Negotiating Managed Care Contracts; Part 1

What are Medicaid Managed Care Plans and how can providers properly prepare to negotiate agreements with those plans?

Historically, DME suppliers have taken care of Medicare patients and have billed CMS directly. This is known as “Medicare fee-for-service” (or “Medicare FFS”). Also, historically, suppliers have taken care of state Medicaid patients and have billed state Medicaid programs directly (“Medicaid FFS”). All of this is changing. Today, about 35 percent of Medicare patients are covered by Medicare Managed Care Plans (commonly known as “Medicare Advantage Plans”) and about 70 percent of Medicaid patients are covered by Medicaid Managed Care Plans. These percentages are increasing.

Here is how a Medicare Advantage Plan works:

  • An insurance company will create (and own) a subsidiary corporation (or LLC) that will sponsor the “Plan.” The Plan will sign a contract with CMS.
  • The contract will say that the Plan will be responsible for those Medicare patients who sign up with the Plan.
  • The Plan will market to Medicare beneficiaries with the goal of persuading them to “sign up” with the opposed to staying with Medicare FFS or signing up with a competing Medicare Advantage Plan.
  • The Plan will create a “network” of health care providers: hospitals, physicians, labs, DME suppliers, home health agencies, etc. A provider will join the network by signing a contract with the Plan.
  • When a Medicare patient sees a Plan provider, then the Plan provider will bill (and receive payment from) the Plan. The Plan, in turn, receives payment from CMS.
  • The Plan’s goal is for the money it receives from CMS to be more than what the Plan pays providers...with the Plan “pocketing the spread.”

A Medicaid Managed Care Plan works essentially the same way:

  • Less populated states may have only a couple of Medicaid Managed Care Plans.
  • More populous states will have a number of Plans that compete with each other.

Challenges Facing Suppliers

As DME suppliers are being drawn into the Medicare and Medicaid Managed Care arenas, they are facing a number of challenges:

  • A Plan may be “closed” to new DME suppliers. Essentially, the Plan says to the supplier that wants to be admitted into the Plan’s network: “We have enough DME suppliers to service our “covered lives. We don’t need you in our network.”
  • A Plan will announce on e.g., 1/1/19 that (i) it has been paying $100 for Product A, (ii) it should have been paying only $80 for Product A, and (iii) therefore, the Plan will retroactively recoup the difference back to 12/31/17.
  • The Plan’s contract will state that the supplier must take “assignment” from the covered life (i.e., the supplier cannot sell an item to the covered life for cash).
  • The Plan’s contract will state that the supplier must adhere to the Plan’s manuals, policies and other written guidelines as amended from time to time. Said another way, the supplier must adhere to “outside” documents that are not part of the contract.
  • The Plan’s contract will state that the Plan can amend the contract from time-to-time (including modifying the reimbursement) upon giving written notice to the supplier.
  • The Plan’s contract will allow the Plan to terminate the contract without cause upon giving prior written notice to the supplier.
  • The Plan will enter into a “sole source” contract with ABC Medical Equipment, Inc. This means that the Plan’s covered lives can only secure DME from ABC.

Part 1 of this 4 part series discusses (i) preparation for the negotiation process and (ii) some key contract provisions. Part 2 discusses other key contract provisions. Part 3 discusses (i) the remaining key contract provisions and (ii) how a supplier can properly gain access to another supplier’s third party payor contract. Part 4 discusses (i) working towards state legislative remedies and (ii) steps that the supplier can take that are designed to persuade/pressure a Plan.

Preparing for the Negotiation Process

In entering into contract negotiations with a Plan, the DME supplier should take several steps to improve its position under the contract. The supplier should evaluate its reasons for entering into the contract. For example, does the supplier really need the contract? Is the supplier discovering that so many of its existing and prospective patients are covered by the Plan that it is important for the supplier to secure the contract? The supplier should have a sense of its strengths and weaknesses, conditions influencing the market, and the competition. In doing so, the supplier will have an understanding of how strong . . . or how weak . . . its bargaining position is.

The supplier should find out information about the Plan. For example, the supplier should attempt to determine how many other DME suppliers are already in the Plan’s network or whether the Plan intends to expand. The supplier should have an understanding of the Plan’s market position and how it handles contracts with other health care providers/suppliers. The supplier should seek to determine if the Plan is financially solvent. A telling fact about any Plan is its age and its market share. The supplier should obtain a copy of the contract proposed by the Plan, as well as collateral documents incorporated by reference in the contract, and review them carefully.

Prepare a list of questions to ask the Plan regarding the contract including:

  • The amount of time the current contract form has been used;
  • Whether or not the Plan knows of other DME suppliers that would be willing to discuss the terms of the contract;
  • The terms that are most commonly modified in the contract; and
  • Any significant modifications made to the form contract within the past 12 to 18 months.

