By Mary R. Anderlik
Health Law & Policy Institute
In the current patchwork of state and federal regulation of physician incentives used by health plans, two strategies predominate: (1) prohibition or substantive regulation of physician financial incentives; and (2) disclosure mandates.
The federal Health Care Financing Administration (HCFA), which regulates health plans serving beneficiaries of Medicaid and Medicare, combines the two approaches within a framework established by Congress. 42 U.S.C.A. § 1395mm(8)(a). First, payments to a physician or physician group "as an inducement to reduce or limit medically necessary services provided with respect to a specific individual" are absolutely prohibited. Second, plans that place physicians or physician groups at substantial financial risk for services they do not themselves render must provide stop-loss protection and survey enrollees concerning access to services and quality. ("Stop-loss protection" refers to an arrangement to cap losses at some pre-determined amount.) The regulations issued by HCFA, 42 C.F.R. § 417.479, exclude incentive arrangements from scrutiny under the second prong if they are based on criteria other than referrals or related to a patient panel of more than 25,000. The general test is whether the amount at risk in connection with referrals is more than 25% of the maximum anticipated total payments that could be received if referrals were low enough. The regulations give plans the option of securing either aggregate or per patient stop-loss protection for physicians over the risk threshold. HCFA also requires plans to disclose limited information about their incentive arrangements to Medicare beneficiaries who request it.
What kinds of incentive arrangements might be affected by the prohibition on inducements to limit services to a specific individual? One of the few clear cases would be an offer to reward a physician financially when the actual costs of care for a patient come in below some target amount. Most incentive arrangements are tied to the total number of referrals or other services ordered by the physician for patients covered under a plan, and hence would be outside the scope of this prohibition. (This would be so even if, under certain circumstances, a great deal of money might be at stake in the care of a particular patient.) The second prong of the regulatory framework is intended to protect patients from the effects of less targeted but nonetheless significant incentive arrangements. Critics of the HCFA approach to stop-loss protection point out that per patient loss limits are better tailored to the risks created by incentives to limit referrals and other services.
At least 20 states have legislation or administrative regulations that prohibit certain kinds of incentives, and at least 16 states require disclosure of incentives to enrollees under at least some circumstances. The state laws vary greatly in their scope. Some state laws are limited to HMOs, while others cover all managed care arrangements (or all health insurers). Several state laws exclude capitation and other forms of risk-sharing from the reach of broadly worded prohibitory provisions. Some states limit the required disclosure to vague generalities, while other states allow enrollees access to fairly detailed information. (Examples of both prohibition-type and disclosure-type regulation at the state level are summarized in the charts below.) Consumers may have limited recourse if managed care organizations fail to comply with these laws. At least one state, Arizona, clearly establishes that there is no private right of action for violations, although another, New Mexico, explicitly creates a private right of action.
Examples of State Laws that Prohibit Physician Financial Incentives
|Alaska||1998 Alaska Sess. Laws Ch. 60, § 21.86.150(i)||An HMO may not cause, request, or knowingly permit financial incentives to be given or offered to a provider for denying or delaying health care services.|
|Idaho||IDAHO CODE § 41-3928 (1998)||No MCO shall offer a provider any incentive plan that includes a specific payment made to a provider as an inducement to deny, reduce, limit, or delay specific, medically necessary, and appropriate services covered by the health care contract and provided with respect to a specific member or group of members with similar medical conditions. Incentive plans that involve general payments and shared risk agreements that are not tied to specific medical decisions involving specific members or groups of members with similar medical conditions are not prohibited.|
|Kansas||KAN. Stat. Ann. § 40-4605 (1997)||No health insurer shall offer or operate a compensation arrangement (directly or thorough an agent) with a provider that may directly or indirectly serve as an inducement to reduce or limit the delivery of medically necessary services with respect to an insured. Compensation arrangements which involve capitation payments or other risk sharing provisions shall not be considered inducements.|
|Minnesota||MINN. STAT. ANN. § 72A.20, subd. 33. (West 1998)||No health insurer may give any financial incentive to a provider based solely on the number of services denied or referrals not authorized by the provider. Capitation or other compensation methods that serve to hold providers financially accountable for the cost of caring for a patient population are not prohibited.|
|Nevada||NEV. REV. STAT. § 695G.260 (1998)||An MCO shall not offer or pay any type of material inducement, bonus or other financial incentive to a provider to deny, reduce, withhold, limit or delay specific medically necessary health care services to an insured. Use of capitation or other financial incentives is not prohibited if the arrangement is designed to provide an incentive to the provider to use health care services effectively and consistently in the best interest of the health care of the insured.|
|New Mexico||N.M. STAT. ANN. § 59A-57-6(A)(2) (Michie 1998)||No MCO may include in any of its contracts with providers any provisions that offer an inducement, financial or otherwise, to provide less than medically necessary services to an enrollee.|
|Texas||TEX. INS. CODE ANN. arts. 20A.14(l), 3.70-3C(7)(d) (West 1998)||An HMO/PPO may not use any financial incentive or make any payment to a provider that acts directly or indirectly as an inducement to limit medically necessary services. The use of capitation as a method of payment is not prohibited.|
|Vermont||VT CODE R. Rule 10, § 10.203(I) (1998)||No provider contract shall contain a provision offering an inducement to a provider to forego providing medically-necessary services to a member (applies to all MCOs). Medically-necessary is a defined term linked to generally accepted practice parameters.|
Examples of State Laws that Mandate Disclosure
Rev. Stat. Ann.
§ 20-1076(A) (West 1998)
|Each MCO shall provide disclosure forms that include a response to whether provider compensation programs include any incentives or penalties that are intended to encourage plan providers to withhold services or minimize or avoid referrals to specialists. If these types of incentives or penalties are included, the MCO shall provide a concise description of them.|
|California||CAL. Health & Safety Code § 1367.10 (West 1998)||Each MCO shall include within its disclosure form and within its evidence or certificate of coverage a statement clearly describing the basic method of reimbursement, and whether financial bonuses or incentives are used.|
|Maine||ME. Rev. Stat. Ann. tit. 24A § 4302(1) (West 1997)||A health insurer shall provide to prospective enrollees a general description of the methods used to compensate providers, including capitation and methods in which providers receive compensation based upon referrals, utilization or cost criteria.|
|Minnesota||1998 Minn. Sess. Law Serv. § 62J.72 (West)||A description of the general nature of the reimbursement methodologies used by a health plan to pay providers must be provided during open enrollment, upon enrollment, and annually thereafter, with an explanation of any aspect that creates an incentive to limit care. Upon request, MCOs and providers must provide an enrollee with more specific information, including a written description of any compensation arrangement that is dependent on the amount of health coverage or health care services provided to the enrollee, or the number of referrals to or utilization of specialists and any risk sharing incentive plan (although specific amounts paid to a provider and other "proprietary information" need not be disclosed).|
|North Carolina||N. C. GEN. STAT. § 58-3-191 (1998)||Upon request, an HMO/PPO must provide an insured access to a report that includes aggregate financial compensation data, including the percentage of providers paid under a capitation arrangement, discounted fee-for-service or salary, the services included in the capitation payment, and the range of compensation paid by withhold or incentive payments.|
|Washington||WASH. REV. CODE § 48.43.095(1) (West 1998)||Upon request of an enrollee or prospective enrollee, a health insurer shall provide a written description of any reimbursement or payment arrangements and provider compensation programs.|