Surviving Managed Care^© Newsletter

Volume 1, Number 3 Fall, 1999

Vision and Eyecare Business Information For The Millennium

Objectives:

To examine and understand how indemnification clauses in managed care provider agreements create serious risks for physicians and their practices; to appreciate optical dispensing’s unique position in health care.

  Indemnification: The Most Dangerous Contractual Provision

Imagine This Managed Care Nightmare....

You know exactly the level of care your patient needs. You work through the proper channels and advocate on his behalf, but the health plan refuses to approve your request. It will only authorize a lesser level of service or, perhaps, no service at all.

Now imagine this nightmare made exponentially worse. The health plan stands firm, the patient does not get the care you recommend, and the case then goes sour. The patient sues, your professional liability coverage suddenly evaporates, and you end up liable for devastating financial costs even though you really tried to do what’s right for your patient.

If you let down your guard this is a nightmare you could experience under managed care. Yet it is an avoidable nightmare.

Indemnification

I’ve reviewed a lot of provider agreements over the past 20 years. Doctors and administrators now seek me out specifically for a business review of their managed care contracts — a perspective somewhat different than the legal opinion they’d get from an attorney. Year after year I see the same problems in these contracts — provisions which, left unresolved, have the potential to bring financial ruin to a practice.

Surviving managed care begins with the provider agreements you sign. If you carefully review the documents and successfully negotiate out dangerous provisions (or, at a minimum, reduce the risks by adding certain counter-measure protections) you’ve taken a significant step to safeguarding your financial future.

Therefore, after reviewing but before signing any provider agreement, physicians should develop a prioritized list of negotiation issues. That list will include issues you can let slide if necessary, those on which you’ll give and take until settling on a happy middle-ground, and those that are deal-breakers if not resolved in your favor. Each physician’s list will be different depending on individual circumstances.

Without question there is one issue that should be at the top of every priority list — the definitive, potential deal-breaker for every contract. And that issue is indemnification. No other contractual provision has such potential to devastate a practice and create financial ruin. Despite a general awareness within the provider community that indemnification is problematic, some still sign agreements with dangerous terms left intact. After reading this issue of Surviving Managed Care^© it should be clear why you must not.

Imagine What Might Happen If....

You examine a 12 year old boy and write a spectacle Rx. His mother takes him into your optical shop to have the Rx filled under the family's HMO coverage which provides "one pair of standard eyeglasses." The mother tells your optician she wants eyeglasses that are within her plan coverage — in this case, clear, glass or plastic (CR-39) lenses of any Rx power.

During conversation the boy states he plays baseball and street hockey. In response your optician correctly recommends polycarbonate lenses for safety. She tells the mother that her plan does not cover the full cost of polycarbonates and that there will be "$X" out of pocket expense.

Despite your optician's clear explanation of the safety issues the mother says she doesn’t want to pay any extra charges. She wants only standard plastic lenses in the glasses. Your optician understands the "duty to warn" and properly logs the discussion and mother’s refusal in the chart. She offers to contact the healthplan to request a benefits and coverage exception for the added costs based on the safety factors and the boy’s age. The mother is anxious to get the glasses but agrees to wait for an answer.

Two weeks later, despite your optician's careful explanation, the HMO refuses to authorize payment for the added cost, stating that coverage is limited to "one pair of standard eyeglasses" and that anything else is the patient's responsibility. The HMO staffer tells your optician to provide only what the patient's benefit plan covers unless the patient (parent) is willing to fund any non-covered costs for the eyewear. Your optician then reports the plan's refusal to the mother who again says that she wants only the plan-covered eyeglasses. Reluctantly, your optician fills the order. Soon thereafter the boy receives his glasses.

Eight months later you receive notice of a lawsuit. The boy was struck in the face with a hockey stick, a lens shattered, and he received serious eye injuries including significant loss of sight. You're on a list of parties being sued which ultimately will include the HMO, the eyeglass fabrication lab, the frame and lens manufacturers, and certain individuals at the companies.

You call your attorney and malpractice carrier. You feel that the suit should amount to little or nothing since: 1) your optician did warn the parent and documented the warning in the chart, 2) the mother refused to pay the added cost for the non-covered service and, 3) the HMO told your optician to provide only what the plan covered. Your malpractice carrier tells you not to worry and you go back to your patients feeling better now that the "professionals" are on the job. And then, a short time later, disaster strikes.

