Contracting with Business Partners On Behalf of the Rural Integrated Healthcare System

by Jim Teevans, J.D. Rosenberg & Associates

This is the third in a series of three articles concerning partnering relationships and the emerging rural Administrative Services Organization or Community Health Organization (ASO/CHO). The first article, published in the Spring/Summer 2000 DRIS newsletter, was devoted to issues of fit, "Finding the Right Business Partners" based on values and expectations. The second article, also published in this newsletter, looks at which financial and due-diligence questions should be asked before choosing a business partner. In this third article we explore the structure of the ASO/CHO partner relationships, and contracting issues in particular.

Note that when we talk about business partners of the ASO/CHO in this article, we are not referring to participating network provider partners. Rather, we are referring to those business partner entities that the ASO/CHO:

1) contracts out with for services on behalf of a network, such as with TPAs;
2) contracts with as a financial investment partner, such as a hospital or health system; and
3) serves as the signature contracting authority on behalf of the network, such as health plans, third party payors and self-insured employers.

This article is not intended to be a complete primer on reviewing and negotiating contracts for rural integrated health systems, nor is it an effective substitute for seeking counsel before signing a ASO/CHO into contractual obligations, but rather a thumbnail guide to potential pitfalls in contracting with business partners.

Introduction

Networks can potentially help reduce a provider's costs of dealing with numerous health plans and the associated paperwork. Networking strategies—such as the formation of community-owned rural ASO/CHOs like those developed through the DRIS Initiative—have been a tactic to increase the bargaining power of providers in rural areas in order to retain appropriate, local decision-making, to retain local dollars and to possibly obtain fair and reasonable reimbursement. In particular, these rural ASO/CHOs can also help health plans save money and time by assisting with network provider education, and serving as an intermediary between providers and health plans in contract negotiations.

The importance of rural providers working together as a network or in conjunction with a community-owned ASO/CHO becomes most evident in the contracting process. Individually, rural hospital and physician providers rarely feel they have the power to make demands or negotiate to improve contract provisions offered to them by much larger urban-based health plans, third party administrators (TPAs), or health system financing partners. These potential "partners" are often for-profit entities with large market shares in rural areas. Through the establishment of the rural ASO/CHO, and with the proper antitrust procedures in place, rural providers together with their community leaders can become a joint-force negotiations team which can serve to help level the playing field.

Rural ASO/CHOs need to be aware of the implications of all their contract obligations. It is important to review and to understand all contract provisions, definitions and terms before signing an agreement. All contract provisions should be clearly stated.

Reviewing and Negotiating the Contract

Which Parties are Responsible Under the Contract?

The ASO/CHO and its participating providers must be aware of the persons or entities responsible for meeting the obligations of a contract, as well as those who enforce the provisions and rights of a contract:

Responsible individuals or entities are generally those signing at the end of the contract and those named in the opening paragraph of the contract—for example, "This Agreement entered into this 26th day of January, 2001 by and between XYZ Health Plan and ABC Rural ASO/CHO."
In certain cases the corporate name of the ASO/CHO or a physician's medical group corporate name will be identified as the responsible party.
If the ASO/CHO is the responsible party, it needs to ensure that it has in-house staff or contracted entities to fulfill obligations.

NOTE: without the proper corporate name, physicians or hospital providers could be held individually liable for any problems arising under the contract.

What are the Parties' Responsibilities, Obligations, and Work Requirements?— Carefully Review Contract Definitions

Health care contracts often contain a "Definitions" section which contains the meaning of terms used throughout the contract. Always refer to the definitions section to see what implications it has for the ASO/CHO and its participating providers. This contractual review is important to ensure that reimbursement is reasonable compared to the scope of work expected of the ASO/CHO and its contracted network providers. This area also has important implications for providers who want to minimize business controls over medical judgement and for patients trying to avoid barriers to care.

