Progressive Focus©

Progressive Focus© Newsletter


Volume 6, Number 1 Spring, 2005
Helping You Manage the Expectations of Managed Vision Care

In This Issue:

A Hidden Trap in Your Managed Care Contracts?

Most Favored Nation provisions are unfair to practitioners. Don't allow any third party payer to "blindside" your practice with this subtle but costly contractual trap

Every optometrist knows the brutal realities of doing business in today's managed care environment. According to published data1

  • 80% of the US population has health insurance through a managed care plan,
  • 60% of the US population has managed vision care,
  • 65% of employers provide vision coverage.


  • 70% of the average AOA member's patients are covered by eye or vision insurance plans,
  • Out-of-pocket payments represent 41% of revenues,
  • Managed vision care accounts for 36% of revenues

1Managed Healthcare Executive: August 2002

As the number of private-pay patients has gradually dwindled and the number of vision plans has grown over the past 20 years, far too many ODs have seen their practices become overly dependent on third party plans, particularly certain vision plans which now account for an unhealthy share of the typical practice's appointments and revenue stream. In effect, these practices have become "economically tied" to certain vision plans - virtually dependent upon them for patients, and ever fearful that the patients and cash flow would disappear were the practice to lose or drop the contract.

While there's no question it's the rarest of practices that can survive today with absolutely no managed care, far too many practices have simply fallen victim to it. In an effort to maximize opportunities to access patient populations and attract patients through the door, many optometrists have adopted a "grasp at every straw" approach by joining every plan that drops a contract on the doctor's desk. On average, optometrists belong to eight vision plans.2

2EyeCare Business, October 2003

Most ODs have been effective at filling the appointment slot voids. However, in doing so it's also clear that most have not adequately assessed each plan's financial impact on the practice's bottom line. Fear, rather than "dollars and sense," have driven a lot of contracting decisions.

Which plans should you join?

The key to having any chance of success in managed care is careful selection of your contracting partners. You must not make the mistake of contracting with any third party payer simply to "get in the game." It does you absolutely no good to have a waiting room full of managed care patients from various plans if you're barely breaking even on them (or, perhaps, even losing money). In such case you might win the battle but eventually lose the war.

Rather than grab at every source of patients you must be selective - strategically picking and choosing vision plans based on how effectively each plan will support your practice and fit in with your patient profile. So you'll certainly want to consider each plan based on its:

  • reputation in the provider and patient communities,
  • enrolled population and potential to bring incremental patient flow into your office,
  • administrative ease (flexibility) or burden on your staff.

Obviously you'll also need to consider how each plan would fit in with your available appointment capacity. But that's certainly not the end of your considerations.

You must also consider the entire Provider Agreement and the contractual and financial relationships that it will create between the payer and your practice. Sadly, most practitioners fail to read the entire document, or they read it but don't understand certain sections and never get around to asking for clarification. They just flip to the last page, and if the fees seem to be in the ballpark they sign.

But that's an incredibly myopic approach to contracting. Just because the reimbursement rate might appear viable is no guarantee that the deal will turn out to be what it seemed on first reading. And thus we get to the "meat" of this discussion: a financial contractual trap that can come back to bite if you don't recognize and deal with it effectively during the contract negotiation/renegotiation process.

Most Favored Nation clause - a nasty surprise

Under any third party payer contract reimbursements are going to be less than one likes. That's reality. And so it all comes down to tradeoffs - how much less than Usual and Customary are you willing to accept for the added patients who might not otherwise have come in the door? How much administrative "hassle" will you tolerate in order for your staff to process those patients and their claims? How much "leverage" are you willing to let the payer exercise over your financial fortunes?

Perhaps one of the most onerous contractual provisions - certainly one that seriously limits an optometrist's ability and freedom to selectively contract with third party payers - is the Most Favored Nation (MFN) clause.

Although prohibited or limited in some states (e.g., Kentucky, Idaho, New Hampshire), MFN clauses still create problems for doctors in many parts of the country. Some of the largest vision plans have used MFN clauses in their contracts with optometrists.

MFN: What is it?

By signing a contract with an MFN clause the doctor guarantees to a payer that it is getting the doctor's best discounted rate - that the doctor is not accepting a lower reimbursement from any other third party payer for the same services. But in making that guarantee, Most Favored Nation clauses severely limit a doctor's ability to selectively contract with third party payers based on specific circumstances important to the doctor. And that puts the doctor at a huge disadvantage, especially if the MFN clause is in a contract that represents a lot of patients and revenue for the practice. Here's why it's such a problem.

