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By I. Getting Ready for
Managed Care There is a drive in the long-term care industry for facilities to execute managed care contracts, and a feeling by many facilities that they are "behind the times" in entering into such agreements. Often those sentiments lead facilities to feel rushed to enter into agreements, and to perhaps take the leap before they are ready. A basic managed care contracting skill that all nursing facilities should develop is to know when to contract in the first place. Other parts of this Manual have discussed preparing your facility for managed care, and how to choose a managed care provider. Because of the importance those two concepts have in relation to managed care contracting, we will briefly discuss them here as well. We will then discuss specific provisions in managed care contracts that have caused problems for long-term care providers. This section of the Manual seeks to accomplish three things: (1) to provide you with a framework through which to approach managed care contracting; (2) to provide you with a basic understanding of some basic negotiating and managed care principles; and (3) to review some key provisions which generally appear in managed care contracts with nursing facilities. I. Getting Ready for Managed Care The first step in managed care contracting is to determine whether your organization really wishes to enter into managed care contracts, and if so, whether it is ready to do so. In order to enter into managed care contracts that will benefit your organization, you should first know what sort of services it is equipped to provide, how quickly it can provide those services, and how much it costs to provide those services. Facilities should conduct an inventory and self-audit in which you examine your direct care staff and personnel, your physical facilities and structure, and your indirect and overhead staff and ask the following questions:
After conducting an inventory of your current capabilities, and the needs of the potential managed care population, you will need to determine whether your facility is in a position to effectively care for that population. If it is not, then you will need to find out how much it will cost you in order to get into such a position. II. Choosing the Right Managed Care Organization After you have conducted an inquiry into your organization’s readiness to provide care to managed care patients, and you have decided to enter into such agreements, you will need to decide which managed care organizations ("MCOs") would be a good match for your facility. As you are aware, there are a proliferation of managed care products being developed in the market today. It is thus important that your facility is diligent in determining which of the products offered will best serve its needs and unique structure. The primary reason for entering into a managed care contract is (1) to obtain access to previously untapped patient streams, and (2) to ensure predictability of patients and revenue. Thus, some analysis of the proposed managed care product may be appropriate prior to entering into active negotiation. Consider the following:
The purpose of the above steps is for your organization to have a clear picture of what services it can offer, and what reimbursement it must receive for those services in order to make an acceptable profit. It is also to discover whether the managed care provider or network has a sufficient number of enrollees to give your facility a predictable patient flow, and also whether the product has adequate capitalization to protect against insolvency. If, after this background analysis of both your organization and the managed care product, you decide to move forward in the negotiation of a contract with the plan or network, then it is important that you understand some basic principles of managed care contracting. In the negotiation of any contract it is crucial that before you actively begin negotiations that you fully understand what you want to achieve at the end of the negotiation. That is, you must establish in advance a hierarchy of your goals, and to know what you are willing to give up. In order to accomplish this feat in the managed care context, armed with the knowledge you gained through your self-audits, you will need to be familiar with the following concepts.
A. Important Provisions - General As noted above, there are certain provisions in a managed care contract which may contain "hidden" pitfalls for long-term care providers. These provisions have the potential to cost a nursing facility much in terms of money and time, and should always be examined very closely. It is very important that your managed care contract explicitly states what services you must provide under the payment rate, and to whom you must provide those services. As we discussed above, you should know the member population that the MCO services, how many covered lives are in that population, and the types of plans covering those members. If you are incapable of providing care to any of the member categories under the plan, then you should make sure that your contract states that fact explicitly. Generally, a managed care contract will state that a provider will provide "Covered Services" to members of the MCO’s plan in exchange for a set payment rate. In order to protect your facility, review the definition section of the managed care agreement closely. Often times the definition of "Covered Services" will state something similar to the following: "‘Covered Services’ shall mean all services and supplies which are necessary to treat a Member’s medical condition." This vague definition is terrible for long-term care providers. This provision allows the MCO to refer any type of patient needing any type of care to your facility for treatment regardless of whether your facility even offers that service. Another common provision of which facilities should beware is one which states that "‘Covered Services’ shall mean all services and supplies to which the Member is entitled to under his or her Member’s benefit plan." This provision defines the services that you must provide by