Medicare Managed Care Manual 
Chapter 6 - Relationships With Providers 
 
 
Table of Contents 
(Rev. 82, 04-27-07) 
 
Transmittals for Chapter 6
 
10 - Introduction 
20 - Provider Involvement in Policy-Making 
20.1 - Physician Consultation in Medical Policies 
20.2 - Consultation in Development of Credentialing Policies 
30 - Written Information on Physician Participation 
40 - Interference With Health Care Professionals Advice to Enrollees Prohibited 
50 - Provider Anti-Discrimination 
60 - Provider Participation 
60.1 - Notice of Reason for Not Granting Participation 
60.2 - Confirmation of Eligibility for Participation in Medicare:  Excluded and 
Opt-Out Provider Checks 
60.3 - Credentialing, Monitoring, and Recredentialing 
60.4 - Suspension, Termination, or Nonrenewal of Physician Contract 
70 - Institutional Provider and Supplier Certification 
80 - Physician Incentive Plans 
80.1 - Requirements and Limitations 
80.2 - Disclosure of Physician Incentive Plans 
90 - Provider Indemnification of MA Organization Prohibited 
100 - Special Rules for Services Furnished by Non-Contract Providers 
 
   
10 - Introduction 
(Rev. 24, 06-06-03) 
 
Chapter 6 of this manual focuses on the requirements for relationships between Medicare 
Advantage organizations (MA organizations) and the physicians and other health care 
professionals and providers with whom they contract to provide services to Medicare 
beneficiaries enrolled in an MA plan.  This chapter also contains some requirements that 
apply to non-contract providers that furnish services to beneficiaries enrolled in an MA 
organization.  The policies in this chapter are derived from Subpart E of Part 422 of the 
Code of Federal Regulations, and include additional instructions intended to provide 
further guidance on implementation of regulatory requirements.  The statutory basis for 
the regulations at 42 CFR, Part 422 is set forth in the preambles to three final rules 
published in the Federal Register:  a June 26, 1998, Interim Final Rule requesting 
public comment (63 FR 35068), and two final rules responding to public comments on 
the interim final rule, published on February 17, 1999 (64 FR 7980) and June 29, 2000 
(65 FR 40316). 
 
Note that other policies relevant to providers are addressed in other chapters: 
 
See Chapter 11, Contracts with Medicare Advantage Organizations, for information 
on: 
 
  MA organization oversight responsibility for contractors, subcontractors, and 
related entities (see 42 CFR 422.502(i)):  It is the responsibility of the MA 
organization to ensure through written arrangements that all applicable laws, 
regulations, and other instructions are followed. 
 
  Prompt payment by MA organizations to contracting and non-contracting 
providers (see 42 CFR 422.502(c), 422.520). 
 
  Beneficiary financial protections from inappropriate liability in the event of 
provider terminations (see 42 CFR 422.502(g)). 
 
See Chapter 4, Benefits and Beneficiary Protection, for information on: 
 
  When the MA organization must pay non-contract providers (see  
42 CFR 422.100(b)).  Section 100 of this chapter also contains information on 
what non-contract providers must accept as payment in full (see  
42 CFR 422.214). 
 
  Notice to beneficiaries in the event of provider terminations (see  
42 CFR 422.111(e)). 
  See Chapter 10,  Organization Compliance With State Law and Preemption By Federal 
Law, for information on: 
 
  Federal preemption of state law (see 42 CFR 422.402).  Pursuant to 
1856(b)(3)(ii) of the Social Security Act, state laws or regulations relating to 
inclusion or treatment of providers are specifically superseded by Federal law. 
 
Note that 42 CFR 422.216, Special rules for MA private fee-for-service plans, is not 
included in this chapter. 
 
20 - Provider Involvement in Policy-Making 
(Rev. 24, 06-06-03) 
 
 
20.1 - Physician Consultation in Medical Policies 
(Rev. 24, 06-06-03) 
 
The MA organization must establish a formal mechanism to consult with the physicians 
who have agreed to provide services under the MA plan offered by the organization 
regarding the organizations medical policy, quality assurance/improvement programs 
and medical management procedures and ensure that the following standards are met: 
 
1.   Practice guidelines and utilization management guidelines: 
 
  Are based on reasonable medical evidence or a consensus of health care 
professionals in the particular field; 
 
  Consider the needs of the enrolled population; 
 
  Are developed in consultation with contracting physicians; and  
 
  Are reviewed and updated periodically. 
 
