Appendix 1. Glossary of Terms

Bonus is an extra payment that the physician may receive at the end of the year for keeping the health plan's payments, particularly to specialists and hospitals, below a pre-determined budget or utilization target. Bonuses are paid to physicians if there are funds remaining in the risk pool (see below) at the end of the fiscal year. In some bonus systems, physicians must return payments to the health plan if utilization is above a target. The amount of the bonus may be based upon the patient utilization and costs of individual physicians at one extreme, or the utilization experienced by the health plan's entire group of physicians at the other extreme. Bonuses may also be determined from measures of patient satisfaction, access and outcomes of care.

Capitation is a payment system in which physicians are paid a fixed amount per enrollee, not per service, on a monthly basis which requires the physician to take financial risk for managing the care of their patients. A capitated payment per enrollee is made to the physician whether or not the enrollee ever sets foot in the physician's office.

Carveout is a medical service that health plans do not include in the range of services that a physician under capitation must provide. Current practice is to exclude mental health and chiropractic services from a primary care physician's range of services that must be covered by the capitation payment.

Fee-for-service is a payment system in which physicians are paid for every service and test that they provide based on the usual and customary fees charged in the local area. If tests are provided by an outside lab or hospital, then the facility receives the payment instead of the physician.

Discounted fee-for-service is a payment system, similar to fee-for-service, in which physicians are paid for every service and test that they provide based on a fee schedule or pre-determined discount of the quoted price. If tests are provided by an outside lab or hospital, then the facility receives the payment instead of the physician.

Gatekeeping is a relationship in which enrollees must choose a primary care physician or a primary care clinic as their point of contact with the health care system. All referrals and subsequent care must be obtained from a primary care physician or at the chosen primary care clinic, because self-referral to specialists is not allowed.

Open Access gives the patient the freedom to self-refer to specialists and physicians outside the network, in exchange for lower coverage by the health plan. Open access is the opposite of gatekeeping.

Referral is access to specialists that is granted by an enrollee's primary care physician or health plan.

Retrospective Utilization Target is an incentive system, similar to bonuses, in which physicians receive extra payments at the end of the year if utilization of their patients has been below a pre-determined target, or physicians must return payments to the health plan if utilization has been above a target. The main difference between retrospective utilization targets and bonuses is that physicians do not have the potential to pay back the health plan some payments they way they may have to with retrospective utilization targets.

Risk pool is a group of physicians that form the basis of a payment incentive arrangement, such as bonuses, withholds, and retrospective utilization targets. Risk pools may include all physicians in the health plan's network, all primary care physicians in a network, or more specific subsets of physicians.

Salary is a payment system in which physicians are paid a fixed weekly or monthly amount, and pay is not tied to enrollees or services rendered.

Withhold is a percentage of the capitation or fee-for-service payment from each service that is retained by the health plan to fund the risk pool and to finance potential deficits. Withhold funds may be distributed to physicians as bonuses at the end of the contract year if withhold funds have not been expended on specialty, hospital or other costly health care.