The federal regulators' attempts to guard against the underuse of medically necessary services is best illustrated by the recent regulation of physician incentive programs ("PIPs"). These regulations (which can be found at 42 U.S.C., 417.479) state that MCOs contracting with Medicare and/or Medicaid may not give inducements to a physician or physician group to reduce or limit "medically necessary services" to individual Medicare beneficiaries or Medicaid recipients. Significantly, this prohibition only applies to PIPs that base compensation (in whole or in part) on the use or cost of services furnished to Medicare or Medicaid recipients. Additionally, if a PIP puts the physician or physician group at Substantial Financial Risk for Referral Services, the MCO must ensure that adequate stop-loss is provided, under guidelines provided in the rule, and that enrollee surveys are conducted to monitor access to services and quality of care.
Perhaps the most critical inquiry under the regulation is whether an incentive arrangement puts a provider at substantial financial risk for referral services. "Referral Services" include any specialty, inpatient, outpatient or laboratory services the physician or physician group does not directly furnish to a patient. "Substantial Financial Risk" occurs when the incentive arrangements place the physician or physician group at risk for amounts beyond the risk threshold, if the risk is based on the use or costs of referral services. Amounts at risk based solely on factors other than a physician's or physician group's referral levels do not contribute to the determination of substantial financial risk. The analysis begins with whether the PIP places the physician or group at risk for the use or cost of referral services that exceed a 25% threshold. Depending upon the type of incentive compensation that is used, the calculation to determine whether a particular physician or physician group has surpassed the risk threshold will vary.
Where withholds (a percentage of payment or set dollar amount deducted from the physician's payment that may or may not be paid to the physician depending on specific predetermined factors) are used, a physician or group will be deemed to be at substantial financial risk if withholds from physician payments exceed 25% of the maximum "potential payments" (as defined in the rules), or if the physician or physician group is liable for amounts exceeding 25% of the maximum payments. Similarly, if potential bonuses in an incentive package are greater 33% of potential payments (minus the bonus), then there is also substantial financial risk. If incentives are based on a combination of withholds and bonuses, the risk threshold is surpassed if, according to a formula set out in the rule, the combination of incentives exceed 25% of potential payments.
Where capitation is used, the risk threshold is surpassed if either the difference between the maximum potential payments and the minimum possible payments exceeds 25% of the maximum potential payments, or the maximum potential and minimum possible payments are not clearly explained in the physician or physician group's contract. Additionally, any other incentive arrangements that have the potential to leave a physician or physician group liable for more than 25% of potential payments. However, one important exception is provided in which a physician or physician group will never be deemed to be at substantial financial risk for referral services. Where the patient panel size of a particular physician group is over 25,000 patients, then that physician or physician group will never be at substantial financial risk for referral services.
If a PIP of any MCO places any physician or physician group at substantial financial risk, it must ensure that all physicians placed at such risk have either aggregate or per patient stop-loss protection. If aggregate stop-loss protection is used, it must cover 90% of the costs of referrals that exceed a per patient limit. The rule sets forth a graduated scale of per patient stop-loss limits based upon patient panel size for which the physician is at risk and establishes professional and combined limits.
In the event that risk threshold is surpassed, the MCO must also take steps to comply with the annual enrollee survey requirements of the rule. These surveys must include either all or a sample of Medicare and Medicaid enrollees, including those who have disenrolled within the past 12 months. The purpose of these surveys is to ease HCFA's burden in determining whether enrollees are receiving adequate care. In addition, MCOs are required to provide enrollees with information regarding their PIPs, upon request.
Significantly, the final rule created a liberal concept of "patient pooling" to allow a physician group to reach the 25,000 patient level and thereby escape the stop-loss and survey requirements. If pooling is consistent with the relevant contracts between the physician or physician group and the MCO, the physician or physician group may aggregate any combination of commercial, Medicare or Medicaid patients in calculating the panel size. Calculation of the panel size is necessary to determine whether substantial financial risk exists and the amount, if any, of stop-loss insurance that must be purchased for the physician or physician group.
The long-term effect of these rules on the quality and cost of health care in this country may not be known for some time. However, it is clear that federal regulators will continue to focus on the underuse, as well as the overuse, of medical services in the future.