[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Rules and Regulations]
[Pages 69034-69050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33330]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
42 CFR Parts 417 and 434
[OMC-010-F]
RIN 0938-AF74
Medicare and Medicaid Programs; Requirements for Physician
Incentive Plans in Prepaid Health Care Organizations
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
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SUMMARY: This final rule amends the regulations established by a March
27, 1996, final rule with comment period. The regulations govern
physician incentive plans operated by 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.
As explained in the March 27 rule, 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.
DATES: Effective date. These regulations are effective on January 1,
1997.
FOR FURTHER INFORMATION CONTACT: Beth Sullivan, (410) 786-4596.
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.
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
[[Page 69035]]
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. Payment under these contracts may either be
made on a risk capitation basis, under which a fixed amount is paid per
Medicare enrollee per month, or on a reasonable cost basis, under which
costs are reimbursed retrospectively. Implementing Federal regulations
for the organization and operation of Medicare HMOs and CMPs, contract
requirements, and conditions for payment are located at 42 CFR 417.400
through 417.694.
The amount paid to risk HMOs/CMPs 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
contracts with organizations (HMOs, and certain 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
the contracts comply with detailed requirements in section
1903(m)(2)(A) and 42 CFR part 434.
II. Legislative and Regulatory 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.
Section 13562 of OBRA '93 amended section 1877 of the Act, which
prohibits physicians from referring Medicare patients to an entity for
the furnishing of certain designated health services if the physician
(or an immediate family member) has a financial relationship with that
entity. A financial relationship can consist of either an ownership or
investment interest in the entity or a compensation arrangement with
the entity. 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 physician's or family
member's personal services compensation arrangement with an entity
involves compensation that varies based on the volume or value of
referrals. OBRA '93 also extended the provisions in section 1877 to
Medicaid.
In the December 14, 1992 issue of Federal Register, we published,
in conjunction with the Office of Inspector General, our proposal for
implementing the requirements in sections 4204(a) and 4731 of OBRA '90
(57 FR 59024). On March 27, 1996, again in conjunction with the Office
of Inspector General, we published, at 61 FR 13430, a final rule with
comment period that set forth in regulations incentive plan
requirements that govern Federally-qualified HMOs and CMPs contracting
with the Medicare program and certain HMOs and HIOs contracting with
the Medicaid program. On September 3, 1996, we published, at 61 FR
46384, a final rule correction that clarified and changed some of the
dates by which prepaid health plans had to comply with the requirements
of the March 27 rule. Readers who desire additional background
information are referred to the above cited Federal Register documents.
III. Provisions of the March 27, 1996 Rule
This section contains a brief summary of the provisions of the
March 27, 1966 rule. If we received public comments on a particular
provision, a fuller description of the provision is given in section IV
of this preamble (Analysis of and Responses to Public Comments), and we
indicate that in this section. Note that we do not describe below those
provisions of the March 27, 1996 rule that amended 42 CFR Part 1003
(Civil Money Penalties, Assessments
[[Page 69036]]
and Exclusions) since they are not the subject of this revised final
rule.
The requirements for physician incentive plans are set forth in
Sec. 417.479. Paragraph (a) of that section specifies that the contract
between HCFA and an HMO or CMP must specify that the HMO or CMP 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 (2) the stop-loss protection,
enrollee survey, and disclosure requirements of Sec. 417.479 are met.
Section 417.479(b) provides that the physician incentive plan
requirements apply to physician incentive plans between HMOs/CMPs and
individual physicians or physician groups with whom the HMOs or CMPs
contract to provide medical services to enrollees. It further provides
that the 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.
Section 417.479(c) defines the following terms for purposes of
Sec. 417.479: Bonus, capitation, payment, physician group, physician
incentive plan, referral services, risk threshold, and withhold.
Section 417.479(d) prohibits payment of any kind made directly or
indirectly under the incentive plan as an inducement to reduce or limit
medically necessary services covered under the HMO's or CMP's contract
that are furnished to an individual enrollee.
Section 417.479(e) sets forth a general rule for determining when
substantial financial risk occurs. (See section IV.)
Section 417.479(g) mandates that, if an HMO or CMP operates an
incentive plan that places physicians or physician groups at
substantial financial risk, it must conduct enrollee surveys that meet
specified requirements and ensure that all physicians and physician
groups at substantial financial risk have either aggregate or per-
patient stop-loss protection that meets specified requirements. (See
section IV.)
Section 417.479(h) requires that organizations with physician
incentive plans disclose information about those plans to us and to any
Medicare beneficiary who requests it. (See section IV.)
Section 417.479(i) sets forth requirements related to
subcontracting arrangements. (See section IV.)
Section 417.479(j) specifies that we may apply intermediate
sanctions, or the Office of Inspector General may apply civil money
penalties, if we determine that an HMO or CMP fails to comply with the
physician incentive plan requirements. In addition, failure to comply
with the physician incentive plan requirements was added to the list of
bases for imposition of sanctions at Sec. 417.500.
The March 27, 1996 final rule also amended the Medicaid rules at
Sec. 434.70 (Conditions for Federal financial participation (FFP)) to
specify that FFP is available in expenditures for payments to an HMO or
HIO only if it complies with the physician incentive plan requirements.
The final rule also incorporated these requirements into Secs. 434.44
(Special rules for certain HIOs) and 434.67 (Sanctions against HMOs
with risk comprehensive contracts).
IV. Analysis of and Responses to Public Comments
We received 38 timely items of correspondence on the March 27, 1996
final rule with comment period. Commenters included prepaid plans,
national and local associations of managed care providers, physician
associations, a State medical association, and consumer advocacy
groups. This section of the preamble contains a summary of the comments
and our responses. Note that a national association that indicated that
it represents approximately 1,000 health plans and identified below as
``a major association'' submitted comments. Although some of the
comments below are attributed only to the major association, individual
health plans also made some of these same comments.
Applicability
Comment: A commenter asked whether the regulations apply to
enrollees who are enrolled through the prepaid plan's commercial line
of business if the enrollees are also Medicare beneficiaries. For
example, if an individual who is over 65 but is actively working is
covered by the prepaid plan's commercial product through his or her
employer, would the physician incentive arrangement between the prepaid
plan and the physician(s) treating that individual under the commercial
product be subject to the regulations?
Response: Yes, the regulations apply to these plans. The employer's
plan is the first payer, and the Medicare capitation payment is
adjusted downward, but the enrollee is still a Medicare beneficiary.
Comment: One commenter stated that the regulation defines
``physician group'' as a corporation or other group that ``distributes
income from the practice among members.'' [Emphasis added by
commenter.] The commenter stated that community health centers (CHCs)
are clearly not included within this definition. As a result, the
commenter is unable to ascertain whether plans contracting with CHCs
will be required to provide to CHCs the stop-loss protection described
in the regulation. The commenter recommends that the definition of
``physician group'' be changed as regards distribution of income and
membership so as to include CHCs. The commenter pointed out the
following: CHCs are by definition public or private nonprofit entities.
As tax-exempt entities, they cannot ``distribute'' income like a for-
profit entity does. CHC physicians are not ``members'' of the
corporation. Usually they are employees or, in some instances,
contractors.
Response: We disagree that the definition needs to be revised. We
believe the commenter has misinterpreted the definition as describing
profit sharing among the members of a for-profit entity. The term
``income'' does not equate to ``profits.'' The definition does include
CHCs.
Disclosure
We received several comments concerning the disclosure requirements
in the March 27 rule. Specifically, Sec. 417.479(h)(1) requires each
HMO or CMP with a physician incentive plan to provide us with
information concerning its physician incentive plans as required or
requested by us. The disclosure must contain the following information
in detail sufficient to enable us to determine whether the incentive
plan complies with the requirements of Sec. 417.479:
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 plan,
disclosure of other aspects of the plan need not be made.
The type of incentive arrangement.
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, the pooling
method used.
In the case of a capitated physician or physician group,
capitation 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.
[[Page 69037]]
In the case of an HMO or CMP that is required to conduct
beneficiary surveys, the survey results.
Section 417.479(h)(2) requires an HMO or CMP to provide the above
information to us (1) upon application for a contract; (2) upon
application for a service area expansion; and (3) within 30 days of a
request by us. This section also requires an HMO or CMP to notify us at
least 45 days before implementing a change in 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 furnished by the
physician group that the formula had not included previously.
Section 417.479(h)(3) of the March 27 rule requires an HMO or CMP
to provide the following information to any Medicare beneficiary who
requests it:
Whether it uses a physician incentive plan that affects
the use of referral services.
The type of incentive arrangement.
Whether stop-loss protection is provided.
If it was required to conduct a beneficiary survey, a
summary of the survey results.
Section 417.479(i) requires a prepaid plan that contracts with a
physician group that places the individual physician members at
substantial financial risk for services they do not furnish to disclose
to us 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 Sec. 417.479
(h)(1)(i) through (h)(1)(vii) and be made at the times specified in
Sec. 417.479(h)(2).
Section 434.70(a) provides that Federal financial participation is
available in expenditures for payment to HMOs or HIOs only for periods
that the HMO or HIO has (1) supplied the information listed in
Sec. 417.479(h)(1) to the State Medicaid agency; and (2) supplied the
information on physician incentive plans listed in Sec. 417.479(h)(3)
to any Medicaid recipient who requests it. The timeframes for
disclosure to the State Medicaid agency are the same as those for
Medicare.
Comment: One commenter suggested that health plans be permitted to
deem themselves to have transferred substantial financial risk without
having to describe to us the specific incentive arrangements and
analyses of each arrangement. The commenter also questioned our
authority for requiring disclosure of incentive arrangements and
believed that disclosure presents an enormous administrative burden.
