Negotiating Managed Care Contracts; Part 4

In the final installment of a four-part series, HME industry legal expert Jeffrey S. Baird covers working towards state legislative remedies and the steps that providers can take to persuade a Plan.

In parts one, two and three of this four-part series, I discussed preparation for the negotiation process, various key contract provisions, and how a supplier can properly gain access to another supplier’s third-party payer contract. In this fourth and final part, I’ll examine working towards state legislative remedies and steps that the supplier can take that are designed to persuade a Plan.

Increasingly, we are seeing healthcare providers work with their state legislatures to pass laws to protect providers against questionable actions by others. For example, several states have passed laws requiring out-of-state DME suppliers to have a “brick and mortar” presence in the states before the states will issue the DME licenses to the suppliers.

In Illinois, IlliniCare, a Plan owned by Centene, has drastically reduced reimbursement to DME suppliers. Illinois suppliers have taken steps to counter the actions of IlliniCare. One important action has been to persuade Illinois legislators to introduce a bill that will prohibit Plans from levying such drastic reimbursement cuts.

In July 2018, legislation that would put an end to drastic cuts in payments to providers of medical equipment and supplies for Medicaid patients was proposed by a conservative Republican and liberal Democrat in the Illinois General Assembly. House Bill 5930 is designed, at least in part, to address concerns that cuts of 10 percent to 50 percent in reimbursement to medical supply companies would put many suppliers out of business and lead to monopolies, according to state Rep. David McSweeney, R-Barrington Hills. The bill, co-sponsored by Rep. Gregory Harris, D-Chicago, also would require “minimum quality standards” for medical supplies and equipment and prohibit managed-care organizations, or MCOs, from signing “sole-source’ contracts with providers of durable medical goods.

The quality standards, McSweeney said, would help to ensure that patients are well-served by companies accepting the rock-bottom payments being mandated by at least one of the state’s contract Medicaid managed-care companies, IlliniCare Health. McSweeney said he wants to make sure smaller DME suppliers are not pushed out of the Medicaid provider market. A monopoly would not bode well for the state and its taxpayers in the long run, he said. “We’re just setting ourselves up for massive price increases into the future,” he said.

The owner of an independent DME supplier in a mid-sized Illinois town said he decided not to sign a contract with IlliniCare this year because of IlliniCare’s mandated payment cuts. “That’s just not something we could live with,” he said. The owner did sign contracts with four other Plans because those organizations had more reasonable rates for serving the town’s patients. But he worries that more of the companies will follow IlliniCare’s lead in the future, so he supports HB 5930. IlliniCare, because it is part of a large, national company, “is able to weather the red ink for a while to ‘thin the herd,’” the owner said. Predictably, the Illinois Association of Medicaid Health Plans, opposes the bill. According to Samantha Olds Frey, Executive Director, the association is interested in ensuring that products and services are high-quality. But as drafted, the legislation would require Medicaid managed-care companies to pay some vendors more than those vendors are asking for products, she said.

The bill, which McSweeney hopes to get passed in the Democratic-controlled General Assembly during the 2019 spring session, would prohibit medical supply vendors from being paid less than 10 percent below Medicaid “fee-for-service” rates by managed-care organizations. If a managed-care company can find a vendor willing to accept less, “why should a plan use taxpayer dollars to spend more?” Olds Frey asked. According to Olds Frey, managed-care contracts are structured so that “any time a medical plan saves money, the taxpayers of Illinois benefit.” However, McSweeney said it is unclear whether savings being generated by the IlliniCare cuts are being passed onto the state or simply adding to the profits of IlliniCare.; IlliniCare is part of publicly traded Centene Corp. McSweeney said he has doubts about any claimed savings from state spending on medical supplies and overall medical care through the Governor’s “reboot” of Medicaid managed care.

