Managed Care Contracting -- A Review of the Process

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This is the fifth article in the Managed Care Contracting "Signature Series" by Managed Care Resources, Inc. -- articles on topics in managed care written by experts in the field. The authors of this article are  Ira H. Rosenberg and Denise Cameron.

Managed Care contracts come in many varieties. However, there is standard contract language that remains fairly consistent throughout the industry. Standard language can be state-mandated to protect the insured, be required by an employer, or be market driven. The provider should understand how these requirements are similar and how they differ. It is important to know when you should consult a lawyer or your malpractice carrier, or when standard language means non-modifiable, ie, you would waste your time and money on a lawyer because 9,000 physicians have been unable to negotiate these terms and have signed the agreement as is.

Each managed care organization has a number of standard "boilerplate" agreements it uses for the different types of physicians or groups, each with varying payment arrangements.

Prior to review. You may want to ask the following questions, as the answers will assist you in your review of the proposed contract:

1. How many other providers have signed this particular agreement?

2. Are they willing to be used as references?

3. Which sections of the contract have been modified over time? (The plan may or may not agree to share this information).

4. Has this contract been reviewed by the state's largest malpractice carrier? Request a copy of those comments.

Review of the contract begins with the basics. Remember, the contract was developed by and for the managed care organization: The purpose of the language is to give the MCO the most favorable terms. The following reviews a sampling of the more important sections that may be present in managed care organization (MCO) agreements:

1. Review of the Parties. This area defines the players, the physician, physician group, or other provider, and the insurer. The MCO may hold a variety of insurance licenses, such as Medicare or Medicaid. It is important to understand which products are actually sold under these companies. You may be agreeing to service a particular group without knowing it, and find out when it's too late that you have agreed to service a high risk population at a rate which will not cover your costs.

2. Medical Services Provided. Medical services must complement the covered services under the agreement. If a plan chooses or is required by the state to add benefits, they typically give a physician 90 days written notice. A physician has the right to terminate if he or she cannot or will not agree to perform the service. A recent example is the coverage mandated by some states to cover infertility treatments. Generally, the addition of more benefit coverage is of concern when a group is operating under a risk contract. Compensation for increased benefits should be adjusted in a manner acceptable to the physicians.

3. Location of Services. It is important to include complete addresses to ensure accurate marketing of services.

4. Policy and Procedures. Policy and procedure manuals are referenced in most contracts. Review all manuals before you sign an agreement promising to follow them. Most organizations are unable to keep their physical manuals as current they would like due to the rapid growth of the industry, and because they are often required to review and make change to their processes by employer groups. Ask for all addenda to the manual. Also, provider groups should include language in their contracts to the effect that revisions to the manual should be given to physicians with at least 30 days advance notice, with allowance for a recourse if they do not agree with the terms.

5. Credentialing Standards. With agencies such as HCFA^A, state insurance agencies, and the like, demanding more stringent assurances of quality, managed care organizations have begun to utilize the strict guidelines for credentialing physician networks that were created by NCQA (National Committee for Quality Assurance)^B. It is vital that provider groups understand the procedures and processes for credentialing and renewal, as they are time consuming for physicians and office staff alike. Look into obtaining a standard format established by NCQA, keep copies in your office, and train your staff to have them readily available.

6. Medical Records. The requirement that physicians maintain and retain medical records is standard medical practice. Each state has regulations regarding the length of time records should be kept, 6-10 years in some cases. By state regulation, MCOs must have access to all medical records as they pertain to the members' medical service while covered.

Physicians are required to cooperate with a plan to report potential patient fraud, member acts of omission committed during enrollment, information relating to change or loss of employment, third party liability and/or workers' compensation. Physicians are asked to use their best efforts to notify the MCO under these circumstances.

7. No Recourse Against Patient. An MCO does not allow a physician to bill or collect monies from a member for any covered services, exclusive of co-pays. The patient is protected from any payment dispute between the Plan, the employer groups, and the physicians. This clause supersedes any other understanding and survives termination of the agreement.

8. Liability coverage. Providers must provide documentation of liability coverage, including comprehensive general and professional liability, and workers' compensation coverage, in amounts customary for the state and as required by the Plan. Any coverage changes must be provided to the Plan in writing 15 -30 days in advance of the change. The provider is also responsible for notifying the MCO of any potential member claim that may arise.

9. Marketing. MCOs will usually want to use providers' names in their marketing materials, so be sure to review all information provided to each MCO for accuracy. Physicians are rarely successful in obtaining the right to use an MCO's name or logo in any advertisement without permission, so the provider may wish to negotiate an exchange of permission on this point.

10. Member grievance. A Member Grievance Committee established by an MCO is typically comprised of plan members and physicians. It is organized to resolve patient complaints. These complaints can range from denial of claims or second opinions to physician relationship problems. Provider groups should review these resolution procedures carefully, to assure that grievances will be handled to their satisfaction.

11. Arbitration. For those times that a provider has an unresolved issue with the MCO, it will be important to have included an arbitration clause in the agreement. Arbitration is a formal process for resolving disputes, and is considered the last resort prior to litigation. The losing party in the dispute is usually held responsible for the legal fees of both parties. MCO's generally have legal counsel on their staff. If there is litigation, it may cost them little and the physician plenty, so It is therefore most favorable to negotiate for each party to pay their own legal fees.