The commenter asked: If an HMO agrees to provide stop-loss and to
conduct surveys, must it still disclose the information to HCFA as
required by the regulation?
Response: Yes, under the statute and the regulation, health plans
must disclose this information. This information serves many purposes.
For example, it will be used to monitor compliance, evaluate the impact
of the regulation, and ensure the delivery of high quality health care.
In addition, this information will be useful to beneficiaries in
ensuring that they get needed care. Section 1876(i)(8) of the Act
requires the HMO or CMP provide the Secretary with descriptive
information regarding the plan that is sufficient to permit the
Secretary to determine whether the plan is in compliance with the
physician incentive plan requirements. Congress clearly intended health
plans to disclose information about the nature of physician incentive
compensation arrangements and the extent to which physicians are being
placed at substantial risk by the arrangements.
In preparing both the March 27 regulation and these amendments and
clarifications, we have tried to limit the information being reported
to only that which is essential for us to carry out this explicit
statutory responsibility to ensure that plans are in compliance. We are
not requiring extensive detail about the compensation arrangements
being used, but rather are seeking information about the general nature
and scope of these arrangements.
Comment: One commenter believed that the information to be
disclosed to us under the regulation is proprietary and should be
protected under the Freedom of Information Act (FOIA). The commenter
stated that we should adopt the same policy we use for disclosure of a
risk contractor's adjusted community rating (ACR). The commenter
believed that the physician incentive information merits comparable
treatment.
Response: To the degree that physician incentive information
constitutes ``trade secrets or commercial or financial information
obtained from a person [that is] privileged or confidential,'' the
information will be protected from release under exemption (b)(4) of
the FOIA (5 U.S.C. 552(b)(4).) In accordance with 45 CFR 5.65 (c) and
(d), the submitter of such information may designate all or part of the
information as confidential and exempt from disclosure at the time the
information is submitted to the government. Also, the Freedom of
Information and Privacy Office, HCFA, upon receipt of a FOIA request
for the information, will ask that the involved submitter specify what
it believes to be confidential commercial or financial information. In
both situations, we will follow procedures set forth at 45 CFR 5.65(d),
with the initial disclosure decisions independently made by our Freedom
of Information Officer. The information specified as available to a
beneficiary upon request will be available under FOIA. For instance,
whether or not the incentive plan covers referral services, the type of
incentive arrangement (for example, withhold or capitation), and
whether adequate stop-loss protection is in place would be available
under FOIA.
Comment: One commenter did not believe that disclosure requirements
would pose an undue burden on plans, because ``plans routinely provide
information to patients at the time of enrollment.'' The commenter
stresses the time that notice is provided as well as the substance of
what is provided. The commenter believed that all financial information
should be provided at enrollment (and annually thereafter), but also
notes that plans should report information regarding the scope of
benefits and procedures for review of grievances. The commenter stated
that one of its internal publications includes a statement on incentive
plans, asserting that these plans ``should be disclosed to the patient
upon enrollment and at least annually thereafter.'' The commenter
elaborated on that assertion by stating, ``[we] strongly support
disclosure to patients of physician incentive plans affecting Medicare
and Medicaid patients'' and ``strongly support disclosure by all
managed care plans to patients of information regarding the scope of
benefits and procedures for review of grievances.''
The commenter also stated the disclosures are necessary to serve as
notice to patients that incentives exist. The commenter went on to
state that it believes the information is necessary in place of
outcomes measures until such measures are widely accepted and
available.
In contrast, a major association of health plans asked that we give
plans broad discretion to decide how this information will be
presented.
Another commenter contended that section 1876(i)(8) of the Act does
not give us the authority to require that a prepaid plan release
information about its incentive plans to Medicare beneficiaries and
Medicaid recipients, and that there is no such grant of authority in
parallel medical provisions. The commenter added that, even if it
[[Page 69038]]
were to assume that a general authority conferred upon us allows us to
impose this obligation, the regulation goes far beyond what the
commenter believes to be reasonable. The commenter noted that, under
the regulation, every beneficiary or recipient in the country,
regardless of location and regardless of the relationship to the
prepaid plan, may obtain information about the incentive plan. The
commenter recommended that only enrollees of the prepaid plan or
beneficiaries or recipients who file an application to join the plan
should be entitled to obtain the information. The commenter also
recommended that the information be limited to the following: (1)
Whether the physician has an arrangement with the prepaid plan that has
the potential to compensate him or her for controlling the services he
or she provides; (2) that the amount of risk is limited because of
stop-loss protection; and (3) the results of any enrollee survey will
be provided, upon request, including information about quality of care.
Response: Some of the information may be confidential and will be
protected by FOIA. Nonetheless, we intend to require plans to publish
in the evidence of coverage (EOC) notices that beneficiaries can
request summary information on the HMO's physician incentive plans.
These EOC notices are available at enrollment. We will provide further
guidance on this in the future.
On the question of our legal authority to require disclosure to
beneficiaries, we believe that in requiring disclosure of information
on physician incentive plans, Congress intended that this information
be used in the best interests of the beneficiary. While the statute
refers only to disclosure of this information to the Secretary, this
information is clearly of interest to beneficiaries as well. Requiring
plan disclosure directly is simply more efficient than having the
Secretary provide this information to beneficiaries, which the
Secretary clearly has legal authority to do.
We do not agree that this information should be made available only
to an enrollee or applicant for enrollment in a managed care plan. This
information is potentially very important and useful to a beneficiary
in deciding whether to select managed care rather than fee-for-service
care and which of the available managed care plans to select.
Comment: A major association of health plans stated that we should
make available to the public all the information on incentive plans
that we and the States receive. The commenter did not explain why the
information should be made public, but just noted that there is ``no
valid reason to keep this information from the public'' and that
publication would allow health policy researchers to better understand
the relationship between specific risk arrangements and access and
quality of care provided to enrollees.
Response: We plan to publish aggregate information on physician
incentive plans obtained under the regulation; therefore, the
information will be public. Publication of additional information,
beyond that specified in the regulation, however, would be a
substantial administrative task and would not advance the purposes of
the law.
Comment: One commenter stated that requiring the HMO or CMP to
collect information about incentive plans operated by physician groups
or subcontractors is not the most efficient or effective means of
collecting the necessary information. The commenter suggested that we
collect the information directly from the physician groups and
subcontractors. This commenter believed we should allow a physician
group to attest that it has no physician incentive plan or no physician
incentive plan related to use of referral services for Medicare or
Medicaid enrollees and that HMOs should be allowed to rely upon that
attestation.
Response: The HMO/CMP is responsible for ensuring that the
requirements of this regulation are met if a physician group or
individual physicians are placed at substantial financial risk by a
subcontractor or physician group. Requiring that the HMO or CMP collect
the information ensures that it is aware of all arrangements subject to
the regulations. In addition, since lines of communication between the
physician group or subcontractor and the prepaid plan are already in
place, the HMO or CMP is the most efficient conduit for the disclosure
of information. We will allow physician groups to make attestations and
will provide further guidance on this item. We will also develop a
disclosure form that will describe the minimum amount of information
that the prepaid plan must obtain from physician groups.
Substantial Financial Risk
We received significant comments on our definition of ``substantial
financial risk.'' Section 417.479(e) provides that substantial
financial risk occurs when an incentive arrangement places a physician
or physician group at risk for amounts beyond the risk threshold (25
percent), 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.
Section 417.479(f) provides that physician incentive plans with any
of the following features place physicians at substantial financial
risk if the 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:
Withholds greater than 25 percent of potential payments.
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.
Bonuses greater than 33 percent of potential payments
minus the bonus.
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%.
Capitation arrangements if--
+ The difference between the maximum possible payments and minimum
possible payments is more than 25 percent of the maximum possible
payments; or
+ The maximum and minimum possible payments are not clearly
explained in the physician's or physician group's contract.
Any other incentive arrangements that have the potential
to hold a physician or physician group liable for more than 25 percent
of potential payments.
Section 417.479(f) defines ``potential payments'' as 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.
Comment: A major association contended that the methodology for
determining substantial financial risk is flawed because a substantial
number of affected prepaid plans will be viewed as transferring
substantial financial risk and be subject to the stop-loss and enrollee
survey requirements. The association pointed out that we stated in the
proposed rule that the original choice of a 25 percent threshold for
substantial financial risk was based on the assumption that only
``outlier'' risk levels would be considered ``substantial.'' The
association contends
[[Page 69039]]
that our methodology in fact covers ``mainstream'' arrangements, and
thus implicitly suggests that they are outliers. The association
believes that the proportion of outliers in a given population should
be quite small (typically in the range of 5 percent) and that a
methodology that purports to only identify outliers is invalid to the
extent it includes a proportion of the population beyond that
represented by the extreme. The association has concluded, based on
extensive communications with its membership and its work group, that
application of the methodology in the March 27 rule will result in the
inclusion of substantial numbers of what it contends to be
``mainstream'' incentive arrangements as involving substantial
financial risk. The association stated that, based upon information
from its member organizations, a large number of plans combine
capitation or withholds with bonuses, and the result is that the risk
level exceeds 25 percent.
The association reminded us that, in the preamble of the proposed
rule, we stated that 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, but that if new
information regarding the influence of various elements of physician
incentive plans becomes available, we will evaluate it to determine if
the approach in our proposed regulations should be reconsidered. The
association contended that a reevaluation of this structure is clearly
necessary at this time and that the regulations need to be modified to
address five areas: (1) The association believes that the risk
threshold should be refined to allow for the transfer of a larger
portion of risk for referral services; (2) the association believes
that the regulation needs a mechanism to estimate the amount of risk
transferred if a precise calculation cannot be made; (3) the
association recommends that maximum and minimum thresholds be
calculated based on standards that are more ``realistic'' in its view;
(4) the association would like more latitude in the pooling rules to
allow large physician groups that spread risk across large total
numbers of health plan patients to be exempt from the requirements; and
(5) the association suggests that a good cause exemption be available
to allow for the approval of physician incentive plans that, for policy
reasons, should not be considered as transferring substantial financial
risk, although the circumstances were not envisioned when the
regulations were drafted.