2.   The guidelines are communicated to providers, and, as appropriate, to enrollees. 
 
3   Decisions with respect to utilization management, enrollee education, coverage of 
services, and other areas in which the guidelines apply are consistent with the 
guidelines. 
 
An MA organization that operates an MA plan through subcontracted physician groups 
must provide that these policies apply equally to physicians within those subcontracted 
groups. 
  (Source: 42 CFR 422.202(b) and (c).)
 
20.2 - Consultation in Development of Credentialing Policies 
(Rev. 24, 06-06-03) 
 
Credentialing and recredentialing standards for types of providers and for specialists 
should be reviewed by clinical peers, through establishment of a credentialing committee 
or other mechanism.  In addition, there should be a process for peer review when the MA 
organization is considering employing or contracting with a provider who does not meet 
its established credentialing standards. 
 
(Source:  42 CFR 422.204(b)(2)(iii) and additional instructions.) 
 
30 - Written Information on Physician Participation 
(Rev. 24, 06-06-03) 
 
An MA organization that operates a coordinated care plan or network Medical Saving 
Account (MSA) plan must provide for the participation of individual physicians and the 
management and members of groups of physicians, through reasonable procedures that 
include: 
 
1.  Written notice of rules of participation including terms of payment, credentialing, 
and other rules directly related to participation decisions; 
 
2.  Written notice of material changes in participation rules before the changes are put 
into effect; and 
 
3.  Written notice of adverse participation decisions and a process for appeal (see 
60.4). 
 
An MA organization that operates an MA plan through subcontracted physician groups 
must provide that these participation procedures apply equally to physicians within those 
subcontracted groups. 
 
(Source: 42 CFR 422.202(a) and (c)) 
 
40 - Interference With Health Care Professionals Advice to Enrollees 
Prohibited 
(Rev. 24, 06-06-03) 
 
An MA organization may not prohibit or otherwise restrict a health care professional, 
acting within the lawful scope of practice, from advising, or advocating on behalf of, an 
individual who is a patient and enrolled under an MA plan about: 
  1.   The patients health status, medical care, or treatment options (including any 
alternative treatments that may be self-administered), including the provision of 
sufficient information to provide an opportunity for the patient to decide among 
all relevant treatment options; 
 
2.   The risks, benefits, and consequences of treatment or non-treatment; or 
 
3.   The opportunity for the individual to refuse treatment and to express preferences 
about future treatment decisions. 
 
Health care professionals must provide information regarding treatment options in a 
culturally-competent manner, including the option of no treatment.  Health care 
professionals must ensure that enrollees with disabilities have effective communications 
with participants throughout the health system in making decisions regarding treatment 
options. 
 
The general rule prohibiting an MA organization from interfering with providers advice 
to enrollees does not require the MA plan to cover, furnish, or pay for a particular 
counseling or referral service if the MA organization that offers the plan: 
 
1.  Objects to the provision of that service on moral or religious grounds; and  
 
2.  Through appropriate written means, makes available information on these policies 
as follows:  
 
  To CMS, with its application for a Medicare contract, within 10 days of 
submitting its adjusted community rate (ACR) proposal or, for policy 
changes, in accordance with 42 CFR 422.80 (concerning approval of 
marketing materials and election forms) and with 42 CFR 422.111 
(concerning disclosure requirements). 
 
  To prospective enrollees, before or during enrollment. 
 
  With respect to current enrollees, the MA organization is eligible for this 
exception if it provides notice of such change within 90 days after 
adopting the policy at issue; however, under regulatory disclosure 
requirements, notice of such a change must be given in advance. 
 
Nothing in this provision may be construed to affect disclosure requirements under state 
law or under the Employee Retirement Income Security Act of 1974. 
 
