[Federal Register Volume 61, Number 60 (Wednesday, March 27, 1996)]
[Rules and Regulations]
[Pages 13430-13450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7228]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 417 and 434
Office of Inspector General
42 CFR Part 1003
[OMC-010-FC]
RIN 0938-AF74
Medicare and Medicaid Programs; Requirements for Physician
Incentive Plans in Prepaid Health Care Organizations
AGENCY: Health Care Financing Administration (HCFA), HHS. Office of
Inspector General (OIG), HHS.
ACTION: Final rule with comment period.
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SUMMARY: This final rule amends the regulations governing Federally-
qualified health maintenance organizations and competitive medical
plans contracting with the Medicare program, and certain health
maintenance organizations and health insuring organizations contracting
with the Medicaid program. It implements requirements in sections
4204(a) and 4731 of the Omnibus Budget Reconciliation Act of 1990 that
concern physician incentive plans.
The provisions of this final rule will also have an effect on
certain entities subject to the physician referral rules in section
1877 of the Social Security Act (the Act) as amended by the Omnibus
Budget Reconciliation Act of 1993 (OBRA '93). Section 1877 provides
that, if a physician (or an immediate family member of the physician)
has a financial relationship with certain entities (that is, has an
ownership or investment interest in the entity or a compensation
arrangement with the entity), the physician may not make a referral to
the entity for the furnishing of certain health services for which
payment otherwise may be made under the Medicare program. Additionally,
effective December 31, 1994, section 1903(s) of the Act provides for
denial of Federal financial participation payment under the Medicaid
program to a State for expenditures for certain health services
furnished to an individual on the basis of a physician referral that
would result in denial of payment under the Medicare program if
Medicare covered the services in the same manner as they are covered
under the State plan.
Among other amendments, section 13562 of OBRA '93 sets forth an
exception to the physician referral prohibition that, in effect,
incorporates the provisions of this final rule. That is, it provides
that, under certain circumstances, compensation received under a
personal services arrangement that meets the physician incentive plan
requirements established by the Secretary does not trigger the ban on
referrals. Thus, the provisions of this final rule have implications
for entities that would not have been affected at the time we published
the proposed rule (December 14, 1992). (The proposed rule applied to
only prepaid health plans that contract with Medicare or Medicaid under
section 1876 or 1903(m) of the Act, respectively.) OBRA '93 applies the
requirements to any prepaid health care organization that bills
Medicare or Medicaid. The additional organizations that may be affected
include preferred provider organizations, health maintenance
organizations that do not contract with Medicare or Medicaid and are
not Federally qualified, prepaid health plans that contract with
Medicaid, and some States that contract with managed care organizations
under the Medicaid program (including those that operate under a
section 1115 waiver).
DATES: Effective dates. These regulations are effective on April 26,
1996.
Comment dates. To be considered, comments must be mailed or
delivered to the appropriate address, as provided below and must be
received by 5 p.m. on May 28, 1996.
Compliance dates. Affected organizations with contracts or
agreements on March 27, 1996 must comply with (1) the applicable
disclosure requirements at Sec. 417.479(h)(1)(i) through (h)(1)(v) or
with Sec. 434.70(a)(3) of this rule by May 28, 1996 or by the renewal
date of the contract or agreement, whichever is later, and (2) the
survey requirement at Sec. 417.479(g)(1)(iv) and the disclosure
requirement at Sec. 417.479(h)(1)(vi) by March 27, 1997. Affected
organizations must comply with all other requirements by May 28, 1996.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: OMC-010-FC, P.O. Box 26688,
Baltimore, MD 21207.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue SW.,
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code OMC-010-FC. Comments received timely will be available for
public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 309-G of
the Department's offices at 200 Independence Avenue SW., Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
FOR FURTHER INFORMATION CONTACT: Medicare: Tony Hausner, (410) 786-
1093. Medicaid: Beth Sullivan, (410) 786-4596. Office of Inspector
General: Joel Schaer, (202) 619-0089.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
Prepaid health care organizations, such as health maintenance
organizations (HMOs), competitive medical plans (CMPs), and health
insuring organizations (HIOs), are entities that provide enrollees with
comprehensive, coordinated health care in a cost-efficient manner. The
goal of prepaid health care delivery is to control health care costs
through preventive care and case management and provide enrollees with
affordable, coordinated, quality health care services. Titles XVIII and
XIX of the Social Security Act (the Act) authorize contracts with
prepaid health care organizations (hereinafter referred to as
``organizations'' or ``prepaid plans'') for the provision of covered
health services to Medicare beneficiaries and Medicaid recipients,
respectively. Such organizations may contract under either a risk-based
or cost-reimbursed contract.
[[Page 13431]]
B. Medicare
Section 1876 of the Act authorizes the Secretary to enter into
contracts with eligible organizations (HMOs that have been Federally
qualified under section 1310(d) of the Public Health Service Act and
CMPs that meet the requirements of section 1876(b)(2) of the Act) to
provide Medicare-covered services to beneficiaries and specifies the
requirements the organizations must meet. Section 1876 of the Act also
provides for Medicare payment at predetermined rates to eligible
organizations that have entered into risk-based contracts under
Medicare or for Medicare payment of reasonable costs to eligible
organizations that have entered into cost-reimbursed contracts under
Medicare. Implementing Federal regulations for the organization and
operation of Medicare prepaid health care organizations, contract
requirements, and conditions for payment are located at 42 CFR 417.400
through 417.694.
Risk-based organizations are paid a prospectively-determined per
capita monthly payment for each Medicare beneficiary enrolled in the
organization. This capitated payment is the projected actuarial
equivalence of 95 percent of what Medicare would have paid if the
beneficiaries had received services from fee-for-service providers or
suppliers. Organizations paid on a risk basis are liable for any
difference between the Medicare prepaid amounts and the actual costs
they incur in furnishing services, and they are therefore ``at risk.''
Cost-reimbursed organizations are paid monthly interim per capita
payments that are based on a budget. Later, a retrospective cost
settlement occurs to reflect the reasonable costs actually incurred by
the organization for the covered services it furnished to its Medicare
enrollees.
C. Medicaid
Section 1903(m) of the Act specifies requirements that must be met
for States to receive Federal financial participation (FFP) for their
contracts with organizations (HMOs or HIOs) to furnish, either directly
or through arrangements, specific arrays of services on a risk basis.
Federal implementing regulations for these contract requirements and
conditions for payment are located at 42 CFR part 434.
States determine the per capita monthly rates that are to be paid
to risk-based organizations. FFP is available for these payments at the
matching rate applicable in the State as long as HCFA determines that:
(1) The HMO or HIO rates are actuarially sound; (2) the rates do not
exceed the cost of providing the same scope of services, to an
actuarially equivalent nonenrolled population group, on a fee-for-
service basis; and (3) the contract meets the additional requirements
at 42 CFR part 434 (``Contracts'') and 45 CFR part 74 (``Administration
of Grants'').
II. Legislative History
Section 9313(c) of the Omnibus Budget Reconciliation Act of 1986
(OBRA '86), Public Law 99-509, prohibited, effective April 1, 1989,
hospitals and prepaid health care organizations with Medicare or
Medicaid risk contracts from knowingly making incentive payments to a
physician as an inducement to reduce or limit services to Medicare
beneficiaries or Medicaid recipients. Under the OBRA '86 provisions,
parties who knowingly made or accepted these payments would have been
subject to specified civil money penalties. Additionally, the
provisions required that the Secretary report on incentive arrangements
in HMOs and CMPs. Section 4016 of the Omnibus Budget Reconciliation Act
of 1987 (OBRA '87), Public Law 100-203, extended the original
implementation date for the OBRA '86 physician incentive provisions to
April 1, 1991. Subsequently, sections 4204(a) and 4731 of the Omnibus
Budget Reconciliation Act of 1990 (OBRA '90), Public Law 101-508,
repealed, effective November 5, 1990, the prohibition of physician
incentive plans in prepaid health care organizations and enacted
requirements, effective January 1, 1992, for regulating these plans.
Specifically, section 4204(a)(1) of OBRA '90 added paragraph (8) to
section 1876(i) of the Act to specify that each Medicare contract with
a prepaid health care organization must stipulate that the organization
must meet the following requirements if it operates a physician
incentive plan:
That it not operate a physician incentive plan that
directly or indirectly makes specific payments to a physician or
physician group as an inducement to limit or reduce medically necessary
services to a specific individual enrolled with the organization.
That it disclose to us its physician incentive plan
arrangements in detail that is sufficient to allow us to determine
whether the arrangements comply with Departmental regulations.
That, if a physician incentive plan places a physician or
physician group at ``substantial financial risk'' (as defined by the
Secretary) for services not provided directly, the prepaid health care
organization: (1) Provide the physician or physician group with
adequate and appropriate stop-loss protections (under standards
determined by the Secretary) and (2) conduct surveys of currently and
previously enrolled members to assess the degree of access to services
and the satisfaction with the quality of services.
Section 4204(a)(2) of OBRA '90 amended section 1876(i)(6)(A)(vi) of
the Act to add violations of the above requirements to the list of
violations that could subject a prepaid health care organization to
intermediate sanctions and civil money penalties.
Section 4731 of OBRA '90 enacted similar provisions for the
Medicaid program by amending sections 1903(m)(2)(A) and 1903(m)(5)(A)
of the Act.
As noted earlier (in the ``Summary'' section), subsequent to the
December 1992 publication of the proposed rule, the Omnibus Budget
Reconciliation Act of 1993 (OBRA '93), Public Law 103-66, was enacted.
Section 13562 of OBRA '93 amended section 1877 of the Act, which
prohibits physician referrals to entities with which the physician (or
an immediate family member) has a financial relationship (which can
consist of either (1) an ownership or investment interest or (2) a
compensation arrangement). OBRA '93 provides an exception to the
section 1877 physician referral prohibition that incorporates the
physician incentive plan rules implemented in this final rule. Under
this exception, compliance with these physician incentive rules is one
of several conditions that must be satisfied if a personal services
compensation arrangement involves compensation that varies based on the
volume or value of referrals.
This exception affects managed care organizations that were not
specified in the December 1992 proposed rule on physician incentive
plans. The proposed rule applied to only prepaid plans that contract
with Medicare or Medicaid under section 1876 or 1903(m) of the Act,
respectively. The OBRA '93 physician referral provisions, however,
apply to any entity with an incentive plan that bills Medicare or
Medicaid. The additional organizations that may be affected include
preferred provider organizations, HMOs that do not contract with
Medicare or Medicaid and are not Federally qualified, and prepaid
health plans'' (PHPs) that contract with Medicaid. (PHPs are
organizations that are exempt from section 1903(m) of the Act.) Some
States that contract with managed care organizations under the Medicaid
program (including those that operate under a section 1115 waiver)
[[Page 13432]]
may also be affected. We believe that most prepaid health care
organizations will not be affected by these provisions since they apply
only if (1) the physician incentive plan includes services not
furnished by the physician group, and (2) there is a compensation
arrangement between the physician group and the entity furnishing the
services.
III. Opportunity for Public Comment
Because there may be entities that were not affected by the
proposed rule at the time it was published but are now affected, we are
publishing this rule as a final rule with a 60-day comment period so
that these newly-affected entities have an opportunity to comment. Note
also, we will incorporate the OBRA '93 amendments to section 1877 of
the Act into a final rule with comment covering the physician referral
prohibition as it relates to referrals for clinical laboratory
services. We will also publish a proposed rule to interpret or clarify
these OBRA '93 amendments as they relate to referrals for all of the
health services designated in section 1877 of the Act, including
clinical laboratory services. Once these rules are published, entities
will have had several opportunities to comment on the interaction
between the physician referral prohibition in section 1877 and the
physician incentive rules.
We are also providing the 60-day comment period because we are
interested in receiving comments on the changes from the proposed rule.
For example, we are particularly interested in receiving comments on
the thresholds we have set for determining substantial financial risk
and for determining per-patient stop loss limits.
Because of the large number of items of correspondence we normally
receive on a rule, we are not able to acknowledge or respond to them
individually. We will, however, consider all comments that we receive
by the date specified in the DATES section of this preamble and, if we
publish a subsequent document, we will respond to the comments in that
document.
IV. Discussion of Physician Incentive Plans
Effective utilization control that identifies both underutilization
and overutilization is essential for the efficient operation of prepaid
health care organizations. A prepaid health care organization needs to
minimize overutilization of services not only to prevent unnecessary
spending, but also to reduce the risk of unnecessary and intrusive
procedures. Nonetheless, a prepaid health care organization also needs
to ensure that all medically necessary services are furnished both to
protect patient health and to avoid the need for more costly care
later. Medicare and Medicaid require both cost-reimbursed and risk
organizations to have internal quality assurance programs, external
quality review or medical audits, and other mechanisms to ensure proper
delivery of health care services. Medicare and Medicaid contracts also
are subject to periodic monitoring for compliance. In addition,
sections 1876(i)(6) and 1903(m)(5) of the Act provide for intermediate
sanctions and civil money penalties that may be imposed if an HMO or
CMP fails substantially to provide medically necessary services.
(Regulations implementing this authority were published on July 15,
1994 (59 FR 36072).
One mechanism many prepaid health care organizations use to
encourage proper utilization is a financial incentive as part of a
physician incentive plan. OBRA '90 defines a physician incentive plan
as any compensation arrangement between an eligible organization and a
physician or physician group that may directly or indirectly have the
effect of reducing or limiting services furnished with respect to
individuals enrolled in the organization.
A review and analysis of physician incentive plans in a sample of
HMOs was conducted and presented in the Department's 1990 report to the
Congress, ``Incentive Arrangements Offered by Health Maintenance
Organizations and Competitive Medical Plans to Physicians.'' The
results showed a wide variety of incentive plans. There were
differences in the types of incentive payments, the distribution of
incentives, the basis for determining the incentive payments, and the
parties or entities the incentives affected.
