Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JANET REHNQUIST 

Inspector General 

April 2002 

OEI-05-00-00010 

Physician Incentive Plan Reporting for 

Medicare + Choice Organizations 
OFFICE OF INSPECTOR GENERAL

http://www.oig.hhs.gov/ 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, 

is to protect the integrity of the Department of Health and Human Services (HHS) programs, as well as 

the health and welfare of beneficiaries served by those programs. This statutory mission is carried out 

through a nationwide network of audits, investigations, and inspections conducted by the following 

operating components: 

Office of Audit Services 

The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits examine the 

performance of HHS programs and/or its grantees and contractors in carrying out their respective 

responsibilities and are intended to provide independent assessments of HHS programs and operations in 

order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the 

Department. 

Office of Evaluation and Inspections 

The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and program 

evaluations (called inspections) that focus on issues of concern to the Department, the Congress, and the 

public. The findings and recommendations contained in the inspections reports generate rapid, accurate, 

and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs. 

Office of Investigations 

The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 

allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment by 

providers. The investigative efforts of OI lead to criminal convictions, administrative sanctions, or civil 

monetary penalties. The OI also oversees State Medicaid fraud control units which investigate and 

prosecute fraud and patient abuse in the Medicaid program. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering 

advice and opinions on HHS programs and operations and providing all legal support in OIG’s internal 

operations. The OCIG imposes program exclusions and civil monetary penalties on health care providers 

and litigates those actions within the Department. The OCIG also represents OIG in the global settlement 

of cases arising under the Civil False Claims Act, develops and monitors corporate integrity agreements, 

develops model compliance plans, renders advisory opinions on OIG sanctions to the health care 

community, and issues fraud alerts and other industry guidance. 
EXECUTIVE SUMMARY 

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. 

PIP Reporting i 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: 

PIP Reporting ii 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. 

PIP Reporting iii OEI-05-00-00010 
T ABLE OF CONTENTS 

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

PIP Reporting iv OEI-05-00-00010 
INTRODUCTION 

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 

provider’s 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 

PIP Reporting 1 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 stoploss 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 

plan’s 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) 

PIP Reporting 2 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 

PIP Reporting 3 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 

PIP Reporting 4 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 followup 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 stoploss 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 President’s Council on Integrity and Efficiency. 

PIP Reporting 5 OEI-05-00-00010 
FINDINGS 

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 

PIP Reporting 6 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 

PIP Reporting 7 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. 

PIP Reporting 8 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. 

PIP Reporting 9 OEI-05-00-00010 
Utilization and Referrals 

Target Areas Contracts with 

Individual Physicians 

Contracts with 

Physician Groups 

Contracts with 

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 

PIP Reporting 10 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 

Individual Physicians 

Contracts with 

Physician 

Groups 

Contracts with 

Intermediate Entities 

Yes No Yes No Yes No 

Increased Hours for Patient 

Care 

22 148 10 172 3 166 

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. 

PIP Reporting 11 OEI-05-00-00010 
RECOMMENDATION 

The current CMS process that requires managed care organizations to annually report stoploss 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. 

PIP Reporting 12 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 CMS’s 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. 

PIP Reporting 13 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. 

PIP Reporting 14 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). 

PIP Reporting 15 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 organization’s 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 stoploss 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. 

PIP Reporting 16 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 HCFA’s 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 

Organization’s (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 applicant’s 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 MCO’s Medicare enrollees. 

PIP Reporting 17 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. 

PIP Reporting 18 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 IE’s 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 “yes”or “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 “yes”or “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. 

PIP Reporting 19 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 

PIP Reporting 20 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 HCFA’s extensive 1997 PIP Qs & As document, available at HCFA’s 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. 

PIP Reporting 21 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 nonnetwork 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 organization’s 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. 

PIP Reporting 22 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 MCO’s 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 IE’s relationships with provider groups 

and their physicians (#4 and #7) and with individual physicians (#5) because stop loss requirements apply to these 

levels. 

PIP Reporting 23 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: 

PIP Reporting 24 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 IE’s relationships with provider groups and their physicians (#4 and #7) and with individual physicians (#5) 

because stop loss requirements apply to these levels. 

PIP Reporting 25 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: 

2a.) Does the payment arrangement transfer risk?

For example, bonuses, withholds, and capitation (whether or

not for referral services) transfer risk. Fee-for-service

arrangements without withholds or bonuses do not transfer

risk.

2b.) Does the physician incentive

plan (e.g., capitation, withholds, or bonuses) cover

services not furnished by the physician

or physician group? 

Medicare Medicaid 

YES____ ______ 

NO _____ ______ 

YES____ ______ 

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. 

PIP Reporting 26 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 $$ ] 

PIP Reporting 27 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. 

PIP Reporting 28 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 

Combined 

Limit 

Separate 

Institutional 

Limit 

Separate 

Professional 

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: 

5.) Describe the stop-loss coverage that 

covers the incentive arrangement(s) that is being 

reported on this Worksheet, for: 

Is this carrier/entity: 

stop-loss carrier 

MCO 

intermediate entity 

physician 

Is this carrier/entity: 

stop-loss carrier 

MCO 

intermediate entity 

physician 

Medicare Medicaid 

(A) Professional services: 

Deductible _____________ _____________ 

Co-insurance percent _____________ _____________ 

Maximum liability _____________ _____________ 

PIP Reporting 29 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.) 

(B) Hospital/Institutional Services: 

Deductible 

Co-insurance percent 

Maximum liability 

Does this cover: 

Individual Physicians 

Physician Group(s) 

Is this stop-loss coverage: 

Per patient 

Aggregate 

__________________________________________________ 

__________________________________________________ 

YES 

NO 

YES 

NO 

YES 

NO 

YES 

NO 

Medicare 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

Medicaid 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

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.) 

__________________________________________________ 

__________________________________________________ 

_________________________________________________ 

__________________________________________________ 

__________________________________________________ 

__________________________________________________ 

__________________________________________________ 

PIP Reporting 30 OEI-05-00-00010 
(C) Combined (Professional and Institutional): 

Deductible 

Co-insurance percent 

Maximum liability 

Does this cover: 

Individual Physicians 

Physician Group(s) 

Is this stop-loss coverage: 

Per patient 

Aggregate 

Medicare 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

Medicaid 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

_____________ 

YES 

NO 

YES 

NO 

YES 

NO 

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. 

PIP Reporting 31 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 

Individual Physicians 

Contracts with 

Physician 

Groups 

Contracts with 

Intermediate Entities 

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 

Ethnic Groups 

0 170 0 182 0 169 

PIP Reporting 32 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 

Individual Physicians 

Contracts with 

Physician 

Groups 

Contracts with 

Intermediate Entities 

Yes No Yes No Yes No 

Continuing Education 28 142 21 161 19 150 

Medical Charts 

Thoroughness 

21 149 12 170 2 167 

PIP Reporting 33 OEI-05-00-00010 
APPENDIX D 

CMS Comments on this Report

PIP Reporting 34 OEI-05-00-00010 
ACKNOWLEDGMENTS 

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

PIP Reporting 35 OEI-05-00-00010