Doctors and hospitals continue to lose significant revenue because of legal barriers to reimbursement built into their provider contracts. When healthcare providers, whether large healthcare organizations or individual medical practitioners, join a managed care network, they sign binding agreements outlining the array of patient services to be provided, as well as defining criteria for financial reimbursement. Typically, the provider contracts also include a clause requiring both parties to submit any subsequent disputes to arbitration.
Arbitrations are “private” lawsuits between parties to a contract, and are generally governed by organizations that specialize in alternative dispute resolution processes, such as the American Arbitration Association and American Health Law Association’s Dispute Resolution Service.
In theory, arbitration clauses are designed to promote efficiency in resolving disputes by avoiding lengthy and costly litigation. Unfortunately for healthcare providers, arbitration clauses are typically written to favor the interests of the health plans. Details contained in the fine print drafted by the health plans may create inefficiencies and barriers to resolution of improper denials.
Arbitration can be expensive.
Because the arbitral forum’s rules apply, the provider and health plan usually split the costs of the arbitration, which include the organization’s fees and arbitrator’s costs, which can amount to well over $200 per hour, per party. Additionally, the hospital must pay the filing fee. The health plan may also demand that entire cost of the arbitration be borne by the provider, should the health plan prevail.
The costs can continue to rise. Under the American Arbitration Association’s Commercial Rules imposed by some health plans, claims for $1 million or more are considered “complex,” thereby requiring three arbitrators, rather than one. This requirement basically triples the cost of the proceeding and slows the process down by several months because both parties now must agree on three arbitrators. There are even provider agreements that requires three arbitrators for all disputes, effectively precluding a provider from seeking meaningful remedy in all but the most egregious cases.
Arbitration can supersede applicable public law.
It is important to point out that arbitration, as a form of alternative dispute resolution, can create an avenue whereby the applicable state law can be superseded. For instance, statutes of limitation can be set aside in favor of narrower timeframes set forth in the contract. This means, for example, that even though state law may provide for a 3- or 5-year statute of limitations for applicable disputes, the arbitration clause can hold that matters not filed within one year are not eligible for relief.
Arbitration clauses can also dictate the jurisdiction where the dispute will be heard. Providers may face the additional hurdles of paying for out of state legal counsel and travelling out of state — another expensive disincentive to pursuing unpaid claims.
Arbitration cannot be appealed.
Arbitrators’ decisions are often binding upon the parties and cannot be appealed. So, when an arbitrator — no matter how experienced, or even as a retired judge — makes a bad decision, the provider is stuck with that decision. This is inconsistent with the spirit of American jurisprudence, convenient to the health plan.
All of this is important because managed care organizations routinely deny claims.
In my experience, fully one-third to one-half of all reimbursement denials are improper. Of these denied claims, one-third cite medical necessity and the remainder are denied on administrative technicalities, not based on clinical bases. In fact, arbitral proceedings have successfully recouped over half of the disputed amounts.
Have all contracts reviewed before you sign to save money and headaches.
The first step in the solution is quite simple: Always have provider contracts reviewed by an experienced attorney. Remember, not all managed care organizations impose the same requirements. If your in-house legal team has limited revenue cycle experience, seek qualified outside counsel who specializes in healthcare claims.
It is important for providers, whether large healthcare systems or individual practitioners, to leverage their negotiating power up front. Whenever possible look skeptically at these clauses and seek to remove or revise them. For instance, request mediation as a step to be completed before any arbitral demand may be filed. The process is less costly because there is just one neutral person resolving the dispute, rather than up to three arbitrators.
Be proactive. Discuss the prospect of termination of the contract; show the health plan the costs to go to arbitration; and seek to negotiate more favorable terms. For instance, both the American Arbitration Association’s Healthcare Payor Provider Arbitration Rules and the America Health Lawyer’s Association have issued simplified procedures to better address the concerns of providers and payers, but which are rarely invoked in provider agreements.
Be prepared to tie back the terms of the contract to specific denial scenarios. For example, data and analytics can demonstrate how a contractual term that denies claims based on timely notification (where no harm to the payer or the patient has been shown) has resulted in significant monetary losses for the practice.
Also, review jurisdictional requirements to safeguard against excessive travel in the event of arbitration. Above all, make sure that you understand each and every provision and that your practice has effective systems in place to ensure timely filing of claims and resolution of disputes.
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.