A representative from the malpractice carrier calls to say that based on the terms of your provider agreement with the HMO your professional liability coverage is not in force. You hear indemnification and contractually assumed liability, but have no idea why you’re suddenly left without support to defend this potentially costly suit.

What Is Indemnification?

Indemnification (a.k.a. Hold Harmless) is a contractual provision by which one party absolves another of any responsibility, financial or otherwise, resulting from the other’s decisions, policies, protocols, or actions (or lack thereof). In other words, you're saying to the other participant in your provider agreement: Without reservation I accept full responsibility for whatever happens to me based on decisions or circumstances you create or effect. And I will not seek redress against you including any attempt to recover damages.

Indemnification can be bilateral or unilateral or both. Bilateral indemnification means that each party accepts responsibility for its own acts and decisions but not for the other party's. Some legal experts argue that it's OK to sign an agreement if the bilateral indemnification language is carefully written. However, many more recommend that the best approach is to strike all indemnification language — and certainly any in which you would unilaterally indemnify the other party.

How Bad Can It Get?

By indemnifying the other party, a physician takes on what's termed a contractually assumed liability. Such obligations are specifically excluded from professional liability policies. That is, if a physician indemnifies another party (e.g., a non-physician corporation such as an HMO), he or she loses any professional liability coverage.

The disturbing, potential practice-killing aspect of indemnification is that it essentially doesn't matter if the case against you has any merit, or even if the case is resolved in your favor. In the simple, almost benign eyeglasses scenario I described, the mother's decisions, your optician's actions, the health plan's covered spectacle lens benefits, etc. are not germane to the issue of who could be at great financial risk. You could be.

If your professional liability insurance is suddenly void because of indemnification, you're at risk for your court costs. Depending on the circumstances you might also be at risk for the patient's court costs, for those of the health plan, and, perhaps, for those of other parties to the action. If there is an award against you it hits your bank account. Thus, you may end up on the financial hook for certain expenses which would have been covered had your liability coverage not been voided by your grant of indemnification.

It also doesn't matter that your staff (or you) were trying to do the right thing but followed the health plan's specific instructions. And I was just following orders won't wash. If you've indemnified that party you may have let it off the financial hook, even if those instructions were not necessarily in the patient's best interests, and even if you advocated on behalf of your patient. It's not fair, it's not right, but that may be the result of indemnification.

And imagine how much more complicated and financially risky this can become if you move from eyeglasses to surgical care. What if based on lifestyle needs and your professional judgement a patient requires a cataract procedure? His visual acuity is 20/60 but the HMO says no surgery unless the VA is 20/70 or worse. You know the patient drives at night and is a potential danger to himself and others if he continues.

You advocate on the patient's behalf but the plan refuses to authorize the surgery. You offer to do the procedure on a fee-for-service basis and assist him with efforts to seek reimbursement, but the patient refuses, leaves your office, and soon thereafter is involved in a terrible auto accident. Along with the HMO and a long list of others, you're sued by your patient (on a number of liability theories) and the survivors of those killed in the car he hit.

The injured party's attorneys might argue that if you felt the surgery was medically necessary then you reasonably should have foreseen the consequences of sending the patient away untreated and done something more on his behalf. As before, the validity of such arguments, the quality of your care, and the patient's refusal to pay for the necessary service(s) may not be enough to shield you from the bottom line financial issue of who pays to defend this case and who will be among those paying any judgement. You could be.

A Simple Solution

Scary stuff, isn't it? Still, it's quite simple to avoid this potential practice-crippling problem. The first, crucial step is to show all indemnification language, unilateral or bilateral, to your malpractice carrier before signing. If your carrier says the language is unacceptable, ask it to provide suggested alternatives. Hold onto that material; it may be very useful later.

The second step is to negotiate out any dangerous, indemnification provisions. At a minimum it's essential to strike all unilateral indemnification provisions which would allow the other party to unreasonably influence or control professional decision-making without taking responsibility for the consequences. If you're not able to strike all indemnification provisions then present the alternative language suggested by your liability carrier.

Payors (including health plans, networks, PHOs, IPAs, etc.) are aware of the issues involved and, in most cases, will agree to work with you on your malpractice carrier's suggestions. Those that claim their (dangerous) language is mandatory, or tell you that contracts can't be pursued unless all providers agree to bind themselves to these (unacceptable) indemnification terms are blowing smoke and showing a red flag. That's a clear warning that the contractual relationship carries significant and, ultimately, unnecessary risk for you.

