Articles of Interest

Four Critical Provisions in Managed Care Provider Contracts – Negotiate These With Care

--By Susan M. Erickson, Esq.,  July 11, 2016

     Every managed care contract between an HMO, EPO or PPO (collectively referred to as a “managed care organization” or “MCO”) and a health care provider, contains, by necessity, a mix of non-negotiable and negotiable provisions.  Non-negotiable provisions in Texas provider contracts include definitions mandated by Texas Department of Insurance (“TDI”) regulations and TDI’s mandatory member hold harmless, continuity of treatment, and provider termination advisory review panel language.  See Title 28 Texas Administrative Code § 11.901.    In all Texas Medicaid and CHIP managed care provider contracts, the contract language promulgated by the Texas Health and Human Services Commission (“HHSC”) and listed in Chapter 8.1 of the Uniform Managed Care Manual must be included.  


     Neither of the state government agencies with jurisdiction over these contracts (TDI and HHSC) nor the federal government has adopted mandatory language for many other core terms of the contract, however.  


     This article discusses four provisions in a typical managed care contract that each party should review carefully and negotiate effectively to best serve its business needs.  This discussion applies across product lines, from commercial/Exchange plans, to Medicaid and CHIP managed care, to other government-sponsored health care programs.


     1.)    Term of the Contract.  Some parties may present a contract to the other side with an initial term that is fairly lengthy, such as three years from the date of execution.   A longer initial term can offer the benefit of assuring the parties that they will do business with one another for at least that length of time, barring any breach of the agreement.  It may also have the effect, however, of locking the parties into the original reimbursement terms for that same length of time.   Both parties need to analyze whether they believe the reimbursement provisions will continue to be satisfactory in the face of changes that may occur over the course of the initial term, whether those changes are Medicaid rate reductions from the state impacting the MCO, increased labor and benefit costs hitting the provider, or other financial or regulatory changes.  Either or both parties may find it beneficial to build in language allowing for reimbursement renegotiations at defined intervals during the contract term.  Depending on the party’s position, it may also be best to specify that future renegotiations will not result in reimbursement going beneath a certain floor or above a certain ceiling.


     The parties should also be careful in considering contract language that makes the term of the contract “evergreen.”  An evergreen contract is one that renews automatically, with no action required by the parties, and has no specified term length or termination date.  In the absence of specific language requiring the parties to agree periodically on updated reimbursement terms (and a mechanism defining what happens if they cannot come to an agreement), an evergreen contract typically means that the original reimbursement language remains in place year after year after year.


     2.)    Recoupment/Offset for Overpayments or Underpayments.  This second issue is often the cause of tremendous strife between managed care companies and health care providers, and it is therefore extremely important to address it in the contract in order that each party can hold the other accountable to a defined, agreed-upon process.   In Texas, an MCO may recover overpayments made under commercial plans if it (i) issues a written notice to the provider within 180 days of the overpayment, specifying the claims and the amounts for which refund to the MCO is due; notifying the provider of its right to appeal; and, describing the method(s) by which the MCO intends to recover the overpayments; (ii) allows the provider an appeal period of 45 days from receipt of the overpayment notice; and, (iii) does not begin any recoupments until the later of the appeal process having  been exhausted or the expiration of the 45 day notification period, where the provider has not made arrangements to make payments to the MCO in lieu of recoupments.  See Title 28 Texas Administrative Code § 21.2818.   Because these particular steps of the recoupment process are required by law, they are often not reprinted in the base portion of the provider contract.   Rather, they are frequently found in the MCO’s Provider Manual, which the MCO almost always incorporates into the provider contract by reference (using a statement in the contract such as “MCO’s Provider Manual is incorporated into this Agreement by reference and is a legally binding part of this Agreement”).   Today, almost all MCOs post their Provider Manuals on the provider portion of their websites rather than furnishing hard copies to their network participants.  It is important to note that the rules governing recoupment under Medicaid and CHIP managed care plans are much less well-defined than the commercial plan rules described above, which increases the importance of including contract language to clarify how any overpayments by the MCO may be recovered. 