Important questions to keep in mind include:

How do definitions and attachments expand work obligations? In the case of "Parties," the definition may limit or expand the responsibilities of the parties under the contract.
How is the term "Covered Services" defined and which persons would be included in the definition of "Assigned Beneficiaries"?

For example, one managed care contract states that "Network shall be financially responsible for the Health Care Services which are not identified as Payor's responsibility in Attachment 1." This contractual provision requires the ASO/CHO to know how the term "Health Care Services" is defined and to review the attachment to understand how responsibility is distributed among the parties. While the ASO/CHO will delegate responsibility for care to its participating providers, payors will typically require the ASO/CHO to remain responsible for satisfying all care obligations in the event that the network providers default. How extensive, and what amount of time, is being required by a health plan for the network to comply with administrative or management programs?

Who is Responsible for Making Utilization and Quality Decisions?

Contracts between the ASO/CHO and payors, as well as between the ASO/CHO and its participating provider contractors, explicitly define which parties will be responsible for determining utilization and or quality decisions. If the local ASO/CHO board decides that it is willing to accept the responsibilities for making utilization and quality decisions, it must first understand the consequences and financial risks involved.

Payors are unlikely to give up control over utilization and quality decisions if they are at financial risk for the cost of care.
The ASO/CHO that want to remain viable must ensure and supervise that care is being effectively managed by its participating network providers.
An ASO/CHO potentially can be held liable for the utilization and care management decisions made by its participating providers or provider network.

When an ASO/CHO is acting as a single signature contracting authority between a health plan and the local provider network, it is necessary to determine which party shall staff quality assurance committees and how decisions will be made. Such committees assess how care is delivered once it has been approved and authorized. The decisions of these committees are important to the extent that a percentage of a provider's reimbursement may depend on meeting certain quality targets set by the payor or network. ASO/CHOs and other rural networks need to consider:

Whether it may be best to have these decisions remain local to ensure that local standards of quality and expectation are applied; and
Whether the community-owned rural ASO/CHO can in fact competently and cost-effectively perform the obligations required of this area.

Have Provider Policies and Procedures Been Developed, Reviewed, and Agreed to?

Contracts between the ASO/CHO and payors will usually include provisions which require that the ASO/CHO and its participating providers adhere to policies and procedures developed by the payor. These policies and procedures often specify, among other things, the requirements for obtaining authorization for the delivery of services, for addressing grievances, and for collecting information from participating providers.

ASO/CHOs must take time to obtain and read these binding policies and procedures before rushing to sign a contract with any third party. In the event that all of the policies and procedures are not yet available or have not yet been adopted, some contractual provision should allow for:

Providing notice to the ASO/CHO and participating providers when new policies and procedures are added;
30 day period to allow a reasonable time period for the parties to sign off on the changes or additions before they become automatically effective, or respond with written protest; and
Protested policies and procedures which should be subject to negotiation and should not automatically go into effect.

Are There Continuing Care Obligations?

Both payor/ASO/CHO contracts and participating provider contracts will usually contain provisions regarding "continuing care obligations". These provisions, often required under State and Federal programs, seek to protect the patient in the event that the payor or the provider network becomes insolvent or fails to pay its bills, and in the event that the ASO/CHO is unable to find a new provider network to treat payor beneficiaries. Consequently, ASO/CHOs need to understand the length of time they will be obligated to arrange for care should the terms of the continuing care obligations apply. Health plans will usually push for a longer period of time, upwards of one year.

Because these continuing care obligations extending beyond the life of the agreement are often paid under the same reimbursement conditions, and because most provider networks would want to terminate or not renew a contract with a payor due to adverse financial experience, the ASO/CHO should tailor these continuing care obligation conditions to:

Seek a time period of less than six months;
Resort to a reasonable fee schedule for reimbursement in the event of termination; and
Cease financial risk obligations on the part of the participating providers in the event that the contract is being canceled due to financial losses.

