Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Physician Incentive Plan Reporting for 
Medicare + Choice Organizations 
JANET REHNQUIST 
Inspector General 
April 2002 
OEI-05-00-00010  O I G
FFICE OF  NSPECTOR  ENERAL

http://www.oig.hhs.gov/ 
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community, and issues fraud alerts and other industry guidance.  E X E C U T I V E   S U M M A R Y  
PURPOSE 
To assess Physician Incentive Plan (PIP) reporting by Medicare + Choice organizations. 
BACKGROUND 
The managed care organizations use of physician incentives raised public and Congressional 
concerns about the potential for underutilizing appropriate medical services and discouraging 
needed hospitalizations and referrals to specialists. In response, Congress banned Medicare + 
Choice managed care organizations from linking physician incentives to reducing or limiting 
necessary medical services to specific Medicare patients in managed care programs. The 
Centers for Medicare & Medicaid Services (CMS), formerly the Health Care Financing 
Administration (HCFA), issued regulations on physician incentives in 1996. Under these 
regulations, Medicare + Choice managed care organizations can make 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 and must provide stop-loss 
coverage for providers who face substantial financial risk in treating Medicare beneficiaries.  In 
1997, CMS required that each Medicare + Choice managed care organization annually report 
all contractual arrangements with physicians, provider groups and intermediate entities in order 
to determine compliance with the regulations. 
FINDINGS 
The CMS physician incentive information collected from managed care 
organizations focuses on financial risk and stop-loss coverage for providers 
By design, the data CMS collects is limited to determining the adequacy of stop-loss coverage 
for providers.  The physician incentive plan law requires that physicians who might be at 
substantial financial risk in treating beneficiaries have appropriate stop-loss coverage. The 
CMS characterizes Medicare + Choice managed care organization incentive arrangements as 
either compliant or non-compliant with reporting regulations based on a formula using the 
amount of stop-loss coverage and the number of Medicare beneficiaries they treat, called 
patient panel size.  The current process is not designed to detect whether needed services are 
being restricted or otherwise affecting the access to medically necessary services. 
i 
PIP Reporting  OEI-05-00-00010  The information is incomplete, unreliable, and inconsistent 
The physician incentive data CMS does collect is incomplete, inaccurate, and inconsistent. 
Some managed care organizations do not report all of their contracting arrangements. Few 
managed care organizations routinely verify the information that downstream providers give 
them for physician incentive plan reporting.  Likewise, CMS does not routinely verify the data 
managed care organizations submit.  The CMS regional offices do not have access to and do 
not review any intermediate entity subcontracts during their biennial Medicare + Choice onsite 
reviews. 
Medicare + Choice managed care organizations and their providers report that the 
physician incentive plan reporting process is burdensome and costly 
Many Medicare + Choice managed care organizations and their providers expend considerable 
time and financial resources in annually reporting physician incentive plan data to CMS. 
Managed care organizations with 22 Medicare + Choice contracts reported that their direct 
physician incentive plan reporting expenses averaged nearly $25,000 in 2001. 
Both CMS and managed care organizations already collect information which 
could help determine if incentive arrangement problems exist 
Managed care organizations collect information that measures consumer satisfaction, access to 
care, and quality of care. They also have information about incentives with providers relating to 
utilization and quality targets. While CMS is not required to collect this data, it would assist 
CMS regional office staff in meeting the requirements in the onsite managed care monitoring 
guide relating to quality, access and utilization.  The CMS is currently developing a data-driven 
system that will provide a more comprehensive view of managed care organizations activities, 
including physician incentives. 
RECOMMENDATION 
The CMS should replace the current reporting system with other approaches that 
are more effective and less burdensome 
The CMS should terminate the current reporting process which represents a considerable 
expense of funds, staff, and computer time for Medicare + Choice managed care organizations. 
Eliminating this process would greatly reduce the reporting burdens for managed care 
organizations and their physicians.  Instead of the current annual managed care organization 
reporting of stop-loss coverage, CMS could: 
ii 
PIP Reporting  OEI-05-00-00010  <	 require attestations regarding physician payment incentives in all managed care 
organizations and downstream provider contracts; 
<	 require appropriate stop-loss coverage for all managed care organizations, 
including downstream providers where incentives are involved; 
<	 periodically verify, during onsite reviews, the accuracy of attestations and 
presence of stop-loss coverage and ensure that managed care organization 
incentives tied to financial goals do not violate the law; and, 
<	 identify data already collected that may suggest if health care quality and 
utilization are affected by physician payment incentives. 
AGENCY COMMENTS 
We received comments on this report from CMS.  They concur with our recommendation and 
are modifying the PIP regulations to reduce administrative burden on Medicare + Choice 
managed care organizations. The CMS is also continuing to implement quality improvement 
assessments that more directly measure health care quality and access in a managed care 
setting.  Their comments can be found in Appendix D.  Additionally, technical comments were 
provided by CMS and were incorporated where appropriate. 
iii 
PIP Reporting  OEI-05-00-00010  T A B L E   O F   C O N T E N T S  
PAGE

EXECUTIVE SUMMARY ...................................................... i

INTRODUCTION .............................................................1

FINDINGS

CMS Collects Incentive Information Related to Stop-Loss Coverage  ...................... 6

Incentive Data Collected Is Unreliable  .............................................7

Incentive Reporting Is A Burden.................................................. 8

Other Data Which Is Already Available Could Be Helpful ............................... 9

RECOMMENDATION  ....................................................... 12

APPENDICES

A:  Glossary of Terms  ........................................................14

B:  CMS Physician Incentive Plan Reporting Instructions to Managed Care Organizations  ...... 17

C:  Other Quality Targets Managed Care Organizations Pay Providers Incentives For ......... 32

