Contract Evaluations: The Devil in the Details

An adage of the legal profession holds that if you’ve seen one contract, you have seen exactly one contract. That is never truer than when the contract in question is between an imaging center and a payor, even though 90% of the agreement’s language will have been cast from boilerplate used over and over. Norm Davidson is president of Provider Health Services Inc, a Seal Beach, Calif, firm that performs provider-contract services on behalf of imaging centers, radiologists, and others. “It’s the 10% that isn’t boilerplate that you have to watch out for, because that 10% of the language is 90% of the importance of the contract,” he explains.

“Contracting is a key piece of the health care puzzle. Because so much of an imaging center’s day is dictated by the terms of a contract, it’s a matter of no small consequence that providers know exactly what is in each and every contract they sign.”
— Norm Davidson

Maintaining Focus

The need to scrutinize every implication of contract language is especially keen in this era of book-length agreements. “You’re hit with so much fine print that your eyes can easily glaze over, causing you to lose focus and let things slip past,” Davidson says. Therefore, it can become entirely too easy to miss a contract’s subtleties. For example, imaging centers sometimes discover, after the fact, that they do not hold the contracts that they thought they had signed, and that they may hold contracts of which they have no memory. Davidson recalls, “I asked one California provider if he wanted to be a Blue Shield PPO provider, and he said, ‘Yes, I already am.’ I said, ‘No, you’re not. You’re listed as a Blue Shield HMO provider, not a PPO provider, which means the only business you can get is through the independent practice associations (IPAs).’ He had no clue that this was his situation, and he was stunned.”

Intimate familiarity with the details of all contracts is crucial in order to ensure that payments received equal the full amounts legally due, Davidson says, adding, “If you don’t know what’s in your contract, you have no way of determining whether what you’ve been paid is the correct amount.”

A trend that Davidson has noticed finds payors increasingly insisting on reimbursing at case rates for CT, MRI, and other modalities. This is done in order to fix costs and, thus, to improve the reliability of the payor’s expense predictions. “Typically, in California, they’ll pay something along the lines of $500 for an MRI, $550 for an MRI with contrast, and then $600 for an MRI with and without contrast,” he says. “This might start out being satisfactory for the imaging center, but won’t continue to be if, for instance, the price of contrast abruptly rises because one of the commodities used in its formulation experiences a spike in cost (as is happening right now with iron).”

Another worrisome trend involves payors’ attempts to tie reimbursement to the Medicare allowable rate for a procedure, but to subtract the patient’s copayment from that rate before paying the remainder of the sum; this reduces the provider’s total payment by the amount of the copayment. “More and more contracts contain language stipulating this,” Davidson says.

Negotiation Strategies

Never, Davidson warns, assume that the rates that a payor stipulates in the unsigned contract are not negotiable. “Among many payors, the numbers are just an asking price, not so much intended to get a conversation started as to see if you’ll think you have no choice but to accept,” he says. “You can, and should, attempt to negotiate upward.”

Davidson contends that your success at negotiation will depend, in large part, on how much bargaining strength you bring to the table. “If you’re located in an area that has a dozen imaging centers within a 10-mile radius, none of you is likely to have much in the way of leverage,” he says, “but if you’re the only game in town, or you offer some unique value proposition, then you’ll have some leverage that can be used.”

Imaging centers have more clout when they negotiate contracts with medical groups and IPAs, rather than with insurance companies themselves, Davidson finds. “If it does business with HMOs (and those cover 30% to 40% of the population in any given market), the IPA will be paid a fixed amount per member, per month, to be responsible for all of the professional care services, including outpatient diagnostic imaging,” he says. “This, in effect, makes the group or the IPA the insurance company,” he says. With that weight on its shoulders, he adds, “The IPA will be interested in buying services from an imaging center, which it knows will cost significantly less than if those same services are bought from a hospital.”

A negotiating tactic that radiologists who own imaging centers can use (but seldom do, because it requires nerves of steel) entails leveraging their hospital contracts. Davidson explains that payors know that in the absence of a contract between the radiologists and the hospital for professional services, the payor would be obligated to pay the radiologists separately (and, presumably, more) for the professional component of the hospital’s cases that the radiologists interpret.

He says, “You could conceivably tell the payor that if they don’t give your imaging center a decent rate, then you’ll cancel your contract for the hospital, forcing payment at your charges, which they will prefer not doing.”