reference to a document that you have never seen. In both of the definitions above, your facility is being asked to sign an agreement which gives the MCO carte blanche to refer any type of patient to you for any type of service. In order to protect your facility, you should make sure that there is a definition of "Covered Services" in your contract, and that that definition states explicitly which services you will provide in return for the quoted rate, and which services are not included in the rate. The provision should make it clear that you will only accept patients for whom you are licensed, certified, equipped and/or staffed to provide care for. The definition should also make it clear that "Covered Services" include only those services which are part of the member’s benefits plan. When thinking about coverage issues, also determine whether the rate quoted is an "all inclusive" rate. That is, will your facility receive the same level of reimbursement regardless of the service provided? If so, consider "carving out" certain high cost services, e.g., obtaining a different payment rate for the provision of those high cost services. A popular option with nursing facilities is to design a graduated rate structure whereby as the acuity level of the referred member increases, the rate paid by the MCO increases as well. The managed care organization will have a utilization review protocol established in order to ensure that its rules are being followed. For example, many MCOs will have member verification procedures that nursing facilities will be required to follow to ensure that a patient is currently enrolled as a member with the MCO. However, generally this procedure will only verify that the person is indeed a member of the plan, and that the proposed service is covered by the plan. It will not determine whether the proposed service is "medically necessary." MCOs only pay for medically necessary health care services, and thus in order to determine whether the service that it is being asked to pay for was medically necessary, it will establish a utilization review ("UR") mechanism. The nature and extent of this UR protocol and system is different for each managed care organization. Utilization review, however, can be very extensive. Nursing facilities need to make sure that this system is well-defined in their managed care contracts, and to obtain a copy of this mechanism as soon as possible in writing. Generally, managed care agreements do not address their UR mechanisms fully. It is not uncommon for an agreement to simply state that the long-term care provider agrees to abide by all policies and procedures in the MCO’s UR program, which is thereby incorporated into the agreement by reference (meaning that the program is not attached to the agreement, but that you are subject to its terms). It is also not uncommon for nursing facilities to sign such a provision without a thought. However, a broad provision like that may nullify every term in the agreement without your facility even being aware of that fact. Without exception all long-term care providers when asked if they would sign a contract under the following conditions: (1) the contract only contained a fraction of the terms to which they would be legally bound; (2) they would not be made aware of the "other" terms of the agreement before signing the agreement; and (3) all terms of the agreement may be changed at the sole discretion of the other party, would emphatically state, "NO!". However, many of those same nursing facilities sign managed care agreements that incorporate entire policies by reference, thereby making them part of the agreement - policies that the providers have never seen, and that may be changed without their consent. Facilities should never sign a contract that incorporates documents that it has never seen. It is important that UR provisions in your managed care contracts are not open ended. Always request to review the UR policies and procedures prior to executing the managed care contract. If the UR program is not established in writing at the time of the contract negotiations and can be amended unilaterally, then attempt to negotiate one of the following: (a) require your facility’s consent prior to any material changes; (b) require the MCO to give your facility adequate written notice of any change, and the opportunity to comment; or (c) at a minimum, your facility must be able to terminate the agreement without cause immediately if it does not accept provisions of the UR program. As you review the MCO’s UR program, you should make sure that it adheres to certain specifications.
In addition to negotiating the protections noted above, i.e., seeking language which provides that no policies are applicable to your facility without your prior approval, asking for advance notice of any changes to the UR program, etc., your managed care contract should spell out certain standards with regard to the UR program. You should then negotiate a provision which provides that if there is ever any conflict between the terms of the executed contract and the policies and procedures of the MCO, then it is the intent of the parties that the terms in the agreement shall control. Some standards that you may wish to consider negotiating into your agreements are as follows:
As alluded to above, an MCO’s UR procedures may require your organization to follow detailed steps in the submission of a claim for payment in order to be reimbursed for the services that you provided. Often times, however, these steps are absent from the agreement, and may be made part of the agreement only by incorporating the UR policies by reference. Your organization must remember that every delay in or denial of payment to your facility is a reduction in your profit. A late payment to your facility is the equivalent of an interest free loan to the MCO. Thus, it is very important that your agreement contains specific language which spells out to whom, when, where, at what time, and in what manner claims are to be submitted. We have listed below numerous elements that you should consider making a part of the payment section of any managed care contracts which you execute.