To achieve the above objectives, the association presented a number
of recommendations. These recommendations and our response to each of
them follow, but first we respond to the above comment that many plans
would be identified as outliers.
Response: At the time we were developing these regulations in
proposed form, it was our understanding that most physician incentive
plans created financial incentives to reduce unnecessary referrals
through the use of bonuses or withholds or some combination of the two.
On the assumption that a specific amount of payment was ``at risk''
(whether an amount withheld when referrals are high or a bonus paid if
they are low), we had to come up with a threshold beyond which risk
would be considered ``substantial.'' As the commenting association
correctly notes, we used an outlier approach to determine what level of
risk would be considered ``substantial'' under this methodology. This
resulted in a figure of 25 percent of potential payments. It is our
view that 25 percent represents a significant amount of income to lose.
This may be in addition to discounts that physicians may give to
various patients or prepaid plans. Many consumer and physician groups,
in fact, believe that 25 percent is too high. We now recognize that an
increasing number of plans use capitation arrangements under which
referral service costs must be covered with capitation amounts, and
that these plans will be determined to be at substantial financial risk
if the maximum and minimum potential payments are not clearly explained
in the physician's or physician group's contract. Raising the risk
threshold to a higher level will not affect these plans since they
would still be deemed to involve substantial financial risk and trigger
stop-loss insurance requirements. However, in most of these cases, the
physicians already have stop-loss protection comparable to the
requirements of this regulation. With regard to suggestions to lower
the threshold, here, again, changing the threshold would not affect
these plans. We thus believe that the 25 percent threshold should
remain in place.
Recommendation: The association recommended that an exception to
the 25 percent risk threshold be created for certain bonus
arrangements. This exception would permit prepaid plans to supplement
their incentive programs by offering an opportunity for a bonus, in
addition to capitation payments or withholds, or an opportunity for an
additional bonus where a bonus is already in place. The supplemental
bonus could not exceed 15 percent of the ``payments.''
Response: Under the March 27, 1996 rule, any combination of
incentive arrangements that exceeds the 25 percent threshold, whether
labeled a bonus or withhold, puts the physician or physician group at
substantial financial risk. We adopted this policy towards bonuses
because (1) if the same amount of money is at risk based on referral
levels, it should not matter whether this money is labeled a withhold
or a bonus, and (2) we did not want plans to avoid these rules merely
by ``re-labeling'' withholds or other arrangements as bonuses. The
incentive arrangement described in this comment would exceed the 25
percent threshold for substantial financial risk as we interpret this
term and, accordingly, should not be permitted in our view.
Recommendation: The association recommended that a prepaid plan
that capitates physicians or physician groups be permitted to estimate
the portion of the capitation allocated to referral services for
purposes of determining whether there is substantial financial risk.
This is because it is the association's belief that many large prepaid
plans do not have, and cannot obtain, this information. The association
believes that the regulatory requirement that contracts specify the
allocation between services provided by the physician or physician
group and the amount allocated for referral services (provided outside
the physician group or the physician's practice) has two objectives:
(1) To provide a basis for the calculation of risk transference to
determine whether substantial financial risk is transferred; and (2) to
apprise the physician or physician group of the portion of its
capitation ``at risk.'' The association contends that we could achieve
the first of these two objectives by allowing the prepaid plan to
estimate the expected portion of referrals through the use of
historical data or actuarial tables. The prepaid plan could be required
to certify that its decision was made in good faith based on the best
available data. In accepting this proposal, the association contends
that we would be meeting our responsibilities under E.O. 12866 to find
an alternative regulatory approach that imposes the least burden on
society while still achieving its objective.
The association questioned whether the second objective it has
presumed, to apprise the physician or physician group of the portion of
its capitation ``at
[[Page 69040]]
risk,'' is meaningful today since physicians are far more aware of the
implications of risk assumption than they once were.
As an alternative approach, the association suggested that the
physician/physician group put in the contract the estimated portion of
services that would not be provided by the physician or physician
group. The association stated that, although this amount may change
over time, it would not support revisions to the contract to reflect
changes made within the discretion of the individual physician or
physician group. The association notes that this alternative approach
would not be the most desirable because it would require the burdensome
step of recontracting with large numbers of physicians.
Response: As indicated in the March 27, 1996 rule, prepaid plans
have the option of specifying in the contract maximum and minimum
payment amounts. As long as the difference between these amounts does
not exceed 25 percent of the maximum amount, the physician or physician
group is not at substantial financial risk. Without specifying these
limits, physicians who are capitated for all services are potentially
at risk of losing 100 percent of their income. Given this potential
loss, they may feel the pressure to reduce necessary services.
Prepaid plans have the opportunity to include a provision in their
contract with a physician group that would require the physician group
to specify the level of potential risk for referral services. Relying
on historical or actuarial data may not be reflective of risk in
current contracts. While it may be true that physicians today are more
aware of the implications of risk assumption, there is no evidence that
the ability to manage this risk has substantially changed. Further,
while physician groups may want the flexibility to change risk sharing
arrangements on an ad hoc basis, we have to question the impact of
these changes on patient care decisions.
Recommendation: The association recommends that the regulation be
amended to allow for the pooling of the total prepaid enrollment from
the prepaid plan and across prepaid plans for purposes of determining
substantial financial risk. The regulation exempts from the
requirements of the regulations physicians or physician groups who
provide services to 25,000 Medicare or Medicaid enrollees of the
prepaid plan. The association maintains that this approach, which does
not allow for the pooling of patients, is unnecessarily and
inappropriately rigid and conservative. The association stated that it
believed the 25,000 patient exemption is permitted because physician
groups with a patient base this large can assume the risk for referral
services greater than the risk threshold without the need for stop-loss
coverage. As the number of enrollees under the responsibility of the
physician group increases, so does the ability of the physician group
to assume that risk. The association believed that this risk is reduced
regardless of whether the patients are Medicare, Medicaid, or
commercial. Similarly, this risk is reduced regardless of whether the
patients are the enrollees of a single prepaid plan or the enrollees of
several prepaid plans. Thus, for purposes of qualifying for the
substantial financial risk exemption, a prepaid plan should be allowed
to consider the total number of prepaid enrollees served by a physician
group. These pooled enrollees should, in the association's view,
include all enrollees of that prepaid plan and enrollees of other
prepaid plans that have selected the physician or physician group,
provided that the physician or physician group is at risk for the
provision of services to those enrollees.
Response: In the preamble, we provided evidence from analyses by
Rossiter and Adamache (1990) (Health Care Financing Review, vol. 12,
prepaid plan. 19-30) that supported the decision that physician groups
with more than 25,000 patients are able to adequately spread risk and
are so unlikely to lose money that we could determine them to not be at
substantial financial risk.
We have decided to allow pooling of Medicare, Medicaid, and
commercial members for purposes of determining substantial financial
risk because this kind of pooling is consistent with the rationale for
permitting pooling (that is, the spreading of risk). The physician
group may also pool patients across more than one managed care plan
with which it has a contract. Note, however, that, as revised by this
final rule, Sec. 417.479(h)(1)(v) allows for pooling of patients for
purposes of determining substantial financial risk and meeting various
stop-loss requirements. This section then specifies that pooling is
permitted only if: (1) Pooling is otherwise consistent with the
relevant contracts governing the compensation arrangements for the
physician or physician group; (2) the physician or physician group is
at risk for referral services with respect to each of the categories of
patients being pooled; (3) the terms of the compensation arrangements
permit the physician or physician group to spread the risk across the
categories of patients being pooled; (4) the distribution of payments
to physicians from the risk pool is not calculated separately by
patient category; and (5) the terms of the risk borne by the physician
or physician group are comparable for all categories of patients being
pooled.
In general, the purpose of these conditions is to ensure that all
patients included in the risk pool are being treated under comparable
payment arrangements; that is, the risk or reward to the physician or
physician group would be the same for referring services for any
individual patient in the pool. The patient categories refer to
Medicare, Medicaid, and commercial members. The type of incentive
arrangements, such as withholds and capitation would usually be the
same throughout the pool to be considered comparable. Pools over the 25
percent risk threshold can be combined with those arrangements below
the 25 percent risk threshold. The pool represents the total dollars on
which the payout is made to the doctor or the stop-loss threshold is
assessed.
This final rule, however, eliminates the arrangement that allows
the HMO, CMP, or HIO to pool across physician groups to reduce the
stop-loss requirements. We believe physician behavior is influenced by
the number of patients using the physician group, rather than total
enrollment in the HMO, CMP, or HIO. A physician group that has a small
number of patients does not spread its risk throughout the prepaid
plan, but only within its group. Allowing pooling across groups does
not provide patients enough protection.
Recommendation: The association recommended that the regulations
apply a ``reasonableness test'' in calculating compensation under a
physician incentive plan. The association noted that plans often use
formulas to calculate the amount of the withhold to be returned or the
bonus to be distributed. These formulas allow for distributions of a
certain percentage of savings to the physician or physician group when
utilization or costs are less than projected. These arrangements often
do not cap the upside potential gain from a bonus although natural
limits may exist because there is no expectation that the scenario in
which no services are provided will occur. The physicians and physician
groups understand these de facto limits, and it would be unnecessarily
burdensome to require prepaid plans to amend thousands of contracts to
insert bonus limits in their contracts. The regulations should be
amended to confirm that prepaid plans may use an amount for purposes of
determining the maximum
[[Page 69041]]
payment that is realistic rather than the theoretical highest payment
level. The same standard should be applied in calculating minimum
levels.
