CMS Provider Incentive Plans (PIP) Regulations and Stop Loss Reinsurance Requirements

In the late ’90s, CMS wanted to ensure providers (physicians, physician groups, etc.) were not being incentivized to withhold medical services from members in order to maximize their incentive/bonus payments. Therefore, CMS introduced the Provider Incentive Plan (PIP), 42 CFR 422.208, regulations.

MA organizations are mandated to meet three (3) requirements if they offer physician incentive plans. The three requirements are 1) incentive payment may not be an inducement to reduce or limit medically necessary services, 2) the MA organization must assure providers at Substantial Financial Risk (SFR) have stop loss reinsurance and 3) CMS requires the MA organization to provide information specified in §80.2. Additionally, there is a statutory prohibition on physician incentive plans being offered for private fee-for-service (PFFS) plans.

Substantial Financial Risk (SFR) Evaluation

As noted in item two (2) above, providers are required to carry stop loss reinsurance when they are able to earn an incentive payment which exceeds a percentage of the payments issued to them. This is known as triggering SFR. The reg does not make a distinction between types of incentive programs—upside only, upside/downside risk, etc.—but instead focuses on the amount of bonus earned in relation to payments made for services directly furnished by the provider.

One can quickly determine if a group has triggered SFR and is required to carry stop loss reinsurance by dividing the incentive amount from the sum of all fee-for-service (FFS) and capitation payments issued during the same measurement period. Potential payments is defined as the sum of all payments issued by the MA organization excluding quality.

If the incentive exceeds 33% of what they were paid in FFS and cap or 25% of potential payments, then the provider must carry stop loss reinsurance at levels outlined by PIP reg. Below are two examples.

Stop Loss Reinsurance Levels

When SFR is triggered, the MA organization is required to assure the provider has stop loss reinsurance adhering to PIP guidelines.

One option described is an aggregate approach. This is very difficult to determine on a prospective basis primarily driven by membership growth year to year and therefore not standard nor recommended.

Instead the standard industry-wide approach is an annual per patient threshold amount. Table 1 below outlines the options based on membership panel size according to the CMS contract year 2019 policy and technical changes.

There are two (2) deductible options available. Option 1 combines the institutional/Part A and professional/Part B medical expenses into a combined deductible while Option 2 contemplates the medical expenses separately for institutional/Part A and professional/Part B. Neither option includes Part D expenses since Part D has a separate reinsurance program supplied by CMS and an incentive pool calculation should automatically apply the appropriate stop loss benefit.

Prior to the 2019 update, table 2, below, presents the previous stop loss panel size tiers from 2005.

When the FFS medical spend for a member exceeds the deductible amount, the provider is only responsible for 10% of the costs in excess of the deductible while the reinsurance entity is responsible for 90% of the cost beyond the deductible.

The provider does incur a charge for stop loss reinsurance coverage whether it is purchased from the MA organization or a third-party carrier. The lower the deductible, the higher the cost. Option 1 is more expensive, and yields more benefit back, than Option 2.

Over time, the cost of stop loss reinsurance should equal the benefit returned if purchased from the MA organization. If purchased through a third-party carrier, the stop loss reinsurance will include a commission so break-even is unlikely; instead expect to pay approximately twenty (20%) percent more. Most MA organizations do not price stop loss reinsurance on the providers claim experience so in the long run purchasing from a third-party carrier is likely the best option for an experienced provider entity. There will be years when the provider pays more than the benefit returned, but the opposite is also true. Stop loss is a way to ensure the incentive eligible provider is not materially impacted by a true catastrophic case and does not limit or prevent a member from receiving medical care.

As a result of the PIP regs, MA organizations no longer need to carve out transplant cases, out-of-area claims, etc. Those paid amounts are contemplated when determining the cost of stop loss reinsurance.

