What’s in Your Payer Contract?
A guide to the often confusing payer contracting provisions.
By Richard Katz, PT, DPT, MA
As providers, we commonly look at the page of the contract that states the payment terms. We use that number as a comparison to our cost to deliver the care required by the agreement and then make a decision to accept, reject, or negotiate a new price. However, we commonly do not examine the true cost and exposure that comes with signing an agreement. Those costs could be hidden in the legal language that obligates both parties to perform in a specified manner. Our contracts are developed by attorneys who spend a great deal of time making sure that the interests of the payer are well covered. On our end, we tend to ignore the language and not pass the agreement by our legal counsel as we may think that the terms are nonnegotiable. This may be true with some of the major payers but is not true with all payers. In recent months, I have negotiated the terms of a 50-plus-page agreement with a large payer. This agreement was thought to be nonnegotiable. It is always worth the attempt to address those terms that could put you at risk. We should also realize that our business is often driven by regional medical systems and local medical groups. This is evidenced by the Comprehensive Joint Replacement (CJR) program that is moving us toward local alliances. These agreements can be negotiated. The true cost of some of these contracts could be hidden in the contractual obligations that you make when signing such an agreement.
One of the most common mistakes we make is to sign an automatically renewable contract that offers only a short window of time to exit or renegotiate, should you find that the contract is not performing satisfactorily. During my career, I have made some of these mistakes. In one such instance I signed a low-paying contract with a managed care group, as I was just starting my practice and did not have a good handle on my projected costs. I simply wanted the business. The contract paid me about 60 percent of my actual cost to provide the care. The problem was that this was a five-year agreement and did not have a termination “without cause” or termination for “convenience” provision. I was stuck, and then could only terminate with at least 180 days’ notice. If I missed that half-year notice, the contract would have renewed for subsequent two-year terms. This horrible agreement taught me a painful lesson and helped to direct me to negotiate on this and other terms that would place my practice at risk.
The Private Practice Section’s Payment Policy Committee recognized that our members may be presented with similar contracts and may lack resources that allow them to examine some of this contract language. They may have difficulty in trying to determine if the terms pose an undesirable exposure for their practice. To provide resources to support members, the committee put together a task force to develop tools to assist in the contract review process. We engaged the services of Angela Smith of Hall, Render, Killian, Heath & Lyman, P.C., to help us develop a Checklist of Key Issues for Managed Care Provider Agreements (posted on www.ppsapta.org). The Checklist offers guidance, payer-friendly provisions, and provider-friendly provisions that can serve as reference points during the review and negotiation of these agreements.
Let’s look at examples of termination clauses that are covered in the Checklist.
The length of term, renewal provisions, and termination provisions should be considered collectively. Initial terms are typically 1-3 years and often include a provision for automatic renewal for additional terms. The longer the term(s), the more important it is to include a termination for convenience provision because, absent such a provision, a provider may have to wait until a term expires before extricating itself from an unfavorable agreement.
“The term of this Agreement shall commence on the Effective Date and shall have an initial term of ____ years. After the initial term, the Agreement will automatically renew for consecutive ____ -year terms unless terminated as provided herein.”
This precludes termination for convenience during the initial term.
“The term of this Agreement shall commence on the Effective Date and continue until terminated as provided herein.”
This is favorable provided there is a provision allowing termination for convenience.
“The term of this Agreement shall be ____ year(s), commencing on [Date]. Notwithstanding the foregoing, Provider may terminate the Agreement pursuant to Section ____ [relating to “for cause” termination].”
From this example, it is clear to see that the payer will only allow termination during a specific time period, without which the contract automatically reviews for another term. The exception would be if there was “cause” for termination. The definition of “cause” may not be provider friendly. The provider version of the language should include another provision allowing for termination for convenience. Termination for convenience is later defined in the checklist as:
“Either party shall have the right to terminate this Agreement without cause at any time upon ____ days’ advance written notice to the other party.”
The 26-page checklist provides us with a practical tool to be used to dissect our payer agreements and determine if the language is favorable or unfavorable. It then provides us with possible replacement language. It should be noted that the replacement language is not universal. It is not reflective of state or federal laws that may govern specific jurisdictions or federal payers.
One of the strategic goals of the PPS Payment Policy committee is to empower physical therapists in private practice to negotiate favorable contracts. It is our hope this tool can be used by private practitioners and their attorneys in practices of all sizes. The Checklist highlights 24 components covering a host of contracting concerns that affect your ability to be profitable. A webinar will be presented on September 20 with a live question-and-answer session featuring Angela Smith to further train private practice owners and their administrators in how to use this tool.
Bad contracts are not good for you, your patients, or for our industry as a whole. Even a good-paying contract can put you at risk should there be unfavorable performance requirements. You’ve heard it before: “Read the fine print.”
On behalf of the PPS Payment Policy Committee, thank you to the Contract Language Task Force for their work to coordinate this project and bring this checklist to our membership. This task force was chaired by Holly Johnson. Members of the task force included Holly as well as Rick Katz.
Richard Katz, PT, DPT, MA, is vice president of operations and payer contracting (West) at ATI Physical Therapy. He is a member of the APTA PPS Payment Policy Committee, a director on the California Physical Therapy Association (CPTA) Board of Directors, and chair of the CPTA Payment Policy Committee. He can be reached at Richard.Katz@atipt.com.