If any contracting entity, even a membership society, insists on indemnification that leaves your practice dangerously exposed, I suggest that's a contracting opportunity you don't need. Remember this newsletter's name: Surviving Managed Care^©. That's the bottom line. Walk away from bad deals. Don't be a Lemming.

Caveat!

Please remember that you always agree to indemnify the member (patient) for covered services. That is, other than applicable copayments or deductibles, you can't balance bill (charge) an eligible member for covered services, even if the health plan or network administrator fails to pay. This hold harmless provision is controlled by federal or state mandate and you can't negotiate it out of managed care provider agreements.

  Optical Dispensing: What Business Are You Really In?

Unlike your front office staff which is in the business of customer service, and your back office staff which is in the traditional business of patient care, your optical dispensing staff (and your dispensary) is in the business of retail fashion. Make no mistake, that's what eyeglasses and contact lenses are all about. If optical dispensing were not all about fashion then you'd only need to display a very few frame styles for men and women, and there would be no market for tinted contact lenses.

By shopping and demanding fashion and style your patients indicate to you very clearly that they have concerns, needs, and expectations which fall far outside the box of traditional med/surg eyecare. Of course your patients want to see well, but they also want you (your staff) to make them look good. In return for meeting this demand they're willing to buy tangible goods from your retail business.

Here is where your staff must understand what business it's in. Here is the fundamental difference between what's involved in running an optical dispensary and the issues faced by your non-ophthalmic colleagues. None of them is competing in a retail environment or selling product which can contribute so significantly to total practice revenue. The closest one might compare is to the skin care products sold by some dermatology practices. But that represents only a tiny slice of their total practice incomes.

In medical school nobody taught you about this unique, retail fashion sales factor. It's no surprise, then, that many optical shops in medical practices are run almost apologetically, as an afterthought, and don't generate excellent return on investment. Remember, most managed care patients, even those covered for eye exams, are not covered for the eyewear. They are free to spend discretionary dollars anywhere. So you must give patients a reason to stay in your dispensary by creating a fashion-oriented, buying environment.

Understand that creating this environment is much more than simply investing in high quality, name brand, "designer" eyewear products. It also means a careful investment in the atmosphere in which that eyewear is presented. These two components of optical dispensing are inextricably tied together, and both essential if you with to tap the full economic potential of optical dispensing.

If your dispensary's total ambiance is not "fashion-forward," make it so. Begin by making certain that staff is well-dressed, the furnishings clean, comfortable, and high quality, and the mirrors always clean. Periodically change your displays to assure that they're colorful, inviting, and seasonal. (Consider hiring a professional display designer, perhaps from a department store.) Update your dispensary illumination with bright and neutral (colorless) lighting to show faces, frames, and tinted contact lenses in the best possible way. Consider hiring a professional site designer if your dispensary has not undergone a remodeling in the past 5 years.

Now all of this may sound sacrilegious, particularly if you think what I advocate is incompatible with the image of a professional medical practice. If so, I'd urge you to reconsider. Yes, you can run an optical shop in a corner of the office under an bank of standard office fluorescent lamps. Yes you can do it in 160 square feet converted from a file room. Yes you can do it if your optician wears a lab coat over his blue jeans. But you'll always wonder why the practice down the street has a higher Rx capture rate and always seems to have an optical shop full of purchasing patients while many of yours request a copy of the Rx and go elsewhere.

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These materials are intended to provide useful information about the subject matter covered. The author believes that the information is as authoritative and accurate as is reasonably possible and that the sources of information used in preparation of the materials are reliable, but no assurance or warranty of completeness or accuracy is intended or given, and all warranties of any type are disclaimed.

The materials are not intended as legal advice, nor is the author engaged in rendering legal services. The materials are not intended as a replacement for individual legal or professional advice. Information contained herein is presented only for illustrative purposes, and it should not be used to establish any fees or fee schedules, nor is it intended and it should not be construed as encouraging any user of the materials to take any actions that would violate any state or federal antitrust laws, tax laws, or Medicare or Medicaid laws.

Copyright © 1997, Gil Weber, MBA. No part of this newsletter may be reproduced or distributed in any form whatsoever without the author's prior written authorization.

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