Stabilize Your Accounts Receivable
Part 1 of a 2-part series
The first step is to incorporate concise contract negotiations.
By David Peters, CPC, CPC-P, PCS, CCP-P
Whether you work in a physician’s office or a hospital, negotiating and understanding third-party payer contracts may be intimidating. The terms can be difficult to understand and the stakes are high. A poorly performing insurance contract, however, can lead to financial devastation for an organization.
Professional coders are trained to analyze complicated medical records and pay attention to detail. Applying the same principles to contract negotiation and management will help you feel more in control. Assistance from an attorney with health care experience is always a good idea; if this is not an option, use caution, avoid making assumptions, and take the time to understand what you read.
Contracts Should Be a Win/Win
An adversarial attitude toward your payer is counterproductive to everyone’s goal of patient satisfaction and timely and accurate payment for services rendered. Thinking of the insurance company as one of your customers goes a long way in establishing a good working relationship.
The benefits of contracting with an insurance company include channeling those patients to your practice, stabilizing your accounts receivable (knowing how much you’ll be paid and when), and providing a process to resolve disputes if they occur. Getting everything in writing clearly defines who is responsible for what, when and where, and for what price.
Every state has its own regulations governing health care and contract requirements. You should have at least a basic knowledge of these laws and rules as they apply to your organization. A good place to start is the Web site for your Secretary of State or the office that has oversight of insurance plans. In California, health maintenance organization (HMO) plans are regulated by the Department of Managed Health Care, and indemnity plans fall under the Department of Insurance. Most self-funded plans are regulated by federal law under the Employee Retirement Income Security Act (ERISA). If an insurance company tells you certain language is required by law, don’t just take their word for it—check it out.
Although generally thought of as a payment mechanism, a contract contains much more than just payment terms. A crucial first step to understanding a contract is reading the document carefully. Some contracts are written in complex legal terms and others are written in more everyday English. As simple as it sounds, if you don’t fully understand the meaning of a word you see, look it up.
For example, if you see the word “whereas” at the beginning of a statement, don’t just gloss over it as an officious-sounding legal word. It actually means “in view of the following facts,” and could put an entirely different spin on what follows. Again, if you don’t have an attorney at your disposal to decipher complicated terms, a good legal dictionary is an invaluable tool.
Know Your Contract Piece by Piece
You should also familiarize yourself with the components of a typical contract. Most contracts contain six components:
1. The PREAMBLE is the opening statement. It names the parties to the agreement and usually indicates the legal status of each party (ie, John Smith, MD, an individual, or local medical group, a limited liability corporation). It is important to use the parties’ legal names, and to be sure it (and the legal status, if listed) is correct. The preamble also will usually establish a reference name for each party, rather than repeating the full legal names (which can be lengthy) throughout the contract. For instance, “The Biggest Insurance Company of America and All of Its Legal Affiliates (the COMPANY)” would be referred to as COMPANY, instead of the full name, throughout the contract.
The preamble also may contain the contract’s effective date. Contracts should never be postdated to cover services previously provided. Previously-provided services should be addressed apart from contract negotiation.
2. The RECITAL is sometimes called the background statement, and describes the contract’s purpose or its reason. The recital is typically no more than one paragraph and doesn’t usually require close scrutiny.
3. The DEFINITIONS provide standard meaning for terms used throughout the contract, and are usually expressed in capital letters to reduce confusion. An example might be: “COVERED SERVICES means those Medically Necessary comprehensive health care services that Enrollees are entitled to receive pursuant to one or more Service Agreements with the Prepaid Plan.” In this case, covered Services is now defined to have a singular meaning.
Because the above definition also contains the terms “Medically Necessary,” “Enrollees,” “Service Agreements,” and “Prepaid Plan,” there should be definitions describing those terms as well. If a definition is unclear to you, or seems to be confusing, ask for the term to be redefined to eliminate ambiguity. Be wary if a company resists clarification: Purposefully vague terms may cause problems down the road.
4. The OPERATIVE LANGUAGE is the body of the contract. It contains most of the provisions and describes the obligations and responsibilities of both parties.
