10 PITFALLS TO AVOID IN MANAGED CARE CONTRACT NEGOTIATIONS

Managed care contracts affect your bottom line. Yet many physicians sign on the dotted line before reviewing their payor contracts carefully. Why? Because they don’t know how to spot the pitfalls that can put them at risk or cost them money.

Understanding the language in managed care contracts – even those already in place – can help you determine if certain benefits are worth the risks. And for new contracts, knowing the language can put you in a better position to negotiate. Because unlike government contracts, you can negotiate managed care contracts.

Here are 10 Pitfalls to Avoid in Managed Care Contracts. One of the most important tips you’ll read here is that you can request a contract review any time and most payors will comply. So, don’t put off this opportunity to potentially boost your revenue without adding to the workload of you and your staff. Work smarter, not harder!

  1. Avoid provisions that afford the Payor the right to arbitrarily adjust and pay claims at a lower level than submitted.
    Incredibly, some contracts allow the payer to arbitrarily adjust claims and pay them at a lower level than submitted. A claims examiner may do the downcoding, or it may be done by rules-based software. In most cases the medical records aren’t examined — the claim is simply changed and repriced. Assuming state law affords no protection from arbitrary downcoding, you should try to contractually limit a payer’s ability to manipulate claims by asking for the contract to stipulate that the payer must notify the physician of, and explain any variances from the Centers for Medicare and Medicaid Services’ Correct Coding Initiative (CCI). Further, it should stipulate that the physician has the right to appeal any payment not conforming to the payer’s published edits.
  2. Avoid provisions that allow for unlimited overpayment recovery or “take backs”.
    Periodically, physicians receive letters from payors or independent vendors requesting refunds for claims that were paid as long as three years ago! You should never sign a contract that allows for unlimited overpayment recovery, especially those identified by independent vendors (affectionately referred to as “bounty hunters”). Also be aware of contracts that allow for processing errors to be corrected by withholding payment against any future payment made to your practice. This “take back” may also be referred as an “offset” and may be found in the Payment and Reimbursement section of your contract.
  3. You may be leaving money on the table if your capitated contract does not include a covered services list.
    Most physicians know that under a capitation contract they will be paid a fixed amount per member per month regardless of the number of times the patient presents to the office. But many physicians are not aware that the capitation payment may include hospital services, lab, x-ray, or any other ancillary services provided. Also, some payors “carve-out” or have an exclusions list for the capitation services. This means that there is additional (discounted) reimbursement for certain services, for example pediatric immunizations. Make sure you are aware of what’s included in your capitation payment and if any services that can be billed “over and above” the capitation payment.
  4. Withhold provisions represent an additional discount taken from your reimbursement.
    No matter how the payor presents it, a withhold is an additional discount taken from your reimbursement to cover the HMOs losses. Payors may insist that they always return withhold funds but the reconciliation may be complicated and rarely results in the physician receiving 100% of the funds withheld. Be aware that the withhold clause may also require the physician to cover the deficit in the event that the HMO operates at a loss. Before you sign any HMO contract with a withhold provision, have the contract reviewed by someone with proven expertise in risk contracting. Withhold language is usually found under Payment and Reimbursement or may be included as a separate addendum or attachment.
  5. Limited disclosure of fee schedules do not allow for an accurate fee schedule evaluation.
    It is common practice for payors to offer fee schedules represented by 25 arbitrary codes chosen by the payor or described as paying “X percentage of Medicare”. For a fee schedule evaluation to be accurate for your practice, you need to identify the frequency of all procedures you perform and compare the fee schedule amounts to your high volume procedures. Consider the ramifications of a fee schedule that pays 90% of your charge for CPT code 99203 but 45% for a surgical procedure that accounts for 50% of your revenue.
  6. 30-day appeal limitations puts the burden of identifying claims issues on the physician.
    What is troublesome about appeal limitations, regardless of length, is that the responsibility falls on the physician to identify claim-processing errors. Unless you report the error within the filing limitation, your payor will probably refuse to reprocess claims over 30 days old. Filing Limitations are also usually found under the Payment and Reimbursement section of your contract.
  7. 30-day filing limitations do not take in to account “special circumstances”.
    Some managed care payors have filing limitations as short as 30 days from the date of service or EOB from the primary payor. If your payor will not negotiate the filing limit, ask for a clause that addresses “special” circumstances such as loss of key staff or significant equipment failure. If your contract does not identify a filing limitation, ask if there is one. It might fall under an unwritten policy and procedure.
  8. Contracts that allow for unilateral changes give Payors carte blanche authority to do anything they want.
    It is very common to find provider agreements in which the payor grants itself the authority to make unilateral, mid-term changes to the provider agreement. For example, a contract may specify a one or two year term. Reimbursement may be set at 150% of current Medicare rates. Yet, buried within the contract is a sentence stating the health plan or IPA may amend any portion of the contract at its sole discretion by giving the provider 30 days notice. This means that the contract, in reality, is a 30 day contract and the plan can unilaterally decide to lower the reimbursement, let’s say by 20%. It sends your practice a letter and 30 days later that change goes into effect for the remaining months or years of the contract term. Absent the right to approve any mid-contract changes, or absent the right to a quick and easy termination if the changes are unacceptable, you’re stuck. And I’ll bet many or most of your current agreements don’t give you protection from such unilateral decisions.Clearly your practice or group must not allow a payor to have such unilateral rights. Any provision must be stricken when the agreement is initially drawn-up or at renegotiation time. The payor won’t like it and will fight you tooth and nail to protect its self-serving interests. But in my opinion a payor’s unilateral right to amend mid-term is a deal breaker. You’re giving them carte blanche authority to do anything they want and you’re contractually obligating yourself for the consequences. Any payor that refuses to remove such onerous provisions is revealing a dangerous clue to potential future problems.
  9. Vague contract language
    This is a less obvious way to get you to comply with unilateral changes. The use of language provisions such as “As may be deemed necessary” and/or “from time to time” are less obvious ways to require you to accept unilateral changes. Additionally, the use of “as may be established by the Payor” (especially if it occurs “from time to time”) may obligate you to policies and procedures that haven’t even been established, but may be in the future! This caution also applies to any attachments or addendums that may be “modified or added at the discretion of Health Plan”. Do not agree to these terms. Treat these statements the same way as those that give the payor the authority to make unilateral changes. If you see these clauses in a contract do not sign until appropriate legal counsel has reviewed the contract.On a related note, you should always ask for policy and procedure manuals before you sign and make sure you review them and are able to comply. Specific policies and procedures may cost you money or add additional administrative burden to your staff but usually are not spelled out in the contract. Examples include referrals and precertification requirements or whether or not you can bill for lab or x-ray or other ancillary services performed in your office.
  10. You may be giving discounts you are unaware of if your contract can be extended to “affiliates”.
    National payors and network PPOs may include a statement that says that the agreement is entered into by itself and its affiliates. If your payor has affiliates, make sure that your contract includes an addendum that lists all affiliates that are included as parties to your contract to prevent the network from being “leased” or subject to blind or silent PPO activity. This language is usually found in the opening paragraph of the contract.

A careful review of your manage care contract can help identify risks. Although managed care risks can never be completely eliminated, a careful review of a contract should lead to identification and evaluation of these risks. Once the risks have been identified, some of them may be eliminated or at least minimized during negotiations. Those risks that are not eliminated can be assessed, so you can make an informed decision as to whether the anticipated benefits of the contract outweigh the risks.

Have questions? Email our Managed Care team to learn ways you can avoid the common pitfalls of managed care contracting.

If you have questions about this topic or any other issues around the business of medicine, contact us via email or call us at 800-635-4040.