Entering into managed care contracts can be an intimidating process made even more so by the fact that most health care suppliers must begin the negotiation process with an agreement written by the managed care organization to protect itself, and not the supplier, from responsibility. Given that few managed care contracts contain comprehensive protections for suppliers, preparing properly before entering into one of these types of contracts is an important process for all suppliers.

A common question for most suppliers entering into managed care agreements is whether they have any leverage to request or receive any modifications to the standard language prepared by the managed care organizations. The answer is yes. Even a small, local supplier, such as a single-location, new HME company, can request—and in many cases receive—certain modifications to managed care agreements. The key is to prepare thoroughly for the negotiation process, know what to look for, and follow through to make sure the requested changes were made.

Do Your Homework
In entering into contract negotiations with managed care organizations, suppliers must take several steps to ensure that their rights are protected under the agreement. First, a supplier should obtain a copy of the agreement proposed by the payor and review it carefully. In almost every instance, the supplier will be starting from a contract prepared—and in most cases, insisted on—by the managed care organization. Generally, the managed care organization will take the position that it has little or no leeway in altering the terms of the agreement. To negotiate terms advantageous to the supplier under these conditions, a clear understanding of the proposed agreement is crucial.

After the supplier has read the agreement and has a basic understanding of its terms, he or she should prepare a list of questions to ask the managed care organization regarding the agreement. It is especially important to ask how long the managed care organization has used that specific contract form; whether the managed care organization knows suppliers who would be willing to discuss the terms of the agreement (eg, other supplier references the managed care organization could provide); what the most commonly modified terms of the agreement are; and if the managed care organization has made any significant modifications to the agreement within the past 12 to 18 months.

The next step is even more important. Now the supplier must review the contract in complete detail, and prepare a list of issues to be addressed in negotiations with the managed care organization.

Getting Ready
In analyzing contract terms and provisions, suppliers should avoid merely focusing on the payment terms and include in their overviews analysis of the more standard and mundane terms to ensure that the contract’s basic provisions are understood by all parties involved. In analyzing the standard terms, suppliers should take note of the following items specifically:

1. Identification of the parties. Although this seems simple, it is important to note that most payors identify suppliers by tax identification numbers. If a supplier has any subsidiaries or affiliated organizations, then they would need to be listed as parties to the agreement or contracted with separately if they are to be part of the plan.

2. Covered persons. Abusive payor practices are alive and well in the managed care industry. Sometimes a payor who does not have a contract with a particular provider will “purchase” discounted rates from a payor that has a contract, after services have been provided, so that an out-of-network patient is suddenly entitled to a contract discount. To avoid these practices, suppliers should insist that preferred provider organization (PPO) contracts include either a requirement that all members present identification cards at the time of service, or a requirement that the payor must provide a list of all contracted groups to the supplier on a regular basis.

3. Covered services. Under most supplier agreements, suppliers are required to provide covered products or covered services to the plan enrollees. The contract should carefully describe the services or products that must be delivered. A payor may require that the supplier provide all covered supplies to enrollees or they may limit the supplier’s obligation to products it customarily provides. In either case, it is important that suppliers understand what is anticipated under the contract and be prepared to provide whatever supplies or services are contemplated under the agreement.

4. Delivery terms. The contract should carefully spell out the supplier’s obligation to ship or deliver the product to the patient including method of delivery and amount of reimbursement for shipping or delivery charges.

5. Insurance and indemnification. These contract clauses are designed to protect the parties against risks and liabilities created under the agreement. The principal concerns of insurance and indemnification clauses are professional and derivative liability flowing from use of products provided by the supplier. Many companies do not pay close attention to insurance and indemnification clauses because they feel that payor and supplier liability and exposure are remote. However, the majority of agreements generally do require insurance and indemnification in case a patient sues claiming the medical device provided was unsafe or that the supplier failed to inspect the product or to instruct the patient on its proper use. In the case of insurance clauses, each party should carry its own professional liability and general liability insurance for its own acts or omissions. Suppliers should be required only to insure against their own liability and not the liability of the payor. In the case of indemnification provisions, the principal objective of the supplier should be to require that the payor shoulder the burdens that fall upon the supplier as a result of claims arising from the payor’s conduct.

