setting.


Aggregated data in formats that display patterns of health care services over a defined period of time.

Profile Analysis or Profiling

Review and analysis of profiles to identify and assess patterns of health care services. Expressing a pattern of practice as a rate – some measure of utilization ( of costs or services) or outcome (as functional status, morbidity, or mortality) aggregated over time for a defined population of patients. This is used to compare with other practice patterns. May be used for physician practices, health plans, or geographic areas.

Prospective Payment System (PPS)

A payment method that establishes rates, prices or budgets before services are rendered and costs are incurred. Providers retain or absorb at least a portion of the difference between established revenues and actual costs. (1) The Medicare system used to pay hospitals for inpatient hospital services; based on the DRG classification system. (2) Medicare’s acute care hospital payment method for inpatient care. Prospective per-case payment rates are set at a level intended to cover operating costs in an efficient hospital for treating a typical inpatient in a given diagnosis-related group. Payments for each hospital are adjusted for differences in area wages, teaching activity, care to the poor, and other factors. Hospitals may also receive additional payments to cover extra costs associated with atypical patients (outliers) in each DRG. Capital costs, originally excluded from PPS, are being phased into the system. By 2001, capital payments will be made on a fully prospective, per-case basis.


Usually refers to a hospital or doctor who “provides” care. A health plan, managed care company or insurance carrier is not a healthcare provider. Those entities are called payers. The lines are blurred sometimes, however, when providers create or manage health plans. At that point, a provider is also a payer. A payer can be provider if the payer owns or manages providers, as with some staff model HMOs.

Provider Excess

Specific or aggregate stop loss coverage extended to a provider instead of a payer or employer.

Provider Services Organization (PSO)

Defined by HCFA as a public or private entity that is established or organized by a health care provider or group of affiliated providers; that provides a substantial proportion of the services under its Medicare contract directly through the provider or group of affiliated providers; and in which the provider or affiliated providers directly or indirectly share substantial financial risk and have at least a majority financial interest. Similar to the concept of MSO, see Medical Services Organization, or Management Services Organization.


This entity not only pays the premium, but also controls the premium dollar before paying it to the provider. Included in the category of purchasers or payers are patients, businesses and managed care organizations. While patients and businesses function as ultimate purchasers, managed care organizations and insurance companies serve a processing or payer function.