Let's say you might be willing to accept a lower reimbursement for a vision exam with refraction from Plan "A" than from Plan "B" (e.g., $55 vs. $62) since you know that "A" typically pays in 14 days while "B" typically pays in 45+. Thus you might sign the two contracts and accept different amounts based on each plan's payment reputation and your willingness to accept fewer dollars if paid quickly.

And that's fine until "B" finds out you are accepting less from "A," and it invokes the MFN clause in your Provider Agreement -- perhaps retroactively.3 At a minimum this means that going forward the MFN clause would obligate the doctor to give the slower-paying "B" the lower rate accepted from "A," and this would result in many fewer dollars received from "B" despite the reimbursement figure quoted in your Provider Agreement. And if the MFN clause could be invoked retroactively there's certain to be even greater adverse financial damage that would accrue to the practice.

But that's not fair to the practice, is it? Why should the slower paying "B" enjoy the better financial terms offered to "A" when "B's" claims payment track record is much worse?

3How, you wonder, would payer "B" learn that you're accepting less from payer "A"? Well, all the vision plans know exactly what their competitors are paying for identical services. So having access to the fee schedules is a non-issue. And a payer can learn that you have contacts with other payers in a number of ways - for example when there is a Coordination of Benefits (COB) issue on a claim and the secondary insurer needs to know how much the primary paid before it can process any supplemental payment. Your participation in another managed care plan (and your fee) is disclosed in the COB paperwork.

Possible antitrust, anticompetitive concerns raised by MFN clauses

The clauses are just not problematic for doctors as noted above - they can also be highly problematic for smaller third party plans trying to compete against the big guys. MFN clauses have been the focus of several interesting court cases centering on whether the clauses create antitrust and/or anti-competitive concerns.

For example, suppose third party plan "B" has a significant presence in the community, but a new player, plan "A" wants to enter the marketplace. "B" has a large and well-established provider panel, but "A" is starting from scratch. In order to be competitive against "B" as it pursues contracts with HMOs and other sponsoring organizations "A" wants to offer a lower price to the buyers, and this will mean paying somewhat less to the doctors than they're receiving from "B."

Now suppose the doctors in the community see "A" as an opportunity to fill some available appointment slots, and they're willing to accept slightly lower reimbursements based on fast payment and other factors. They're set to sign when suddenly word spreads through the provider community:

Check your Provider Agreement with "B." It has an MFN clause. And if you sign with "A" then all the fees you receive from "B" will be reduced.

Now all the doctors recognize the tough reality. If they sign up with "A" they'll be cutting their own financial throats. So they don't sign with "A."

And "A" then finds that it can't build a competitive provider panel because the doctors have been financially hamstrung by the MFN clause in their contracts with "B." The net effect is that "A" is unfairly prevented from entering and competing in the marketplace by the MFN clause in "B's" Provider Agreements, and this is where the anticompetitive issues have come up.

Can the clause; Turn the tables

If you've previously signed a Provider Agreement containing a Most Favored Nation clause, or if you're considering a new contract with one, I urge you to negotiate out that section of the document as soon as possible. It is not fair to the practitioner, and you simply cannot allow any third party payer to influence your contracting decisions and the reimbursement rates you accept from any other payer. By contractually forcing you to give it undeserved, lower rates, a plan such as "B" takes away your contracting options with other payers that may account for fewer, but still important dollars.

In my opinion a unilateral MFN clause is a deal-breaker. No contract is better than a very bad contract containing an MFN clause that could come back to bite you very, very hard.

Your success in removing an MFN clause will depend on various factors in the local marketplace - for example, how much the third party payer wants/needs you on its panel, or a payer's "provider-friendliness factor." In some cases, especially when it's obvious the doctor isn't naive, a third party payer will back down on MFN and will drop it from the Provider Agreement. Those payers are the "straight shooters" who want to craft a mutually beneficial deal, and who don't feel the need to use a heavy-handed financial hammer to beat the living daylights out of panel providers.

But if a third party payer is not willing to drop the clause then it's showing you a big yellow, perhaps a red flag. It's saying in no uncertain terms that it reserves the right to exert extraordinary influence over your practice's managed care affairs. In that case when dealing with "bad actors" I suggest trying to turn the tables on them.

