CMS Pub. 100-16, ch. 6, § 80.1

Definitions

Bonus means a payment made to a physician or physician group beyond any salary, fee-for-service payments, capitation, or returned withhold.

Capitation means a set dollar payment per patient per unit of time (usually per month)

paid to a physician or physician group to cover a specified set of services and

administrative costs without regard to the actual number of services provided. The

services covered may include the physician’s own services, referral services, or all

medical services.

Physician Group means a partnership, association, corporation, individual practice

association, or other group of physicians that distributes income from the practice among

members. An individual practice association is defined as a physician group for this

section only if it is composed of individual physicians and has no subcontracts with

physician groups.

Physician Incentive Plan means any compensation arrangement to pay a physician or

physician group that may directly or indirectly have the effect of reducing or limiting the

services provided to any plan enrollee.

Potential Payments means the maximum payments possible to physicians or physician

groups including payments for services they furnish directly, and additional payments

based on use and costs of referral services, such as withholds, bonuses, capitation, or any

other compensation to the physician or physician group. Bonuses and other

compensation that are not based on use of referrals, such as quality of care furnished,

patient satisfaction or committee participation, are not considered payments in the

determination of substantial financial risk.

Referral Services means any specialty, inpatient, outpatient, or laboratory services that a

physician or physician group orders or arranges, but does not furnish directly.

Risk Threshold means the maximum risk, if the risk is based on referral services, to

which a physician or physician group may be exposed under a physician incentive plan

without being at substantial financial risk. This is set at 25 percent risk.

Substantial Financial Risk, for purposes of this section, means risk for referral services

that exceeds the risk threshold.

Withhold means a percentage of payments or set dollar amounts deducted from a

physician’s service fee, capitation, or salary payment, and that may or may not be

returned to the physician, depending on specific predetermined factors.

Applicability

The requirements in this section apply to an MA organization and any of its

subcontracting arrangements that utilize a physician incentive plan in their payment

arrangements with individual physicians or physician groups. Subcontracting

arrangements may include an intermediate entity, which includes, but is not limited to, an

individual practice association that contracts with one or more physician groups or any

other organized group, such as those specified at 42 CFR 422.4.

Note that there is a statutory prohibition on physician incentive plans for MA private fee-for-service plans. Accordingly, an MA private fee-for-service plan may not operate a

physician incentive plan.

(Source: §1859(b)(2)(A); 42 CFR 422.208(e).)

Basic Requirements

Any physician incentive plan operated by an MA organization must meet the following

requirements:

1. The MA organization makes no specific payment, directly or indirectly, to a

physician or physician group as an inducement to reduce or limit medically

necessary services furnished to any particular enrollee. Indirect payments may

include offerings of monetary value (such as stock options or waivers of debt)

measured in the present or future.

2. If the physician incentive plan places a physician or physician group at substantial

financial risk (as determined below) for services that the physician or physician

group does not furnish itself, the MA organization must assure that all physicians

and physician groups at substantial financial risk have either aggregate or per-patient stop-loss protection (as described below

3. For all physician incentive plans, the MA organization provides to CMS the

information specified in §80.2.

Determination of Substantial Financial Risk

Substantial financial risk occurs when risk is based on the use or costs of referral

services, and that risk exceeds a risk threshold of 25 percent of potential payments.

(Payments based on other factors, such as quality of care furnished, are not considered in

this determination.)

The following incentive arrangements cause substantial financial risk within the meaning

of this section, if the physician’s or physician group’s patient panel size is not greater

than 25,000 patients (shown in the table below):

1. Withholds greater than 25 percent of potential payments.

2. Withholds less than 25 percent of potential payments if the physician or physician

group is potentially liable for amounts exceeding 25 percent of potential

payments.

3. Bonuses that are greater than 33 percent of potential payments minus the bonus.

4. Withholds plus bonuses if the withholds plus bonuses equal more than 25 percent

of potential payments. The threshold bonus percentage for a particular withhold

percentage may be calculated using the formula:

Withhold % = -0.75 (Bonus %) +25%.

5. Capitation arrangements, if:

a. The difference between the maximum potential payments and the

minimum potential payments is more than 25 percent of the maximum

potential payments; and

b. The maximum and minimum potential payments are not clearly explained

in the contract with the physician or physician group.

6. Any other incentive arrangements that have the potential to hold a physician or

physician group liable for more than 25 percent of potential payments.

Stop-Loss Protection Requirements

The MA organization assures that all physicians and physician groups at substantial

financial risk have either aggregate or per-patient stop-loss protection in accordance with

the following requirements:

1. Aggregate stop-loss protection must cover 90 percent of the costs of referral

services that exceed 25 percent of potential payments.

2. For per-patient stop-loss protection if the stop-loss protection provided is on a per-patient basis, the stop-loss limit (deductible) per patient must be determined based

on the size of the patient panel and may be a combined policy or consist of

separate policies for professional services and institutional services. In

determining patient panel size, the patients may be pooled (as described below).

3. Stop-loss protection must cover 90 percent of the costs of referral services that

exceed the per patient deductible limit. The per-patient stop-loss deductible limits

are as follows:

Panel Size Single

Combined

Deductible

Separate

Institutional

Deductible

Separate

Professional

Deductible

1-1,000 $6,000 $10,000 $3,000

1,001-5,000 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

Pooling of Patients

Any entity that meets the pooling conditions of this section may pool commercial,

Medicare, and Medicaid enrollees or the enrollees of several MA organizations with

which a physician or physician group has contracts. The conditions for pooling are as

follows:

1. It 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.

Sanctions

An MA organization that fails to comply with the requirements of this section is subject

to intermediate sanctions.

(Source: 42 CFR 422.208.)