Fixing Managed Care Contracts

contractManaged care contracts usually suffer from two common problems: (1) very important terms are unclear, and (2) the cost control provisions are unfair.  In contracting with payers, as in any contract, specificity matters.  If the contract is not crystal clear on an issue, the parties can expect to fight about it, sometimes in expensive litigation.  Similarly, ensuring fairness in a contract can prevent disputes.


Definitions.  This is usually the first part of a contract, and it may seem innocuous enough, but certain definitions are key to physicians.  In particular, definitions of Covered Services, Emergency Services, Members, and Participating Providers usually need work.

The definition of Covered Services should specify the services to be provided by the physician.  Otherwise, the physician could be financially responsible for services he or she does not provide.  For instance, does the term include diagnostic services or therapy?  If not, be clear that such services are not covered.  One way to be clear about the matter is to specify the CPT codes.

Emergency Services should be linked to the judgment of a lay person rather than the hindsight of the payer.  That is, a lay person is the one who decides to rush to a physician’s office or a hospital emergency department.  Since federal law requires hospitals and their medical staffs to screen and stabilize any emergency medical condition, there is no choice involved in treating someone who may have a serious problem.  Moreover, since the expenditure of resources is necessary to see if there is an emergency medical condition in the first place, the fact that one did not really exist after all does not resolve the issue of the resources and time spent find that out.  As such, one definition to consider inserting in place of the usual contractual language is:

“Emergency Medical Condition” means a condition manifesting itself by symptoms of sufficient severity such that the absence of immediate medical attention, in the judgment of a reasonably prudent lay person prior to an initial medical screening and in the judgment of a reasonably prudent physician after the screening, could be expected to result in serious impairment or dysfunction of any bodily function, organ or part.

The definition of what constitutes a Member is also tricky.  In particular, physicians should be wary of getting stuck providing services to people who they reasonably believed were members of a payer, but who turned out not to be.  One approach is to require the payer to give members identification cards and periodically updated lists of members.  For instance, the following type of provision might be helpful:

Notwithstanding the foregoing and any provision of this Agreement to the contrary, however, all such Members shall present an appropriate identification card and/or identify the appropriate preferred network/payer at the time of preauthorization.  Otherwise, no discount as set forth in this Agreement shall apply; and [Participating Provider] shall be entitled to bill and collect its full charges.  [Payer/Plan] agrees to provide  [Participating Provider] timely and accurate lists of Participating Providers and Members.

Similarly, the definition of a Participating Provider is key, since failing to refer to a physician who is contracted with the patient’s plan can result in financial penalties to the referring physician.  As such, the same types of obligations mentioned above regarding Members should be created concerning Participating Providers.  That is, the plan should give you periodically updated lists of physicians who participate.


In addition to the need for clarity, most managed care agreements lack what many consider to be basic procedural fairness.  For instance, most agreements contain provisions that permit the plan to implement any rules, regulations, policies and procedures the plan desires at any time.  The physician does not necessarily know about these things, and such things can undermine the very language of the contract.  To meet these concerns, the following should be helpful:

[Participating Provider’s] agreement to be bound by such [policies, procedures, rules or regulations] shall be contingent upon [Participating Provider] being provided advanced written notice or any proposed adverse decision or event and a reasonable  opportunity to respond to such proposal.  Moreover, the parties agree that to the extent the foregoing conflict with the terms of this Agreement, the terms of this Agreement shall govern.

Physician complaints regarding payer payment practices are constantly heard, and there are some provisions to consider in preventing those problems, such as:

Notwithstanding any provision of this Agreement to the contrary, Payer agrees to ensure that all clean claims are paid within thirty days.  “Clean Claims” are those which meet the HCFA requirements.  If payment is not made as described,  [Participating Provider] shall be entitled to receive its full billed charges.

Sometimes, however, the payer is not actually responsible for payment, but rather acts as a middleman between the provider and the payer.  In those instances, it is essential to create clear lines of accountability.  For instance:

In the event a Payor fails to make payment pursuant to the terms of this Agreement, [Plan] shall (a) make such payment on behalf of the Payor, (b) initiate legal action to recover such payment on behalf of [Participating Provider], or (c) assign to the [Participating Provider] the  right to initiate such action.  In the event of (b) or (c), Payor shall provide [Participating Provider] a copy of the agreement upon which [Participating Provider] may rely in prosecuting such action and shall release [Participating Provider] from any further obligation to provide services to [Members].

It is also fairly common for physicians to be denied payment even for patients who were authorized and treated.  In addition to requiring the plan to identify members, the following should be helpful in dealing with those instances:

Verification of coverage at the time of service will be final.  Moreover, notwithstanding any provision of this Agreement to the contrary, any preauthorized admission or covered service shall be paid, regardless of any subsequent benefits determination.

