Academic journal article The University of Memphis Law Review

The "PIP" Regulations in Perspective: Analysis and Comparisons with Other Federal Regulations Governing Physician Incentive Plans

Academic journal article The University of Memphis Law Review

The "PIP" Regulations in Perspective: Analysis and Comparisons with Other Federal Regulations Governing Physician Incentive Plans

Article excerpt


"If these rules seem complicated, it is because they are cmplicated."-David Orentlicher1

The purpose of this Article is to provide an analysis of the current regulations governing requirements for physician incentive plans ("PIPs") under 42 C.F.R. 417.479 (hereinafter referred to as the "PIP Regulations"). In particular, this Article focuses on potential problems and ambiguities generated by these rules. After analyzing the PIP Regulations themselves, this Article compares the PIP Regulations with other federal regulations that include PIPs within the scope of their coverage-the more notable being the Stark legislation2 and the recently proposed safe harbor for certain risk sharing arrangements under the Anti-Kickback Statute.3

II. The "PIP Regulations"

A. Scope and Coverage

Section 1876(i)(8) of the Social Security Act4 prohibits health care organizations from knowingly making incentive payments to a physician or physician group (hereinafter also collectively referred to as "provider" or "providers") as an inducement to reduce or limit medically necessary services to Medicare beneficiaries or Medicaid recipients. These types of arrangements between health care organizations and providers are referred to as physician incentive plans ("PIPs"). Congress enacted this legislation in response to public demand that the federal government take measures to regulate incentive arrangements used by prepaid health care organizations to align the interests of their providers with their own interests. Specifically, Congress wanted to balance the need of prepaid health care organizations to prevent overutilization against the government's competing need to ensure that Medicare and Medicaid patients receive all medically necessary services to which they are entitled.5

On March 27, 1996, the Health Care Financing Administration (HCFA),6 in an effort to interpret the Social Security Act, published a final rule with comment period.7 Although this rule was originally to become effective on April 26, 1996,8 a notice published in the Federal Register on September 3, 1996, announced that the effective date would be postponed until January 1, 1997.9 Then, on December 31, 1996, HCFA published the final rule,'o which became effective on January 1, 1997,11 and is codified at 42 C.F.R. 417.479.

The PIP Regulations define "physician incentive plan" more narrowly than does the Social Security Act. Specifically, HCFA chose to limit the applicability of its regulations to compensation arrangements between a health maintenance organization (HMO)12 or a competitive medical plan (CMP)13 and a physician or physician group14 "that may directly or indirectly have the effect of reducing or limiting services furnished to Medicare beneficiaries or Medicaid recipients enrolled in the HMO or CMP."15 Moreover, the PIP Regulations are only "applicable to physician incentive plans that base compensation [to any extent] on the use or cost" of medical services which the physician or physician group provides to Medicare or Medicaid patients.16

B. Requirements of all HMOs and CMPs With Physician Incentive Plans

1. Prohibited Payments d

The PIP Regulations impose two requirements on all HMOs and CMPs that have incentive plans. First, they expressly prohibit HMOs and CMPs from making specific payments (either directly or indirectly") to providers as an inducement to "reduce or limit medically necessary services" covered under the HMO's or CMP's contract with an enrollee.'8 Frustratingly, "medically necessary services" is neither defined in the PIP Regulations nor anywhere else in the Code of Federal Regulations. HCFA, however, published a proposed rule on January 30, 1989, that attempted to define this term by providing an exhaustive list of services that would come within its purview.19 Additionally, the comments to the PIP Regulations indicate that "medically necessary services" include all services that the HMO or CMP chose to cover in its contract with an individual enrollee, even if the contract provides for medical services that would not otherwise be covered under Medicare or Medicaid. …

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