[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Notices]
[Pages 61116-61129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24443]



[[Page 61116]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-4043-N]
RIN 0938-ZA37


Medicare Program; Solicitation for Proposals for the Physician 
Group Practice Demonstration

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Notice for solicitation of proposals.

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SUMMARY: This notice informs interested parties of an opportunity to 
apply to participate in the Medicare Physician Group Practice 
Demonstration. The goal of the demonstration is to encourage 
coordination of Part A and Part B services; promote efficiency by 
investment in administrative structures and care processes; and reward 
physicians for improving health outcomes. A competitive process will be 
used to select up to six health care groups to participate in the 3-
year demonstration.

DATES: Applications will be considered timely if we receive them on or 
before December 26, 2002.

ADDRESSES: Applications should be mailed to the following address: 
Department of Health and Human Services, Centers for Medicare & 
Medicaid Services, Attention: John Pilotte, Project Officer, Center for 
Beneficiary Choices, DDAG/DDP, Mail Stop: C4-17-27, 7500 Security 
Boulevard, Baltimore, Maryland 21244-1850.
    General Information: Please refer to file code CMS-4043-N on the 
application. Applications (an unbound original and 2 copies plus an 
electronic copy) must be typed for clarity and should not exceed 40 
double-spaced pages, exclusive of cover letter, the executive summary, 
resumes, forms, and supporting documentation.
    Because of staffing and resource limitations, we cannot accept 
applications by facsimile (FAX) transmission. Applications postmarked 
after the closing date, or postmarked on or before the closing date but 
not received in time for the panel review, will be considered late 
applications.
    Eligible Organizations: Health care groups with at least 200 
physician full-time equivalents are eligible to apply. Candidates must 
meet the criteria outlined in section III.B of this notice.

FOR FURTHER INFORMATION CONTACT: John Pilotte at (410) 786-6558, or by 
e-mail at [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Requirements

    Section 412 of the Benefits Improvement and Protection Act (BIPA) 
of 2000 (Pub. L. 106-554) amends title XVIII of the Social Security Act 
by establishing the Physician Group Practice (PGP) Demonstration.
    The PGP demonstration tests a hybrid payment methodology that 
combines Medicare fee-for-service payments with a bonus pool derived 
from savings achieved through improvements in the management of patient 
care and services by physician groups and affiliated organizations.
    As defined under BIPA, the goals of the PGP demonstration are to--
(1) Encourage coordination of Part A and Part B services; (2) promote 
efficiency by investment in administrative structures and care 
processes; and (3) reward physicians for improving health outcomes.
    The BIPA mandate along with recent changes in the commercial market 
create a timely opportunity for us to implement a demonstration giving 
physician groups incentives for coordinating care, increasing 
efficiency, and improving processes and outcomes.

B. Issue

    The PGP demonstration will enable us to test physician groups' 
responses to financial incentives for improving care coordination, 
delivery processes and patient outcomes, and the effect on access, 
cost, and quality of care to Medicare beneficiaries.
    Physicians influence, either directly or indirectly, almost all 
areas of Medicare spending. For example, physicians deliver services, 
admit beneficiaries to hospitals, and authorize home health visits. The 
PGP demonstration seeks to align incentives for physician groups to 
manage the overall care of its patients. The PGP demonstration 
encourages health care groups to attract, retain, and coordinate care 
to beneficiaries; gives physicians incentives to provide services 
efficiently to their patients; provides a framework in which we can 
collaborate with providers to the advantage of Medicare beneficiaries; 
and promotes active use of utilization and clinical data for the 
purpose of improving efficiency and outcomes.

C. Financial Incentives

    Managed care incentive-based payment models evolved as a means to 
combat rising health care costs, initially focusing on rewarding 
physicians for financial performance, and have recently focused on 
incorporating incentives for quality performance.
    The Institute of Medicine report entitled, Crossing the Quality 
Chasm: A New Health System for the 21st Century (published by Health 
Care Services, National Academy Press in 2001), found that quality-
related problems can result in waste and lead to inefficiencies, 
directly conflicting with incentives designed to reduce costs. 
Therefore, we need a more direct alignment between the compensation 
method and quality improvement initiatives, especially for individuals 
with chronic illness who account for a significant portion of Medicare 
spending.
    The PGP demonstration provides the opportunity to identify, test, 
and evaluate aligning health care providers compensation models with 
quality improvement goals in the Medicare fee-for-service environment.

II. Physician Group Practice Demonstration

A. Overview

    The PGP demonstration will provide a unique reimbursement mechanism 
through which providers are rewarded for coordinating and managing the 
overall health care needs of a nonenrolled, fee-for-service patient 
population. It offers an opportunity to test whether a different 
financial incentive structure can improve service delivery and quality 
for Medicare patients, and ultimately prove cost-effective.
    The PGP demonstration superimposes new incentives on traditional 
fee-for-service reimbursement that are more in line with those used by 
managed care organizations and other commercial payers. In addition, 
the PGP demonstration includes explicit incentives for process and 
outcome improvement. Performance on both process and outcome quality 
indicators, together with cost savings, will be used in the calculation 
of performance bonuses.
    Under the 3-year demonstration, health care groups will continue to 
be paid under the existing Medicare fee schedules. Health care groups 
will be able to earn a bonus from a portion of any savings realized 
relative to their performance target.
    Annual performance targets will be calculated for each 
participating health care group at the end of the performance year, as 
soon as complete data are available. The target will be derived from a 
base expenditure amount equal

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to the average total payments under Part A and Part B. The performance 
target is calculated based on services furnished by the health care 
group on a fee-for-service basis during a base period, adjusted for 
risk and expected growth rates.
    Bonus payments will be allocated between efficiency improvements 
and documented improvements in processes and outcomes. Bonus payment 
will be made to a single entity (health care group). The entity is 
responsible for allocating any bonus payments among affiliated 
organizations.
    Participating health care groups must notify beneficiaries of the 
incentive arrangement. Medicare balance billing rules continue to apply 
as well as beneficiary deductibles and coinsurance.
    Bonus payments made to demonstration participants must be derived 
from savings produced by participating organizations. Below, we 
describe the methodology that will be used to calculate savings and 
bonuses.

B. Calculating Savings and Bonuses

    Under the 3-year demonstration, PGPs and affiliated providers will 
continue to bill and be paid standard Medicare fee-for-service 
reimbursement. PGPs will not assume risk for their Part A and Part B 
payments under the demonstration. PGPs and affiliated providers 
participating in the demonstration will also be eligible to earn an 
annual performance bonus.
    Bonuses will be paid from a bonus pool derived from Medicare 
savings generated by the PGP. Medicare savings and bonuses will be 
calculated after the end of the performance year and as soon as 
complete data are available. Consequently, bonuses are not likely to be 
computed and paid until 9 to 12 months after the end of the performance 
period due to claims lag and operational complexities involving data 
volume.
    PGPs will not receive actual performance targets at the beginning 
of the performance year. However, PGPs will receive Medicare fee-for-
service per-capita expenditures for their market area, in addition to 
hospital utilization data at the beginning of the performance period, 
and, thereafter, on an interim basis that they may use to monitor their 
performance in relation to the market area.
1. Bonus Payment Methodology
    The following summarizes the key steps involved in calculating 
savings to fund financial quality bonuses. The BIPA section 412 refers 
to incentive and process and outcome improvement bonuses. Throughout 
this document, we use the term ``quality'' bonus to refer to the 
process and outcome improvement bonus and ``financial'' to refer to the 
incentive bonus as outlined in the BIPA.
    a. We will identify the immediate market area in which the PGP 
derives its beneficiaries. The market area will be defined as counties 
in which 1 percent or more of the beneficiaries assigned to the PGP 
reside. Only counties from the State in which the PGP is located or in 
contiguous States for PGPs serving regional populations will be 
included. The counties will be used to calculate the per-capita 
Medicare fee-for-service growth rate for the market area that will be 
used in setting the PGP's performance target.
    b. We will use claims data to assign Medicare beneficiaries to the 
PGP. Beneficiaries who receive at least one evaluation and management 
(E&M) service from a participating PGP will be eligible for assignment 
to the PGP. Beneficiaries who receive more E&M services (as measured by 
Medicare expenditures) from the PGP than from any other physician 
practice (group or solo) will be assigned to the PGP. For beneficiaries 
assigned to a PGP in the base year, the base year per-capita 
expenditures will be calculated.
    c. An expenditure target for the performance year will be 
calculated as follows:

[sbull] Target = (Adjusted Base Year Per-Capita Expenditures) x (1 + 
Expected Growth Rate).

    Per-capita expenditures in the base year will be adjusted to 
account for differences in the case-mix of beneficiaries assigned to 
the PGP in the performance year. The adjusted base year per-capita 
expenditures will be updated by the PGP's expected growth rate, that is 
the growth rate in per-capita expenditures for the PGP's local market 
area, adjusted for case-mix change.
    d. Medicare savings will be computed as the difference between the 
expenditure target and the PGP's per-capita expenditures in the 
performance year (for beneficiaries assigned to the PGP in the 
performance year), multiplied by the number of beneficiaries assigned 
to the PGP in the performance year. The following is how the 
calculations will be performed:

[sbull] Medicare Savings = (Target--Performance Year Per-Capita 
Expenditures) x (Assigned Beneficiaries).

    e. If a PGP is below its expenditure target, the bonus pool for the 
PGP is a portion of the savings it generates for Medicare and will be 
calculated as follows:

[sbull] Bonus Pool = (Medicare Savings) x (Sharing Rate).

    The sharing rate is equal to 80 percent and represents the 
proportion of the Medicare savings that funds the PGP's bonus pool. The 
Medicare Trust Funds will retain the remaining 20 percent.
    f. The PGP bonus pool will be allocated between financial 
performance and quality performance and will be calculated as follows:

[sbull] Earned Bonus = (70 percent financial performance + 30 percent 
maximum quality bonus) x (withhold).

    PGPs will receive 70 percent of the bonus pool solely due to 
financial performance. The remaining 30 percent will be available to 
the PGP as a quality bonus. The actual quality bonus earned by the PGP 
equals the maximum quality bonus multiplied by the percentage of 
quality targets met by the PGP (for example, if the PGP satisfies four 
of eight quality measures, it will earn 50 percent of the maximum 
quality bonus). Any amount of the maximum quality bonus that is not 
earned by the PGP will be additional savings for the Medicare Trust 
Funds. The earned bonus to the PGP will be subject to an annual 25-
percent withhold that the Medicare Trust Funds will reserve to cover 
losses (for example, PGP actual expenditures  performance 
target) incurred by the PGP in future years. At the end of the 3-year 
demonstration, positive balances in the withhold account will be 
payable to the PGP.
2. Bonus Payment Example
    The following example illustrates how savings will be calculated 
and bonuses awarded. The actual amounts will vary with performance. The 
example assumes expenditure growth rates of 3 percent for the 
beneficiaries assigned to the PGP and 8 percent for the local market 
(5-percent savings by the PGP); 30,000 assigned Medicare fee-for-
service beneficiaries; an 80 percent sharing rate; a 25-percent 
withholding rate; and half (four of eight) of the quality targets are 
met.

                Table 1.--Example of a Bonus Calculation
------------------------------------------------------------------------
                 Bonus calculation process                   Bonus award
------------------------------------------------------------------------
Target Per-Capita Expenditures.............................       $7,020
PGP Site Per-Capita Expenditures...........................        6,695
Medicare Savings Per-Capita Expenditures...................          325
Total Medicare Savings.....................................    9,750,000
Medicare Trust Funds Savings...............................    1,950,000
  Bonus Pool...............................................    7,800,000

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    Total Bonus............................................    6,630,000
      Financial Performance................................    5,460,000
      Quality Performance..................................    1,170,000
    Withhold...............................................    1,657,500
Earned Bonus...............................................    4,972,500
------------------------------------------------------------------------

    In Table 1, the total annual Medicare program savings is $9,750,000 
or per-capita savings of $325 multiplied by the total number of 
beneficiaries (30,000) assigned to the PGP. The Medicare Trust Funds 
will retain 20 percent of the total savings, which is equal to 
$1,950,000. The remaining 80 percent of Medicare savings is available 
through the bonus pool. The bonus for financial performance is equal to 
70 percent of the bonus pool or $5,460,000. The remaining 30 percent of 
the bonus pool or $2,340,000 is available to the PGP based on its 
performance on the quality measures. In this example, the PGP satisfies 
only four of the eight quality measures and earns only $1,170,000 or 
half of the $2,340,000 available for quality performance.
    The total bonus for the PGP is $6,630,000 consisting of $5,460,000 
for financial performance and $1,170,000 for quality performance. The 
total bonus is subject to a 25-percent withhold or $1,657,500 to offset 
any future losses. The bonus earned (and payable) to the PGP for the 
performance year is $4,972,500, which is equal to the total bonus minus 
the withhold.
3. Bonus Payments
    PGPs will have up to 3 years to generate savings and earn a bonus. 
After 3 years, performance targets will be rebased if the demonstration 
continues. Bonuses may be earned by participating PGPs in performance 
years in which the organization has generated Medicare savings. Losses 
in performance years in which there are no Medicare savings accrue to 
PGPs and bonuses will be reduced in subsequent years to cover any 
losses.
    The maximum bonus that can be earned by a PGP in a year (bonus 
payments plus withhold amount) is limited to 15 percent of target 
Medicare expenditures for beneficiaries assigned to that organization 
in that year. If a participating PGP withdraws from the demonstration 
before the end of the 3-year period, it is required to remit to us the 
full amount of any demonstration bonus payments it has received.
4. Interim Utilization Performance Reporting
    We plan to provide interim utilization performance reports for 
participating PGPs. The report will give participating PGPs timely 
feedback about their performance. Due to data availability and 
processing lags, reconciliation of the PGPs' financial performance in 
relation to their target for the year will not occur until 9 to 12 
months following the end of the performance year.
5. Demonstration Milestone
    The following table illustrates how we intend to provide the 
interim utilization performance reports and award bonus payments to 
PGPs under the demonstration. Bonus payments will not be made until 9 
to 12 months after the end of the performance year, due to data lags 
and processing issues. However, we will provide PGPs' with interim 
performance reports including key utilization indicators as close to 
the end of the performance year as possible.

                                Table 2.--Bonus Payment and Reporting Milestones
----------------------------------------------------------------------------------------------------------------
                                                                                                        Post
                                            Base  year    Performance   Performance   Performance  demonstration
                                                            year 1        year 2        year 3          year
----------------------------------------------------------------------------------------------------------------
Performance Report.......................      [rtrif]       [dtrif]       [dtrif]       [dtrif]
Bonus Payment............................  ............  ............      [utrif]       [utrif]        [utrif]
----------------------------------------------------------------------------------------------------------------
[rtrif] = Demonstration starts.
[dtrif] = Interim utilization performance reports.
[utrif] = Bonus payment.