Indemnification provisions continue to be troubling in many contracts.  First, they tend to be overbroad.  Second, they often apply to the doctor and not to the plan.  Third, they can jeopardize professional liability insurance coverage.  As a general rule, indemnification provisions that apply equally to the parties are considered to be reasonable.  For instance, consider:

To the extent not covered by insurance and subject to the terms and conditions set forth herein, each party (the “Indemnifying Party”) agrees to indemnify and hold harmless the other party (the “Indemnified Party”) from and against any and all liabilities, damages, claims, deficiencies, assessments, losses, suits, proceedings, actions, investigations, penalties, interest, costs and expenses, including without limitation, reasonable fees and expenses of counsel (whether suit is instituted or not and, if instituted, whether at trial or appellate levels) (collectively the “Liabilities”), arising from or in connection with any (i) breach or violation by the Indemnifying Party of any of the obligations, covenants or agreements of the Indemnifying Party contained in this Agreement or (ii) the Indemnifying Party’s negligence or willful misconduct.

Fighting the Payer

If, notwithstanding one’s best efforts to obtain clarity and fairness, a contract goes bad, there are three provisions in particular that will help or hurt pursuing a claim against a payer: (1) a prevailing party attorney’s fees provision, (2) an arbitration provision and (3) a choice of venue provision.

Prevailing party’s fees provisions can be just as harmful as they can be helpful since they help the party that wins a dispute.  Nevertheless, in the common situation where the physician has not been paid according to the contract, a prevailing party’s fee provision can be invaluable because it gives a lawyer an incentive to take the case, even when there is not a lot of lost fees involved.  Here is a fairly simple one:

Notwithstanding any obligation specified in this Agreement for the participating provider to hold the Payer harmless, in the event of any controversy arising under or relating to the interpretation or implementation of this Agreement or any breach thereof, the prevailing party shall be entitled to payment for all costs and attorneys’ fees (both trial and appellate) incurred in connection therewith.

Though arbitration provisions are considered by many to be a “kinder, gentler” alternative to litigation, many detractors think arbitration has become more and more like litigation.  On the other hand, depending on the provision, it can unfairly place the dispute within the payer’s control and thereby deprive the physician of his or her right to seek redress through litigation.  That is, arbitration in the context of payers often turns out to be a fruitless exercise for providers.  Moreover, a contract with an arbitration provision cannot generally be the basis of class action litigation, an increasingly popular form of litigation for providers seeking redress from payers.

Nevertheless, if an arbitration provision cannot be negotiated out of the contract there are some things to watch out for.  If for instance there is only one arbitrator, it should be one the physician agrees on.  Ideally, however, there should be a system for selecting arbitrators that involves each party picking one and the two picking a neutral third.  Finally, the arbitrators should apply applicable law and (where possible) the terms of the agreement.  One provision that addresses the latter issues is:

In the event of arbitration pursuant to this Agreement, the arbitrators shall follow controlling law and must (wherever possible) follow the provisions of this Agreement.


Managed care contracts are complex, and the more complicated the situation is (risk contracts for example), the more that is involved in making the contract precise and fair.  Nevertheless, providers will be frustrated to learn that payers are not often responsive to such issues.  In this context, size often matters, in the sense that organizations that control the market are far more likely to have meaningful contract negotiations.  Still, providers should persist, individually and through their professional societies, in asking for changes that make sense

11 thoughts on “Fixing Managed Care Contracts

  1. Pingback: Super Groups: The Most Important Factors When Considering a Merge | Florida Healthcare Law Firm Blog

  2. Pingback: Cutting Patients a Break: Your Financial Hardship Policy | Florida Healthcare Law Firm Blog

  3. Pingback: Why Compliance Plans Make Sense | Florida Healthcare Law Firm Blog

  4. Pingback: Calculating Charges for Out-of-Network Health Services | Florida Healthcare Law Firm Blog

  5. Pingback: What Providers Need to Know Before They Balance Bill | Florida Healthcare Law Firm Blog

  6. Pingback: Balance Billing Revisited | Florida Healthcare Law Firm Blog

  7. Pingback: Tough Trend for Payers = Fairness for Providers | Florida Healthcare Law Firm Blog

  8. Pingback: CMS is Ahead of Schedule…Are You? | Florida Healthcare Law Firm Blog

  9. Pingback: Provider Service Volume is No Longer King | Florida Healthcare Law Firm Blog

  10. Pingback: Medical Necessity and Payment: Who Decides? | Florida Healthcare Law Firm Blog

  11. Pingback: Medical Necessity and Payment: Who Decides? | Healthcare Reimbursement Blog

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s