What To Consider In A Managed Care Contract

This material was jointly developed by State Volunteer Mutual Insurance Company and the Jefferson County Medical Society. State Volunteer Mutual Insurance Company Medical Practice Services Department PO Box 1065 Brentwood, TN Jefferson County Medical Society 101 West Chestnut Street Louisville, Kentucky We wish to acknowledge the use of Aspen Publishers, Inc.’s Medical Group Practice Legal and Administrative Guide in the preparation of this study guide. The material is used by permission of the publisher.

SUBJECTS (Click on the arrows to guide you through the study.) What Is A Contract Preliminary Questions Standard Contract Provisions Nonstandard Contract Provision Provider Duties Under Contract Payment Obligations Under Contract Index (Click on the blue “?” at any time to take you to the index.)

What is the Contract? Who are the parties? Why is the documentation necessary? Is there always a contract?

Who are the parties to the contract? You – is the contract with the individual physician or with the practice, group or entity? Them –You need to know exactly who the contract represents so that you can confirm financial solvency, ownership, and likelihood of success in the marketplace. –Can the described entity expand the domain to whom you must supply services ?– for example, “X Corporation as well as its subsidiary and affiliated corporations and health benefit plans with whom it has agreed to furnish administrative services.” Thus running the risk of expanding your obligations to unidentified parties far beyond your expectations.

Why is the documentation necessary? The contract will designate certain obligations for each party. Having this delineated in clear language benefits all parties in knowing their rights and responsibilities. The contract will state the remedies for disputes. The contract will state how the obligations and responsibilities can be terminated.

Is there always a contract ? Like everything else in life, there are always exceptions, but there will almost always be contract in place for the managed care relationship between the provider and the MCO.

Preliminary Questions Is the Managed Care Organization (MCO) financially stable? Is the MCO properly licensed? What is the complaint history against the MCO?

Is the MCO Financially Stable? Ask for and review the MCO’s financial statement to check for any evidence of financial instability. A financially unstable MCO may delay in processing claims, deny authorization for services or referrals to specialists, and retrospectively deny coverage for previously authorized or emergency services. Because you may be required to provide care to an MCO’s enrollees until the expiration of the contract term (and for a period thereafter under continuation-of-care provisions), you must have as much information as possible about the financial condition of the MCO before entering the contract.

Is the MCO Properly Licensed? Check with the appropriate state regulatory agencies to verify that the MCO is properly licensed and determine whether a history of complaints against the MCO exists.

What is the Complaint History Against the MCO? Talk with other physicians and group managers to determine whether: –The MCO’s performance is consistent with expectations when they entered the contract –Payments are made on a timely basis –The MCO has a history of unjustified claims denials –Any major administrative or procedural problems that may exist with the MCO Check with the state Department of Insurance about complaints against the MCO. Check with the Better Business Bureau about complaints against the MCO.

Standard Contract Provisions Recitals Representations and Warranties Declarations Relationship of the Parties

Recitals General statements describing who the parties of the contract are and what the contract is attempting to accomplish. Usually very general in nature. Becomes important when disputes arise over either parties intentions. Often important in disputes surrounding whether the MCO is contracting with the individual physician or the practice as a whole. For instance – the MCO may refuse to negotiate certain disputes with the group administrator if the contract is with an individual physician.

Representations and Warranties These are assurances by each party they are in fact who they represent themselves to be. Representations and Warranties often include: –Corporate Status –Licenses –Compliance with Law –Access to Financial Statement –Prior Authorization

Corporate Status Each party should identify its corporate status in the contract. Nonprofits should indicate such. Notification of change in corporate status to other party.

Licenses Indication of licensing authority (State Insurance Commission, Licensing Board, Federal Government) Proof of license Notification of change of license

Compliance With Law Agreement to comply with all applicable federal, state, and local laws and regulations

Access To Financial Statements Providers should have access to payer’s financial statements to determine financial viability.