D: CMS Comments on this Report ...............................................34

ACKNOWLEDGMENTS ..................................................... 35

iv 
PIP Reporting  OEI-05-00-00010  I N T R O D U C T I O N  
PURPOSE 
To assess Physician Incentive Plan (PIP) reporting by Medicare + Choice organizations. 
BACKGROUND 
Medicare Managed Care 
The Balanced Budget Act of 1997 established the Medicare + Choice program which 
expanded the types of managed care entities that could contract with the Centers for Medicare 
& Medicaid Services (CMS), formerly the Health Care Financing Administration (HCFA), to 
provide health care services to Medicare beneficiaries.  All health plans participating in the 
Medicare + Choice program receive a monthly per capita reimbursement and are responsible 
for providing all necessary services to enrollees. The CMS requires all Medicare + Choice 
managed care organizations to provide access to a sufficient number of providers, including 
physicians, to ensure beneficiaries have adequate access and continuity of care. The managed 
care organizations decide whether to hire salaried providers or contract for providers services 
using fee-for-service, capitation, or other reimbursement methods. If a managed care 
organization pays fee-for-service to providers, the providers themselves face no financial risk in 
treating beneficiaries, and there is no financial incentive for providers to withhold any medical 
services to individuals or restrict referrals to non-managed care organizations providers for 
out-of-plan treatment.  However, under other arrangements, providers may be at financial risk 
depending on the terms of their contracts. (Appendix A contains a glossary of managed care 
terms used in this report.) 
Risk Transfer 
Managed care organizations transfer financial risk to providers through certain contractual 
arrangements.  Common types of risk transfer arrangements include capitation, percent of 
premium, withholds, and bonuses.  Capitation is a set dollar payment per patient per unit of time 
(usually monthly) that is paid to cover a specified set of services and administrative costs 
without regard to the actual number of services provided. A percent of premium is a 
predetermined percentage of overall revenue from beneficiary premiums. A withhold is a 
percentage of payment or set dollar amount that managed care organizations deduct from a 
providers payment, and that may or may not be returned, depending on whether specific 
predetermined factors are met. Similarly, a bonus is a payment a provider receives beyond any 
salary, fee-for-service payments, capitation or returned withhold, depending on whether 
specific predetermined factors are met.  Any of these incentives may be used to encourage 
1 
PIP Reporting  OEI-05-00-00010  compliance with hospital or pharmacy utilization targets, or tied to results on various measures 
from patient satisfaction surveys. 
If a provider assumes global risk for treating patients, the provider is financially responsible for 
the costs of all the medical services, including hospitalization and pharmacy, that those patients 
incur.  The CMS considers providers to be at substantial financial risk when 25 percent or 
more of their potential managed care organization reimbursement depends on referrals they 
make or services they provide. When this substantial financial risk threshold is reached, 
Medicare + Choice managed care organizations must ensure that providers have insurance 
(called stop-loss) that protects providers from serious financial consequences for treating 
Medicare beneficiaries.  Providers with more than 25,000 patients are exempted from the stop-
loss coverage requirements, because it is assumed that any risk would be spread throughout this 
large patient population. 
Physician Incentive Plans 
Many managed care organization contracts with physicians and other providers contain 
provisions for transferring risk. These provisions contain financial or other incentives intended 
to influence the practice styles of physicians to achieve specific outcomes or reduce the health 
plans costs. Incentives may be included in direct contracts between managed care 
organizations and physicians or provider groups as well as any subcontracts between these 
entities (called downstream providers). 
Law Prohibits Use of Certain Physician Incentive Plan Arrangements 
The managed care organization use of physician incentives raised public and congressional 
concerns about the potential for underutilizing appropriate medical services and discouraging 
necessary hospitalizations and referrals to specialists. In response to these concerns, Congress 
banned Medicare + Choice managed care organizations from linking physician incentives to 
reducing or limiting necessary medical services to specific Medicare managed care patients.1 
Section 1876 of the Social Security Act prohibits managed care organizations from entering 
into compensation arrangements with physicians or physician groups that may directly or 
indirectly have an effect of reducing or limiting services to individual enrollees.  The managed 
care organizations may, however, operate physician incentive plans if they meet the following 
requirements: 
<	 No specific payment is made, directly or indirectly, to a physician or physician 
group as an inducement to reduce or limit medically necessary services 
furnished to any particular enrollee. 
1
 Public Law 99-509, Omnibus Budget Reconciliation Act of 1986, Section 9313(c) 
2 
PIP Reporting  OEI-05-00-00010  <	 If a physician or physician group is placed at substantial financial risk for 
referrals, the managed care organization ensures that stop-loss coverage is 
provided and conducts periodic surveys of enrollees and disenrollees. 
<	 The managed care organization must provide CMS with descriptive information 
sufficient to determine compliance with these requirements. 
Regulations Implementing Physician Incentive Plan Law 
The CMS informed managed care organizations that the purpose of the final rule implementing 
the physician incentive plan law is to provide adequate protection to beneficiaries so they have 
access to necessary and appropriate care.  To implement this law and its subsequent changes, 
CMS issued several regulations, culminating with major revisions effective in 1996.2 
Under the 1996 regulations, CMS allows Medicare + Choice managed care organizations to 
use physician incentives in their contractual arrangements with Medicare providers if certain 
conditions are met. The managed care organizations: 
<  cannot curtail access to necessary medical services, 
<	 must provide stop-loss coverage for managed care organization providers who 
face substantial financial risk, 
<  must conduct surveys of beneficiaries and disenrollees when providers are at 
substantial financial risk, and, 
<  must generally disclose incentive arrangements to Medicare beneficiaries. 
Any Medicare + Choice managed care organization violating this regulation faces civil monetary 
penalties up to $25,000 for each infraction, as well as possible program sanctions. 
Physician Incentive Plan Requirements 
Beginning in 1997, CMS required Medicare + Choice managed care organizations to annually 
report all contractual arrangements involving incentives with physicians and provider groups in 
order to determine compliance with physician incentive plan regulations.  The regulations 
specify the kind of information the managed care organizations must report to CMS.  The 
managed care organizations must report: 
<  whether referrals made by the physician or physician group are covered in the 
incentive plan; 
<  the type of incentive arrangement or the method used to transfer risk (e.g., 
withhold, bonus, capitation); 
2
 42 CFR 422.208, 42 CFR 422.210 
3 
PIP Reporting  OEI-05-00-00010  <	 the percent of the withhold or bonus the plan uses (used to determine whether 
physician or group is at substantial financial risk); 
<  assurance that the physician or group has adequate stop-loss coverage; 
<  the patient panel size and pooling method used, if any (also used to determine 
whether a physician or group is at substantial financial risk); and, 
<  if the managed care organization is required to conduct an enrollee/disenrollee 
survey. 
These requirements apply to managed care organization direct and indirect contracting 
arrangements with physicians, provider groups, and intermediate entities. In 1999, managed 
care organizations representing 352 Medicare + Choice contracts reported over 8,000 
incentive arrangements with physicians and providers. Less than half of these arrangements 
transferred any risk to providers. 
Onsite Review of Physician Incentive Plans and Access to Care 
Another method CMS uses to collect information about physician incentive plan compliance is 
the biennial onsite review of managed care organizations.  The CMS regional offices use a 
structured series of general questions on physician incentives when conducting the biennial 
onsite managed care organization reviews. These questions focus on physician incentive plan 
reporting elements and contract language. The CMS regional offices use a structured guide to 
determine whether managed care organizations meet the required reporting and beneficiary 
disclosure rules. 
In addition, CMS instructs its regional offices to review physician incentive plans in their 
analysis of access and availability of care for Medicare beneficiaries. They also examine other 
quality measures in conjunction with physician incentive plans to determine whether 
underutilization of services may be occurring. 
SCOPE AND METHODOLOGY 
We used four methods of data collection in this evaluation.  We examined physician incentive 
plan data submitted to CMS by managed care organizations, sent a fax survey to Medicare + 
Choice managed care organizations, conducted personal or telephone interviews with staff from 
CMS headquarters and regional offices, and conducted site visits of a purposive sample of 
managed care organizations. 
First, we examined the 1999 data that managed care organizations provided to CMS to 
describe the physician incentive plan landscape and to identify the existence of any significant 
patterns in annual physician incentive plan reporting. 
Second, we sent a fax questionnaire to Medicare + Choice plans, representing 252 managed 
care organization contracts. We excluded Medicare + Choice demonstration 
4 
PIP Reporting  OEI-05-00-00010  contracts and cost contracts and focused on managed care organization risk plans. The 
questionnaire contained a mix of open and closed-ended questions regarding the types of 
physician incentive plan information collected, how accuracy of data is assured, what elements 
of physician incentive plan arrangements are not reported, what non-contractual methods are 
used for arranging incentives, and the presence of incentive arrangements with non-primary care 
staff. We did not request details regarding specific dollar amounts of potential incentives. We 
received 227 of the 252 surveys, a response rate of 90 percent. 
Third, we conducted personal or telephone interviews with staff from CMS headquarters and 
regional offices responsible for monitoring physician incentive plan information. We used a 
structured format of both open and closed-ended questions to elicit information about the 
physician incentive plan data collection process.  We asked specific questions about the nature 
and the detail of physician incentive data they collect and review during the biennial onsite 
managed care organization reviews. We asked CMS staff about the roles the regional offices 
play in collecting physician incentive plan data, how they use the physician incentive plan data, 
and what types of feedback they give to managed care organizations.  We gathered information 
to determine whether adequate mechanisms exist to report questionable incentive arrangements 
and what actions are taken in those situations.  We also asked CMS staff for suggestions about 
data that could be collected in addition to, or instead of, what is currently being collected to 
monitor physician incentive plans.  We reviewed the monitoring guides CMS offices use in 
conducting their biennial onsite reviews of Medicare + Choice plans. 
Finally, to collect more in-depth information, we conducted onsite visits and performed follow-
up interviews to a purposive sample of 38 managed care organizations in 9 metropolitan areas. 
The metropolitan areas selected represent a diverse cross-section of annual physician incentive 
plan reporting characteristics.  We visited a mix of managed care organizations in these 
metropolitan areas that CMS determined to be either compliant or non-compliant in their stop-
loss arrangements. We visited 38 
Medicare + Choice managed care organizations located in Denver, Dallas, Detroit/Ann Arbor, 
Miami/Ft. Lauderdale, Hartford/New Haven, Los Angeles, San Francisco, Oklahoma 
City/Tulsa, and Seattle.  We conducted all onsite visits in June and July 2000. 
During these onsite visits with the managed care organizations, we used a structured discussion 
guide containing open-ended questions to gather in-depth information about the managed care 
organizations, the local managed care environment, history of incentive use, and annual 
physician incentive plan reporting and oversight. 
We conducted our review in accordance with the Quality Standards for Inspections issued 
by the Presidents Council on Integrity and Efficiency. 
5 
PIP Reporting  OEI-05-00-00010  F I N D I N G S  
The CMS physician incentive information collected from 
managed care organizations focuses on financial risk and 
stop-loss coverage for providers 
The physician incentive plan law requires that physicians who might be at substantial financial 
risk in treating beneficiaries have appropriate stop-loss coverage. The CMS requires Medicare 
+ Choice managed care organizations to report whether they transfer risk to providers.  Of 
8,651 incentive arrangements reported to CMS by managed care organizations in 1999, 3,306 
contracts transferred risk globally (for all medical services delivered) to providers, provider 
groups, and intermediate entities, and 2,229 contracts transferred risk specifically for referrals. 
The managed care organizations also report the type of incentive arrangements they have, but 
do not provide any details of specific proprietary financial arrangements they have with 
providers. 
The CMS characterizes Medicare + Choice managed care organization incentive arrangements 
as either compliant or non-compliant with reporting regulations based on a formula using the 
amount of stop-loss coverage and the number of Medicare beneficiaries they treat, called 
patient panel size. In 1999, CMS determined that 193 (5 percent) out of 3,606 Medicare + 
Choice arrangements where risk transfer was reported were non-compliant due to inadequate 
stop-loss coverage. If an arrangement is non-compliant, CMS enters this information into the 
physician incentive plan database and sends a notice to the managed care organization 
informing them of the decision. The CMS does not routinely require managed care 
organizations to take corrective action on these non-compliant arrangements. The CMS 
acknowledges conducting minimal compliance activities in 1999 due to efforts to implement the 
new electronic PIP data submission system. 
The CMS provides little feedback to managed care organizations on their physician incentive 
plan submissions.  Only 26 percent (59 of 227) of managed care organizations responding to 
our survey report having any CMS review of the physician incentive plan data they submitted. 
Most of these managed care organizations report that CMS regional offices review occurred 
during their biennial monitoring process. During our interviews with CMS regional staff, we 
learned that the degree of oversight of physician incentive plans varies among offices.  Two 
regional offices reported that they did not review the physician incentive plan disclosure during 
the last biennial monitoring review (one regional office was receiving training at the time of our 
review). The remainder of the regional offices reported that they reviewed some physician 
incentive plan data during their most recent biennial review. Several CMS regional staff 
volunteered that the type of incentive information collected from Medicare + Choice plans is 
not useful to them in conducting their onsite reviews. The current process is not designed to 
6 
PIP Reporting  OEI-05-00-00010  detect whether needed services are being restricted or otherwise affecting the access to 
medically necessary services. 
The information is incomplete, unreliable, and inconsistent 
During our onsite visits, managed care organization representatives reported various problems 
relating to the completion of the annual physician incentive plan disclosure. Although CMS 
requires disclosure even if incentive arrangements do not exist, three managed care 
organizations we spoke with report only those arrangements where incentives are involved. 
Some managed care organizations report that they have the contracted physicians, groups and 
other entities complete the physician incentive plan reporting, and these providers do not always 
understand the terms and definitions used by CMS or the importance of the data.  Three 
managed care organizations told us that some of the terms used in the physician incentive plan 
disclosure form are confusing and need to be better defined.  Most Medicare + Choice plans 
that contract with intermediate entities (111 of 169 contracts) accept the information that 