That reboot, dubbed HealthChoice Illinois, took effect January 1, 2018, in many of the state’s urban areas. On April 1, 2018, the reboot expanded to all 102 Illinois counties, including the Springfield area. A special provision in the Medicaid managed-care reboot will place all 16,200 children, who are in the care of the Illinois Department of Children and Family Services, as well as 23,000 others (including former DCFS wards) who have been adopted, into IlliniCare’s managed-care network beginning October 1, 2018. There is secrecy involved in the money saved through the state’s managed-care contracts, McSweeney said. The awarding of contracts did not follow the state’s regular vendor procurement process, he said. The Illinois Department of Healthcare and Family services estimates that the reboot will lead to annual savings of $200 million to $300 million. The total savings, according to HFS, would be more than $1 billion over the life of the four-year contract affecting more than 80 percent, or 2.7 million, of Illinois’ 3.14 million Medicaid recipients.

But McSweeney said, “Nobody can prove to me it saves any money.” He said managed-care, implemented in the right way, could yield legitimate savings in the Medicaid program for taxpayers, but “it’s not the only answer.” Durable medical equipment in fiscal 2016 accounted for about $101 million, or one-half of 1 percent, of Illinois’ $20 billion-plus Medicaid program. Vendors say good-quality products and services lead to fewer expensive hospitalizations and re-admissions.

Exerting Pressure on a Plan

There is an old legal saying: “Possession is 9/10ths of the law.” At the end of the day, the Plan possesses the DME supplier’s money. And no matter how unfair or abusive the Plan may be acting, if the supplier cannot pry its money from the Plan, then the supplier will be hurting. In addition, the Plan has more money than the supplier and has the financial ability to “lawyer up” and litigate. And even if the supplier prevails somewhere “down the road,” it may be broke before it finally secures its money. In short, the Plan has the superior bargaining position. For the above reasons, the supplier should engage in an adversarial relationship with a Plan only as a last resort. This can be referred to as “Break the Glass.” There are a number of steps that a supplier can take in an attempt to persuade a Plan to (i) allow the supplier onto a network and (ii) play fairly with a Plan once it is in the network.

Admission onto a Plan

It is not uncommon for a Plan to say to a DME supplier: “We have enough DME suppliers. Our network is closed.” The first step the supplier should take is to determine if the state has an “any willing provider” statute and if it does, whether the statute includes DME suppliers. The supplier should also review the statutes/regulations that govern Medicare’s (or Medicaid’s) authority to contract with the Plan. Is the Plan given the authority to exclude providers and suppliers that are willing to serve the Plan’s covered lives in accordance with the Plan contract?

If the DME supplier has a good relationship with a hospital or physician group that is a lynchpin to the Plan in the supplier’s community, then the supplier can ask the hospital or physician group to lobby the Plan on the supplier’s behalf. If the DME supplier has a niche...a unique skill set...that other suppliers do not have, then the supplier can lobby the Plan to allow the supplier into the network for the limited purpose of providing the supplier’s niche products and services. If the supplier can “get its foot in the door” in this limited capacity, then it may be easier for the supplier to later persuade the Plan to allow the supplier to provide the full array of products.

As much of a cliche as this may sound, under the heading of “the squeaky wheel gets the grease,” if the supplier consistently “hounds” the Plan for admission into the network, then the Plan may relent.

An argument that a supplier can make to a Plan is that the supplier has collected and “crunched” data showing how the supplier’s products and services keep the supplier’s patients out of the hospital. The supplier can represent to the Plan that the supplier will continue to collect and analyze such data on into the future so that the supplier can “prove its worth” to the Plan.

If the Plan is a Medicaid Managed Care Plan, then the supplier can contact its state Representative and/or Senator and ask him/her to intervene with the state Medicaid program. The local elected official may need to work through a legislative colleague who sits on the committee that oversees the Medicaid program. If the above steps are unsuccessful, then the supplier can engage in a public relations campaign.

Assume that despite its efforts, the supplier is not admitted into the Plan’s network. The supplier may consider entering into a subcontract arrangement with a supplier that is in the network. See the discussion in Part 3 that discusses subcontract arrangements.

