Negotiating contracts with managed care organizations can be a painful experience for providers, as health maintenance organizations (HMOs) and preferred provider organizations (PPOs) demand ever-larger discounts. Effective negotiation of payor contracts will become increasingly important to HME providers if the federal government succeeds in its plan to shift large numbers of Medicare beneficiaries into the new Medicare Advantage managed care plans. Too often, however, providers focus only on the payment rates provided in managed care agreements, and accept the remaining portions of the agreements as they are presented. Managed care representatives encourage this approach by telling providers that the body of the agreement cannot be changed. That statement is almost never true.

In most cases, virtually everything in a contract is negotiable. If you can separate the important provisions from the unimportant and reduce the issues for negotiation to a manageable number, you stand a good chance of obtaining a significantly more favorable contract.

Effective contract negotiation requires careful and critical reading of every provision, because unfavorable terms can appear almost anywhere in an agreement. No checklist can anticipate all of the issues that might be raised by a particular contract, but there are issues you should be aware of when reviewing a proposed managed care contract.

Plan Participation
In standard contracts, large national payors often include a provision that the provider must provide services to members of all of the payor’s plans at the contract rates, even if the payor does not designate the provider as a participating provider in a particular plan. Under this provision, the provider is required to give discounts to members of plans in which it does not participate, but receives no benefit in return. The provider will not be listed in the directory of participating providers, and so it is unlikely to receive any increase in patient volume in exchange for the discounts. If you come across this provision in an agreement, ask that it be deleted. If you can’t get it deleted, at least be sure you know with what plans you will and will not have participating status.

Payor Policies
Some PPO and third-party administrator agreements contain provisions to the effect that if there is a conflict between the agreement and the policies of a particular payor, the payor’s policies take precedence. This kind of provision can be problematic because the provider often does not receive policies from all of the payors covered under a multi-payor agreement. If you encounter this kind of provision, ask that it be revised to include only those policies of which the provider has received written notice.

Most Favored Nation Clauses
Some payors continue to include so-called “most favored nation” clauses in their agreements. A most favored nation clause requires the provider to give the payor the benefit of the lowest reimbursement rates it accepts from any payor. If the provider negotiates a lower fee schedule with another payor, it must reduce the rates under the contract containing the most favored nation clause. A less restrictive variation requires the provider to make available to the payor any lower rates that it negotiates with a payor whose members account for a smaller share of the provider’s business. Both versions significantly restrict the provider’s flexibility to negotiate other contracts.

Silent PPOs
What is left out of a contract can be just as important as what is included. PPO contracts should include some kind of protection against so-called “silent PPO” practices. The phrase “silent PPO” refers to the practice of some payors of “selling” access to their contracted rates to other payors with which the provider does not participate, after the provider has already provided services to a member of the noncontracted plan. As a result, the provider is paid at a sharply discounted rate for services for which it was expecting full payment.

The best protection against this is to include a provision that the contract rates will be available only to plans that offer members financial incentives (such as reduced copayments) to use participating providers. Other ways of protecting against silent PPO practices are to require members to present identification cards at the time services are provided as a condition to receiving discounted rates, or requiring the PPO to provide a regularly-updated list of all the plans that are entitled to the benefit of the PPO’s negotiated discounts.

Termination Provisions
Most payors’ standard provider agreements permit either party to terminate the agreement for the other party’s breach, following a specified cure period. The same cure period, usually 30 or 60 days, applies to all breaches. If the payor fails to pay the provider for its services, the provider cannot terminate the agreement until the end of the cure period, even if the payment failure continues. If possible, you should try to have a separate termination provision inserted for payment defaults (as is common in other kinds of agreements), permitting the provider to terminate if the payor fails to pay claims within the time specified in the agreement—and if the failure continues for five days after written notice from the provider.

Post-Termination Services
Managed care contracts vary considerably in their requirements for provision of services following termination. Some are relatively reasonable, requiring only that the provider continue providing services to existing patients until they can be transferred to the care of another provider, with a limit of 60 or 90 days. Others require the provider to continue providing services on the payor’s demand for a full year, and others contain no time limit at all.

The provider’s obligation to provide post-termination services should be limited to no more than 90 days, and the contract should explicitly require the payor to use its best efforts to promptly transfer patients to another provider promptly.

Overpayments
In some states, state law limits the time during which a payor may recoup an overpayment. If you are not in a state with such a law, consider trying to have such a provision included in the agreement. The provision could say, for example, that neither party will be entitled to an adjustment in any payment after one year from the payment date.

Indemnification
Many payors routinely include indemnification provisions in their provider agreements, and providers often accept them without objection. It is important that providers understand the possible effects of these provisions. Most professional liability policies exclude coverage for “liabilities assumed by contract.” Therefore, claims made by a payor under an indemnification clause will probably not be covered by the provider’s insurance. If you cannot have an indemnification clause deleted, be certain at least that it is limited to liabilities arising from the provider’s negligent actions or omissions, and does not extend to any act or omission of the provider.

Limitation of Liability
In some contracts, indemnification provisions are accompanied by a section limiting the payor’s liability for damages under the contract. One major payor routinely includes a provision stating that the payor’s liability for any claim arising under the contract is limited to the amount that the payor has paid the provider under the contract during the previous 12 months. Another payor’s standard contract limits its liability to the fee schedule amount for the services that are the subject of the claim. Provisions like these are unreasonably one-sided, and should be deleted.

Consent to Release Information
Although the HIPAA privacy standards do not require consent for release of information from a provider to a payor, some state laws still require the patient’s consent. Contracts used by several payors include provisions stating that the consent contained in the payor’s enrollment form “is hereby deemed satisfactory by Provider,” or similar language. If you have not seen the payor’s enrollment form, you should not stipulate that the payor’s form of consent is sufficient. A preferable provision, if you can get it, is one that says that the payor represents that its form of consent is sufficient under state law.

Business Associate Provisions
Some third-party payors continue to include HIPAA business associate provisions in their provider agreements, even though the Office of Civil Rights has made it clear that payors and providers generally are not business associates. There are some cases in which business associate language is appropriate, because one party is providing services to or on behalf of the other. For example, some parts of the credentialing function are sometimes delegated by the payor to the provider. That delegation may create a business associate relationship. However, if the only relationship is that of payor and payee, there is no business associate relationship, and business associate provisions are unnecessary in the agreement. Including business associate provisions where they are not needed can create ambiguities about the obligations of the parties with respect to protected health information.

This list is just a starting point. It is important to review the entire contract, and not to gloss over provisions that are written in legalese. If some provisions are too obscure, either ask to have them translated into English or consult with legal counsel. Examining each provision of a contract, and considering in each case what the provision will mean in the real world of delivering services to patients, is the only way to guard against unpleasant surprises after a contract is signed.

Timothy Webster, JD, is an attorney with the Health Care Group of Brown & Fortunato PC, in Amarillo, Tex. He represents HME companies, pharmacies, and other health care providers throughout the United States. He can be reached at (806) 345-6347 or via email: twebster@bf-law.com.