Date: Tuesday, March 26, 1996
FOR IMMEDIATE RELEASE
Contact: HCFA Press Office(202)690-6145

HHS ISSUES FINAL RULE TO REQUIRE MEDICARE AND MEDICAID MANAGED CARE ORGANIZATIONS TO DISCLOSE PHYSICIAN INCENTIVE PLANS

The Department of Health and Human Services today announced a regulation designed to protect beneficiaries enrolled in Medicare and Medicaid managed care plans by placing certain limitations on physician incentive arrangements that could influence physicians' care decisions.

Many managed care organizations use financial incentives to deter inappropriate and unnecessary care, including unnecessary referrals of plan members to specialists or for expensive procedures.

The final rule, to be published in tomorrow's Federal Register, requires plans to disclose physician incentive plans to HHS' Health Care Financing Administration or to the state Medicaid agency, and to provide a summary of the plan to enrollees, if requested.

For example, some plans pay their physicians a fixed fee per patient per month. This arrangement, known as capitation payment, makes the primary care physician liable for any costs the patient incurs for specialty care made at the referral of the primary care physician. Thus, the more referrals the physician makes, the lower payment the primary care physician retains. This leads to an incentive to minimize referrals.

In addition, the regulation outlines the requirements for managed care plans with physician incentive plans that put physicians at substantial financial risk for referral services. Such managed care plans will be required to put limits on financial losses for their physicians, as well as to conduct annual beneficiary surveys.

"No patient should have to wonder if their doctor's decision is based on sound medicine or financial incentives," said HHS Secretary Donna E. Shalala. "This regulation should help put Americans' minds at rest."

"The final rule addresses some of the concerns of Congress and the public about the pressures and incentives HMOs create for physicians' care decisions," said HCFA Administrator Bruce C. Vladeck.

The regulation applies to physicians providing medical care through health maintenance organizations, competitive medical plans and health insuring organizations. Under the regulation, HCFA may impose intermediate sanctions and HHS' Office of the Inspector General may impose civil monetary penalties upon Medicare or Medicaid managed care contractors who fail to comply.

Some of the rule's key provisions are:

• Plans would be prohibited from making specific payments to physicians to limit or reduce medically necessary services to a specific enrollee.
• A physician group is at "substantial" financial risk if more than 25 percent of its potential payment is at risk for services it does not provide..
• If the physicians are at substantial risk, then the prepaid plan must provide adequate protection to limit financial losses. Plans have the option of providing protection for either 25 percent of the total potential payments or a fixed amount per patient -- with the amount depending on the number of patients served by the physicians.
• If the physicians are at substantial risk, then the prepaid plans must conduct annual beneficiary surveys. The plans must survey enrollees and disenrollees with questions on satisfaction, quality and access to services.

In the 1990 budget reconciliation law, Congress required HHS to regulate physician incentive plans in prepaid plans with Medicare and Medicaid contracts. HHS issued a notice of proposed rulemaking on Dec. 14, 1992.

Subsequent to publication of the proposed rule, Congress extended the impact of the physician incentive rule beyond Medicare and Medicaid contractors. It did so as part of the 1993 budget by allowing certain other managed care organizations an exception from the physician self-referral ban if they meet the requirements of the physician incentive rule.

Since managed care organizations that were not specified in the December 1992 proposed rule could now be affected by this rule, HHS has issued the final rule with a 60-day comment period following publication in the Federal Register. The rule is effective 30 days after publication.