TERMINATING A HEALTH PLAN

by Robert Chiffelle

Physicians frequently ask about the best way to terminate a contract with a health plan, and the steps to take in this process. Few physicians ask what the downside risk to their practice is from such an action, which could result in expensive costs to the terminating physician if it is not handled correctly. This article presents practical advice for the physician on identifying the issues, risks and costs associated with termination, and suggests ways of handling these issues to cause minimum disruption to patient care.

Before Making the decision to terminate. My advice to clients is almost always to first try to save the contractual relationship, and to consider termination only as a last resort if problems can not be worked out. Once it has become apparent the relationship with the health plan is not working out, it is imperative to identify the problem areas, determine their root causes, and see if there is any way to correct them short of termination.

The two most frequent causes of termination are (1) inadequate rates, and (2) slow payment of bills. Health plan rates should be evaluated as a percent of the current year Medicare Fee Schedule, rather than as a percent of billed charges. Virtually all major health plans set their fees as a percentage of the Medicare Fee Schedule, usually equating to 90% to 120% of the Medicare RBRVS rates, depending on specialty. If the market rate for your specialty is 90% of Medicare, and your actual collection rate is at this level, evaluating your contract based on a percentage of billed charges will not provide a realistic picture of the actual market performance of your contract.

Review each contract to determine the average payment time for patient bills. Generally, most managed care contracts promise to make best efforts to pay (issue a check) within 30 days after receipt of a clean claim. If your practice is not filing electronically, the plan may not receive your bill for 5 - 10 calendar days after the date of service, and another 3 - 5 days could pass while the check is in the mail. With this in mind, payment would be expected within 45 days of the date of service, rather than 30 days. Terminating the contract for bills received after 30 days but within 45 days would not be recommended under these circumstances.

Finally, determine if you can afford to terminate and lose a patient base. In Maricopa County, four large health plans control roughly 80% of the managed care patient base. Terminating one of these plans could have a lasting negative financial effect on the practice, as some of the contracts have clauses excluding a provider from participation for up to two years after the date of termination if the contract is ended prior to the normal expiration date. Gaining market share in a fiercely competitive and consolidating managed care market is time consuming and expensive, and terminating a health plan must be evaluated in this context.

Alternatives to termination. Most managed care contracts rely on a system of graduated responses to resolve disputes with providers, starting with discussion and ending with binding arbitration. In between these extremes are provisions giving alternatives to termination, the most common of which are (1) renegotiating the contract, (2) closing patient panels, and (3) designating and curing a material breach of contract terms.

Most contracts contain a renegotiation clause that permit the provider to renegotiate the terms within specified time limits. Check your contract; sometimes this is limited to 90 days prior to the anniversary/expiration date of the contract. If you are close to this time, it makes more sense to notify the plan in writing that you intend to renegotiate, rather than terminate the contractual relationship. Once this is done, take charge of the process; set up meetings, determine agendas with specific objectives, and set time lines for completion. Identify your problems and recommend solutions (for example, carving out certain expenses for direct reimbursement, or alternative ways of tracking bills). Do not wait for the plan to initiate negotiations or recommend a solution to your problems.

Many contracts permit a provider to close patient panels to new health plan members with 60 days written notice to the provider, which is a good way to limit provider risk from lesser paying contracts and still preserve a patient base. Be sure to check your contract to ensure it permits you to selectively close your panels, and does not require you to close to all payor sources.

Almost all contracts permit the provider to declare the health plan to be in material breach of the contract terms, by giving written notice to this effect and specifying the exact terms of the problem. From the date the health plan receives the notice there is usually a 30-day period to correct (cure) the problem. If the problem is not corrected to the satisfaction of the provider, the contract may be terminated within a specified time period, usually 30 days.

Identify the hidden costs and risks of early termination. Managed care contracts are written to protect the patient and preserve the provider network in the event of termination. Review your contract carefully to see if it contains these common provisions and their associated costs:

Liability for patient care. The provider must continue to care for inpatients at the contracted rates if termination occurs when the patient is hospitalized. In addition, the provider may be liable for the difference between a substitute provider's billed charges and plan rates for the remainder of the contract if the health plan is not able to find a suitable replacement prior to the contract's standard termination date. Transferring and copying medical records. Most contracts identify who pays for these costs, which is often the provider. Copy costs could be expensive if large numbers of patients are involved, as it is recommended that practices keep a copy of all patient records for liability purposes. Notifying patients about contract termination. Most contracts specify what business information, if any, can be communicated to patients. Check your contract to see which party is required to notify patients of a contract change, or if you as a provider are prohibited from doing this. If you are permitted to contact patients, do it in a straightforward and non-critical manner. Advise patients that as of such a date your practice will no longer have a contract with the health plan, and the patients should contact the plan for a list of other contracted providers they may use. Inform them your practice will still be open to them on a fee-for-service basis.

Do not make statements that could be construed as disparaging to the plan. Many contracts have clauses prohibiting this, and some provide for punitive damages against a provider whose actions cause a member to switch health plans. Lost incentive payments. Contracts with incentive payments for providers that achieve specified objectives frequently pay these only if the provider remains in the network for a specified time, usually the end of a calendar year. Termination prior to this may result in loss of any incentive payments. Check your contract carefully, and time your termination so these payments are not negatively impacted.

When Termination is the only recourse, terminate in strict accordance with the contract terms and within established time lines. Most contracts permit either party to terminate without cause by giving a 90-day written notice. Some contracts, however, restrict this to 120 days prior to the anniversary date of the contract. Check your contract carefully and follow the provisions exactly. Send the notice (1) via certified mail with a return receipt, (2) FAX a copy to the health plan, and (3) notify your provider representative verbally.

Keep copies of the financial and medical records related to the health plan contract. Depending on the contract, you will be required to permit access to these during normal business hours for an extended length of time, usually between 3 and 10 years after termination.

Be aware that most plans and all HMO contracts have consumer protection language such that a provider may never bill the patient for covered services other than co-payments and deductibles, either during the term of the Agreement or after the contract terminates. These provisions apply even if the plan did not pay for the covered services for which it was contractually obligated.

Robert L. Chiffelle is the author of the Managed Care Journal series of articles, and is a consultant with the Wolfe Consulting Group specializing in managed care issues.