Avoid Overlooking Silent PPO Risks, and Other Hidden Contract Issues to be Tuned in to when Negotiating a Health Plan Contract.

Health Care Providers (Providers) occasionally find themselves billing a health insurer (Payor), expecting full reimbursement, only to receive a significantly discounted payment predicated on discounts which the Payor claims have been negotiated with the Provider.  This may arise from “Silent PPOs” or “rental networks”. In the current environment of large payors pressing Providers for discounts so the Provider can participate in their networks, be wary of Silent PPO’s. Managing a Provider’s operations is complex, and the varying array of health plans/payors used by their patients opens the door to confusion as to which Payors’ covered patients are eligible for specific negotiated rates. This confusion can result in a Provider erroneously accepting lower reimbursement than it is entitled to receive for some patients.

What is a Silent PPO?   In a standard agreement between a Provider and a Payor, the Provider signs a contract giving a discount to entities within the Payor’s organization.  The Provider receives “consideration” (something of value) in exchange for the discounts – such as a limited number of in network Providers (or alternatively a Tier 1 designation in their network), which acts to direct patients to the Provider; prompt payment terms; and streamlined claims processing.  Silent PPOs are those situations where an entity (the Silent PPO) piggybacks on to a bona fide negotiated discount rate between a Provider and a Payor where the Provider hasn’t knowingly authorized third parties (the Silent PPOs) to access those negotiated rates.  Essentially, the Payor leases the discount agreement it has with the Provider to Silent PPOs, granting access to the Provider’s discounts to the out of network Silent PPOs.  In 2008 the American Medical Association estimated that Silent PPOs cost Providers up to $3 billion/year.

How to Protect Yourself from Low Reimbursement by Silent PPOs

The Provider/Payor Contract    The terms of agreements with Payors should (i) limit the entities who can access your negotiated rates and (ii) require the Payors to keep your negotiated rates confidential. If they don’t, a Payor can seek to lease your negotiated rates to Silent PPOs. If your negotiated rates with a Payor are generally accessible to third parties, the Silent PPO can scour contracting sources to find the lowest charge you accept for specific services, and in many cases access the rates of the valid agreement between the Payor and Provider. This could occur if the Payor you negotiated the agreement with allows those rates to be accessed by other entities, essentially renting out your rates.

The first step is to include language in the Payor agreement which limits the entities who are eligible to receive the discounted rate. This is done by:

The Patient Visit   When patients arrive at the office, require that they show their insurance card, even if they have been to the office recently. As a patient I’m not thrilled with this concept, but as an advocate for health care providers being appropriately compensated for their professional efforts, it’s important.

Review Explanations of Payments (EOPs)    The EOPs you receive along with payments from Payors should clearly reconcile the difference between your billed charges and the amount the Payor is reimbursing you. Having adequately trained staff to validate that you are receiving proper reimbursement is important. To the extent you have done the up-front work in negotiating contract terms and receiving patient ID cards, a review of EOPs can capture attempts to under reimburse you.

It should be noted that some states have passed laws to level the playing field for Providers. There is a “Rental Network Contract Arrangement Model Act”, and variations on it, which have been adopted in some states. These laws limit the ability of a Payor to allow third parties to receive the benefits of the Payors agreements with Providers. New Jersey is not one of those states.

Negotiation Preparation   To arrive at a contract with favorable terms the Provider’s representatives need to be prepared and have clear objectives.   Agreements which are negotiated based on thoughtful planning by knowledgeable legal and business representatives are foundations a Provider can use to obtain the best bargain and avoid traps.

Other Hidden Issues to Be Aware of in Managed Care/Health Plan Contracting

This isn’t a comprehensive list of everything to address in health plan contract negotiations, but are some points that I believe can be easily overlooked, even by experienced business people.

NOTICE: This article is provided for informational purposes only and does not constitute a solicitation for legal services or the provision of legal advice. This article should not be used as a substitute for obtaining legal advice from a licensed attorney.

David Meinhard, Esq. is a transactional and regulatory lawyer, with a practice concentration in health care

and data privacy law, at Harwood Lloyd, LLC, located in Hackensack, NJ.    David can be contacted at

dmeinhard@harwoodlloyd.com or 201-359-3593.