downstream providers gave them for physician incentive plan reporting.  A few managed care 
organizations indicated they would call the downstream provider if a number reported looked 
questionable. 
The CMS only requires intermediate entities to report incentives if they are contained in 
subcontracting arrangements with physicians or physician groups. Some managed care 
organizations do not report the details of arrangements intermediate entities have with their 
subcontracted providers.  One managed care organization said they do not report beyond the 
first tier or the direct contract with the managed care organization. Another said they believed 
there was a three-tier (contract, subcontract, sub-subcontract) limit in applying the physician 
incentive plan requirements. Downstream providers may further subcontract with other 
providers. Another managed care organization said they do not collect incentive data if 
providers are employed by a provider group or intermediate entity. In this case, the managed 
care organization does not consider the providers to be downstream providers since the 
contracting entity employs them. The CMS does not know how many providers in 
downstream contracts with intermediate entities are involved in treating Medicare + Choice 
beneficiaries.  The CMS regional offices do not have access to and do not review any 
intermediate entity subcontracts during their biennial Medicare + Choice onsite reviews. 
As a result, CMS (or in many cases, the contracting managed care organization) does not 
know whether the downstream contracts contain incentives that violate the law.  In our fax 
survey, we found that only 31 of 166 Medicare + Choice contracts have language in their 
contracts with intermediate entities that details what incentives the law prohibits. 
We found that managed care organizations frequently offer incentives to intermediate entities, 
most often for meeting targeted financial goals (78 of 169 managed care 
7 
PIP Reporting  OEI-05-00-00010  organizations contracts with intermediate entities, or 46 percent).  The incentives in managed 
care organization contracts with intermediate entities refer only to those entities and not to 
contracts they have with downstream providers. 
Medicare + Choice managed care organizations and their 
providers report that the physician incentive plan reporting 
process is burdensome and costly 
Medicare + Choice managed care organizations expressed several concerns regarding 
physician incentive plan reporting. Many volunteered that collecting the information represents 
a costly and time-consuming burden for their physician providers. Even though many managed 
care organizations credit CMS for designing an electronic reporting format, all managed care 
organizations face a physician incentive plan reporting burden, even if their plans do not offer 
incentives to their providers. Our survey reveals that 24 of 227 managed care organization 
contracts had no incentives at all in 1999. (Appendix B contains CMS instructions to 
managed care organizations for submitting 1999 physician incentive plan data.) 
While we did not independently verify their estimates, managed care organizations with 22 
Medicare + Choice contracts report that their direct physician incentive plan reporting expenses 
averaged nearly $25,000 in 2001. These plans report using between 150 and 550 staff hours 
to collect, consolidate, review for obvious errors, and enter the data, with costs ranging from 
$30 to $50 per hour.  Humana, which operates multiple 
Medicare + Choice plans, estimates expending 550 hours and $86,000 to gather the necessary 
physician incentive plan reporting data in 2001. 
. 
Some managed care organizations pass the burden of completing the physician incentive plan 
reporting on to providers. In States like California where physicians may participate in many 
managed care plans, this burden can be substantial, and as previously noted, may result in 
inaccurate physician incentive plan reporting. To mitigate the burden on their providers, the 
California Medicare + Choice plans created the Interagency Coordinated Effort. The 
Interagency Coordinated Effort makes a single request to providers for physician incentive plan 
information, secures an attestation of accuracy from the providers, and distributes the results to 
each managed care organization with which the providers are associated.  This effort 
substantially reduced the hassle factor for providers, according to California managed care 
organizations. However, even this cooperative effort is expensive for managed care 
organizations.  Kaiser Permanente, with mainly salaried physicians in its plan, estimates 
spending $30,000 to collect and report the calendar year 2001 physician incentive plan data. 
8 
PIP Reporting  OEI-05-00-00010  Both CMS and managed care organizations already collect 
information which could help determine if incentive 
arrangement problems exist 
While the current physician incentive plan reporting serves as a useful reminder to managed 
care organizations of the need for stop-loss coverage, its effectiveness is limited. The current 
physician incentive plan reporting does not capture specific information about when or why 
managed care organizations pay physician incentives or how these incentives may relate to 
patient care. Nevertheless, data that could help CMS to determine this can be obtained for this 
purpose. 
The Secretary has established a moratorium on new encounter data reporting while the 
department assesses the priorities and burdens of such reporting requirements. We found 
several examples where physician incentive data can be related to quality of care which CMS 
can consider using once the moratorium is lifted.  During its onsite reviews, CMS could 
examine this information for potential outliers or trends, recognizing that not all anomalies in 
treatment are necessarily related to physician incentives.  In the following sections, we identify 
several types of these data. 
Managed Care Incentives for Meeting Targeted Financial or Utilization Goals 
The following table represents information about utilization and referral targets reported to us by 
managed care organizations which the CMS physician incentive reporting and onsite review 
process does not collect.  The Medicare + Choice managed care organizations identified the 
number of contracts they had that paid incentives for meeting utilization and referral targets. 
Utilization goals involve managed care organizations identifying a targeted dollar amount of 
medical expenditures for a specific time period.  If members use of medical services results in 
expenditures that equal or exceed the targeted amount, no incentive is paid.  Conversely, if the 
actual medical expenditures are below the target, managed care organizations use this surplus to 
pay the providers a bonus.  Frequently, the managed care organizations and the contractee 
share this surplus. 
9 
PIP Reporting  OEI-05-00-00010  Utilization and Referrals 
Target Areas  Contracts with  Contracts with  Contracts with 
Individual Physicians  Physician Groups  Intermediate Entities 
Yes  No  Yes  No  Yes  No 
Financial Goals  44  126  73  109  78  91 
Utilization Goals  24  146  29  153  31  138 
Emergency Room Utilization  32  138  26  156  30  139 
Hospitalization Utilization  39  131  52  130  44  125 
Referrals to Specialists  20  150  25  157  26  143 
Targeted utilization incentives may induce providers to withhold necessary medical treatment, 
hospitalizations, or referrals.  To discourage restricting access and utilization of appropriate 
care, some managed care organizations reported limiting the amount contractees may collect 
from these types of incentives. 
Linkages Between Physician Incentives and Access to Quality Care 
There are several quality indicators CMS currently uses to help determine whether Medicare 
managed care beneficiaries have access to appropriate medical services.  The CMS currently 
monitors consumer satisfaction, access to care, and quality of care using performance measures 
such as the Health Plan Employer Data and Information Set, the Medicare Health Outcomes 
Survey, and the Consumer Assessments of Health Plans Study surveys. The CMS also has 
developed the Quality Improvement System for Managed Care Standards and Guidelines. 
These performance measures were developed to strengthen managed care organizations 
operation and performance in the areas of quality measurement and improvement, and the 
delivery of health care and enrollee services. 
While CMS regional offices review these quality factors in determining whether managed care 
organizations provide access to quality care for Medicare patients, under the current physician 
incentive plan reporting process, CMS has not routinely examined these quality or performance 
measures to help determine if access or underutilization of services are affected by these 
incentives. Half of the CMS regional offices we surveyed indicated that using multiple sources 
of information as indicators of potential incentive arrangement problems would be most 
effective in examining quality of care issues during their onsite reviews.  They also felt 
irregularities revealed by reviewing the nature of the incentives could be a basis for a more 
extensive onsite review of physician incentive plans. Most thought the physician incentive plan 
information currently collected should be supplemented with information from other sources in 
order to be useful. New CMS 
10 
PIP Reporting  OEI-05-00-00010  onsite review guidelines direct regional offices to link physician incentive plan information with 
these other sources of quality and access indicators during their reviews. 
Managed Care Incentives for Meeting Targeted Quality Goals 
In addition to CMS physician incentives information, Medicare + Choice managed care 
organizations routinely gather information to internally monitor their own performance that might 
also suggest problems with physician incentive plans. For example, some managed care 
organizations track information such as beneficiary disenrollment rates and underutilization 
trends as well as maintaining and reviewing beneficiary complaint logs. The physician incentive 
plan regulations also require Medicare + Choice managed care organizations to conduct 
consumer satisfaction surveys when their contracts place physicians or physician groups at 
substantial financial risk. The CMS regional offices do not routinely use these data from 
Medicare + Choice plans in reviewing the appropriateness of physician incentive plans. 
For example, the Patient Access and Services table below illustrates the number of Medicare + 
Choice contracts that managed care organizations reported to us containing incentives for 
patient access and service targets.  (See Appendix C for other quality incentives managed care 
organizations reported to us).  Some managed care organizations give incentives to providers 
that keep their practice open to new Medicare beneficiaries.  Also, some managed care 
organizations pay incentives to providers achieving both specified financial goals and targeted 
satisfaction levels.  One managed care organization volunteered that it would not pay an 
incentive if a provider met the financial or utilization goals without meeting a specified level of 
patient satisfaction. 
Patient Access and Services 
Target Areas  Contracts with  Contracts with  Contracts with 
Individual Physicians  Physician  Intermediate Entities 
Groups 
Yes  No  Yes  No  Yes  No 
Increased Hours for Patient  22  148  10  172  3  166 
Care 
Patient Satisfaction  36  134  28  154  17  152 
Accepting New Patients  26  144  17  165  6  163 
The CMS is currently developing a data-driven system that will provide a more comprehensive 
view of managed care organization activities, including physician incentives.  In addition to these 
quality measures, CMS is also involved in a major national initiative to reduce the administrative 
burden for health plans by simplifying reporting requirements and data requests. 
11 
PIP Reporting  OEI-05-00-00010  R E C O M M E N D A T I O N  
The current CMS process that requires managed care organizations to annually report stop-
loss coverage data for some incentive arrangements conveys the importance of risk protection 
to managed care organizations, providers, and provider groups who disclose this information. 
The current process is not designed to detect whether needed services are being restricted or 
otherwise affecting the access to medically necessary services. 
We think the physician incentive plan process should be aimed more directly at ensuring 
Medicare + Choice beneficiaries access to care.  We recognize there is no single measure that 
captures medical underutilization, limiting referrals to specialists, or otherwise withholding 
needed medical services. And, while a direct causal link between incentives and access to care 
would be difficult to establish, measures already used by CMS and managed care organizations 
could be identified that, either singly or in aggregate, may indicate whether beneficiaries care is 
influenced by Medicare + Choice incentive arrangements. 
The CMS should replace the current reporting system with 
other approaches that are more effective and less 
burdensome 
The CMS should terminate the current reporting process which represents a considerable 
expense of funds, staff, and computer time.  Eliminating the annual physician incentive plan 
reporting is consistent with CMS desire to lessen administrative burdens for Medicare + 
Choice managed care organizations and Medicare providers. We recommend CMS take the 
following steps to replace the physician incentive plan process. 
Require attestations regarding incentives in all managed care organization and 
downstream provider contracts 
To address congressional concerns that managed care organization incentives may negatively 
impact Medicare beneficiaries access to appropriate medical care, CMS could require 
managed care organizations to obtain and retain attestations from all their contractees that 
incentives cannot be used to limit access to medically necessary care.  These attestations can be 
made part of the managed care organization contracts with physicians, provider groups, and 
intermediate entities. Physician groups and intermediate entities should also comply with this 
requirement, as well as any downstream contracts they may have.  The managed care 
organizations should obtain new attestations only whenever contracts affecting Medicare 
beneficiaries are changed. 
12 
PIP Reporting  OEI-05-00-00010  Periodically verify the accuracy of attestations and presence of stop-loss 
coverage, including downstream providers where incentives are involved 
The CMS regional offices could include verification of managed care organization incentive 
attestations and appropriateness of stop-loss coverage during their managed care organization 
onsite reviews. During these reviews, if a managed care organization contracts with provider 
groups or intermediate entities, CMS regional offices could select a sample of downstream 
provider contracts to review for incentive attestations and stop-loss coverage. In addition, 
CMS could ensure that any incentives or withholds related to meeting goals for achieving 
financial, utilization, emergency room, hospitalization, or referral targets do not restrict 
Medicare beneficiaries access to needed medical services or quality medical care. 
Identify data already collected by managed care organizations that may indicate if 
Medicare + Choice beneficiaries are being denied access, services, or referrals as 
a result of physician incentives 
The CMS managed care review guide used by regional offices requires examination of 
utilization reviews and physician incentive plans to ensure that existing practices do not interfere 
with or cause delays in services. We believe the type of incentive data we collected in our 
survey from managed care organizations relating to financial and utilization goals could serve as 
potential leads for CMS regional offices in helping them make these determinations. 
The CMS must also make determinations about the quality of care Medicare + Choice plans 
provide to Medicare patients.  We believe the types of quality incentives these plans identified 
in our survey may also help CMS in their Medicare + Choice quality decisions.  In combination 
with this data, CMS regional offices could request and review beneficiary complaint logs, 
underutilization studies, or other data that managed care organizations already maintain that may 
indicate whether or not providers withhold appropriate medical treatment from beneficiaries as 
a result of physician incentives. 
This recommendation is consistent with CMSs effort to reduce managed care organizations 
administrative burdens in that it recommends the use of data already collected by managed care 
organizations.  The CMS should consider the need to identify appropriate and inappropriate 
incentives as they formulate a more streamlined approach to data collection and use of the data 
in evaluating the performance of managed care organizations. 
AGENCY COMMENTS 
We received comments on this report from CMS. Additionally, technical comments were 
provided and incorporated where appropriate. CMS concurs with our recommendation and 
are modifying the PIP regulations to reduce administrative burden on Medicare + Choice 
managed care organizations. CMS is also continuing to implement performance assessments 
that more directly measure health care quality and access in a managed care setting.  Comments 
can be found in Appendix D. 
13 
PIP Reporting  OEI-05-00-00010  APPENDIX A 
Glossary of Terms