C. Demonstration Design Summary

    The PGP demonstration presents numerous operational challenges for 
us. The following discusses several key issues with the payment 
methodology and how we plan to adjust for them in implementing the 
demonstration. For more information on the payment methodology, go to 
our website at http://www.cms.hhs.gov/healthplans/research and select 
the ``Physician Group Practice Demonstration.''
1. Assigning Beneficiaries to PGPs
    A PGP's ability to coordinate and manage the health care of a 
beneficiary depends on the types of services the PGP provides to the 
beneficiary, and the overall control the PGP has over the beneficiary's 
utilization of services. Since the PGP demonstration is a fee-for-
service innovation, there is no enrollment process whereby 
beneficiaries accept or reject involvement. Therefore, beneficiaries 
need to be assigned to PGPs based on utilization of Medicare-covered 
services.
    A beneficiary who receives at least one E&M service from a 
participating PGP is eligible for assignment to the PGP. If the 
beneficiary receives more E&M service (as measured by Medicare 
expenditures) from the PGP than from any other physician practice 
(group or solo), then the beneficiary is assigned to the PGP.
    Therefore a beneficiary is assigned to no more than one PGP under 
the demonstration. This prevents us from paying bonuses more than once 
when multiple PGPs serve overlapping Medicare patient populations. 
Since many chronically ill beneficiaries receive their primary care 
from specialists rather than primary care physicians, E&M services 
provided by any physician are used for assignment.
2. Base Expenditure Amount
    BIPA requires that the PGP demonstration include ``a base 
expenditure amount, equal to the average total payments under Parts A 
and B for patients served by the health care group on a fee-for-service 
basis in a base period determined by the Secretary.'' All Part A and 
Part B Medicare claims will be used to calculate the base expenditure 
amount, the performance target, and the physician group's actual 
experience. The base expenditure amount will be derived from all Part A 
and Part B Medicare claims from the 12-month period preceding the 
performance period.
    All Medicare expenditures are the most comprehensive basis for the 
PGP base expenditure amounts, and this basis is consistent with the 
BIPA requirement. Since the goal of the PGP demonstration is to 
encourage

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coordination of Part A and B services, promote efficiency, and reward 
physicians for improving health outcomes, setting a comprehensive 
target gives the PGP more flexibility to focus on the largest sources 
of inefficiency.
3. Comparison Population
    The comparison population for a participating PGP consists of fee-
for-service Medicare beneficiaries residing in the PGP's local market 
area that are not assigned to the PGP. The PGP's market area will 
consist of all counties in which the group derives at least 1 percent 
of its Medicare beneficiaries. These counties will be combined to form 
the market area for the group. We will use claims and beneficiary 
enrollment data to identify the county of residence of all 
beneficiaries treated by the group.
    The market area is defined for both base and performance years, and 
may differ between the 2 years to reflect changes in the PGP's service 
area. The PGP's expected expenditure growth rate is the change in 
market area per-capita expenditures from the base to the performance 
year. Market area per-capita expenditures is defined as weighted 
average county per-capita expenditures of market area counties. The 
weights are the share of participating PGP beneficiaries residing in 
each market area county.
4. Sharing Rate
    The sharing rate is the maximum proportion of the Medicare savings 
generated by a PGP that can be paid to the PGP as a bonus. The sharing 
rate needs to be high enough to give PGPs sufficient incentive to 
participate in the demonstration, but low enough so that the Medicare 
program shares significantly in any savings.
    The sharing rate will be set at 80 percent for all participating 
PGPs. With this sharing rate, the PGP may earn up to 80 percent of the 
Medicare savings it generates depending on its performance with regard 
to the quality of care targets. The remaining 20 percent will accrue to 
the Medicare Trust Funds.
5. Health Status Case-Mix Adjustment
    To make comparisons between participating PGP and comparison group 
expenditure growth rates, health status case-mix needs to be held 
constant. The per-capita expenditures of both participating PGPs and 
their comparison groups are adjusted for case-mix using the concurrent 
Diagnostic Cost Groups, Hierarchical Condition Categories (DCG-HCC) 
model. This model uses diagnoses on Medicare claims (for example, 
inpatient, outpatient, and physician) to predict the expected average 
expenditures of a population based on its health status. The model is 
concurrent, and explains expenditures in the current year.
    The DCG-HCC model is part of the same family of DCG models as the 
model that is currently used for risk adjustment of capitation payments 
to Medicare+Choice (M+C) plans. However, it differs in two key respects 
from the Principal Inpatient Diagnostic Cost Group model used in M+C 
payment. First, since ambulatory diagnoses are available from Medicare 
fee-for-service claims, the DCG-HCC model is more comprehensive. 
Second, the DCG-HCC model is concurrent, meaning that it forecasts 
expenditures in the current year and better reflects market changes.
6. Thresholds for Bonus Payment
    A bonus threshold avoids paying a bonus for small differences in 
site versus comparison population (market area) expenditure growth 
rates that could be due to chance. Choosing an appropriate bonus 
threshold involves the probabilities of paying deserved bonuses versus 
not paying undeserved bonuses.
    Based on simulations, a bonus threshold of 2 percent will be used. 
This means that a bonus would not be paid unless the difference in the 
site and market expenditure growth rates exceeds 2 percent. However, if 
the threshold is exceeded, the full bonus will be paid.
7. Rebasing
    Rebasing means changing the base year for the PGP bonus 
calculation. Over the relatively short period of the demonstration (3 
years), PGPs will not be rebased. If bonuses are allowed to accumulate, 
gains and losses, which are random to some extent, can offset each 
other to measure long-run cost control performance more accurately.
    If the demonstration is continued past 3 years, the base year will 
be updated so that the Medicare program can capture more of PGP cost 
savings, and PGPs will not be rewarded indefinitely for past 
performance. Other demonstration policies may also be subject to change 
if the demonstration is continued past 3 years.
8. Withhold
    Over the course of the demonstration, a participating PGP may 
accrue bonuses in some years and losses in other years, perhaps due to 
chance. The issue is whether full (positive) bonuses should be paid in 
the year they are accrued, or whether some portion should be withheld 
to offset future losses (for example, PGP actual expenditures exceed 
the performance target) in order to avoid having to recover payments 
from a PGP.
    A flat 25 percent withholding rate will be applied annually to the 
bonus before payment. At the end of the demonstration, positive 
balances will be returned to the PGP.
9. Cost Outliers
    Random variability of expenditure growth rates for PGP 
demonstration participants or their comparison populations may lead to 
a lack of savings even when participants are reducing services per 
beneficiary. There is the chance that a small group of extremely costly 
beneficiaries will be assigned to a PGP and could significantly change 
a PGP's per-capita expenditures and, hence, its bonus.
    Thus, for each beneficiary assigned to a PGP or comparison group, 
annualized expenditures will be capped in calculating savings to avoid 
contamination by cost outliers. Capping expenditures will give PGPs an 
incentive to coordinate and manage the health care of the majority of 
patients assigned to them, while not penalizing the group for high-cost 
outliers or providing incentives to under use services for 
beneficiaries with highly complex conditions.
    In 1997, more than 99 percent of Medicare fee-for-service 
beneficiaries had annualized expenditures of less than $100,000. In 
calculating savings, a beneficiary's expenditures will be capped at 
$100,000.

D. Quality Improvement Bonuses

    The PGP demonstration allows for financial incentives for improving 
patient care process and outcomes. The BIPA states that ``at such time 
as the Secretary has established appropriate criteria based on evidence 
the Secretary determines to be sufficient, the Secretary shall also pay 
to a participating health care group, * * * an additional bonus for a 
year, equal to such portion as the Secretary may designate of the 
savings to the program under this title resulting from process 
improvements made by and patient outcome improvements attributable to 
activities of the group.''
    We believe that the PGP's ability to manage patient care, 
especially chronic conditions afflicting Medicare beneficiaries, is 
critical to the group's ability to generate savings under the 
demonstration and, thus, be able to receive a bonus payment. We also 
recognize the numerous process and

[[Page 61120]]

outcome improvement activities that have been initiated by PGPs on 
their own to improve practice management and patient care as well as 
those initiated by commercial payers including private insurers, 
employers, and purchasing groups. Given the wide-ranging use of these 
indicators, we will work with PGPs to reduce administrative burdens and 
align incentives to the extent possible with other payers.
    Under the demonstration, we will focus on linking financial 
incentives to improvements in process indicators of quality, although 
some outcome indicators will also be included. This is consistent with 
the BIPA 2000 mandate, and focuses on the quality indicators most 
easily measured, commonly used, and most relevant to the medical care 
operations of PGPs. We will reserve a maximum of 30 percent of the PGP 
bonus pool for bonuses related to quality improvement activities.
    Medicare claims will be the primary data source for measuring 
quality indicators for the PGP demonstration. Using claims is low cost, 
reduces administrative burden on demonstration participants, and takes 
advantage of data already being used and available under the 
demonstration. Claims data will be used in calculating the PGP cost 
targets, performance comparisons, and Medicare savings for the bonus 
pool.
1. Process and Outcome Indicators
    We will work with demonstration participants to select a group of 
core indicators for use in measuring process and outcome performance. 
Initially, we will seek to use eight process and outcome indicators. We 
will work with demonstration participants to identify a set of core 
measures that will be used uniformly for all participating PGPs. 
Measures will be agreed to by demonstration participants. Table 3 shows 
examples of process and outcomes performance measures.

                                 Table 3.--Proposed Process and Outcome Measures
----------------------------------------------------------------------------------------------------------------
           Quality indicator                 Improvement target                   Threshold target
----------------------------------------------------------------------------------------------------------------
Annual influenza vaccinations for all    10% improvement over the   75% compliance.
 beneficiaries age 65 or older.           deficit from 100%
                                          compliance.
Hemoglobin A1c test every year for       10% improvement over the   75% compliance.
 diabetics.                               deficit from 100%
                                          compliance.
Lipid profile test every 2 years for     10% improvement over the   75% compliance.
 diabetics.                               deficit from 100%
                                          compliance.
Mammogram every 2 years for women aged   10% improvement over the   75% compliance.
 52-69.                                   deficit from 100%
                                          compliance.
Chest radiograph and electrocardiogram   10% improvement over the   75% compliance.
 <= 3 months after initial CHF            deficit from 100%
 diagnosis.                               compliance.
Left ventricular ejection fraction       10% improvement over the   75% compliance.
 testing during the current year for      deficit from 100%
 beneficiaries hospitalized with a        compliance.
 principal diagnosis of CHF during the
 current year.
Physician visit every 6 months for       10% improvement over the   90% compliance.
 beneficiaries with chronic stable        deficit from 100%
 angina, COPD, CHF, or diabetes.          compliance.
Rate of ACSC admissions per 1000         10% reduction from the     National average rate for FFS beneficiaries.
 Medicare beneficiaries.                  previous year's rate.
----------------------------------------------------------------------------------------------------------------

    PGPs may also propose substituting two measures focused on process 
and outcome improvement activities that may be unique to their own 
practices. PGPs proposing process and outcome indicators should define 
the indicators and describe how they are used to improve physician 
performance, describe the process for evaluating and monitoring 
compliance (including examples of reports and profiles), and identify 
how aggregated Medicare claims data could be used to supplement or 
enhance the indicator and physician performance. Areas may include 
guideline compliance, patient safety initiatives, and chronic 
conditions impacting Medicare beneficiaries.
2. Targets for Earning a Quality Bonus
    PGPs will have two different types of targets that they can meet to 
earn a quality bonus. Targets for quality measures will be based on 
either demonstrating improvement over time or achieving a predetermined 
threshold level for a quality indicator as described in the table 
above. Compliance with the indicator is met if either target is 
satisfied.
    For example, a PGP could earn a bonus under the Hemoglobin A1c 
measure if--(1) At least 75 percent of the eligible beneficiaries 
assigned to the PGP receive the test during the performance year; or 
(2) the PGP demonstrates a 10-percent improvement over the prior year.
    Improvement targets will be set using the following methodology 
that bases the target on improvements in the ``quality deficit.'' The 
quality deficit is defined as 100 percent minus the PGP's actual rate 
for assigned beneficiaries.
    For example, if 30 percent of a PGP's diabetics had Hemoglobin 
A1c's tested in 1 year, it would have to raise that level to 37 percent 
the following year to demonstrate it had met the quality improvement 
target for that indicator. For example, a 70 percent deficit means a 7-
percent improvement is required.
    Allowing PGP's to earn bonuses by meeting or exceeding either pre-
defined thresholds or improvement targets will give flexibility to 
PGPs, require bigger improvements for low performers than high 
performers, and take into consideration that it may be more difficult 
to improve on already high performance.
3. Calculating Quality Improvement Bonuses
    Thirty percent of the PGP's bonus pool will be set aside for 
bonuses for PGP's meeting targets for process and outcome improvement 
measures. The actual bonus payment for process and outcome improvements 
is dependent on the number of measures that the group meets or exceeds 
the performance target.
    For example, if eight measures are used, each measure would be 
worth \1/8\ of the bonus pool for quality improvements. If the PGP 
satisfies compliance targets for four of the eight performance 
measures, its bonus would be 50 percent of the quality improvement 
bonus pool. If the PGP satisfies compliance targets for all eight 
measures, it would receive 100 percent of the quality bonus pool (for 
example, a full 30 percent).

[[Page 61121]]

E. Budget Neutrality

    BIPA states ``the Secretary shall limit bonus payments under this 
section as necessary to ensure that the aggregate expenditures under 
this title (inclusive of bonus payments) with respect to patients 
within the scope of the demonstration do not exceed the amount which 
the Secretary estimates would be expended if the demonstration projects 
under this section were not implemented.''
    Because of this requirement, bonuses will be paid from savings that 
the PGP generates from efficiency process and outcome improvements. 
Savings will be calculated using the methodology described in section 
II.B of this notice.

F. Demonstration Administration

    Section 412 of the BIPA allows CMS to administer the demonstration 
program through a contract with a program administrator. At this time, 
we believe that it would be costly and not add value to use an external 
demonstration administrator. The demonstration can be more efficiently 
and effectively implemented by CMS given the extensive work already 
completed by the design and implementation contractors, CMS staff, the 
small scale of the demonstration, and the need to understand the 
linkages between payment incentives and improvements in process and 
outcome improvements. If CMS were to implement this program on a 
national scale, the additional resources and expertise of an external 
program administrator would be warranted.

G. Independent Evaluation

    CMS will assess the impact of the demonstration on Medicare 
beneficiaries, physicians, and Medicare program costs as well as 
administrative burden through an independent evaluation. The evaluation 
will be conducted by CMS through an independent contractor. 
Demonstration participants must agree to cooperate fully with the 
independent evaluation contractor.

III. Provisions of This Notice

A. Purpose

    This section outlines the requirements for eligible health care 
groups seeking to apply for the demonstration and application and 
submission requirements.