An MA organization that violates provisions of this section is subject to intermediate 
sanctions. 
  (Source: 42 CFR 422.206) 
 
50 - Provider Anti-Discrimination 
(Rev. 24, 06-06-03) 
 
Consistent with the requirements of this section, the policies and procedures concerning 
provider selection and credentialing, and the requirement that all Medicare-covered 
services be available to all MA plan enrollees, an MA organization may select the 
practitioners that participate in its plan provider networks.  In selecting these 
practitioners, an MA organization may not discriminate, in terms of participation, 
reimbursement, or indemnification, against any health care professional who is acting 
within the scope of his or her license or certification under state law, solely on the basis 
of the license or certification. 
 
If an MA organization declines to include a given provider or group of providers in its 
network, it must furnish written notice to the affected provider(s) on the reason for the 
decision.  
 
This prohibition does not preclude any of the following actions by an MA organization:  
 
1.  Refusal to grant participation to health care professionals in excess of the number 
necessary to meet the needs of the plans enrollees (except for MA private-fee-
for-service plans, which may not refuse to contract on this basis). 
 
2.  Use of different reimbursement amounts for different specialties or for different 
practitioners in the same specialty. 
 
3.  Implementation of measures designed to maintain quality and control costs 
consistent with its responsibilities. 
 
(Source: 42 CFR 422.205) 
 
60 - Provider Participation 
(Rev. 24, 06-06-03) 
 
 
60.1 - Notice of Reason for Not Granting Participation 
(Rev. 24, 06-06-03) 
 
As noted directly above, if an MA organization declines to include a given provider or 
group of providers in its network, it must furnish written notice to the affected 
provider(s) on the reason for the decision. 
  60.2 - Confirmation of Eligibility for Participation in Medicare:  
Excluded and Opt-Out Provider Checks 
(Rev. 24, 06-06-03) 
 
Excluded Providers 
 
The Office of the Inspector General (OIG) maintains a sanction list that identifies those 
individuals found guilty of fraudulent billing, misrepresentation of credentials, etc.  The 
MA organizations employing or contracting with health providers have a responsibility to 
check the sanction list with each new issuance of the list, as they are prohibited from 
hiring, continuing to employ, or contracting with individuals named on that list.  The MA 
organizations should check the Office of the Inspector General (OIG) Web site at 
http://www.oig.hhs.gov/fraud/exclusions/list of excluded.html for the listing of excluded 
providers and entities.  The OIG has a limited exception that permits payment for 
emergency services provided by excluded providers under certain circumstances. See 
42 CFR 1001.1901. 
 
Opt-Out Providers 
 
If a physician or other practitioner opts out of Medicare, that physician or other 
practitioner may not accept Federal reimbursement for a period of  2 years.  The only 
exception to that rule is for emergency and urgently needed services where a private 
contract had not been entered into with a beneficiary who receives such services.  See 
42 CFR 405.440.  An MA organization must pay for emergency or urgently needed 
services furnished by a physician or practitioner to an enrollee in their MA plan who has 
not signed a private contract with a beneficiary, but may not otherwise pay opt-out 
providers.  Information on providers who opt-out of Medicare may be obtained from the 
local Medicare Part B carrier.  The MA organization must check this list on a regular 
basis. 
 
(Source:  42 CFR 422.204(b)(4) and 42 CFR 422.220 and additional instructions.) 
 
60.3 - Credentialing, Monitoring, and Recredentialing 
(Rev. 24, 06-06-03) 
 
An MA organization must have written policies and procedures for the selection and 
evaluation of health care professionals that conform with the following credentialing 
requirements and the provider anti-discrimination policy discussed directly above.  
Credentialing is the review of qualifications and other relevant information pertaining to 
a health care professional who seeks appointment (in the case of an MA organization 
directly employing health care professionals) or who seeks a contract or participation 
agreement with the MA organization.  Note that MA organization oversight of 
credentialing in contracted, subcontracted, and other related entities is an  MA 
organization contract requirement imposed by 42 CFR 422.502(i)(4)(iv) and is addressed 
further in Chapter 11, Contracts With Medicare Advantage Organizations.   
Credentialing is required for: 
 
  All physicians who provide services to the MA organizations enrollees, 
including members of physician groups; and  
 
  All other types of health care professionals who provide services to the MA 
organizations enrollees, and who are permitted to practice independently under 
state law.  
 