All definitions were taken or adapted from the CMS website (except where noted by an 
asterisk*). 
Bonus  A payment a physician or entity receives beyond any salary, fee-for-service 
payments, capitation or returned withhold. Bonuses and other compensation that are not based 
on referral levels (such as bonuses based solely on quality of care, patient satisfaction or 
physician participation on a committee) are not considered in the calculation of substantial 
financial risk. 
CAHPS (Consumer Assessments of Health Plans Study)  A major national initiative, 
sponsored by the Agency for Health Care Research and Quality, to develop a set of 
standardized consumer satisfaction instruments, user manuals, and recommended report 
formats.  Surveys include both a standardized satisfaction survey for enrollees and a 
disenrollment survey that gathers information from beneficiaries leaving a health plan about their 
experiences receiving care and their reasons for leaving the plan.  The CMS requires all 
Medicare contracting managed care organizations (MCOs) to participate in the CAHPS 
surveys. 
Capitation  A set dollar payment per patient per unit of time (usually monthly) that is paid to 
cover a specified set of services and administrative costs without regard to the actual number of 
services provided.  The services covered may include a physician's own services, referral 
services or all medical services. 
Downstream provider* Refers to any physician, provider group, or intermediate entity 
who contracts with these entities to provide medical services to MCO patients. This provider 
does not contract directly with the Medicare + Choice MCO, it is a subcontractor. 
Global risk*  Transfers financial risk to the provider for all medical services to a 
beneficiary. 
HEDIS (Health Plan Employer Data and Information Set)  Set of standardized 
performance measures designed to assess the quality of health care and services provided by 
managed care plans.  The HEDIS was developed by the National Committee for Quality 
Assurance (NCQA) to provide purchasers and consumers with the ability to evaluate the 
quality of different health plans, and to make their plan decisions based upon  demonstrated 
value rather than simply on cost. 
14 
PIP Reporting  OEI-05-00-00010  Intermediate entities  Entities which contract between an MCO or one of its 
subcontractors and a physician or physician group, other than physician groups themselves. An 
IPA is considered an intermediate entity if it contracts with one or more physician groups in 
addition to contracting with individual physicians. 
HOS (Medicare Health Outcomes Survey)  Formerly known as Health of Seniors, this 
HEDIS measure is the first outcomes measure to be used in the Medicare population and 
represents the largest survey effort ever undertaken by CMS.  All managed care plans with 
Medicare + Choice contracts are participating. It is a longitudinal, 
self-administered survey which CMS plans to use to focus quality improvement activities, to 
provide comparative information for beneficiaries to make informed decisions when choosing a 
health plan, and to assess the performance of health plans and integrate valid and reliable 
performance measures into the contracting process. 
Panel size  The number of patients served by a physician or physician group. If the panel is 
greater than 25,000 patients, then the physician group is not considered to be at substantial 
financial risk because the risk is spread over the large number of patients. Stop-loss and 
beneficiary surveys would not be required. 
Percent of premium* Payment a physician or entity receives that is a predetermined 
percentage of overall revenue from beneficiary premiums. 
Physician group  A partnership, association, corporation, individual practice association 
(IPA), or other group that distributes income from the practice among members.  An IPA is a 
physician group only if it is composed of individual physicians and has no subcontracts with 
other physician groups. 
Physician incentive plan  Any compensation arrangement at any contracting level between 
an MCO and a physician or physician group that may directly or indirectly have the effect of 
reducing or limiting services furnished to Medicare or Medicaid enrollees in the MCO. 
Managed Care Organizations must report on physician incentive plans between the MCO itself 
and individual physicians and groups and also between groups or intermediate contracting 
entities (e.g. Physician-Hospital Organizations) and individual physicians and groups. The 
MCO only needs to report the details on physician incentive plans between groups and 
individual physicians if those physicians are placed at substantial financial risk by the group's 
incentive arrangement. 
Potential payments  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. These 
payments include amounts paid for services furnished or referred by the physician/group, plus 
amounts paid for administrative costs.  The only payments not included in potential payments 
are bonuses or other compensation not based on referrals (e.g., bonuses based on patient 
satisfaction or other quality of care factors). 
15 
PIP Reporting  OEI-05-00-00010  QISMC (Quality Improvement System for Managed Care Standards and Guidelines) 
 Key tools for use by CMS and States in implementing the quality assurance provisions of 
the Balanced Budget Act of 1997, as amended by the Balanced Budget Refinement Act of 
1999. For Medicare, the QISMC document is equivalent to a program manual. As such, the 
document represents CMS administrative interpretation of the Medicare + Choice 
requirements relating to an organizations operation and performance in the areas of quality 
measurement and improvement and the delivery of health care and enrollee services.  The 
standards and guidelines are derivatives of the regulatory requirements, and are necessary to 
implement them 
. 
Referral services  Any specialty, inpatient, outpatient or laboratory services that are 
ordered or arranged, but not furnished directly. Situations may arise where services not 
normally considered referral services will need to be considered referral services for purposes 
of determining if a physician/group is at substantial financial risk.  Also, if a physician group 
contracts with an individual physician or another group to provide services which the initial 
group cannot provide itself, any services referred to the contracted physician/group should be 
considered referral services. 
Stop-loss coverage  Used to ensure that providers face only certain financial limits in 
treating Medicare managed care beneficiaries. The CMS considers $5,000 for outpatient 
services and $30,000 for inpatient treatment to be reasonable stop-loss limits. Without stop-
loss protections, providers treating one or more high cost patients could face catastrophic 
financial repercussions. 
Organizations whose contracts or subcontracts place physicians or physician groups at 
substantial financial risk must ensure that those providers have either aggregate or per-patient 
stop-loss protection. The aggregate stop-loss protection requires coverage of at least 90 
percent of the costs of referral services that exceed 25 percent of potential payments. The 
per-patient stop-loss protection requires coverage of 90 percent of the costs of referral services 
that exceed specified per-patient limits. 
Substantial financial risk  An incentive arrangement that places 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.  The CMS considers providers to be at substantial financial risk when 25 
percent or more of their potential MCO reimbursement depends on referrals they may make or 
services they may provide. 
Withhold  A percentage of payments or set dollar amounts that are deducted from a the 
service fee, capitation or salary payment, and that may or may not be returned, depending on 
specific predetermined factors. 
16 
PIP Reporting  OEI-05-00-00010  APPENDIX B 
HCFA PIP reporting instructions to MCOs

