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Negotiating a managed care contract

By Dennis Hursh, Esq.

The purpose of this article is to highlight a few “advanced” concepts to consider in negotiating a managed care contract. The article is not intended to cover all the issues which need to be addressed. If the proposed agreement will pay you “the fee schedule in effect from time to time,” based upon a definition of medical necessity which can be paraphrased as “whatever we (the health plan) say it is,” then the concepts addressed in this article will be the least of your problems.

Many physician practices are able to negotiate tolerable (occasionally, even reasonable) agreements with managed care companies. Savvy physicians and practice managers generally know basic issues which should be addressed. However, even the best run practices often sign agreements which contain provisions that can prove to be troublesome. This article will highlight a few of these issues. (For clarity, the contracting managed care company is referred to as “MegaHealth” throughout.)

Preferred Provider Organizations

PPOs are frequently among the best payors. However, several issues can arise in these contracts.

First, the definition of “Payor” is critical. Many plans define a “Payor” as “an individual, organization, firm or governmental entity, or self-insured account that has executed an agreement with MegaHealth.” This definition would allow MegaHealth to “rent” its network in a manner which could be deemed a “silent PPO.” Specifically, if a California resident with insurance through a small regional company located in California is traveling in Pennsylvania, becomes ill, and presents at your office, you would expect to receive your usual, customary and reasonable fees for this office visit. However, if the patient’s health plan or third party administrator is able to obtain access to your practice’s negotiated rates with MegaHealth, you will receive a greatly reduced discounted fee for seeing the patient. In short, a “silent PPO” has the effect of changing UCR payments to discounted fees. Presumably, you granted MegaHealth a discounted fee in return for inclusion in a provider directory, which “steers” patients to you. Of course, in this scenario, it may very well have been your yellow page ad that drove the patient into the office.

To address this issue, the definition of “Payor” should very clearly state that the term relates solely to MegaHealth, affiliated entities in the insurance company holding group, and self-funded employee benefit plans which use MegaHealth as an administrator. It would be helpful if the definition of “Payor” specifically provided that the discounts being negotiated will not be accessible to any party other than those described above. Even better, some health plans are willing to provide a list of self-funded employers which have access to these discounts. It would be prudent to assure that such a list is given, and to regularly check the list against explanations of benefits received, to assure that the discounts negotiated with MegaHealth are not being “rented” to other parties.

Secondly, most PPO agreements bring all “Payors” under the umbrella protection of the agreement. Therefore, even though you may be very pleased in general with payment and other terms of the MegaHealth contract, your practice might suddenly realize that it is not being paid with respect to enrollees of one employer. Frequently, your only option in this case is to claim a breach of the agreement by MegaHealth, and either terminate the entire agreement or “grin and bear it.” A better alternative would be to obtain a provision in the agreement to the effect that both parties acknowledge that agreements are being made between MegaHealth and employers, and that your practice is a third party beneficiary of these agreements. This clause should give you the right to sue directly an employer who is not paying for services, without terminating the rest of your MegaHealth agreement. You should also attempt to obtain specific provisions to the effect that, if a given employer is in default of its obligations, then MegaHealth will provide your practice with a copy of its agreement with the employer. If possible, require MegaHealth to make a demand to the employer on your behalf. An optimal result would be to require MegaHealth to make a demand, and to provide that if payment is still not forthcoming within a reasonable period of time, then MegaHealth has two options: either pay the claims itself, or assign all its rights under the MegaHealth/employer agreement to you. In any event, it should be made clear that your obligation to treat enrollees of that particular employer will be released upon your notification to MegaHealth that the employer is a deadbeat.

