SURVIVING THE MINEFIELD OF MANAGED CARE CONTRACTING By Clifford Stromberg, Rosemary Ratcliff and Julie Mathews Schuetze of the Law Firm of Hogan & Hartson, Washington, D.C. Edited by Judy E. Hall, Ph.D. Originally published in January 1997

Almost every psychologist has faced the decision of whether to sign a contract to participate in a managed care plan. Although particular plans and the industry as a whole continue to evolve, managed care is here to stay. For example, a recent KPMG analysis found that during just one year -- 1995 -- pure HMOs increased their market share nationally from 25% to 33%. The PPO segment of the market increased from 22% to 25%. "Point of service" plans changed from I 8% to 16% and conventional indemnity insurance declined from 31% to 26%. Little truly "unmanaged care" remains. This is also true of the mental health component of care. A recent Institute of Medicine report concluded that at the end of 1995, "the behavioral health of nearly 142 million people was managed, with 124 million in specialty managed behavioral health pro­grams and [l 8] million with benefits managed within an HMO." Institute of Medicine, "Managing Managed Care: Quality Improvement in Health" (1996). State Medicaid recipients and federal Medicare beneficiaries are rapidly converting to managed care options as well.

Unless a psychologist is in the now-rare position of having a full practice comprised solely of self-pay patients, or unless the psychologist is willing to compete only for an ever-smaller segment of the market, it will be necessary to be a participating provider in some managed care organizations ("MCOs"). But which ones? Learning to read a plan's proposed contract critically, and to negotiate with a managed care organization over the key terms, are becoming essential skills for the protection of a psychologist's livelihood.

Although a psychologist usually will not want to forego a contract that might attract patients, and may accept some undesirable contract terms in order to participate with an MCO who has a large number of covered lives in the local area, a careful balancing of the risks and rewards of each contract is required. Some contracts simply are not worth signing. The most important step is to read the proposed contract thoroughly and critically. It will be far easier to negotiate changes to a contract before signing, than to work out an amendment later. MCOs' provider relations staff almost always tell providers initially: "The contract is non­negotiable." This is often not so. While few psychologists feel they have much negotiating power, an MCO probably will pay attention if, for example, you point out a conflict between a contract term and your legal or ethical duties as a psychologist, or if the MCO needs to expand its mental health provider panel to meet accreditation, licensure, or local service standards.

Contrary to popular myth, MCOs' contracts are not merely "boilerplate." They vary significantly. Nevertheless, this Update provides an overview of typically occurring features to look for in a managed care contract, and offers suggestions on how to begin navigating the minefield of contract provisions. As always, advice from a qualified lawyer may be desirable.

ANATOMY OF A MANAGED CARE CONTRACT

Who Are The Parties?

The first question, naturally, is to determine who are the parties to the proposed managed care contract. In many cases, a psychologist will sign a contract directly with the MCO. Increasingly, however, the contractual arrangement is more complicated. A group, IPA, net­work manager, or physician-hospital organization (PHO) may sign the MCO's contract on behalf of the psychologist, in which case the psychologist may be asked to sign a "participating provider" agreement. This contract between the psychologist and an "intermediary organization" will usually obligate the psychologist to abide by any contract approved by the organization. Recognizing who the contracting parties are will help identify issues such as whose rules govern, how the psychologist will be paid and by whom, who can change the rules, when the psychologist can terminate participation, and who else can terminate the psychologist's participation.

For example, a psychologist may have signed a contract with an IPA stating "Provider agrees to participate in managed care contracts entered into on his or her behalf by the IPA, and agrees to comply with the terms of alt such contracts and with payor rules.” Under such a contract, the psychologist has agreed in advance to be bound by MCO contracts and the particular payor's rules, but has no assurance that he or she will be notified of the terms of such contracts or rules when the contract takes effect or as they change. This is perilous if the psychologist continues to provide services -- only to be advised long after that the services are no longer covered. At a minimum, you should add to the contract "terms of such contracts ... of which Provider has been notified in writing." This is fair to both sides.

What Kind of an MCO Is It?