     Several aspects of the recoupment and/or repayment process may be expanded upon in the provider contract at the parties’ option.  The provider (particularly a Medicaid/CHIP provider) may want to include language that requires a detailed accounting of the overpayments; a detailed description of how the provider may appeal the MCO’s allegation of overpayments (e.g., what type of documents should the provider produce and who will review the appeal); and, a detailed post-repayment (or post-recoupment) accounting from the MCO that shows how the repayment made by the provider was applied to clear up individual patient accounts that had been tagged with overpayments.  If the provider opts not to make a repayment but to allow recoupment/offsets from future payments due, the provider may want to require frequent (e.g, weekly or bi-weekly) statements from the MCO showing (i) how the offset funds were used to rectify overpaid accounts, and (2) against which submitted claims the offsets were applied.  Finally, if the MCO is responsible for the overpayments (for example, by loading into its system an incorrect fee schedule for the provider, or by making a claims payment system error that pays provider’s nurse practitioners at the full physician rate despite the provider billing correctly), the provider may want to have language in the contract that states that the MCO must recover such overpayments over time, rather than setting its system to pay provider zero dollars on new claims until the overpayment has been recouped.    From the MCO’s perspective, MCO contract negotiators will have to be familiar with the capabilities of the company’s reporting systems (as well as the average volume of recoupment activities) to be able to appropriately include language describing the reporting the MCO will provide to providers.


     3.)    Policies and Procedures.  An MCO maintains many (typically numbering in the hundreds) of policies and procedures (P&Ps) on operational topics that impact, and apply to, its relationship with its contracted providers.  These policies address credentialing; claims submission, processing, and payment; prior authorization and utilization review; case management; complaints and appeals; quality improvement and performance standards; and many others.  Because of their volume, MCOs may include only summaries of key requirements in the Provider Manual.  Some may place the P&Ps on the provider portal of their websites while others may make the P&Ps available only upon written request.  The issue that comes up most often in the provider contract is whether these P&Ps (or the Provider Manual itself) can be modified without the provider’s (i) notice or (ii) consent.  An MCO will take the position that it must be allowed to modify its P&Ps to run its business and cannot be held up by the varying approvals of a provider network running into the tens of thousands (or more) of providers – with some approving changes, some rejecting them, and others not responding.  This is a reasonable argument, and I have not seen MCOs willing to move from that position.  What seems reasonable from the provider’s perspective is to require prior written notice of material changes to the P&Ps.  In this context, “material” would mean a change to a policy or procedure that impacts a required action, duty or responsibility of the provider or the MCO or that changes a timeline relevant to either party.  Providers will also want to request that the contract specify how the MCO will notify providers (such as by web portal announcement or by email “blasts”) that a material policy or procedure change is being made and as of what date.  


     4.)    Dispute Resolution.   Most provider contracts seem to fall into one of two categories with respect to dispute resolution language.  They either contain very detailed, prescribed provisions that set forth the exact method(s) that will be used to resolve disputes, including what rules of evidence apply, all relevant timelines, all relevant jurisdictional bodies, and the like.  Or, they address the topic briefly and state simply that the parties will resolve disputes in a particular county using, for example, binding arbitration.  A happy and rational medium seems to exist between these two extremes where the parties agree to a multi-step process for resolving disputes that arise during the course of their contractual relationship.  The first step involves one party sending written notice of the dispute to the other, followed by an attempt by senior executives of the parties to resolve it informally.  Second, the contract may call for a 30-60 day period of negotiations to resolve the dispute.  If such negotiations fail, either party then has the right to submit the dispute for resolution via binding arbitration (if the contract contains a binding arbitration clause) or to file a lawsuit in the court having jurisdiction over the matter.  For most of my practice, I have seen binding arbitration clauses included in virtually all managed care provider contracts, requiring that disputes be submitted to arbitration before a single arbitrator or a panel of three arbitrators with such arbitration to be conducted according to the commercial arbitration rules of the American Arbitration Association or the Rules of Procedure for Arbitration by the American Health Lawyers Association.  It has been extremely rare to see a provider contract that allows for disputes to be litigated in court.  I do not think the tide has yet turned against arbitration or against including binding arbitration in provider contracts, but I do believe that more and more MCOs, and perhaps large providers as well, have experienced arbitrations that are as costly as litigation and that are as unpredictable – if not more so – than litigation.  An unfortunate reality of requesting an experienced “healthcare” arbitrator is that the arbitrator who is assigned may well have very little understanding of managed care and even less understanding of Medicaid and Medicaid managed care.   Whether to include a mandatory arbitration clause in a provider contract is an issue that each party should assess carefully and consider discussing with legal counsel.  



