American College of Physicians: Internal Medicine — Doctors for Adults ®

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When and how to get out of a managed care contract

From the November 1996 ACP Observer, copyright 1996 by the American College of Physicians.

By Christine Kelly

When is it worth trying to get out of a contract with a managed care organization (MCO)? Although physicians have come to expect a certain amount of pain as part of doing business with an MCO, they need to determine when the problems outweigh the benefits of participation, say experts. The hard part is recognizing when the terms of a contract have soured—and how to get out of that contract without landing in trouble.

Illustration by Roger RothThe trouble often begins when physicians feel they have no choice but to sign any contract offered to them, particularly in areas where managed care is a dominant force. "Sometimes I'm in the unenviable position of telling doctors the contract is lousy, but if you don't sign you won't have patients," said Michael Stern, an attorney with the Austin, Texas, law firm of Hubert Bell.

But living with a less-than-ideal contract and staying in one that is losing you money are two different things. In fact, physicians often terminate a contract because of low reimbursement—usually resulting from the insurer's right to change the reimbursement part of the contract without physicians' consent, experts say. "The MCOs have infinite wiggle room for changes in fee schedules," said James D. Buck, ACP member, an internist with the Westgate Medical Group in Milwaukee, Wis. Worse yet, physicians often don't realize that their reimbursements have been lowered until months after the change has taken place.

Insurers can make changes beyond reimbursement, typically "at the sole discretion" of the health plan, according to most managed care contracts. "If an MCO decides to alter key definitions in the contract, that can change things dramatically for the doctor," explained Michael Gaba, a Washington-based attorney with the Minnesota firm Oppenheimer, Wolff and Donnelly. A group practice that has never had problems credentialing its physicians, for example, may find its new associates receive intense scrutiny.

Yet another source of physician discontent comes from unreasonable denials. Lisa Merritt, MD, a physical medicine and rehabilitation physician in Sacramento, Calif., leaves or avoids insurers that deny payment for services she considers medically necessary, plans that insist on lower levels of service or plans that try to force referrals to physicians she doesn't consider competent.

Other problems can indicate a health plan is taking a new, unpleasant direction. Experts caution physicians to be wary, for example, when a health plan changes medical directors or eliminates the position entirely. A new medical director can trumpet a change in the health plan's culture, one that often results in a greater emphasis on increasing profits—and denying patient care.

All of these factors taken together—lower reimbursements, slow pay, denied services—may be a warning that a health plan is in financial trouble. "Try to keep on top of the financial condition of the MCO," cautioned Mr. Gaba. In addition, check if the insurer is battling a large number of lawsuits; this could be another indicator of systemic problems within the company. Monitor the plan through the state bureau of insurance or HCFA or periodically check court records by calling the county court, Mr. Gaba suggested.

If you get to the point where you're seriously considering jumping ship from a plan, experts say you should first do a financial analysis to see if you can survive financially, or possibly add another plan to compensate. "If you have a large percentage of patients in a certain HMO, you need to look at the economic impact of being forced to leave it," said Debra Gruenstein, an attorney with Karafin, Gruenstein and Dubrow, a Philadelphia law firm that specializes in health care.

Dr. Merritt, for example, tried changing her practice to ensure a balance of managed care plans and indemnity patients. "I saw it would create incredible vulnerability if my practice was dominated by one or two contracts," she said. "So I diversified."

Once you've made the decision to terminate a contract, consider these items before telling the health plan that you're leaving:

  • Patient obligations and reimbursements.Most contracts contain provisions for physicians to continue caring for patients after terminating a contract, particularly when the physician is a primary care provider. By contract, the physician may be responsible for providing care until another provider has been selected, explained Jacqueline Saue, a Washington, D.C-based attorney with the Milwaukee law firm Foley, Lardner, Weissburg and Aronson.

    How much—or even whether—the physician is paid to care for those patients, however, is not always clear. Some contracts require physicians to provide care for up to a year after termination but don't specify how the physician will be reimbursed. As a result, physicians have to negotiate with the health plan for their fees.

  • Restrictive covenants. Some contracts have provisions that restrict a physician who leaves a plan from practicing in the same geographic area for a period of time, sometimes up to a year. "What good is it if a physician terminates a contract and then can't practice?" asked Lee J. Dunn Jr., JD, a Boston-based health care attorney. Experts say that this area of law is not entirely clear, and that covenants are often not enforced. "There is a general feeling doctors should be able to ply their trade and earn a living," explained Ms. Gruenstein. "This is especially true for doctors participating in a plan, who are independent contractors, not employees."
  • Patient records. Before terminating a contract, determine if it specifies what kinds of records need to be transferred and who will foot the bill. If the issue is not spelled out in the contract, it will be yet another point you have to negotiate with the health plan after you've given notice.
  • Gag orders. Some contracts stipulate that physicians cannot talk to their patients about a health plan; these gag orders also may be in force after you terminate a contract. Despite any rancor you may have toward a managed care organization, health care attorney Ms. Saue suggested keeping it to yourself to avoid legal problems. "We always advise our clients not to make derogatory remarks about MCOs or try to openly solicit their patients to leave the plan," she said.

    When you leave a health plan's panel, the organization will notify your patients. You may also want to send a letter stating simply that you are no longer participating in the plan. Tell your patients that you would be happy to continue caring for them until another provider is found and that you will cooperate in transferring their records.

  • Your letter of termination. Again, avoid making derogatory remarks. Pledge to work with the health plan to transfer patient care in an orderly fashion.
  • Final billing. Get those last bills to the health plan as soon as possible. The longer you hold onto a bill, the harder it is to get paid.

Christine Kelly is a Philadelphia-based freelance writer specializing in health care.


Remember, before you sign that contract...

Here are some common pitfalls for physicians considering signing a contract with a managed care organization (MCO):

  • Indemnification clauses.When physicians sign a contract containing an indemnification clause, they agree to hold the employer harmless in the event of a lawsuit. If the physician and the MCO are drawn into a lawsuit, the contract requires the doctor to pay all legal costs—but malpractice insurance policies rarely cover the expense. Experts note, however, that indemnification clauses usually can be stricken out of a contract.
  • No "stop-loss" provision. Stop-loss provisions protect capitated physicians from the expenses of caring for patients with catastrophic illness; after a certain dollar limit, physicians are no longer financially responsible for a patient's care. While most capitated contracts have some sort of stop-loss clause, it's an important feature to check for. Some states now require health plans to include stop-loss provisions in their capitated contracts.
  • Unrealistic payment provisions. Some contracts have payment provisions stating that bills must be submitted in 30 days or providers won't be paid. Many physicians don't have a 30-day billing cycle, however, and their billing staff can't comply.
  • Deselection terminology. A major area of contention between health plans and physicians is the terminology that allows health plans to drop or deselect providers "without cause"—and without recourse. Experts say that physicians should look for contracts that give them warning before termination and a due process mechanism to contest deselection. They note, however, that such contracts are rare.

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