Contracts with government agencies (Medicare, Medicaid and Civilian Health and Medical Program of the Uniformed Services [CHAMPUS or, more recently, TRICARE]) are generally written in stone and cannot be modified. All contractors sign the same agreement, follow the same rules, and are paid the same. Private insurers may try the same approach; saying, for instance, “This is our standard contract that everyone signs.” Don’t let the conversation end there. A good reply would be, “It’s a good start, but there need to be changes before it’s acceptable. How do we accomplish this?” You haven’t said no, and you’ve let them know you are willing to negotiate.
You should be able to identify key elements in the body of the contract. There should be a section for each party describing its obligations. The insurance company will expect you to:
- Abide by and cooperate with their utilization management and quality assurance programs.
- Not bill the patient for any money due from the insurance plan or charges other than copayments and deductibles. (This “hold harmless” language is often required by state regulation.)
- Submit your claims in an acceptable format.
- Provide services to their members just as you would any other patient.
- Refrain from encouraging the patient to change to another insurance company.
- Use a process such as binding arbitration to settle disputes, rather than going to court.
In turn, you have the right to expect the insurance plan to pay your claims in a timely manner. Time limits are frequently regulated by the state but beware. If your state mandates payment within 30 days of receiving the claim, and you agree to 90 days in the contract, guess what? You may have just given up your right to invoke the state regulation!
You also expect the insurance company not to deny retroactively services that have been approved, and to get your permission before they use your organization’s name in any marketing and advertising material. You’ll have additional concerns, of course, but hopefully this discussion will get you thinking at the level of detail required for effective language review.
The body of the contract will also contain standard provisions you need to understand and, if necessary, question:
Independent contractors—Language should not imply that you are creating any type of employment, partnership, or joint-venture agreement.
Term—What is the initial term length of the contract? Does it have an end date or does it renew automatically?
Termination—What are the provisions for terminating the agreement? Are there provisions for terminating for cause (agreement breech), as well as terminating just because you no longer want to work with that plan (at will termination)?
Obligations after termination—How will patients be handled that are in the midst of care if the contract is terminated? How will you be paid for those services?
Dispute resolution—Defining the preferred process here will save time should a dispute arise. Usually, the first step is a “meet and confer” between the two parties. If meet and confer is not successful, it is usually better to initiate a binding arbitration process, rather than going to court for trial.
Governing law—This is usually the state in which the payer resides. If you and the insurer are in the same state, there’s no problem. If it’s an out-of-state insurer, however, be sure the contract is compliant with your state’s laws. If the contract is to provide federally-funded programs, language must meet federal requirements (ie, Health Insurance Portability and Accountability Act (HIPAA) and records availability).
Severability—This means it’s possible to remove a portion of the contract if it’s found to be in violation of the law or other regulations without invalidating the entire contract.
Amendments—Changes should be allowed only if mutually agreed on and signed by both parties. Upon signing, the amendment becomes a part of the original document.
5. The SIGNATURE PAGE. Sometimes the first page allows for easy document storage and retention, but usually follows the agreement terms.
Make sure all parties are signing the same document, and have the proper authority to sign the contract. Usually contracts are done as multiple counterparts. This means there may be more than one original document. This is usually done so both parties have an original document for their files. The contract should be signed and dated by all parties, but the signature date may not be the agreement’s effective date.
6. EXHIBITS or ATTACHMENTS. This is usually where the payment rates and other information that may change periodically (such as a listing of the physician names in a group practice) are defined. Exhibits are easily amended as needed so the contract’s body isn’t changed.
Other documents may become a part of the contract by reference. One such document is commonly the payer’s provider manual. This will be noted by a statement such as, “Medical Group hereby agrees to follow and abide by the prior authorization requirements in AA Insurance Provider Manual included by this reference and hereby incorporated into this Agreement.” Be very careful with these references. Provider manuals are updated regularly; should a change be made that would significantly change your obligations, you will either need to amend or terminate the contract.
In an upcoming issue, we’ll address contract negotiations more specifically.
David Peters, CPC, CPC-P, PCS, CCP-P, is contracts manager for Sutter Medical Foundation – North Bay, in Santa Rosa, Calif.
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