Membership Pooling Requirements

Providers are able to combine, or pool, commercial, Medicare and Medicaid membership when the provider meets all five (5) pooling requirements. The opportunity for a provider to pool their like arrangements allows for them to transition to a higher panel size category and reduce the cost and subsequent benefit. The pooling requirements are:

1. Pooling is otherwise consistent with the relevant contracts governing the compensation arrangements for the physician or physician group;
2. The physician or physician group is at risk for referral services with respect to each of the categories of patients being pooled;
3. The terms of the compensation arrangements permit the physician or physician group to spread the risk across the categories of patients being pooled;
4. The distribution of payments to physicians from the risk pool is not calculated separately by patient category; and
5. The terms of the risk borne by the physician or physician group are comparable for all categories of patients being pooled.

The pooling requirements should be validated annually to ensure compliance since the membership and contracts change yearly. The attestation should be based on a point in time with January making the most sense due to AEP.

External Purchasing Requirements

Since MA organizations must supply stop loss reinsurance in order to ensure compliance, there are several questions which must be answered when considering a providers intent to purchase from an external reinsurance company.

1. Is the provider global risk (100% up & down) for all Part A, B and D Funds? If no, then the provider must be required to purchase stop loss reinsurance from the MA organization.
   • When a provider has an arrangement which may result in a cumulative deficit balance, the deficit is likely the result of high dollar claims.
   • In instances of deficit, the provider would need to submit the claims to its reinsurance carrier to receive the benefit.
   • Any recovery amount is payable to MA organization assuming a deficit. The MA organization would need to collect the recovery amounts from the provider, which may be difficult, before determining the impact on the incentive pool results.
   • To alleviate potential abrasion, the best option for both the provider and the MA organization is for the provider to carry the MA organization’s stop loss reinsurance.
2. The provider is required to supply the MA organization with the declaration (dec) pages from the external policy they purchased. The policy must adhere to the threshold amounts identified in the PIP The dec pages should indicate:
   • Time period covered,
   • The deductible threshold amounts,
   • List any exclusionary items,
   • Health plans and membership covered by the policy,
   • Maximum limits, if applicable and
   • Cost of coverage on a PMPM basis.

Providers generally purchase stop loss reinsurance from an external carrier because they feel the cost of coverage is too expense from the MA organization and does not contemplate their performance. Instead of developing rates in total for a market/state/region, another approach is to experience rate the top and bottom five (5) or ten (10) providers. If there are providers who year after year incur more stop loss cost than the benefit returned, then an experienced rating approach will decrease the providers cost. At the opposite end, there are providers who receive more benefit year after year compared to the cost they incur. In those instances, experience rating will drive their rates up. For the providers in the middle, they will blend to zero (0) over time.

MA organizations should price stop loss on a PMPM basis vs. percent of premium approach. The PMPM allows the provider to understand how much it will cost them to purchase from the MA organization. When purchasing externally, the rate is PMPM not percent of premium. This is another area to eliminate provider abrasion.

80—Physician Incentive Plans

80.1—Requirements and Limitations

(Rev. 67, Issued: 08-12-05; Effective: 08-01-05)

Source: 42 CFR 422.208

Definitions:

• Bonus means a payment made to a physician or physician group beyond any salary, fee-for-service payments, capitation, or returned withhold.
• Capitation means a set dollar payment per patient per unit of time (usually per month) paid to a physician or physician group to cover a specified set of services and administrative costs without regard to the actual number of services provided. The services covered may include the physician’s own services, referral services, or all medical services.
• Physician Group means a partnership, association, corporation, individual practice association, or other group of physicians that distributes income from the practice among members. An individual practice association is defined as a physician group for this section only if it is composed of individual physicians and has no subcontracts with physician groups.
• Physician Incentive Plan means any compensation arrangement to pay a physician or physician group that may directly or indirectly have the effect of reducing or limiting the services provided to any plan enrollee.
• Potential Payments means the maximum payments possible to physicians or physician groups including payments for services they furnish directly, and additional payments based on use and costs of referral services, such as withholds, bonuses, capitation, or any other compensation to the physician or physician group. Bonuses and other compensation that are not based on use of referrals, such as quality of care furnished, patient satisfaction or committee participation, are not considered payments in the determination of substantial financial risk.
• Referral Services means any specialty, inpatient, outpatient, or laboratory services that a physician or physician group orders or arranges, but does not furnish directly.
• Risk Threshold means the maximum risk, if the risk is based on referral services, to which a physician or physician group may be exposed under a physician incentive plan without being at substantial financial risk. This is set at 25 percent risk.
• Substantial Financial Risk, for purposes of this section, means risk for referral services that exceeds the risk threshold.
• Withhold means a percentage of payments or set dollar amounts deducted from a physician’s service fee, capitation, or salary payment, and that may or may not be returned to the physician, depending on specific predetermined factors.

Applicability:

The requirements in this section apply to an MA organization and any of its subcontracting arrangements that utilize a physician incentive plan in their payment arrangements with individual physicians or physician groups. Subcontracting arrangements may include an intermediate entity, which includes, but is not limited to, an individual practice association that contracts with one or more physician groups or any other organized group, such as those specified at 42 CFR 422.4.

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

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

Basic Requirements:

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

1. The MA organization makes no specific payment, directly or indirectly, to a physician or physician group as an inducement to reduce or limit medically necessary services furnished to any particular enrollee. Indirect payments may include offerings of monetary value (such as stock options or waivers of debt) measured in the present or future.
2. If the physician incentive plan places a physician or physician group at substantial financial risk (as determined below) for services that the physician or physician group does not furnish itself, the MA organization must assure that all physicians and physician groups at substantial financial risk have either aggregate or per-patient stop-loss protection (as described below).
3. For all physician incentive plans, the MA organization provides to CMS the information specified in §80.2.

Determination of Substantial Financial Risk

Substantial financial risk occurs when risk is based on the use or costs of referral services, and that risk exceeds a risk threshold of 25 percent of potential payments. (Payments based on other factors, such as quality of care furnished, are not considered in this determination.)

The following incentive arrangements cause substantial financial risk within the meaning of this section, if the physician’s or physician group’s patient panel size is not greater than 25,000 patients (shown in the table below):

1. Withholds greater than 25 percent of potential payments.
2. Withholds less than 25 percent of potential payments if the physician or physician group is potentially liable for amounts exceeding 25 percent of potential payments.
3. Bonuses that are greater than 33 percent of potential payments minus the bonus.
4. Withholds plus bonuses if the withholds plus bonuses equal more than 25 percent of potential payments. The threshold bonus percentage for a particular withhold percentage may be calculated using the formula: Withhold % = -0.75 (Bonus %) +25%.
5. Capitation arrangements, if:
   1. The difference between the maximum potential payments and the minimum potential payments is more than 25 percent of the maximum potential payments; and
   2. The maximum and minimum potential payments are not clearly explained in the contract with the physician or physician group.
6. Any other incentive arrangements that have the potential to hold a physician or physician group liable for more than 25 percent of potential payments.

Stop Loss Protection Requirements:

The MA organization assures that all physicians and physician groups at substantial financial risk have either aggregate or per-patient stop-loss protection in accordance with the following requirements:

1. Aggregate stop-loss protection must cover 90 percent of the costs of referral services that exceed 25 percent of potential payments.
2. For per-patient stop-loss protection if the stop-loss protection provided is on a per-patient basis, the stop-loss limit (deductible) per patient must be determined based on the size of the patient panel and may be a combined policy or consist of separate policies for professional services and institutional services. In determining patient panel size, the patients may be pooled (as described below).
3. Stop-loss protection must cover 90 percent of the costs of referral services that exceed the per patient deductible limit. The per-patient stop-loss deductible limits are as follows: