¹ The Physician Payment Review Commission’s 1994 poll of 2070 American physicians found that nearly half had some association with health insurance plans that placed them at financial risk, either through capitation or through “withholds.” See PHYSICIAN PAYMENT REV. COMM’N, PPRC REPORT ON CHANGES IN PHYSICIAN PRACTICES, reprinted in Medicare & Medicaid Guide (CCH) ¶ 43,720, at 46,846 (Sept. 1, 1995) [hereinafter PPRC PHYSICIAN PRACTICES REPORT]; see also text accompanying infra notes 6-13 (discussing withholds, capitation and other incentive mechanisms).

² See Milt Freudenheim, HMO’s Cope With a Backlash on Cost Cutting, N.Y. TIMES, May 19, 1996, at A1 (noting that, in the last 18 months, 34 states have passed laws curtailing managed care practices, state legislatures have considered over 400 bills affecting managed care practices and asserting that the “most sweeping attacks have been aimed at the array of economic incentives and penalties that the [managed care] industry directs at doctors”).

³ See DEMURO, PAUL R., MANAGED CARE AND INTEGRATED DELIVERY SYSTEMS 1-14 (1995).Google Scholar

⁴ See id. at 1 (describing the change from fee-for-service (FFS) to managed care systems).

⁵ See 42 U.S.C. §§ 1395w-4(a) to -40) (1994). In 1992, Medicare began phasing in the new Resource-Based Relative Value Scale fee schedule for physician services; this is an FFS payment system using a fee schedule for different classes of services adjusted for different geographic areas. See id.

⁶ See PETERS, GERALD R., HEALTHCARE INTEGRATION 420 (1995).Google Scholar

⁷ See DEMURO , supra note 3, at 1.

⁸ See McGraw, Deven C., Financial Incentives to Limit Services: Should Physicians be Required to Disclose These to Patients?, 83 GEO. L.J. 1821, 1823 (1995).Google ScholarPubMed

⁹ See DEMURO , supra note 3, at 7.

¹⁰ See 1 FURROW, BARRY R. ET AL., HEALTH LAW § 8-1, at 478 (1995).Google Scholar

¹¹ See id.

¹² See U.S. Gen. Accounting Office, Physician Incentive Payments by Prepaid Health Plans Could Lower Quality of Care, HRD-89-29, at 8 (Dec. 12, 1988) [hereinafter GAO Report].

¹³ See id.

¹⁴ See id.

¹⁵ Cf. 1 FURROW ET AL., supra note 10, § 8-1, at 477.

¹⁶ See id.

¹⁷ See 2 id. § 11-12, at 60.

¹⁸ See id.

¹⁹ See 1 id. §8-1, at 480.

²⁰ See id.

²¹ See id. at 477-86.

²² See Requirements for Physician Incentive Plans in Prepaid Health Care Organizations, 61 Fed. Reg. 13,430, 13,432 (1996) (codified at 42 C.F.R. pts. 417, 434) [hereinafter HCFA Final Regulations]; Requirements for Physician Incentive Plans in Prepaid Health Care Organizations, 57 Fed. Reg. 59,024, 59,026 (1992) (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 14, 1992) [hereinafter HCFA Proposed Regulations].

²³ See HCFA Final Regulations, 61 Fed. Reg. at 13,432; HCFA Proposed Regulations, 57 Fed. Reg. at 59,026.

²⁴ See McGraw, supra note 8, at 1826.

²⁵ See 1 FURROW ET AL., supra note 10, § 5-10, at 183-88. Some states have “corporate practice of medicine” doctrines that prohibit corporations and other business entities from practicing medicine. See id. The doctrine has been interpreted to prohibit the direct employment by corporations of physicians. See id. In states where the doctrine is enforced, physicians are advised to af filiate as independent contractors rather than as employees. See id. This prohibition, originally designed to prevent employers from interfering with physicians’ professional medical judgment, has long been the subject of intense criticism because of its chilling effect on the development of cost- controlling managed care medical delivery systems. See Hall, Mark A., Institutional Control of Physician Behavior: Legal Barriers to Health Care Cost Containment, 137 U. PA. L. REV. 431, 509-11 (1988)CrossRefGoogle Scholar; see also id. at 508-09 (describing advantages of hiring physicians as employees or independent contractors to improve quality and efficiency of medical care). See generally Wiorek, John, The Corporate Practice of Medicine Doctrine: An Outmoded Theory in Need of Modification, 8 J. LEGAL MED. 465 (1987).CrossRefGoogle ScholarPubMed

²⁶ See Hall, supra note 25, at 507-08.

²⁷ See HCFA Final Regulations, 61 Fed. Reg. at 13,432; HCFA Proposed Regulations, 57 Fed. Reg. at 59,026.

²⁸ See HCFA Final Regulations, 61 Fed. Reg. at 13,432; HCFA Proposed Regulations, 57 Fed. Reg. at 59,026.

²⁹ See Krasner, Wendy & Walsh, Thomas, The Regulation of Physician Incentives, in HEALTH LAW HANDBOOK 179, 182-93 (Gosfield, Alice ed., 1995).Google Scholar A fourth type of basic payment, global payment, involves paying physicians fixed amounts for entire courses of treatment, e.g., paying a global fee “to an obstetrician for all prenatal, delivery and postnatal services.” See id. at 182. Physicians remain at financial risk for any treatment costs that overrun the prospective global payment. See id. Global payments have not achieved common use, although they may prove of considerable utility in payment of specialists for unusual services. See id. I will not deal with them further here.

³⁰ See generally Hillman, Alan L. et al., Contractual Arrangements Between HMOs and Primary Care Physicians: Three-Tiered HMOs and Risk Pools, 30 MED. CARE 136 (1992)CrossRefGoogle ScholarPubMed (discussing the effects of multi-tiered payment arrangements on physician incentives).

³¹ See HCFA Proposed Regulations, 57 Fed. Reg. at 59,025-26.

³² See HCFA Final Regulations, 61 Fed. Reg. at 13,432 (discussing bonuses, withholds and un used capitation); HCFA Proposed Regulations, 57 Fed. Reg. at 59,035 (same); see also PETERS, supra note 6, at 419-23 (describing payment techniques and the incentives they supply).

³³ See GAO Report, supra note 12, at 16.

³⁴ See id.

³⁵ See PETERS, supra note 6, at 427-33 (discussing formulae for reimbursement of physicians by medical groups).

³⁶ See id.

³⁷ See GAO Report, supra note 12, at 14.

³⁸ See id. at 18-19.

³⁹ See id.

⁴⁰ See id.

⁴¹ See id.

⁴² See PETERS, supra note 6, at 421.

⁴³ See id. at 420, 424 (stating that “as long as the physician is able to charge fees against the withhold account, the physician . . . has more incentive to perform services than to manage care”).

⁴⁴ See Hillman, Alan L et al., How Do Financial Incentives Affect Physicians’ Clinical Decisions and the Financial Performance of Health Maintenance Organizations?, 321 NEW ENG. J. MED. 86, 90 (1989).CrossRefGoogle ScholarPubMed

⁴⁵ See GAO Report, supra note 12, at 19.

⁴⁶ See id. at 24.

⁴⁷ See Krasner & Walsh, supra note 29, at 182.

⁴⁸ See id.

⁴⁹ See RODWIN, MARC A., MEDICINE, MONEY AND MORALS: PHYSICIANS’ CONFLICTS OF INTERESTS 140 (1993).Google Scholar

⁵⁰ See id. at 142.

⁵¹ See generally id. at 141 (“In recent years, the industry trend has been to reduce the amount of risk individual doctors bear.”).

⁵² See id. at 142.

⁵³ See HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,026 (1992) (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 14, 1992). See generally RODWIN, supra note 49, at 141. For an examination of stop-loss protection in more detail, see infra Part IV.B.2.

⁵⁴ See generally RODWIN, supra note 49, at 142.

⁵⁵ See generally id. at 156.

⁵⁶ See PPRC PHYSICIAN PRACTICES REPORT, supra note 1, at 46,846.

⁵⁷ See id. at 46,848.

⁵⁸ See id.

⁵⁹ See PHYSICIAN PAYMENT REV. COMM’N, 1995 ANNUAL REPORT TO CONGRESS, reprinted in [1995] Medicare & Medicaid Guide (CCH) No. 847, extra edition, pt. 2, at 231 (Mar. 30, 1995) [hereinafter PPRC 1995 ANNUAL REPORT TO CONGRESS]; see also Hiliman et al., supra note 30, at 142 tbl.2 (showing 23% of plans pay primary care physicians by salary, 35% by capitation, and 36% by FFS).

⁶⁰ See PPRC 1995 ANNUAL REPORT TO CONGRESS, supra note 59, at 231 tbl.10-4.

⁶¹ See id.

⁶² See id.

⁶³ See id.

⁶⁴ See id. at 231.

⁶⁵ See id. at 232.

⁶⁶ See id.

⁶⁷ See id. at 231 tbl.10-4.

⁶⁸ See id. at 231.

⁶⁹ See id. at 231-32.

⁷⁰ See id. at 233-34.

⁷¹ See Hillman et al., supra note 30, at 144.

⁷² PPRC 1995 ANNUAL REPORT TO CONGRESS, supra note 59, at 234. Note that this question calls for plans to estimate the maximum possible fluctuation given their incentive structure, e.g., the difference between earning no bonus one year and the maximum possible bonus the next, or between receiving all withheld funds one year and none the next. It does not call for a report of maximum fluctuation actually experienced by any physician.

⁷³ See id.

⁷⁴ See id.

⁷⁵ See id. at 235.

⁷⁶ See id.

⁷⁷ See id.

⁷⁸ See id.

⁷⁹ See id. at 236-37.

⁸⁰ See, e.g., Quality Overtakes Cost Focus in New MD Payment Programs, ACCOUNTABILITY NEWS FOR HEALTH CARE MANAGERS, Feb. 8, 1995, at 3, available in 1995 WL 10423702 at *1. “Many health plans with traditional cost-management incentive programs are moving toward new programs that factor in quality indicators and give physicians the opportunity to further increase the size of their bonuses. Many of these new systems are placing a higher value on quality indicators than on cost management factors.” Id.

⁸¹ See PPRC 1995 ANNUAL REPORT TO CONGRESS, supra note 59, at 237.

⁸² See id.

⁸³ “Use of capitation or salaries is associated with a lower rate of hospital utilization than the use of FFS payment . . .; physicians in group-model HMOs hospitalize their patients less often than physicians in more loosely organized [IPAs].” Hillman et al., supra note 44, at 86; see also GOVERNANCE COMM., ADVISORY BOARD CO., CAPITATION I: THE NEW AMERICAN MEDICINE 17-33 (1994) [hereinafter GOVERNANCE COMM., CAPITATION I] (showing capitation-related reductions in hospital use and specialist services).

⁸⁴ In 1992, the Health Care Financing Administration (HCFA) noted that neither the Depart ment of Health and Human Services nor any other researcher has found “a link between the quality of care provided under the Medicare and Medicaid programs and the structure of physician incentive plans.” HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,026 (1992) (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 14, 1992). A 1995 survey conducted by KPMG Peat Marwick found that health costs were lowest in areas where managed care penetration into the health care market was greatest, and that mortality rates were also lower in the managed care regions than in regions dominated by traditional FFS medicine. See Hall, Carl T., Area Hospitals Low in Cost, S.F. CHRON., Feb. 1, 1996, at B1Google Scholar, available in 1996 WL 3212410.

⁸⁵ See GOVERNANCE COMM., ADVISORY BOARD CO., TO THE GREATER GOOD: RECOVERING THE AMERICAN PHYSICIAN ENTERPRISE at xv (1995) [hereinafter GOVERNANCE COMM., GREATER GOOD]. “There remains no compelling body of evidence that capitation, at any level, compromises clinical quality. (No data are likely in the absence of a much improved technology for outcomes tracking.)” Id.

⁸⁶ See id. at 45. Because the percentage of patients in incentivized managed care plans varies widely by region, data on market penetration is difficult to obtain. Bearing in mind that health maintenance organizations (HMOs) do not all risk-share with their physicians, and that some non- HMO managed care plans do risk-share, we may nonetheless take HMO market penetration as a loose proxy for incentive-plan penetration. In California in 1994, 35% of insured patients were enrolled in HMOs, compared with a national average of 19%. See id. City by city, however, market penetration varied from five and seven percent in Merced and Modesto, respectively, to 46% and 51% in San Francisco and Sacramento, respectively. See id.

⁸⁷ See CENTER FOR EVALUATIVE CLINICAL SCIENCES, DARTMOUTH MEDICAL SCHOOL, DARTMOUTH ATLAS OF HEALTH CARE 114-15 (Wennberg, John E. ed., 1996)Google Scholar (encouraging the gathering of outcomes data).

⁸⁸ See id. at 114-42 (documenting extensive regional variation in medical practice among Medicare patients); Chassin, Mark R. et al., Variations in the Use of Medical and Surgical Services by the Medicare Population, 314 NEW ENG. J. MED. 285, 285-90 (1986)CrossRefGoogle ScholarPubMed (describing geographic variation among 13 areas in the United States with the use of medical and surgical services during 1981 by Medicare beneficiaries over age 65); Siu, Albert L. et al., Inappropriate Use of Hospitals in a Randomized Trial of Health Insurance Plans, 315 NEW ENG. J. MED. 1259, 1259-66 (1986)CrossRefGoogle Scholar (describing geographic differences in the rate of inappropriate hospitalization and the effect of cost sharing on that rate); Wennberg, John E. et al., Hospital Use and Mortality Among Medicare Beneficiaries in Boston and New Haven, 321 NEW ENG. J. MED. 1168, 1168-73 (1989)CrossRefGoogle ScholarPubMed (comparing rates of hospital use and mortality among Medicare recipients in the fiscal year 1985 in Boston and New Haven, Conn.); Winslow, Constance Monroe et al., The Appropriateness of Performing Coronary Artery Bypass Surgery, 260 JAMA 505, 505-09 (1988)CrossRefGoogle ScholarPubMed (describing the appropriateness and inappropriateness of surgery in three random hospitals).

⁸⁹ See Quality Overtakes Cost Focus in New MD Payment Programs, supra note 80, at *1.

⁹⁰ I am indebted for this point to Harvard Law Professor Einer Elhauge.

⁹¹ See, e.g., Hall, Carl T. & Sinton, Peter, Kaiser Care to Suffer, Group Says, S.F. CHRON., Sept. 27, 1995, at A1Google Scholar, available in 1995 WL 5300570. (“[A] consumer watchdog group says the Oakland health maintenance organization is offering bonuses to doctors who cut costs by denying health care to members.”).

⁹² See generally GAO Report, supra note 12, at 25.

⁹³ See id. at 25-26.

⁹⁴ See id. at 26-27.

⁹⁵ See id.

⁹⁶ See id. at 26.

⁹⁷ Id. at 26-27 (citing FREEDMAN, JONATHAN L., INTRODUCTORY PSYCHOLOGY (1978)Google Scholar; MORRIS, CHARLES G., PSYCHOLOGY—AN INTRODUCTION (1982)).Google Scholar

⁹⁸ Id. at 25.

⁹⁹ See GOVERNANCE COMM., GREATER GOOD, supra note 85, at 322.

¹⁰⁰ See id. at 325.

¹⁰¹ See HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,030-31 (1992) (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 12, 1992).

¹⁰² See id. at 59,031.

¹⁰³ See id.

¹⁰⁴ See id.

¹⁰⁵ See PPRC PHYSICIAN PRACTICES REPORT, supra note 1, at 46,846.

¹⁰⁶ See GOVERNANCE COMM., GREATER GOOD, supra note 85, at 106.

Variable compensation must be exceedingly rich; [a] likely prospect of 25 to 30% incentive (beyond base) [is] necessary to capture [physicians’] attention and change [their] performance .... Variable compensation in [the] 5 to 15% range [is] completely wasted; dollars might as profitably have been invested in [three percent] government instruments or simply thrown away.

Id.

¹⁰⁷ See PETERS, supra note 6, at 422.

¹⁰⁸ See HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,031 (1992) (to be codified at 42 C.F.R. pts. 417, 431) (proposed Dec. 12, 1992).

¹⁰⁹ For a fuller, more general discussion of this issue than is possible in this Article, see Timo thy Stoltzfus Jost, Oversight of the Quality of Medical Care: Regulation, Management or the Mar ket?, 37 ARIZ. L. REV. 825 (1995).

¹¹⁰ A full discussion of enterprise liability is beyond the scope of this Article. See generally RODWIN, supra note 49, at 168-75 (discussing malpractice and other common law suits relating to managed care incentives); Bearden, Diana Joseph & Maedgen, Brian J., Emerging Theories of Liabil ity in the Managed Care Industry, 47 BAYLOR L. REV. 285 (1995)Google Scholar (generally discussing plan tort liability); Glenn, Sharon M., Tort Liability of Integrated Health Care Delivery Systems: Beyond En terprise Liability, 29 WAKE FOREST L. REV. 305 (1994)Google Scholar (same); Krasner & Walsh, supra note 29, at 192-94 (discussing plan liability for incentive plans’ effects on physician practices); McGraw, supra note 8 (same).

¹¹¹ See Rosoff, Arnold J., The Role of Clinical Practice Guidelines in Health Care Reform, 5 HEALTH MATRIX 369, 390-91 (1995).Google ScholarPubMed

¹¹² Cf. Weiler, Paul C. et al., Proposal for Medical Liability Reform, 267 JAMA 2355, 2355 (1992)CrossRefGoogle ScholarPubMed (giving statistics establishing that only one of every 7.5 negligent injuries in hospitals is actually reported).

¹¹³ See Localio, A. Russell et al., Relations Between Malpractice Claims and Adverse Events Due to Negligence, 325 NEW ENG. J. MED. 245, 247 (1991).CrossRefGoogle Scholar

¹¹⁴ See Weiler et al., supra note 112, at 2355-56.

¹¹⁵ See Localio et al., supra note 113, at 245.

¹¹⁶ See generally HARVARD MED. PRACTICE STUDY, HARVARD UNIV., PATIENTS, DOCTORS AND LAWYERS: MEDICAL INJURY, MALPRACTICE LITIGATION, AND PATIENT COMPENSATION IN NEW YORK (1990) (reporting the results of a comprehensive study in New York State that analyzed the various components of medical malpractice litigation in an effort to identify and understand the key issues present within the present tort system and proposed tort alternatives).

¹¹⁷ See Frankel, Jonathan J., Medical Malpractice Law and Health Care Cost Containment: Lessons for Reformers from the Clash of Cultures, 103 YALE L.J. 1297, 1298 (1994)CrossRefGoogle Scholar (estimating an annual $15 billion in “defensive medicine” expenditures for tests and procedures provided primarily to minimize the chance of future litigation).

¹¹⁸ See 42 U.S.C. § 1320c-3(a)(1) (1994).

¹¹⁹ See id. § 300e cmt. (1994); 42 C.F.R. § 417.106 (1995).

¹²⁰ See RODWIN, supra note 49, at 162.

¹²¹ See id. at 112.

¹²² See id. at 113.

¹²³ See id. at 163.

¹²⁴ See id. at 113.

¹²⁵ See id. at 162-65 (summarizing the difficulties of relying on peer review and quality assurance programs to counter incentives to decrease services). See generally Hammack, Josephine M., Comment, The Antitrust Laws and the Medical Peer Review Process, 9 J. CONTEMP. HEALTH L. & POL’Y 419 (1993)Google ScholarPubMed (discussing the cost-saving goals and record of existing peer review processes).

¹²⁶ See RODWIN, supra note 49, at 163.

¹²⁷ Id.

¹²⁸ Id.

¹²⁹ See id. at 162-63.

¹³⁰ See id. at 5557 (explaining types of financial arrangements that create conflict of interest), 268-70 (citing various medical codes of ethics).

¹³¹ See GAO Report, supra note 12, at 28. In 1988, the GAO quoted AMA officials as taking the position that “financial incentives to restrict needed medical services are unethical and should be prohibited.” Id.

¹³² See RODWIN, supra note 49, at 56.

¹³³ See id. at 56 (discussing data gathered).

¹³⁴ Stark I prohibited physicians from making referrals for Medicare- and Medicaid reimbursable clinical laboratory services to facilities in which they had a financial interest. Stark II, an amendment to Stark I effective Jan. 1, 1995, extended the self-referral ban to include a wide va riety of other Medicare and Medicaid reimbursable services, including diagnostic imaging, the pro vision of durable medical equipment, and hospital inpatient and outpatient services. See 42 U.S.C. § 1395nn (1994).

¹³⁵ See RODWIN, supra note 49, at 67-79 (discussing data gathered).

¹³⁶ See id. at 55.

¹³⁷ Of course, too much care can hurt patients. For one thing, it can hurt them financially, even if only through indirect premium effects. There are also medical risks: one can catch illnesses from other sick people in hospitals and medical offices; one can be exposed needlessly to the tiny risks attending various tests. Finally, one can suffer needless anxiety and great loss of time. See also RODWIN, supra note 49, at 97-98 (discussing the dangers of incentives to increase physician serv ices).

¹³⁸ The exception is Minnesota, whose oddly worded statute prohibits insurers from giving fi nancial incentives to health care providers based “solely on the number of services denied or refer rals not authorized by the provider,” but does not prohibit “capitation or other compensation meth ods that serve to hold health care providers financially accountable for the cost of caring for a pa tient population.” MINN. STAT. § 72A.20, subd. 33 (1995)

¹³⁹ See O’Neill, Patrick, Ballots Give Voters Scalpel on Health Care Reform Issues, OREGONIAN, Aug. 28, 1996, at A1Google Scholar (discussing Oregon’s ballot initiative to ban capitation).

¹⁴⁰ See HCFA Final Regulations, 61 Fed. Reg. 13,430, 13,436 (1996) (codified at 42 C.F.R. pts. 417, 434).

¹⁴¹ See Omnibus Budget Reconciliation Act (OBRA) of 1990 § 4204(a)(1), Pub. L. No. 101- 508, 104 Stat. 1388 (codified at 42 U.S.C. § 1395mm(i) (1994)) (amending the Social Security Act § 1876(i) regarding Medicare); id. § 4731 (codified at 42 U.S.C. § 1396b(m)(2)(A) (1994)) (amending the Social Security Act §§ 1903(m)(2)(A), 1903(m)(5)(A) regarding Medicaid).

¹⁴² See HCFA Proposed Regulations, 57 Fed. Reg. 59,024 (1992) (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 12, 1992).

¹⁴³ Although the regulations were originally to take effect on May 28, 1996, HCFA’s Office of Managed Care bowed to pressure from the American Association of Health Plans, the Blue Cross and Blue Shield Association and other managed care organizations and agreed to delay enforcement of the regulations until January 1, 1997. HCFA Delays Implementation of Physician Incentive Rules for HMOs, NAT’L HEALTH LAW. NEWS REP. (Nat’l Health Lawyers Ass’n, Washington, D.C.), July 1996, at 2, 2.

¹⁴⁴ See id. at 59,028.

¹⁴⁵ 457 U.S. 332, 356(1982).

¹⁴⁶ See, e.g., In re Preferred Physicians, Inc., 110 F.T.C. 157 (1988) (defining a physician joint venture as one that is financed by pooled physician capital, and in which participating physicians “share substantial risk of adverse financial results caused by unexpectedly high utilization or costs of health care services”).

¹⁴⁷ See Woodhall, Amy L., An Antitrust Analysis of Physician Specialty Networks Under Changing Market Conditions, 17 J. LEGAL MED. 383, 384 (1996).CrossRefGoogle ScholarPubMed

¹⁴⁸ See Lifland, William T., Monopolies & Joint Ventures, 890 PLI/CORP 203, 393 n. 22 (1995).Google Scholar

¹⁴⁹ See generally Meyer, David L. & (Rick) Rule, Charles F., Health Care Collaboration Does Not Require Substantive Antitrust Reform, 29 WAKE FOREST L. REV. 169, 184-85 (1994)Google Scholar (explaining requirements to avoid condemnation of networks).

¹⁵⁰ U.S. DEP’T OF JUSTICE & FEDERAL TRADE COMM’N, STATEMENTS OF ENFORCEMENT POLICY AND ANALYTICAL PRINCIPLES RELATING TO HEALTH CARE AND ANTITRUST, reprinted in 67 Antitrust & Trade Reg. Rep. (BNA) No. 1682, at S-3, S-17 (Supp. Sept. 29, 1994) (Statement 8 on physician network joint ventures).

¹⁵¹ Id.

¹⁵² U.S. DEP’T OF JUSTICE & FEDERAL TRADE COMM’N, STATEMENTS OF ANTITRUST EN FORCEMENT POLICY IN HEALTH CARE, reprinted in 71 Antitrust & Trade Reg. Rep. (BNA) No. 1777 (Supp. Aug. 29, 1996) (Statement 8 on physician network joint ventures).

¹⁵³ See id.

¹⁵⁴ Id.

¹⁵⁵ See GAO Report, supra note 12, at 11.

¹⁵⁶ See Van, Jon, AMA Blasts Cost-Cutting Lure, CHI. TRIB., June 20, 1985, § 2, at 10Google Scholar; Bates, Betsy, AMA Assails Doctor Bonus Programs Used by Some California Hospitals, SAN DIEGO UNION TRIB., June 20, 1985, at A13Google Scholar, available in 1985 WL 2625793.

¹⁵⁷ See Lave, Judith R., The Impact of the Medicare Prospective Payment System and Recom mendations for Change, 7 YALE J. ON REG. 499, 499 (1990).Google Scholar

¹⁵⁸ See id. at 500.

¹⁵⁹ See id. at 499.

¹⁶⁰ See id. at 505-06.

¹⁶¹ See id. at 507.

¹⁶² See GAO Report, supra note 12, at 11.

¹⁶³ See id. (discussing the Paracelsus case); see also RODWIN, supra note 49, at 149 (same).

¹⁶⁴ See GAO Report, supra note 12, at 11.

¹⁶⁵ See id.; see also RODWIN, supra note 49, at 165.

¹⁶⁶ See RODWIN, supra note 49, at 165.

¹⁶⁷ See GAO Report, supra note 12, at 11.

¹⁶⁸ See HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,025 (1992) (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 12, 1992).

¹⁶⁹ See RODWIN, supra note 49, at 165-66.

¹⁷⁰ See id. at 166.

¹⁷¹ 42 U.S.C. § 1320a-7a(b)(1) (1994).

¹⁷² See id. § 1320a-7(b)(2).

¹⁷³ See Civil Money Penalties for Hospital Physician Incentive Plans, 59 Fed. Reg. 61,571 (1994) (proposed Dec. 1, 1994).

¹⁷⁴ See id. at 61,573.

¹⁷⁵ See id.

¹⁷⁶ See 42 U.S.C. § 1395nn (1994).

¹⁷⁷ Stark is credited with inserting the OBRA ‘86 provision. See Krasner & Walsh, supra note 29, at 184 (stating that “Stark ... was able to insert” the incentive ban in OBRA ‘86). The law pro hibits hospitals and prepaid health care organizations with Medicare or Medicaid risk contracts from knowingly making incentive payments to a physician as an inducement to reduce or limit services to Medicare beneficiaries or Medicaid recipients. See infra notes 181-84 and accompanying text.

¹⁷⁸ See 42 U.S.C. § 1395nn.

¹⁷⁹ See id. § 1395nn(e)(3)(B).

¹⁸⁰ This restriction is echoed in a portion of the Social Security Act examined in detail below.

¹⁸¹ See 42 U.S.C. § 1395mm(i)(8)(A)(i)-(ii).

¹⁸² Social Security Act § 1876(i)(8)(A)(i); id. § 1395mm(i)(8)(A)(i).

¹⁸³ Id. § 1395mm(i)(8)(A)(ii).

¹⁸⁴ See id. § 1395mm(i)(8).

¹⁸⁵ See RODWIN, supra note 49, at 166 (“HMOs and the managed care industry have shunned the use of one payment, offered to one physician, to reduce care to one patient. The law thus pro hibits an abuse, albeit one that has never occurred.”).

¹⁸⁶ See HCFA Final Regulations, 61 Fed. Reg. 13,430, 13,447 (1996) (codified at 42 C.F.R. pts. 417, 434).

Id.

¹⁸⁷ HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,033 (1992) (to be codified at 42 C.F.R. pts 417, 434) (proposed Dec. 12, 1992).

¹⁸⁸ See id.

¹⁸⁹ RODWIN, supra note 49, at 166; see also McGraw, supra note 8, at 1833 (describing this type of incentive as “particularly egregious”).

¹⁹⁰ See generally GAO Report, supra note 12, at 25.

¹⁹¹ See HCFA Proposed Regulations, 57 Fed. Reg. at 59,033 (“Bonuses that are based on gen eral utilization (i.e., bonuses determined by aggregate patient utilization) would be permitted.”).

¹⁹² See, e.g., GOVERNANCE COMM., CAPITATION I, supra note 83, at 30-31 (remarking on divi sions of opinion regarding the appropriate goal for inpatient days per 1000 enrollees in capitated plans).

¹⁹³ See 42 U.S.C. § 1395mm(i)(8)(A)(ii)(I); see also supra text accompanying note 183.

¹⁹⁴ See HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,026 (1992) (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 14, 1992); see also supra text accompanying note 53.

¹⁹⁵ GAO Report, supra note 12, at 20.

¹⁹⁶ See HCFA Proposed Regulations, 57 Fed. Reg. at 59,030.

¹⁹⁷ See id. at 59,031.

¹⁹⁸ See id. at 59,026.

¹⁹⁹ See id. at 59,026; see also supra text accompanying note 53.

²⁰⁰ See HCFA Proposed Regulations, 57 Fed. Reg. at 59,027; see also HCFA Final Regulations, 61 Fed. Reg. 13,430, 13,433 (1996) (codified at 42 C.F.R. pts. 417, 434) (describing “bonuses based solely on the quality of care provided, patient satisfaction, and participation on committees”). This calculation is made exclusive of incentive amounts that are not tied to referral levels; thus, incentives tied solely to quality of care, patient satisfaction, and overall plan performance are not counted. See id.

²⁰¹ See HCFA Proposed Regulations, 57 Fed. Reg. at 59,029 example 1.

²⁰² The stop-loss protection is only required to cover 90% of physician losses over the 25% threshold; physicians continue to bear the risk for ten percent of excess losses so that incentive effects do not entirely vanish when physicians have passed a certain cost-level. See HGFA Final Regulations, 61 Fed. Reg. at 13,440.

²⁰³ See id. at 13,441.

²⁰⁴ See id. at 13,433.

²⁰⁵ The $200,000 limit still applies to panels of over 25,000 patients if the panel size is achieved only by pooling together program and commercial patients, or by pooling together the patients of separate physician groups. See id. at 13,441.

²⁰⁶ See id.

²⁰⁷ See id. at 13,440.

²⁰⁸ Of course, the aggregate ceiling does protect consumers to some extent, but the protection is uneven and is not closely tied to decisions regarding particular patients. Until the 25% ceiling is passed, physicians can still be at risk for the full cost of referrals. In theory, a single referral deci sion could still cost a physician substantial amounts of money. At the end of high cost years, when there is no longer any chance of the physician earning any of the at-risk funds, she bears only ten percent of the cost of referrals. In sum: aggregate insurance sets physicians at ease about fluctua tions in their annual income, but does nothing to prevent intense incentive effects.

²⁰⁹ See HCFA Final Regulations, 61 Fed. Reg. at 13,441-42.

²¹⁰ See HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,032-33 (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 12, 1992).

²¹¹ See HCFA Final Regulations, 61 Fed. Reg. at 13,441.

²¹² See HCFA Proposed Regulations, 57 Fed. Reg. at 59,028.

²¹³ See id.

²¹⁴ See id. at 59,026.

²¹⁵ See id. at 59,027-28.

²¹⁶ See id. at 59,028.

²¹⁷ See id.

²¹⁸ See id.

²¹⁹ See supra discussion Part I.C.

²²⁰ See HCFA Proposed Regulations, 57 Fed. Reg. at 59,028.

²²¹ See generally Hammack, supra note 125.

²²² See PETERS, supra note 6, at 422; see supra note 107 and accompanying text.

²²³ See supra Part III.

²²⁴ See supra note 108 and accompanying text.

²²⁵ GOVERNANCE COMM., GREATER GOOD, supra note 85, at 132-33.

²²⁶ See id. at 132.

²²⁷ See id. at 319-40 (detailing the advantages of pod-level physician capitation); see also GEORGE C. HALVORSON, STRONG MEDICINE 193-94 (1993) (recommending prepayment to prepaid accountable care teams for primary and specialty physicians).

²²⁸ See GOVERNANCE COMM., GREATER GOOD, supra note 85, at 325.

²²⁹ See GAO Report, supra note 12, at 15.

²³⁰ See GOVERNANCE COMM., GREATER GOOD, supra note 85, at 325 (stating that “[p]od [members] work together to improve [their] performance . . . [because the pod’s small size] facilitates peer monitoring,” discussion and identification and use of the best medical practices). See generally HALVORSON, supra note 227, at 193-202 (discussing care givers being paid and rewarded as teams instead of as unrelated individual businesses).

²³¹ See HCFA Proposed Regulations, 57 Fed. Reg. 59,024, 59,032-33 (to be codified at 42 C.F.R. pts. 417, 434) (proposed Dec. 12, 1992).

²³² See id.

²³³ See PETERS, supra note 6, at 419-35 (discussing combined cost-and-quality schemes); see also HALVORSON, supra note 227, at 199.

²³⁴ See GOVERNANCE COMM., GREATER GOOD, supra note 85, at 125; see also DEMURO, supra note 3, at 45.