HMOs Won’t Look Twice At AMA’s Model Agreement

A review of the AMA’s model managed care contract shows an attempt to get the health plan out of the driver’s seat — or at least to share the controls.

The AMA apparently believes that physicians have little bargaining power, and has drafted a model managed care medical services agreement to redress this situation. The AMA describes some contracts drafted by health plans as “contracts of adhesion,” binding physicians to terms that are almost too onerous to bear.

In explaining the rationale behind the model, the AMA points to a controversy that erupted last year about alleged contracts of adhesion issued by Aetna U.S. Healthcare. The Florida Medical Association asked the AMA to review those contracts, which the FMA said included gag clauses. The AMA and FMA also say the contracts give the HMO the right to “unilaterally change patient care procedures and policies.”

Aetna U.S. Healthcare issued a point-by-point rebuttal to the AMA and FMA allegations, denying the associations’ charges and asserting that the HMO leaves medical decisions to physicians.

A week later, the AMA issued a model managed care contract that it said protects the rights and interests of patients, physicians and managed care organizations.

Well, not quite.

The AMA’s model agreement does protect the rights of physicians and patients, which is exactly the AMA’s mission. It is something the average physician has needed for a long time — a tool to help reduce inequalities in bargaining power. It provides a good starting point by suggesting model language for dealing with legitimate physician concerns in the areas of autonomy, patient rights and counseling, and the sometimes onerous administrative burdens physicians face.

Unfortunately, it fails to address the business needs of managed care organizations. It strips them of the ability to use contractual methods to limit costs. It removes many of the mechanisms that have allowed managed care organizations to function profitably. Therefore, despite some of the laudable goals of the agreement, it is doubtful that managed care organizations would ever agree to adopt the document as written.

Too many details omitted

One of the most interesting aspects of the model agreement is that the things that often derail physician/insurer negotiations — the details of what services are covered — are omitted from the agreement with the annotation that these terms can be negotiated separately and included as exhibits. The drafters explain:

Even though the managed care company and physician group will agree to a single set of legal terms guiding their relationship, separate business terms for each product and plan will be recognized, permitting termination of one plan or product without termination of others. This contract provides for separate arrangements to be described and attached as Exhibits A and B.

The model agreement sets up the legal relationship but leaves details to separate documents. There can be numerous plans, products, schedules and restrictions on benefits even where the same insurer or administrator is approving payments for enrollees. While this provides managed care companies flexibility to offer a range of different plans, it creates significant administrative headaches for both the health plan and the physician practice, namely, keeping track of what set of benefits is provided to a particular patient, enrollee or group. Thus, a medical services entity could agree to the terms of the document and still face a maze of uncertainties about covered services.

The document does provide some standardization. It refers to the contracting physician, group practice or other health care provider as a “medical services entity” and uses this term fairly consistently. This is positive, because it provides some flexibility about who can be designated a caregiver. Most plans use the term “qualified physician.” It also includes a series of definitions for terms that dominate the relationship. Some of these, however, are going to create problems with the managed care industry.

Medical necessity

One provision sure to trouble many managed care organizations is the model’s definition of medical necessity (see inset). In explaining this provision, the drafters note that many managed care organizations define medically necessary as “whatever their medical director says is medically necessary.” The abuses of the term medical necessity have been well cataloged. Yet the problem here is that it swings too far in the opposite direction, giving the physician the power to define medical necessity. This Alice-in-Wonderland approach comes replete with the mythical “reasonably prudent physician,” whose opinion will need to be ascertained by innumerable experts hired by both sides in the event of litigation.

1.9 Medically Necessary. Health care services that a reasonably prudent physician would deem necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member of an Enrollee.

AMA explanation: No payment is made for care that is not “medically necessary.” Many managed care agreements define “medically necessary” to be whatever their medical director says is medically necessary. While aggressively pursuing the right to make such judgments through their physicians agreements, some of those same companies disclaim in the courts the medical decision-making responsibility that goes along with it. This definition relies not on what the company’s medical director believes, but on what would be believed by the average, reasonably prudent physician faced with such a diagnosis or condition.

As a result, this paragraph, which should probably be renamed the “Health- Lawyers- Full- Employment Provision,” is sure to concern any reasonably prudent managed care organization. It ought to concern physicians too, because it opens the door to uncertainty and litigation. Setting the standard does not, as most physicians realize, solve the problem. The reasonably prudent physician standard has been used for years in negligence cases with sometimes tortured results!

Verify but trust?

The model also states that the medical services entity will use the mechanism chosen by the managed care organization to verify enrollees, but that such verification can be accomplished by telephone, on-line service or identification card (see sample). The health plan is then bound by the physician’s verification. Where eligibility cannot be verified, however — and where the doctor follows procedures — the physician is entitled to treat the patient with the plan as guarantor. This means that the physician must bill the ineligible patient for the cost of the care. If, after two billing cycles, the patient doesn’t pay, then the managed care organization becomes liable.