Credentialing is not required for:  
 
  Health care professionals who are permitted to furnish services only under the 
direct supervision of another practitioner;  
 
  Hospital-based health care professionals who provide services to enrollees 
incident to hospital services, unless those health care professionals are separately 
identified in enrollee literature as available to enrollees; or  
 
  Students, residents, or fellows. 
 
Initial Credentialing 
 
Procedures for initial credentialing involve a written application; verification of 
information from primary and secondary sources; confirmation of eligibility for payment 
under Medicare; and site visits as appropriate.  A limited set of procedures for newly 
trained health care professionals permits initial credentialing for a period of up to 60 
days. 
 
Written Application 
 
The credentialing process begins with the completed application and attestation of 
correctness signed by the health care professional.  The application must be signed, dated 
and include an attestation by the applicant of the correctness and completeness of the 
application.  The information collected must be no more than six months old on the date 
on which the health care professional is determined (for example, by a credentialing 
committee) to be eligible for appointment or contract.  All items must be verified prior to 
the appointment of the health care provider, with the exception being in the case of a 
pending Drug Enforcement Agency (DEA) number. 
 
The application includes a work history covering at least 5 years and a statement by the 
applicant regarding: (1) Any limitations in ability to perform the functions of the 
position, with or without accommodation; (2) History of loss of license and/or felony 
convictions; and (3) History of loss or limitation of privileges or disciplinary activity.   (NOTE:  Work history refers to relevant work that is applicable to the position being 
sought.  If the applicant is a new health care professional, he/she may not have 5 years of 
relevant work history.) 
 
Verification of Information 
 
Some information may be verified from a primary source and some information may be 
verified from secondary sources.  A primary source is an organization or entity with 
legal responsibility for originating a document and ensuring the accuracy of the 
information it conveys.  Primary source verification may be achieved through the use of 
industry-recognized verification sources.  The nationally recognized accrediting 
organizations specify which sources they consider to be appropriate primary sources for 
verifying credentials.  In some instances, except for licensure, a secondary source will be 
considered acceptable provided that the secondary source verifies the information from 
the originator.  If the MA organization uses one of the primary sources identified by one 
of these nationally recognized accrediting organizations, CMS will consider that source 
acceptable.  If questioned, the MA organization should be able to reference which 
organization identified that source.  In addition, although the National Practitioner Data 
Bank (NPDB) does not have any legal responsibility for issuing a document, it is 
generally considered an appropriate source of verification by most private accrediting 
organizations as well as by CMS. 
 
Primary Source Verification Required 
 
An MA organization must verify the following from primary sources and include in the 
credentialing records:  
 
1.  A current valid license to practice:  Verification must show that the license was in 
effect at the time of the credentialing decision. 
 
2.  Education and training records, including evidence of graduation from the 
appropriate professional school and completion of a residency or specialty 
training, if applicable:  Verification is required only for the highest level of 
education or training attained.  For example, health care professionals who have 
completed residency, then the verification from the residency program is the 
highest credential to be verified, and for those who only completed medical 
school, the medical school verification must be obtained.  When verifying the 
highest level of education or training through primary sources, the assumption is 
that all other education or training requirements prior to the highest level 
achieved have been met.  This assumption is consistent with current credentialing 
practices. 
 
3.  Board certification in each clinical specialty area for which the health care 
professional is being credentialed if he/she states that he/she is board certified on 
the application:  If board certification is verified, CMS will accept this as also  satisfying the requirement to verify education and training, provided that board 
uses primary source verification for education and training. 
 
Primary Source Verification Not Required 
 
Following are other credentialing requirements that must be verified and included in the 
credentialing files.  Previously, these requirements also stipulated primary source 
verification.  This change from primary source to secondary source aligns these 
requirements with current industry standards.  Secondary sources of information for these 
requirements are widely accepted and appropriate.  The sources of and methods for 
obtaining the designated credentialing requirements listed below are suggested 
appropriate sources/methods; however, this is not intended as an all-inclusive listing of 
sources/methods that an MA organization may employ to acquire the requisite 
information. 
 