What is the Term of the Contract and How Does a Party Terminate It?

Parties to any contract should be aware of how long they are obligated under its provisions. It is important to be aware of automatic renewal provisions. Under some contracts, an ASO/CHO, a provider network or an individual provider may be obligated for an additional year (or more) unless he, she, or the ASO/CHO gives a written notice of termination as much as 180 days prior to the end of the current contract term.

An ASO/CHO and its participating providers should determine which events allow for termination, either with or without cause, and which parties have the ability to terminate when defined events occur.

Typically, the ASO/CHO and its participating providers can terminate with cause in the event of insolvency or non-payment by a health plan, or a material breach of any term or condition.
Determine which circumstance allow a payor or a contractor to terminate an agreement. Some contracts allow the payor to terminate if the ASO/CHO or the provider network fails to arrange for care which meets standards set by the payor.
Determine how such standards will be set. In negotiating with a payor the ASO/CHO should ensure that the payor provides written notice of any deficiency and allows the ASO/CHO or its providers an opportunity to cure.
ASO/CHOs should negotiate to eliminate without cause terminations by payors. Terminations without cause are coming under increasing scrutiny in state courts. A recent California Supreme Court decision, for example, limits the ability of health plans that control a local market from terminating without cause.

Who Has Access to Records and Documents?

As State and Federal reporting requirements increase for payors, ASO/CHOs and their participating providers will be asked to perform more administrative tasks. In addition, having access to records and documents can often determine an ASO/CHO's success or failure. Outcome data is needed to plan for appropriate health programs and to manage costs. Agreements between the ASO/CHO and its participating providers and/or payors will typically include provisions concerning the collection and maintenance of records, data, and other documents.

If the ASO/CHO is involved in financial risk contracts on behalf of its participating providers or in measuring community health status via patient outcomes of care, out-sourced TPA service contract language should specify the types of data and the periodicity for data reporting to the ASO/CHO.
Penalty provisions that are subject to reasonable terms should be placed in contracts in the event that TPAs or health plans fail to provide adequate and necessary data for the ASO/CHO to assess its costs, for example, clauses that provide for:
1. prior notice;
2. office hour inspection times;
3. a defined scope of review; and
4. confidentiality to govern the sharing of necessary information.
Generally, the costs of collecting and maintaining the patient records required by law even in the absence of managed care would be incurred by the ASO/CHO and its participating providers.
If a payor, or the ASO/CHO or even its TPA contractor, requires care providers to collect and maintain additional data, the cost of this should be included in the care provider's reimbursement formula.
Generally it is fair for the party requesting data to pay for the reasonable costs of reproduction.
Reasonable costs of data reproduction should be shared if it is required by managed care laws and not already figured into the reimbursement formula.

Do the Parties Have Obligations to Indemnify One Another?

Agreements may also contain specific indemnification provisions. These are provisions that require one party to pay the other party's costs and attorneys’ fees to defend against a claim or complaint. Parties need to know whether they could be held responsible for third party claims brought against the other party to the agreement.

Typically, reasonable indemnification clauses hold a party responsible only for actions directly caused by the party or "arising from the party's actions."
Responsibility for utilization and care decisions as well as other actions should rest with the party making the ultimate decision.
ASO/CHOs and local providers should not be responsible for authorization decisions made by payors.

How Much is a Party to the Contract Getting Paid, and When?

The cost of care provision within an agreement refers to payment for certain services rendered. Additional obligations do not always result in additional reimbursement, such as continuing care obligations which extend beyond the contract's termination.

