"There's No Such Thing as Trust in Managed Care"


"There's No Such Thing as Trust in Managed Care"

Here's a cautionary tale of woe and warning

Gil Weber, MBA

Reprinted with permission from Codingline Print
© Copyright, 2011. All rights reserved.
April 2011

Podiatrists, like all other health care practitioners, face an uphill battle in negotiating favorable provider agreements with third party payors. When dealing with managed care payors the contracting playing field is never going to be level and, realistically, negotiations are not going to achieve equity in all aspects of the deal. Rather, a more pragmatic goal should be to negotiate terms and conditions that are administratively and financially viable for the practice, and limit or preclude opportunities for the payor to change critical components of the understanding in the middle of the contract term. That is, make the best you can of a less than ideal situation.

January 2011 was the one-year anniversary of one practice's irritating and downright maddening contractual experience. This tale of woe should remind readers that they must be resolute when negotiating with third party payors, and be willing to say "No" to protect the financial interests of their practices.

It Looked Like Such a Great Deal

Starting in mid-2009 work began on behalf of a very busy multi-physician group (not podiatry) to renegotiate a contract that had been in place for quite a few years. The physicians had not gone back to the payor requesting an increase in reimbursements -- so an adjustment was well past due.

For several months the negotiations were particularly difficult and frustrating, with the payor putting up hurdles or roadblocks to every request. Finally in November 2009 the parties reached an agreement, and the result -- assuming 2010 utilization of office and surgical services matched 2009 -- would mean an increase in revenue for the coming year of more than $650,000. So this very big deal had major financial implications for the practice.

Now as is typical in so many managed care contracts, the terms allowed the payor to unilaterally amend (change) anything in the contract at any time. And the practice would then be obligated to such change(s). That is always worrisome. After all, when one enters a contract the foundation should be that "a deal is a deal" unless both parties agree to change it.

However, when the payor was asked to drop this provision allowing it to make unilateral changes to anything at anytime and, instead, to live by the terms of the deal as negotiated, it refused. Despite the refusal the physicians wanted to push forward. And so after further discussion the practice told the payor that it would agree to the contract, but with a stipulation that the fee schedule had to be "fixed" for the one-year term of the agreement. At least if the financial terms were set the practice felt it could live with an administrative amendment that came unexpectedly.

But the payor refused even that solitary limit on its ability to change anything at anytime. Discussions went around and around on this point because such refusal by the payor was a warning flag of possible future problems. After all, a provision allowing the payor to unilaterally change the financial arrangements in the middle of a contact term cannot possibly favor the practice. Mid-contract, a payor is unlikely to up the reimbursements out of the goodness of its heart.

If the practice agreed to such a condition it put itself at risk that the payor could reduce the rate increase for which the physicians had fought so long and hard. If that happened then the practice would be forced to accept the reductions or drop the contract.

But negotiations had gone on for so long that the physicians just wanted to get the deal done and start billing at the higher rates. So despite being advised of the risks, they signed the contract with all of its warts.

And Then the Hammer Dropped

The contract's effective date was January 1, 2010. That was a Friday, and both the practice and payor were closed. So the first business day of the new contract was Monday, January 4th.

On that first business day of the new contract the payor sent a letter to the practice announcing that effective in 90 days the newly-negotiated fee schedule would be replaced with a different one. Again assuming the same utilization of services, instead of a $650,000 annual revenue increase compared to 2009, that new schedule would result in a $120,000 decrease. So it was a $770,000 hammer blow.

And Then the Seeming Double-Speak Began

Of course an immediate call went out to the provider relations representative who had negotiated the deal with the practice. "How can you send us a letter on the first day of a new contract slashing our rates effective in 90 days? We just spent several months working out the deal. You must have known this was coming."

The response was, "The new rates are for all physicians system-wide, not just for your practice. I did not know that these new rates were in the works."

And that just verified what many have feared and some have known -- that there is no trust in managed care. After all, if every physician got that same "Dear Doctor" letter sent January 4th then plans for this rate cut must have been in the works for quite a number of months before this practice's new contract was signed. Certainly the new reimbursements were not conceived, run through actuarial modeling and studies, systems-checked with the claims department, and approved in the week between Christmas and New Year's.

The senior level managers who approved the January 1st rate increase must have known well in advance about the letter going out to physicians at the start of January announcing the April reductions. It's simply hard to conceive that all of this would not have been known at the management level that approved the practice's new contract rates. And it's also a bit hard to believe that during the time of negotiations the person with whom the practice dealt was completely in the dark about an up-coming, system-wide rate cut.

None of that mattered. The payor said the new April rates would go into effect -- period. The practice's only option under the contract was to terminate the entire deal and lose access to all of the payor's Members. Not much of a choice.

