Contract clauses that can catch up with you

Products clause, modifications clause bear watching

By Elizabeth Gallup, MD, JD, MBA

(Editor’s note: This is the third in a three-part series of columns regarding managing the managed care contract. The first column dealt with referral to other documents and automatic renewal clauses; the second dealt with termination provisions. This article is not intended to be legal advice. Rather, it highlights general legal principles about managed care contracting and contracts. Legal advice regarding either of these issues should be sought from the reader’s own attorney.)

Contracts are a necessary evil to any physician or practice administrator who deals with managed care. A contract is a document that is designed to demonstrate that there has been a meeting of the minds of the signers, usually the physician and the managed care organization involved in the deal. This column will explore how a contract can help your medical group or organization — or hurt it, if you’re not careful.

A contract is designed to protect both parties. Thus, when a managed care contract is presented to you, a practicing physician or group, it represents an opportunity for you to make sure the contract is written in a way that not only promotes the interest of the managed care entity, but your interests as well.

Most physicians don’t read contracts

This does not mean all physicians negotiate the contract, or are adequately protected by the managed care contract. Most physicians are not protected by the contract because most physicians do not even bother to read the contracts they are signing. Another reason most physicians are not protected by the contract is because most physicians do not negotiate during the contracting process. They feel they will have little ability to change anything.

This lack of leverage by small physician groups and solo practitioners is part of the reason why physicians organize in larger groups to enhance their ability to negotiate with payers. Regardless of the situation, physicians should read their contracts and understand some of the problem areas that can be found in many contracts. Two particularly troublesome clauses are the "all products" clause and the "modification" clause. These two clauses, if attached to certain language, can cause a great deal of trouble for the contracted physician or group.

The all-products clause is a clause stating, in general, that the physician or group agrees to participate in all products the managed care organization offers to the consumer.

Many physicians assume they are signing a contract for a commercial HMO. That may be the case, but if the contract contains an all-products clause, then by signing the contract, the physician may have agreed to care for Medicare managed care patients, Medicaid patients, PPO patients, and EPO patients. This may or may not be acceptable to the physician. By signing the contract with an all-products clause, the physician or group agrees by default to any fee schedule or payment system the contracts use.

For example, suppose a physician or group agrees to provide care for commercial patients, and has seen the capitation schedule and deems it adequate. If the contract contains an all-products clause and the HMO decides to offer a Medicaid contract, then the physician, by signing the contract, has indicated that he or she has agreed to provide care to Medicaid patients, though the physician may not even know what the reimbursement level is. The same thing may be true for Medicare patients.

Additionally, if the managed care organization offers a PPO, the all-products clause may bind the signing physician or group to provide care under the PPO without giving them an opportunity to view and negotiate the fee schedule.

Try to get all-products clause struck

Read a contract carefully to determine whether it contains an all-products clause. If it does, try to get the clause struck. If you cannot get it struck, at least attempt to get it modified to require a provision for each of the payer’s products. If this is not possible at the time the contract is being negotiated, try to get a provision added stating that, before the physician or group must provide services under any new product, the new product’s reimbursement schedule and mechanism must be presented to the physician or group for approval.

If the physician or group does not agree to the new payment schedules or any other provisions that attach with the new product, then the contract is null and void for the new product. This allows the contract to stay in place and in force for current products while protecting the physician from the payer’s new products.

Many managed care contracts state that the managed care entity may modify the contract at any given time. This modification can apply to any clause, but it almost always is directly applicable to the reimbursement and services clause. This means that, while the physician or group may have expended considerable energy in negotiating a fee schedule, a capitation rate, or a schedule of services that are to be provided under the contract, all that was negotiated can be changed at the whim of the managed care organization.

Such modification clauses should either be struck or the language should be changed. I recommend that any new language state that the modified language, reimbursement rates, mechanism, or services must be presented with 90 days’ notice to the physician or group. If the physician or group does not agree to the modification after the 90 day notice, the modification will either be struck, modified to fit the requirements of both parties, or the contract will be deemed to be null and void at the time such unapproved modifications are applied.

The list doesn’t end there. Here are other general provisions you should look for and attempt to strike, modify, or clarify. The first of these is the covered services provision. This is usually refers to what services are to be covered by the capitated reimbursement. In other words, what is in the cap, and what is out of it? Many physicians lose a great deal of revenue by failing to bill for non-capitated services they’ve provided, because they don’t know what’s covered.

Moreover, if a service is not covered under a capitated payment system, the physician or group should make sure to identify the fee schedule for these services. Physicians may be delighted to find out that a service is excluded from the capitated payment, only to find out that the reimbursement under the fee schedule is abysmal.

Is committee participation required?

Another clause to be on the lookout for and to have fully elucidated is the clause pertaining to the physician’s participation in various committees of the organization. The contract may commit you, if called upon, to participate in committees or be subject to termination. The time and place of the meetings are under the control of the managed care organization and may not be convenient to the physician, yet non-participation can lead to trouble. Attempt to get the provision modified to state: "Upon agreement by physician, physician will participate . . . etc." This may seem small, but it is a great protection for the physician.

Often a contract will contain an access to information clause. This is a clause typically stating that the physician will provide either direct access to information for the managed care organization via on-site visits, or that the physician will copy or otherwise make available information upon the payer’s demand. It is essential that such clauses state that the managed care organization’s requests will be reasonable and that the payer, not the physician, should pay for the copying and other costs. It also should state that if site visits are required, the physician or group gets notice as to when the visit will occur, and can request that either the day or time of the visit be modified.

Look for an inventory of provider duties in the contract. In this area, one of the most critical provisions is a statement providing that the physician has the right to refuse treatment to disorderly or problematic patients, and also has the right to close his or her practice to new patients at the physician’s discretion.

Billing procedures, appeal process, compliance, exclusivity, risk sharing, and stop-loss all are provisions to carefully assess in the managed care contract.

In summary, managing the managed care contract can be tricky business. The practicing physician is well on the road to managing the contract just by reading it. After reading it, especially with the assistance of a contract checklist, the physician or group can then decide what provisions they should seek to either modify or have struck. Then, the physician or group must ascertain whether the ability (leverage) exists to negotiate the terms of the contract. If that ability does exist, the next step is to sit down with the payer organization and seek to do so.

[Editor’s note: The physician or group engaged in negotiating a managed care contract should attempt to obtain a managed care contract checklist. The reader can obtain a copy of such a checklist by requesting it from me. Fax your request to (913) 894-8870, and be sure to include your return fax number.

The checklist will assist you in identifying most of the common problem areas in managed care contracts, and also has suggestions for modifications. Specifically, the checklist will require that the parties to the contract are correctly and clearly identified; that the definition terms are clearly and unambiguously identified; and that the effective termination dates are clearly stated. Further, the checklist will prompt you to determine that the renewal process is clearly stated, and that the various rights and obligations under termination are clearly and appropriately delineated.]