Look out for traps in managed care contracts

Watch closely for these three provisions

By Elizabeth Gallup, MD, JD, MBA

It used to be that all a specialist or primary care physician needed for a successful practice was a good bedside manner, clinical competence, and an office staff. Now, success demands a degree of administrative ability as well. Many physicians address this need by hiring competent administrators. No matter who looks after the business of the practice, one skill that will be critical is the ability to evaluate, negotiate, and manage a managed care contract.

We’ll examine three of the most crucial and problematic areas common to managed care contracts, and outline the best way to approach these clauses and provisions.

At the outset, it is important to realize that your ability to modify contract parameters or language depends on many factors. These factors include the size of your practice, the physician makeup of your practice, the leverage that you or your practice or organization has with payers, and your own inherent negotiating ability. Of all these factors, the most important is the leverage you or your practice exerts on the payers. The size, geographic location, and specialty of the physicians in your group or practice usually influence your leverage.

The managed care contract may be a contract for capitation or discounted fee for service. Regardless of the payment mechanism outlined in the contract, these problem areas are common to all managed care contracts:

1. "Referral to other documents" clause. This is a clause in the contract referring to documents outside the body of the contract. These documents may be an appendix or amendment to the contract or its language, or they may be documents that exist in a freestanding form and have no direct relation to the contract.

An appendix often contains capitation rates or fee schedules. A freestanding document often involves medical management criteria, guidelines or protocols. There also may be appendices or freestanding documents that refer to office site visits, medical standards, and formularies. The important thing to note is that the documents are referred to in the contract. If a document is referred to in a contract and you sign the contract, your signature indicates that you have read and have agreed to abide by all the documents to which the contract refers. You may not even have seen these other documents, but that doesn’t matter. If you sign a contract that contains language referring to other documents, you have legally indicated that you read them and they were okay by you.

What should you do?

If contract language refers to other documents, demand that the carrier supply you with copies of these documents. Be sure to read the documents. If you disagree with any of the language, seek to get it changed or modified before you sign on the dotted line.

2. The automatic renewal provision. Some contracts contain clauses stating that the contract automatically renews unless there is notification otherwise. This is very dangerous. You and your practice may not even be aware that you are in a network, that contract provisions have changed, or that a fee schedule or capitation rate has been modified. In fact, this clause allows the contract to be renewed with the addition of new provisions of which you have no knowledge, but to which you agree by default.

What should you do?

Ask that the automatic renewal clause be stricken from the contract. Ask that you receive notification of the renewal of the contract and that you possess a certain amount of time to review the contract, including any changes, and have time to object or seek modifications before the contract renews.

3. Termination provisions. Most often the problem here is that the carrier or the health plan has all the power to terminate, and you as a physician or group have none. The contract should contain language that allows for both sides to terminate "without cause" (meaning for no particular reason). The usual period for termination without cause is 90 days. That allows you time to notify your patients, and allows the health plan time to notify its enrollees and other involved entities. The 90-day period also helps protect you against issues of abandonment.

Both sides should be able to terminate immediately for cause (or a reason) with no wait period. The reason may be non-payment of claims, delay in claims payments, or that you no longer want to provide care for patients under the contract terms. You simply have, and make known, your reason for termination. Many times, reasons that suffice for being "cause" are delineated in the contract language. The issue is to be clear as to who can terminate and for what reason.

What should you do?

Ascertain your duties upon contract termination. I have seen some contracts call for a physician to continue seeing patients for up to one year after the contract is terminated. I even saw one case where the contract (which was signed by a physician and in effect) called for the physician to care for patients under a terminated contract and receive no financial remuneration for the care that was rendered. Obviously, you should strike from the contract a clause containing this type of language. Another clause to avoid: "Obligations of physician shall be in full force for a time period not to exceed one year." While in theory it may be perfectly acceptable to continue to care for patients under a terminated contract, it should be clearly stated how you would be compensated for the care that is rendered. If you are terminating a contract because of the fee or capitation schedule and yet are still bound to care for patients under that contract for a year and at the current schedule, what have you gained by terminating?

Protecting against patient abandonment

Even if you do terminate, you still have an obligation to care for critically ill patients. This obligation usually extends until the period required by state law concerning patient abandonment. However, the contract should clearly state that it is the carrier’s obligation — not yours — to place the patients in the care of another physician.

I know of one large physician group that decided to terminate a contract with a carrier, not only because of the low reimbursement levels but also because of the egregious medical management methods the carrier employed. The group terminated but was contractually obligated to find a physician or physicians to assume care of the contracted enrollees. This physician group represented the only physicians for a 30-mile radius, and thus there were no other physicians who could care for the patients. They were stuck providing care under the unfavorable language and conditions of a contract they detested.

My recommendation is that the contract language should state there is a 90-day notice of termination, and the carrier is obligated to place patients in another physician’s care. At the termination date, physicians are required to continue to care for critically ill patients for a time not to exceed 30 days (the usual period of time, which protects against abandonment).

(Editor’s note: This information is not legal advice, nor is it intended to be. Seek the advice of your own legal counsel on matters specific to a contract.)

(Editor’s note: Many physician practices are spending a lot of time and energy looking for capital these days. No longer simply a matter of going down to the bank and asking for a loan to cover costs for new office space, today’s search for capital includes a bewildering array of options. There are more avenues than ever for acquiring capital; but some options involve decreased autonomy. This month’s issue of Physician’s Managed Care Report looks at how two practices are addressing this task.)