Important points in managed care contracts - Health Care Law

Physician Executive, Nov-Dec, 1992 by Byron J. Masterson

Health care is increasingly managed through some contractual relationship. Such contracts vary and the contracting entities may be clinics, universities, health maintenance organizations, individual practitioner organizations, preferred provider organizations, corporate health plans, or other structures. It is estimated that within 10 years more than 70 percent of all health care will be provided through some type of managed care plan.

There are some basic elements that must be considered in the construction of any contract for the provision of managed care.

Parties

There must be a clear identification of all parties involved in the contractual relationship--insurance company, employer, union, third-party administrator group, hospital subsidiary, marketing group, or broker. The contract is usually between two parties, and the proper legal name of each must be precisely stated.

The Other Organization's Business History

As a provider, you need to know as much as you can about the group with whom you are entering into a business relationship. What has been its performance? What is the business history of the principals of the company? What are its current contingent liabilities? Are there any prior or pending law suits? Is it currently approved by the state and/or federal agencies that would require such approval? Why is it in this business?

Has this organization ever had a business relationship with a similar group? References, preferably within the same market and same specialty, are very useful. You should have free access to at least three references to call and discuss the company's performance. You should review, if available, marketing brochures, advertising materials, and any other previously published documents that pertain to you and the plan. Reserve the right to approve all documents that will list you and describe your services as a participating provider. You need to have a clear understanding of the governance of the organization with which you are engaging in business.

Financial Viability

In addition to the organizational information above, what is the current financial status of the company? Pertinent financial information should include audited statements from the past two years, bank references, credit rating, any published business plan of the organization, and the company's current premium structure. Is it adequate to meet reasonable needs?

What organization is responsible for unpaid bills in the event this organization fails? If administered by another company, what is the financial viability of the third party? Does the sponsoring organization have a reinsurance policy? If so, to whom are the insurance proceeds paid? What happens to the patients for whom you provide care if the insurance company should fail?

Communication Procedures

Specific legal methods of communication with the managed care organization as to names and addresses are given in contracts, but that is not enough for a working arrangement. Who precisely is the executive responsible for making your practice agreement work? How is that person reached? Where is he or she located? What business hours is the person available to satisfy your needs, making this business relationship an efficient one? You need to get to know and develop a working rapport with the medical director and staff of the organization.

Contractual Obligations of the Parties

Duties are the substance of the agreement. The contract should outline clearly what the provider and the prayer of services are to do through simple, clear-cut, unambiguous definitions of the obligations of each party.

Determine if the plan follows a discounted fee-for-service model or a capitation model. Where a capitation model is used, you must clearly define any risk-pool sharing arrangements. You must specifically define the services you are required to deliver and under what circumstances patients may be referred to other providers. How much general medical care are you required to provide? If using a capitation system, determine how profit is gained or losses are shared.

You should know exactly how much the total out-of-pocket expenses will be, including all computer software and additional hardware required. Copayments must be precisely outlined. Reserve the right of mutual agreement in the event that policies are changed.

Terms of Payment

Terms of payment, as well as the exact documents required for payment of claims, should be precisely detailed. There must be a clear understanding of when payment is delinquent, and interest should accrue on bills not paid within 30 days.

Remember that most managed care companies want discounts from fee-for-service charges. You must therefore be paid promptly and not subsidize a managed care company through slow payments. Computer equipment and software requirements should be precisely outlined so that electronic payment of claims can be expedited with prompt transfer to your bank accounts. With a discounted fee comes the obligation for the managed care company to simplify paperwork in terms of payments.