Although it is a standard provision, and one that is generally not given much thought, the termination clause in your managed care agreement may be your ultimate protection. Being able to terminate the contract without cause may be your only real remedy if you are unable to negotiate out onerous provisions from the MCO’s form contract, such as the right to amend the contract unilaterally, and the right to change UR plans from time to time. Thus, your facility should make sure to avoid provisions which only allow termination for cause, or within a certain time frame. Do not be fooled by what appears to be a clause which allows you to terminate for cause, but in reality locks your facility into the agreement for a set period of time. For example, an agreement may specify that either party may terminate the agreement with or without cause by providing written notice to the other party within ninety days prior to the end of the existing term, and that if such notice is not given then the contract will renew for another year period. In this scenario, if your organization executed a one year agreement, and then realized after the third month that it was losing its shirt under the arrangement, you would have to provide services under the agreement for another nine months. Also, if you provided any amount of notice less than ninety days, then you would be obligated to provide services for another whole year. This sort of provision is fairly common, and commonly overlooked by providers who focus on the words "terminated with or without cause," and believe that because they can terminate without cause they are protected. When reviewing the termination clause of a proposed agreement, your facility should make sure that the effective date and the initial term and renewal terms are addressed. The terms should not be greater than one year, unless exceptional incentives are offered to your organization. You should also retain the right to terminate the agreement immediately, or on an expedited basis, if the MCO materially breaches the agreement or it makes unilateral changes to its policies and procedures that your facility finds unacceptable. Be prepared for the MCO to resist allowing termination prior to the end of the term because it may have marketed its plan to members, and qualified it for regulatory purposes based in part on your participation. Also, keep in mind that your facility may not want the MCO to be able to terminate early if it has many members that it will be able to refer to you. Many termination clauses in managed care agreements provide that the nursing facility must continue to provide care to patients who are receiving services as of the date of the termination until such patients are transferred or discharged. You should make sure that your agreement specifies that the MCO will remain liable for payment in such a situation. This concept is discussed more fully below. B. Important Provisions for Nursing Facilities It is important for nursing facilities to remember that signing an agreement with a managed care organization does not exempt them from the myriad laws and regulations to which they are subject under the Nursing Home Reform Act ("OBRA"). Although some managed care organizations are improving, many do not have familiarity with nursing facilities. It is common for a nursing facility to receive a standard contract which was designed for a hospital or a physician group practice. Thus, a significant part of your managed care contract negotiations may consist of educating the MCO with regard to the laws and regulations to which your organization is subject. Often times, the MCO is not aware of the extent to which nursing facilities are regulated. However, if you present the MCO with evidence, i.e., a copy of the relevant law, then you should be successful in having the MCO revise the proposed agreement to comport with that law. We have provided below a sample of some of the provisions that a nursing facility should pay close attention to when negotiating managed care contracts. 1. Admission, transfer & discharge Nursing facilities have specific laws governing the admission, transfer and discharge of a resident, which your managed care agreements will need to respect. Federal law states that a nursing facility is required to give notice to a resident and a family member or legal representative thirty days prior to a transfer or discharge. Managed care contracts, however, generally provide that the MCO will continue to pay for the care of its members until the agreement with your facility is terminated, or perhaps until the end of a specified period. This situation can cause significant financial problems for a nursing facility if it does not reconcile the two differing constructions. If your facility has such a contract, and your managed care contract is terminated while the MCO still has several residents in your facility, then how will you be paid for the care that you provide to those residents post-termination? You have signed an agreement whereby you have agreed that the MCO will not pay you after termination of the agreement, and you must give the residents at least thirty days’ notice before you can discharge them. Remember also that in order to discharge for nonpayment, your facility must have given the resident "reasonable and appropriate notice" of their obligation to pay, so even in the absence of state laws that protect residents in such a situation, you will be potentially liable for over thirty days of nonpayment. In order to avoid such a situation, negotiate into your agreements a provision which states that the MCO will continue to provide payment for any residents in your facility at the time of termination until the MCO finds alternative placement or the person is discharged from the facility. This will obligate the MCO to make payment during any notice periods that are required by law. The rates that the MCO should pay during this post-termination period will depend upon your bargaining power. Generally, it will be a victory if you establish that the MCO will pay you at the rates in, and according to the terms and conditions of, the contract. However, because there is no longer a contract between your organization and the MCO, you may attempt to establish that payment will be made at your usual and customary private pay rate. If you are successful in establishing such a rate, then this will give the MCO incentive to find alternative placement for its member after termination. Some other considerations that your organization should keep in mind while it is negotiating managed care agreements are as follows:
Some plans require facilities to notify them of any adverse action that is alleged or taken by any entity charged with regulating the facility, and of any lawsuits. Such language is too broad in light of the federal regulatory enforcement system. This language would require a nursing facility to formally notify the MCO after every survey in which it received a citation, regardless of the fact that the facility corrected the deficiency and no penalty was every imposed. Such a requirement is burdensome both for the nursing facility and for the MCO. Rather, your agreement should specify that your facility will notify the MCO of any final adverse actions taken. This will absolve your facility from reporting until it has exhausted all of its appeal rights, and a determination has been made to impose a penalty. 3. Requirements for participation In general, the principles behind managed care and the certification and enforcement process for nursing facilities under OBRA are in conflict. Managed care is based on the concept of reducing costs and providing adequate, but cost-effective care. OBRA, however, is not concerned with costs, it mandates that nursing facilities must provide care which results in the highest practicable mental, physical and psychosocial well-being for all of their residents. Such a standard has been interpreted by many enforcement agencies to mean that a facility must provide extraordinary measures, and to exhaust all alternatives – even when professional medical opinion believes that an alternative is not viable. In light of these conflicting motivations, there is the potential for nursing facilities to receive certification deficiencies based upon the care that they provide to their managed care patients. Broadly, this means that a surveyor may determine that a facility that provided cost-efficient care to a resident based upon determinations about the medical necessity of certain interventions by the MCO was not sufficient to help the resident reach his or her highest practicable state of well-being. For example, an MCO may only authorize fifteen units of physical therapy, but the resident is not yet at his or her highest level of functioning. If the nursing facility only provides fifteen minutes of therapy, then it risks a Quality of Care citation. Recognizing the fact that your organization is subject to the aforementioned standard of review, you may wish to have that fact specifically recognized in your agreements. That is, have the MCO certify that it will authorize all covered services with the intent of helping the member to attain or maintain his or her highest practicable state of well-being. You may then file a grievance with the plan or appeal if it is determined that the level authorized is not appropriate. You may also wish to establish that residents will pay for any care that is not authorized, but you will need to be wary of state and federal laws protecting managed care patients and specific provisions of the agreement which state that you will accept the rate as payment in full. C. Important "Miscellaneous" Provisions We have included below some provisions that are generally located under the "Miscellaneous" section of a managed care agreement, and are assumed by many facilities to simply be "boilerplate" language to which they do not need to pay close attention. These seemingly simple and "standard" provisions, though, can create a large amount of liability on the part of your facility if you are not careful.
Make sure that both parties are required to carry general and professional liability insurance, and not just your facility. This is important especially in light of emerging theories of liability that make MCOs liable in some cases for UR decisions and other actions that lead to malpractice liability. Your organization should be wary of attempts by the MCO to shift liability for its decisions to your facility. Also, it is a good idea to specify the amount and types of insurance in the agreement, rather than relying on general language which requires the MCO to have "adequate" insurance. The MCO should be required to provide you with evidence of coverage when requested, and to provide you with notice in the event of a material change in its coverage. Indemnification, like insurance, should be reciprocal if you decide to use such a clause. Review carefully the wording of such clauses. Many insurance policies do not cover contractually assumed obligations. Thus, when you sign the "boilerplate" provision which states that your facility "agrees to indemnify the MCO for all fines, claims, demand, suits or actions of any kind or nature arising by nature of your acts or omissions," you may be agreeing to have the facility be held personally liable for all these potential costs. Thus, you may wish to eliminate this provision altogether from the agreement in light of the fact that both parties have agreed to purchase insurance for such contingencies. However, if the managed care organization insists on the provision, then you may wish to first verify with your insurance company that the clause as drafted would be covered by the company. If your insurer states that it will not cover the liabilities arising from such an agreement, then that gives your facility further ammunition for negotiating the provision out of the agreement.
We discussed this concept above, and it is worth repeating. Your organization should avoid signing contracts where it does not know all of the terms of the agreement. Many MCOs ask you to do just that by adding a provision which states that the agreement incorporates by reference all of the MCOs policies and procedures. In order to protect yourself, you should (a) review all of these policies and procedures prior to executing the contract, (b) attach those policies and procedures as exhibits to the contract, and (c) take the precautions described above with regard to amendments and utilization review. This section of the Manual has not sought to be comprehensive – an entire industry has developed in order to advise providers on how to negotiate particular sections of a managed care contract. There are many more potential pitfalls and nuances to managed care contracting than the scope of this article could address. The goal of this section was, as we stated at the beginning, threefold: (1) to provide you with a framework through which to approach managed care contracting; (2) to provide you with a basic understanding of some basic negotiating and managed care principles; and (3) to review some key provisions which generally appear in managed care contracts with nursing facilities. We also chose not to provide you with any "standard" contract language. We believe that there is a danger in cutting and pasting provisions into a managed care agreement without a certain depth of understanding as to what those provisions really mean, and what the implications of those terms are on other terms in the agreement. Often times, nursing facilities that attempt to use a bit of language from this source and another piece from that source end up with a Frankenstein’s monster for a contract – all the pieces may have independently appeared appropriate, but they did not fit together very well. Therefore, while the purpose of this article was designed to enhance the reader’s understanding of the managed care contracting process, and his or her ability to "issue spot," it should not serve as a substitute for advice from competent legal counsel in the negotiating and contracting process. Roth, Rolf & Goffman Co., L.P.A. This article is presented as general information only and is not a substitute for legal advice. If you have any questions concerning application of the law to particular facts, you should consult with legal counsel.
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