Transmission of financial incentives to physicians by intermediary organizations in California.

Many U.S. physicians participate in provider-sponsored organizations that act as their intermediaries in contracting with managed care plans, particularly where capitation contracts are used. Examining a survey of 153 intermediary entities in California, we trace the cascade of financial incentives from health plans through physician organizations to primary care physicians. Although the physician organizations received the vast majority (84 percent) of their revenues through capitation contracts, most of the financial risk related to utilization and costs was retained at the group level. Capitation of primary care physicians was common in independent practice associations (IPAs), but payments typically were restricted to primary care services. Thirteen percent of medical groups and 19 percent of IPAs provided bonuses or withholds based on utilization or cost performance, which averaged 10 percent of base compensation.