Acknowledge that you understand why the payer feels it needs the protection of MFN, and then with a smile present that payer with the contractual language (sample, below), and ask that payer to make the terms mutual -- by adding verbiage to create, in effect, a reverse Most Favored Nation clause. This would obligate the payer to reimburse the doctor at a higher rate than agreed in the Provider Agreement if the payer pays more to any other doctor in the service area for the same service(s). And if the payer's MFN clause allows retroactivity, then ask for the same retroactivity in your reverse MFN clause.

Now you're playing hardball with the payer, essentially putting it on the spot by forcing the payer to justify its inclusion of an absurd and obviously unbalanced provision. (Note: recognize that some payers have uniform fee schedules for all participating providers, and they likely would not be terribly bothered by a reverse MFN clause. However, many other payers reimburse providers based on individualized fee schedules. In such case payers are more likely to drop an MFN clause rather than open a huge can of worms in their accounting, claims, and provider relations departments.)

If as a result of being presented with this suggested contact language the payer decides to drop the MFN clause, then that's fine. That's exactly what you want - even more than a reverse MFN.

Before talking with any payer have this sample verbiage reviewed by an attorney who is familiar with both contract law and the managed care laws of your state. Then ask the payer to insert your attorney's draft language into the Provider Agreement and see what kind of a reaction you get.

Remember, if you've arrived at the point that you're presenting reverse MFN language, then the payer has already told you that it wants to keep the MFN clause in the contract. You must be prepared to play hardball - even to walking away from the contract if the risk of collateral damage from an MFN is high.

It's your money. Hang onto every dollar!

Sample language (have your attorney review and approve)

If Plan enters or has previously entered into any contract or other arrangement with any other provider who provides some or all of the same services to Members as Provider at a more favorable payment method, rate, or fee than the payment method, rate, or fee set out in Attachment/Exhibit <insert # of Attachment or Exhibit>, then Plan shall immediately notify Provider in accordance with this Contract, and shall immediately pay Provider at the more favorable method, rate, or fee as of the effective date of such contract or arrangement.

Upon request of Provider, Plan shall certify to Provider either: (1) that Plan is not paying any other provider offering some or all of the same services as Provider at a more favorable payment method, rate, or fee than the payment method, rate, or fee under this Contract, or (2) the most favorable payment method, rate, or fee that Plan is paying any such provider.

Quick Quiz

1) What factors should you consider when evaluating a third party payer contract?

  1. administrative "hassle"/flexibility.
  2. payer's reputation.
  3. enrolled patient base/covered lives in your area.
  4. stipulated reimbursement time frame.
  5. all of the above.

2) What percentage of the average AOA member's patients has coverage through a third party vision or eye care plan?

  1. 25%.
  2. 45%.
  3. 70%.
  4. 55%.
  5. more than 90%.

3) When a practice has a significantly larger share of patients and reimbursements from one third party plan that practice is:

  1. in an advantageous and highly desirable position compared to its competitors.
  2. economically tied to the plan.
  3. in a potentially vulnerable and highly dangerous position.
  4. a and b
  5. b and c

4) True or false:

Most Favored Nation (MFN) clauses are currently used in all states.

5) True or false:

MFN clauses most often are bilateral, and offer appropriate protections to both the doctor and third party payer.

6) Unilateral MFN clauses are disadvantageous for the doctor in that they:

  1. can limit the doctor's ability to selectively contract with other third party payers.
  2. can lower the reimbursement rate the doctor originally agreed to accept.
  3. can require the doctor to reimburse portions of earlier payments.
  4. a and b
  5. all of the above

7) When presented with a Provider Agreement containing a unilateral MFN clause the best course of action is to:

  1. negotiate to have the clause dropped.
  2. ask to have language added making the MFN clause mutual (bilateral).
  3. ignore it and concentrate on other issues.
  4. none of the above.
  5. a and b

Answers to Quick Quiz

1 e

2 c

3 e

4 false

5 false

6 e

7 a

Education is what you get when you read the fine print.

Experience is what you get when you don't.

Copyright © 2003-2007, Gil Weber, MBA. No part of this newsletter may be reproduced or distributed in any form whatsoever without the author’s prior written authorization.

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.

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