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Think You’ve Negotiated A FavorableManaged Care Provider Agreement? Gil Weber, MBA

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Many practices andASCs sign managedcare contracts that,for one reason oranother, do not turn

out well or, at a minimum, needsome serious “tweaking.” For the last15 years I’ve been asked to help fixproblems that went unrecognizedwhen the contract was signed.

Naturally, most administrators(and physicians) would considerreimbursement the top priority, andduring contract negotiations it’s ofcourse critical to protect those reim-bursement terms. Yet when review-ing a provider agreement, I don’tfirst turn to the reimbursementschedule. Rather, I look at the termi-nation protocols to see how myclient can get out of the deal ifthings should go wrong. One of themost common reasons contracts gobad is that payers reserve the right tochange the deal at any time byamending the contract and turningit into something quite differentthan originally negotiated andsigned by the parties.

This article illustrates some ofthese danger points and shows youwhat you can do about them.

Unilateral Amendments The most dangerous provision I seein managed care contracts is the onewhereby the payer reserves the rightto make unilateral changes in themiddle of a contract term. Suchchanges, particularly reductions tothe fee schedule, can have a pro-found adverse impact on the prac-tice. At its sole discretion, the payerin effect turns the originally negoti-ated deal on its head.

In some instances the practice orASC is offered an opportunity toobject, and perhaps negotiate, beforethe change goes into effect. In othersit’s a “slam-dunk.” The practice orASC is stuck with the change and norecourse except to terminate the con-tract. Neither option is satisfactory.

Thus it is important to knowwhat protections might be affordedby state law. You’ll need to checkwith an experienced attorney, forthe laws vary widely state-to-stateand even within a state dependingon the type of plan and productline—as this example fromCalifornia clearly demonstrates.

For Medi-Cal (California’sMedicaid) and “Healthy Families”program plans: Contracts thatinclude provisions permitting unilat-eral material changes must providethe physician a minimum of 90business days’ notice, give the physi-cian the right to negotiate thechange within 30 business days ofreceiving notice of the change, andgive the physician the right to termi-nate the contract within the 90-busi-ness day notice. Amendments cantake effect within 90 business days ifthe physician fails to negotiate orterminate the agreement with thehealth plan.

The Real ProblemHere’s the difficulty: The provideragreement will specify the contractterm in years. But another section ofthe contract will contain a statementallowing the payer to amend anyportion of the contract at the payer’ssole discretion by giving theprovider advance written notice—typically 30 to 90 days. This means

that the one-, two-, or three-yearcontract is, in reality, maybe only a30-day contract that might run forthe one, two, or three years as origi-nally written and signed.

But the payer can decide tochange the contract the day after itgoes into effect. For example, thepayment terms may originally havespecified $X per RVU, or Y% of 2009Medicare Allowable. Suppose youhave analyzed the data and deter-mined that the rates are OK. Thephysician signs the contract figuringit’s a pretty good deal, especiallycompared to the other contracts inyour file drawer.

But then in the middle of thecontract term the payer unilaterallydecides to lower reimbursement. Itsends a “Dear Doctor” letter, and ashort time later that change goesinto effect for the remaining monthsor years of the contract term. Andyou’re stuck.

Hidden in Plain SightHere is language typical of thatfound in many provider agreements:

Plan may amend this Agreement,standard Plan fee schedules and admin-istrative rules, procedures, policies, orprograms that affect Provider compen-sation and that affect healthcare servicedelivery at any time during the term ofthis Agreement by providing Providerninety (90) days’ prior written notice,except if a shorter notice period isrequired to comply with changes inapplicable law. Any such amendmentshall be in writing and shall include aneffective date.

For amendments that are notmaterial adverse changes in the terms

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When reviewing a provider agreement, I don’t first turn to the reimbursement schedule. Rather, I look at the termination protocols to see how my client can get out of the deal if things should go wrong.

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of this Agreement, Plan can amend thisAgreement by providing 30 daysadvance written notice to Provider.

Every ophthalmology adminis-trator knows that payers are unlikelyto raise reimbursements unilaterallymid-contract (especially as MedicareAllowable seems perpetually at riskfor reductions), so the implicationsare obvious. Payers are reserving theright to unilaterally lower reimburse-ments at any time or to change thecontract in other ways that could bequite unfavorable to your business.

Language of the sort quotedabove flouts the fairness in the time-honored principle of written con-tracts that they can be changed onlywith the written agreement of bothparties, in effect precluding unilater-al changes forced by either party. If apayer refuses to remove such lan-guage, beware; it’s a clear and unam-biguous indication that you’re at sig-nificant potential risk.

Changing a Deal in the “Real World”In the “real world” of business, iftwo parties are concerned thatfuture circumstances may changeand materially affect the contract,they can at a later time either nego-tiate an appropriately worded writ-ten amendment resolving the situa-tion to the satisfaction of the partiesor, if the circumstances cannot beresolved by written amendment, oneor both parties may terminate.

That’s how it should be in man-aged care. What are some possiblesolutions for defusing this timebomb of forced unilateral changes toyour existing contract?

First, during negotiations it’sessential that you strike all languageallowing the payer to impose unilat-eral mid-contract changes and insistinstead that mid-contract changeswill be effective only with the writ-ten consent of both parties. Payers

won’t like that, of course, and willfight to protect their own interests.