Typical MCOs include health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Indemnity insurance plans now frequently include some managed care components. A psychologist who agrees to participate in an MCO's health plan usually is expected to accept as a patient any member of the MCO who lives (or, sometimes, who works) in the area and is appropriate for treatment. HMOs and indemnity insurance plans are licensed by the states in which they operate. States maintain basic information about licensed HMOs and insurance companies and require that they comply with minimum standards, such as fair billing practices and mandated health benefit requirements. Regulation of PPOs varies by state: state oversight is detailed in some states and quite loose in others. Knowing the type of MCO you are dealing with can be important to assessing your legal rights and obligations under state or federal law.

Health Maintenance Organizations. The distinguishing feature of HMOs is that they undertake a global obligation to provide whatever care an enrollee needs in return for a fixed per-member-per-month premium. This gives them a powerful incentive to control costs of care. Accordingly, an HMO typically requires that patients select a primary care physician ("PCP") from the HMO's network (or "panel") and obtain referrals from their chosen PCP before obtaining services from specialists in the HMO's network. There are several different types of HMOs, including "staff' models such as Kaiser (which historically has delivered care almost exclusively through employed health professionals) and network or IPA-model HMOs, that use looser constellations of participating providers. Typically, referrals are required for mental health services, and HMOs refuse to pay for services rendered to a member by a provider who is not a contracting or "participating" provider. Most HMOs negotiate discounted payment rates with participating providers.

Another distinguishing feature of HMOs is that they are required by accrediting bodies and state licensing agencies to perform an array of functions such as credential checks of their providers, and systematic review of high-risk or high-cost services and other quality of care indicators, in an effort to track and improve their members' health and control costs. (As psychologists well know, at times these two goals conflict.) Many HMOs review providers' record keeping practices and impose utilization review, prior approval, and medical necessity requirements. These managed care activities often result in more administrative requirements for participating providers, and, as a consequence, may increase a psychologist's cost of providing care under the plans. This should be considered when reviewing the proposed payment rate an HM0 is offering.

HMOs usually require their members to pay a copayment" upon each visit to a participating provider. Copayments such as $10 are an alternative to the traditional indemnity insurance requirement that members pay coinsurance, which is usually a percentage of the provider's charges, such as 20%. As a condition of participation in an HMO, psychologists and other providers usually are prohibited from charging patients more than the copayment or the applicable coinsurance (if any).

More and more HMOs and indemnity insurers are offering a point-of-service ("POS") option to members, which have proven very popular with consumers. Many view it as a combination of the best features of HMOs and indemnity insurance by allowing the enrollee to choose--each time care is needed--whether to use a participating provider at low or no cost, or to pay somewhat more to use any other provider of covered services. For example, members who usually pay a$5 copayment for each visit to a participating provider, may be required to pay 30% coinsurance when receiving care from a non-participating (or "out-of-network") provider. Depending upon the level of coverage offered, and the number of patients who have the POS option,  the psychologist may find that continuing as a non-participating provider would be preferable.

HMOs usually have a provider relations department or provider contracting department, or both. They can be the best source of assistance and information if a provider has questions or a dispute with the HMO about issues such as contract terms, billing and payment, covered services and appeals, or member eligibility.

Preferred Provider Organizations. PPOs operate like a combination of an HMO and a traditional insurance company. A PPO member may or may not be assigned a PCP who has general responsibility for the member's health care. Usually, referrals for specialty care are not required. The plan is structured so that members have financial incentives, such as lower copayments, coinsurance or deductibles, to obtain their care from participating providers. When a benefit plan provides no coverage for care provided by non-participating providers, it may be called an exclusive provider organization ("EPO"). EPOs differ from HMOs in that HMOs usually require referrals or other coordination between a member's PCP and specialists, and EPOs do not conduct as intensive utilization review or conduct quality activities. While some HMO providers assume financial risk (discussed in greater detail, below), PPO and EPO providers almost always are paid on a discounted fee-for-service basis, sometimes subject to a risk-based "withhold" pool. continued

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Updated: 8/15/2007