Prior Authorization All prior authorization required by federal, state, or local laws has been obtained If the board of directors of the organization requires agreements to be authorized, that authorization should be obtained

Declarations In the declaration clauses of the managed care contract, the MCO and the provider resolve all the “what if” questions related to the agreement between the parties. –Force Majeure –Choice of Law and Severability –Assignment –Amendments –Notices

Force Majeure When events beyond the provider’s control prevents them from any longer providing services, a force majeure clause relieves them of responsibility. The clause will usually distinguish between events that are beyond the provider’s control and that simply disadvantage the provider (in which case the provider would still be obligated to perform under the terms of the contract).

Choice of Law and Severability Identifies which state’s laws will be applied in interpreting the contract The contract should be in the state in which the physician practices medicine because: –The MCO may choose a state with laws more favorable to them –Legal expenses are much greater if the provider must bring or defend a legal action in a distant state Severability clauses allows a contract to continue if a court invalidates a portion of the contract

Assignment Assignment is the delegation or transfer of rights and/or obligations under a contract to another person not originally party to the contract. Most managed care contracts prohibit providers from assigning their rights under the contract. Most managed care contracts are silent with regard to the MCO’s right to assign their obligations under the contract. This opens the door for an MCO transfer or delegate its rights and responsibilities to another party. It is usually in the providers best interest to restrict the both parties ability to assign rights or delegate duties under the contract without the other party’s prior consent.

Amendments Any changes to the managed care contract should be in writing and only after agreement by both parties. Most managed care contracts have provisions for the MCO to make unilateral changes. They justify this by asserting that it would be administratively impossible to obtain signatures from all members of their provider panels for policy and procedure changes or changes in state and federal laws. Providers should try to negotiate for at least advance notice of changes and for the right to comment on proposed changes. Some contracts have provisions that the MCO will notify the provider of possible changes that will go into effect unless the provider objects. These can be very dangerous if the practice does not respond appropriately. For instance the MCO could propose changes to the fee schedule that would go into effect unless the provider group objects. Without protection from unilateral changes, the provider’s only recourse will be to terminate the contract which for many reasons might not be in the best interest of the practice.

Notices Notice requirement generally layout how notices are to provided to parties and to whom. Essential elements include: –All notices be in writing –Addresses of the MCO and the provider –The effective date of receipt of notice specified –Accepted methods of delivery You should insure that the elements are administratively feasible.

Relationship of the Parties There is a legal theory, respondeat superior, that requires that the MCO would be liable for the negligent acts of its employees. To assure that does not come into play, most managed care contracts contain provision stating that both the MCO and the provider have an independent contracting arrangement. Most contracts also include a clause stating that nothing in the contract shall be construed to require physicians to recommend any procedure or course of treatment that physicians deem professionally inappropriate. This is to protect the MCO from charges of engaging in the practice of medicine and from liability arising from the negligence of any of the physicians.

Nonstandard Contract Provisions Key Definitions Assignment of Enrollees to Providers Listing in Directory of Providers Plans for Which Services Will Be Provided Physician Accessibility Restrictions on Physician Referrals Primary Care Physicians as “Gatekeepers” Requirements or Limits on Employment of Personnel Exclusivity Provisions Term Provisions Suspension Provisions Procedures for Imposing Corrective Action on Physicians Termination Provisions Insurance Provisions Indemnification Provisions Dispute Resolution and Arbitration Provisions

Key Definitions Covered Services Member/Enrollee/Insured Covered Enrollee Medically Necessary Emergency

Covered Services The contract should indicate either in the body of the contract or in an appendix the services the provider is to provide The contract (particularly in a capitation situation) should state which services are excluded from coverage

Member/Enrollee/Insured These terms sometimes are used sometimes used interchangeably within a contract to refer to person to which the provider is obligated to render care, but in other contracts one or all of these could apply to entirely separate groups. Therefore, the contract should clearly state to whom each of these terms apply.

Covered Enrollee The contract should should clearly and narrowly define the enrollee population It should indicate the demographic characteristics of the population Limit the contract to those covered under the contract and not include enrollees in affiliated plans

Medically Necessary The term should have clearly defined standards that will be applied when determining whether services provided fit within the definition. This term often determines whether or not the provider will be paid for services rendered. Ideally the MCO should not have the sole authority to determine medically necessity.