The ASO/CHO and its providers need to be clear about what scope of services they agree to provide on an "at-risk" basis. For example, in some cases the ASO/CHO may have negotiated to receive a set pre-paid per member per month amount that is intended to cover the risk of specialty as well as primary care services required by plan beneficiaries. Since primary care providers are the "gatekeepers" to specialty services, they need to be cognizant of the definition of "covered services" as it applies to their care obligations in managing referrals to out-of-area specialists and the resulting impact that the expense for out-of-area specialty care will have on their own practice’s reimbursement.
As for withhold arrangements (discounted fee-for-services minus withholds for funding provider incentive programs), the ASO/CHO and its participating providers need to consider carefully during the contracting process what conditions should trigger payment or loss of the ASO/CHO’s or provider's withhold amounts.
The ASO/CHO and its providers should also make sure that payments from payors are made on a timely basis. Many payors have been delinquent in paying intermediary organizations such as ASO/CHO's or their participating providers on a timely basis after receiving claims. The California Department of Managed Care may impose penalties in such cases.
Agreements should include accrual of interest or penalty for late payments, and have some formalized avenue of relief spelled out in the agreement.

What Avenues of Relief are Allowed in the Agreement?

Assuming that parties may disagree on a variety of issues after the contract is signed, whether it be reimbursement or authorization for a referral, the agreement should structure the ways in which the parties can seek conflict resolution. Many agreements restrict the parties from going to court by requiring some form of alternative dispute resolution (ADR), including binding arbitration or mediation. In many cases ADR can help providers and networks by being:

A faster and less costly means of finding resolution;
Less public in nature;
A better mechanism for preserving confidentiality; and
More flexible in its procedural rules to allow for more creative ways of settling disputes.

ASO/CHOs, however, need to see the terms of any ADR, as some payors' procedures may be costlier and more time consuming than court.

Who can Amend the Agreement and Under What Conditions?

Most contracts allow one party to amend the agreement only if both parties agree to the amendment in writing. This requirement protects parties by giving assurance that the modified agreement will be honored.

However, some agreements allow one party to unilaterally amend the agreement. Health plans may be able to unilaterally amend an agreement if the terms of the contract allow them to amend their policies and procedures. In such cases:

"Amendments" such as those that occur to address changes in the law or applicable State or Federal regulations are generally considered reasonable;
It is recommended that the party that is allowed to unilaterally amend be required to give the other party reasonable advance notice of such proposed changes before they go into effect; and
It is helpful to insert a provision that gives the other party the ability to terminate in the event that the amendment results in material financial harm.

Can a Party Assign the Agreement?

Generally, a health plan will not allow the ASO/CHO to assign its respective obligations to a third party. This understanding helps to ensure that quality will not be sacrificed. However, in today's dynamically changing health care environment, it may make sense for parties to consider whether assignability should be more easily allowed.

For example, a rural ASO/CHO’s contract with a payor will require the ASO/CHO to enter into subcontracts with participating providers. Under the ASO/CHO’s payor contract, the ASO/CHO is obligated to "arrange" for the provision of health care services which necessitates contracting with licensed providers. Thus, the ASO/CHO is not technically assigning its responsibilities under the payor contract when it enters into participating provider contracts because the ASO/CHO continues to remain responsible for "arranging" for services.

In the language of the contract, it is important that prohibition of assignability not be unreasonably withheld.

Other Contract Issues

When the ASO/CHO Business Partner is another Local Organization

Rural ASO/CHOs may also sell administrative services to local business partners such as community health care and provider organizations. These administrative services include grant administration, program services or health plan claims administration for which the local business partner may be accountable to a third party, such as a grant funder or a health plan. Such business partner relationships between the ASO/CHOs and local providers and organizations need to be documented through written agreements that clearly delineate which organization holds the liability to third parties and how the ASO/CHO will be reimbursed for the administrative services it provides.

Examples of documents that should be in place include:

An executed document that is an employee lease agreement between the ASO/CHO and the organizations to which it is providing staffing support;
An executed document between the ASO/CHO and the organizations to which the ASO/CHO is contracting to provide management services that defines among other things, the role and liability of the ASO/CHO with respect to third parties.

Recommendations on Proceeding Forward with Contracting

II.

III.

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