Identifying the Parties to a Managed Care Provider Contract -- Are You Sure You Know Who They Are?

--By Susan M. Erickson, Esq., May 3, 2016

     Of the three or four principal provisions in a managed care provider contract (e.g., payment terms, prior authorization rules, and termination procedures), none seems as important as clearly defining which entities are party to the contract. This includes ensuring the contract contains language specifying whether affiliates of the original parties (the MCO and the Provider) may be added to the contract at a later date, with or without written consent of the other party.


     From the Provider’s perspective, understanding what entity/ies constitute the managed care organization (MCO) (the party issuing health plan coverage and/or administering a preferred provider network) is essential to forecasting the number of MCO enrollees who will seek treatment from the Provider’s physicians and other health care practitioners, for which Provider will be reimbursed at the contracted rate. Many provider contracts (1) define “MCO” broadly to include managed care affiliates of MCO; and/or (2) use general terms such as “Company,” “Contractor,” or “Entity” in place of a specific, named MCO in order to allow MCO, its affiliates and even additional managed care payors to access the contract.   Where the terminology becomes troublesome is when it hinders the Provider’s ability to understand the full scope of the MCO party, which may be more extensive than the Provider originally understood.  Suddenly, a Provider's patient mix due to one new MCO contract may grow from  (as an example) 40% government-sponsored programs to 52% government-sponsored programs due in part to affiliates of the MCO accessing the contract and their enrollees seeking treatment from Provider.  In Texas, statutory and regulatory limitations have been put in place to protect providers from some of these surprises, including the enactment in 2013 of Texas Insurance Code chapter 1458. The statute and accompanying regulations prohibit MCOs subject to the law from selling, leasing, renting or otherwise providing access to provider contract rates to other entities without the express authorization of, and prior notification to, the provider (see Tex. Ins. Code §1458.101(b)) (thereby prohibiting a practice commonly referred to as operating a “silent PPO.”)   Even with this new law on the books, a best practice continues to be for Providers to make sure that any contract they sign contains straightforward language stating whether or not the contract terms may be extended to any managed care entity or affiliate other than the named MCO itself.


     On the other side of the table, the managed care party (HMO, health insurer, or PPO administrator, collectively referred to as the “MCO”) must make sure the “Provider” party is clearly spelled out in the contract, particularly if the provider is an independent practice association (IPA), physician-hospital organization (PHO), or other large health care system. In these situations, the MCO should have each participating individual and facility provider (such as each ambulatory surgery center and each physician clinic) that is contracted to participate under the umbrella of the IPA, PHO, or health care system listed in an attachment to the contract. The parties should include language in the contract to dictate whether the Provider, upon opening a new surgery center or clinic, may add such location to the contract with simple written notice to the MCO or if the addition of a new location, and the applicability of the contracted reimbursement rates, must first be agreed upon in writing.  


     Best practices for both the Provider and the MCO include being specific in agreeing upon and including in the contract the named parties to the agreement.   Second, being explicit if affiliates, whether existing or future, are to be included within the contract’s scope. And third, being equally clear as to which entities’ enrollees are to be provided health care services at the agreed-upon reimbursement rates and which of Provider’s locations are covered by the contract.

Copyright 2019 by Susan M. Erickson, Esq.