1.  Clinical privileges in good standing at the hospital designated by the health care 
professional as the primary admitting facility if the physician or other health care 
professional has admitting privileges:  Health care professionals who have the 
ability to have admitting privileges may choose not to have them, as they may not 
manage care in the inpatient setting.  However, if a health care professional does 
have admitting privileges, he/she is required to list those privileges.  Lack of 
privileges does not exclude a health care professional from participation in a MA 
organization.  Information obtained by an MA organization on applications from 
physicians and other health care professionals that lists the current status and type 
of admitting privileges would meet this requirement.  (This information may be 
obtained by contacting the facility, obtaining a copy of the practitioner directory 
or attestation by the health care professional.) 
 
2.  Current, adequate malpractice insurance meeting the MA organizations 
requirements:  (This information may be obtained via the malpractice carrier, a 
copy of the insurance face sheet or attestation by the health care professional.) 
 
3.  A valid Drug Enforcement Agency (DEA) or Controlled Dangerous Substances 
(CDS) certificate in effect at the time of the credentialing decision:  However, if a 
health care professionals DEA certificate is pending, the MA organization may 
credential the practitioner provided the MA organization has adopted and 
implemented a process under which other DEA-certified contracted practitioners 
write all prescriptions that require a DEA number.  The process must also include 
verification of the newly issued DEA certificate.  If a health care professional 
states that he/she does not prescribe, this requirement is not applicable.  (This 
information can be obtained through confirmation with CDS, entry into the 
National Technical Information Service (NTIS) database, or by obtaining a copy 
of the certificate.) 
  4.  A history of professional liability claims that resulted in settlements or judgments 
paid by or on behalf of the health care professional:  (This information can be 
obtained from the malpractice carrier or from the National Practitioner Data 
Bank.) 
 
5.  For physicians, any other information from the National Practitioner Data Bank. 
 
6.  Information about sanctions or limitations on licensure from the applicable state 
licensing agency or board, or from a group such as the Federation of State 
Medical Boards. 
 
7.  Eligibility for participation in Medicare.  (See excluded and opt-out provider 
checks above.) 
 
Site Visits 
 
The MA organization must establish a policy for conducting site visits.  It is the 
responsibility of the MA organization to decide the frequency of site visits, as part of its 
site visit policy.  The CMS does not, however, require MA organizations to conduct 
initial credentialing or recredentialing site visits.  Each MA organizations site visit 
policy will be reviewed pursuant to CMS monitoring protocol. 
 
An MA organizations site visit policy must include procedures for detecting deficiencies 
and have mechanisms in place to address those deficiencies.  At a minimum, the MA 
organization should consider requiring initial credentialing site visits of the offices of 
primary care practitioners, obstetrician-gynecologists, or other high-volume providers, as 
defined by the MA organization.  If the organization chooses to conduct site visits for 
high volume providers, the organizations procedures may specify the criteria for 
determining that a provider is high-volume.  The organization may also consider 
developing criteria that target high-volume providers, or those against whom grievances 
have been filed. 
 
The site visit should include an evaluation of the sites accessibility, appearance, and 
adequacy of equipment, using standards developed by the MA organization.  Each MA 
organization must send appropriately qualified personnel to conduct site visits.  Those 
personnel may or may not be clinicians, depending on the focus of the evaluation and the 
evaluation criteria established by the MA organization.  
 
In addition, the visits should include a determination of whether the site conforms to the 
MA organizations standards for medical record keeping practices and the confidentiality 
requirements discussed in Chapter 4.  Although CMS is not establishing a methodology 
for conducting medical record reviews, each MA organization is directed to verify that its 
practitioners enrollee health records meet its own standards. 
  Initial Requirements for a Newly Trained Health Care Professional 
 
In an effort to promote access to services for beneficiaries and allow a newly trained 
healthcare professional to begin providing care at an earlier date, CMS has established a 
temporary, streamlined credentialing guideline for these newly trained individuals.  In the 
case of a newly trained health care professional who has completed all appropriate 
training and education within the last 12 months, the MA organization may establish a 
policy that permits initial credentialing for a period of up to 60 days if the MA 
organization: 
 
1.  Verifies that the practitioner has a current, valid license from primary sources; 
 
2.  Verifies malpractice settlements from the last 5 years.  (This may be done by 
verifying with the malpractice carrier or the National Practitioner Data Bank; 
attestation is not accepted.); 
 
3.  Has a policy and procedure which ensures that the practitioner meets all standard 
credentialing requirements after 60 days; and 
 
4.  Ensures that the Credentialing Committee has reviewed the case and makes the 
final determination about granting such an initial 60-day credentialing period. 
 
