MANAGED CARE CONTRACTING ALERT

A ROBUST HEALTH PLAN NEGOTIATING AND CONTRACTING PROCESS WILL CAUSE YOU TO OBTAIN THE MOST FAVORABLE CONTRACT TERMS

          By  David Meinhard, Esq.

             May 2019

Managed Care Is Growing, Which Means Its More Important Than Ever For Healthcare Providers To Effectively Negotiate Managed Care Contracts 

With the vast majority of payments to healthcare providers coming from health insurers/managed care organizations (MCOs), its important for providers to thoroughly prepare before entering in to contract negotiations with the MCOs.   The population of patients insured through MCOs has increased due to the greater access to health insurance via the Affordable Care Act, as well as by the growth in the Medicare eligible population who are opting to receive their Medicare coverage through one of the many Medicare Advantage (MA) plans currently available.   According to a CMS press release in September 2018, Medicare Advantage enrollment is projected to reach a new all-time high, with more than 36 percent of Medicare beneficiaries projected to be enrolled in Medicare Advantage in 2019.[i]    AHIP, the lobbying organization for the health insurance industry, recently indicated there are 22 million Americans covered by Medicare Advantage.

This growth in MA Plan enrollment means that healthcare providers who treat Medicare eligible patients will see fewer patients with traditional Medicare coverage.  In light of this shift in patient population, providers who may not participate in many MA Plan networks will need to expand their participation in these plans or risk losing patients.  

With that background, providers interested in making the most of their contract negotiations should educate themselves on the customary contract terms, as well as the contracting process.  This applies to all MCO contracts, whether it’s an MA Plan or a private commercial plan not governed by Medicare.

Decide What Your Key Goals and Objectives Are   

MCOs have staff devoted to contracting, and generally come to the negotiations in a stronger position than the healthcare provider.  With that said, there are situations where a hospital and the many other types of healthcare providers, whether it’s a lab, therapy group, physician practice, or other healthcare specialty, have significant strength in a given market, such that the MCO wants to keep it in the network.  When that is the case  those providers have more leverage, which they can use in negotiating contract terms.  Doing your homework and understanding your respective strengths and weaknesses prior to starting the negotiations puts you in place to obtain the best outcome.

As noted in a recent web article on negotiations, “[f]or a negotiation to succeed, you need a clear sense of what you want the outcome to be.”[ii]   Each provider holds a particular place in the healthcare community and has objectives which are unique to their role in the marketplace.  If you have determined that broader MCO participation is a key to success you should consider that in your negotiation strategy.  If higher reimbursement rates are your primary goal, look to how you can increase reimbursement – consider what you may need to give in exchange for the higher reimbursement.  Don’t forget Negotiations 101, where you are flexible and give on lower priority objectives to be able to hold on to your higher priority ones. 

Manage Your MCO Contracts 

This is a basic business concept.  Organize all of your MCO contracts in files and create a document summarizing key contract terms, and most importantly, the dates when the contracts will expire or renew and applicable advance notification requirements to prevent auto renewal.  Have reminders on your calendars and emailed to you to advise you well in advance of key dates so you have time to evaluate whether to allow renewal, to approach the MCO to make changes, or to seek renewal or termination in a timely manner.  Manage them closely.  I have seen more than one contract that automatically renewed, to the detriment of the provider.

Where Do You and the MCO Fit Within The HealthCare Ecosystem?

Like any other significant negotiation, the buyer and seller both have something to offer, as well as needs.  Understand your strengths.  As a healthcare provider some things to look to include: whether you currently have a large patient population who are covered by the MCO in question; how many other similar providers are in your area; how significant is the MCO in the marketplace; and how well the MCO is performing in your geography.  Is the MCO growing, shrinking or stagnant?

Some of this data can be found in your billing and patient facing systems.  Look to historical data you have on patients and their payers.   Review as much available published material as you can regarding the MCO.  Information can be found in published articles as well as financial filings of the MCO.  You want to know how many lives are covered in your area by the MCO, the types of plans they have (PPO, HMO, EPO, etc) and the MCOs overall financial health.  

Be Alert to these Common MCO Contract Terms and Issues of Significance

Documents Incorporated by Reference    When negotiating with an MCO the contract terms often (make that always) indicate that the provider agrees to the terms in the MCO’s manual or other documents, but the manual or other documents are not included at the time of negotiating the contract.  Ask for the manual, and any other documents incorporated by reference, during the contract negotiations, and read them during the negotiation process so you fully understand these additional contract terms.   If you don’t have this information during negotiations you could find yourself unknowingly agreeing to terms you never saw.   