Emergency Managed care companies often will not pay for services provided in an emergency room that they do not consider an emergency. There should be a clear definition within the contract stating how these situations will be handled. In some instances contract obligations may be modified or expanded by statutes. For instance, there are several provision in Kentucky law that require payment for emergency services rendered.

Assignment of Enrollees to Providers Can be done in two ways: –Enrollee selects individual physicians on their provider panel (usual method) –MCO assigns enrollee to a physician based on geographic region, physician availability and cost to the MCO With either method, the provider should negotiate for the MCO to use its best efforts to see that they are selected

Listing In Directory Of Providers It is important that the provider be listed in the print and electronic provider directories as quickly as possible because this is the method by which the patients will choose their physician. The provider should have preapproval of the descriptions used in the provider directory to insure accuracy and completeness.

Plans For Which Services Will Be Provided MCO usually offer several different types of managed care products (HMO, PPO, POS) so it is important that the provider be sure which plan the contract is for. The provider should insure that one plan does not automatically obligate them to participate in other plans unless that is the provider’s wish.

Physician Accessibility The contract may require physician availability based on: –Office-hour availability –Telephone availability –Emergency services availability –Appointment availability The contract may require that physician obtain approval for changes in office locations

Restrictions On Physician Referrals MCO contracts frequently restrict the selection of physicians or other providers to whom a physician may refer patients. There are usually exceptions for patient emergencies. Physicians should insure that they are comfortable working with other providers within the MCO network before executing a contract.

Primary Care Physicians As “Gatekeepers” A Gatekeeper typically is obligated to: –Preauthorize or deny specialty care –Authorize or deny elective care –Use only participating specialists and ancillary services –Monitor, manage, and coordinate all the care assigned to patients including other physicians and ancillary care This can be a particularly onerous task under a capitation arrangement Specialists should insure that they can work with the plan’s gatekeepers before entering into a contract

Requirements or Limits On Employment of Personnel These contract provisions usually revolve around the use of Nurse Practitioners and Physician Assistants Depending on the circumstances the contract may require that provider use NP or PA’s wherever possible OR not allow their use. It is important to understand the impact of these mandates on the practice before signing a contract. In a few circumstances the contract may limit the number of other personnel within the practice.

Exclusivity Provision Some contracts establish a physician or group practice as the exclusive provider for a given geographic region. These arrangements can give rise to antitrust concerns where a practice has substantial market power and uses it to the disadvantage of payer and/or competitors. Some contracts state that the MCO will be the exclusive payer in exchange for a certain patient base. This is a classic situation of “putting all your eggs in one basket” where the physician risks having the MCO not being able to supply an adequate patient base or experiencing financial problems.

Term Provisions The “term of the contract” is the time for which it is to be in effect. Many contracts have provisions for automatic renewals if neither party exercises the right to terminate. Contracts should have rights to terminate without cause within a reasonably short notice period. Many contracts allow for unilateral adjustment of fees by the MCO, therefore, it is important for the provider to be able to easily opt out of the contract if the new fees are unacceptable.

Suspension Provisions These provisions allow the MCO to take temporary punitive measures against the provider for not fulfilling some of the obligations under the contract without fully terminating the contract.

Procedures For Imposing Corrective Action On Physicians As part of the their quality assurance, utilization review or other performance standards under the contract MCO’s may have the right to take corrective actions against the physician such as restriction of clinical privileges, changes in compensation amounts or termination of contract The contract should have description of grounds for corrective action such as quality problems, patient dissatisfaction, inappropriate utilization or costly practice style The contract should provide for due process protections for the physician The contract should state who has the responsibility for taking the action

Termination Provisions Without Cause – usually with 60 to 90-day notices for both parties With Cause – grounds include: –Material breach of contract with failure to cure –Insolvency –Dissolution, merger, or sale of assets –Suspension or revocation of license –Loss of malpractice insurance or hospital privileges –Exclusion from Medicare or Medicaid

Insurance Provisions Managed care contracts usually impose certain insurance requirements on providers. Physicians and their groups are usually both required by the contract to be responsible for professional and general liability insurance coverage. Providers should insist that that the MCO carry both these coverages as well.