B. Eligible Organizations

    Health care groups with at least 200 physician full-time 
equivalents may apply. Physician means any individual who furnishes 
services that may be paid for as physicians' services under the 
Medicare program. A health care group is defined as a group of 
physicians organized, at least in part, for the purpose of providing 
physicians' services under the Medicare program and may include a 
hospital and any other individual or entity furnishing services covered 
under the Medicare program that is affiliated with the health care 
group under an arrangement structured so that the individual or entity 
participates in the demonstration and shares in any bonus.
    We are focusing the demonstration on large physician group 
practices. These organizations influence a significant amount of 
Medicare expenditures and have sufficient Medicare beneficiary volume 
to provide greater statistical reliability in calculating Medicare 
savings and/or losses under the demonstration.
    We are seeking several different types of physician group practices 
to test the new incentives in a range of organizational and clinical 
environments. Eligible organizations include freestanding 
multispecialty physician group practices, faculty group practices, and 
physician groups that are part of health care systems, medical centers, 
or that have affiliations with hospitals and/or other providers.
    Physician group practices that can respond effectively to the 
demonstration's new incentives are encouraged to apply. In particular, 
multispecialty physician groups with well-developed information and 
clinical and management systems should consider applying. We do not 
plan to make awards to health care groups currently participating in 
Medicare fee-for-service demonstrations.

C. Application Requirements

    Applicants must submit their applications in the standard format 
outlined in CMS's Medicare Waiver Demonstration Application in order to 
be considered for review by the technical review panel. Applications 
not received in this format will not be considered for review.
    The Medicare Waiver Demonstration Application follows this 
demonstration notice and may also be accessed at the following internet 
address: http://www.cms.hhs.gov/healthplans/research. The application 
outlines all application requirements including the format and content 
requirements. We note that the Medicare Waiver Demonstration 
Application is currently under review by the Office of Management and 
Budget (OMB) in regard to the Paperwork Reduction Act. Upon approval 
from OMB, we will update the application to denote OMB's approval.
1. Submission of Applications
    We must receive applications (an unbound original and 2 copies plus 
an electronic copy) as indicated in the DATES and ADDRESSES sections of 
this notice. Only applications that are considered ``timely'' will be 
reviewed and considered by the technical review panel. Applications 
must be typed for clarity and should not exceed 40 double-spaced pages, 
exclusive of the cover letter, executive summary, resumes, forms, and 
supporting documentation.
2. Evaluation Process
    We will convene technical review panels consisting of outside 
experts and our staff to review all of the proposals. Panelists will 
receive a copy of the proposals along with a technical summary. 
Panelists will be asked to numerically rate and rank the proposals and 
provide a written and oral assessment of the proposals using the 
following criteria.
3. Evaluation Criteria
    Technical review panelists will assess and score applicants' 
responsiveness using the following evaluation criteria.
a. Organizational Structure (15 Points)
    [sbull] A multispecialty physician group with at least 200 or more 
full time equivalent physicians.
    [sbull] Administrative arrangements that are in place to share 
bonuses with any affiliated entities.
    [sbull] The organization has capacity to provide and/or coordinate 
Part A & Part B services through Medicare participating or approved 
providers.
b. Leadership and Management (15 Points)
    [sbull] The operations are managed by an executive whose 
appointment and removal are under the control of the organization's 
policy making body.
    [sbull] The leadership has demonstrated the ability to influence 
and/or direct clinical practice to improve efficiency processes and 
outcomes.
    [sbull] The organization has effective procedures to monitor use of 
appropriate health services and to control costs of health services to 
achieve utilization goals (for example, high cost case management and 
disease management).
    [sbull] The organization has sufficient staff and systems to 
organize, plan, control, and evaluate the clinical financial and 
operations of the organization.

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c. Financial Stability (10 Points)
    [sbull] The current audited balance sheet shows a positive net 
worth.
    [sbull] The current audited income statement shows sufficient cash 
flow and/or liquidity to meet financial obligations.
    [sbull] The organization has a net operating surplus or acceptable 
financial plan for achieving.
d. Quality Assurance (20 Points)
    [sbull] A physician directed quality assurance committee oversees 
an on-going action oriented quality assurance program. The committee is 
accountable for the quality assurance program and any delegated 
functions, and has processes for communicating activities to relevant 
parties.
    [sbull] A quality assurance program establishes performance 
standards for quality of care and services, cost effectiveness, and 
process and outcome improvements.
    [sbull] The quality initiatives are clearly defined and dedicated 
personnel are responsible for implementing, monitoring, and integrating 
changes into practice.
    [sbull] The quality assurance methodology requires health outcome 
review of high volume and/or high-risk diagnosis or procedures, adverse 
outcomes and other quality of care related problems.
    [sbull] Processes are in place for implementing and monitoring 
corrective action plans.
e. Process and Outcome Improvement (20 Points)
    [sbull] Care coordination activities focus on diseases and 
conditions relevant to the Medicare population.
    [sbull] Relevant process and outcome measures are monitored, 
performance assessed, and processes for sharing results and promoting 
accountability are in place.
    [sbull] Information systems collect individual patient information 
and have the capacity to aggregate data to identify practice patterns 
and/or suspected aberrant care. Systems support both individual and 
pattern analysis and other quality assurance activities.
    [sbull] The organization maintains a health record keeping system 
through which pertinent information relating to the health care of 
patients it serves is warehoused and is readily available to 
appropriate professionals.
    [sbull] Patient safety is a focus of the organization with 
executive responsibility.
f. Demonstration Implementation Plan (20 Points)
    [sbull] The organization understands demonstration principles and 
goals and objectives.
    [sbull] The organization has clearly defined an implementation plan 
with measurable goals and objectives to improve efficiency, process and 
outcomes.
    [sbull] The organization has sufficient infrastructure (for 
example, staff and systems) to implement, monitor, evaluate, and report 
on demonstration.
    [sbull] The organization has successful results in implementing 
similar activities.
4. Final Selection
    Our Administrator will select participants from among the most 
highly qualified candidates. Sites will be selected based on a variety 
of factors including organizational structure, operational feasibility, 
and geographic location. Awardees will be subject to our standard terms 
and conditions, and may be subject to special terms and conditions that 
are identified during the review process. We reserve the right to 
conduct site visits before beginning the demonstration. We expect to 
select up to six physician group practices to participate in the 
demonstration.