MEDICARE MANAGED CARE ORGANIZATIONS 
PHYSICIAN INCENTIVE PLAN DISCLOSURE INSTRUCTIONS 
General Instructions for Submission:  Hard copy Physician Incentive Plan (PIP) Disclosure is required only 
for new applicants for Medicare+Choice Contracts, except for Private Fee For Service Plans or non-network 
Medicare Savings Account Plans.  Organizations that already hold a Medicare contract with HCFA will benefit 
from disclosing electronically.  (see PIP Requirements for 1999 on HCFAs web site: 
www.hcfa.gov/medicare/physincp/pip-info.htm) 
A hard copy disclosure must be included in the completed application, as directed within the application form. 
The disclosure should represent physician incentive arrangements for providers within the Managed Care 
Organizations (MCO) network at the time the application is submitted.  A Medicare PIP disclosure includes: 
C  The disclosure Cover Sheet - This sheet should be the first page of the PIP submission. 
C	 PIP Disclosure Form - This form may be duplicated as many times as necessary to capture all of the 
arrangements in effect amongst the applicants provider contractors and subcontractors. 
Using the HCFA PIP Worksheet:  The PIP Worksheet should be used as a guide in determining if there is 
substantial financial risk in any provider arrangement and to assist the MCO in entering data on the disclosure 
form.  MCOs may modify the Worksheet for their internal use as long as the necessary information is captured 
that will document the data upon audit by regulators.  Generally, a separate Worksheet should be used for each 
type of contractual relationship.  Reproduce as many of these forms as needed.  Do not submit the Worksheets, 
but retain them for review by regulators. 
The MCOs should analyze the data from different providers to determine whether information from the same 
type of contracting entity can be aggregated for disclosure to regulators. 
MCOs need to determine if they have received all information from their contractors down to the level of 
physicians, even if the providers bear no risk or there is no substantial financial risk. 
C  An intermediate entity should report arrangements with its medical groups and the medical groups 
physicians.  Even if there is no substantial financial risk between the MCO and the intermediate entity, 
the lower levels must be disclosed. 
C  A medical group should report arrangements with its physicians, even if there is no substantial financial 
risk between the MCO and the medical group. 
Enter the information from the Worksheet on the appropriate lines on the Disclosure Form after checking the 
specific contractual relationship being disclosed. 
Using the PIP Disclosure Form:  At the top of the Disclosure Form, print the name of the MCO, give the 
Medicare contract number, and the reporting year. 
Nine contractual relationships are listed.  Disclose one type of relationship on each Form you complete.  Submit 
as many Forms as you need to represent all of the arrangements that serve the MCOs Medicare enrollees. 
17 
PIP Reporting  OEI-05-00-00010  (1)  MCO to physician group 
(2)  MCO to intermediate entity 
(3)  MCO to individual physician 
(4)  Intermediate entity to physician group 
(5)  Intermediate entity to physician 
(6)  Physician group to physician group 
(7)  Physician group to physician 
(8)  Physician to physician 
(9)  Intermediate entity to intermediate entity 
Each submission from an MCO must include contractual relationships (1), (2) or (3), but MCOs may have 
multiple arrangements and need all three. Then the MCO must disclose the subcontracting arrangements to the 
level of the physician.  All disclosures relating to one hierarchy of contracts should be stapled together.  The 
hierarchies are: 
Selection of:  (1)  MCO to physician group requires a disclosure of: 
(7)  Physician group to physician OR  (6)  Physician group to physician group 
If (6) is selected, you must have (7) to disclose incentives to physicians 
There can be selection of:  (8)  Physician to physician  [this is not required] 
Selection of:  (2)  MCO to intermediate entity requires disclosure of : 
(4)  Intermediate entity to physician group OR 
(5)  Intermediate entity to physician OR 
(9)  Intermediate entity to intermediate entity 
The intermediate entity can have multiple contracting arrangements. 
If (4) is selected, you must have (7) to disclose incentives to physicians 
If (9) is selected, you must have (4) or (5) to disclose incentives to subcontractors 
There can be selection of:  (8)  Physician to physician  [this is not required] 
Selection of:  (3)  MCO to individual physician does not require any subcontract. 
There can be selection of:  (8)  Physician to physician  [this is not required] 
Single or aggregate disclosure:  The Disclosure Form may reflect a single incentive arrangement if that is a 
unique arrangement.  However, MCOs should aggregate information on one Form for contractual 
arrangements that are substantially the same and the stop-loss requirements are the same. 
For example, if an MCO contracts with 100 medical groups under a very similar capitation 
payment that does not pass referral risk to the groups, the MCO should check category one on 
the Disclosure Form and disclose all 100 on one Form.  If 55 medical groups do not pass risk to 
their doctors and these 55 groups have a total of 450 physicians under this no risk compensation, 
then the MCO should check category 7 on a new Disclosure Form and disclose all 450 on the 
Form.  Similarly, the MCO should disclose the physician group-physician incentive arrangements 
for the other 45 groups, aggregating those physicians who are placed at substantially the same 
risk and who have the same stop loss requirements, if the risk exceeds the SFR cutoff.  Staple 
together all the forms that relate to the 100 medical groups. 
18 
PIP Reporting  OEI-05-00-00010  Entering the information:  After checking the relationship you are disclosing, follow the directions below. 
1.	 On line 1.A., give the name of a single provider (e.g., the intermediate entity, physician group, or 
individual physician)  when this is the party who receives payment under the provider contract to which 
the Disclosure Form applies. 
On line 1.B., give the number of aggregated providers whose arrangements are being disclosed. (See 
the discussion above.)  Do not send lists of provider names.  For example, if #1 is selected, then give the 
# of physician groups. 
Line 1.C. asks for disclosure of Federally Qualified Health Centers and Rural Health Clinics 
(FQHC/RHCs).  Please distinguish FQHC/RHCs by using a separate Disclosure Form to report each 
FQHC/RHC, however you may aggregate those with substantially the same incentive arrangements. If 
the MCO is owned or controlled by a consortium of FQHC/RHCs or has FQHC/RHCs in its network, 
be sure to indicate this on the cover sheet. 
Line 1.D. applies only to physicians of medical groups (selection of #7 contracting type) and asks for a 
breakout of the number of physicians who are members of the group and those who independently 
contract with the group.  Members are typically owners, partners, or employees of the medical group. 
If either arrangement with providers that are intermediate entities (IE) is selected on the Disclosure 
Form (either #2 or #9), complete items 1.A - 1.C only since stop loss requirements do not apply to 
intermediate entities (IE).  However, fully complete disclosures for IEs relationships with provider 
groups and their physicians (#4 and #7) and IE with individual physicians (#5) because stop loss 
requirements apply to these levels. 
2.	 Question 2 identifies whether the incentive arrangement transfers any risk.  A capitation payment is 
considered a transfer of risk for this question, even if the capitation is for services provided only by the 
contracting physician or physician group. [This information is found on Question 2a of the Worksheet.] 
Check yesor no as applicable. If no is checked, then this disclosure is complete.  If yes is 
checked, identify the type of risk transfer; then go to Question 3. 
Risk transfer choices are:  capitation, bonus, withhold, percent of premium or other.  Check the 
appropriate choice or choices; more than one choice should be checked if the arrangement has 
features of each type of risk-sharing. 
A choice of Other is provided if a combination of the four types of risk arrangement does not define 
the arrangement.  For the purpose of this Disclosure Form, the obligation for the provider to fund deficits 
is considered as a withhold.  A bonus for low utilization of referral services is considered to be risk 
transference. 
The risk-sharing arrangement may be described briefly on the Disclosure Form, particularly if other is 
selected.  [This information is found on Question 3 of the Worksheet.] 
3.	 Question 3 identifies whether risk is transferred for referrals. [This information is found on Question 2b 
of the Worksheet.]  Check yesor no as applicable.  A bonus for low utilization of hospital, 
specialist or other services is considered to be a risk for referral services.  If no is checked, then this 
disclosure is complete.  If yes is checked, go to Question 4 to identify the type of risk transfer. 
19 
PIP Reporting  OEI-05-00-00010  4.	 Question 4 identifies the type of risk-sharing arrangement. [This information is found on Question 3 of 
the Worksheet.]  See #2 above for instructions on identifying risk arrangements. 
5.  The percentage of risk attributable to referrals only should be stated in Question 5.  This percentage 
corresponds to the % Of Total Compensation At Risk For Referrals from Question 3 of the 
Worksheet.  If the percentage is equal to or below 25 %, the arrangement is not considered to be at 
substantial financial risk and this disclosure is complete.  If above 25 percent, proceed to Question 6. 
6.	 Information for Question 6, about the number of patients, is found on Question 1 of the Worksheet. 
Specific criteria must be met before pooling is allowed, as stated in regulations. Any entity that meets all 
five criteria (below) required for the pooling of risk will be allowed to pool that risk in order to determine 
the amount of stop-loss required by the regulation.  If the number of patients is 25,000 or fewer, then go 
to Question 7.  If greater than 25,000, the disclosure is complete. 
(1)	 Pooling of patients is otherwise consistent with the relevant contracts governing the 
compensation arrangements for the physician or group (i.e., no contracts can require risk be 
segmented by MCO or patient category); 
(2)	 The physician or 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 group to spread the risk 
across the categories of patients being pooled (i.e., payments must be held in a common risk 
pool); 
(4)	 The distribution of payments to physicians from the risk pool is not calculated separately by 
patient category (either by MCO or by Medicaid, Medicare, or commercial); and 
(5)	 The terms of the risk borne by the physician or group are comparable for all categories of 
patients being pooled. 
Note that pooling and stop-loss requirements applicable to a group cannot be extended to a 
subcontracting level.  For example: 
A physician group has greater than 25,000 patients that meet pooling criteria. 
 