12. Assignment and delegation. MCOs will wish to have the right to assign the physician contract to any third party should there be an acquisition or merger of the MCO. The physician will want written protection against possible material changes in the relationship should such an assignment occur. On the other hand, the MCO will not want to allow the physician to assign their MCO contract to another party without prior written consent from the MCO. This should not be a problem unless the physician foresees selling the practice. In that case, this article may be modified to reflect assignment to another party should the party meet all credentialing requirements.

13. Offset. An MCO may require the physician to agree to an offset provision, whereby it has the right to withhold funds from the physician's check for any reason. However, those reasons should be limited to incorrect or duplicate payments only. There should also be a time limit such as 90 days for this recourse to be found acceptable to the provider, with the opportunity for the provider to reimburse a duplicate payment without the MCO using the offset.

14. Hold Harmless. In the past, Health Plans could not be sued for malpractice because the plans performed administrative duties only, and did not practice medicine. This emphasized the independent contractor relationship. However, MCOs are implementing controls over medical practice with precertification, second opinion authorization, utilization management and medical necessity decision making. Even with these controls, MCOs may require that the provider hold all the medical risk. Notwithstanding these practices, some insurance carriers have recently refused to pay claims due to contractually incurred malpractice liability. They argue that they are insuring the individual medical provider and not the Plan. Prior to signing any hold harmless or indemnification clauses, it is important to discuss the circumstances with your carrier, or ask the MCO for written documentation that your carrier has reviewed and approved the contract under consideration. Insurance carriers may have riders covering a physician participating with managed care plans. In addition, the provider group should require equal hold harmless language from the MCO.

15. Effective dates. Most contracts stipulate that the agreement will not be effective until credentials are approved and both parties have executed the agreement. Make sure the effective date is noted in the contract. This is especially important when you have accepted capitation. Is the effective date the date you agreed to the terms, or is it the date the agreement was executed by all parties and all terms were loaded into the information system of the MCO? Don't provide services prior to the effective date unless you have a clear understanding with the MCO on how you will be reimbursed for the services.

16. Physician Responsibilities. Generally this section identifies the physician's practice capabilities. Use this section to identify the limitations of your current practice, and any exclusions. For example, if you are an orthopedic surgeon, based on current practice patterns you are within your rights to specify such exclusions as children under age two, podiatry services, backs, bone tumors, and revisions of joint replacements. Identification of your service capabilities can prevent disputes over the performance of these services in the future.

17. Payment Arrangement. Whether you have accepted a fee schedule or capitation, be sure you understand the membership that has been assigned to this payment arrangement and benefit plan. Review attached fee schedules and compare them to your usual and customary charges. If a Medicare fee schedule is the basis for this payment, obtain a copy of what is being used, as there are different Medicare schedules. Understand that if you accept a Medicare patient through the managed care organization, you may not collect from Medicare. There are also limitations to claims submission. Some plans require claims to be submitted within as little as 30 days, although 90 days is more typical. Payment from the plan is considered payment in full. Understand the policy for the collection of co-payments. Obtain a list of them, and understand your office's responsibility for collection. If a capitation rate has been accepted, determine the level of financial responsibility for services provided by other physicians who are covering for you or for emergency services.

18. Term and Termination. The term of the agreements is usually for a one-year period, to be automatically renewed on an annual basis thereafter. Commonly, there is a 90-day out clause by either party with or without cause or reason, what really means that the contract is only a 90-day agreement. This could make the provider more comfortable, especially when there is a risk arrangement. Recently, the tables have turned. Providers are interested in a more binding agreement so they can count on this patient volume for a long time. When writing their business plan, most providers today need to balance their contracts and payment methods with the many payors. Having all business in one agreement creates considerable risk. Competition can create a bidding war and you may easily lose the contract. MCOs can change hospital affiliations. So, if the contract is valuable to the practice, negotiate for a longer-term agreement, perhaps three to five years. Additionally, request termination language requiring cause or reasons (breach) in the contract. Include a requirement where the parties would attempt to work out the dispute over a period of time prior to the termination. Resolution of a dispute is more favorable to both parties than termination of an entire relationship.

By acquiring certain essential skills when reviewing managed care contracts, and choosing the plan participation carefully, a physician can succeed in today's managed care environment. Providers should be sure to ask specifically for contract language that gives them what they want. It is important to remember that any boilerplate contract was written for the MCO-it is important that the provider group tailor it so that it become a document that meets the needs of both parties.

For more information on Managed Care Contracting please contact us at (630) 325-6543 or by email at info@mcres.com .

I hope that you will join us as we explore all of the elements of managed care contracting in the coming months. In addition, we also offer a "Signature Series" on "Medical Management Under Managed Care". We hope that the two series combined will lessen the mystery of managed care and help level the playing field between providers and payers.

Ira H. Rosenberg

President, Managed Care Resources, Inc.

The Managed Care Resources, Inc. team has over 150 years of combined experience in the development and implementation of managed care services. Please visit our home page to learn more about how we can assist you with your managed care needs. We also invite you to contact us with questions or comments.

Related World Wide Web Sites:

A. Health Care Financing Administration (HCFA)

B. National Committee for Quality Assurance (NCQA)

The Managed Care Resources, Inc. team has over 150 years of combined experience in the development and implementation of managed care services. Please visit our home page to learn more about how we can assist you with your managed care needs. We also invite you to contact us with questions or comments.

www.mcres.com email: info@mcres.com