Managed-Care Contract Content Issues

As discussed elsewhere on this site, one of the things that has become a staple of the American healthcare system is managed care contracts between healthcare Providers and Payors, Insurers or Networks.

Although major insurers and networks such as Aetna, Blue Cross, CIGNA and United Healthcare have detailed boilerplate contract templates, Providers often run into small organizations, especially local independent healthcare networks, whose templates are little more than a “handshake on paper”. These may be designated as formal Participating Provider Agreements or just a Letter of Agreement.

“Paper Handshake” Problems

These “paper handshake” agreements usually lead to problems at some point because in most cases no state or federal statutes or regulatory agency rules or regulations specifically regulate managed care networks per se. In most states, any regulation of managed care networks is only indirect, by regulating insurers. If no party to the relationship is an insurer (e.g., Provider-Network-ERISA plan), the relationship is essentially unregulated.

These small networks often use very superficial forms, often less than three pages, which may appear to work – until a major problem arises. When a problem does arise it is far more likely that the Provider will wind up bearing the brunt of the loss rather than the Network or the Payor.

Although at times contract negotiations do get tedious and nerve-wracking, it is important always to keep in mind that the purpose of a managed-care Agreement is not to create stumbling blocks, traps for the unwary and “gotchas”.

The purpose is to establish a clear, smooth, long-lasting, mutually beneficial business relationship between the parties where each party can easily determine what is expected of it and how to perform those expectations and what is expected of the other party.

Fiduciary Duties Owed to the Provider

The usual justification for the “paper handshake” form is, “We’ve used this for years and it hasn’t been a problem.”

But even if that happens to be true, it’s not good enough. Just as there are standards of adequate performance and competence in the provision of services applicable to physicians, hospitals, etc., there are also standards for company officers, directors, managers, etc.

By law, such persons owe certain legal duties to their company. These fiduciary duties include the obligation to exercise due diligence and prudent business judgment on behalf of the company. Those aren’t just “good ideas” or “guidelines”. An officer, manager, etc., who violates fiduciary duties can be held financially liable, be barred from participation in certain government programs or from obtaining certain licenses, etc.

A “mirror image” situation

This is in fact a “mirror image” situation. Not only do the Provider’s representatives owe fiduciary duties to the Provider, but the Network’s representatives owe the same duties to their Network.

If the Network’s representatives are using a “paper handshake” agreement instead of exercising due diligence and prudent business judgment . . . what should that tell the Provider about the prospects for a successful long-term mutually beneficial relationship between the Provider and the Network?

Matters Every Managed Care Contract Should Address

As distinguished from a “paper handshake” agreement, at a minimum a managed-care Agreement should address the following:

  • Definitions of major terms including:
    • Emergency Services
    • Medical Necessity
    • Payor
    • Clean Claim
    • Covered Person
    • Covered Services
    • Physician
  • Claim filing and payment
    • Claim filing deadlines
    • How to file a claim
    • Where to send claims
    • Coordination of benefits (COB)
    • Are there any special terms regarding audit, recoupment or refund?
    • Does the Network or Payor pay subject to a pending audit and then request refund or, conversely, does it pend the claim and pay nothing until the audit is completed?
    • Penalties for failure to pay timely or for underpayment
  • Patient Admission and Utilization Review
    • Are there any notice requirements before or upon admission?
    • Whom does the Provider notify?
    • Will there be any precertification / preauthorization, etc., requirements?
    • Will they be Payor-specific?
    • How does the Provider comply with them?
    • Is retrospective review available? Under what circumstances?
    • Will services require an order or referral from a Primary Care Physician (PCP)?
    • Will there be a provider manual?
    • If the Covered Person does not properly disclose existence of the Network or Payor, are services covered anyway?
    • If not, can the Provider bill the Covered Person?
  • Treatment
    • Who may treat Covered Persons? Anyone on the Provider’s staff? Only contracted Providers?
    • The Network and Payor are not practicing medicine and the Provider, treating physicians and patient are solely responsible for medical treatment decisions.
    • Nothing in the Agreement is intended as a financial incentive to the Provider to limit or not provide medically necessary services.
    • The Provider is free to discuss all available treatment options, etc., with Covered Persons, including non-Covered Services.
    • Is the Provider supposed to make referrals and use services (e.g. lab tests) only to/from Network providers?
    • Credentialing. (Though not absolutely necessary, it is almost always mentioned even in minimalistic contracts.)
  • Term and Termination
    • Start date; initial term
    • Whether the contract auto-renews or is “evergreen”
    • Termination for cause
    • Termination without cause
    • Automatic termination
    • Notice required for termination; contents and notice period
    • Continuity of care
    • Obligations that survive termination
  • Compliance and Problem Resolution (These are usually spread out in multiple Sections.)
    • The agreement is governed by the law of the state in which the services are rendered.
    • The Network is authorized to contract on behalf of Payors.
    • The Network will require Payors to comply with the terms of the Agreement.
    • The Network will require Payors to follow applicable laws, regulations, and industry standards.
    • The Network will comply with applicable laws, regulations, and industry standards.
    • Maintenance of confidentiality of patient information, etc.
    • Network and Payor access to records
    • Any entity that accesses the rates or terms of the Agreement will be deemed to have agreed to be bound by the Agreement.
    • The Provider may terminate individual Payors that fail to pay valid claims without having to terminate the overall Provider-Network agreement.
    • Does the Provider have to post any signs or provide any special information?
    • Appeal procedure; patient grievances. Are they Payor-specific?
    • Dispute resolution procedures. Are they Payor-specific?
    • The Network and Payor will not retaliate against the Provider if the Provider reasonably files any complaint, negative report, etc., regarding the Network or Payor.
    • Venue for any lawsuits or arbitration
  • Miscellaneous matters
    • Third-party liability (hospital liens) and Payor subrogation
    • Liaison between Provider and Network
    • Will the Provider normally deal only with the Network or often directly with Payors?
    • The Provider, Network and Payor are independent entities and not partners, joint venturers, etc.
    • Confidentiality of rates and terms of the Agreement
    • Use of each others’ names
    • Specific method(s) of providing patient steerage or at least that Network-Payor contracts will require steerage
    • Right to assign/delegate; prohibitions
    • Under what conditions the Provider may bill a Covered Person, e.g., default by Payor
    • “Hold harmless” for Covered Persons
    • Procedures for amendments to the Agreement
    • Procedures for amendments to the Provider Manuals, Utilization Review criteria, etc.
    • Whether Provider Manuals are incorporated into the Agreement
    • The Agreement constitutes the entire contract between the Network and Payor.
    • If there is a conflict between the Agreement and Payor’s plan documents, etc., the Agreement controls.
    • If the Agreement and another both apply, how to determine which one controls
    • Where to send notices
    • There are no third-party beneficiaries of the Provider-Network Agreement.
    • Force Majeure clause (inability to perform due to uncontrollable circumstances)