Managed Care Contracts – The Basics

Providers of health care services establish relationships with managed care organizations (MCOs) to participate in provider networks, health maintenance organizations, integrated delivery systems, value-based care programs and other health plan initiatives via contract. The contract defines and governs the relationship between the parties and sets forth rights and responsibilities. While managed care organizations typically proffer “boilerplate” contracts which include consistent provisions for all providers, it is important to review and be aware of specific contract language and negotiate terms as needed. Terms and obligations in the contract should be clear and allow for transparency regarding expectations and obligations, and providers should ensure they understand and agree with all terms, including those that pertain to reimbursement, practices and procedures, confidential records, clinical requirements and termination provisions.

Before Contracting with an MCO

Prior to entering into a contractual relationship with an MCO, a basic analysis should be conducted to find out more about the MCO and possibly bring to light considerations which may affect either contracting strategy or necessary contract provisions. Providers should determine the market share, product offerings, service area, financial solvency and reputation of the MCO. Does the MCO require providers to participate in all products or can providers choose amongst product offerings? Does the MCO have a reputation of paying providers accurately and on time? Does the MCO enjoy high patient satisfaction and employer/client retention? Is the organization for profit or nonprofit? What percentage of the MCO’s clients are self-insured vs fully insured? What is the role of the primary care or specialist physician? Which hospitals participate in each product offering and what is the physician/hospital termination rate?

Terms of the Contract

Although most MCOs will initially submit a “boilerplate” contract, all contract language should be evaluated, especially the section covering Definition of Terms. While many providers overlook this section, the remainder of the contract will reference these definitions and restrict contract interpretation to adhere to these definitions. Covered Services should always be included and specifically listed as an Exhibit to the contract. Providers should ensure that they have carefully reviewed the list of Covered Services and are able to deliver all. If a provider does not or cannot deliver a particular service, it should be excluded from the list of Covered Services in the Exhibit.

Medical Necessity

While all managed care contracts limit covered services and reimbursement to those that are medically necessary, providers need to understand who will determine medical necessity. In recent years, MCOs have exercised broad power in limiting and redefining medical necessity and have linked medical necessity under the contract only to the provision of reimbursement, placing financial burden on the provider with respect to the decision to deliver appropriate treatment per the provider’s professional judgment.

Member Eligibility

Most MCO contracts place the burden on the provider to verify member eligibility on the date of service. The contract should allow the provider to rely on telephonic or online confirmation of eligibility by the MCO and require payment to the provider per contracted reimbursement rates for services delivered if the member is later determined to have been ineligible on the date of service.

Reimbursement

The most fundamental provision of the contract with an MCO pertains to reimbursement. Which services will the provider be paid for, what is the rate of reimbursement, what are the claims submission requirements and when will the MCO pay the provider? These questions should be clearly addressed in the contract. The terms should also be clear regarding when/if the MCO is able to change the rate of reimbursement or reimbursement methodology. Providers should aim to require the MCO to obtain prior approval from the provider before implementing a change to reimbursement, and this provision should be tied to the termination provision, ensuring that the provider has a means of early exit from the contract if they do not agree to a change in reimbursement.

Termination

Carefully review the termination provisions. Many MCO contracts are “evergreen,” meaning that while they may have a specified term of one or two years, they will automatically renew after the initial term with the same contract terms, unless amendment is requested by one of the parties. In this situation, the rate of reimbursement, for instance, might remain unchanged for many years without the provider realizing that they are not receiving reimbursement that reflects current market pricing, adjustments to inflation, etc. Evergreen provisions are acceptable and may even benefit providers in some instances. However, they should be monitored to ensure that providers are requesting renegotiation and amendment when necessary.

Providers should evaluate the termination provisions, anticipate their needs and negotiate with the MCO as needed. Typically, contracts provide for both “with cause” and “without cause” termination. With cause, terminations should afford the breaching party a period of time to cure the breach, and a dispute resolution processes should be included in the contract provisions. Without cause, terminations typically require a shorter notice period and can be used by either party for any reason. If the contract requires that the provider continue to deliver services to covered members past the termination date, the time period, rate of reimbursement and payment mechanism should be specified.

Other

The provider should obtain access to and analyze all relevant documents, especially any documents which the contract incorporates by reference, including policies and procedures.

Insurance and indemnification provisions should be covered in the contract and should be reviewed carefully. Indemnification should be mutual, requiring that each party hold the other harmless regarding any liabilities which arise from their respective conduct.

Ask Questions and Negotiate with the MCO

Although boilerplate contracts are the norm, providers should keep in mind that the MCO structured the contract to favor itself. Clarify ambiguous language or terms, request modified language as necessary and make sure all obligations are clearly spelled out. As noted above, aim for language that requires any changes to contract terms, especially reimbursement, require prior written approval (via contract amendment) of the provider or the ability to provide without cause termination.

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