Indemnification Provisions Indemnification clauses protect one party from actions of another. In many managed care contracts the standard indemnification clauses attempt to shift the burden of claims arising from the MCO’s conduct onto the provider. As a general rule, professional malpractice insurance does not cover contractually assumed liabilities where the provider would not be directly liable under some other theory of liability. It is unfair to expect the physician to assume the legal responsibility for the negligent acts or omissions of the MCO. Physicians should never provide indemnity for affiliated physicians unless they are actual members of the same group. The physician should seek to have the MCO indemnification obligations extend to utilization review activities performed by third parties. Physicians should demand mutual indemnifications that makes each party fully responsible for its own actions and inactions under the contract. Physicians should always have the indemnification provision reviewed by their own attorney and their liability carrier.

Dispute Resolution and Arbitration Provisions All managed care plans have processes for appeals and dispute resolution, but the details are usually in the provider manual rather than the managed care contract. The contract should reference these procedures. Some of the items that should be outlined in the process are: –How a mediator will be chosen –What rules will govern the process –Specific time frames within which the procedures will take place Many contracts contain arbitration provisions. If structured properly these are good provisions for both parties Some of the items that should be consider in the arbitration clause are: –That it is binding on both parties –Physicians should not agree to arbitration of malpractice claims without first checking with his/her insurance carrier –The contract should specifically include the right of both parties to conduct discovery in connection with any arbitration proceeding

Providers Duties Under Contract Services To Be Provided Policies and Procedures Holding Enrollees Harmless or Balance-Billing Prohibitions Collection of Co-Payments and Deductibles Nondiscrimination Requirements Gag Clauses Maintenance & Retention of Records and Confidentiality Facility Inspections Continuation of Service After Termination Of Contract

Services To Be Provided Physicians should insure that there are clear definitions for covered services, covered enrollee, and medically necessary to insure that responsibilities are clearly understood. These definitions will affect reimbursements under the plan. The contact may cover other responsibilities including: –Responsibilities to refer or accept referrals of enrollees –The days and hours that the physician agrees to be available to provide services –On-call arrangements Standard of Care: –The physician should not be held to a standard higher than those of the community in which he/she practices –Terms such as highest quality can cause physician difficulty in liability situations

Policies and Procedures Quality Assurance and Utilization Review Policies and Procedures Credentialing Standards Applied to Participating Physicians Compliance With Other MCO Policies and Procedures Procedures For Verification of Eligibility Claims Submission Procedures Claims Procedures Involving Coordination of Benefits Enrollee Grievance Procedures

Quality Assurance and Utilization Review Policies and Procedures Quality Assurance (QA) programs are put in place so that MCOs can insure that the care their enrollees are receiving is of an acceptable quality. Utilization Review (UR) programs are designed to control costs through assurance that services the MCOs enrollees are provided are medically necessary and appropriate. UR may be prospective, concurrent, or retrospective, but typically requires prior authorization for all or certain services. Depending on the terms of the contract, QA programs may be conducted by either the MCO or the medical practice. Often the requirements for QA activities are detailed in documents outside the managed care contract, but they should be reviewed in conjunction with executing a contract and attaching them to the contract. Physicians should insure that the provisions for the administration of UR activities are consistent from the managed care contract and UR policies. QA and UR requirements can be costly and burdensome to providers and should be considered carefully.

Credentialing Standards Applied to Participating Physicians The contract will impose credentialing standards on physicians Credentials to be verified include: –Current and continuing qualifications to practice medicine –State licensure –Specialty board certification –Federal Drug Enforcement Administration registration –Staff privileges at local hospitals –Sufficient malpractice insurance The National Practitioner Data Bank will most likely be queried

Compliance With Other MCO Policies and Procedures The contract along with its appendices, attachments and addendums reference other policies and procedures with which the physician is expected to comply. It is important that there be provisions for a period of time in which a physician can “cure” any non-compliance that he/she is notified of by the MCO.