Physicians in prepaid health care organizations generally receive
fee-for-service payments, salary, or capitation payments (a set dollar
amount per patient) for the services they furnish. Financial incentives
may be used with the various types of physician payments to encourage
appropriate levels of referral services. Referral services are any
specialty, inpatient, outpatient, or laboratory services that a
physician arranges for but does not provide directly. Prepaid health
care organizations may hold physicians or physician groups at risk for
all or a portion of the cost of referral services so that they have a
financial incentive to arrange for the furnishing of only medically
necessary services. If the physician or physician group successfully
controls the levels of referral services, the physician or group may
receive additional compensation (an incentive payment) from the prepaid
health care organization. The incentive payment may take the form of
unused capitation, a returned withhold, or a bonus payment. Each of
these methods is described below.
A capitation payment is a set dollar amount per patient per month
that a prepaid health care organization pays to a physician or a
physician group to cover a specified set of services, without regard to
the actual number of services furnished to each person. The capitation
may cover the physician's own services, referral services, or all
medical services and/or administrative costs. If patient costs exceed
the capitation amount, the physician or physician group must absorb
these additional costs. If costs are below the capitation, the
physician or physician group may keep the additional money.
Withholds are percentages of payments or set dollar amounts that a
prepaid health care organization deducts from each physician's or
physician group's payment (salary, fees, or capitation). The amount
withheld is set aside in pools to pay for specialty referral services
and inpatient hospital services. If referral costs exceed a prepaid
health care organization's budget, part or all of the withhold may be
forfeited depending on the terms of the physician's contract. If
referral costs do not exceed the ceiling, part or all of the withhold
may be returned to a physician or a physician group. Some plans limit
the amount of the risk to the withhold; others hold the physician or
physician group liable for amounts beyond the amount withheld.
Bonuses are payments prepaid health care organizations make to a
physician or a physician group beyond the physician's set salary, fee-
for-service payments, or capitation. Bonuses may be based on a
physician's or physician group's level of referral services or may be
based on the overall performance of the organization.
If the physician or physician group has excessive referrals (as
defined by the prepaid health care organization), it may not receive
any incentive funds. In addition, the prepaid health care organization
may hold the physician or physician group liable for referral costs
that exceed a specified threshold. The prepaid health care organization
may also increase the physician's or physician group's withhold or make
other changes in its incentive arrangements.
[[Page 13433]]
Many physician incentive plans incorporate stop-loss protection to
limit the liability of the physician or physician group. Most often,
the stop-loss protection limits a physician's maximum liability per
patient to a specific dollar amount.
Other variables may affect the amount of risk or the effect of
financial incentives on physicians; for example, whether incentive
payments are calculated according to each individual physician's
performance or according to a physician group's performance; the size
of the physician group; the length of time over which performance is
evaluated; the number of enrollees; and the amount of total income at
risk. In addition, the relative health status of the patients involved
affects the level of risk. If because of their health status the
patients served require more services than the average enrollee, the
risk increases. Conversely, if they are healthier than the average
enrollee, the risk may be lower.
V. Provisions of the Proposed Regulations
On December 14, 1992, we published a proposed rule (57 FR 59024)
that set forth our proposal for implementing the requirements of
sections 1876(i) and 1903(m) of the Act as amended, respectively, by
sections 4204(a) and 4731 of OBRA '90. Sections 1876(i)(8) and
1903(m)(2)(A)(x) of the Act require that physician incentive plans be
regulated, and sections 1876(i)(6)(A) and 1903(m)(5)(A) provide
penalties for violation of the regulation. To implement these
provisions for Medicare, we proposed to impose new contract
requirements pertaining to physician incentive plans. For Medicaid, we
proposed new requirements for the granting of FFP for State Medicaid
agency contracts with HMOs and HIOs. The requirements address--
The scope of the regulation;
Disclosure requirements;
Criteria for the determination of substantial financial
risk;
Requirements for physician incentive plans that place
physicians at substantial financial risk;
Prohibition on certain physician payments; and
Enforcement.
Each proposed requirement is summarized individually below. Readers who
desire more specifics are referred to the proposed rule.
A. Scope
Because sections 4204(a)(2) and 4731 of OBRA '90 amended sections
that govern Medicare and Medicaid contracts, but did not amend title
XIII of the Public Health Service Act, which governs all Federally-
qualified HMOs, we proposed to apply these requirements to only
physician incentive plans that base incentive payments (in whole or in
part) on services provided to Medicare beneficiaries or Medicaid
recipients. Nonetheless, because relevant statutory language uses the
term ``individuals enrolled with the organization,'' which could be
interpreted as all of an organization's enrollees, not just Medicare or
Medicaid enrollees, we specifically sought comments regarding the
proposed scope of the regulations.
B. Disclosure
We proposed that an HMO, CMP, or HIO disclose to HCFA (for
Medicare) or to the State Medicaid agency (for Medicaid) information on
physician incentive plans that affect Medicare beneficiaries or
Medicaid recipients that is sufficient for us or the States to
determine whether the organization is in compliance with our
requirements. We also proposed when submittal of the information would
be required.
C. Substantial Financial Risk
We proposed that a physician or physician group is considered to be
at substantial financial risk if more than a specified percentage (the
risk threshold) of the prepaid health care organization's total
potential payments to the physician or physician group is at risk and
the risk is based on the costs of services the physician or physician
group does not provide (for example, referrals to specialists or the
cost of inpatient care).
For purposes of determining substantial financial risk, we proposed
to define payments as any amounts the organization pays physicians or
physician groups for services they provide, plus amounts paid for
administration and controlling levels or costs of referral services. We
proposed that payments do not include bonuses or other forms of
compensation that are not based on referral levels (such as bonuses
based solely on the quality of care provided, patient satisfaction, and
participation on committees).
Under our proposal, the risk threshold that determines substantial
financial risk would depend on the frequency with which the health plan
assesses or distributes incentive payments. We proposed that, for
prepaid health care organizations that assess or distribute incentive
payments no more often than annually, the risk threshold is 25 percent.
The risk threshold we proposed for prepaid health care organizations
that assess or distribute incentive payments more often than annually
was 15 percent.
Often, prepaid health care organizations use more than one type of
compensation arrangement. If more than one type of arrangement is used,
we proposed to consider all the different risk arrangements placed on
physicians or physician groups to determine whether they collectively
exceeded either of the thresholds.
D. Requirements for Physician Incentive Plans That Place Physicians at
Substantial Financial Risk
1. Enrollee Surveys
We proposed that HMOs, CMPs, and HIOs that place their physicians
or physician groups at substantial financial risk must conduct enrollee
surveys at least annually. We proposed that the surveys must--
Either survey all current Medicare/Medicaid enrollees in
the organization and those who have disenrolled (due to other than loss
of eligibility in Medicaid) in the past 12 months, or survey a
statistically valid sample of these same enrollees and disenrollees;
Be designed, conducted, and results analyzed in accordance
with commonly accepted principles of survey design and statistical
analysis; and
Address enrollees'/disenrollees' satisfaction with the
quality of the services furnished and their degree of access to the
services.
2. Stop-loss Protection
We proposed two levels of stop-loss protection depending on the
incentive plan's risk threshold. If the risk threshold is 25 percent,
the stop-loss protection must protect physicians and physician groups
from losses greater than 30 percent of the payments for services they
furnish, plus payments for administrative costs and controlling levels
of referral services. If the risk threshold is 15 percent, the stop-
loss protection must protect physicians and physician groups from
losses greater than 20 percent of payments.
We proposed that the organization may provide the stop-loss
protection directly or purchase it, or the physician or physician group
may purchase it.
E. Prohibited Physician Payments
We proposed language reflecting section 1876(i)(8)(A)(i) of the
Act, which provides that physician incentive plans may operate only if
no specific payment is made directly or indirectly under the plan as an
inducement to reduce or limit medically necessary services furnished to
a specific enrollee. We
[[Page 13434]]
proposed that indirect payments include offerings of monetary value
(such as stock options or waivers of debt) measured in the present or
future.
F. Enforcement
We proposed that noncompliance with the proposed requirements
discussed above could result in civil money penalties, intermediate
sanctions, and/or contract termination (for Medicare) or withholding of
FFP (for Medicaid). The civil money penalties would be limited to
$25,000 for each determination of noncompliance. Under the intermediate
sanctions provision, HCFA could (for Medicare) suspend the enrollment
of individuals into noncompliant plans and HCFA (for Medicare) or the
State (for Medicaid) could suspend payment for new enrollees until it
is satisfied that the basis for the determination is not likely to
recur. The process for applying civil money penalties and intermediate
sanctions would be the same process as that proposed in the July 22,
1991, proposed rule on civil money penalties and intermediate sanctions
(56 FR 33404).
VI. Analysis of and Responses to Public Comments
We received 41 timely comments on the December 1992 proposed rule.
(Comments related to the provisions that were proposed in the July 1991
proposed rule on civil money penalties and intermediate sanctions and
that were merely republished in the December 1992 proposed rule were
not considered timely.) Commenters included prepaid plans, State
agencies, national and local associations of managed care providers,
physician associations, consumer advocacy groups, and an insurance
industry trade association. This section of the preamble contains a
summary of the comments and our responses.
Note: This final rule changes the CFR designation of a number of
the proposed provisions. To aid the reader, we have provided in
section VI. of this preamble, a crosswalk between the proposed
provisions and the provisions of this final rule.
Scope of Regulation
Comment: Many commenters agreed with our position that the proposed
rule should apply to only Medicare and Medicaid risk contracts. In
contrast, one commenter believed protection should be extended to plans
governed by title XIII of the Public Health Service Act but conceded
that the scope of the authorizing legislation is not clear on this
point. This commenter recommended that we seek congressional
clarification of the intent of the statute.
Response: As indicated in the preamble to the proposed regulation
(hereinafter referred to as the ``proposed preamble''), the original
legislation amended only titles XVIII and XIX of the Act. Subsequent
legislation, however, applies to all physicians that furnish services
under the Medicare or Medicaid program.
Comment: One commenter suggested that we apply the proposed
requirements only if there is a greater risk for Medicare and Medicaid
contracts than for commercial contracts.
Response: The legislation requires us to develop these regulations
for Medicare and Medicaid prepaid plans but not for commercial plans.
It does not provide us with flexibility to make this determination.
Thus, we will examine only incentive plans between a prepaid plan and a
physician or physician group that apply to Medicare and Medicaid
enrollees. We will not examine the incentive plans as they relate to
commercial enrollees, even if the commercial enrollees are in addition
to Medicare and Medicaid enrollees. The only exception to this is if
the plan uses the pooling methods described later in this preamble.
Comment: One commenter suggested that the Department of Health and
Human Services should evaluate the feasibility of applying these
regulations to accountable health plans or other health care delivery
systems that may be created under health care reform.
Response: This suggestion does not fall within the scope of this
rulemaking, which implements enacted legislation in regulations.
Comment: Some commenters stated that there are no published studies
that link quality problems to physician incentive plans. They suggest,
therefore, that the regulation be dropped. In addition, some commenters
suggested that we are only responding to pressures from press reports.
Furthermore, some commenters believed this rule would not improve
quality of care and that it would only add to the cost of care.
One commenter believed that the proposed rule is too restrictive.
The commenter stated that it would make far more sense to monitor the
health outcomes of enrollees to ensure that they are receiving quality
health care services than to micromanage the administrative
arrangements within these health organizations.
Response: We reject these recommendations for the following
reasons:
OBRA '90 requires us to issue these regulations.
While we acknowledged in the proposed preamble that no
link between quality problems and incentive plans has been established,
the issue has not been sufficiently examined. In the report to the
Congress entitled ``Incentive Arrangements Offered by Health
Maintenance Organizations and Competitive Medical Plans to Physicians''
(hereinafter referred to as the ``Report''), no study is cited that
directly tests the link. Instead the Report cites studies that show no
differences in quality between prepaid plans and fee-for-service
arrangements. From this evidence, the Report infers that incentive
plans do not affect quality. It should be noted that studies to date
have used limited outcome measures.
Furthermore, the OBRA '90 provisions that require these regulations
were enacted after the submission of the Report, confirming legislative
intent subsequent to the Report.
HCFA is sponsoring quality assurance reform initiatives in
both Medicare and Medicaid that will begin to develop outcome measures
for HMOs. HCFA's first efforts contain some outcome measures. Future
projects will develop even more of these measures. The state of the art
in outcome measures is still in the early stages and, thus, at this
time, they cannot serve as a reliable measure of potential
underutilization.
While there is no guarantee that these requirements will result in
improvements in the quality of care, the Congress was concerned with
ensuring that underuse of necessary services does not occur. We are all
concerned with ensuring adequate protection of beneficiaries and
recipients so that they have access to all necessary and appropriate
care. As indicated in both the proposed preamble and later in this
document, we anticipate most prepaid plans will not incur significant
additional costs because most of them already meet the requirements
that are specified in this regulation.
Comment: A major organization suggested that we examine incentive
plans only if quality problems are detected.
Response: We rejected this recommendation for the following
reasons:
The legislation does not provide for an exception if there
is an absence of quality problems.
As indicated in the Report, there are limitations in the
quality studies and methodologies used to detect quality problems.
Prohibited Arrangements
Comment: One commenter recommended that we revise proposed
[[Page 13435]]
Sec. 417.479(c) (``Prohibited physician payments'') to clarify that
medically necessary services means medically necessary covered
services.
Response: In this final rule, we have revised proposed
Sec. 417.479(c) (now designated as Sec. 417.479(d)) to include all
medically necessary services covered by the prepaid plan contract. We
have included all services covered in the contract since some plans
contain services in their Medicare and Medicaid contracts that are in
addition to those covered under the regular Medicare or Medicaid
program. Furthermore, as established under title XIX of the Act, if a
plan contracts to provide early and periodic screening and diagnosis
and treatment services, the plan is responsible for any medically
necessary Medicaid covered services, regardless of whether these
services are covered under the State plan.
Disclosure
Comment: Several commenters, including major organizations,
requested that we require disclosure of the incentive plans to all
enrollees at the time of enrollment. They believed that disclosure is
necessary to protect patients and physicians.