IV. Collection of Information Requirements

    In compliance with the requirement of section 3506(c)(2)(A) of the 
Paperwork Reduction Act of 1995, the Department of Health and Human 
Services, the Centers for Medicare and Medicaid Services (CMS), is 
publishing the following summary of proposed collections for public 
comment. Interested persons are invited to send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including any of the following subjects: (1) The necessity and utility 
of the proposed information collection for the proper performance of 
the agency's functions; (2) the accuracy of the estimated burden; (3) 
ways to enhance the quality, utility, and clarity of the information to 
be collected; and (4) the use of automated collection techniques or 
other forms of information technology to minimize the information 
collection burden.
    We are, however, requesting an emergency review of the information 
collection referenced below. In compliance with the requirement of 
section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, we have 
submitted to the Office of Management and Budget (OMB) the following 
requirements for emergency review. We are requesting an emergency 
review because the collection of this information is needed before the 
expiration of the normal time limits under OMB's regulations at 5 CFR 
part 1320. We cannot reasonably comply with the normal clearance 
procedures because without the timely approval of this application and 
instructions, these demonstrations would not be implemented in a timely 
manner resulting in the potential loss of alternative and flexible 
benefits for beneficiaries. As a result, beneficiaries may not be 
provided health care choices that will produce the most beneficial 
health care outcomes. In addition, beneficiaries will be provided with 
an alternative health care choice that may alleviate the need for 
supplemental health care coverage resulting in more cost efficient 
health care.
    We are requesting OMB review and approval of this collection within 
10 business days from the date of this publication, with a 180-day 
approval period. Written comments and recommendations will be accepted 
from the public if received by the individuals designated below within 
9 days of this publication. During this 180-day period, we will publish 
a separate Federal Register notice announcing the initiation of an 
extensive 60-day agency review and public comment period on these 
requirements. We will submit the requirements for OMB review and an 
extension of this emergency approval:
    Type of Information Collection Request: New collection.
    Title of Information Collection: Medicare Waiver Demonstration 
Application.
    Form No.: CMS-10069 (OMB 0938-NEW).
    Use: The Medicare Waiver Demonstration Application will be used to 
collect standard information needed to implement Congressionally 
mandated and administration high priority demonstrations. The 
application will be used to gather information about the 
characteristics of the applicant's organization, benefits and services 
they propose to offer, success in operating the model, and evidence 
that the model is likely to be successful in the Medicare program. The 
standard application will be used for all waiver demonstrations and 
will reduce the burden on applicants, provide for consistent and timely 
information collections across the demonstration, and provide a user-
friendly format for respondents.
    Frequency: On Occasion.
    Affected Public: Business or other for profit and not for profit.

[[Page 61123]]

    Number of Respondents: 75.
    Total Annual Responses: 75.
    Total Annual Hours: 1,600.
    For convenience to the reader, we have attached a copy of the 
proposed standardized application and instructions to this notice for 
review and comment.
    We have submitted a copy of this notice and related information 
collection package to OMB for its review of these information 
collections.
    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced above, access CMS's 
Web site address at http://www.hcfa.gov/regs/prdact95.htm, or e-mail 
your request, including your address, phone number, OMB number, and CMS 
document identifier, to [email protected], or call the Reports 
Clearance Office on (410) 786-1326.
    Interested persons are invited to send comments regarding the 
burden or any other aspect of these collections of information 
requirements. However, as noted above, comments on these information 
collection and record keeping requirements must be mailed and/or faxed 
to the designees referenced below, within 9 days of the publication of 
this notice:

Centers for Medicare and Medicaid Services, Office of Information 
Services, Security and Standards Group, Division of CMS Enterprise 
Standards, Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-
1850, Fax Number: (410) 786-0262, Attn: John Burke;
 and,
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Fax Number: (202) 395-6974 or (202) 395-5167, Attn: Brenda 
Aguilar, CMS Desk Officer.

    Authority: Section 412 of the Medicare, Medicaid, and State 
Child Health Insurance Program Benefits Improvement and Protection 
Act of 2000.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance Program; and No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: June 12, 2002.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
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[FR Doc. 02-24443 Filed 9-26-02; 8:45 am]
BILLING CODE 4120-01-C