Medicare and Medicaid Programs; Requirements for Physician Incentive Plans in Prepaid Health Care Organizations

This final rule amends the regulations governing Federally- qualified health maintenance organizations and competitive medical plans contracting with the Medicare program, and certain health maintenance organizations and health insuring organizations contracting with the Medicaid program. It implements requirements in sections 4204(a) and 4731 of the Omnibus Budget Reconciliation Act of 1990 that concern physician incentive plans. The provisions of this final rule will also have an effect on certain entities subject to the physician referral rules in section 1877 of the Social Security Act (the Act) as amended by the Omnibus Budget Reconciliation Act of 1993 (OBRA '93). Section 1877 provides that, if a physician (or an immediate family member of the physician) has a financial relationship with certain entities (that is, has an ownership or investment interest in the entity or a compensation arrangement with the entity), the physician may not make a referral to the entity for the furnishing of certain health services for which payment otherwise may be made under the Medicare program. Additionally, effective December 31, 1994, section 1903(s) of the Act provides for denial of Federal financial participation payment under the Medicaid program to a State for expenditures for certain health services furnished to an individual on the basis of a physician referral that would result in denial of payment under the Medicare program if Medicare covered the services in the same manner as they are covered under the State plan. Among other amendments, section 13562 of OBRA '93 sets forth an exception to the physician referral prohibition that, in effect, incorporates the provisions of this final rule. That is, it provides that, under certain circumstances, compensation received under a personal services arrangement that meets the physician incentive plan requirements established by the Secretary does not trigger the ban on referrals. Thus, the provisions of this final rule have i