In contrast, several commenters, also including major
organizations, stated that incentive plans are proprietary information
and, as such, should be exempt from disclosure under the Freedom of
Information Act (FOIA).
Response: We agree that disclosure of the incentive plans to
patients can aid them in ensuring that they receive needed services.
This information in the hands of Medicare beneficiaries and Medicaid
recipients will also help physicians to counter pressure from the
prepaid plans to reduce services. At the same time, we want to protect
the proprietary aspects of the information. To effectively balance
these conflicting goals, this final rule adds new Secs. 417.479(h)(3)
and 434.70(a)(4) to require that prepaid plans provide a summary of
three items of information to Medicare beneficiaries and Medicaid
recipients, respectively, when they request it. The three items are
identified in the next response. As the prepaid plans' experience with
physician incentive plans and disclosure increases, we encourage them
to voluntarily share summaries of the incentive plans with all
enrollees. We have not asked that more information be provided for the
following reasons:
We do not want to put an undue burden on the prepaid
plans.
We do not require fee-for-service physicians to provide a
notice that they have incentives to provide excessive services.
Certain information in the incentive plans is proprietary
information and is exempt from disclosure under the FOIA.
Comment: One commenter recommends we clarify what constitutes
``sufficient information'' for disclosure purposes.
Response: This final rule revises proposed Secs. 417.479(h) and
434.70(a) to provide for two types of disclosure. Disclosure to HCFA
and the States requires that prepaid plans submit information that
describes (1) whether services not furnished by the physician or
physician group are covered by the incentive arrangement (if only the
services furnished by the physician or physician group are covered by
the incentive plan, there is no need for disclosure of other aspects of
the plan); (2) the type of incentive arrangement, for example,
withhold, bonus, capitation; (3) the percent of the withhold or bonus,
if any; (4) the amount and type of stop-loss protection; (5) the panel
size and, if enrollees are pooled according to the principles discussed
later, the method of pooling used; (6) in the case of capitated
physicians or physician groups, capitation payments paid to primary
care physicians for the most recent year broken down by percent for
primary care services, referral services to specialists, hospital
services, and other types of provider (for example, nursing homes and
home health agencies) services; and (7) in the case of those prepaid
plans that are required to conduct beneficiary surveys, the survey
results. We are requesting the information described in item 6 so that
we can determine whether additional standards are necessary in the
future.
Disclosure to Medicare beneficiaries and Medicaid recipients
requires that only a summary of the above information be made available
if requested by the beneficiary. This information will indicate, 1)
whether the prepaid plan uses a physician incentive plan that affects
the use of referral services, 2) the type of incentive arrangement, 3)
and whether stop-loss protection is provided. In addition, those
prepaid plans that must conduct enrollee surveys must provide a summary
of the survey results to those beneficiaries and recipients who request
it.
Comment: One commenter stated that disclosure should not be needed
each time there is any change in the incentive plan. A second commenter
stated that we should require disclosure only initially and when
changes occur relative to rules.
Response: We agree with these recommendations. Therefore, we have
revised proposed Sec. 417.479(h)(3) and proposed Sec. 434.70(a)(2)(ii)
to specify that an organization must provide information concerning any
of the following changes in its incentive plan: A change as to the type
of incentive plan; a change in the amounts of risk or stop-loss
protection; or expansion of the risk formula to cover services not
provided by the physician group which the formula had not included
previously. We also specify that this information must be provided to
HCFA at least 45 days (rather than the proposed 30 days) before the
change takes effect. This latter change is made to make this rule
consistent with existing Sec. 417.428, which requires that HMOs and
CMPs submit to HCFA all marketing information 45 days in advance of
distribution. (Proposed Sec. 417.479(h)(3) is now
Sec. 417.479(h)(2)(C)(ii).)
Comment: One commenter recommended that the due date for submission
of the required information by organizations that have a contract with
us be extended from 30 days after publication of the final rule to 60
days after publication. The commenter stated that 30 days is not
sufficient for organizations to become aware of the rule, study its
details, analyze their incentive plans, and formulate disclosures that
meet the rule's requirements.
One commenter believed there should be a phase-in period for
organizations to comply with the regulations. The commenter suggested
that the phase-in period be the remainder of the term of the
organization's existing provider contract.
Response: We agree that organizations should be given more than 30
days to comply with the provisions of this rule. Since 60 days for
compliance is a standard time period used in many of our regulations,
particularly in the Medicaid program, we have extended the time period
in which organizations must comply with this rule to at least 60 days
from the date of publication. Further, we now require that
organizations with existing contracts with us comply with most of the
disclosure requirements by the date of the contract renewal or at least
60 days from the date of publication of this final rule, whichever is
later. We now require compliance with the disclosure requirement
related to capitation data within 1 year from the date of publication
of this rule. (See Dates section of this rule.)
Comment: One commenter believed that subcontracting poses an
[[Page 13436]]
impediment to an HMO's ability to comply with the disclosure
requirement. The commenter stated that subcontracting will result in
numerous contracts being subject to disclosure, particularly in the
case of larger HMOs. This commenter also pointed out that the proposed
rule does not address the extent to which subcontractors will be
compelled to disclose information concerning incentive arrangements.
The commenter stated that HMOs need to know the extent of the
disclosure obligation of the HMO where subcontracting has resulted in
incentive arrangements currently unknown to the HMO.
This same commenter believed that our estimate of 4 hours per
organization to meet disclosure requirements is a serious
underestimation given the complexity of current industry contracting
practices. The commenter did not offer an alternate estimate.
Response: Under this final rule, if the prepaid plan contracts with
a physician group that puts its individual physician members at
substantial financial risk for services not provided, the prepaid plan
must disclose to us (or in the case of Medicaid, to the State agency)
any physician incentive plans between the physician group and its
individual physicians that base compensation on the use or cost of
services furnished to beneficiaries or recipients.
Additionally, if a prepaid plan contracts with an ``intermediate
entity'' that, in turn, subcontracts with individual physicians or a
physician group, the prepaid plan, under all circumstances, must
disclose to us (or the State agency) any physician incentive plans
between the intermediate entity and the individual physician or
physician group that base compensation on the use or cost of services
furnished to beneficiaries. This information is necessary to ensure
that physicians are not placed at substantial financial risk for
services not provided.
For purposes of this requirement, we define intermediate entities
as organizations or individuals who contract with the prepaid plan and,
in turn, subcontract with one or more physician groups. Thus, for
example, an individual practice association (IPA) is an intermediate
entity if it subcontracts with one or more physician groups. (It is
simply a physician group when it is composed of a set of individual
physicians and has no subcontracts with physician groups.) A physician
hospital organization is also an example of an intermediate entity.
The information to be disclosed for each of the situations
described above includes the following:
Whether services not furnished by the physician or
physician group are covered by the incentive plan. If only the services
furnished by the physician or physician group are covered by the
incentive plan, disclosure of other aspects of the plan need not be
made.
The type of incentive arrangement; for example, withhold,
bonus, capitation.
If the incentive plan involves a withhold or bonus, the
percent of the withhold or bonus.
The amount and type of stop-loss protection.
The panel size and, if patients are pooled according to
one of the permitted methods, which method is used.
In the case of capitated physicians or physician group,
capitation payments paid to primary care physicians for the most recent
year broken down by percent for primary care services, referral
services to specialists, and hospital and other types of provider
services.
In the case of those prepaid plans that are required to
conduct beneficiary surveys, the survey results.
In subcontracting relations, if, under any circumstances, a
physician group and/or individual physicians are put at substantial
financial risk, the prepaid plan must conduct the beneficiary survey
required by this rule and provide adequate stop-loss protection to the
physician group and/or individual physicians. We have taken this
position because recent investigations by HCFA of HMOs in a number of
States has led us to conclude that, in subcontracting situations, some
physicians have been put at substantial financial risk without adequate
examination of the effect this has on the quality of care furnished to
the enrollees.
We have set forth the above requirements in this final rule by
adding a new paragraph (i) to Sec. 417.479 (for Medicare) and revising
proposed Sec. 434.70(a) (for Medicaid). We have also revised the
proposed definition of ``physician group'' at Sec. 417.479(b) to
clarify that an IPA is a physician group only if it is composed of
individual physicians and has no subcontracts with physician groups.
We believe these additional requirements will increase the burden
on prepaid health plans by an additional 4 hours, resulting in a total
of 8 hours per organization to meet the disclosure requirements. The
organization can either submit copies of its incentive plans or submit
information that addresses the required items listed in
Sec. 417.479(h)(1).
We would welcome comments on our estimate of the burden imposed by
the above requirements. We are particularly interested in receiving
empirical data supporting any estimates the commenter may offer.
Comment: One commenter believed the disclosure requirements are
excessively burdensome. This commenter noted that, as stated in the
preamble of the proposed rule, the justification for these disclosure
requirements is that, if the information is only disclosed during site
visits, an organization could change its physician incentive plan
shortly after the site visit, and we would not know of the new
arrangement for 2 years. The commenter pointed out that there are many
items of information that we review at site visits that could be
changed shortly thereafter without our knowledge; for example, HMO
marketing material, provider contracts, and quality assurance plans.
The commenter pointed out that these are reviewed during site visits
and not re-reviewed during the 2-year cycle. The commenter stated that
the proposed rule offered no explanation for different treatment for
incentive plans, and, therefore, the requirements are not based on an
acceptable justification.
Response: Section 1876(i)(8)(A)(iii) of the Act requires that we
obtain sufficient information to determine if substantial financial
risk occurs, adequate stop-loss protection is provided, etc. As
indicated in an earlier response, we have limited the amount of
information prepaid plans are required to submit to HCFA and the States
to information on just a few key items. As prescribed by legislation,
marketing materials are submitted to us every year. Further, as a
change from the proposed rule, we are requiring that we be notified of
only significant changes in the incentive plan, rather than each
change, thereby reducing the burden of this requirement.
Comment: One commenter suggested that HCFA use a simple disclosure
form that can quickly be completed by HMO personnel and reviewed
promptly by HCFA.
Response: HCFA will consider the feasibility of a form and, if it
decides to adopt the recommendation, in accordance with the Paperwork
Reduction Act of 1995, will publish a document in the Federal Register
soliciting public comments on a proposed form.
Comment: One commenter recommended that disclosure not be required
if the HMO essentially admits substantial financial risk by agreeing to
comply with enrollee survey and stop-loss requirements.
[[Page 13437]]
Response: The statute requires that organizations disclose their
incentive plan arrangements.
Comment: One commenter asked what timeframes an organization may
anticipate for HCFA's review of its incentive arrangements.
Response: Timeframes for the review of incentive plans will be
addressed in a forthcoming manual issuance. At this time, we anticipate
that the average review time will be 60 days.
Implementation
Comment: One commenter recommended that the final rules provide an
explicit mechanism for dealing with disputes arising from and during
the determination of whether physicians are at substantial financial
risk.
Response: We agree with the commenter that there should be
procedures for these disputes. Details on the dispute procedures will
be addressed in a forthcoming manual issuance.
Referral service
Comment: We proposed to define ``referral services'' as any
specialty, inpatient, outpatient, or laboratory services that a
physician or physician group orders or arranges, but does not provide
directly. One commenter believed that this definition is ambiguous. The
commenter questioned whether we intended to distinguish between the
services provided by the prepaid plan's physician employees and
services provided by independent contract physicians. The commenter
believed that absent knowing our position on this issue, the terms
``provide directly'' in the definition is ambiguous. The commenter
believed we should clarify that services provided by specialist
physicians through a contract with the physician group would not
constitute referral services. In addition, the commenter believed that
``referral services'' should be limited to services that a physician is
not licensed to provide, such as hospital services.
Response: We disagree that the definition is ambiguous. We believe
the problem the commenter had with this definition is related to the
understanding of another term used in the definition, that is, the
meaning of ``physician group.'' We assume that what the commenter is
really asking is ``If a physician group contracts for services of a
specialist, is the contract physician considered a member of the
physician group?'' We see this as the real issue because, if the
contract physician is a member of the physician group, then services
furnished by that physician would be services furnished directly by the
group. Thus, the services would not be referral services.
We proposed to define ``physician group'' as a partnership,
association, corporation, individual practice association, or other
group that distributes income from the practice among members according
to a prearranged plan unrelated to the members' referral levels. (For
reasons that will be discussed later in this preamble, this final rule
adopts a revised version of that definition. That is, we have deleted
from the definition the phrase ``according to a prearranged plan
unrelated to the members' referral levels''. We also no longer include
an individual practice association in the definition.) According to
this definition, a contract physician is not a member of the physician
group.
We disagree with the comment that referral services should be
limited to services that a physician is not licensed to provide. The
legislation requires the Secretary to determine if the plan places the
physicians at substantial financial risk for services not provided by
the physician group. Thus, referrals to specialists who are not part of
the group practice are considered referral services in the
determinations of risk. It is these services that the legislation
intended to address. Prepaid plans generally use primary care
physicians as gatekeepers. These models encourage the primary care
physician gatekeeper to not use specialist services if he or she can
perform the services. We support these models. The legislation,
however, is designed to prevent restrictions on necessary specialist
care.
Substantial Financial Risk
Comment: Several commenters believed the definition of
``substantial financial risk'' is overly restrictive. They believed it
fails to fulfill the goal of only identifying outliers because it fails
to address the variables that affect risk. One commenter suggested that
it be redrafted or, if HCFA is unwilling to redraft the definition,
that organizations be given the choice of either complying with the
regulation as written or demonstrating to HCFA that their incentive
plan does not put physicians at substantial financial risk.
A number of commenters recommended, more specifically, that HCFA
include the size of patient and physician pools (panels) in the risk
formula threshold as, in their view, required by the legislation. On
the other hand, one commenter stated that attempting to incorporate
patient panel size as a risk factor would prove unduly complex and less
workable than the approach contained in the proposed rule.
Response: We have reconsidered this issue and, in this final rule,
we take panel size into account in determining adequate stop-loss
requirements (See Sec. 417.479(g)(2)(ii).) Analyses by Rossiter and
Adamache (1990) (Health Care Financing Review, vol. 12, pp. 19-30) show
that there is no significant variation in costs from year to year for
counties with populations greater than 25,000. Based on these analyses,
we have determined that physician groups with more than 25,000 patients
are able to adequately spread risk and, therefore, are not at
substantial financial risk, even if 100 percent of the physician
group's income is at risk for referral services. This does not apply to
panels of more than 25,000 patients as a result of pooling. (See
Sec. 417.479(f).) Pooling of patients is discussed later in this
preamble.
As stated, our decision to set the threshold at 25,000 was based on
the analyses done by Rossiter and Adamache. We would welcome
information as to whether there are data that would support another
threshold.
With regard to the suggestion that we allow organizations the
choice of either complying with the regulation as written or
demonstrating that their incentive plan does not put physicians at
substantial financial risk, we would be interested in receiving
comments on how we might implement such an exception process.
The remainder of this response applies to panels of less than
25,000 patients. As stated in the proposed preamble, the size of the
patient or physician pool can have several theoretical effects on
substantial financial risk. Furthermore, there is no empirical evidence
that could guide us on the effects of these and other factors. We
requested information in this regard in the proposed preamble.
Nonetheless, while commenters suggested that size is a factor, none of
the commenters provided information on the exact relationship between
size and risk. Therefore, we have no basis for specifying this
relationship. Finally, the legislation discusses panel size only in
regard to stop-loss protection and not in regard to substantial
financial risk.
Comment: One major organization stated that, under the proposed
rule, prepaid plans that assess and/or distribute incentive payments
more often than annually are subject to lower risk thresholds. It
maintains that there are problems with this requirement as follows:
First, it contends that the term ``assess'' as used in this regard
is not
[[Page 13438]]
clear. It might, the organization suggests, be interpreted to bar plans
from communication with physicians as to their progress in meeting
annual goals. The organization stated that it disagrees with any
interpretation of this requirement that might prevent plans that
distribute incentive payments annually from working with their
physicians on their mutual cost containment goals on a more frequent
basis.
Second, the proposed regulation does not achieve its goal of using
an outlier approach in this area. Many organizations that use withhold
and distribute, or assess, incentive payments more often than once a
year exceed the 15 percent risk threshold. These organizations,
however, fall within the 25 percent threshold set for plans
distributing or assessing payments annually or less often.
Another commenter stated that the frequency of the assessment or
distribution should not affect the level or risk necessary to qualify
as substantial financial risk.
Response: The term ``assess'' is meant to refer to imposing a
charge. It is not used in the meaning of an evaluation or appraisal of
progress toward a goal.
We agree that a 15 percent threshold is not an outlier, since the
median withhold is between 10 and 20 percent. Also, there is no
evidence that making assessments or distributions more often than
annually affects the amount of risk placed on physicians. While our
rationale in the proposed rule was based upon reasonable assumptions as
to the impact of more frequent assessments or distributions, we now
agree that the 15 percent threshold is inconsistent with our intent to
use an outlier approach. Therefore, we have eliminated making a
distinction on the basis of the frequency of the assessment or
distribution. We establish the 25 percent threshold in all cases. The
25 percent threshold is an outlier since it exceeds the median withhold
of 10 to 20 percent. Proposed Sec. 417.479 has been revised to reflect
the elimination of the distinction.
Comment: One commenter stated that the proposed threshold for
combination of withholds and bonuses does not identify only outliers.
The commenter also stated that, in practice, physician performance will
be either in the bonus area or in the withhold area; therefore, to
limit the amount of financial risk that a physician will ultimately
accept, it is not necessary to limit the combination. The commenter
also pointed out that there is no evidence that upward variations on
physician payments (bonuses) have the same potential to cause
underutilization as downward variations (withholds).
Response: If organizations do not use a combination of withholds
and bonuses, there is no problem with setting the same limit for the
combinations as for withholds and bonuses individually. Since it is
possible for plans to use combinations of withholds and bonuses, it is
necessary to set a limit on the combination. As indicated in the
proposed preamble, to avoid putting physicians at substantial financial
risk, we determined it necessary to use the same threshold for the
combination.
With regard to the last comment, we are not aware of any data on
the effect of bonuses as opposed to withholds on physician behavior. We
would, therefore, appreciate receiving any information in this regard.
Comment: Several commenters recommended that we lower the
threshold.
Response: The proposed preamble had an extensive discussion of this
issue. As we stated, because of the limited information available on
this issue, the only logical approach is to use an outlier formula.
Given this decision, the threshold of 25 percent that we proposed is
consistent with the data that showed that the median withhold was
between 10 to 20 percent. It is also consistent with the concept of
substantial financial risk, which implies a greater than average risk.
As indicated, the threshold is based on withhold data. Averaging in the
organizations with capitation arrangements, which are the majority of
organizations, and treating them as equal to 100 percent withhold would
raise the threshold rather than lower it. We decided not to raise the
threshold because that would not make a difference to the capitation
arrangements. This would be so because, if capitation were considered
equal to 100 percent withhold, all plans using capitation would be
placing their physicians at substantial financial risk (unless the
threshold were set at 100 percent). Furthermore, as indicated in the
proposed preamble, the 25 percent withhold figure is within the range
of discounts that physician groups frequently provide to various
insurers. Physicians also lose similar amounts to bad debts.
Comment: One commenter suggested that we include the risk
arrangements between the physician groups and their individual
physicians, because the prepaid plan may use this strategy to
circumvent the process. The commenter maintained that the statute does
not specifically exclude these arrangements from scrutiny. The
commenter pointed out that the statute defines an incentive plan as
``any compensation arrangement between an eligible organization and a
physician that may directly or indirectly have the effect of reducing *
* *'' [Emphasis added.] The commenter believed that the use of the
words ``or indirectly'' indicates that the types of compensation
arrangements should be looked at broadly.
Response: As stated in an earlier response, we are requiring a
prepaid health plan that contracts with an intermediate entity to
disclose information about the physician incentive plans that the
entity has with physician groups or physicians. This will prevent a
prepaid plan from creating intermediate entities merely to evade the
requirements of this rule.
Furthermore, if the physician group subcontract with its physicians
places the latter at substantial financial risk, the prepaid health
plan must disclose the incentive arrangements. In order to minimize the
burden on prepaid plans, we are not requiring disclosure of every
incentive arrangement between physician groups and individual
physicians, only of those under which the physicians are placed at
significant financial risk.
In regard to the phrase ``indirectly have the effect of reducing or
limiting services,'' this phrase applies only to the arrangement
between the plan and physician group. It does not apply to the
relationship between the physician group and its individual physicians.
``Indirect'' as used in the statute refers to methods of compensation
to the physician groups that are not strictly monetary, but can be
considered the equivalent. Examples would include providing stocks,
waivers of debt, or equipment.
The commenter has raised the issue of physician groups that have
incentive arrangements with their individual physicians. As we examined
this issue, we noted that the definition of ``physician group'' in
proposed Sec. 417.479(b) technically would exclude such a physician
group, since it would not be a group that ``distributes income from
practice among members according to a * * * plan unrelated to the
members' referral levels.'' (Emphasis added.) It was not intended that
any physician group fall outside the scope of our definition, and thus
technically outside the scope of these regulations. We, accordingly,
are deleting ``according to a prearranged plan unrelated to the
member's referral levels'' from the definition of ``physician group.''
It is also for this reason that we did not adopt any existing
definitions of a physician group
[[Page 13439]]
or group practice that may similarly have contained provisions that
would exclude a group Congress intended to reach in this rule (for
example, the existing definition of ``medical group'' at 42 CFR 417.1
or ``group practice'' in section 1877 of the Act.
We are also taking this opportunity to point out that, although we
define a ``physician incentive plan'' as ``any compensation arrangement
between an organization and a physician or physician group that may
directly or indirectly have the effect of reducing or limiting services
furnished to Medicare beneficiaries or Medicaid recipients enrolled in
the organization'' [emphasis added], this definition also encompasses a
compensation arrangement between an entity with which the organization
contracts and physicians/physician groups and a compensation
arrangement between a physician group and its individual physicians.
This is because, although not a direct relationship, a linkage between
the organization and the physician group or individual physicians has
been established through the entity or physician group with which the
organization contracts.
Comment: One commenter suggested that we not apply substantial
financial risk to individual practice association (IPA) and direct
contracting models. The commenter stated that there would be no loss if
a few providers drop out.
Response: While the organization may not feel a loss, the enrollees
may be concerned about the loss. Furthermore, this may be an indication
that the incentive plans are having an undesired effect. The
legislation requires us to apply these regulations to all prepaid
plans. There is no justification for treating IPA and direct
contracting models differently. If anything, since these models
frequently involve contracts with individual physicians, these
physicians are less in a position to spread risk and may be at even
greater risk than other models.
Comment: Several commenters, including a major organization, raised
the concern that they do not know the total payments and patient loads
until the end of the year. They suggested that we substitute total
potential payments, based on the most recent year's utilization and
experience, in the substantial financial risk and stop-loss formulas.
Response: We agree that this option is acceptable, unless the
organization has information that suggests a significantly different
situation; for example, the addition of a major new contract.
Appropriate revisions have been made to proposed Sec. 417.479 to
clarify this.
Comment: A major organization suggested that we substitute an
actuarially derived threshold instead of an outlier approach.
Response: We reviewed this recommendation with several actuaries,
including staff from HCFA's Office of the Actuary. We concluded that it
is not feasible to make such an analysis. Actuaries can perform
analyses for certain kinds of losses, such as loss of life or loss of
income. However, the determination of what is a substantial loss of
income to a physician or physician group is more of a subjective or
policy decision than a measurable amount.
The actuaries also indicated that they could not perform such an
analysis because there are no empirical data to indicate how physicians
respond to different levels of financial risk.
Actuaries have supplied us with recommendations as to stop-loss
protection, discussed later in this preamble. The recommendations
result in different stop-loss requirements for different panel sizes.
Also, as discussed earlier, we have determined that physicians or
physician groups serving panels of over 25,000 patients are not at
substantial financial risk. We are, however, interested in receiving
current data on how physicians respond to different levels of financial
risk.
Comment: One commenter raised a concern that the Internal Revenue
Service (IRS) is developing policy on withholds that defines them as
discounts that would not be tax-exempt.
Response: We have held discussions with the IRS to coordinate
consistent policies and will continue to work with them.
Comment: One organization commented that the threshold should only
apply to the aggregate group of physicians and not to individual
physicians. It stated that its incentive plan is within the specified
limits for physician groups, but will exceed the limits for individual
physicians whose behavior exceeds certain norms.
Response: The legislation is concerned with whether a plan puts
physicians or physician groups at substantial financial risk. Thus, the
threshold policy applies to contracts between an organization and
individual physicians, but only if the contract is specifically between
the organization and an individual physician. As indicated earlier, we
have not interpreted the legislation to apply to subcontracts between
the physician group and its individual physicians.
Comment: A major organization asked if a contract for primary care
services outside the service area equals referral services.
Response: Primary care services outside the service area are not
``referral services.'' The prepaid plan, however, must ensure that all
necessary services are available and accessible within the service
area.
Comment: A major organization commented that the proposed
regulation poses a problem for staff model HMOs in medically
underserved areas (MUAs). The commenter stated that, because the
salaries of many physicians in community health centers (CHCs) are low
(because they are often working under a Federal student loan repayment
program), the formula we use to determine the risk threshold results in
a threshold that is artificially low for these HMO programs. The
commenter added that, to impose additional administrative obligations
on these community programs, because of their bonus payment
arrangements for salaried physicians, would divert time, energy, and
resources away from their mission of providing health services in MUAs.
Response: We share the concerns raised by this commenter. The low
salaries do create an artificially lower threshold, and the centers
have much more limited administrative resources. Nevertheless, these
circumstances result in even greater pressures on these physicians to
contain costs. With lower salaries, the physicians are more sensitive
to factors that can affect their income. Therefore, it is even more
appropriate to have the policies in this regulation apply to these
centers. Unfortunately, we have not been able to develop a different
policy for these centers. Note, however, that if an HMO contracts with
a CHC, then, as indicated in an earlier response, these regulations
would not apply to contracts between the centers and their physicians
because they are subcontracts.
Capitation Arrangements With Physicians
Comment: Several commenters, including a major organization, stated
that the threshold should not apply to capitation. Their argument was
that the thresholds were based on withhold data and, further, that it
is difficult to separate services furnished by the physicians from
referral services. The commenters also claimed that we did not specify
that the capitation applies only to referral services.
The commenters raised the concern that the capitation payments may
include payments for services furnished directly by the physician
group. Thus, they point out, we are limiting the
[[Page 13440]]
amount of risk a physician can accept for his or her own services. The
commenters stated that to do so is beyond the mandate of the statute,
which is intended to apply only to services not provided by the
physician group.
Response: We gave this issue a great deal of thought. We decided,
however, to continue with our proposed policy of applying a 25 percent
threshold. To exempt capitation from the threshold could place
physicians who are compensated in this manner at substantial financial
risk, without subjecting the prepaid plans to the requirement either to
set limits to the risk in the form of maximums and minimums, or provide
adequate stop-loss protection and conduct beneficiary surveys as
required by the statute. Furthermore, the commenters are incorrect; the
proposed and final rules are concerned with referral services. If the
incentive plan applies only to the services furnished by the physician
group, these rules do not apply. The legislation specifies that we
address services not furnished by the physician group. If the incentive
plan applies to all services or just referral services, these rules
apply.
The commenters are correct on these two points: our policy does
affect services that the physician group directly provides if we are
dealing with capitation for all services; and services furnished
directly by the physician group or physician are not covered by the
statute. However, when the capitation covers all services, we are not
able to separate those service furnished directly from the referral
services. And, since the referral services are our primary concern, we
need to be inclusive rather than exclusive.
