By Jeremy Miller, J.D.

Introduction
Physicians and medical groups around the country are experiencing a common problem: HMOs, insurance companies and Independent Practice Associations (“IPAs”) are not paying legitimate claims for services rendered. This disturbing trend includes:

• Unjustified denials of claims,
• Repeated requests for additional supporting claims information,
• Delays in payment,
• Reductions in payment, and
• No payment at all because the third-party payer has gone bankrupt.

In my experience, once a payer gets into financial trouble, physicians have very limited options for recovering their unpaid fees. To reduce the risk of not getting paid in full, physicians need to do two things: first, investigate the HMO, insurance company, or IPA before signing a contract and, second, carefully review and negotiate the terms of the proposed contract.

Carefully Check Out the Payer
The first line of defense is to learn what you can about the party with whom you propose to sign a contract. Among other things, you should ask (and get answers to) the following questions:

• How many years has the payer been in business? Generally, the more years the better.
• What is the payer’s market share and what is its competition? The more dominant the payer in the market, the less likely it will go bankrupt.
• Has the payer had recent, rapid growth through mergers and acquisitions? FPA Medical Management, Inc., MedPartners, and KPC Global all experienced hyper-growth and then disintegrated.
• What is the payer’s record of paying claims fully, accurately, and on time? Ask other physicians and medical groups for their experience with the payer.
• If you are contracting with an IPA, does it have adequate funds on hand for incurred but not reported claims (“IBNRs”)? If not, this can be a warning sign of inadequate capitalization and financial control.
• What are the background, experience, and track record of key officers and management? If the IPA is managed by an outside company, what is the management company’s track record?

How do you get answers to these questions? A good way to begin is by checking the payer’s financial statements. These may be on file with your state Department of Insurance or in the case of public companies, with the federal Securities and Exchange Commission. You can also ask the payer to provide you with its most recent financial statements. Other valuable sources of information include your colleagues and local, state, and national medical and group practice associations. Health care attorneys and consultants may also have useful, first-hand information about the payer.

If you are contracting with an IPA, one way to learn about the IPA and perhaps get an early warning about possible financial problems is to become a shareholder or member of the board of directors. Directors have the right to see all of the IPA’s books and records. Shareholders also have certain inspection rights, although typically they are not as extensive as a director’s. Directors can also attend board meetings where any financial problems are likely to be discussed. Keep in mind that directors owe fiduciary duties to the IPA and cannot use their position for personal financial gain. For example, a director cannot use his position to ensure that his group’s claims are paid before those of nondirectors. Directors also run the risk of being sued by disgruntled physicians if the IPA fails to make payments to all of its members.

Negotiating the Contract
Even if a background check does not reveal any obvious problems, physicians still need to carefully negotiate the terms of their provider agreements with HMOs, insurance companies, and IPAs. Physicians often feel that these contracts are presented on a “take it or leave it” basis. Although this is sometimes true, in most cases, important changes can be made. The key is knowing what to ask for and what to avoid. Among the negotiating points you should consider are the following:

• No contract is better than a bad contract.
• It may be preferable to contract with multiple payers rather than have a single payer account for a substantial portion of your managed care business.
• Any promises that have been made orally or in preliminary correspondence (e.g., to pay for preexisting pregnancies, to carve out certain services from your scope of responsibility, risk pool participation, and exclusivity) must be included in the final written agreement.
• You should have the right to receive financial information on an on-going basis, such as quarterly.
• You should have the right to audit the payer’s books and records to determine whether you are being paid “accurately.” For example, if you have a capitation contract, you want to be able to verify that you are being paid for all of the lives that have been assigned to you, and that you are receiving all risk-pool distributions to which you are entitled.
• Particularly if you are being paid under capitation, the contract should state exactly what services you will be expected to perform for this fixed fee. Preferably, the “service matrix” should be detailed by CPT code. It is not enough to say, for example, that you are responsible for all primary care or orthopedic services.
• Avoid contract terms that allow the payer to unilaterally change the scope of services for which you are responsible.
• All key terms in the contract (such as “medically necessary” and “emergency”) should be clearly defined.

Obviously, how much you will be paid is a key contract term. But there are traps for the unwary. Some of the questions to ask include:

• If you are to be paid pursuant to a fee schedule, is the fee schedule attached?
• If there is a reference to an outside fee schedule, such as Medicare rates, do you fully understand what those rates are?
• Is your capitation payment based on not only the number of enrollees who choose your group but also on those who are assigned to you?