Procedures For Verification of Eligibility MCOs will not pay for services of enrollees whose coverage is not in effect, therefore, the provider is usually required to verify eligibility. Verification can vary – membership cards, listings, telephone or computer checks. It is imperative that the process not be burdensome and that it is available anytime the physician sees patients. There should be provisions for how to handle emergency situations.

Claims Submission Procedures All managed care contracts will contain provisions for the process of submitting claims. Generally the contract will specify the time frame in which a claim must be submitted – usually between 30 to 90 days. The contract will have penalties for late submission of claims. These penalties can range from limited financial payment reductions to denial of the claim. Physicians should insure that there are provisions for handling late submissions without penalty for which there are valid reasons.

Claims Procedures Involving Coordination of Benefits Most contracts will require in situations where the MCO is the secondary payer, that the physician first bill and collect from the primary payer before submitting their claim. Delays in collecting from the primary payer could cause delays in submitting this secondary claim. Physicians should insure that there are provisions that allow for the submission of secondary claims past the “normal” filing deadlines.

Enrollee Grievance Procedures MCOs will have some process for handling enrollees grievances. The physician should insure that they understand these policies and how they will be administered. Too often the MCO unilaterally makes decisions about the grievance and then can require providers to take actions such as waiving fees or determining that it will not pay for services. The physician should seek to be able to participate in the grievance process where appropriate, realizing this can be burdensome and time consuming. The physician should be able to receive deferred payments if the grievance is not found in favor of the enrollee.

Holding Enrollees Harmless or Balance-Billing Prohibitions Hold harmless clauses prohibit the physician from billing enrollees for covered services. In some contracts and in some states this provision is in force even if the MCO becomes insolvent. Balance-Billing clauses prohibit physicians from billing for the balance of the amount not paid by the MCO except for deductibles and co-payments.

Collection of Co-Payments and Deductibles Many managed care contracts require that the provider collect deductibles and co-payments There must be an easy means to determine the amount of co-pay due – usually on the enrollees membership card There must be an efficient way to determine if the patient is required to pay a deductible and how much of the deductible is remaining to be paid – usually by calling the MCO

Nondiscrimination Requirements Many contracts state that the provider must provide services in the same manner to its MCO enrollees as it does to non-managed care patients Many contracts forbid the provider from discriminating against providers based on race, color, gender, age, health status, disability, religion or national origin The physician should seek the ability to deny services to an enrollee on the same grounds as services would be denied to any other patient

Gag Clauses Typically allow for termination of contract by MCO if the provider takes any action or makes any communications that undermine or could undermine the confidence of enrollees in the quality of care provided by the MCO Gag clauses may prevent physicians disclosing to patients treatment options that the plan does not offer or from discussing referrals outside the plan Physicians should endeavor to have these clauses removed from the contract

Maintenance & Retention of Records and Confidentiality Contracts usually require providers to maintain both medical and business records for specified times. Usually the contract will allow the MCO to inspect, review, make or obtain copies of medical, financial, and administrative records. Additionally, physicians may be required to submit periodic reports with specific practice data. The contract should require strict confidentiality of patient and practice information by both MCO and physician.

Facility Inspection Most contracts give the MCO the right to inspect or audit the practice’s facility and certain records The physician should have a clear list of what is eligible to be inspected and only after appropriate advance notice

Continuation of Service After Termination of Contract The contract will likely require the physician to continue to furnish services until they are completed or the MCO has made appropriate provisions for another provider to assume responsibility The physician’s medical/legal responsibilities to not abandon the patient supersedes the contract The contract should specify how the physician is to be compensated for rendering this extended care after the contract is terminated

Payment Obligations Under The Contract General Payment Considerations Fee-For-Service Capitation and Risk Sharing Considerations

General Payment Considerations Time and Manner of Payment – the contract should provide for payments to be made to providers by the MCO within a specified period of time. There should be penalty to the MCO for late payments. Providers should attempt to remove clauses in the contract that allow MCOs to offset prior overpayments against current payments. Most-Favored-Nation Provisions – this clause requires providers to adjust their fees whenever they contract to perform the same services with a competing MCO at a lower reimbursement level. Providers should attempt to remove these clauses from the contract.