Monitoring 
 
The MA organization must develop and implement policies that address the ongoing 
monitoring of sanctions and grievances filed against health care professionals.  The MA 
organization must regularly obtain and review reports and other documentation as 
indicated below.  The MA organization must also provide, through documentation, 
evidence that its policies have been implemented.  
 
The CMS requires ongoing monitoring of lists of practitioners who have been sanctioned 
and of practitioners who opt-out of accepting Federal reimbursement from Medicare (see 
above for details), as well as ongoing monitoring and resolution of beneficiary 
grievances. In addition to these standing requirements, MA organizations are also 
required to monitor sanctions and limitations on licensure on a regular basis between 
recredentialing cycles. 
 
In the event that an MA organization finds an incidence of poor quality or any type of 
sanction activity against a health care professional, it should intervene and correct the 
situation appropriately. 
 
If the MA organization becomes aware of conditions at a site that suggest compromised 
safety or other concerns related to the delivery of care, the MA organization will be  expected to perform a site visit as soon as possible to assess the facility and identify 
corrective actions. 
 
While the MA organization is required to ensure that all credentialing requirements are 
current at the time of initial credentialing and/or recredentialing, the MA organization is 
not required to monitor and account for any expiration dates on a continuous basis unless 
required to do so by the state.  
 
Recredentialing 
 
The MA organization must have procedures for recredentialing, at least every 3 years, 
through a process that updates information obtained in initial credentialing, considers 
performance indicators such as those collected through the QAPI program, the utilization 
management system, the grievance system, enrollee satisfaction surveys, and other 
activities of the MA organization, and that includes an attestation of the correctness and 
completeness of the new information. 
 
Licensure must be re-verified from primary sources.  Board certification must be re-
verified only if the provider was due to be recertified or states that he/she has become 
board certified since the last time he/she was credentialed or recredentialed.  The 
following must also be re-verified in the same manner as performed under the Initial 
Credentialing Requirements:  admitting privileges; malpractice coverage; and DEA/CDS 
certificate.  In addition, the MA organization must perform another search of the National 
Practitioner Data Bank and obtain updated sanction or restriction information from 
licensing agencies and Medicare (see above for details).  If a provider is confirmed 
eligible to participate in Medicare, the MA organization should require that a provider, 
who has been otherwise disciplined, have a corrective action plan in place, and the MA 
organization should have procedures to ensure that the providers plan is followed and is 
effective.  The MA organization is not required to conduct site visits as part of its 
recredentialing policies, but may choose to do so at its own discretion.  
 
(Source:  42 CFR 422.204(b)(2)(i) and (ii) and additional instructions) 
 
60.4 - Suspension, Termination, or Nonrenewal of Physician Contract 
(Rev. 24, 06-06-03) 
 
Advance Notice for Suspension or Termination 
 
An MA organization and a contracting provider must provide at least 60 days written 
notice to each other before terminating a contract without cause. 
  Reporting of Suspensions or Terminations Due to Quality Deficiencies 
 
An MA organization that suspends or terminates a contract with a physician because of 
deficiencies in the quality of care must give written notice of that action to licensing or 
disciplinary bodies or to other appropriate authorities. 
 
Suspension, Termination, or Nonrenewal of Physician Contracts 
 
Specific requirements for an MA organization that operates a coordinated care plan or 
network MSA plan providing benefits through contracting physicians and that suspends, 
terminates, or non-renews a physicians contract are as follows: 
 
1.  The MA organization must give the affected physician written notice of the 
reasons for the action, including, if relevant, the standards and profiling data used 
to evaluate the physician and the numbers and mix of physicians needed by the 
MA organization. 
 
2.  The MA organization must allow the physician to appeal the action, and give the 
physician written notice of his/her right to a hearing and the process and timing 
for requesting a hearing. 
 