Comment: One commenter recommended that we not require the maximum
and minimum formula for capitation arrangements if the organization can
show that a 25 percent differential had not occurred in the past.
Response: While there is merit to this recommendation, we have
decided to reject it. The legislation requires that organizations that
place their physicians at substantial financial risk, as determined by
the Secretary, provide stop-loss protection and conduct enrollee
surveys. Thus, the formula is necessary for us to determine if
substantial financial risk exists. Also, past behavior is no guarantee
of future behavior. Thus, physicians could still feel the pressure if
they are placed at substantial financial risk, regardless of past
payments.
Comment: One commenter believed the rule should distinguish between
a monthly capitation payment to a physician group that includes an
amount for referral services, and an incentive plan assessment or
payment.
Response: The applicability of the provisions of this rule depends
upon the specific arrangements in the incentive plan. As stated
earlier, if the incentive plan applies only to services directly
furnished by the physician or physician group and does not cover
referral services, the regulations do not apply. If the capitation
includes payment for referral services, the provisions of
Sec. 417.479(f)(5) apply. If the organization capitates its physicians
only for services they directly furnish and uses withholds or bonuses
(or a combination of withholds and bonuses) as incentives to control
referrals, the requirements of Sec. 417.479(f)(5) concerning capitation
do not apply. In this case, however, if the withholds or bonuses or
combination of withholds and bonuses exceed the 25 percent risk
threshold, the stop-loss and survey requirements of this rule apply.
Comment: One commenter suggested that, if a physician group
achieves a patient population of approximately 250 members from a
single capitated HMO, there is no longer a need for the risk
protection.
Response: There is no evidence that supports this number. As
indicated later in this preamble, we have set an exception for the
stop-loss requirements that is based on panel size.
Comment: A number of commenters stated that the proposed rules, as
they relate to capitated payment arrangements, do not accommodate
common, longstanding contractual arrangements and should be withdrawn
to permit additional study.
Response: The Group Health Association of America (GHAA) has
supplied us with updated data as of the Winter 1993-94. Furthermore,
Mathematica has published data from 1995. We took these data into
account as we revisited our decisions regarding specific risk
thresholds and issues concerning capitation and stop-loss protection.
These data support the approach we have taken in this final rule. If
more recent data exists, we would appreciate receiving it.
Comment: Several commenters stated that they capitate their
physicians but also provide adequate stop-loss protection. They
believed that these physicians are not at risk, because of the stop-
loss protection.
Response: We agree in principle with this view. If an HMO has stop-
loss protection in place that ensures that no more than 25 percent of a
physician's or physician group's income is at risk, we would determine
that the plan does not involve substantial financial risk.
Stop-Loss
Comment: A commenter recommended that we put physicians at risk
beyond the stop-loss limit. The commenter believed that setting an
absolute limit on the amount of risk that physicians can accept (that
is, requiring stop-loss protection to cover the cost of referrals in
excess of 30 percent of payments) obstructs an organization's ability
to control physician behavior beyond that point. The commenter
suggested that the stop-loss requirement be constructed to allow for
continued, but limited, risk sharing. The commenter recommended that
the organization be allowed to hold physicians or physician groups
responsible for 20 percent of the cost of referrals beyond the point at
which the stop-loss protection begins. The commenter stated that it
does not believe the statute requires an absolute limit on the amount
of risk, but instead only ``adequate and appropriate'' stop-loss
protection.
Response: The approach suggested by this commenter is consistent
with the policy used by a number of HMOs. The practice of requiring
physicians to continue to share in the risk beyond a stop-loss limit
makes the physicians sensitive to the need to avoid furnishing
unnecessary services. Therefore, this final rule allows for continued,
but limited, risk sharing beyond the point at which the stop-loss
protection begins.
For those prepaid plans that provide an aggregate stop-loss policy,
we are setting the required stop-loss limit at 25 percent. The prepaid
plan will bear 90 percent of the losses beyond this level and the
physicians will bear 10 percent of the losses. (See
Sec. 417.479(g)(2)(i).) Because we are adding a 90/10 ratio to the
potential loss level, we believe it is necessary to reduce the proposed
30 percent stop-loss limit to 25 percent to compensate for the added
element of risk sharing. Furthermore, the 25 percent level is
consistent with the threshold we established for substantial financial
risk.
The 90/10 split also applies to those plans that provide per
patient stop-loss protection.
Comment: Several commenters, including major organizations, stated
that aggregate stop-loss policies are not currently used and would be
difficult to obtain. They recommended that patient, dollar, and/or
specific disease protections be substituted.
Response: We have decided to allow plans to provide either
aggregate or per-patient limit stop-loss policies. (See
[[Page 13441]]
Sec. 417.479(g)(2).) The amount of the per patient policy required to
be considered adequate and appropriate will vary with the patient panel
size and will be discussed later in this preamble. We reached this
decision on the following basis.
We agree that some organizations might have trouble purchasing
aggregate stop-loss policies or that it may be expensive to switch from
a per patient limit to an aggregate policy. Since most organizations do
not have such policies, this aggregate policy requirement would, at the
least, cause a significant change in policy, which could be very
difficult or expensive to implement. Furthermore, actuarial analyses
indicate that aggregate coverage is unlikely to be needed.
On the other hand, there are some organizations that do provide
aggregate stop-loss protection. Requiring them to switch to a per-
patient limit would also be expensive. There are advantages and
disadvantages to both aggregate and per-patient stop-loss coverage.
Aggregate policies provide greater overall protection, while per-
patient policies provide better protection at the individual patient
level.
Both of these options provide reasonable protection for physicians
and their patients. By providing an option, we have eliminated the
burden organizations might face to switch policies.
We considered the recommendation to include specific disease
protections. We reviewed the Department's preliminary plans for
implementing the Medicare Catastrophic Coverage Act of 1988 (Public Law
100-203), major provisions of which were repealed before being
implemented. The Department had not planned to specify any specific
diseases as catastrophic and instead planned to use specific dollar
levels to define ``catastrophic'' expenses.
Comment: Several commenters stated that the prepaid plans should
not be required to pay for the cost of stop-loss protection. They
believed they should be allowed to charge the physicians a reasonable
premium for stop-loss protection.
Response: Section 1876(i)(8)(ii) of the Act reads, in relevant
part, as follows:
(ii) If the plan places a physician or physician group at
substantial financial risk * * * the organization--(I) provides stop-
loss protection for the physician or group * * *.
In the case where the physician or physician group decides to purchase
its own stop-loss protection, we interpret ``provides'' to mean that
the organization either pays for the premium or reduces the level at
which the stop-loss protection applies by the cost of the stop-loss. We
also rejected the proposal of allowing HMOs to make available stop-loss
protection rather than paying for it. Making available is not
consistent with providing.
Thus, we provide, in Sec. 417.479(g)(2)(iii), that the prepaid plan
may either (1) Provide the stop-loss protection directly, (2) purchase
the stop-loss protection, or (3) if the physician or physician group
purchases the protection, pay the portion of the premium that covers
its enrollees or reduce the level at which the stop-loss protection
applies by the cost of the stop-loss. We are interested in any comments
on this provision and alternative proposals.
Comment: Several commenters suggested that we establish a case-by-
case exceptions process for stop-loss requirements.
Response: As stated previously for substantial financial risk, such
a process would be administratively burdensome. Further, it would be
difficult to make judgments.
Comment: One commenter, a major organization, disputed our
statement that there is little information available regarding the
impact of various factors on physician behavior.
Several commenters believed we should take patient panel size into
account and exclude large panels from this requirement. Other
commenters suggested that we have a higher stop-loss requirement, for
example, $200,000 per patient, for larger panels. They noted that the
legislation instructed us to take panel size into account for stop-loss
protection. The commenters argued that, with a sufficiently large
patient panel (generally a clinic), the physicians are able to spread
the risk across all the patients.
In addition, several commenters pointed out that a number of
physician groups have contracts with many different HMOs, particularly
IPA models, and have the equivalent of a large panel spread out among
the HMOs. The commenters recommended that HMOs that contract with these
groups be exempt from the stop-loss requirements.
Response: Analyses by several actuarial firms and data from several
HMOs support the position that having a large panel does reduce the
level of risk. The data is also consistent with the findings of
Rossiter and Adamache (1990) discussed previously. Based on these
analyses, we have determined the limits specified in the following
table (Table 1) for different panel sizes and have revised proposed
Sec. 417.479(g)(2) accordingly. Providing a higher stop-loss
requirement (a higher stop-loss level is a lower level of protection)
is consistent with the legislation, which specified that we take panel
size into account.
Table 1.--Stop Loss Limits Per Patient Panel Size
------------------------------------------------------------------------
Number of patients Stop-loss limits per patient
------------------------------------------------------------------------
Less than 1,000........................... $10,000
1,000 to 10,000........................... $30,000
10,000 to 25,001.......................... $200,000
Greater than 25,000 (unpooled)............ None
Greater than 25,000 (as a result of $200,000
pooling).
------------------------------------------------------------------------
There are two ways physician groups can pool patients to meet the
panel size requirements specified in the table: (1) Including
commercial, Medicare, and/or Medicaid enrollees in the calculation of
panel size, and (2) Pooling together, by the organization, of several
physician groups into a single panel. Each method may lead to a panel
size large enough to reduce the financial risk. These methods may be
used to pool patients, provided they are consistent with the relevant
contract between the physician or physician group and the prepaid plan.
(For instance, if there are separate contracts for commercial,
Medicare, and/or Medicaid enrollees, then, absent contractual
provisions to the contrary, pooling would be precluded).
We consider physician groups whose panels are greater than 25,000
patients without pooling of patients as not at substantial financial
risk. Thus, the organization would be exempt from stop-loss protection
and beneficiary survey requirements.
For those groups whose panel size is greater than 25,000 patients
as a result of pooling, the organization is required to provide stop-
loss protection at the same level that is required if the panel size is
between 10,000 to 25,000 patients ($200,000 per patient). This policy
is adopted so that plans will not use pools to circumvent the stop-loss
requirements. Furthermore, physicians may be at higher risk for panels
that are pooled than panels that are not pooled since the former may
experience greater variability in costs than the latter.
We have not established an increasing scale for the aggregate stop-
loss option, except that those panels over 25,000 patients without
pooling do not need aggregate stop-loss coverage. The scale does not
need to increase because, since a percentage formula is used, the
dollar
[[Page 13442]]
amount represented by the threshold rises as the panel size increases.
We are willing to consider policy alternatives that are supported
by empirical data. We are interested in receiving public comments in
this regard.
Surveys
Comment: Several commenters believed a survey of enrollee
satisfaction should be required of all prepaid plans, not just those
where there is substantial financial risk.
Response: While most prepaid plans do conduct surveys, there is no
legislative requirement to do so except as prescribed by this
regulation.
Comment: One commenter, a major organization, stated that the
proposed rule is silent about what HCFA must do with the survey
results. This organization proposed that the regulations explicitly
require HCFA to (1) Annually review the results as they are filed, (2)
share the complete results with the appropriate PRO, (3) take
appropriate action if the results indicate a problem; and (4) ensure
public access to the survey results by requiring that they be published
and disseminated to interested parties by the PRO, the organization, or
HCFA.
Response: We partially addressed this comment earlier in this
preamble. The survey results will be submitted to plan managers in
HCFA's central and regional offices. They will review the results in
conjunction with PRO results, disenrollment data, reconsiderations, and
related information, as part of ongoing compliance monitoring
activities. As HCFA develops performance measures and report cards over
the next several years, it will consider the best way to make the
survey results available to consumers and providers.
Comment: One commenter suggested that disenrollees that move be
excluded from the surveys.
Response: We agree with this recommendation since it may be very
hard to locate these beneficiaries. Therefore, we have revised proposed
Sec. 417.479(g) accordingly.
Comment: One commenter, a major organization, requested that we
specify that surveys do not need to be done more often than annually.
Response: This final rule, at Sec. 417.479(g)(1)(iv), revises the
requirement to specify that the survey must be conducted no later than
1 year from the effective date of the incentive plan, and at least
every 2 years thereafter. As noted in the DATES section of this
preamble, compliance with Sec. 417.479(g)(1)(iv) is not required until
1 year after the effective date of this rule.
Medicaid
Comment: One commenter asked whether States have the option to
prohibit incentive plans that place providers at a substantial
financial risk. The commenter believed this option would eliminate the
need to obtain and monitor stop-loss requirements and a member survey.
Response: Nothing in OBRA '90 prohibits States from placing more
restrictive requirements under State law on the physician incentive
plans of their HMO and HIO contractors. As a result, States do have the
option of under State law prohibiting altogether incentive plans that
place providers at substantial financial risk, regardless of any stop-
loss arrangements and member satisfaction surveys used by the
contractor. We point out, however, that the sanctions and penalties
provided for under this final rule would apply only with respect to
violations of the Federal requirements in this rule.
Comment: One commenter asked whether, if annual member surveys are
already required under quality assurance standards, an additional
member survey is necessary for those plans placing providers at
substantial financial risk.
Response: No additional survey is required, as long as the survey
conducted under the quality assurance standards meets the requirements
specified at Sec. 417.479(g) of this rule.
Comment: One commenter stated that sufficient time must be allowed
for States to incorporate the new provisions in program rules and
existing provider agreements.
Response: We agree with this comment. As a result, as stated in the
DATES section of this preamble, the compliance date for most provisions
is 60 days after publication of this final rule. This time period is
the standard commonly used for implementation under Medicaid.
Comment: One commenter stated that incentive plans for physicians
serving Medicaid recipients need to address access to primary and
preventive services and quality of care services. The commenter stated
that these plans must include incentives based on specific health
outcomes, timely access to primary care, and enrollee satisfaction
based on specific health outcomes.
Response: OBRA '90: (1) Prohibits certain physician incentive
arrangements and (2) specifies two requirements to be met if other
types of arrangements that place physicians at substantial financial
risk are used. The statute does not go beyond these prohibitions and
requirements to mandate the use of any particular type of incentive
arrangements, including those described by the commenter. Accordingly,
the rule does not include any requirements that certain types of
incentives be used.