Fee For Service The MCO will pay pay the physician based on a fee schedule for service rendered The fee schedule is usually based on: –A percentage discount from the physician’s usual fees or from a “usual and customary” table selected by the MCO; –A set schedule provided by the MCO, or; –A percentage of the Medicare fee schedule (this could be above 100% of the schedule or a discount from the schedule) The contract may exclude payments for certain services The contract may require approval before payment of certain services

Capitation and Risk Sharing Considerations Minimum Enrollment Guarantee Maximum Enrollment Limit Proration of Capitation Fees for Certain Enrollees Division of Responsibilities Risk-Pool Arrangements Carve-Out Provisions and Stop-Loss Insurance

Minimum Enrollment Guarantee In assuming the risk for providing care for a patient population providers need to insure that there is sufficient number of enrollees to spread the cost in an actuarially sound manner The capitation contract should not begin and should end when there is not a sufficient number of enrollees In some instance the contract will call for fee- for-service payments in times when the enrollee numbers are below a threshold

Maximum Enrollment Limit Physicians do not want to contract to provide more services than they are able Physicians do not want to limit their ability to contract with other managed care plans The contract can limit the number of enrollees the physician will accept

Proration Of Capitation Fees For Certain Enrollees If the plan allows for enrollees to enter during a capitation period there should be provisions for adjusting the payment to the physician If enrollees are retroactively enrolled the payments should be accordingly adjusted The physician should not be liable for services already rendered by other providers

Division of Responsibilities The contract should have a matrix attached detailing the responsibilities of all the parties for the delivery and administration of care to the enrollees This matrix will help insure there is a clear understanding and will cover all areas including diagnostics, home health, laboratory services, UR, QA, prescriptions, durable medical equipment, etc.

Risk-Pool Arrangements Risk-Pools are made up of a percentage of the capitation payment that is withheld to incentivize the efficient administration of services. If certain cost saving goals are met the fund will be distributed. These pools obviously reduce payments to physicians unless the goals are met and even then much care must given in setting and monitoring these programs.

Carve-Out Provisions and Stop-Loss Insurance Carve-Out provisions allow for additional capitation payments or fee-for-service payments to treat certain specified conditions Stop-Loss Insurance pays when the expenses to provide care to a patient exceed a certain level. The physician practice must purchase this insurance either from the MCO or an insurance company

Index Amendments Arbitration provisions Assignment Assignment of enrollees to providers Balance-billing Capitation Capitation - proration Carve-out provisions Choice of law Claims submission procedures Complaint history Compliance with law Confidentiality Continuation of service after contract Contract provisions - nonstandard Contract provisions - standard Coordination of benefits Co-payments Corporate status Corrective action Covered services Credentialing Declarations Deductibles Definitions Directory of providers Dispute resolution Eligibility Emergency Employees (Click on the red “I” box to take you to the topic)

Index (Click on the red “I” box to take you to the topic) Enrollee Enrollee - Covered Enrollment - maximum limit Enrollment - minimum guarantee Exclusivity provisions Facility inspection Fee for service Financial stability Financial statements Force majeure Gag clauses Gatekeepers Grievance procedures Hold harmless clauses Indemnification provisions Insurance provisions Insured Liability insurance Licenses Licensing Malpractice insurance Medically necessary Member Nondiscrimination requirements Notices Parties to the contract Payment - general considerations Payment obligations Physician accessibility Physicians duties

Index Plans Policies - MCO Policies - provider Prior authorization Procedures - MCO Procedures - provider Professional liability insurance Proration of capitation fees Providers duties Quality Assurance Recitals Record maintenance Record retention Referrals - restrictions Relationship of the parties Representations Responsibilities Risk Sharing Risk-pool Services to be provided Severability Stop-loss insurance Suspension provisions Term provisions Termination provisions Utilization Review Warranties (Click on the red “I” box to take you to the topic)

What To Consider In A Managed Care Contract