MCO/Payer Definition   While you might believe knowing who the payer is is a no-brainer, when entering into a managed care contract the party on the other side may not be so clear.  You want to avoid the MCO from being a “Silent PPO”, where the preferential terms negotiated with the MCO may be extended by the MCO to third parties, to your detriment.  In a silent PPO scenario the MCO is able to lease your contract terms to third parties which are not part of the MCOs actual network, and you could find yourself bound to accept lower reimbursement than you would otherwise be eligible to receive for treating a given patient.   Make sure the payers who can access the contract are defined in reasonably definitive terms, to avoid getting undermined by a Silent PPO.

Medical Necessity     Providers who confirm a patient is insured by ABC MCO expect to be paid by the MCO for the service performed, however if the MCO rejects paying the bill because the service is not deemed to be “medically necessary” the Provider will need to chase the unsuspecting patient for payment.   Medicare, as well as many other payers, have policies indicating what procedure and diagnosis codes are supported for each medical service provided. If the diagnosis code is not listed in their policy as appropriate for a given service the MCO can indicate that the medical service is not medically necessary, and reject the claim.  Have a clear understanding of how the MCO defines medical necessity.   Make sure there are terms in the contract which set forth how you can appeal  a lack of medical necessity claim denial.  Recognize the fact that even if a medical necessity denial can be appealed, going through the appeals process takes time and may not be resolved in your favor.

Networks & Products       The network of healthcare providers in an MCO consists of those providers offering services to members who are covered by a given MCO product.  MCO products include PPOs, HMOs and POS plans.  In the current environment MCO’s seek to lower their costs by selecting a narrow network of providers who will join the network.  To be in the narrow network providers accept lower reimbursement terms based on an anticipation of treating a larger patient population due to the limited number of in-network providers within a given healthcare service or specialty.  

Providers looking to participate in narrow networks need to understand what the competition will be in the network, both in the nature of their reputation and the quantity of providers.  This information is needed for the provider to make an informed decision whether to join the narrow network at lower reimbursement rates..  By limiting yourself to participation in a narrow network its valuable to understand which plans and products your patient population fits within.  Note that in a November 2018 article, Consumer Reports indicated that narrow network plans reduce patients insurance costs by 16% on average, so consumers can be motivated to purchase health insurance which has a narrow network.   

Payments and Claims Processing   How a provider is paid will vary depending on the type of MCO network it is participating in.  Get as much clarity as possible regarding the reimbursement terms of the contract to ensure that you receive the fees you negotiated.  Fee for service (FFS) arrangements ($X.00 for performing a given service) are the predominant reimbursement mechanism.

A provider could also be participating in MCOs where it receives a “capitated” payment, meaning the provider receives a set dollar amount per MCO member per month (PM/PM) regardless of how much or how little of your services the patient receives that month.  When agreeing on an initial capitation rate the provider should be agreeing on a rate which is appropriate for how often it anticipates the members will use their services.  In multi-year capitation contracts the provider should protect itself against increases in utilization by including utilization corridors or bands in the contract which provide for higher capitation rates if the monthly utilization of services increases.

The MCO contract will include the right of the MCO to audit and recoup what they deem are overpayments by the MCO to the provider, and will often include an unreasonably  narrow time frame for the healthcare provider to submit claims for payment.  Be cognizant of these terms, and seek to improve them as much as reasonably possible.

Regardless of the payment mechanism in a given contract, leave no room for ambiguity on how the payment process works.  Its helpful to include examples in the contract for clarity.  You want to know the amount you will receive for a given service, and the data you need to submit to the MCO to receive the negotiated payment.  Don’t leave money on the table because the claims processing requirements are not clearly spelled out.

Medicare Advantage vs Routine Health Plan/Managed Care Contracts

All MCO-provider contracts are drafted more favorably towards the MCO, but when dealing with a Medicare Advantage Plan contract, in addition to navigating the routinely biased language which benefits the MCO there are also additional legal terms mandated by the Centers for Medicare & Medicaid Services (CMS).   