Were Negotiations Conducted in Bad Faith?

All of this caused some to wonder if, perhaps, the payor might have conducted the negotiations in bad faith -- or at least in a manner that was not upfront and candid. While it was obvious that the contract did allow the payor to change the rates with 90 days notice, even if that notice were issued upon the contract's commencement, still, given the lead time for development of those new rates the payor's representatives could/should have more forthright and revealed what was coming before the practice signed.

That raised the possibility that it might be worthwhile speaking with an attorney to see if anything could be done to preserve the rates, or to get some consideration/settlement. Was there a case to be made for bad faith negotiations?

However, by this point and after all that had transpired the physicians were so tired of the entire affair that they chose not to consult an attorney, and to accept the April reduction even though doing so would mean receiving lower reimbursements than were in place before the negotiations commenced.

But that was not the end of the story. While all of the talk back and forth was going on the payor sent the practice another communication regarding the new contract and rates.

Forward, Into the Past!

Apparently the payor's legal department had made an error while word-processing the new, January 1 contract, and the payor's legal name was incorrect. So the physicians were asked to execute new copies of the signature page to make the contract "official."

But the practice did not return the corrected documents with signatures and, instead, asked the payor to nullify everything that had been done. That is, put the physicians back on the old 2009 fee schedule -- back to where they were before the negotiations started. Doing so would not have gained them a cent over the old rates, but by the same token, effective April 2010 they would not be working for less.

And the payor agreed. So the new contract and new rates were torn up, and the practice went back to where it had been -- much wiser about dealing with third party payors and the nuances of contractual language, and in this case financially neutral.

Read the Fine Print

Education is what you get when you read the fine print. Experience is what you get when you don't.

So what's the lesson to be learned? Clearly, do everything possible to preclude or at least limit a payor's unilateral ability to change the deal in the middle of a contract term. Given that priority, do understand that the payor must maintain the ability to make some changes without your approval.

Mandated changes (those promulgated by federal or state regulators, or agencies that credential or do similar tasks) will become part of the contract since the payor is required to incorporate them. And your continued participation in a contract is reasonably predicated upon acceptance of such mandated changes.

But mandated changes excepted, resist provisions that allow payors to unilaterally amend the provider agreement in the middle of a term without your signed consent. If a payor persists and getting the deal done is important, then at a minimum insist that the fee schedule remain exempt from unilateral change.

Sample language is attached below. In consultation with an attorney you can use it as a framework for drafting verbiage you can suggest to payors for countering problematic contractual provisions.

If after making your arguments for reasonable change the payor still says "No" that's a warning sign of clear and present danger ahead. Accepting a contract when the payor has the unilateral right to change the financial terms at any time means you're rolling the dice, and the dice are loaded against you.

Unfortunately and sadly, there is no trust in managed care.

A. Entire Agreement; Amendments. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings. No other understanding which modifies the terms hereof shall be binding unless made in writing and executed by authorized representatives of the parties hereto.

B. Modification for Prospective Legal Events. In the event any state or federal laws or regulations, now existing or enacted or promulgated after the effective date of this Agreement, are interpreted by judicial decision or by a regulatory agency or otherwise legislatively amended in a manner that indicates that this Agreement or any of its provisions is in violation of such laws or regulations, and once such has come to the attention of a party, either party may give written notice to the other party of the nature of the change in law and the basis for the need to modify and amend this Agreement as reasonably necessary to eliminate the violation. To the maximum extent permissible under existing laws and regulations, any modification of and amendment to this Agreement shall preserve the underlying arrangements set forth herein.

Once written notice is provided hereunder by one party of the need for a written modification and amendment, the parties shall each employ good-faith efforts to reach agreement as to the wording of such modification and amendment. If, within 60 days, the parties are unable to reach such an agreement, a party may invoke the termination provisions of this Agreement. In the event that no mutually acceptable agreement can be reached between the parties as to the wording of such modification and amendment, such modification and agreement shall not be effective hereunder and shall not be binding on either party, unless otherwise required by operation of law.

In addition to the amendment provisions in this section, the parties agree that if, after the effective date of this Agreement, a change in applicable law is enacted that requires changes to this Agreement that would deprive either party of an essential benefit of its bargain, either party may terminate this Agreement effective on the effective date of the change in applicable law.

C. Fee Schedule. Throughout the term of this Agreement, the fee schedule agreed upon herein by the parties shall remain in full force and effect and shall not be altered in any manner except upon written amendment signed by both parties.

Gil Weber is a nationally recognized author, lecturer, and practice management/managed care consultant to physicians and industry. He can be reached at (321) 433-0623 or by e-mail at gil@gilweber.com. Also, visit his website at https://www.gilweber.com/

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