Response: We believe that past behavior is no guarantee of future
behavior. Physicians could still feel the pressure if they are placed
at substantial financial risk, regardless of past payments. Therefore,
the incentive plan contracts must contain these limits explicitly.
Recommendation: The association recommends that the regulation
should allow for a ``good cause'' exemption from the requirements of
the regulation in the event that substantial financial risk is
transferred. The association argued that in an ever-changing health
care delivery system, the regulation should provide for flexibility to
adapt to unanticipated circumstances. The association notes that our
regulations frequently allow for good cause exemptions from
requirements, and it contends that circumstances may arise in the
future that merit an exemption from the regulatory requirements.
According to the association, inclusion of a good cause exemption would
give us the flexibility to approve appropriate physician incentive
plans without the need to amend our regulations. An example of one
instance in which a good cause exemption may be appropriate is if the
prepaid plan can demonstrate that the physician group is assured of
receiving compensation on an encounter basis comparable to or at a
certain percentage of the resource-based relative value scale fee
schedule amount.
The association stated that it is currently exploring functional
ways in which a good cause exemption could be designed and
appropriately implemented.
Response: We have no legal authority to permit plans to fail to
comply with the rules in section 1876(i)(8) for ``good cause.''
Moreover, even if we did, we do not know of any systematic basis for
providing a good cause exemption to this regulation. The example cited
by the commenter can be written into the contract to ensure that the
physician receives a certain percentage of the fee schedule amount.
However, the issue is not guaranteeing a minimum level of income.
Rather it is setting parameters so that decisions are not made because
of a concern with unforseen circumstances, such as adverse selection,
bad incentive plan design, etc. Our goal is to protect beneficiaries in
these circumstances.
Comment: A group that advocates on behalf of individuals with
disabilities recommended that we consider alternative methods to
determine the appropriate levels of stop-loss insurance for those
involved in the care of persons or communities who are at high risk for
unexpected, adverse medical events (For example, urban providers with a
high patient load of pregnant women with histories of substance abuse).
The group stated that these providers may have difficulties determining
an accurate estimate of expected expenditures based on a previous
year's per-patient costs. The group suggested that other methods to
determine substantial financial risk may include:
(1) The use of several years of longitudinal data to determine a
realistic substantial risk level (in order to adjust for the
periodicity of certain illnesses); or
(2) The use of retrospective analyses to determine the incidence of
unexpected events within the provider's pool, with adjustments made to
correct for current levels of expected ``substantial risk'' related to
the likelihood of these previous events.
This group further recommended that we examine alternative methods
of determining substantial risk for providers who are likely to care
for ``medically needy'' eligibles. The association gave the following
example, a preferred provider organization (PPO) medical specialist
provider may care for a substantial number of persons with life-
threatening illness, such as cancer, Alzheimer's or AIDS. If patients
switch from private to public health insurance while under the care of
the medical provider (due to ``spending down'' into poverty), the
provider's determination of ``substantial risk'' may be underestimated.
In this case, the PPO medical specialist may be subject to various
levels of financial incentives (through both private and public funded
health plans) without having to demonstrate adequate quality of care or
financial liability provisions.
Response: The goal of the substantial financial risk analysis is to
determine whether stop-loss protection is needed. The stop-loss
protection is designed to provide protection if the physician group
experiences patients with a greater than average risk. Thus, there is
no need to set a different substantial financial risk threshold for
high risk cases. The stop-loss protection addresses this concern.
Comment: A commenter recommended that we consider lowering the
threshold at which plans are required to provide stop-loss coverage for
CHCs. The commenter suggested that we consider whether it is
appropriate to compare risks to CHCs with risks to other kinds of
primary care providers. The commenter pointed out that CHCs provide
services almost exclusively to Medicaid/Medicare beneficiaries and
impoverished uninsured patients. Thus, CHCs essentially have no
capacity to generate revenues to offset losses sustained on referrals
under a capitated rate. In addition, the commenter suggested that the
schedule reducing the amount of protection required should be modified
so that it decreases more slowly as a CHC's patient panel increases.
The commenter said such a change is justified because CHCs may incur
even greater risk as their capitated patient enrollment increases
because the CHC's patients are likely to be in poorer health than the
average patient.
Response: We are giving additional consideration to the impact of
the current risk threshold on physician incentive plans with CHCs.
During the implementation of this regulation, we will collect data on
the impact of the 25 percent threshold on CHCs, and consider whether
some form of relief may be appropriate. We are concerned, however, that
lowering the threshold as the commenter suggests would require a
substantial number of these centers to provide stop-loss protection to
their physicians that they may not be able to afford.
Comment: A commenter asked whether ancillary services are
considered referral services.
Response: For purposes of Sec. 411.479, if the physician group
performs the ancillary services then the services are not referral
services. If the physician group refers patients to other providers of
services for the ancillary services, then the services are referral
services.
Comment: A commenter pointed out that a response in the March 27
final rule at 61 FR 13438, column 2, states that, if the HMO uses a
combination of withhold and/or bonus arrangements, these arrangements
will be aggregated for purposes of determining whether the physician is
placed at substantial financial risk. The commenter adds that, in
column 3 of that page, however, the response states that we are not
requiring disclosure of every incentive arrangement between a physician
group and its physicians, only those under which the physician is
placed at substantial financial risk. A prepaid plan wanted to know how
it could be expected to know that in the aggregate the arrangements
created substantial financial risk if the physician group is not
required to disclose the individual arrangements.
Response: The above comment reflects a misconception. The quote
from the third column addresses what
[[Page 69042]]
information must be disclosed by the prepaid plan to us, not what
information the physician group must disclose to the prepaid plan. It
is incumbent upon the prepaid plan to obtain from the physician group
all the information that it needs to determine whether individual
physicians are placed at substantial financial risk. This can be a
subject addressed as part of the contract negotiations between the
prepaid plan and the physician group.
Comment: A commenter stated that the methodology used to determine
substantial financial risk has consequences that they believe we never
intended. For example, certain bonus arrangements could be construed as
transferring substantial financial risk. The commenter described a
program under which bonuses that are added to a base capitation are
aimed at rewarding the primary care physician (PCP) for high quality
care, full service capacity, long office hours, accepting all new
patients, and cost-effectiveness. The commenter offered the following
illustration: a PCP might get $10.50 per member/per month (PMPM) as
capitation, $1.50 PMPM for scoring well on member surveys and office
record reviews, $1.00 PMPM for being open to new patients, and $1.50
PMPM for having average utilization. The total compensation would then
be $14.50 PMPM. The commenter stated it does not believe that these
quality performance and service bonuses are the ``substantial financial
risk'' with which we are concerned. The commenter stated that there is
no downside risk here, but there is the ability to add to income for
good performance. If the intent is to include these bonus arrangements,
the commenter wanted to know whether the relevant amount was the
maximum attainable bonus or the average bonus paid to all PCPs in the
network. The commenter also pointed out that, in applying our
methodology to calculate substantial financial risk, a physician who is
paid a higher quality office component than a second physician (both
with the same utilization), would be found to have assumed a greater
financial risk than the second, even though the first physician's
revenues were greater.
Response: While we are supportive of a quality bonus payment, there
is very limited experience with its use, and whether a physician will
actually receive it is speculative. We will revisit the issue when more
information is available on the nature, extent, and experience with
quality bonuses.
Subcontracting
A number of commenters, including a major association, made the
same comment on the provisions of section 417.479(i), which requires
that the disclosure, stop-loss protection, and survey requirements of
Sec. 417.479 be satisfied when an HMO or CMP contracts with a physician
group that places the individual physician members at substantial
financial risk for services they do not furnish. The major
association's comment, which was the most comprehensive, is presented
below.
Comment: One major association challenged our legal authority to
reach arrangements between a contracting physician group and its
individual physicians (or between an ``intermediate entity'' and
physicians or a physician group). The association pointed out that
section 1876(i)(8)(B) of the Act defines a physician incentive plan
as--
any compensation arrangement between an eligible organization and
physician or physician group that may directly or indirectly have
the effect of reducing or limiting services provided with respect to
individuals enrolled with the organization. [Emphasis added by the
association.]
The association argued that, regardless of the policy
considerations that favor extending the reach of these rules to
subcontracts (for example, the possibility that failure to do so could
create a ``loophole'' that could be abused), doing so was inconsistent
with the ``plain meaning'' of this statute. The association accordingly
contended that our interpretation was legally impermissible, regardless
of the policy considerations in its favor.
The association also argued that expanding the scope of the
regulation to cover other incentive plans without a new opportunity for
notice and comment violated the Administrative Procedure Act (APA). The
association pointed out that the APA requires that there be a general
notice of proposed rulemaking published in the Federal Register that
includes, among other things, the terms or substance of a proposed rule
or a description of the subjects and issues involved. The association
included the following quotation from a decision by the Court of
Appeals for the District of Columbia Circuit discussing a standard that
the court applied for determining whether the APA requirement has been
met:
Statutory duty to submit proposed rule for comment does not include
obligation to provide new opportunities for comments whenever final
rule differs from proposed rule; rather, an agency adopting final
rules that differ from proposed rules is required to renotice when
changes are so major that original notice did not adequately frame
subjects for discussion. (Air Transport Association of America v.