By taking these steps, the supplier will have the basic information necessary to review the contract and prepare a list of issues to be addressed during negotiations with the Plan. The supplier should determine whether its state has an “any-willing provider” law . . . and if it does, whether such law extends to DME suppliers. If the supplier desires to join with other suppliers in order to “negotiate as a group,” then the supplier should have an understanding of antitrust laws. For example, such laws prohibit suppliers from engaging in “price fixing” or “restraint of trade” or “market allocation.” The supplier’s ability to negotiate specific terms depends on the amount of leverage it has in its market. Suppliers need to educate Plans concerning the suppliers’ costs in providing the products and services required under the contract. Before the supplier can do this, however, it must know its costs.

Key Contract Provisions

Definitions. Important provisions in a contract are the definitions because they set forth the “rules of the game” for how the contract will be implemented.

Identification of the Parties. Most Plans identify DME suppliers by tax identification numbers. Subsidiaries or affiliated entities need to be listed as parties to the contract, or enter into separate contracts with the Plan if they are to be a part of the Plan.

Covered Services. “Covered services” should be defined specifically and any products and services that the supplier will not be providing eliminated from the contract.

Medical Necessity. “Medical Necessity” needs to be defined in the contract, with specific procedures for determining medical necessity and for bearing the risk of error if the products/services are provided and later determined not to have been medically necessary. For example, a BCBS contract defines “Subscriber” as “any person with whom [BCBS] has entered into an agreement to provide coverage.” The contact defines “Subscriber Contract” has the contract under which BCBS “or the Plan Sponsor provided benefits to Subscribers for Health Services.” The contract then states that “Medical Necessity” has the meaning as defined in the Subscriber Contract - that - in the judgment of BCBS’s Utilization Review Process, the DME is appropriate and is consistent with the diagnosis and treatment plan and that, in accordance with accepted medical standards in the State of ________, cannot be omitted without adversely affecting the subscriber’s condition.

Hold Harmless. This concept is seen most often in its benign form, that is, where the supplier agrees to hold a covered life harmless and not seek reimbursement directly from him or her for covered services rendered. This is a fairly standard and nonnegotiable provision in managed care contracts. This is where the definition of “covered services” is critical. Suppliers should watch for provisions that require them to hold the Plan harmless from findings of supplier negligence arising from the supplier’s compliance with the Plan’s policies.

No-Disparagement. These are basically “no slander” clauses under which the supplier agrees not to disparage the Plan. Unfortunately, “disparagement” is almost never defined. Consequently, Plans read this term broadly.

Passive Amendment. Be aware of passive amendment provisions that state that amendments to the contract offered in writing to the supplier, that are not expressly rejected in writing by the supplier within a certain time frame, are automatically deemed accepted by the supplier. In the managed care arena, passive amendment provisions are most often used to add new Plan products and payment schedules when the supplier has agreed in advance to accept all new products meeting certain criteria. For example, a BCBS contract states: “The Agreement may be modified and/or amended at any time by Blue Cross upon at least forty five (45) days’ prior written notice to the Provider; provided, however, that forty five (45) days’ advance written notice shall not be required in those circumstances when Blue Cross modifies the fee schedule to correct errors or omissions or to reflect state or federal regulatory requirements, in which case Blue Cross shall provide as much advance notice as is reasonably practical. In the event of any amendment by Blue Cross, Provider shall have 45 days to reject the amendment and terminate the agreement in writing; otherwise, the parties will assume that the amendment has been accepted by the Provider.”

Waiver of Legal Rights and Remedies. Under the guise of expedience and efficiency, many contracts specify that, in the event of a dispute between the parties, the matter will be resolved through mandatory arbitration in lieu of litigation. Suppliers should be sure that in relinquishing their legal rights to enforce the contract through certain mechanisms, those rights are waived only for defined actions under the contract, such as failure to pay, and not for all disputes that could arise.

Incorporation of Collateral Documents. Many important terms are attached to the contract or are incorporated by reference in exhibits, schedules and handbooks. Typically, utilization review, quality assurance programs, payment terms and provider due-process rights are contained in collateral documents. The Plan will argue that the terms of the contract do not articulate the mutual promises of the parties, but that the contract instead includes what is written in the contract as modified by the more specific terms in the Plan’s manuals and other collateral documents.

The Plan will claim that because it has the right to modify its manuals during the term of the contract, it also has the right to modify the contract itself. For example, an MVP Health Plan contract states: “Ancillary Provider agrees bound and abide by all of MVP’s programs, protocols, rules and regulations including, without limitation, MVP’s quality improvement program, credentialing process, peer review systems, member grievance system and utilization management program.”

As another example, a BCBS contract states: “To promote efficiency and network consistency, Blue Cross shall have the right at any time to issue Provider Bulletins pursuant to this Agreement for the purpose of implementing certain policies, procedures and requirements relating to this Agreement...and Provider shall comply with such Provider Bulletins....Blue Cross shall provide Provider with at least forty five (45) days’ advance written notice from date of publication on [link to BCBS’s website] of any new Provider Bulletins, unless such Provider Bulletins are issued to comply with a state or federal regulatory or accreditation requirement or to address only minor administrative or operational clarifications, as reasonably determined by Blue Cross with which case Blue Cross shall provide as much advance notice as is reasonably practical.”

Continue to Part 2, a continued exploration of contract provisions.


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