3.  The MA organization must ensure that the majority of the hearing panel members 
are peers of the affected physician. 
 
Preamble to the February 17, 1999, final rule responded to public comment that notice 
and appeal requirements apply regardless of whether suspension or termination of the 
physician contract is due to quality deficiencies or not, unless the physician voluntarily 
agreed to leave the organizations network.  In addition, it was clarified that these 
requirements apply to nonrenewal of contracts. 
 
An MA organization that operates an MA plan through subcontracted physician groups 
must provide that these procedures apply equally to physicians within those 
subcontracted groups. 
 
(Source: 42 CFR 422.202(c) and (d) and preamble of February 17, 1999, rule.) 
 
70 - Institutional Provider and Supplier Certification 
(Rev. 82, Issued: 04-25-07, Effective/Implementation: N/A) 
 
Regardless of the MA organizations usual policies for determining that an institutional 
provider or supplier is qualified to serve its enrollees, the MA organization must 
determine that each institutional provider or supplier that has signed a contract or 
participation agreement with the MA organization has met the following three 
requirements.  Current documentation should be obtained at least every 3 years, and  contracts should provide for notice from the provider of any change in its Medicare 
approval, state licensure, or accreditation status. 
 
1.  Medicare Approval 
 
An MA organization must ensure that Medicare-covered basic benefits are 
provided only by providers that have signed participation agreements (provider 
agreements) with CMS, and by suppliers approved by CMS as meeting 
conditions for coverage of their services.  The following types of providers and 
suppliers must have met requirements for participation in Medicare (also 
specified at 42 CFR 498.2): 
 
  Hospitals (either JCAHO accreditation or Medicare certification).  Note 
that Medicare also certifies organ procurement organizations (OPOs) and 
that organ transplants must generally be performed in certified organ 
transplants centers;  
 
  Home Health Agencies (HHAs); 
 
  Hospices; 
 
  Clinical laboratories (a CMS-issued CLIA certificate or a hospital-based 
exemption from CLIA); 
 
  Skilled Nursing Facilities (SNFs); 
 
  Comprehensive Outpatient Rehabilitation Facilities (CORFs); 
 
  Outpatient Physical Therapy and Speech Pathology Providers; 
 
  Ambulatory Surgery Centers (ASCs); 
 
  Providers of end-stage renal disease services; 
 
  Providers of outpatient diabetes self-management training; 
 
  Portable x-ray Suppliers; and 
 
  Rural Health Clinic (RHCs) and Federally Qualified Health Center 
(FQHCs). 
 
Inquiries regarding the Medicare participation of specific providers and suppliers 
can be directed to the regional office plan manager. 
  In addition, MA plans must also comply with all CMS requirements related to an 
approved benefit, including the use of approved facilities, as applicable.  Note 
that being certified as a Medicare approved facility is required for performing 
certain procedures, such as carotid artery stenting, VAD destination therapy, 
bariatric surgery, certain oncologic PET scans in Medicare-specified studies, and 
lung volume reduction surgery.  For lists of approved facilities for these 
procedures, please see link:  
http://www.cms.hhs.gov/MedicareApprovedFacilitie/BSF/list.asp#TopOfPage. 
 
For lists of approved organ transplants facilities, please see links: 
http://www.cms.hhs.gov/ApprovedTransplantCenters/ and 
http://www.cms.hhs.gov/esrdgeneralinformation/02_data.asp. 
 
2.  Is licensed to operate in the state, and is in compliance with any other applicable 
state or Federal requirements. 
 
3.  Is reviewed and approved by an appropriate accrediting body, or meets the 
standards established by the MA organization itself.  Accrediting bodies include 
the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 
the Accreditation Association for Ambulatory Health Care, the Commission on 
Accreditation of Rehabilitation Facilities, the Council on Accreditation, the 
Community Health Accreditation Program (CHAP), and the Continuing Care 
Accreditation Commission.  This standard does not require that an MA 
organization accept the findings of an accrediting body in determining whether to 
contract with a provider, or that it reject providers that are not accredited.  
However, an MA organization that does not rely on independent accreditation 
must develop its own standards for approval of institutional providers and 
determine that such providers meet those standards before including them in its 
network.  Primary source verification of accreditation and licensure is not 
required, unless otherwise provided in the MA organizations Medicare contract. 
Accordingly, an MA organization may rely on documentation supplied by the 
institutional provider. 
 