Uneven Handling of Claims

Many practices have a relatively small number of CPT codes that account for the majority of the practice’s income. Often, at contract renewal, the biggest complaint by the practice will be that MegaHealth treats a given CPT code unevenly. Typically, the relevant scientific literature supports a given treatment modality under specified conditions. However, MegaHealth patients presenting with these conditions are frequently denied payment for this modality based upon an alleged lack of medical necessity. It is not uncommon that some significant portion of patients presenting with these conditions are not denied payment by MegaHealth. Sometimes, every MegaHealth enrollee is initially denied payment, but, upon appeal, coverage is granted.

This is one of the most difficult provisions to negotiate successfully. Many health plans utilize proprietary software in their decision-making process. The licensing agreements with the software companies often prohibit wide-scale distribution outside of MegaHealth. Accordingly, MegaHealth representatives will earnestly assure you that they cannot provide you with the decision making criteria. However, the licensing agreements of most decision-making software companies do allow sharing of specific criteria for a given CPT code to a physician disputing payment. Thus, although MegaHealth is most likely prohibited from providing you the decision-making criteria for all CPT codes in your specialty, it is most likely not prohibited from sharing the decision-making criteria with respect to a given CPT code, particularly if you are currently disputing a decision made based upon that criteria.

The best outcome in situations such as this is to utilize the relevant scientific literature as an attachment to the agreement, specifically stating that a given modality is appropriate under the circumstances described in this exhibit. Although somewhat rare, this result has been obtained in negotiations in Pennsylvania. Another approach, somewhat more common, would be a simple statement attached to the agreement that a given modality will be approved under certain defined circumstances.

This is an extraordinarily difficult provision to negotiate, since MegaHealth quite rightly will be concerned about treating enrollees with identical conditions differently, depending upon which practice treats them. However, to the extent that MegaHealth’s medical director can be involved, that individual is likely to want to assure uniform correct treatment (and treatment payment decisions) for all patients. Therefore, if the criteria are appropriate and generally recognized, the MegaHealth medical director may become an ally in contract negotiations on this point.

Retroactive Claim Adjustments

Most managed care companies strictly limit the amount of time in which a practice may amend a claim – frequently to just 90 days after the service was rendered. However, few agreements place any limitation upon the period of time in which MegaHealth can review a paid claim. Accordingly, practices have faced retroactive adjustments with respect to claims paid six years earlier. Although medical records may be available in the distant future, detailed financial records with respect to individual claims are not commonly retained for long periods. Accordingly, the practice is likely to be unable to efficiently contest any retroactive adjustment based upon services performed more than a year or two before the adjustment is claimed by MegaHealth.

Although a “good for the goose, good for the gander” limitation of 90 days would seem imminently reasonable, this equitable result does not seem to be obtainable. Nevertheless, most managed care companies are willing to place some outer limit (e.g., two to three years) on the period of time in which they may retroactively reduce previously paid claims.

A separate but related issue relates to offsets of monies allegedly owed to MegaHealth by the practice. Most managed care agreements provide that, should MegaHealth determine that it has overpaid any money to the practice, then MegaHealth may simply offset this money against money owed for services rendered. The problem with this approach is that, if MegaHealth determines that it has overpaid a large dollar value of claims, cash flow to the practice can be seriously jeopardized. Even worse, the practice manager will not be aware of this impending cash crisis until it hits, since the first inkling will be receipt of an explanation of benefits which shows an amount owed for services, and reflects an offset. A major adjustment by a huge payor could be financially ruinous to a practice. To attempt to avoid this result, attempt to negotiate contract language which requires MegaHealth to give the practice reasonable advance notice of a proposed adjustment, together with an opportunity to contest the adjustment.

In today’s challenging environment, physician practices have to be tough to survive. Effective negotiations with managed care companies can no longer focus solely on basics such as fee schedules. Every detail of each contract must be scrutinized, evaluated and negotiated. To obtain credit for this course in Managed Care 401 (sorry, no CME), promptly negotiate (or re-negotiate) at least one managed care agreement to successfully include one of the points raised in this article. Good luck!

Dennis Hursh, Esq., is a principal in Hursh & Hursh, P.C., a Harrisburg area law firm.

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