Overview of Managed-Care Relationships

One of the things that has become a staple of the American healthcare system is managed care. There are different systems, such as Participating Provider Organizations (PPO) and Health Maintenance Organizations (HMO), but they all have certain aspects in common.

One of these is managed-care contracts.

Relative Lack of State and Federal Government Regulation

Most managed-care arrangements do not involve government programs such as Medicare, Medicaid, TRICARE, FEHBA (Federal Employee Health Benefits Act), CHIP (Children’s Health Insurance Program, i.e., Children’s Medicaid) or STAR (State of Texas Access Reform, part of the Medicaid program in Texas.) Because such programs usually have very specialized provisions they will not be discussed here.

In other scenarios, there generally are no state or federal statutes or regulatory agency rules or regulations that specifically regulate either managed care contracts or managed care relationships per se. In other words, for instance, there is no Texas Managed Care Code and no Texas Healthcare Network Code. Also, the Uniform Commercial Code does not apply to managed care relationships.

As discussed below, four basic types of parties get involved in managed-care contractual relationships. For parties that are insurance companies, their part in managed-care contractual relationships is indirectly regulated by state statutes or Department of Insurance rules that specifically regulate insurers. Examples are Chapter 843 (HMO) and Chapter 1301 (PPO) of the Texas Insurance Code and Title 28 Texas Administrative Code Part 1.

However, aside from government programs, for the most part the contents of managed-care contracts and the relationship of the parties are controlled by provisions of the managed-care contracts, Provider Manuals, and terms of insurance policies or employer-sponsored health benefit plans. These are interpreted and applied taking into account court decisions and “common industry practice”.

The Two Common Contract Scenarios

The overarching goal of any managed-care contract arrangement is to connect a Provider of healthcare services to a Payor for healthcare services in situations where the Payor is not the patient or the patient’s family.

Two general arrangements have developed:

1) A direct contract between the Provider and the Payor. Typical examples are a large regional or national employer such as University of Texas or IBM or a governmental agency such as the Department of Veterans Affairs contracting directly with a major hospital chain.

2) A “chain of contracts” involving various intermediaries. For instance, Hospital H (Provider) contracts with Network N, which also contracts with Third-Party Administrator T, which also contracts with Employer E (Payor).

In this scenario, Network N also contracts with Insurer I, a second Payor. Third-Party Administrator T also contracts with School District S, a third Payor.

Hospital H only signed one contract. And each Payor only signed one contract. But because each intermediary is authorized to sign multiple contracts, Hospital H winds up connected to Employer E and Insurer I and School District S.

In practice, Network N doesn’t just contract with Hospital H.  It also contracts with Physician P, Radiologist R, Dermatologist D, etc., hence the term “contracted provider network.” Each Provider and each Payor only signs one contract but that contract creates numerous sources of services or payment.

Typical Parties to Managed-Care Contracts

Although managed-care contracts can involve three or more parties signing the contract, they commonly involve two from among these groups:

  • Providers – These include a wide range of physicians, surgeons, medical group practices, hospitals, hospices, skilled nursing facilities, behavioral health facilities, diagnostic imaging, physical therapy, psychologists, pharmacies, clinical labs, nutritionists, and other health professionals and service providers.
  • Intermediaries – These are basically Third-Party Administrators (TPA) or independent networks not owned by an insurance company. TPAs frequently process claims for Payors under an Administrative Services Only (ASO) agreement.
  • Federal- or State-Program Regional Administrators – These are companies that contract to administer a state or federal program such as Medicare, Medicaid, STAR or CHIP or TRICARE (formerly CHAMPUS) in a certain geographical area.
  • Payors – These include private-sector employers; state agency employers such as the State of Texas; local government employers at the county, city, town or village level; other governmental employers such as school districts; labor union health benefit funds; health insurance companies; workers compensation carriers; and self-funded employee benefit plans sponsored by employers (ERISA Plans).

Network Participation, Network Leasing and Network Access

Network “Rental” and Silent PPOs

Because the chain-of-contracts scenario is so common, Providers normally wind up contractually bound to numerous Payors and Payors normally wind up contractually bound to numerous Providers. Hence, Provider-Payor interconnections are routinely referred to as a “network” even when there is a single contract directly between one Provider and one Payor.

The Provider is referred to as a contracted Provider or a Participating Provider or a network or in-network Provider. A Payor that has signed appropriate contracts has network access.

Although intermediaries such as Third-Party Administrators have no need of network access themselves, when they contract with networks or Providers they get the right to lease network access to the TPA’s clients.

Leasing network access – a common feature of long-term contracts between TPAs and Payors – must not be confused with purportedly “renting” network access on a one-time basis, a fraudulent practice known as a silent PPO in which a non-contracted payor falsely claims to be covered by a chain of contracts entitling it to preferred contractual terms.

Provider Agreement Titles

Because Manziel Law Offices, PLLC routinely represents Providers, the rest of this article focuses on Provider managed-care contracts, i.e., contracts where one party is a healthcare Provider agreeing to provide healthcare treatment.

Provider contracts go under a variety of titles such as:
Participating Provider AgreementHospital Participation AgreementFacility Participation AgreementAncillary Provider AgreementAncillary Services AgreementProvider Services Agreement       Group Practice Services AgreementInstitutional Services AgreementPhysician Services AgreementNetwork Provider AgreementHospital Services AgreementFacility Services Agreement

Note that the term “Agreement” occurs in each variant. These documents pretty much never refer to the document as a “Contract”.

Provider Agreement Contents Categories

Regardless of the specific title of the Agreement, the contents of a managed-care Provider contract template are almost always arranged in the following sequence:

  • Introduction
  • Provisions Specific to a Managed Care Relationship
  • General Contract Provisions
  • Attachments, Addendums, Schedules, Exhibits and Amendments