Comment: One State agency stated that incentive plans for
physicians serving Medicaid must limit the payment of any incentives to
once annually. The commenter believed this would decrease the
possibility that physicians will cut back on services or refuse to
treat individual patients because of fear of financial losses.
Response: OBRA '90 prohibited only one type of incentive
arrangement: those that make specific payments, ``directly or
indirectly under the plan to a physician or physician group as an
inducement to reduce or limit medically necessary services provided
with respect to a specific individual enrolled with the organization.''
All other types of incentive arrangements are allowed, including those
that place physicians at ``substantial financial risk.'' (Those that
place physicians at substantial financial risk must meet certain
requirements for the provision of stop-loss protection for physicians
and periodic enrollee satisfaction surveys.) The statute makes no
provision, including the one recommended by the commenter, for banning
other types of incentive plans. We cannot impose the restrictions on
the incentive program that were recommended by the commenter. As noted
above, however, OBRA '90 would not prohibit a State from imposing such
a restriction under State law.
Comment: One commenter recommended that the reporting and other
requirements for physician incentive plans be limited to only those
HMOs, CMPs, or HIOs that institute percentage risk levels that are
greater for the Medicaid and Medicare populations than for their
commercial contracts.
Response: With respect to Medicaid, OBRA '90 amended section
1903(m)(2)(A) of the Act to condition a State's receipt of FFP for
expenditures in prepaid capitation or other risk-based reimbursement
contracts upon a contractor's adherence to the requirements for
physician incentive plans also described in OBRA '90. The statute does
not authorize the Secretary to exempt certain plans or State Medicaid
contracts from compliance with these reporting and other requirements.
Therefore, we cannot change the regulation as the commenter has
proposed.
[[Page 13443]]
Comment: One commenter stated that the definitions of ``substantial
risk,'' ``withhold,'' and ``bonus'' are too inflexible to meet the
special needs related to the Medicaid program. Citing monthly
eligibility variation and differences in payments based on varying
Medicaid eligibility categories as examples of variables that can
affect payment to a provider in any given period, the commenter
questioned how, if incentive payments are based on end of year results
and a percent sharing arrangement, a plan can know in advance if its
providers will be at substantial risk.
Response: The maximum potential (as opposed to the actual) amount
of withhold or bonus lost or awarded, respectively, determines whether
a prepaid plan has placed a physician or physician group at substantial
financial risk. If the plan places the practitioner at risk of losing
more than 25 percent of his/her potential earnings, then the plan has
placed the physician or physician group at substantial financial risk.
The actual amount of withhold returned or not returned or bonus awarded
or not awarded at the end of the assessment and disbursement period is
not the determinant of substantial financial risk because money
returned or awarded after care has already been delivered does not
serve as an inducement. It is the promise of potential earnings (or the
prospect of loss thereof) that serves as the inducement. Therefore, a
prepaid plan does not need to know its end of year results in order to
determine if it is placing its physicians and physician groups at
substantial financial risk.
The minimum and maximum potential earnings, including the portions
that are the result of incentive arrangements, should be known both to
the plan and the physician or physician group under contract at the
beginning of each risk assessment period. As a result, the regulation
states that capitation arrangements in which the maximum and minimum
possible payments are not clearly explained in the physician's or
physician group's contract constitute substantial financial risk.
Comment: One commenter stated that the rules are not very clear on
defining a number of terms. As examples, the commenter asked the
following questions:
What does ``risk based on the levels or costs of referral
services'' mean? Are the ``levels or costs'' applied to an individual
capitated physician, physician group, or organization?
What if the amount allocated to cover referral services is
placed in a pool account for debiting patient costs and the amount from
these services that might be paid as part of the incentive plan depends
on the performance of the larger pool formed by a number of separate
physicians and these physicians pool accounts?
What if the ``capitation'' amount actually paid to a
physician is meant to cover that physician's services and involves a 15
percent withhold?
Response: In response to the first question, the term ``referral
services'' is defined in Sec. 417.479(c) of the regulation. In
addition, the word ``level'' has been changed to ``use'' for greater
clarity.
In response to the first two questions, it is important to note
that, in general, the regulation does not attempt to address how a
prepaid plan chooses to design or implement its physician incentive
plan. Rather, it attempts to regulate one of the final products, that
is, the maximum financial risk to which a physician or physician group
may be exposed for referral services. Plans may use a variety of
incentive arrangements, including those identified by the commenter, in
structuring their physician incentive plans. However, prepaid plans
should be able to determine or establish, as part of their physician
incentive plans, the maximum financial risk, when the risk is based on
referral services, to which a physician or physician group may be
exposed under the physician incentive plan. If a plan is unable, based
on the structure and operation of its incentive plan, to determine the
amount of the financial risk, then, according to
Sec. 417.479(f)(5)(ii), we would determine that the plan places
physicians or physician groups at ``substantial financial risk'' and
the plan would be required to implement stop-loss protection and
conduct enrollee surveys. As indicated previously, we have decided to
allow a plan to pool patients for different physician groups.
In response to the third question, the threshold for withhold
arrangements is established in Sec. 417.479(f) of this final rule. This
section would apply only if the withhold is based in part or in its
entirety on utilization or costs of referral services. If the return of
the withhold is based solely on the physicians' own services, then,
under Sec. 417.479(f) of this final rule, these regulations would not
apply.
Comment: One commenter stated that the proposed rule does not allow
for the differences found in HIOs, specifically that they have
mandatory enrollment in a specific area, may be at-risk for
retroactively eligible individuals, and may be responsible for an
ongoing category of special members who are not capitated to a
particular physician. The commenter noted that the cost of services to
this population affects the incentive plan (withhold payment and
surplus sharing). The commenter also specifically noted that the HIOs
in California which are Medicaid only were not specifically addressed
in the proposed rule.
Response: The Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA '85) generally subjected HIOs which were operational on or
after January 1, 1986, to the same requirements as other organizations
contracting with Medicaid agencies on a risk basis to provide or
arrange for comprehensive services (HMOs). (Certain exceptions to this
are allowed under the law.) Therefore, this proposed rule did not
reiterate the fact that HIOs subject to the same requirements for HMOs
are also subject to these requirements for physician financial
incentive plans.
Further, OBRA '90 did not contain any provisions calling for the
differential treatment of HIOs. Because of this, and the historical
interest of the Congress in subjecting HIOs to the same standards as
HMOs, we did not identify the need for differential treatment of HIOs
in this regulation.
Comment: One commenter stated that the proposal on enrollee surveys
excludes only those Medicaid enrollees who have disenrolled because of
a loss of Medicaid eligibility. The commenter recommended we consider
excluding those who disenroll from a prepaid plan because they moved
from the plan's service area.
Response: As stated earlier, we agree that individuals who have
disenrolled from the plan because they have moved outside of a plan's
service area may be omitted from the plan's enrollee survey. The
regulations text at Sec. 417.479(g)(1) has been appropriately modified.
Comment: One commenter stated that, in addition to an enrollee
survey, monitoring of the complaint/appeals process for the plan and
the State's Medicaid fair hearing process would be another check on the
quality of care and the denial of needed service.
Response: OBRA '90 does not address monitoring the complaint/
appeals process for the plan and the State Medicaid fair hearing
process in the State. However, monitoring the plan's complaint hearing
process is the responsibility of the State Medicaid agency as part of
its routine monitoring of its managed care contractors. In addition,
HCFA routinely monitors a State's fair hearing process as part of the
monitoring of each State's Medicaid plan. As a result, these areas are
not included in these regulations.
[[Page 13444]]
Miscellaneous
Comment: One commenter recommended that we clarify the definition
of ``medically necessary services'' as it applies in the prohibition on
specific payment as an inducement to reduce or limit medically
necessary services to a specific enrollee.
Response: We are preparing a final rule entitled ``Medicare
Program: Criteria and Procedures for Making Medical Services Coverage
Decisions that Relate to Health Care Technology.'' This rule will
specify the definition of medically necessary services that will apply
for purposes of the prohibition in question. (The rule will be in
response to a notice we published in the Federal Register on April 29,
1987, at 52 FR 15559, that requested comments on procedures for medical
services coverage decisions.)
Comment: One commenter stated that managed care plans should be
specifically directed to provide for effective physician participation
in the development of incentive plans and other elements of the
organization's management.
Response: Physicians have the opportunity for input before they
sign a contract with the organization. Physicians have the opportunity
to negotiate all aspects of the contract. Since the contract specifies
the nature of the incentive arrangements, the physicians have an
opportunity for input through the negotiation process.
Comment: Some commenters recommended that patients be allowed
direct access to specialists and/or that the prepaid plan explain, as
part of the enrollment contract, that patients have limited access to
specialists.
Response: HCFA supports the practice of HMOs using gatekeepers to
limit patients from direct access to specialists. HMOs have found this
to be an effective way to limit inappropriate utilization and
expenditures. HMOs are required to explain this practice as part of the
enrollment.
Comment: Several commenters suggested that there be an appeals
process for physicians and patients.
Response: HCFA requires prepaid plans to provide an appeals process
for enrollees. For physicians, there are several arrangements. All
physicians have an opportunity to informally appeal decisions through
the plan's medical review board and through the contract negotiation
process. In addition, for Medicare risk contractors, unaffiliated
physicians can represent a Medicare beneficiary in an appeal to the
prepaid plan. In the case of a cost contract, the physician can
represent a beneficiary in an appeal to whichever entity (prepaid plan,
carrier, or intermediary) made the determination.
VII. Provisions of the Final Regulations
The proposed rule is adopted, with the changes listed below. Many
of these changes are discussed in section V. of this preamble. If the
change is not discussed in section V, the reason for the change is
given below.
Changes to Proposed Sec. 417.479
We add a new paragraph (a); and designated proposed
paragraph (a) as paragraph (b). New paragraph Sec. 417.479(a) is added
to reflect the requirement at section 1876(i)(8) of the Act that each
contract between HCFA and an eligible organization contain provisions
related to physician incentive plans. This new paragraph also makes it
clear why this provision is placed in part 417, subpart L (Medicare
Contract Requirements).
We designate paragraph (b) as paragraph (c) and revise the
definition of ``physician group'' so that it no longer inadvertently
excludes physician groups that pay their physicians using a methodology
under which the amount of payment is affected by referrals. We also
clarify, in that definition, that an IPA is a physician group only if
it is composed of individual physicians and has no subcontracts with
physician groups.
We designate proposed (c) as paragraph (d). We also revise
this paragraph to remove language that, because of the addition of new
paragraph (a), became redundant. Also, in response to a comment, we
change ``to reduce or limit medically necessary services'' to ``to
reduce or limit medically necessary services covered under the
organization's contract''.
Proposed paragraph (d) is designated as paragraph (e).
Additionally, the difference in risk threshold based on the frequency
of distribution or assessment of incentive payments is removed.
Proposed paragraph (e) is designated as paragraph (f) and
is revised to--
+ Provide a definition of ``potential payments'' and clarify that
it is these payments that are used in the calculation of the level of
risk.
+ Provide that substantial financial risk does not exist if,
without pooling, the patient panel size is 25,000 patients or more.
Proposed paragraph (g) is revised to--
+ Specify that individuals who disenroll from a prepaid plan
because they relocate outside the plan's service area need not be
included in the enrollee survey.
+ Provide that, in the case of aggregate stop-loss protection, the
protection must cover 90 percent of the costs of referral services
(beyond allocated amounts) that exceed 25 percent of potential
payments.
+ Establish, in the case of stop-loss protection based on a per-
patient limit, requirements as to the amount of stop-loss protection
that are based on patient panel size.
Proposed paragraph (h) is revised to-
+ Specify the items of information that must be disclosed to HCFA
and to Medicare beneficiaries and, in accordance with Sec. 434.70(a)(3)
and (a)(4), to the State Medicaid agency or recipient, respectively.
+ Include methods that may be used in the calculation of panel
size.
+ Specify those types of changes in the incentive plan that must be
reported to HCFA and require that this information be submitted to HCFA
45 days before implementing the changes.
+ Remove proposed paragraph (h)(5). The proposed paragraph
addressed when organizations with existing contracts must comply with
the disclosure requirements. Because that provision would become
quickly irrelevant, we have decided to address this issue in the DATES
section of this final rule, rather than by incorporation into the CFR.
+ Require that organizations provide Medicare beneficiaries a
summary of the disclosure information, if they request it.
We designate proposed Sec. 417.479(i) as Sec. 417.479(j).
We add a new Sec. 417.479(i) to specify requirements related to
subcontracting arrangements.
Changes to Proposed Sec. 434.70
Proposed paragraph (a)(2) is revised to--
+ Require compliance with Secs. 417.479(d) through (g) and the
requirements related to subcontracts set forth at Sec. 417.479(i) if
the subcontract is for the provision of services to Medicaid
recipients.
+ Specify the items of information that must be disclosed to the
State agency.
+ Require that the organization provide certain information
concerning the physician incentive plan to any Medicaid recipient who
requests it.
+ Remove proposed paragraph (a)(2)(iv). The proposed paragraph
addressed when organizations with existing contracts (agreements) must
comply with the disclosure requirements. Because that provision
[[Page 13445]]
would quickly become irrelevant, we have decided to address this issue
in the DATES section of this final rule, rather than by incorporation
into the CFR.
Crosswalk Between Proposed Rule and This Final Rule
Note that those provisions related to civil money penalties and
intermediate sanctions that were included in the July 22, 1991,
proposed rule and that were merely republished in the December 1992
proposed rule on physician incentive plans are not included in this
final rule or in the following crosswalk.
------------------------------------------------------------------------
Proposed This rule
------------------------------------------------------------------------
Sec. 417.479(a)--new
contents.
Sec. 417.479(a).......................... Sec. 417.479(b).
Sec. 417.479(b).......................... Sec. 417.479(c).
Sec. 417.479(c).......................... Sec. 417.479(d).
Sec. 417.479(d).......................... Sec. 417.479(e).