C.A.B., 732 F.2d 219 (D.C. Cir. 1984))
The association argued that revising the proposed rule to extend
its provisions to subcontractor arrangements was a sufficiently
``major'' change that a new notice and opportunity for comment was
required under the above standard.
Finally, the association contended that support for its position
could be found in language from earlier legislation directing HHS to
study incentive arrangements. This language referred to ``incentive
arrangements offered by health maintenance organizations and
competitive medical plans to physicians.''
Response: We believe that in referring both to individual
``physician[s]'' and to ``physician group[s],'' Congress intended to
cover all incentive arrangements that could provide incentives for a
physician treating an HMO enrollee to reduce or limit services; both
those affecting only an individual physician and those affecting a
group of physicians as a whole. A letter from the original author of
this legislation confirms that this was his intent in drafting this
language.
As noted above, the association attempts to place significance on
the use of the word ``between'' in the definition of physician
incentive plan in section 1876(i)(8)(B) (quoted above). The association
reads this as limiting the scope of the definition of physician
incentive plan to arrangements in a contract directly between a prepaid
plan and a physician or physician group. In fact, however, an
individual physician who serves a prepaid plan's enrollees as a member
of a physician group does have a relationship with that prepaid plan,
albeit an indirect one. There is an indirect but clear link ``between''
that physician and the prepaid plan whose enrollees the physician
treats. The only difference is that instead of a single direct contract
between the physician and the prepaid plan, the physician has a
contract with the group, and the group in turn contracts with the
prepaid plan.
Even though this is a two or more step arrangement rather than a
single direct contract, there nonetheless is a physician incentive plan
involving the prepaid plan's enrollees that exists ``between'' the
physician providing services to a prepaid plan's enrollees and the
prepaid plan that is accountable for these services. There is simply an
added layer of organization and legal arrangements ``between'' the
physician and the prepaid plan. During our review
[[Page 69043]]
of applications for Medicare contracts, we currently review the plan's
contracting arrangements to ensure that subcontracts actually signed by
the physician at the ``retail'' end of the prepaid plan's health care
delivery network inform physicians of their responsibility to carry out
the prepaid plan's obligations under section 1876. This longstanding
practice is fully consistent with our view that an individual physician
contract with a physician group is part of the total arrangement
``between'' that physician and the prepaid plan that is accountable for
the services the physician is providing to the plan's members. For
instance, we hold the plan accountable for the quality of care
delivered by all components subcontracting with the plan including the
care delivered by the physicians.
For all of the above reasons, we believe that it is fully
consistent with the words of the statute to reach all incentive
arrangements that exist ``between'' doctors providing the care and a
prepaid plan accountable for that care, whether they are contained in a
physician's contract with a physician group or other intermediate
entity, or in the contract the group or entity has with the prepaid
plan. (With respect to the association's reliance on language in past
legislation, we do not believe that it has any relevance in
interpreting section 1876(i)(8). Indeed, it is inconsistent with the
language in section 1876(i)(8), since it references only arrangements
with a physician, and not those with a physician group.)
In addition to being consistent with the words of the statute, we
believe that our interpretation is consistent with the purpose of the
statute, which is to protect Medicare beneficiaries enrolled in prepaid
plans from the possible effects of financial incentives to deny or
limit medically necessary care. It is irrelevant to this statutory
objective whether incentives are contained in the prepaid plan's
contract with a physician group, or in the group's contract with the
physician. It is fully consistent with the intent and purpose of
section 1876(i)(8) to reach any plan that could contain the incentives
Congress wanted to address. As suggested above, it also would make no
sense to establish a regulatory scheme that could be circumvented
simply by erecting a ``protective shield'' between the prepaid plan and
individual physicians in the form of an intermediate entity or
physician group structure. The possibility of such a ``loophole''
permitting plans to circumvent these regulations was a major factor in
our decision to extend the reach of these regulations to
subcontractors.
We also disagree with the association that the change we made in
the final rule violated the APA under the standards of the Air
Transport Association case cited by the association. Indeed, we believe
that this type of revision is precisely the kind the court had in mind
when it wrote that there is no ``obligation to provide new
opportunities for comments whenever a final rule differs from a
proposed rule.'' We believe that it is clear that this is not a change
``so major that original notice did not adequately frame [the] subject
[] for discussion.'' Clearly the ``original notice'' did ``frame'' this
as a ``subject [] for discussion,'' since commenters in fact commented
on this question. A second notice thus was not required under the Air
Transport decision.
In any event, even if a second opportunity to comment had been
required under the Air Transport standard, any such requirement has now
been satisfied through the notice and comment process culminating in
this revised rule.
Stop-loss
We received several comments on the stop-loss requirements in the
March 27 rule. Section 417.479(g)(2) requires that HMOs or CMPs that
operate incentive plans that place physicians or physician groups at
substantial financial risk ensure that these physicians or physician
groups have either aggregate or per-patient stop-loss protection in
accordance with the following requirements:
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.
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 patient panel. In determining patient panel size,
the patients may be pooled using one of the approved methods (discussed
below) if pooling is consistent with the relevant contract between the
physician or physician group and the prepaid plan. 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:
Less than 1,000 patients--$10,000.
1,000 to 10,000 patients--$30,000.
10,000 to 25,001 patients--$200,000.
Greater than 25,000 patients:
+ Without pooling patients--none; and
+ As a result of pooling patients--$200,000.
Section 417.479(h)(1)(v) provides that, for purposes of determining
panel size, patients may be pooled according to one of the following
methods:
Including commercial, Medicare, and/or Medicaid patients
in the calculation of the panel size.
Pooling together, by the HMO or CMP, of several physician
groups into a single panel.
Section 417.479(g)(2)(iii) provides that the HMO or CMP may provide
the stop-loss protection directly or purchase it, or the physician or
physician group may purchase the stop-loss protection. This section
also provides that, if the physician or physician group purchases the
stop-loss protection, the HMO or CMP 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 that protection.
Comment: A major association stated that enormous confusion exists
among its membership as to the meaning and application of the stop-loss
provisions. The association urged us to reevaluate not only the
substantive requirements, but the manner in which we expressed the
information and to explain more clearly our intentions. The
association's comments on this issue fall into two categories: (1) The
obligation for payment of the stop-loss coverage and (2) the
substantive requirements for stop-loss. In making its comments, the
association also offered recommendations for amendments to the
regulations. We summarize the association's comments and
recommendations below:
Comment 1. The association believed that the responsibility of
paying for the stop-loss protection should be a negotiable issue
between the HMO or CMP and its physician group or physician. The
association argued that the language used in section 1876(i)(8) of the
Act requiring HMOs or CMPs to provide stop-loss can be reasonably
interpreted to impose an obligation that the stop-loss coverage be made
available to the physician or physician group.
The association also maintained that public policy supports
allowing the financial responsibility for stop-loss coverage to be
determined between the parties and not mandated by us. The association
noted that a common element in a capitation arrangement between an
organization and a physician group is a requirement that stop-loss be
obtained to protect the physician group from undue risk. This stop-loss
could be purchased by the prepaid plan or by the physician group.
[[Page 69044]]
The association stated that typically, these arrangements provide that
the physician group, and not the prepaid plan, has the responsibility
to pay for the stop-loss coverage. Another option the association noted
would be to give the physician group the option either of purchasing
the stop-loss coverage made available by the prepaid plan or purchasing
the stop-loss coverage itself. The association pointed out that in all
cases, the cost of the stop-loss coverage is an element of the
compensation (the capitation would be reduced if the prepaid plan pays
for the stop-loss coverage and would be higher if the physician group
does).
The association stated that stop-loss coverage at the levels
required by the regulations is very expensive to obtain and that
requiring prepaid plans to bear that cost would result in an enormous
financial burden shifted from physician groups to prepaid plans. To
avoid this, and consistent with the discussion above, the association
recommended that we allow the prepaid plan and the physician group or
physician to negotiate the financial responsibility for the stop-loss
coverage.
Response: After further analysis, and for the reasons set forth in
the above comment, we are amending the regulation to require only that
the HMO or CMP provide us proof that the physician groups have adequate
stop-loss protection in place. We believe this is consistent with the
primary goal of the regulation of ensuring that if the physicians are
at substantial risk, they have adequate stop-loss protection. In
addition, we have further information that physician groups may have
access to more affordable stop-loss as a result of their participation
in a number of HMOs or CMPs.
Comment 2. The association recommended that we revise the
regulations to reflect what it believes to be more appropriate stop-
loss levels, to account for existing stop-loss arrangements, and to
provide an appropriate means of applying the stop-loss requirements to
bonus and withhold arrangements. The association believed that the
stop-loss limits are inappropriately low. It stated that a $10,000
limit might be appropriate for a panel size less than 250 patients, but
is not reasonable for a 1,000 patient panel. The association stated
that one of its members projects that the cost of stop-loss over
$10,000 for hospital services for a Medicare enrollment would be about
20 percent of the total medical cost; this could be about $80 to $100
per member per month depending on geographic area. Therefore, the
association believed that it is incumbent upon us to reevaluate the
stop-loss limits and to replace the existing limits with ones that are
more appropriate and less costly to obtain.
In addition, the association maintained that the stop-loss
requirements fail to identify how prepaid plans can analyze stop-loss
coverage that is already being provided to the physicians or physician
groups to determine whether it meets the regulatory standard. The
association stated that while it assumes we would allow prepaid plans
to obtain ``credit'' for stop-loss coverage that already exists, it may
be exceedingly difficult to compare the coverage. For example, existing
stop-loss coverage may have a lower attachment point (that is,
deductible), but higher coinsurance amounts or vice versa. Some stop-
loss coverage may vary by disease. Also, some coverage may vary
depending on whether the cost is related to inpatient care or specialty
care. Some prepaid plans apply individual and aggregate stop-loss
simultaneously. Some stop-loss limits are linked to utilization levels
and not cost levels. Some physician groups decline the coverage offered
by the prepaid plan because it may be less costly to obtain the
coverage for all their patients rather than only those who are
enrollees of a single prepaid plan. In light of this, the association
recommended that we do the following:
Reevaluate the stop-loss limits in light of actuarial
input on the appropriate need for stop-loss coverage and its cost.
