Contracting with Commercial Insurance
By Miranda A. Preston, JD, Shareholder, Milligan Lawless, PC
From Print Issue- Winter 2022
It is no secret that the process of negotiating a contract with commercial health insurance plans can be unpleasant or even futile for healthcare providers. These contracts are lengthy and seemingly impenetrable. Although the review of these contracts can be a challenge, failure to undertake a careful review may expose you to significant unknown, and even uninsured, liabilities. Your ability to negotiate this type of contract depends on many factors, including the size of your practice, the scope of your practice’s geographic coverage, the number of other in-network providers with similar specialties as you, and other factors. This article lists some of the more problematic payor contract provisions and discusses some of the issues that arise from such provisions.
Indemnification and hold harmless provisions allocate legal risk between the parties. The following is an example of a mutual and limited indemnification provision:
Indemnification. If Payor is sued solely as a result of Provider’s negligence, willful act, or omission, Provider agrees to defend and indemnify Payor. If Provider is sued solely as a result of Payor’s negligence, willful act, or omission, Payor agrees to defend and indemnify Provider.
The above provision simply documents what the common law provides in most states. However, payors often include much broader indemnity provisions in their Contracts. The following is an example:
Indemnification. Provider agrees to defend, indemnify and hold harmless Payor from all liability arising directly or indirectly from Provider’s provision of services.
In some states (including Arizona), this type of provision might obligate you to defend and indemnify the payor for claims based in part on your conduct; in effect, you become the insurer of the payor. This type of provision significantly expands your potential liability. Worse,
professional liability insurance carriers typically exclude coverage for this additional contractually assumed liability. This exclusion results in your having to defend and indemnify the payor at your own expense.
TERM AND TERMINATION
Many contracts have an initial term of at least three years and automatically renew for additional terms of one to three years, unless the provider or payor gives written notice of non-renewal within a certain time. As payment rates change, automatic renewal can be problematic for providers who are not aware of the automatic renewal.
Termination without Cause. Most contracts include these provisions, which permit either party to terminate the contract on relatively short notice (e.g., 60-120 days). Some providers assume they are entering into long-term arrangements with the payor, and do not realize that the payor can terminate the contract and the provider’s right to participate in the payor’s network without any stated reason.
Some providers prefer contract terms that allow the provider to terminate the agreement without cause on relatively short notice. However, when this occurs, there is a risk that the payor’s beneficiaries (particularly those who are under active treatment) will not be appropriately transitioned to another physician. Typically, the contract will obligate you to continue to provide covered services to beneficiaries during a transition period after termination. If the payor fails to arrange for the transfer of responsibility for the patient’s care in a timely fashion, and an adverse outcome results, you could still face licensing or malpractice actions for alleged “abandonment.”
Termination Upon Material Breach. Most contracts include terms permitting either party to terminate the contract upon a party’s material breach of the contract terms, following a notice and cure period.
Termination For Cause. Most contracts also include terms permitting the Payor to terminate the contract immediately upon the occurrence of certain events, including:
Conviction of certain crimes; exclusion from participation in government health care programs; discipline by any licensing board or medical staff; and,
Commission any act the payor deems to be detrimental to a member’s health or safety.
Nearly all payor contracts will prohibit you from billing the payor’s beneficiaries for services covered by the payor. Most contracts include terms obligating the payor to pay you for covered services rendered to payor’s beneficiaries according to “Clean Claims,” but only to the extent the payor determines such services to be medically necessary. Many provider/payor disputes related to non-payment of claims are premised on the payor’s assertion that the services rendered were not medically necessary.
Arizona’s Timely Pay & Grievance law states that payors must adjudicate clean claims within 30 days after their receipt of the clean claim, or within such other period specified by the payor contract. Accordingly, to ensure timely payment, it is critical that the contract: (1) clearly define what constitutes a “complete, clean claim;” (2) state that claims will be deemed to be “complete and clean” unless the payor notifies you that additional information is needed within a predetermined short period of time after submission; and (3) obligate the payor to pay complete, clean claims within a predetermined short period of time after submission.
GRIEVANCE AND DISPUTE RESOLUTION PROCESS
Nearly all contracts with payors provide for some form dispute resolution other than a jury trial. The contracts typically require you to first exhaust the payor’s informal dispute resolution process before initiating a formal proceeding. As such, it is important for you to obtain and review all applicable payor policies. Disputes related to the payment of claims often have stringent timelines and procedural
requirements, and failure to meet such requirements may leave you without recourse as to the disputed claim. Most contracts include terms requiring the parties to submit to binding (non-appealable) arbitration of their disputes.
MEDICARE ADVANTAGE (MA) AND AHCCCS REQUIREMENTS
Depending on the plan type, the contract may include terms requiring you to comply with AHCCCS and/or MA rules and regulations, including prohibitions or restrictions on your ability to contract with individuals and entities outside of the United States, or on your transfer or storage of data outside of the U.S. If you directly or indirectly contract with offshore individuals and entities to provide billing, revenue cycle management, or other services involving the provision of beneficiary health information to parties located offshore,
compliance with these terms can be problematic.
Other important terms to thoroughly review include any quality review and utilization requirements; non-disparagement provisions; and change of control and assignment provisions. Typically, payors present the contracts as nonnegotiable, and many smaller practices find this to be true. Despite that, it is a good idea to at least attempt to modify problematic terms. Where those efforts are unsuccessful,
you should evaluate the contract carefully, and decide whether the benefits justify the risks.
This article is made available for informational purposes only and is not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
About the Author: Miranda A. Preston, JD, is a Shareholder with the Phoenix, Arizona law firm of Milligan Lawless, P.C. Her practice includes the representation of clients in a wide range of business transactions and health care matters. She works with many types of businesses, particularly those in the health care and life sciences industries. Prior to joining the firm, Miranda practiced for four years at a Tucson, Arizona based commercial law firm, practicing in the areas of business transactions and health care law.