This group contracts with another physician group, which has 25,000 or fewer patients 
	
and bears risk for referrals above 25%. 
The first group is exempt from stop-loss requirements; the second group must comply with stop-loss 
requirements and the MCO must comply with survey requirements. 
7.	 For Question 7, note the type and the levels or thresholds of the stop-loss insurance if stop-loss coverage 
for the physician group or physician is required. 
Check the type of stop-loss, aggregate, individual per patient, or other coverage, and give the threshold 
as a dollar amount. Also, briefly describe the stop-loss coverage.  If there is more than one threshold 
level, note that there are multiple levels and include an explanation.  If  O for other arrangements is 
checked or there are arrangements that merit explanation, describe the coverage ( attach a sheet for 
additional space). 
A description should include whether the coverage is:

(1)  Combined (professional and institutional); 

(2)  Broken down into institutional, professional and other components; 

(3)  The deductible, co-insurance percentage, maximum liability/pay-out by the policy;

(4)  Whether the stop-loss coverage applies to all costs or only the cost of referral services; and 

20 
PIP Reporting  OEI-05-00-00010  (5)  Any other key features of the coverage. 
This information is found in Question 5 of the Worksheet. 
If providers can be aggregated because of the similarity of risk arrangements, the MCO should sort the 
providers by stop loss requirements and then use a separate Disclosure Form for each requirement.  For 
example: 100 groups exceed the 25% risk threshold; 50 have a patient pool exceeding 25,000 (under a 
very similar risk arrangement); 25 have a patient pool of between 1,001 and 5,000  (under a very similar 
risk arrangement); and another 25 of these groups have a patient pool of between 8,001 and 10,000. 
The MCO should use three Disclosure Forms to represent the groups that aggregate into three stop loss 
requirements. 
NOTE: For guidance and clarification on determining substantial financial risk, pooling of risk, and stop loss 
requirements, see HCFAs extensive 1997 PIP Qs & As document, available at HCFAs web site. 
PUBLIC REPORTING BURDEN: 
According to the Paperwork Reduction Act of 1995, no persons are required to respond to a collection of information 
unless it displays a valid OMB control number. The valid OMB control number for this information collection is 0938-0700. 
The time required to complete this information collection is estimated to average 100 hours per response, including the time 
to review instructions, search existing data resources, gather the data needed, and complete and review the information 
collection. If you have any comments concerning the accuracy of the time estimate(s) or suggestions for improving this 
form, please write to: HCFA, P.O. Box 26684, Baltimore, Maryland 21207 and to the Office of the Information and Regulatory 
Affairs, Office of Management and Budget, Washington, D.C. 20503. 
HCFA will accept copies of state-mandated submissions in lieu of the Disclosure Form if such submissions include all the 
necessary elements of information as required by HCFA and statute. MCOs may maintain records supporting the 
Disclosure Forms in any format, as long as these records sufficiently document the disclosure information the MCO submits 
and are available for inspection by appropriate regulators. 
21 
PIP Reporting  OEI-05-00-00010  Cover Sheet

Managed Care Organization (MCO) Disclosure Compliance Package

Under the Physician Incentive Regulation

Submitted to Health Care Financing Administration (HCFA)

or State Medicaid Agencies (SMA)

Name of MCO 
Medicare Contract #H 	 (PIP applies to Medicare+Choice, except for PFFS and non-
network MSA, and 1876 cost-based contractors) 
MCO is owned/controlled by a Federally Qualified Heatlh Center or Rural Health Clinic (FQHC/RHC) or 
consortium of FQHC/RHCs or includes FQHC/RHCs in its network: 
YES  NO 
Printed Name of MCO Contact Person  Phone # 
This represents our organizations disclosure compliance package submitted to HCFA or SMA. I certify 
that the information made in this disclosure is true, complete and current to the best of my knowledge, 
information and belief and is made in good faith. 
Printed Name of CEO 
Signature of CEO  Date: 
Note:	 Please include this Cover Sheet as the first page of the MCO 
Disclosure Compliance Package. 
22 
PIP Reporting  OEI-05-00-00010  OMB No. 0938-0700 
PHYSICIAN INCENTIVE PLAN DISCLOSURE FORM 
Managed Care Organization (MCO) Name: 

