Physician Incentive Payments by Hospitals Could Lead to Abuse

HRD-86-103: Published: Jul 22, 1986. Publicly Released: Jul 29, 1986.

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In response to a congressional request, GAO analyzed existing and proposed Medicare physician incentive plans to: (1) assess their legality under current law; and (2) determine the potential abuses that could arise under them in view of the changed incentives under prospective payment.

GAO reviewed operational and proposal plans under which hospitals make incentive payments to physicians for reducing the cost of treating patients and determined that: (1) such plans can provide physicians too strong an incentive to undertreat patients when the decision about whether to pay the incentive is based on the physician's success in keeping down the costs of only a few patients; and (2) the costs of treating any one patient may have a decisive effect on the incentive payment, giving the physician a strong financial incentive to reduce the level of care given that patient, possibly below the level necessary to provide quality care. GAO noted that: (1) Medicare provisions were designed to deter abuse under a cost reimbursement system, typically overuse of services, not the prospective payment system's more likely abuse of underprovision of services; and (2) while some provisions have been adapted to deal with the changed incentives, they deal with quality of care problems on a case-by-case basis after the fact and do not address physician incentive plan features. GAO believes that several such features could be prohibited, or required, to deter potential abuse.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress prohibited the payment of incentives to physicians for reducing or limiting services to Medicare and Medicaid patients through a provision in the Omnibus Budget Reconciliation Act of 1986. A civil monetary penalty was also authorized for violations of the provision.

    Matter: In considering legislation to modify the Medicare statute to place additional restrictions on physician incentive plans, the House Ways and Means Committee, Health Subcommittee, may wish to consider prohibiting incentive plans unless hospitals base the decision of whether to pay an incentive on the cost performance of multiple physicians over an extended period of time. In addition, the Subcommittee may wish to consider requiring that such incentive plans: (1) include explicit arrangements for utilization and quality review; and (2) not base the amount of incentive payments solely on each individual physician's cost performance.


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