You do not want capitation payments to start only after the first patient contact. You do want to try and negotiate a fee-for-service payment arrangement until you reach an agreed minimum level of enrollment. Post-termination rates also need to be addressed for patients who you may be required to continue to treat for some period after the contract ends. You should avoid provisions that allow the payer to penalize you for failure to comply with the payer’s policies and procedures or that allow the payer to unilaterally reduce your rate of compensation because of the payer’s financial difficulties or for any other reason.

The contract should be specific about when you will be paid. Will it be based upon calendar days or working days? Most states have now enacted “prompt payment” laws; however, the enforcement of these laws has been spotty. Therefore, you want to be sure that your contract is explicit on this important point. Be careful about provisions that require payment only after a “clean claim” has been submitted. The chief reason payers use to justify nonpayment is that the claim allegedly is not clean. Therefore, what constitutes a clean claim needs to be clearly defined.

Be on the lookout for hidden provisions that require you to appeal claims denials within a short time such as 30-60 days. If you fail to appeal within the time specified, your claim will be barred. Either these “contractual statutes of limitations” should be eliminated or the appeals period significantly increased.

Try to get the right to retain payment from any secondary payers at least up to the level of your billed charges. If you will not be able to retain “coordination of benefit” payments, then you should reduce r eliminate any obligation to assist the payer to collect such payments.

Watch out for “all products” provisions. Some contracts may oblige you to provide discounts for products of the payer other than those expressly covered in the contract you sign. Indeed, you may inadvertently end up giving the PPO discount you agreed to the payer’s indemnity insurance patients. Even worse, you may be providing discounts to payers with whom you have not even contracted (so-called “silent PPOs”)! A number of states, (e.g., Alaska, Kentucky, Maryland, Massachusetts, Nevada, and Texas) have made such provisions illegal.

If you are being paid by capitation, you should limit the retroactive disenrollment period to no more than 90 days. Furthermore, if you actually provide services to a patient who is later determined to have been ineligible and you cannot collect from the patient after two billing cycles, then the payer should be required to pay you on a previously agreed upon, fee-for-service basis.

If you are eligible to participate in risk pool distributions, the contract needs to define your rights clearly. It is preferable to get payments on a quarterly rather than annual basis. You should also try to get the payer to segregate the risk pool money and not commingle it with the payer’s other funds. How hospital and pharmacy costs will be charged to the risk pool must be specified in the contract. Otherwise, the risk pool may be charged inflated “retail” prices.

If possible, try to negotiate for the maintenance of a security deposit equal to 1-2 months of capitation. If a security deposit is established, then you want to be given a security interest on the money. In the event the payer goes bankrupt, you will then have a right to the money, which will not be included in the assets to be used to pay the general creditors.

The contract should provide that you can terminate it for nonpayment. Try to keep the time period the payer has to attempt to remedy a breach of contract for nonpayment as short as possible: 10 days, for example, is obviously preferable to the 30-60 days typically allowed to correct other types of breaches. You should also have the right to terminate for chronic late payment.

The contract should provide that your attorneys’ fees will be paid in the event you have to sue or arbitrate to get paid. You should avoid contract requirements for extended, nonbinding mediation periods. Arbitration may allow you to collect unpaid claims more quickly and at less cost than if you had to go to court. You should avoid provisions that require you to make an arbitration demand within a shorter time than the statue of limitations for a breach of contract. An arbitration provision should provide for broad discovery rights, a neutral arbitrator, and a location convenient to you and not at the payer’s out-of-state headquarters.

Be sure to avoid contract provisions that allow the payer to amend the contract without your consent. Similarly, watch out for contract provisions that incorporate the payer’s policies and procedures that may be inconsistent with the contract.

Finally, the contract should provide that when it terminates, your post-termination care obligations will be limited to a reasonable period of time while your patients decide whether to find another physician. You should also carefully review nonsolicitation provisions to be sure that they do not unfairly restrict your ability to contact the patients in the event of termination.

The old adage, “an ounce of prevention is worth a pound of cure” certainly applies to managed care contracts. By carefully checking out whom you are contracting with and then negotiating a fair contract that protects your interests, you can significantly reduce your risk of not being paid.