Sec. 417.479(e).......................... Sec. 417.479(f).
Sec. 417.479(f).......................... Content deleted.
Sec. 417.479(g).......................... Sec. 417.479(g).
Sec. 417.479(h).......................... Sec. 417.479(h).
Sec. 417.479(i)--new
contents.
Sec. 417.479(i).......................... Sec. 417.479(j).
Sec. 417.495(a)(7)....................... Sec. 417.500(a)(9).
Sec. 434.44(a)........................... Sec. 434.44(a).
Sec. 434.70(a)(3) and
(a)(4)--added.
Sec. 1003.100(b)(vi)..................... Sec. 1003.100(b)(vi).
Sec. 1003.101 (definitions).............. Sec. 1003.101--only
definition of ``physician
incentive plan'' added by
this rule.
Sec. 1003.103(e)(iv) through (e)(vi)..... Sec. 1003.103(e)(iv)
through (e)(vi).
Sec. 1003.106(a)(4)(vii)................. Sec. 1003.106(a)(4)(vii).
------------------------------------------------------------------------
VIII. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
Whether the information collection is necessary and useful
to carry out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
Therefore, we are soliciting public comment on each of these issues
for the following sections of this document that contain information
collection requirements:
The information collection requirements in Sec. 417.479(g)(1) (and
Sec. 434.70(a)(3) for Medicaid) concern organizations that operate
incentive plans that place physicians or physician groups at
substantial financial risk and require them to conduct annual enrollee
surveys that include either all current Medicare/Medicaid enrollees in
the organization and those who have disenrolled (other than because of
loss of eligibility in Medicaid or relocation outside the
organization's service area) in the past 12 months, or a sample of
these same enrollees and disenrollees. These surveys must be designed,
implemented, and analyzed in accordance with commonly accepted
principles of survey design and statistical analysis. They must address
enrollees/disenrollees satisfaction with the quality of services
furnished and their degree of access to the services. We estimate that
200 organizations will conduct the surveys each year. We estimate that
a total of approximately 90,000 enrollees will respond to the survey.
The information collection requirements in Secs. 417.479(h)(1) and
(h)(2), 417.479(i), and 434.70(a)(3) specify that disclosure concerning
physician incentive plans must be made to HCFA or to the State, as
appropriate. The requirements apply to physician incentive plans
between eligible organizations and individual physicians or physician
groups with whom they contract to furnish medical services to
enrollees. The requirements apply only to physician incentive plans
that base compensation on the use or cost of services furnished to
Medicare beneficiaries or Medicaid recipients.
The disclosure must contain the following information:
(1) Whether services not furnished by the physician or physician
group are covered by the incentive plan. (If not, disclosure of other
aspects of the plan need not be made.)
(2) The type of incentive arrangement.
(3) If the incentive plan involves a withhold or bonus, the percent
of the withhold or bonus.
(4) The amount and type of stop-loss protection.
(5) The patient panel size and, if patients are pooled, the pooling
method used.
(6) In the case of capitated physicians or physician groups,
capitation payments paid to primary care physicians for the most recent
year broken down by percent for primary care services, referral
services to specialists, and hospital and other types of provider
services.
(7) In the case of prepaid plans that must conduct beneficiary/
recipient surveys, the survey results.
An organization must provide the information upon application for a
contract; upon application for a service area expansion; at least 45
days before implementing certain changes in its incentive plan, and
within 30 days of a request by HCFA or the State. The respondents that
will provide the information are HMOs, CMPs, HIOs, and certain
subcontractor entities that contract with the Medicare program or
States and have physician incentive plans. We estimate that
approximately 600 organizations will submit the information.
Sections 417.479(h)(3) and 434.70(a)(4) require that the following
information be provided to any Medicare beneficiary or Medicaid
recipient, respectively, who requests it: Whether the plan uses a
physician incentive plan that affects the use of referral services; if
so, the type of incentive arrangement; whether stop-loss protection is
provided; and, if a survey is required, a summary of the survey
results. The respondents who will provide this information will be
HMOs, CMPs, HIOs, that contract with the Medicare program or States and
have physician incentive plans. We estimate that approximately 300
organizations will provide this information to a total of approximately
1,500 Medicare beneficiaries and 1,500 Medicaid recipients.
The table below indicates the annual number of responses for each
regulation section in this final rule containing information collection
requirements, the average burden per response in minutes or hours, and
the total annual burden hours.
----------------------------------------------------------------------------------------------------------------
Annual No. Annual
CFR section of Annual Average burden per response burden
responses frequency hours
----------------------------------------------------------------------------------------------------------------
417.479(g)(1).............................. 90,000 1 10 minutes.................... 15,000
417.479(h) (1) and (2) and 417.479(I)...... 600 1 1 hour........................ 600
[[Page 13446]]
417.479(h)(3).............................. 1,500 1 10 minutes.................... 250
434.70(a)(4)............................... 1,500 1 10 minutes.................... 250
----------------------------------------------------------------------------------------------------------------
We have submitted a copy of this final rule with comment period to
OMB for its review of the above information requirements. A document
will be published in the Federal Register when OMB approval is
obtained.
If you comment on these information collection and recordkeeping
requirements, please mail your comments to the following address:
Health Care Financing Administration, Office of Financial and Human
Resources, Management Planning and Analysis Staff, Room C2-26-17, 7500
Security Boulevard, Baltimore, MD 21244-1850.
IX. Regulatory Impact Statement
Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
through 612), we prepare a regulatory flexibility analysis unless the
Secretary certifies that a rule will not have a significant economic
impact on a substantial number of small entities. For purposes of the
RFA, all HMOs, CMPs, and HIOs are considered to be small entities.
In addition, section 1102(b) of the Act requires the Secretary to
prepare a regulatory impact analysis if a rule may have a significant
impact on the operations of a substantial number of small rural
hospitals. This analysis must conform to the provisions of section 604
of the RFA. For purposes of section 1102(b) of the Act, we define a
small rural hospital as a hospital that is located outside of a
Metropolitan Statistical Area and has fewer than 50 beds.
This final rule with comment period will amend the regulations
governing prepaid health care organizations with Medicare or Medicaid
risk contracts. Sections 4204(a) and 4731 of OBRA 1990 repealed the
prohibition of physician incentive plans in prepaid health care
organizations and enacted requirements, effective January 1, 1992, for
regulating these plans.
One of the requirements imposed was that each Medicare contract
with a prepaid health care organization stipulate that, if a physician
incentive plan places a physician or physician group at ``substantial
financial risk'' for services not provided directly, the prepaid health
plan organization must: (1) Provide the physician or physician group
with adequate and appropriate stop-loss protection, and (2) conduct
surveys of currently and previously enrolled members to assess the
degree of access to services and the satisfaction with the quality of
services.
We received one comment that dealt with the impact statement in the
proposed rule published in the Federal Register on December 14, 1992
(57 FR 59034). The commenter believed that the proposed rule would have
a substantial impact on prepaid health care organizations. The
commenter stated that it would be required to make significant changes
to limit physician group participation in incentive programs. The
commenter also believed the proposed rule would limit its ability to
control costs and also result in higher administrative expenses. We
believe most plans already meet a majority of our requirements, as
indicated by the survey data collected by GHAA and Mathematica
discussed in the preamble. We strongly believe that if physicians are
at substantial financial risk, organizations must provide stop-loss
protection to ensure that essential health care services are received
by Medicare beneficiaries and Medicaid enrollees.
All of the approximately 600 HMOs, CMPs, and HIOs could be affected
by the revised incentive plan disclosure requirements. We believe,
however, that few incentive plans will require changes to comply with
the regulations. In addition, since we expect that most current
incentive plans already comply with the regulations, we believe that we
will rarely need to impose intermediate sanctions or civil money
penalties on prepaid health plan organizations that fail to provide
covered medically necessary services. Further, we expect few additional
surveys of currently and previously enrolled members will be necessary
to assess the degree of access to services and the satisfaction with
the quality of services. Thus, we believe that additional costs will be
incurred by only a small number of organizations.
We are not preparing analyses for either the RFA or section 1102(b)
of the Act because we have determined, and the Secretary certifies,
that this rule will not have a significant economic impact on a
substantial number of small entities or a significant impact on the
operations of a substantial number of small rural hospitals. We will,
however, publish a regulatory flexibility analysis and regulatory
impact analysis if we receive comments and data that would enable us to
do so.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects
42 CFR Part 417
Administrative practice and procedure, Health maintenance
organization (HMO), Medicare, Reporting and recordkeeping requirements.
42 CFR Part 434
Grant programs--Health, Health maintenance organization (HMO),
Medicaid, Reporting and recordkeeping requirements.
42 CFR Part 1003
Administrative practice and procedure, Fraud, Grant programs--
Health, Health facilities, Health profession, Maternal and child
health, Medicaid, Medicare, Penalties.
CHAPTER IV--HEALTH CARE FINANCING ADMINISTRATION, DEPARTMENT OF HEALTH
AND HUMAN SERVICES
I. Chapter IV of title 42 is amended as set forth below:
PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL
PLANS, AND HEALTH CARE PREPAYMENT PLANS
A. Part 417 is amended as follows:
1. The authority citation for part 417 is revised to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
2. A new Sec. 417.479 is added to read as follows:
Sec. 417.479 Requirements for physician incentive plans.
(a) The contract must specify that an organization may operate a
physician incentive plan only if--
(1) No specific payment is made directly or indirectly under the
plan to a physician or physician group as an inducement to reduce or
limit medically necessary services furnished to an individual enrollee;
and
[[Page 13447]]
(2) The stop-loss protection, enrollee survey, and disclosure
requirements of this section are met.
(b) Applicability. The requirements in this section apply to
physician incentive plans between eligible organizations and individual
physicians or physician groups with whom they contract to provide
medical services to enrollees. These requirements apply only to
physician incentive plans that base compensation (in whole or in part)
on the use or cost of services furnished to Medicare beneficiaries or
Medicaid recipients.
(c) Definitions. For purposes of this section:
Bonus means a payment an organization makes to a physician or
physician group beyond any salary, fee-for-service payments,
capitation, or returned withhold.
Capitation means a set dollar payment per patient per unit of time
(usually per month) that an organization pays a physician or physician
group to cover a specified set of services and administrative costs
without regard to the actual number of services provided. The services
covered may include the physician's own services, referral services, or
all medical services.
Payments means any amounts the organization pays physicians or
physician groups for services they furnish directly, plus amounts paid
for administration and amounts paid (in whole or in part) based on use
and costs of referral services (such as withhold amounts, bonuses based
on referral levels, and any other compensation to the physician or
physician group to influence the use of referral services). Bonuses and
other compensation that are not based on referral levels (such as
bonuses based solely on quality of care furnished, patient
satisfaction, and participation on committees) are not considered
payments for purposes of this subpart.
Physician group means a partnership, association, corporation,
individual practice association, or other group that distributes income
from the practice among members. An individual practice association is
a physician group only if it is composed of individual physicians and
has no subcontracts with physician groups.
Physician incentive plan means any compensation arrangement between
an organization and a physician or physician group that may directly or
indirectly have the effect of reducing or limiting services furnished
to Medicare beneficiaries or Medicaid recipients enrolled in the
organization.
Referral services means any specialty, inpatient, outpatient, or
laboratory services that a physician or physician group orders or
arranges, but does not furnish directly.
Risk threshold means the maximum risk, if the risk is based on
referral services, to which a physician or physician group may be
exposed under a physician incentive plan without being at substantial
financial risk.
Withhold means a percentage of payments or set dollar amounts that
an organization deducts from a physician's service fee, capitation, or
salary payment, and that may or may not be returned to the physician,
depending on specific predetermined factors.
(d) Prohibited physician payments. No specific payment of any kind
may be made directly or indirectly under the incentive plan to a
physician or physician group as an inducement to reduce or limit
covered medically necessary services covered under the organization's
contract furnished to an individual enrollee. Indirect payments include
offerings of monetary value (such as stock options or waivers of debt)
measured in the present or future.
(e) General rule: Determination of substantial financial risk.
Substantial financial risk occurs when the incentive arrangements place
the physician or physician group at risk for amounts beyond the risk
threshold, if the risk is based on the use or costs of referral
services. Amounts at risk based solely on factors other than a
physician's or physician group's referral levels do not contribute to
the determination of substantial financial risk. The risk threshold is
25 percent.
(f) Arrangements that cause substantial financial risk. For
purposes of this paragraph, potential payments means the maximum
anticipated total payments (based on the most recent year's utilization
and experience and any current or anticipated factors that may affect
payment amounts) that could be received if use or costs of referral
services were low enough. The following physician incentive plans cause
substantial financial risk if risk is based (in whole or in part) on
use or costs of referral services and the patient panel size is not
greater than 25,000 patients or is greater than 25,000 patients only as
a result of pooling patients using a method set forth in paragraph
(h)(1)(v) of this section:
(1) Withholds greater than 25 percent of potential payments.
(2) Withholds less than 25 percent of potential payments if the
physician or physician group is potentially liable for amounts
exceeding 25 percent of potential payments.
(3) Bonuses that are greater than 33 percent of potential payments
minus the bonus.
(4) Withholds plus bonuses if the withholds plus bonuses equal more
than 25 percent of potential payments. The threshold bonus percentage
for a particular withhold percentage may be calculated using the
formula--
Withhold %=-0.75 (Bonus %)+25%.
(5) Capitation arrangements, if--
(i) The difference between the maximum possible payments and
minimum possible payments is more than 25 percent of the maximum
possible payments; or
(ii) The maximum and minimum possible payments are not clearly
explained in the physician's or physician group's contract.
(6) Any other incentive arrangements that have the potential to
hold a physician or physician group liable for more than 25 percent of
potential payments.