Allow a prepaid plan to retain the services of an actuary
who would assign an actuarial value to the stop-loss coverage currently
being provided to the physician or physician group. Allow the prepaid
plan to meet the stop-loss requirements by providing (that is, making
available) the difference between the actuarial value of the
requirement and the value of the stop-loss currently being provided to
the physician or physician group. The prepaid plan, in consultation
with its actuary, could convert this difference into an actuarial
equivalent in order that the new coverage be consistent with the nature
of the stop-loss coverage already provided to the physician or
physician group. The association stated that this recommendation is
intended to accomplish two objectives: (1) The prepaid plan would
obtain credit for stop-loss coverage already provided to the physician
or physician group; (2) the prepaid plan would have more flexibility in
determining how the requirement was met; for example, if it wished, the
prepaid plan could meet the requirement by building on the structure of
its existing stop-loss coverage.
A second issue raised by the association concerns the applicability
of the stop-loss requirements to withhold and bonus arrangements. When
physicians or physician groups are at risk for referral services under
a capitation arrangement, stop-loss coverage would protect the
physician group or physician from excessive costs. In contrast, when an
organization uses withholds or bonuses as its incentive arrangements,
no large potential economic loss would occur at which the stop-loss
would attach. The association recommended that we rethink the
application of the stop-loss requirements to withhold and bonus
situations. It also argued that we should amend our regulation to allow
for adjustments in the stop-loss attachment points to account for
inflation; that is, as health care costs increase, the limits need to
be raised accordingly. Otherwise, the stop-loss coverage provided by
the prepaid plan would become unduly and inappropriately comprehensive.
Response: Based on actuarial analyses and consultation with experts
knowledgeable about current stop-loss insurance practices, this final
rule makes a number of changes to the stop-loss provision. Because many
of the stop-loss arrangements currently in place differentiate between
professional services and hospital or other institutional services, we
are revising Sec. 417.478(g)(2)(ii) to permit prepaid plans and
physician groups to choose either a single combined limit or separate
limits for professional services and institutional services. We are
also revising the categories of patient panel size to increase the
number of categories and smooth out the gradation of attachment points.
This final rule establishes the following limits:
[[Page 69045]]
------------------------------------------------------------------------
Single Separate Separate
Panel Size Combined Institutional Professional
Limit Limit Limit
------------------------------------------------------------------------
1-1000........................ * $6,000 * $10,000 * $3,000
1,001-5000.................... 30,000 40,000 10,000
5,001-8,000................... 40,000 60,000 15,000
8,001-10,000.................. 75,000 100,000 20,000
10,001-25,000................. 150,000 200,000 25,000
> 25,000...................... none none none
------------------------------------------------------------------------
The asterisks indicate that, at this level, stop-loss insurance is
impractical. The premiums would be prohibitively expensive. Plans and
physician groups clearly should not be putting physicians at financial
risk for panel sizes this small. It is our understanding that doing so
is not common. For completeness, however, we do show what the limits
would be in these circumstances.
In regard to the comments on bonuses and withholds, we specifically
indicated that when bonuses and withholds put physicians at substantial
financial risk, the physicians need to have stop-loss protection. The
legislation and regulation require that all forms of incentive
arrangements that put physicians at substantial financial risk have
stop-loss protection. Even though current stop-loss policies may not
cover bonuses and withholds, this is the requirement of this
regulation. Thus, if current policies do not cover these arrangements,
the prepaid plans, physician groups, and/or the reinsurance companies
must arrange for protection against losses that can occur due to
withholds or the potential loss of bonus payments.
With regard to the suggestion that we account for inflation, we
will be periodically reviewing the requirements of this regulation in
light of new or more complete information about compensation
arrangements and their impact on patients. We will consider this and
other recommendations again in the future.
Comment: A commenter asked how frequently panel size can be updated
and how soon this increased panel size can be reflected in higher stop-
loss limits for the group. The commenter also asked whether an HMO that
increases enrollment in a physician panel and correspondingly raises
its stop-loss limits must refile its physician incentive arrangement
with us.
Response: There is no limitation on the frequency with which panel
size can be updated.
Comment: One commenter noted that the stop-loss protection required
by this regulation would cover only 90 percent of the costs of referral
services that exceed 25 percent of potential payments. The commenter
believed that the financial incentive to reduce or withhold referral
services to Medicare patients could, in this situation, be
overwhelming. The commenter said this would be particularly true in
situations in which the physician treated an atypical mix of patients
requiring referrals for specialty care.
Response: We adopted our position based upon comments on the
proposed rule. As indicated in the preamble to the March 27, 1996 final
rule, this policy is currently used by many prepaid plans and has
worked well to ensure that physicians are sensitive to avoid the
furnishing of unnecessary services. Recent information from prepaid
plans and actuaries confirms that this 90/10 standard is consistent
with actual practices and policies. We set the ratio at the high end of
the continuum of ratios used in the industry since they range from 90/
10 to 75/25. Thus, we have allowed for limited risk sharing beyond the
stop-loss limits. Further, as indicated in the preamble to the March
1996 rule, we made changes in the stop-loss limits to adjust for the
incorporation of this additional risk sharing.
Comment: A major organization representing physicians believed that
we should require a reduced, but still substantial, amount of stop-loss
for plans with enrollment in excess of 25,000 patients.
Response: As stated earlier, evidence from analyses by Rossiter and
Adamache supports the decision that physician groups with more than
25,000 patients are able to adequately spread risk. Therefore we
concluded that they are not at substantial financial risk. The
commenter did not provide any data or rationale that would lead us to a
different conclusion. Note also that the change made by this final rule
discussed earlier that eliminates pooling by the prepaid plan across
physician groups to achieve the 25,000 base should alleviate the
commenter's concern.
Survey
We received a single comment on the enrollee survey provisions in
the rule. Section 417.479(g)(1) requires that HMOs or CMPs that operate
incentive plans that place physicians or physician groups at
substantial financial risk conduct enrollee surveys. These surveys
must--
Include either all current Medicare/Medicaid enrollees of
the HMO or CMP and those who have disenrolled (other than because of
loss of eligibility in Medicaid or relocation outside the HMO's or
CMP's service area) in the past 12 months, or a sample of these same
enrollees and disenrollees.
Be designed, implemented, and analyzed in accordance with
commonly accepted principles of survey design and statistical analysis.
Address enrollees/disenrollees satisfaction with the
quality of the services provided and their degree of access to the
services.
Be conducted no later than 1 year after the effective date
of the incentive plan, and at least every 2 years thereafter.
Comment: A major organization suggested that we require health
plans to use a standardized survey questionnaire designed by HCFA;
require health plans to oversample disenrollees and persons with
chronic conditions or high cost illnesses; provide detailed
instructions to plans on survey design; and publish a comparison report
card of all survey results.
Response: The final rule did not specify that the plans conduct a
separate survey for this regulation because most plans already
administer surveys that meet the requirements of this regulation. We
do, however, recognize the value of having a standardized survey
instrument and have developed one, as part of our effort to measure and
improve quality of care, that can be used to satisfy the requirements
of this regulation.
We have, in concert with the Agency for Health Care Policy and
Research through the latter's CAHPS process
[[Page 69046]]
(Consumer Assessments of Health Plans Study), sponsored the development
of a Medicare-specific consumer satisfaction instrument, so that the
unique health care concerns of the senior population are adequately
addressed. CAHPS is a 5-year project whose purpose is to develop a set
of standardized consumer satisfaction instruments usable across all
populations; subpopulation specific modules are being developed not
only for the Medicare population, but also for Medicaid, the
chronically ill and disabled, and children.
We have notified plans of our intention to require all Medicare
contracting plans that have had a Medicare contract for at least 1 year
as of January 1, 1997 to participate in this CAHPS survey. The CAHPS
Medicare survey will be administered by an independent third-party
contractor to the Government, secured through an open, competitive
bidding process. The primary purpose of the survey is to provide
information to consumers that will enable them to make plan-to-plan
comparisons and thereby to make better-informed health plan choices.
Key results of the survey will be published in a comparability chart
that contains cost and benefit information on all Medicare contracting
plans.
We will consider participation by a plan in the CAHPS survey as
satisfying the requirements of this regulation, subject to the
following two additional considerations. First, the current version of
CAHPS does not contain a module addressed to disenrollees. Efforts are
underway to develop such a module, which may be available by 1998. For
1997, we are preparing guidelines to managed care plans on how to
satisfy the requirement to survey disenrollees. That guidance will be
available in the spring of 1997.
Second, as noted above, under the requirements of our quality
initiative, plans that received their initial Medicare contract after
January 1, 1996, are not required to participate in the CAHPS survey
until calendar year 1998. There will likely be plans, however, that
received their first contract after January 1, 1996, that will be
required to meet the enrollee and disenrollee survey requirements of
this regulation in calendar year 1997. Those plans may wish to use the
CAHPS survey to meet this requirement.
We have issued an operational policy letter explaining this
requirement in more detail (See OPL number 96.045, December 3, 1996).
Oversampling for the chronically ill and disabled, dually eligible,
and various racial and ethnic groups is a complex issue. Strategies for
doing so are being seriously considered. We will be forwarding
additional guidance to managed care plans.
