The Greater Southeast Community Hospital has become the first hospital in the metropolitan area to offer a health benefits program that competes with traditional health insurance and health maintenance organization plans.

The program, a "preferred provider organization," is a health care plan in which participating patients can choose from a panel of physicians who provide services at a reduced rate. Under the plan, hospital services also are available at lower rates. Participants may even go to an outside doctor, although in such cases out-of-pocket costs would be higher.

"The real benefit to the patient is choice," said Alan Savitz, president of PreferCare Inc., the new program, and chairman of the hospital's department of psychiatry. "Consumers are not locked into a certain doctor."

Savitz said that many health maintenance organizations have a limited number of physicians, whereas 200 participate in his hospital's PPO.

A group of 16 physicians teamed with Greater Southeast, a 450-bed hospital, to form PreferCare as a joint venture. The hospital test-marketed the program on about 5,000 patients -- its own employes and their families -- during the past year.

The pilot project was judged a success, and the hospital is now trying to sell its PPO's services to companies in the area with at least 200 employes.

If a patient uses one of the PPO doctors, Greater Southeast pays all costs for routine care and 180 days of hospitalization, with a few exceptions, such as for eye care. When any other hospital or physician is used, the patient must pay a portion of the bill.

In the first year Greater Southeast hospital used the PPO, health insurance costs stayed flat, while hospital costs in the D.C. metropolitan area went up 21 percent last year, Savitz said. The plan cost $3.2 million for the year, $850,000 less than Blue Cross & Blue Shield's estimated cost for a similar program.

In addition, Greater Southeast reduced the average length of hospital stays by 1.3 days from an average of 5.9 to 4.6 days.

"There are so many benefits, I don't understand why every hospital doesn't do this," Savitz said.

Hospital spokeswoman Vivienne Stearns said costs were lower because the plan had less paperwork; patients were monitored closely to make sure they weren't admitted too early, and tests were done expediently.

Almost all of the patients and physicians involved in the program during its first year have renewed their participation, Savitz said.

"PPOs are a very new concept," said Dindy Weinstein, executive director of the National Capital Area Health Care Coalition. "But they're certainly the wave of the future. Employers are fed up with the costs of providing medical care to employes. It's the fastest-rising cost of doing business."

A few other organizations also have set up PPOs in the Washington metropolitan area, but they are not full-service programs. For example, American Health Benefits Inc. offers a PPO dental plan.

Although Greater Southeast PPO's physicians are located in offices throughout the area, patients have to come to the hospital to be covered by the hospitalization benefits. Gregory N. Robinson, the PPO's executive director, hopes to create a network of area PPOs by persuading other physicians and hospitals to set them up.

The PPO technically is an arrangement between providers (in this case, the hospital and the participating physicians) and purchasers (employers) in which providers offer negotiated fees in exchange for an increased volume of patients. The fees, which Robinson said run about 10 to 20 percent below customary charges, are negotiated between the employer and PPO officials.

The incentive for physicians under the PPO is rapid claims payment, while the incentive for consumers is reduced out-of-pocket coverage, Weinstein explained.

A peer review of physician performance and patient activity is also part of a PPO plan. Robinson said that the purpose of the review, which is available to employers and physicians, is to assure the medical necessity and cost-effectiveness of services.