By Todd A. Rodriguez, Esq.

Published August 2005

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Third-party payor reimbursement is the lifeblood of every medical practice. For a variety of reasons, however, few physicians devote much, if any, time to negotiating and managing their payor relationships. Many physicians, especially those in smaller practices, feel that they are without leverage to negotiate changes to payor agreements and, in particular, to standard payor fee schedules. Rather than expending the necessary time and effort to review proposed payor agreements, these disheartened physicians simply sign whatever agreement is put before them without even so much as reading it. Moreover, once signed, the agreement is very often lost or forgotten by the physician (and sometimes the payor) until a payment dispute sends both parties scrambling to find the executed original.

It is indisputable that third-party payors in Pennsylvania have a great deal of latitude in both the contracting process and the reimbursement process, and they generally take full advantage of that latitude. In addition, payor agreements and fee schedules can be complex and reviewing them in detail can be time consuming. Monitoring the reimbursement process once a payor agreement is signed also takes a great deal of time and considerable know-how. However, reimbursement is the most critical aspect of any medical practice, and from a business standpoint, physicians are well-advised to become as familiar with and as involved in the reimbursement and contracting process as possible.

Payor Contracting

Third party payor agreements are notoriously one-sided in favor of the payor and, as with any other type of contract, you may be held liable for actual (and in some cases even punitive) damages for breach of a payor agreement. Accordingly, you should never sign a payor agreement without first reviewing it or having it reviewed by an attorney. Even if the agreement is not subject to negotiation, you should at least be cognizant of the legal obligations the agreement creates. While you may not be able to negotiate better reimbursement rates every time a contract is placed in front of you, you should, at a minimum, read and understand the provisions you are agreeing to and, whenever possible, attempt to negotiate agreement language that is fair and reasonable. Before signing a payor agreement, you should, at a minimum, review the agreement to be sure that it includes those elements required by Pennsylvania’s managed care insurance statute. The statute requires that every agreement between a Pennsylvania licensed insurer or managed care plan and a medical provider include at least the following elements:

· Language addressing the alternative dispute resolution process followed by the payor for resolving provider disputes.

· Language concerning the prompt payment of claims.

· A provision that neither party is permitted to terminate the agreement without cause on less than 60 days’ prior notice.

· Language requiring the payor to give the provider at least 30 days’ prior written notice of any changes to the agreement, policies or procedures.

· A description of the reimbursement methodology to be used to reimburse the provider under the agreement.

Not only should you ensure that the above provisions are included in your payor agreements but you should also be sure these and all provisions in the agreement are readily understandable. Definitions of key terms such as "medical necessity," "emergency services" and "clean claims" should be clear and specific. While payors may be reluctant to change these terms, a payor’s failure to clarify vague or confusing agreement language may serve as evidence of bad faith should a future payment dispute based on those provisions end up in litigation. The need for clear agreement language is perhaps most important when it comes to the reimbursement terms. If the formula is complex, you should request that a sample payment calculation be attached to the agreement as an exhibit. In addition, where the agreement references a payor’s "fee schedule," the applicable fee schedule should also be attached to and incorporated into the agreement.

Managing the Process

The managed care contracting process should not end with the execution of a payor agreement. Rather, you should continue to manage your relationships with your third-party payors to ensure that each payor complies with the terms of your agreement and with applicable law. To begin with, executed provider agreements should be retained in a binder and amendments to the agreement, as well as payor policies and procedures, should be added to the binder as they are received. If an agreement is misplaced, promptly request a copy from the payor, since obtaining a copy once the agreement is in dispute may be difficult if not impossible.

One of the often-overlooked weapons in a physician’s arsenal for managing third-party payors relationships is a state’s prompt pay laws. These laws attempt to create a framework within which payors must adjudicate claims. By most accounts, prompt pay laws are not a panacea, but they do give physicians a foothold from which to initiate resolution of payment disputes. Forty-seven states and the District of Columbia have prompt payment laws in place. Pennsylvania’s prompt pay law requires licensed insurers and managed care plans to pay "clean claims" within 45 days of receipt of those claims. If the payor fails or refuses to pay a clean claim within the prompt pay period, interest accrues on the outstanding amount at ten percent per annum. The interest must be paid within 30 days of final payment of the claim.

Physicians may report a violation of the prompt pay law to the Pennsylvania’s Insurance Department or the Pennsylvania Department of Health for investigation and follow-up. The law requires that prior to filing a complaint, providers first contact the insurer or managed care plan to determine the status of the claim. Where a violation is found to have occurred, the Insurance Department or the Department of Health may impose a civil penalty of up to $5,000 per violation, maintain an action in the name of the Commonwealth of Pennsylvania for an injunction against the insurer to prohibit the violative activity, issue an order temporarily prohibiting the plan from enrolling new members, or require a plan to develop and adhere to a plan of correction approved by the Department of Health.

Although, on its face, the Pennsylvania prompt pay law would appear to give physicians exactly the kind of leverage they need to keep payors compliant, there is a significant loophole in the legislation which arguably shifts the balance of power back to the payors. Specifically, the determination of whether a claim is "clean" is in the hands of the payor. The statute defines a clean claim as "a claim for payment for a health care service which has no defect or impropriety." A defect or impropriety includes lack of required substantiating documentation or a particular circumstance requiring special treatment which prevents timely payment from being made on the claim. Each payor may require different "substantiating documentation." Therefore, it is important at the outset of a relationship with a third-party payor to define as clearly as possible what elements will be required in order for a claim to be considered "clean."

A payor may not refuse to provide you with the elements of a clean claim. Specifically, the Pennsylvania statute requires all licensed insurers and managed care plans in Pennsylvania to provide written disclosure to a health care provider of all of the data elements necessary to ensure that a claim is without defect or impropriety and meets the definition of a clean claim under the act. The insurer or plan must provide this information within 30 days of entering into a participation agreement. Where providers are non-participating, the insurer or managed care plan must provide the information within 45 days of any oral or written request from the provider.

Monitoring Reimbursements

As an on-going matter you, or someone in your billing office, should review each and every explanation of medical benefits (EOMB) carefully for improper payment practices and processing errors. Improper denials should be promptly appealed within the applicable appeal guidelines of the payor. Generally, all communications with third-party payors should be in writing or confirmed in writing, and it is preferable to send correspondence via certified mail so that you have confirmation that the communication was received by the payor. All correspondence regarding claims disputes should be retained for future reference.

When dealing with third-party payors, follow-up is critical. If EOMB’s or explanations in other communications are unclear, written clarification should be sought. Whenever dealing with payor representatives on the phone, practice representatives should take detailed notes, including the name of the payor representative and the date of the communication. This information will prove useful if a dispute must be reported to the Department of Insurance or the Department of Health or in the event of litigation.

As a final matter, bear in mind that you do not necessarily have to participate with every payor that puts a contract on your desk. Where a payor’s tactics, contract terms or reimbursement levels seem particularly unfair, you should question whether participation with that payor even makes sense.

Not surprisingly, third-party payors have become accustomed to physicians accepting agreement terms without asking questions and physicians have all too willingly fallen into this role. Unless physicians become more knowledgeable about the managed care contracting process and actively participate in it, this trend will inevitably continue. While you may not be able to control the reimbursement process, you can manage it and keep payors honest by reviewing and understanding your payor agreements, monitoring reimbursements and taking payors to task when they fail to abide by agreement terms and applicable insurance laws.

Todd A. Rodriguez, Esq., is a health care attorney in the Chester County, Pa. office of Fox Rothschild LLP.