(g) Requirements for physician incentive plans that place
physicians at substantial financial risk. Organizations that operate
incentive plans that place physicians or physician groups at
substantial financial risk must do the following:
(1) Conduct enrollee surveys. These surveys must--
(i) Include either all current Medicare/Medicaid enrollees in the
organization and those who have disenrolled (other than because of loss
of eligibility in Medicaid or relocation outside the organization's
service area) in the past 12 months, or a sample of these same
enrollees and disenrollees;
(ii) Be designed, implemented, and analyzed in accordance with
commonly accepted principles of survey design and statistical analysis;
(iii) Address enrollees/disenrollees satisfaction with the quality
of the services provided and their degree of access to the services;
and
(iv) Be conducted no later than 1 year after the effective date of
the incentive plan, and at least every 2 years thereafter.
(2) Ensure that all physicians and physician groups at substantial
financial risk have either aggregate or per-patient stop-loss
protection in accordance with the following requirements:
(i) If aggregate stop-loss protection is provided, it must cover 90
percent of the costs of referral services (beyond allocated amounts)
that exceed 25 percent of potential payments.
(ii) If the stop-loss protection provided is based on a per-patient
limit, the stop-loss limit per patient must be determined based on the
size of the
[[Page 13448]]
patient panel. In determining patient panel size, the patients may be
pooled using one of the methods set forth in paragraph (h)(1)(v) of
this section if pooling is consistent with the relevant contract
between the physician or physician group and the organization. Stop-
loss protection must cover 90 percent of the costs of referral services
that exceed the per patient limit. The per-patient stop-loss limit is
as follows:
(A) Less than 1,000 patients--$10,000.
(B) 1,000 to 10,000 patients--$30,000.
(C) 10,000 to 25,001 patients--$200,000.
(D) Greater than 25,000 patients--
(1) Without pooling patients--none; and
(2) As a result of pooling patients--$200,000.
(iii) The organization may provide the stop-loss protection
directly or purchase the stop-loss protection, or the physician or
physician group may purchase the stop-loss protection. If the physician
or physician group purchases the stop-loss protection, the organization
must pay the portion of the premium that covers its enrollees or reduce
the level at which the stop-loss protection applies by the cost of the
stop-loss.
(h) Disclosure requirements for organizations with physician
incentive plans--(1) Disclosure to HCFA. Each organization must provide
to HCFA information concerning its physician incentive plans as
required or requested. The disclosure must contain the following
information in detail sufficient to enable HCFA to determine whether
the incentive plan complies with the requirements specified in this
section:
(i) Whether services not furnished by the physician or physician
group are covered by the incentive plan. If only the services furnished
by the physician or physician group are covered by the incentive plan,
disclosure of other aspects of the plan need not be made.
(ii) The type of incentive arrangement; for example, withhold,
bonus, capitation.
(iii) If the incentive plan involves a withhold or bonus, the
percent of the withhold or bonus.
(iv) The amount and type of stop-loss protection.
(v) The panel size and, if patients are pooled according to one of
the following permitted methods, the method used:
(A) Including commercial, Medicare, and/or Medicaid patients in the
calculation of the panel size.
(B) Pooling together, by the organization, of several physician
groups into a single panel.
(vi) In the case of capitated physicians or physician groups,
capitation payments paid to primary care physicians for the most recent
year broken down by percent for primary care services, referral
services to specialists, and hospital and other types of provider (for
example, nursing home and home health agency) services.
(vii) In the case of those prepaid plans that are required to
conduct beneficiary surveys, the survey results.
(2) When disclosure must be made to HCFA. (i) An organization must
provide the information required by paragraph (h)(1) of this section to
HCFA--
(A) Upon application for a contract;
(B) Upon application for a service area expansion; and
(C) Within 30 days of a request by HCFA.
(ii) An organization must notify HCFA at least 45 days before
implementing any of the following changes in its incentive plan:
(A) A change as to the type of incentive plan.
(B) A change in the amounts of risk or stop-loss protection.
(C) Expansion of the risk formula to cover services not furnished
by the physician group that the formula had not included previously.
(3) Disclosure to Medicare beneficiaries. An organization must
provide the following information to any Medicare beneficiary who
requests it:
(i) Whether the prepaid plan uses a physician incentive plan that
affects the use of referral services.
(ii) The type of incentive arrangement.
(iii) Whether stop-loss protection is provided.
(iv) If the prepaid plan was required to conduct a survey, a
summary of the survey results.
(i) Requirements related to subcontracting arrangements--(1)
Physician groups. An organization that contracts with a physician group
that places the individual physician members at substantial financial
risk for services they do not furnish must do the following:
(i) Disclose to HCFA any incentive plan between the physician group
and its individual physicians that bases compensation to the physician
on the use or cost of services furnished to Medicare beneficiaries or
Medicaid recipients. The disclosure must include the information
specified in paragraphs (h)(1)(i) through (h)(1)(vii) of this section
and be made at the times specified in paragraph (h)(2) of this section.
(ii) Provide adequate stop-loss protection to the individual
physicians.
(iii) Conduct enrollee surveys as specified in paragraph (g)(1) of
this section.
(2) Intermediate entities. An organization that contracts with an
entity (other than a physician group) for the provision of services to
Medicare beneficiaries must do the following:
(i) Disclose to HCFA any incentive plan between the entity and a
physician or physician group that bases compensation to the physician
or physician group on the use or cost of services furnished to Medicare
beneficiaries or Medicaid recipients. The disclosure must include the
information required to be disclosed under paragraphs (h)(1)(i) through
(h)(1)(vii) of this section and be made at the times specified in
paragraph (h)(2) of this section.
(ii) If the physician incentive plan puts a physician or physician
group at substantial financial risk for the cost of services the
physician or physician group does not furnish--
(A) Meet the stop-loss protection requirements of this subpart; and
(B) Conduct enrollee surveys as specified in paragraph (g)(1) of
this section.
(3) For purposes of paragraph (i)(2) of this section, an entity
includes, but is not limited to, an individual practice association
that contracts with one or more physician groups and a physician
hospital organization.
(j) Sanctions against the organization. HCFA may apply intermediate
sanctions, or the Office of Inspector General may apply civil money
penalties described at Sec. 417.500, if HCFA determines that an
eligible organization fails to comply with the requirements of this
section.
3. In Sec. 417.500, the introductory text of paragraph (a) is
republished, and a new paragraph (a)(9) is added to read as follows:
Sec. 417.500 Sanctions against HMOs and CMPs.
(a) Basis for imposition of sanctions. HCFA may impose the
intermediate sanctions specified in paragraph (d) of this section, as
an alternative to termination, if HCFA determines that an HMO or CMP
does one or more of the following:
* * * * *
(9) Fails to comply with the requirements of Secs. 417.479(d)
through (i) relating to physician incentive plans.
* * * * *
PART 434--CONTRACTS
B. Part 434 is amended as follows:
1. The authority citation for part 434 continues to read as
follows:
Authority: Secs. 1102 of the Social Security Act (42 U.S.C.
1302).
[[Page 13449]]
2. In Sec. 434.44, the introductory text of paragraph (a) is
republished, and paragraph (a)(1) is revised to read as follows:
Sec. 434.44 Special rules for certain health insuring organizations.
(a) A health insuring organization that first enrolls patients on
or after January 1, 1986, and arranges with other providers (through
subcontract, or through other arrangements) for the delivery of
services (as described in Secs. 434.21(b)) to Medicaid enrollees on a
prepaid capitation risk basis is--
(1) Subject to the general requirements set forth in Sec. 434.20(d)
concerning services that may be covered and Sec. 434.20(e) which sets
forth the requirements for all contracts, the additional requirements
set forth in Secs. 434.21 through 434.38 and the Medicaid agency
responsibilities specified in subpart E of this part; and
* * * * *
3. In Sec. 434.67, the introductory text of paragraph (a) is
republished, and a new paragraph (a)(5) is added to read as follows:
Sec. 434.67 Sanctions against HMOs with risk comprehensive contracts.
(a) Basis for imposition of sanctions. The agency may recommend
that the intermediate sanction specified in paragraph (e) of this
section be imposed if the agency determines that an HMO with a risk
comprehensive contract does one or more of the following:
* * * * *
(5) Fails to comply with the requirements of Secs. 417.479(d)
through (g) of this chapter relating to physician incentive plans, or
fails to submit to the State Medicaid agency its physician incentive
plans as required or requested in Sec. 434.70.
* * * * *
4. Section 434.70 is revised to read as follows:
Sec. 434.70 Condition for FFP.
(a) FFP is available in expenditures for payments to contractors
only for the periods that--
(1) The contract--
(i) Meets the requirements of this part;
(ii) Meets the appropriate requirements of 45 CFR part 74; and
(iii) Is in effect;
(2) The HMO or HIO complies with the physician incentive plan
requirements specified in Secs. 417.479(d) through (g) of this chapter
and the requirements related to subcontracts set forth at
Sec. 417.479(i) of this chapter if the subcontract is for the provision
of services to Medicaid recipients;
(3) The HMO or HIO (or, in accordance with Sec. 417.479(i) of this
chapter, the subcontracting entity) has supplied the information on its
physician incentive plan listed in Secs. 417.479(h)(1) of this chapter
to the State Medicaid agency. The information must contain detail
sufficient to enable the State to determine whether the plan complies
with the requirements of Secs. 417.479(d) through (g) of this chapter.
The HMO or HIO must supply this information to the State Medicaid
agencies as follows:
(i) Upon application for a contract.
(ii) At least 45 days before implementing any of the following
changes in its incentive plan:
(A) A change as to the type of incentive plan.
(B) A change in the amounts of risk or stop-loss protection.
(C) Expansion of the risk formula to cover services not furnished
by the physician group that the formula had not included previously.
(iii) Within 30 days of a request by the State or HCFA; and
(4) The HMO or HIO has provided the information on physician
incentive plans listed in Sec. 417.479(h)(3) of this chapter to any
Medicaid recipient who requests it.
(b) HCFA may withhold FFP for any period during which--
(1) The State fails to meet the State plan requirements of this
part;
(2) Either party to a contract substantially fails to carry out the
terms of the contract; or
(3) The State fails to obtain from each HMO or HIO contractor proof
that it meets the requirements for physician incentive plans specified
in Secs. 417.479(d) through (g) and (i) of this chapter.
CHAPTER V--OFFICE OF INSPECTOR GENERAL--HEALTH CARE, DEPARTMENT OF
HEALTH AND HUMAN SERVICES
II. 42 CFR part 1003 is amended as set forth below:
PART 1003--CIVIL MONEY PENALTIES, ASSESSMENTS AND EXCLUSIONS
1. The authority citation for part 1003 continues to read as
follows:
Authority: 42 U.S.C. 1302, 1320a-7, 1320a-7a, 1320b-10, 1395mm,
1395ss(d), 1395u(j), 1395u(k), 1396b(m), 11131(c) and 11137(b)(2).
2. In Sec. 1003.100, paragraph (b)(1) introductory text is revised
and paragraph (b)(1)(vii) is revised to read as follows:
Sec. 1003.100 Basis and purpose.
* * * * *
(b) Purpose. * * *
(1) Provides for the imposition of civil money penalties and, as
applicable, assessments against persons who--
* * * * *
(vii) Substantially fail to provide an enrollee with required
medically necessary items and services, or who engage in certain
marketing, enrollment, reporting, claims payment, employment or
contracting abuses, or that do not meet the requirements for physician
incentive plans for Medicare specified in Secs. 417.479 (d) through (i)
of this title;
* * * * *
3. Section 1003.101 is amended by adding, in alphabetical order, a
definition for the term ``Physician incentive plan'' to read as
follows:
Sec. 1003.101 Definitions.
* * * * *
Physician incentive plan means any compensation arrangement between
a contracting organization and a physician group that may directly or
indirectly have the effect of reducing or limiting services provided
with respect to enrollees in the organization.
* * * * *
4. In Sec. 1003.103, paragraph (f)(1) introductory text is
republished, paragraphs (f)(1)(iv) and (f)(1)(v) are revised, and a new
paragraph (f)(1)(vi) is added, to read as follows:
Sec. 1003.103 Amount of penalty.
* * * * *
(f)(1) The OIG may, in addition to or in lieu of other remedies
available under law, impose a penalty of up to $25,000 for each
determination by HCFA that a contracting organization has--
* * * * *
(iv) Misrepresented or falsified information furnished to an
individual or any other entity under section 1876 or section 1903(m) of
the Act;
(v) Failed to comply with the requirements of section 1876(g)(6)(A)
of the Act, regarding prompt payment of claims; or
(vi) Failed to comply with the requirements of Secs. 417.479 (d)
through (i) of this title for Medicare, and Secs. 417.479 (d) through
(g) and (i) of this title for Medicaid, regarding certain prohibited
incentive payments to physicians.
* * * * *
5. In Sec. 1003.106, paragraph (a)(5) introductory text is
republished; paragraphs (a)(5)(vii) and (a)(5)(viii) are redesignated
as paragraphs (a)(5)(viii) and (a)(5)(ix), respectively; and a new
paragraph (a)(5)(vii) is added to read as follows:
[[Page 13450]]
Sec. 1003.106 Determinations regarding the amount of the penalty and
assessment.
(a) * * *
(5) In determining the appropriate amount of any penalty in
accordance with Sec. 1003.103(f), the OIG will consider, as
appropriate--
* * * * *
(vii) The extent to which the failure to provide medically
necessary services could be attributed to a prohibited inducement to
reduce or limit services under a physician incentive plan and the harm
to the enrollee which resulted or could have resulted from such
failure. It would be considered an aggravating factor if the
contracting organization knowingly or routinely engaged in any
prohibited practice which acted as an inducement to reduce or limit
medically necessary services provided with respect to a specific
enrollee in the organization;
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.733--
Medicare--Hospital Insurance Program; No. 93.774--Medicare
Supplementary Medical Insurance Program; No. 93.778--Medical
Assistance Program)
Dated: April 20, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: May 19, 1995.
June G. Brown,
Inspector General, Department of Health and Human Services.
Dated: November 2, 1995.
Donna E. Shalala,
Secretary.
[FR Doc. 96-7228 Filed 3-25-96; 8:45 am]
BILLING CODE 4120-01-P