2.2 Verification of Enrollees. Except in the case of emergency, Medical Services Entity shall utilize the mechanism, including identification card, on-line service or telephone, chosen by Company or its agent designated for such purpose, to confirm an Enrollee's eligibility prior to rendering any Covered Service, in order to guarantee payment. Company or Payor shall be bound by its confirmation of eligibility and/or coverage and shall not retroactively deny payment for Covered Services rendered to individuals the Plan has confirmed as eligible through such mechanism. Should Medical Services Entity after following Company procedure to the extent reasonably possible, be unable to ascertain the eligibility of a patient who holds him or herself out to be an Enrollee, Medical Services Entity shall render necessary care through its Qualified Physician. At the first available opportunity, Medical Services Entity shall attempt to verify eligibility. In the event patient is not Enrollee, Medical Services Entity shall attempt to collect from patient the amount due, up to the usual and customary fee of the Qualified Physician providing service. If, after two billing cycles, Medical Services Entity or Qualified Physician has not received full payment, Company will pay Medical Services Entity the Qualified Physician's usual and customary fee, minus that which the Qualified Physician or Medical Services Entity has already collected from the patient, not to exceed the amount provided for as Total Compensation herein.

AMA explanation: Physicians are sometimes denied payment because of the administrative mistakes of managed care companies in either identifying Enrollees properly or failing to provide for enough telephone access or other convenient means of communication to obtain such verification in a timely fashion. Under many managed care agreements, the physician or physician group must suffer the consequences of such administrative short-comings. This section reverses that presumption and sets forth a reasonable procedure for ensuring that a physician, without penalty, can verify Enrollee in a timely fashion.

But the provision does not specify how frequently eligibility must be reverified. This could create administrative headaches for physicians, requiring them to verify every patient, every visit. This would significantly increase the physician’s costs. A more equitable arrangement that protects both parties would require the physician and the health plan to bear some risk of loss or require instant verification in the way that credit card companies currently verify spending limits.

Protections in bankruptcy and litigation

Perhaps the most solidly drafted section of the model deals with the “sole source of payment.” Under most state laws, patients are held harmless if a managed care organization goes into receivership or seeks bankruptcy protection, and this sole source provision, as it is called, provides some real and important protections for physicians. It requires the health plan to cooperate with the physician to seek payment from any other proper source. While it is difficult to know exactly how the provision would fare in a bankruptcy proceeding — where the trustee has the power to avoid the force of such contracts in whole or in part — it is probably the best provision of the model agreement.

Another useful section permits a medical services entity to obtain an “assignment of rights” from a managed care organization to pursue the party ultimately responsible for the cost of care. This is important when the managed care organization contracts to administer a health plan for a self-insured third party.

The managed care organization and the third party have a contract, as do the organization and the physician. If the third party refuses to pay and directs the managed care organization to deny the claim, the organization must assign its contract rights to the medical services entity to permit it to pursue the third party.

Reporting requirements

Noting that “it is suspected that managed care companies slow payment of claims or reject an excessive number of claims as not being ‘clean’ in order to improve their financial reporting,” the drafters have thoughtfully provided a remedy. The agreement tells the health plans to submit audited quarterly financial data to its medical services entities.

Most businesses are audited annually. The AMA’s provision would force the managed care organization to hire an auditor every three months, increasing costs. The provision seems to give the physician groups a tremendous leg up on the plan’s creditors. But it places additional burdens on the managed care organization and is fraught with implications, such as the potential for insider trading.

Would a shareholder of the managed care organization who is also a plan physician or medical practice manager gain an unfair advantage over shareholders who are not? Would a managed care organization voluntarily agree to provide — to thousands of physicians — sensitive and important audited financial information that it might not even provide to its shareholders?

Noninterference with care

Physicians often legitimately complain that managed care organizations do not permit them to do what they feel they need to do. “I think we should do a C-section,” they tell the patient, “but the HMO wants us to try a vaginal delivery instead.” The model’s most nebulous provision specifies that while physicians can help the HMO with administrative tasks, the plan has no right to interfere in how care is delivered:

4.10 Noninterference with Medical Care: Nothing in this Agreement is intended to create … any right of Company or any other Payor to intervene in any manner in the methods or means by which Medical Services Entity renders health care services … to Enrollees. Nothing herein shall be construed to require Medical Services Entity to take any action inconsistent with professional judgment concerning the medical care and treatment to be rendered to Enrollees.

All that a physician has to say is,”In my professional judgment, I believed this test [or procedure or surgery] to be warranted,” and the HMO is powerless to change the physician’s behavior.

Would a health plan agree to let physicians do whatever they want? Surely not, and such a provision, while a possible starting place, would never survive negotiations between a health plan and a physician provider group because it removes the plan’s ability to manage its own costs.

What is missing?

Just as important as what is included in the agreement is what is not. Punitive provisions, such as a stipulation that the loser in any litigation pays legal fees, are absent. The AMA lawyers say such a provision would “chill any prospect for the physician to obtain relief in a court of law.” The AMA, taking a page right out of the American Trial Lawyers Association’s anti-tort reform agenda, also objects to any provision that limits or caps damages. “This provision simply strips the physician … of any legitimate legal right [he or she] may have in a litigation with the managed care company by taking away all remedies that may be available except actual damages….”

Normal provisions that bar physicians from suggesting that patients disenroll are not included. Neither are provisions that allow offsets and adjustments to amounts owed to physicians. Indemnification and hold-harmless agreements, normally a part of such contracts, are also removed from the AMA’s model agreement. Rightly or wrongly, these omissions help physicians and hurt the managed care organizations.

The bottom line

The contract attempts to protect physicians and patients, giving both rights that no other managed care agreement provides. At the same time, the agreement waters down the mechanisms through which managed care organizations police their practicing physicians. As such, the model agreement is a good starting point for a physician or medical services entity to use in entering into negotiations because it makes the possibility of real dialogue more likely. That the managed care organization is not going to accept the model agreement as written does not undermine its worth to physicians. Instead, it provides a tool that the physician or group practice can take to a lawyer and improve prospects for reaching an acceptable agreement.

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