Managed care revenue fuels hospital operations, which is why hospitals’ managed care contracts require careful maintenance. Still, the firm sometimes sees hospital clients with stale five- or 10-year-old contracts – and costly problems left unresolved. As a general rule, hospitals should review their major payer contracts at least annually, evaluating them semiannually, and review contracts with small-volume payers at least every three years. And generally, for all contracts, hospitals should hold annual meetings with managed care and contracting personnel. Specifically, here are five key reasons to consider updating open managed care contracts:
- If the parties have not evaluated the contract in more than three years.
Hospitals must review payer reimbursement rates frequently or miss a significant revenue-raising opportunity. Changes requiring review include: corporate structure, utilization review team, doctor preferences, a larger bad debt write-off or accounts-received (A/R) balance if claims are increasingly denied, and rate increases. For example, in reviewing a payer contract for a surgery-center client, the firm found that the health plan had ignored cost-of-living (COLA) increases and continued using a six-year-old rate. Immediately after showing the payer the COLA rate increases broadly adopted by health plans over those six years, the payer significantly increased its reimbursement rates.
- If the payer’s performance is deficient.
Periodic evaluations of payers (e.g., benchmarking) help hospitals discern which perform at higher levels. The firm routinely uses analytics to advise clients on dealing with performance issues. Key factors include: the rate and frequency of claim denials, frequency of overturning denied claims with a second-level appeal, and responsiveness of key account personnel. Review and renegotiation are especially important if certain intervals within existing contracts are difficult to meet. And even before negotiating a contract, executive-level staff should rank issues requiring action. For example, why does Great MCO pay 86 percent of submitted dollars when Excellent MCO only pays 65 percent? Providers must ask such questions and assess performance based on denial categories.
- If the payer manual overrides the contract.
Providers do not have any input on payer manuals, even though annual updates of payer manuals pose inherent risks for providers, including shortened intervals for claim submission and review, altered appeal procedures, and changes in processes for escalation. The manual contains significant fine print that may prove detrimental to a provider if it is left to control the day-to-day operations between the parties. The best remedy is to ensure that the contract includes a clause stating that the payer-provider agreement governs any contradictory terms. For example, statutory interest is not automatically applicable to all payer products (e.g., self-insured plans), so it should be negotiated into the payer-provider agreement to apply to all plans, regardless of what the provider manual mentions, even if it is silent.
- When health plans merge.
When one payer merges with or acquires another payer, the clear lines of contractual obligations with the provider become blurred. Which corporate structure prevails? The provider needs to analyze both payers’ contracts and renegotiate the most favorable points, resolve any prior claims, and specify how the parties will exchange notifications. For example, Elder Health, a Medicare Advantage HMO, changed names to Bravo Health, then Healthspring purchased Bravo Health and Cigna purchased Healthspring. Most hospitals contract with Cigna. Which contract applies to the Medicare Advantage HMO? Clearly, the hospital should contact Cigna regarding changes in procedures.
- If the contract becomes overwhelmed by too many addenda.
The firm has seen many clients’ contracts become burdened through the years by multiple, confusing and even contradictory appendices. The main purpose of addenda and appendices is to clarify or replace what was originally in the body of the contract. Too many addenda result in confusing operational and legal interpretations governing the contract. Consequently, the parties should simply revise and replace the previous addendum, leaving only one to interpret. For example, the terms “medical necessity” and “covered services” are essential to any agreement and should be defined in one place – the agreement itself.
The purpose of the managed care contract is to help hospitals manage their relationships with payers. By recognizing these reasons to consider updating managed care contracts more frequently, providers can enhance their relationships with health plans, leveraging opportunities to increase revenues and meet their business objectives.
Anderson & Quinn, LLC is a renowned law firm based in Rockville, Maryland, providing individuals, businesses, corporations, and healthcare institutions with the legal and litigation support they need.