Contract Number:  H# 

Reporting year 

CHECK ONE - Use this Disclosure Form to disclose the incentive arrangement between the first party (in the list 
below) that makes payments under a provider contract to the second party (underlined on the list below) for services 
to the MCOs Medicare (or Medicaid) enrollees. Repeat forms as many times as needed to capture the various 
levels of contractual relationships. 1 For simplicity, provider is used here to refer to the second party. See 
instructions under Single or aggregate disclosure for aggregating either the first or second party. 2 
(1)  MCO to physician group  (2)  MCO to intermediate entity 
(3)  MCO to individual physician  (4)  Intermediate entity to physician group 
(5)  Intermediate entity to physician  (6)  Physician group to physician group 
(7)  Physician group to physician  (8)  Physician to physician 
(9)  Intermediate entity to intermediate entity 
1.	 The provider(s) named or counted should be the underlined provider in the line you checked 
above. 
A.  Name of Provider: 
Give name if one provider arrangement is being disclosed on this form. 
- OR -
B.  Number of Providers: 
Give # of providers who are aggregated on this form; e.g., if #1 is selected, then give the # of groups; 
physician groups can be aggregated if risk arrangements are substantially the same and stop loss 
requirements are the same. 
1. C. 	 Is provider an FQHC/RHC?  Yes  ;  No 
If providers are aggregated, see instructions for disclosing FQHCs. 
1. D.  If #7 above is selected, give number of physicians who are: 
Members (e.g. owners, employees) of the group #  ;  Contracted with the group # 
These numbers must equal the number of physicians given in I.B. 
NOTE: If either #2 or #9 is checked above, this form is complete since stop loss requirements do not apply to 
intermediate entities (IE). However, be sure to complete disclosures for the IEs relationships with provider groups 
and their physicians (#4 and #7) and with individual physicians (#5) because stop loss requirements apply to these 
levels. 
23 
PIP Reporting  OEI-05-00-00010  2.	 Is risk transferred to the provider?  Yes  ;  No 
Note: A bonus for low utilization of referral services is considered to be risk transference. 
If YES, check all the risk transfer methods with the provider and go to question 3. 
Capitation  ; Bonus  ; Withhold  ; Percent of Premium  ; Other 
Note: Consider the obligation for the provider to fund deficits as a withhold. 
Describe briefly: 
3.  Is risk transferred for referrals? Yes  ;  No 
Note: A bonus for low utilization of hospital, specialist or other services is considered to be a risk for 
referral services. 
If YES, then proceed to next question. 
4.  Check all the referral risk transfer methods with the provider and go to question 5. 
Capitation  ; Bonus  ; Withhold  ;  Percent of Premium  ; Other 
Note: Consider the obligation for the provider to fund deficits as a withhold. 
Describe briefly: 
5.	 What percent of the total potential payment is at risk for referrals:  % 
If above 25% proceed to question 6; if 25% or below you have completed this disclosure. 
6.	 Number of MCO patients served by the provider or the number of pooled patients, if patients can be pooled 
(see criteria for pooling in the instructions). Check one category: 
A  1-1,000; B  1,001-5,000; C  5,001-8,000; D  8,001-10,000; E  10,001- 25,000; F  25,000+ 
If number is 25,000 or below, answer #7. If the number exceeds 25,000, you have completed this 
disclosure. 
7.  State the type and amount of stop loss insuring the physician group and/or physician: 
Type: Aggregate  ; Individual  ; Other  (describe) 
Threshold: Professional $  ; Institutional $  ; Combined $ 
Describe briefly: 
24 
PIP Reporting  OEI-05-00-00010  DO NOT SUBMIT THESE FORMS TO HEALTH CARE FINANCING ADMINISTRATION OR STATE MEDICAID 
AGENCIES. MCO OR OTHER ENTITY COMPLETING FORM SHOULD RETAIN WORKSHEET AND HAVE IT 
AVAILABLE FOR REGULATORS IN THE EVENT OF AN AUDIT. 
HCFA PHYSICIAN INCENTIVE PLAN WORKSHEET 
Note:	 Each Worksheet should reflect a single incentive arrangement or an aggregate of multiple arrangements that are 
the same or similar. 
The Worksheet should be completed for the contractual arrangements that will be in effect on January 1 of the 
disclosure year. 
General Information: 
______________________________________________________________

(Print name of entity completing this Worksheet - the first entity in the line checked below)

This Worksheet is being completed to describe the incentive arrangement between (check one below):

(1)  Managed Care Organization (MCO) to physician group

(2)  MCO to intermediate entity

(3)  MCO to individual physician

(4)  Intermediate entity to physician group

(5)  Intermediate entity to physician

(6)  Physician group to physician group

(7)  Physician group to physician

(8)  Physician to physician

(9)  Intermediate entity to intermediate entity

Specify parties to contract: _________________________________________________________ 
(the first entity in the line checked above) 
and ____________________________________________________________________. 
(the entity underlined in the line checked above) 
[NOTE: If Worksheet covers multiple contracts, name parties on a separate attachment.] 
For the purposes of the regulation, the following definitions should be used: 
Intermediate  Enti ty =  a physician-hospital organization  (PHO), integrated delivery  system,  or individual practice  association 
[IPA] that subcontracts with physician groups or with another IPA. 
Physician   Group =  a partnership, association,  corporation,  or other group  that  distributes  income from  the  practice  among 
members, or an IPA that contracts with individual physicians. 
NOTE:  If either #2 or #9 is checked above, stop loss requirements do not apply to intermediate entities (IE).  Therefore, such 
entities may skip  to the end of the worksheet and complete the signature and date information.  However, be sure to complete 
disclosures  for  IEs relationships with provider  groups  and  their  physicians  (#4  and #7)  and with individual physicians  (#5) 
because stop loss requirements apply to these levels. 
25 
PIP Reporting  OEI-05-00-00010  Physician Group Member Panel Size: Estimated members as of contract year being disclosed. 
1.)	 State below the breakdown of total members served under the incentive arrangement(s) to which this Worksheet applies 
by patient type (e.g. Medicare, Medicaid, and commercial).  Note:  A physician group can pool to arrive at the total 
number of MCO members to which this Worksheet applies if the criteria described in the HCFA Disclosure Guidance or 
Disclosure Instructions are met.  If pooling is used, attach an explanation of how it was done to the Worksheet. 
Total Commercial members  _____________ 
Total Medicare members  _____________ 
Total Medicaid members  _____________ 
Total  _____________ 
Note:  If the total Member Panel Size for commercial, Medicare and/or Medicaid exceeds 25,000, complete Worksheet 
questions 2-4, then skip to the end of the Worksheet and provide signature and date information.  Retain the Worksheet 
for your records. 
Physician Incentive Plan Information: 
Medicare  Medicaid 
2a.) Does the payment arrangement transfer risk?
 YES____  ______ 
For example, bonuses, withholds, and capitation (whether or

not for referral services) transfer risk. Fee-for-service
 NO _____  ______ 
arrangements without withholds or bonuses do not transfer

risk.

2b.) Does the physician incentive

plan (e.g., capitation, withholds, or bonuses) cover
 YES____  ______ 
services not furnished by the physician

