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At Risk Compensation Section K-1. Planned At Risk Compensation Medical Group is placed at risk with respect to a portion of its planned compensation, called Planned At Risk Compensation. The amount of Planned At Risk Compensation for each calendar year will be set forth, or determined in the manner set forth, in the Memorandum of Understanding. The reasons for placing Medical Group at risk with respect to a portion of its planned compensation are to: (a) Provide Medical Group with an economic interest in achieving optimum efficiency and economy in theprovision of Medical Services, Hospital Services and Administrative Services incident to the conduct of the Medical Care Program, consistent with maintaining appropriate standards of quality and service; and with maintaining appropriate standards of quality and service; and (b) Help protect the solvency of Health Plan by transferring a portion of the financial risk of conducting the Medical Care Program to Medical Group; and (c) Meet the requirement of the Health Maintenance Organization Act of 1973, as amended, and regulations and rulings thereunder, to the extent that they require Medical Group to be placed financially at risk. Section K-2 Calculation of At Risk Compensation Planned At Risk Compensation will be adjusted as follows to produce At Risk Compensation: (a) If there is zero Net Program Revenue, Planned at Risk Compensation will not be adjusted: (b) If there is a deficit in Net Program Revenue, Planned At Risk Compensation will be reduced by an amount equal to the lesser of Planned At Risk Compensation or 50% of the deficit in Net Program Revenue; (c) If there is any Net Program Revenue, Planned At Risk Compensation will be increased by an amount equal to 50% of Net Program Revenue, except that At Risk Compensation will not exceed 10% of Medical Service Costs for the year. If At Risk Compensation (that would be payable were it not for said 10% limitation) exceeds 10% of Medical Service Costs, then the excess over 10% will be retained by Health Plan and utilized in furtherance of general Medical Care Program objectives such as increasing benefits to Members, adding to or improving facilities, or minimizing rate increase requirements in future years. Section K-3 Determination of Net Program Revenue The sum of the following amounts will be subtracted from Program Revenue: (a) All Health Plan costs and expenses for the year (including the cost of wage, salary and finge benefit increases for employees of Health Plan, but excluding the amount of such increases to non-unionized employees not approved by Medical Group), except that the cost of any qualified retirement plan is the amount budgeted to fund the retirement plan trust ("Trust") regardless of the amount computed pursuance to Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions ("FASB 87"), but excluding (i) depreciation, (ii) taxes and other governmental impositions or charges, (iii) expenses, if any, allocable to the production of Excluded Revenue, and (iv) actual compensation to Health Plan and Hospitals management personnel determined at year-end, in addition to monthly salary, as recognition for services performed during the year; plus (b) Base Compensation to Medical Group for the year under Article J of this Agreement; plus (c) Planned At Risk Compensation and planned compensation to Health Plan and Hospitals management personnel determined at year-end, in addition to monthly salary, as recognition for services performed for the year; plus (d) Base Compensation to Hospitals for the year under Article G of the Hospital Service Agreement, except (i) amounts allocable to depreciation, and (ii) taxes and other governmental impositions or charges; plus (e) Revenue attributable to Nonmember and Workers' Compensation Services; plus (f) Other Revenue; plus (g) Miscellaneous Revenue collected and retained by Hospitals (which reduces Base Compensation to Hospitals referred to in (d) above); plus (h) The net amount, if any, by which the aggregate sum of actual expenses is less than the aggregate sum of planned expenses (as set forth in the Operating Budget) to the extent attributable to:
(i)
Delays in or early openings of new facilities; and
(i)
The amount set forth in the Operating Budget and Memorandum
of Understanding as planned cash(ii) Delays in or early acquisition of facilities or sites for proposed facilities; and (iii) Medical Group extraordinary expenses generally related to new facility start-up costs; and (iv) Any other item agreed to in writing by Health Plan and Medical Group; plus generation to meet the planned capital requirements of Health Plan and Hospitals, (A) reduced by the amount, if any, by which the amount budgeted to fund any Health Plan or Hospitals Trust exceeds the amount computed pursuant to FASB 87, and (B) increased by the amount, if any, by which the amount budgeted to fund any Medical Group Trust exceeds the amount paid to Medical Group for contribution to the Trust; plus (j) The planned amount of taxes and other governmental impositions or charges upon or payable by Health Plan or Hospitals, increased or decreased by the actual amount of any variance from forecast in any such tax, imposition or charge, but excluding any increase or decrease attributable to a variance due to a change in organizational status or classification, change in law, administrative or judicial decision, or mistake of law; plus (k) Any other item agreed to in writing by Health Plan and Medical Group. The balance of Program Revenue, if any, remaining after all of the foregoing have been deducted is Net Program Revenue. Section K-4 Payment of At Risk Compensation At Risk Compensation will be determined on an annual basis and final payment will be made within a reasonable time following completion of the outside audit for the year, but in no event later than April 1 of the following year. Health Plan will periodically estimate and report to Medical Group the status of At Risk Compensation, and advances against estimated At Risk Compensation may be paid at any mutually agreed time. Section K-5 Distribution of At Risk Compensation At Risk Compensation will be paid to Medical Group, free from restriction, for distribution among employees of Medical Group in such manner as Medical Group, in its discretion, may determine. Medical Group intends to implement equitable arrangements under which At Risk Compensation will be distributed on an individual, department, subgroup, or other appropriate basis so as to constitute an effective incentive for efforts of individuals, departments and subgroups to further the common interests of Health Plan and Medical Group in providing maximum benefits to Members at the most reasonable cost consistent with maintaining accepted professional standards of Medical Services and Hospital Services. Section K-6 Determination of Net Medical Group Revenue Net Medical Group Revenue is the amount, if any, by which the sum of: (a) Base Compensation to Medical Group; plus (b) At Risk Compensation; plus (c) Revenue attributable to Nonmember and Workers' Compensation Medical Services; plus (d) Other Revenue; plus (e) Any other revenue agreed to in writing by Health Plan and Medical Group as subject to this definition; exceeds all Medical Group expenses (including salaries of Physicians and any Residual Claim paid by Medical Group but not reimbursed by Health Plan, but excluding any payments under Section K-4) incurred by Medical Group during the calendar year realting to performing Medical Services and other services under this Agreement. If the sum of (a) through (e) above is less than all Medical Group expenses as herein described, then Net Medical Group Revenue will be a negative number. Section K-7. Negative Variance In Net Medical Group Revenue Sections K-7 and K-8 will be applied after calculation of Net Program Revenue and Net Medical Group Revenue. Ifthere is a negative Variance in Net Medical Group Revenue, then Health Plan will pay Medical Group a portion thereof (multiplied by the number of Eligible Physicians) according to the following table: Amount of Negative
Variance
If application of this Section K-7 is necessary, it will be applied only once each year. Section K-8.
Positive Variance
Eligible Physicians) will be deducted according to the following table and applied as provided in Section K-10:
Section K-9. Negative Variance in Health Plan Cash Generation
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