It should also be noted that the CAHPS survey collects information
at the level of the managed care plans, without distinguishing among
patients of various physician groups within the plan. Ideally, the
survey required under this regulation, however, should do so. We will
accept the CAHPS survey as satisfying this regulation at this time,
while we continue to evaluate additional measures that might be taken
to collect information by physician group.
Finally, we will not require that the Medicaid version of the CAHPS
survey be administered by HMOs with Medicaid contracts. However, we are
willing to assist States that wish to require administration of the
CAHPS Medicaid survey.
Other Comments
We received other comments that were not specifically directed to
the provisions of the regulation. Since these comments do not directly
address the regulations, we are not responding to them in this
preamble.
We also want to clarify an inconsistency that occurred in the
preamble to the March 27, 1996 final rule. While the regulation text
was accurate in specifying that subcontracts were covered by the
regulations, we were inconsistent in different sections of the
preamble. In the first column at 61 FR 13439, we indicated that
subcontracts are covered, while in the second and third column of the
same page we indicated that they were not covered. The statements in
the second and third column were incorrect.
V. Provisions of this Final Rule
This final rule reflects the March 27, 1996 final rule with comment
period, with changes. Many of the substantive change listed below have
been discussed in section IV of this preamble. Those that have not are
explained below.
Section 417.479(b) is revised to clarify that the
physician incentive plan requirements also apply to subcontracting
arrangements.
Section 417.479(f), which describes arrangements that
cause substantial financial risk, is revised to permit pooling by
physician groups of patients across prepaid plans. A technical change
is also made to change ``possible payments'' wherever it appears to
``potential payments''. This latter change reflects the fact that
``potential payments'' is the term defined in the paragraph's
introductory text.
In Sec. 417.479(g), which sets forth the requirements that
HMOs and CMPs that place physicians or physician groups at substantial
financial risk must meet, the following changes are made:
+ Paragraph (g)(1) is revised to require that the enrollee survey
be conducted no later than 1 year after the effective date of the
Medicare contract and at least annually thereafter.
+ Paragraph (g)(2)(ii) is revised to establish new stop-loss limits
based either on a single combined limit or on separate limits for
professional services and institutional services.
+ Paragraph (g)(2)(iii) is removed to eliminate the requirement
that the HMO or CMP pay for the stop-loss protection.
In Sec. 417.479(h), which concerns disclosure
requirements, the following changes are made:
+ Paragraph (h)(1)(iv) is revised to specify that the HMO or CMP
must provide us with proof that the physician or physician group has
adequate stop-loss protection, including the amount and type of stop-
loss protection.
+ Existing paragraph (h)(1)(v) is removed to eliminate, as an
approved method of pooling, pooling together, by the organization, of
several physician groups into a single panel. A new paragraph (h)(1)(v)
is added to permit pooling, by a physician group, of patients across
prepaid plans. New paragraph (h)(1)(v) also specifies the conditions
under which pooling is permitted.
+ Paragraph (h)(2) is revised to change when the HMO or CMP must
provide the required information. The current regulation requires this
to be done upon application for a contract, upon application for a
service area expansion, within 30 days of a request by us, and at least
45 days before implementing certain changes in the incentive plan. We
have changed this to make it an annual requirement. This first
submission must be done prior to approval of a new contract, with
subsequent submissions prior to each renewal of the contract. This
change is intended to simplify the requirement and reduce the reporting
burden on the prepaid plans.
In addition we now specify, in paragraph (h)(2)(ii), that an HMO or
CMP must provide the capitation data for the previous calendar year to
us by April 1 of each year. This change is being made to eliminate
confusion about the reporting period and ensure consistency.
In Sec. 434.70, which concerns conditions for FFP,
paragraph (a)(3) is revised to--
+ Eliminate the requirement that the HMO or HIO must disclose
certain
[[Page 69047]]
information within 30 days of a request by the State or HCFA.
+ To specify that an HMO or HIO must provide the capitation data
for the previous calendar year to the State Medicaid agency by April 1
of each year.
+ Eliminate the requirement that the HMO or HIO submit the required
information at least 45 days before implementing certain changes in its
incentive plan.
VI. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, agencies 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. This
final rule contains information collections that are subject to review
by OMB under the Paperwork Reduction Act of 1995. The title,
description, and respondent description of the information collections
are shown below with an estimate of the annual reporting and
recordkeeping burden. Included in the estimate is the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and collecting and reviewing the
collection of information.
We are, however, requesting an emergency review of these
regulations. In compliance with the requirement of section
3506(c)(2)(A) of the Paperwork Reduction Act of 1995, we have submitted
to OMB the following requirement for emergency review. We are
requesting an emergency review because the collection of this
information is needed prior to the expiration of the normal time limits
under OMB's regulations at 5 CFR part 1320, to ensure compliance with
the physician incentive regulation necessary to implement congressional
intent with respect to incentive arrangements between managed care
entities and their contracting providers. We cannot reasonably comply
with the normal clearance procedures because public harm is likely to
result due to the delay in reporting and monitoring of these
incentives. If emergency clearance is not provided, we will be forced
to postpone the collection of these data for 12 months due to the
timing of contract cycles.
We are requesting that OMB provide a 5-day public comment period
with a 2-day OMB review period and a 180-day approval. During this 180-
day period, we will publish a separate Federal Register notice
announcing the initiation of an extensive 60-day agency review and
public comment period on these requirements. Then we will submit the
requirements for OMB review and an extension of this emergency
approval.
Type of Information Request: New collection.
Title of Information Collection: Incentive Arrangement Disclosure
Form and Supporting Regulations 42 CFR 417.479 (g)(1), 417.479(h)(1)
and (h)(2), 417.479(i), and 434.70(a)(3).
Form Number: HCFA-R-201.
Use: Incentive Arrangement Form and supporting regulations will be
used to monitor physician incentive plans.
Frequency: Annually.
Affected Public: Nonprofit and for profit HMOs, CMPs, and HIOs.
Number of Respondents: 450.
Total Annual Responses: 450.
Total Annual Hours Requested: 45,000.
To request copies of the proposed paperwork collections referenced
above, call the Reports Clearance Office at (410) 786-1326.
The sections in these final regulations that contain information
collection requirements are:. Secs. 417.479 (h)(1) and (h)(2),
417.479(i), 434.70(a)(3), and 417.479(g)(1), (and Sec. 434.70(a)(3) for
Medicaid) of this document. However, the information collection
requirements referenced in Secs. 417.479(g)(1) and 434.70(a)(3) of this
final rule, described below, are currently pending approval by OMB
(under the title ``HEDIS 3.0 (Health Plan Data and Information Set) and
supporting regulations 42 CFR 417.470 and 42 CFR 417.126'').
The information collection requirements at existing
Secs. 417.479(h) (1) and (h)(2), 417.479(i), and 434.70(a)(3) were
established by the March 27, 1996 final rule with comment period. These
sections of the regulations specify that disclosure concerning
physician incentive plans must be made to us or the State, as
appropriate. The requirements apply to physician incentive plans
between prepaid plans 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. Under the existing regulations, a
prepaid plan 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 us or the State. This rule would amend
the regulations by removing the requirements that disclosure be made
upon application for a service area expansion, within 30 days of a
request by us or the State, and at least 45 days before implementing
certain changes in the incentive plan. It would add that disclosure
must be made prior to the approval of a new contract or agreement and
annually thereafter. These changes should reduce the reporting burden
on prepaid plans. At the time we published the March 1996 rule, we
estimated that approximately 600 entities will submit the information.
We estimated the burden as 8 hours per response. As discussed in
section IV above, we received numerous comments stating that we greatly
underestimated the burden associated with complying with the disclosure
requirements and suggesting alternative approaches. We now estimate
that approximately 450 prepaid plans will disclose information. We
estimate that the burden per response will be 100 hours, for an annual
total burden of 45,000 hours. This estimate includes time spent by
subcontractors in furnishing information to the prepaid plan.
Existing Sec. 417.479(g)(1) (and Sec. 434.70(a)(3) for Medicaid)
concern prepaid plans that operate physician incentive plans that place
physicians or physician groups at substantial financial risk and
require them to conduct enrollee surveys that include either all
current Medicare/Medicaid enrollees in the prepaid plan and those who
have disenrolled (other than because of loss of eligibility in Medicaid
or relocation outside the prepaid plan's) in the past 12 months, or a
sample of these same enrollees and disenrollees. These surveys are
required to be conducted annually.
The information collection and recordkeeping requirements,
referenced in Sec. 417.479 (h)(1) and (h)(2), 417.479(g)(1),
417.479(i), and 434.70(a)(3) of these regulations are not effective
until they have been approved by OMB. The agency has submitted a copy
of this final rule with comment period to OMB for its review of these
information collections. A notice will be published in the Federal
Register when approval is obtained. Interested persons are invited to
send comments regarding this burden or any other aspect of these
collections of information, including any of the following subjects:
(1) The necessity and utility of the information collection for the
proper performance of the agency's functions; (2) the accuracy of the
estimated burden; (3) ways to enhance the quality, utility, and clarity
of the information to be collected; and (4) the use of automated
collection
[[Page 69048]]
techniques or other forms of information technology to minimize the
information collection burden.
Comments on these information collections should be mailed directly
to the following address:
Office of Information and Regulatory Affairs, Office of Management
and Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Allison Herron Eydt, HCFA Desk Officer.
In addition, comments may be faxed to: Allison Herron Eydt at (202)
395-6974.
A copy of the comments may be mailed to the following address:
Health Care Financing Administration, Office of Financial and Human
Resources, Management Analysis and Planning Staff, Room C2-26-17, 7500
Security Boulevard, Baltimore, MD 21244-1850.