or physician group? 
 NO _____  ______ 
(Note:  Bonuses or withhold arrangements based on utilization or cost factors are included in these compensation 
arrangements. Bonus arrangements based solely on quality or access factors are not considered.) 
If response to 2a or 2b is NO, skip to last page and complete information about person completing form. 
26 
PIP Reporting  OEI-05-00-00010  3.)	 If you answered YES to Question 2b, please check below the type or types of incentive(s) and fill in the percentage(s) 
where indicated and applicable.  Note: If the contract does not limit the amount of risk for referral services to a set 
percentage, insert 100" as the percentage.  Maximum compensation is defined as the maximum dollar amount that a 
physician or physician group  might  receive  for  either  direct  or  referral  services,  or  their  administration.  It  does  not 
include bonuses  that  are not  related  to referral  levels.   Maximum  compensation  means  maximum  possible  theoretical 
compensation without regard to historical experience. 
Medicare Arrangements: 
line 1____Withhold  ____% Withhold  [where percent of withhold = maximum possible withhold $$ 
maximum compensation $$ 
] 
line 2____Bonus  *____% Bonus  [where percent of bonus  =  maximum possible bonus $$ 
maximum compensation $$ ] 
*	 Do not include bonuses based on quality or access in either the calculation of maximum 
possible bonus or the maximum compensation. 
line 3____Capitation  _____% Capitation [where percent of capitation 
=  maximum capitation $ entity is potentially liable for referral services 
maximum compensation $$ ] 
______% Of Total Compensation At Risk For Referrals (add lines 1, 2& 3) 
IF % OF TOTAL COMPENSATION AT RISK FOR REFERRALS > 25% , 
THIS IS SUBSTANTIAL FINANCIAL RISK 
Maximum compensation = maximum $ amount that might be received. 
The following information is requested of you on a voluntary basis. Bonuses unrelated to referral levels are not to 
be included in the determination of the referral risk percentage, but HCFA would like to learn more about their use 
in order to judge whether they should be included in the calculation in future years. 
line 4 _____Quality bonuses _____%  [where percent of bonus =  maximum possible quality bonus $$ 
maximum compensation $$  ] 
27 
PIP Reporting  OEI-05-00-00010  Medicaid Arrangements: 
line 1____Withhold  ____% Withhold  [where percent of withhold = maximum possible withhold $$ 
maximum compensation $$ 
] 
line 2____Bonus  *____% Bonus  [where percent of bonus  =  maximum possible bonus $$ 
maximum compensation $$  ] 
*  Do not include bonuses based on quality or access in either the calculation of maximum 
possible bonus or the maximum compensation. 
line 3____Capitation  _____% Capitation [where percent of capitation 
=  maximum capitation $ entity is potentially liable for referral services 
maximum compensation $$ ] 
______% Of Total Compensation At Risk For Referrals (add lines 1, 2& 3) 
IF % OF TOTAL COMPENSATION AT RISK FOR REFERRALS > 25% , 
THIS IS SUBSTANTIAL FINANCIAL RISK 
Maximum compensation = maximum $ amount that might be received. 
The following information is requested of you on a voluntary basis. Bonuses unrelated to referral levels are not to 
be included in the determination of the referral risk percentage, but HCFA would like to learn more about their use 
in order to judge whether they should be included in the calculation in future years. 
line 4 _____Quality bonuses _____%  [where percent of bonus =  maximum possible quality bonus $$ 
maximum compensation $$  ] 
Note:  If no substantial financial risk is being transferred to providers who provide services to Medicare or Medicaid enrollees, 
complete the date and signature information at the end of the Worksheet. 
28 
PIP Reporting  OEI-05-00-00010  Stop-Loss Information:  Fill in if % Of Total Compensation At Risk for Referrals Is > 25% 
If incentive arrangements place either a physician or physician group at  substantial financial risk, there must be aggregate or per 
patient stop-loss protection.  Aggregate stop-loss protection must cover 90% of the costs of referral services that exceed 25% 
of potential payments.  Per patient coverage may be through either single combined coverage, or through separate coverage for 
institutional and professional services. Per patient stop-loss protection must cover at least 90% of the referral costs that exceed 
the following threshold, or attachment point, amounts: 
Panel Size  Single  Separate  Separate 
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 
4.) Name of carrier/entity(s) through which stop-loss is provided: 
Is this carrier/entity: 
stop-loss carrier 
MCO 
intermediate entity 
physician 
Is this carrier/entity: 
stop-loss carrier 
MCO 
intermediate entity 
physician 
5.) Describe the stop-loss coverage that 
covers the incentive arrangement(s) that is being 
reported on this Worksheet, for: 
Medicare  Medicaid 
(A) Professional services: 
Deductible  _____________  _____________ 
Co-insurance percent  _____________  _____________ 
Maximum liability  _____________  _____________ 
29 
PIP Reporting  OEI-05-00-00010  Does this cover (check one below): 
Individual Physicians  YES  _____________  _____________ 
NO  _____________  _____________ 
Physician Group(s)  YES  _____________  _____________ 
NO  _____________  _____________ 
Medicare  Medicaid 
Is this stop-loss coverage: 
Per patient  YES  _____________  _____________ 
NO  _____________  _____________ 
Aggregate  YES  _____________  _____________ 
NO  _____________  _____________ 
For professional services, describe the services  __________________________________________________ 
or nature of costs covered under the stop-loss,  __________________________________________________ 
including any exclusions, variations in coverage  __________________________________________________ 
amounts, and whether the stop-loss coverage applies__________________________________________________ 
to all costs or only referral costs. (If additional  __________________________________________________ 
space is required for this response, attach  __________________________________________________ 
additional pages.) 
Medicare  Medicaid 
(B) Hospital/Institutional Services: 
Deductible  _____________  _____________ 
Co-insurance percent  _____________  _____________ 
Maximum liability  _____________  _____________ 
Does this cover: 
Individual Physicians  YES  _____________  _____________ 
NO  _____________  _____________ 
Physician Group(s)  YES  _____________  _____________ 
NO  _____________  _____________ 
Is this stop-loss coverage: 
Per patient  YES  _____________  _____________ 
NO  _____________  _____________ 
Aggregate  YES  _____________  _____________ 
NO  _____________  _____________ 
For hospital/institutional services, describe the  __________________________________________________ 
services or nature of costs covered under the  __________________________________________________ 
stop-loss, including any exclusions, variations in  _________________________________________________ 
coverage amounts, and whether the stop-loss  __________________________________________________ 
coverage applies to all costs or only referral costs.  __________________________________________________ 
(If additional space is required for this response,  __________________________________________________ 
attach additional pages.)  __________________________________________________ 
30 
PIP Reporting  OEI-05-00-00010  Medicare  Medicaid 
(C) Combined (Professional and Institutional): 
Deductible  _____________  _____________ 
Co-insurance percent  _____________  _____________ 
Maximum liability  _____________  _____________ 
Does this cover: 
Individual Physicians  YES  _____________  _____________ 
NO  _____________  _____________ 
Physician Group(s)  YES  _____________  _____________ 
NO  _____________  _____________ 
Is this stop-loss coverage: 
Per patient  YES  _____________  _____________ 
NO  _____________  _____________ 
Aggregate  YES  _____________  _____________ 
NO  _____________  _____________ 
For combined forms of stop-loss, describe the  __________________________________________________ 
services or nature of costs covered under the  ___________________________________ 
stop-loss, including any exclusions, variations  __________________________________________________ 
in coverage amounts, and whether the stop-loss  __________________________________________________ 
coverage applies to all costs or only referral costs.  __________________________________________________ 
(If additional space is required for this response,  __________________________________________________ 
attach additional pages.)  __________________________________________________ 
Date and Signature Information 
Printed name and title of person who completed the Worksheet: __________________________________________ 
Name of organization/employer of person listed above: _________________________________________________ 
Telephone:_____________________________ 
Date: _______________________ 
I certify that the information made in this disclosure is true, complete and current to the best of my knowledge and belief and 
is made in good faith. 
_________________________________________ 
Signature 
DO NOT SUBMIT THESE FORMS TO HEALTH CARE FINANCING ADMINISTRATION OR STATE MEDICAID 
AGENCIES. MCO OR OTHER ENTITY COMPLETING FORM SHOULD RETAIN WORKSHEET AND HAVE 
AVAILABLE FOR REGULATORS IN THE EVENT OF AN AUDIT. 
31 
PIP Reporting  OEI-05-00-00010  APPENDIX C 
Other Quality Targets Managed Care Organizations Pay

Providers Incentives For

Our survey found some managed care organizations collect additional information about quality 
and access goals in addition to data related to financial targets.  The CMS does not collect this 
information in its physician incentive plan reporting.  The managed care organizations pay 
incentives for meeting goals in areas that we broadly categorized as preventive care services 
and disease management and other quality measures. Many Medicare + Choice managed care 
organizations use multiple incentive areas in their contracts with providers. 
The following two tables represent each of the broad categories describing the quality goals 
managed care organizations reported to us. In each category there are specific incentive targets 
that managed care organizations use in contracts with individual physicians, physician groups, or 
intermediate entities. Since managed care organizations can use multiple types of incentives in 
their contracts, a single managed care organization contract can be represented more than once 
in each table. 
The Preventive Care Services and Disease Management table shows the first category for 
which managed care organizations reported offering incentives.  No managed care 
organizations reported using incentives for providing services to particular ethnic groups. 
However, incentives to treat or screen for specific illnesses (e.g., diabetes) may indirectly affect 
the health and well-being of particular ethnic groups. 
Preventive Care Services and Disease Management 
Target Areas  Contracts with  Contracts with  Contracts with 
Individual Physicians  Physician  Intermediate Entities 
Groups 
Yes  No  Yes  No  Yes  No 
Treating Chronic Illnesses  29  141  24  158  21  148 
Immunizations  21  149  21  161  18  151 
Diabetes Eye Exams  18  152  24  158  21  148 
Cancer Screening  20  150  25  157  21  148 
Hypertension Screening  16  154  16  166  13  156 
Preventive Care Goals  25  145  30  152  27  142 
Services for Particular  0  170  0  182  0  169 
Ethnic Groups 
32 
PIP Reporting  OEI-05-00-00010  The following table demonstrates that managed care organizations target areas like continuing 
education to encourage providers to remain knowledgeable in current medical practices and 
technology.  The managed care organizations reward providers for medical charts thoroughness 
to help ensure records are current and organized. Thorough medical records facilitate quality 
medical care and also allow other managed care organizations providers to obtain accurate 
medical information to appropriately treat beneficiaries. 
Other Quality Indicators 
Target Areas  Contracts with  Contracts with  Contracts with 
Individual Physicians  Physician  Intermediate Entities 
Groups 
Yes  No  Yes  No  Yes  No 
Continuing Education  28  142  21  161  19  150 
Medical Charts  21  149  12  170  2  167 
Thoroughness 
33 
PIP Reporting  OEI-05-00-00010  APPENDIX D 
CMS Comments on this Report

34 
PIP Reporting  OEI-05-00-00010  A C K N O W L E D G M E N T S  
This report was prepared under the direction of William C. Moran, Regional Inspector General for 
Evaluation and Inspections in Chicago and Natalie Coen, Deputy Regional Inspector General.  Other 
principal Office of Evaluation and Inspections staff who contributed include: 
Joe Penkrot, Project Leader  Linda Frisch, Program Specialist

Marco A. Villagrana, Lead Analyst  Tricia Davis, Program Specialist

Erin Guay, Program Analyst

Tricia Fields, Program Analyst

35 
PIP Reporting  OEI-05-00-00010