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Preferred Provider Organizations are another attempt to reduce medical costs.  This is an arrangement whereby a selected group of independent hospitals and medical practitioners in a certain area agree to provide certain services at a prearranged rate.

The organizers and providers agree upon medical service charges that are generally less than the provider would charge patients not associated with the PPO.

These differ from HMOs in that the providers are paid on a fee for service basis rather than receiving a flat monthly amount and the organizer or contracting agency might be:

- Traditional insurance companies

- Blue Cross/Blue Shield

- Local groups of hospitals

- Local groups of physicians

- An existing HMO

- Large employers

- Trade unions

Those people who will receive services select a preferred provider from a list that the PPO distributes.  Usually the choices are more extensive with a PPO than a HMO.

Sometimes PPOs and HMOs are lumped together and called a managed care system.  One characteristic still exists concerning regulation, however.  HMOs increasingly have to meet state requirements as well as standard established by federal government.  PPOs are less stringently regulated since any group that can agree on the arrangements can call itself a PPO.