We will also be undertaking an overall evaluation of all of the
reporting and disclosure requirements in this regulation within the
next year, to assess the value of the information compared with the
burden of reporting. All of the disclosure and reporting requirements,
and any related forms, will continue to be subject to review under the
Paperwork Reduction Act.
VII. 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, we consider all HMOs, CMPs, and HIOs to be small entities.
In addition, section 1102(b) 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), we define a small rural hospital as a
hospital that is located outside of a Metropolitan Statistical Area and
has fewer than 50 beds.
In the preamble to the March 27, 1996 rule, which provided an
opportunity for comments, we stated that we had decided not to prepare
a regulatory flexibility analysis because we believed that few
incentive plans will require changes to comply with the regulations. A
major association of health plans, which submitted comments on behalf
of its membership, strongly disagreed with this position.
The association maintained that the regulations, as adopted, will
result in substantial administrative and financial burdens on a large
number of organizations. The association requested that, in light of
the information it was providing to us in its other comments, we
reconsider our decision not to prepare a regulatory impact analysis.
A number of commenters believed that, in estimating a burden of 8
hours per response, we had grossly underestimated the time and
financial resources that need to be expended to comply with the
disclosure requirements. These commenters stated that this problem may
be alleviated to some extent if the prepaid plans were allowed to agree
that all or some of their physician incentive programs resulted in
substantial financial risk without having to disclose to us the
detailed information specified in the Regulations. One commenter added
that the regulations, in essence, require prepaid plans to act as
information gathering conduits for information related to physician
group and/or subcontractor incentive plans. The commenter stated that
this is not the most efficient or effective means and that a preferable
approach is for us to solicit the information directly from the
physician group or subcontractor. The commenter recommended that we
adopt a uniform and standardized calculation and attestation form that
prepaid plans could use to solicit the information.
Another commenter stated that the stop-loss limits are
inappropriately low and, because of this, the cost of stop-loss
coverage is very high. The commenter maintains that this rule results
in substantial financial burdens on a large number of prepaid plans.
The suggestions offered by the commenters have been addressed in
section IV above. With regard to our assessment of the impact of the
March 27, 1966 rule, we have reviewed our assessment. In this review,
we used information developed by a major accounting firm at the request
of a major association, which was shared with us.
Based on survey data from Mathematica (1995), approximately one-
third of prepaid plans capitate their physicians for all services. This
means that, of approximately 300 Medicare prepaid plans, about 100
plans will capitate for all services. Of approximately 300 Medicaid
HMOs and HIOs, approximately one-half will have Medicare contracts and,
thus, do not add to the total. Of the remaining 150 Medicaid plans,
many will be relatively new Medicaid plans. Most new Medicaid plans do
not capitate their physicians for all services. Therefore, we estimate
that there will be a total of 25 Medicaid prepaid plans in addition to
the 100 Medicare plans that capitate for all services. These 125 plans
will have to provide stop-loss insurance. Very few plans that use
bonuses or withholds will exceed the substantial risk threshold.
Of the 125 plans that will need to provide stop-loss insurance,
most of these plans already have such coverage. Taking into account the
changes made by this final rule, we estimate that approximately 44
prepaid plans (35 percent) will need to increase their stop-loss
coverage. The cost of this additional coverage is estimated at
approximately $65 million. Since the affected entities are large, $65
million represents a very small percentage of their gross annual
income. In addition, we expect that some of the $65 million will be
offset by monies received from the insurers because of the increased
coverage.
With regard to the financial burden associated with complying with
the disclosure requirements, we continue to estimate that approximately
450 plans will need to comply with the disclosure requirements. We now
estimate the burden to be 100 hours per response, at a cost of $20 per
hour. This includes the burden on the physician groups and
subcontractors in furnishing information to the prepaid plan. Thus, we
estimate the total impact of the disclosure requirements at $900,000
per year.
This rule changes the frequency of the survey requirements (from
biennially to annually), we believe that this imposes very little
additional burden on prepaid plans since most plans already conduct
annual surveys. In addition, as discussed in section V of the preamble,
this rule changes when disclosure must be made to HCFA or the State
Medicaid agency. While this rule adds that disclosure must be made upon
the contract or agreement renewal or anniversary date, it removes other
circumstances under which disclosure must be made. We believe the
overall effect of these changes as to when disclosure must be made is
to reduce the reporting burden on the affected prepaid plans.
We are not preparing analyses of this final rule 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 economic impact on the operations of a substantial number
of small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
[[Page 69049]]
VIII. Waiver of Delayed Effective Date
We ordinarily provide for final rules to be effective no sooner
than 30 days after the date of publication unless we find good cause to
waive the delay.
This final rule amends existing regulations that set forth the
requirements that certain managed care organizations must meet in order
to contract with the Medicare and/or Medicaid program. A number of the
changes made by this final rule either reduce the burden associated
with the regulations or recognize existing industry practices. Since
many managed care Medicare and Medicaid contracts renew on January 1,
if this final rule does not become effective until after that date, the
benefits that result from the changes made by this rule will not be
realized until 1998. Therefore, we find that it would be against the
public interest to delay the effective date of this final rule.
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 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
2. In Sec. 417.479, paragraph (g) introductory text and paragraph
(g)(1) introductory text are republished; paragraph (g)(2)(iii) is
removed; paragraph (b), paragraph (f) introductory text, paragraphs
(f)(5), (g)(1)(iv), (g)(2)(ii), (h)(1)(iv), (h)(1)(v), and (h)(2) are
revised to read as follows:
Sec. 417.479 Requirements for physician incentive plans.
* * * * *
(b) Applicability. The requirements in this section apply to
physician incentive plans between HMOs and CMP and individual
physicians or physician groups with which they contract to provide
medical services to enrollees. The requirements in this section also
apply to subcontracting arrangements as specified in Sec. 417.479(i).
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.
* * * * *
(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:
* * * * *
(5) Capitation, arrangements, if--
(i) The difference between the maximum potential payments and the
minimum potential payments is more than 25 percent of the maximum
potential payments; or
(ii) The maximum and minimum potential payments are not clearly
explained in the physician's or physician group's contract.
* * * * *
(g) Requirements for physician incentive plans that place
physicians at substantial financial risk. HMOs and CMPs 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--
* * * * *
(iv) Be conducted no later than 1 year after the effective date of
the Medicare contract and at least annually thereafter.
(2) * * *
(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 patient panel and may be a single combined limit or consist
of separate limits for professional services and institutional
services. In determining patient panel size, the patients may be pooled
in accordance with paragraph (h)(1)(v) of this section. 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:
------------------------------------------------------------------------
Single Separate Separate
Panel size combined institutional professional
limit limit limit
------------------------------------------------------------------------
1-1000........................ $6,000 $10,000 $3,000
1,001-5000.................... 30,000 40,000 10,000
5,001-8,000................... 40,000 60,000 15,000
8,001-10,000.................. 75,000 100,000 20,000
10,001-25,000................. 150,000 200,000 25,000
> 25,000...................... none none none
------------------------------------------------------------------------
* * * * *
(h) * * *
(1) * * *
(iv) Proof that the physician or physician group has adequate stop-
loss protection, including the amount and type of stop-loss protection.
(v) The panel size and, if patients are pooled, the method used.
Pooling is permitted only if: it is otherwise consistent with the
relevant contracts governing the compensation arrangements for the
physician or physician group; the physician or physician group is at
risk for referral services with respect to each of the categories of
patients being pooled; the terms of the compensation arrangements
permit the physician or physician group to spread the risk across the
categories of patients being pooled; the distribution of payments to
physicians from the risk pool is not calculated separately by patient
category; and the terms of the risk borne by the physician or physician
group are comparable for all categories of patients being pooled. If
these conditions are met, the physician or physician group may use
either or both of the following methods to pool patients:
(A) Pooling any combination of commercial, Medicare, or Medicaid
patients enrolled in a specific HMO or CMP in the calculation of the
panel size.
(B) Pooling together, by a physician group that contracts with more
than one HMO, CMP, health insuring organization (as defined in
Sec. 434.2 of
[[Page 69050]]
this chapter), or prepaid health plan (as defined in Sec. 434.2 of this
chapter) the patients of each of those entities.
* * * * *
(2) When disclosure must be made to HCFA. (i) HCFA will not approve
an HMO's or CMP's application for a contract unless the HMO or CMP has
provided to it the information required by paragraphs (h)(1)(i) through
(h)(1)(v) of this section. In addition, an HMO or CMP must provide this
information to HCFA upon the effective date of its contract renewal.
(ii) An HMO or CMP must provide the capitation data required under
paragraph (h)(1)(vi) for the previous calendar year to HCFA by April 1
of each year.
* * * * *
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).
2. In Sec. 434.44, paragraph (a)(1) is revised to read as follows:
Sec. 434.44 Special rules for certain health insuring organizations.
(a) * * *
(1) Subject to the general requirements set forth in Sec. 434.20(d)
concerning services that may be covered; 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. 434.70, paragraph (a) introductory text is republished,
and paragraph (a)(3) 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--
* * * * *
(3) The HMO, 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 Sec. 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 the information required under Secs. 417.479
(h)(l)(i) through (h)(1)(v) of this chapter to the State Medicaid
agency as follows:
(i) Prior to approval of its contract or agreement.
(ii) Upon the contract or agreements anniversary or renewal
effective date.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Federal Domestic
Assistance Program No. 93.778, Medical Assistance Program)
Dated: December 17, 1996.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: December 20, 1996.
Donna E. Shalala,
Secretary.
[FR Doc. 96-33330 Filed 12-30-96; 8:45 am]
BILLING CODE 4120-01-P