6. Claims processing. These provisions routinely lead to conflict between payors and suppliers, in part because many states now have prompt payment statutes that dictate the time frame in which the payor must pay any clean claim presented by the supplier. There are, however, two time limits that are of specific concern under claims processing. First, the contract will likely contain a clause requiring the supplier to submit a claim within a certain time frame in order to be paid. Second, the contract should contain a clause requiring the payor to pay a clean claim within a certain amount of time. However, many contracts may not impose requirements on the payor since the state laws provide adequate protection. For example, Texas law requires that an health maintenance organization (HMO) or PPO pay clean claims within 45 days of receipt.

Unfortunately, often disputes arise regarding exactly what is meant by a “clean” claim. In order to avoid these questions, the supplier could request that the contract discuss what constitutes a clean claim by describing the information required and discussing a method for resolving disagreements between the parties. The contract should also include specific penalties such as late payment penalties, interest payments, and, in some cases, termination of the contract in the event of continued delays or nonpayment.

7. Marketing. The supplier should request the right to review any and all marketing materials referring to the supplier before they are used by the payor. A supplier should not insist, however, on reviewing all supplier lists provided to patients merely containing the name of the supplier.

Since the managed care organization will be using the supplier’s name, address, and telephone number in its marketing materials, it is vital to ensure that the information provided to the payor is accurate and complete. Incorrect information in an organization’s marketing materials can prevent a supplier from enjoying the benefits of the managed care agreement.

8. Documentation review. In many instances, the managed care organization will require suppliers to adhere to many of its policies, procedures, or guidelines. It is therefore vital that suppliers review any policies, procedures, or guidelines that they are agreeing to prior to executing the managed care agreement.

9. Medical records. Many payors and suppliers are concerned about the sharing of records in light of the Health Insurance Portability and Accountability Act (HIPAA) privacy standards. However, the privacy standards allow for broad sharing of information between suppliers and payors for the purposes of receiving payment for services rendered, and the language of the managed care agreement should not require the supplier to enter into any business associate agreement with the payor or indicate that the supplier is a business associate of the managed care organization. The sharing of information between the parties should be referenced in the agreement and the ground rules for access by the managed care organization should be laid out so that the supplier understands the process by which the managed care organization will obtain and review records.

10. Dispute resolution. Most contracts will contain provisions discussing how disputes between the parties are resolved. In many cases, disputes will be submitted to arbitration or mediation and may preclude the possibility of litigation. It is important to understand what the process for conflict resolution is so that suppliers know whether they are surrendering a right to have their claims settled by a jury by submitting all disputes to arbitration or mediation.

11. Term and reimbursement positions. Most managed care agreements entered into between medical equipment suppliers and managed care organizations will contain reimbursement provisions based on a discounted fee schedule amount. In most scenarios, either the plan will have developed a fee schedule for the products to be covered by the agreement or the contract will provide for reimbursement based on a percentage of the Medicare applicable fee schedule. In either case, it is important that the supplier spend time analyzing the reimbursement provisions to determine whether the reimbursement amounts listed are economically feasible for the supplier. Only by carefully reviewing these provisions and actually “running the numbers” can a supplier determine what to expect.

In contract situations where the reimbursement levels are untested, but may seem attractive, suppliers may wish to enter into an agreement for an initial term of 1 year with a longer renewal term. This gives the parties flexibility while not obligating the supplier to a long-term agreement that may or may not be acceptable over time.

In addition, the parties may wish to include specific provisions for automatic renewal of the agreement. Generally, these provisions require that any party not wishing to renew the agreement take affirmative steps to terminate or the agreement continues for another term. The key challenge in dealing with renewal terms is managing any increase in fee schedule amounts for the renewal terms themselves. If the fee schedule amounts are not renegotiated, the contract will renew under the same financial terms as the previous year. Any supplier who has numerous contracts in place at any given time should maintain a comprehensive calendar or docket system containing renewal dates as well as notice dates for intention to terminate.

Although negotiating a managed care agreement seems like a daunting task to many, it should not be viewed as an impossible undertaking if the supplier is armed with the appropriate information and resources to guide it in the negotiation process.

Clay Stribling, JD, is an attorney with the health care group of the law firm Brown & Fortunato PC, Amarillo, Tex. He represents DME companies, pharmacies, and other health care providers throughout the United States and Puerto Rico. Contact him at (806) 345-6346 or at cstribling@bf-law.com.