U.S. Acts to Ease HMOs’ Cost Pressure on Doctors

New rules to restrict physicians from receiving financial incentives for curtailing medical costs in health maintenance organizations serving Medicare and Medicaid patients will take effect Jan. 1, federal officials said Wednesday.

The regulations will implement the new policy that was announced last March by the Health Care Financing Administration. The policy was outlined again earlier this week in notices that were sent to participating HMOs describing technical changes.

“We want to make sure that physicians cannot succumb to financial pressures, and, in doing so, deprive patients of potentially needed medical services,” said Paul Cotton, a spokesman for the agency.

“We want to ensure that managed care does not limit necessary care, and that patients are not hurt in the process of curtailing costs. We have a very strong commitment to that.”

The regulations are a response to growing unease nationwide about the growing number of managed care programs and--in their zeal to curtail rising health care costs--their impact on patient care.

Earlier this month, the HCFA sent directives to HMOs barring doctors who serve Medicare patients from withholding information on treatment options or medical procedures. Some HMO contracts contain so-called gag clauses that try to reduce patients’ access to other treatments by limiting what they can be told by their doctors. Many physicians complained that the clauses prevented them from providing unfettered advice.

The policy on financial incentives applies to Medicare as well as Medicaid, the federally funded health programs for the elderly and the poor. Although it does not extend to private health plans, it nevertheless is expected to influence the conduct of the entire managed care industry.

Some plans pay their physicians a fixed fee per patient per month. This arrangement, known as capitation payment, makes the primary care physician liable for any costs the patient incurs for specialty care provided under a referral from the primary care physician.

Thus, the more referrals the physician makes, the lower the payment the primary care physician retains--in effect, creating an incentive to minimize referrals. The new policy establishes certain limits to discourage physicians from declining to provide or refer services.

The rules also include new requirements for a type of physician incentive arrangement that puts physicians at substantial financial risk for making referrals.

Such incentive arrangements will have limits on the size of the financial losses physicians can suffer.

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Financial incentives vary from plan to plan. Some plans withhold a specific portion of a physicians’ income until the end of a designated period, and award the money to the doctor if certain set limits on spending have not been exceeded.

Under the new rules, the size of that award can be no more than 25% of the physician’s income, essentially requiring that the HMO put no more than 25% of a doctor’s income at risk.

The notices mailed to HMOs this week outline certain technical changes requested by the HMOs after the rules were announced in March. But those revisions do not alter the provisions discouraging incentives to limit care.

Among the revisions is a change in a provision that would have required HMOs to purchase so-called “stop loss” insurance to protect against losses; currently, physicians’ groups themselves buy the protection.

The final rules still require HMOs to foot the bills.

But to ease administration and paperwork problems, doctor groups will still buy the insurance and later be reimbursed by the HMOs.

The policy also requires plans to disclose physician incentive plans to HCFA or to a state’s Medicaid agency and to provide a summary of the plan to its members, if requested.

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“No patient should have to wonder if their doctor’s decision is based on sound medicine or financial incentives,” said Health and Human Services Secretary Donna Shalala last March.

“This regulation should help put Americans’ minds at rest.”

The rule “addresses some of the concerns of Congress and the public about the pressures and incentives HMOs create for physicians’ care decisions,” said Bruce C. Vladeck, administrator of the HCFA.

The rule applies to physicians who provide medical care through HMOs, competitive medical plans and health-insuring organizations.

Under the rules, the federal agency may impose intermediate sanctions, and the HHS office of the inspector general may levy civil monetary penalties to Medicare or Medicaid managed-care contractors who fail to comply.