“Break the Glass” - Adversarial Steps

Assume that the supplier signs a contract with the Plan...but then the Plan takes steps that the supplier considers to be violative of the contract and/or that are otherwise abusive. Each state has an agency that oversees insurance companies that operate in the state. For purposes of this article, I will refer to such an agency as the “Insurance Commission.” In Florida, the applicable department is called The Florida Department of Financial Services. In this department, there is an Office of Insurance Regulation. In addition, the Agency for Health Care Administration (“AHCA”) administers the Statewide Medicaid Managed Care (“SMMC”) program. In Texas, insurance is regulated under the Texas Department of Insurance. Texas also utilizes the Health and Human Services Commission for some insurance complaints. In Ohio, insurance is regulated by the Department of Insurance. In addition, the Ohio Department of Medicaid implements the state’s Medicaid program.

The supplier should determine the procedure for filing a complaint against the Plan with the Insurance Commission. In Florida, providers that participate in a Managed Medicaid Plan must first submit their complaints to the Plan, and use the Plan’s complaint/appeal process, before submitting a complaint to AHCA. A complaint can also be filed within the Florida Department of Financial Services. Remedies include fines and cease and desist orders. In Texas, the provider must first follow the Plan’s grievance and appeals process...after which a complaint can be sent to the Health and Human Service Commission. In Ohio, the Superintendent of Insurance is the CEO and director of the Department of Insurance. He/she has the responsibility to ensure that the laws relating to insurance are executed and enforced.

Before a provider can file a complaint with the Department of Insurance, the provider must first undertake the grievance/appeals process under the Plan. The supplier can consider filing a lawsuit against the Plan. In so doing, the supplier can ask the court to issue an order allowing the supplier into the network...pending final outcome of the lawsuit. If a credible argument can be made that the law allows it, then the supplier can ask for actual damages and perhaps punitive damages. Potential grounds for such a lawsuit might include:

  • Breach of contract by the Plan.
  • Violation by the Plan of the Insurance Code.
    • Violation of the state’s deceptive trade practices act and violation of state laws pertaining to (i) tortious interference with business relations and (ii) unfair competition.
    • Florida has the Unfair Methods of Competition and Unfair or Deceptive Acts or Practices law.
    • The Texas Insurance Code includes a prohibition against deceptive and unfair practices. There is also a Deceptive Trade Practices Act under the Business Commerce Code that prohibits misrepresentation by insurers.
    • In Ohio, there is the Unfair and Deceptive Acts or Practices law in the Business of Insurance Act.

Negotiating with Plans: Avoid Antitrust Pitfalls

It is human nature for a group of DME suppliers to want to approach the Plan and say: “Either pay us $___ or none of us will accept the reimbursement cuts.” This approach will violate federal and state antitrust laws. The basic federal antitrust statutes are Sections 1 and 2 of the Sherman Act, Section 7 of the Clayton Act, Section 5 of the Federal Trade Commission Act, and the Robinson- Patman Act. Additionally, states have their own antitrust laws. Section 1 of the Sherman Act prohibits agreements that unreasonably restrain competition. Reasonableness of a restraint depends on (i) the degree of the adverse effect on competition and (ii) the degree of any procompetitive effects from the restraint.

Price fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold. If a group of DME suppliers and a Plan sit down to discuss the reimbursement paid by the Plan, then the following talking points should be followed: (i) while the meeting participants will share their positions, and exchange information, the purpose of the exchange is not to reach an agreement – but rather – to exchange ideas; (ii) the participants may talk about parameters, tolerances, and win-win situations for both sides; and (iii) the suppliers might share some historical figures to outline industry practices that have benefited patients, suppliers, and the Plan in the past.

No one is allowed to state a refusal to contract with either side. Specifically, suppliers will not threaten a group boycott of the Plan…and the Plan will not threaten to terminate contracts with the represented suppliers. The focus of the meeting encompasses two main ideas: (i) the purpose of the meeting is to discuss patient care within the parameters of basic business logic; and (ii) to explain that the suppliers’ general business purpose is to make a modest profit for services provided while also ensuring that the existing level of patient care is maintained.

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