Yet the danger of mid-contractunilateral change is so great as to bea potential deal-breaker.

To protect your interests, youmight negotiate for languageapproximating the following (sub-ject to attorney review andapproval):

This Agreement constitutes theentire understanding between the par-ties relating to the subject matter of theAgreement. Except as may otherwise beprovided herein, to be effective, anymodification of this Agreement must bein writing and signed by both parties.

Suppose the payer says “No.”Suppose it insists on maintainingthe right to make mid-term contrac-tual changes, yet you consider thecontract very important to yourpractice or ASC. Maybe the cataractreimbursement is exceptional andyou’re thinking it’s crazy not toaccept. What then?

In such a case you must try tolimit the matters subject to unilater-al change. For example, I’ve beensuccessful negotiating a provisionthat lets the payer make changes butexempts the fee schedule from uni-lateral amendment during the con-tract term. At least that critical partof the contract was protected andfixed for a defined period.

Here’s sample language youmight consider to bring this tofruition. Again, with review andapproval of your attorney, you canpresent it to the payer for inclusionin the Provider Agreement.

Throughout the term of thisAgreement, the fee schedule agreedupon herein by the parties shall remainin full force and effect and shall not bealtered in any manner except uponwritten amendment signed by both par-ties.

More Possible Solutions I have reviewed a number of con-

tracts that offered alternative solu-tions to accepting a payer’s unilater-al revision of contact provisions outof hand. • Some contracts contained a provi-sion for discussions before anypayer-imposed amendmentbecame effective. They did notrequire the payer to retract anamendment if no alternativeunderstanding could be reached,but at least they provided anopportunity for negotiations and,possibly, “tweaks” rather than ade-facto slam-dunk.

• Others included a provision thatallowed the physician or ASC theright to say “No” to any unaccept-able change and to opt-out of thecontract through an early andpainless (without-cause) termina-tion. For example, if the normaltermination notice period is 90 or120 days, then to deal with unac-ceptable amendments you couldtry to add language allowing “out”in 30 days, or 60 at most.

• Along with that you might ask forthis: a provision that if an amend-ment is going into place and if thepractice has elected to terminaterather than continue under thechanged terms, those new termsshould not apply to the practiceduring the “roll-out” period lead-ing to termination. Languagealong the following lines might beappropriate for modeling yournegotiations:

The change to the reimbursementschedule that is the subject of theProvider’s notice of rejection will notgo into effect as to Provider duringsuch notice period or thereafter ifProvider elects to terminate underthis provision.

An Important Exception Please note one important exceptionto all this discussion about shieldingone’s practice from unilateralamendments. Mandated changes

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imposed by the state or feds (andsometimes by credentialing entities)will go into place automatically atthe end of the notice period, andyour practice cannot refuse suchmandated change(s) if it is to contin-ue in the contract.

That said, however, given theuncertainty of healthcare reform,there’s no predicting what mandatesmight emerge from Congress in thenext few months or years.1 You’llwant to try to secure an escapeclause in the event a mandatedchange is so problematic that keep-ing the contract can’t be justified.

Language along these generallines is fair and balanced for all par-ties:

In addition to the amendment pro-visions in this Section, the parties agreethat if, after the effective date of thisAgreement, a change in applicable lawis enacted that requires changes to thisAgreement that would deprive eitherparty of an essential benefit of its bar-gain, either party may terminate thisAgreement effective on the effective dateof the change in applicable law.

A Final Concern Provider Agreements typically differ-entiate material changes or modifica-tions from non-material ones.Material changes might includemodification of the fee schedule, theProvider Manual, or AdministrativeGuidelines. Non-material changescould be absolutely anything.

The contract might stipulatethat the payer must give a certainnumber of days’ advance writtennotice of material changes, but notrequire any advance notice of non-material changes. That immediatelycreates two issues: (1) what differen-tiates material from non-materialchanges, and (2) who decides what’smaterial?

Some but not all state managedcare laws provide guidance here. Ifyours does not, it’s left to each payer

to decide what is and is not material.In its infinite wisdom, a payer coulddeem an issue non-material whilethat same issue could be very materi-al to your practice or ASC.

Thus it’s important to knowhow or if state law applies here. If itdoes not, then it’s essential to arriveat an understanding with the payerover what constitutes a materialchange requiring an amendmentand notification.2 AE

Notes1. The Spring 2011 issue of Administrative Eyecare

features a special supplement on healthcarereform-related changes to Medicare and whatpractices should do now to position themselvesfor success.

2. The materials presented here are intended toprovide useful information about the subjectmatter covered. The author believes that theinformation is as authoritative and accurate as

is reasonably possible and that the sources ofinformation used in preparation of this informa-tion are reliable. But no assurance or warrantyof completeness or accuracy is intended orgiven, and all warranties of any type are dis-claimed. This information is not intended aslegal advice, nor is the author engaged in ren-dering legal services. Nothing contained hereinis intended as a replacement for the individuallegal or professional advice you are urged toobtain. This information is presented only forillustrative purposes, and it should not be usedto establish any fees or fee schedules, nor is itintended and it should not be construed asencouraging any user to take any actions thatwould violate any state or federal antitrust ortax statutes, or provisions of Medicare orMedicaid.

Gil Weber, MBA (321-433-0623; gil@gilweber.com), is anationally recognized author,lecturer, and practice manage-ment consultant based inViera, Fla.

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