In MA Plan contracts, CMS requires MCOs to “flow down” certain legal terms,  to its participating providers,  which the MCO is obligated to under its contract with CMS.   These terms do not  apply in non MA Advantage MCO contracts.  CMS has published model contract terms, which they refer to as the “Medicare Advantage Contract Amendment”[iii], listing those terms which must be incorporated in to contracts between MA Plans and First Tier and Downstream Entities.  First Tier entities include healthcare service providers.    Those terms include the obligation to retain records for 10 years from the date of the final contract period, which may be audited by HHS and to comply with all Medicare laws, regulations and CMS instructions (at 42 CFR 422.504(i)(4)(v)).   Additionally, there are further obligations which are set forth in CMS policies, standards and manuals, with which the healthcare provider must agree to comply.  A table in 42 CFR 422.504[iv], found at Section 100.4, lists the specific regulations which apply.

Routine Contract  Provisions

In addition to the points discussed above which are somewhat unique to MCO contracting, there is a long list of customary contract terms to be negotiated, including related to compensation, the contract’s term and termination rights, liability limitations, subcontracting and assignment, etc.  A few of these are discussed below.

Mutuality – Seek as much as is reasonable.  For example. all contracts will require the provider to maintain insurance, comply with all applicable laws, meet the customary standard of care, and indemnify the MCO.  Seek to require the MCO to have certain reciprocal obligations to the provider as the provider has to the MCO.

Term, Renewals, Compensation Adjustments if Renewed, Termination w/o Cause     The length of the contract is obviously of significance.  Is it for a fixed term, without any language related to renewal?  Or does it expire at the end of the initial term unless either party provides notice “X” days prior to the initial term expiration date?  If it renews, do all of the terms stay the same? 

Compensation Amounts   Provider’s generally will want an increase in the fees upon renewal, if the contract has renewal terms.  A common fee adjustment clause uses some variation of increases in the CPI, with a maximum amount specified.    

Most Favored Nation Pricing        Larger MCO’s may include “Most Favored Nation” (MFN) terms in their contracts, where the provider agrees that no other MCO will receive more favorable contract terms than that MCO.   By agreeing to an MFN term with MCO #1,  a provider is agreeing that if the provider enters in to a contract with another MCO with better terms, in particular lower rates than negotiated in the contract with MCO #1, the provider must provide those better terms in its contract with MCO #1.  Avoid MFN terms in your contracts.

Rights to Amend Contract          It’s not unusual to see a provision in a contract where the MCO has the right to unilaterally modify certain terms merely by giving notice to the provider, where the modification becomes effective if the provider does not formally respond and object to the notification within a relatively short time frame (like 30 days).  In some cases the MCO may have to amend its contract terms to comply with certain regulatory obligations imposed on the MCO, while in other instances the MCO merely seeks to improve its position with providers.  Object to these terms as much as possible, and to the extent you accept these types of amendment terms you should seek as much time as you can to be able to object to the amendment. 

Notices         Make sure that the notice provision of the contract specifies how notifications must be sent, and to whom.  Minimize risks of overlooking a notice you receive.  Require that notice you receive must go to more than one person in your organization, with the primary person being a senior member of the staff with a copy going to someone responsible for billing or other administrative functions. 

Summary  

Be on top of your game when coming to the table to negotiate MCO contracts. Note that you will come across MCOs that indicate they can’t negotiate certain terms because standard terms makes it easier for them to manage their large portfolio of contracts.  Consider whether that rationale is appropriate for specific terms.  Manage your MCO contracts and be alert to formal notices you will receive from MCOs during the term to avoid missing being responsive to important notices.   

This hasn’t been an exhaustive primer on MCO contracting, but provides some key pointers for a healthcare provider and its attorney to have in mind when negotiating contracts with MCOs.

NOTE:  This article if for information purposes only, and doesn’t constitute a solicitation for legal services, nor legal advice.  Legal support in negotiating contract terms should be obtained by engaging in an attorney-client relationship with an appropriately qualified and licensed attorney.

David Meinhard, Esq. is a licensed attorney, and Counsel with Harwood Lloyd, LLC.  His legal concentration is in healthcare and data privacy law.


[i] https://www.cms.gov/newsroom/press-releases/medicare-advantage-premiums-continue-decline-while-plan-choices-and-benefits-increase-2019

[ii] Berman, Craig. “Importance of Goals in Negotiation.” Small Business – Chron.com, http://smallbusiness.chron.com/importance-goals-negotiation-75454.html   Accessed 01 May 2019.

[iii] https://www.cms.gov/medicare/medicare-advantage/medicareadvantageapps/downloads/model_contract_amendment_10_05_12.pdf

[iv] https://www.law.cornell.edu/cfr/text/42/422.504