Guest Column: Arbitration a viable option for handling payer denials

It should be final step in appeals process

By Linda M. Fotheringill, Esq.
Fotheringill & Wade, LLC

In October 2002, HCA in Nashville, TN, won an $8.8 million arbitration decision against Humana Medical Plan Inc. of Florida for the late payment or nonpayment of 3,300 patient accounts at 16 hospitals in Florida. HCA alleged that Humana paid hospital bills for patients in HCA’s HMO, preferred provider, Medicaid, and Medicare health plans as much as one year late, and that its hospitals sometimes had to re-bill the insurer three or four times to receive reimbursement.

This arbitration result should provide inspiration to other hospitals that are subjected to business practices similar to those alleged in HCA’s arbitration proceedings. However, chances are that your hospital never has initiated arbitration against an offending payer. If so, your hospital has not taken advantage of one of the most effective tools in denial management.

Arbitration should be the final step in your appeals process because it allows your dispute to be decided by an impartial third party who is more likely than the payer to render a fair decision. More than likely, your contract with offending payers will specify that any disputes not settled in the appeals process are to be resolved by binding arbitration.

Arbitration vs. litigation

Arbitration should not be confused with civil litigation. Arbitration is a private, informal process, and generally is faster and less expensive than litigation. A hospital shouldn’t wait until there is a multimillion-dollar problem with non-payment and late payment issues before considering arbitration. Indeed, all disputes, such as unsuccessfully appealed claims denied for lack of medical necessity, delay of service, lack of authorization/precertification, untimely billing, and underpayments for contractual terms could and should be grouped for arbitration. Not only will net revenue be increased by overturning more denied or underpaid claims, but the payer will get the message that unacceptable claims-handling practices will not be tolerated at your facility.

Although arbitration hasn’t been used much in the past, times are changing. Hospitals that care about their bottom lines and about the ability to enforce the mutually agreed-upon terms of their contracts are giving consideration to arbitration. In fact, some have made arbitration an automatic final step in the appeals process.

Market position may influence decision

Generally, arbitration proceedings are confidential, which prevents publication of the success rate for this activity. Before initiating arbitration, consideration on a payer-by-payer basis should be given to your hospital’s market position and payer relationship, and to the revenue recovery opportunity. Your hospital may decide that enforcement of contractual terms should not be considered with certain payers due to market position, but definitely should be pursued with others. Even in instances where a decision is made not to pursue enforcement with a particular payer, there may be a change of heart as time goes by and wrongful denials continue or increase with that payer.

There are decision points where it is not worthwhile to continue a contractual relationship with a particular payer, and it would be advantageous to have the opportunity to go back and recoup money lost through abusive business denial practices.

Grouping a particular payer’s low-dollar claim denials together and filing them in a single arbitration can achieve cost-effectiveness. A qualified law firm should be willing to pursue the arbitration on a contingency fee basis, thereby decreasing or eliminating out-of-pocket expense to your hospital.

Arbitration should not be confused with mediation. While they both are methods of alternative dispute resolution, mediation generally is associated with a non-binding procedure, in which a neutral third party facilitates the parties’ settlement process. In non-binding mediation, the neutral facilitator can offer suggestions for resolution, but a resolution is not enforceable in a court of law.

The parties can provide for arbitration of future disputes by inserting the following clause into their contracts (the bracketed language suggests possible alternatives or additions):

"Arbitration. Any controversy, dispute, or disagreement arising out of or relating to this agreement, the breach thereof, or the subject matter thereof, shall be settled exclusively by binding arbitration, which will be conducted in [city, state] in accordance with the [insert name of alternative dispute resolution organization of your choice]’s rules of procedure for arbitration and which, to the extent of the subject matter of the arbitration, shall be binding not only on the parties to the agreement, but on the other entity controlled by, in control of, or under common control with the party to the extent that such affiliate joins in the arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof."

Arbitration of existing disputes where there is no existing arbitration clause in the contract may be accomplished by a separate written agreement that states the following: "We, the undersigned parties, hereby agree to submit to binding arbitration administered by the [insert name of alternative dispute resolution of your choice] under its commercial arbitration rules, the following controversy: [briefly describe the nature of the dispute]. We further agree that a judgment of any court having jurisdiction may be entered upon the award."

Single case can send deterrent message

There are a number of organizations that administer alternative dispute resolution procedures and provide published rules for the process. Three such organizations are the American Arbitration Association, the American Health Lawyers Association, and JAMS, a dispute resolution company. All three of these organizations have comprehensive, informative web sites that include their arbitration rules as well as downloadable forms.

The benefit of arbitrating against a payer should not be measured only by the potential monetary recovery. A single case can send a message to a payer that your hospital is not willing to tolerate unfair denial practices and is willing to enforce the terms of the contract, thereby deterring future abuses.