(Source:  42 CFR 422.204(b)(1) and (3) and additional instructions.) 
 
80 - Physician Incentive Plans 
 
80.1 - Requirements and Limitations 
(Rev. 67, Issued: 08-12-05; Effective: 08-01-05) 
 
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 physicians 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 
physicians 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 physicians or physician groups 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   Separate  Separate  
Combined   Institutional  Professional  
Deductible  Deductible  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.) 
 
80.2 - Disclosure of Physician Incentive Plans 
(Rev. 67, Issued: 08-12-05; Effective: 08-01-05) 
 
Disclosure to CMS 
 
Each organization will provide assurances satisfactory to the Secretary that physician 
incentive plan requirements are met.  MA organizations must provide to CMS 
information concerning  physician incentive plans as requested. 
 
Disclosure to Medicare Beneficiaries  
 
Each MA organization must provide the following information to any Medicare 
beneficiary who requests it:  
 
1.  Whether the MA organization uses a physician incentive plan that affects the use 
of referral services;  
 
2.  The type of incentive arrangement; and 
 
3.  Whether stop-loss protection is provided.
 
In addition, MA organizations that are included in the Consumer Assessments of Health 
Plans Study (CAHPS) Survey should give Medicare enrollees a copy of the CAHPS 
enrollment survey results available on the www.medicare.gov website or direct enrollees 
to where on the website CAHPS survey results for their plan may be found.   
 
(Source:  42 CFR 422.210.) 
 
90 - Provider Indemnification of MA Organization Prohibited  
(Rev. 24, 06-06-03) 
 
An MA organization may not contract or otherwise provide, directly or indirectly, for any 
of the following individuals, organizations, or entities to indemnify the MA organization 
against any civil liability for damage caused to an enrollee as a result of the MA 
organizations denial of medically necessary care:  
 
1.   A physician or health care professional;   
2.   Provider of services; 
 
3.   Other entity providing health care services; and 
 
4.   A Group of such professionals, providers, or entities. 
 
(Source:  42 CFR 422.212.) 
 
100 - Special Rules for Services Furnished by Non-Contract Providers 
(Rev. 24, 06-06-03) 
 
Consistent with 1852(a)(2) and 1852(k)(1) of the Social Security Act, non-contract 
providers must accept as payment in full payment amounts applicable in Original 
Medicare. Thus, this provision of law imposes a cap on payment to non-contract 
providers of provider payment amounts plus beneficiary cost-sharing amounts applicable 
in Original Medicare, and ensures that non-contract providers not balance bill MA plan 
enrollees for other than MA plan cost-sharing amounts. 
 
  Note that non-contract facility providers identified at 1861(u) of the Social 
Security Act (the Act), which includes hospitals, skilled nursing facilities and 
home health agencies, must accept as payment in full payment amounts 
applicable in Original Medicare less any payments under 42 CFR 412.105(g) 
concerning indirect medical education payment to hospitals for managed care 
enrollees and 42 CFR 413.86(d) concerning payment for direct graduate medical 
education costs. 
 
  In cases where the MA organization has not arranged for the services, if the non-
contract providers bill is less than the Original Medicare amount, the MA 
organization is only required to pay the billed amount. 
 
In addition, under Federal law, non-contract providers are subject to penalties if they 
accept more than Original Medicare amounts. 
 
(Source:  42 CFR 422.214 and preamble to June 29, 2000, rule.)  Transmittals Issued for this Chapter 
 
Rev #  Issue Date  Subject  Impl Date  CR# 
R82MCM 04/25/2007 Revision to Chapter 6, Relationships with  N/A N/A
Providers
R67MCM 08/12/2005 Changes in Requirements for Periodic  N/A N/A
Surveys of Current and Former Enrollees, and 
in the CMS Method for Calculating Interest 
on Overpayments and Underpayments to 
HMOs, CMPs and HCPPS.
R44MCM 01/09/2004 Revised Physician Incentive Reporting  N/A N/A
Requirements
R24MCM 06/06/2003 Initial Issuance of Chapter N/A N/A