Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them
Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)

Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them

Executive Summary

Unsuspecting physicians should be careful when teaming up with managed care companies (MCCs) to provide care for MCC enrollees. Failure of physicians to be on guard when it comes to dealing with MCCs can lead to costly results, including payment of recoupment amounts to MCCs and denied claims or untimely paid claims. Physicians should be very careful in how they negotiate their contracts with MCCs and should not merely sit by the wayside, hoping that MCCs will be looking out for their interests. Unfortunately, MCCs have


become increasingly sophisticated in their contract negotiations with physicians. On the flipside, physicians often believe that if they “go with the flow” and sign up with various MCCs to provide care like all the other physicians, that they somehow will be protected. Such mistakes can lead to costly results and make the practice of medicine for physicians frustrating and often altogether unrewarding.


Mistake 1        Consulting Counsel Too Late

Many physicians do not realize that virtually every contract provision is “negotiable” and that they can negotiate with MCCs. Unfortunately, many physicians wait by the wayside until a problem occurs in the relationship and then involve counsel to try to save a poor result. Waiting for problems to arise often results in the problem taking hold, sometimes leaving little chance of escaping an untoward result. Consulting with counsel before entering into contracts with MCCs is a must in today’s health care environment. Counsel can assist physicians in negotiating key terms in MCC contracts that can help to avoid problems in the future; counsel can also educate physicians on the reality of the arrangement they are about to enter into.


Action Step     Physicians should consult with counsel at the earliest point possible, well before signing a contract with an MCC, to prevent problems in the physician-MCC relationship.


Mistake 2        Believing That Getting Lawyers Involved Only Leads to Strained Relationships with MCCs

Many physicians purposely avoid consulting counsel to make their dealings with MCCs less contentious or to avoid confrontation with MCCs. After all, many physicians believe that being part of an MCC as a provider will further their practice and enable them to flourish. However, consulting with counsel does not mean that the physician necessarily is being confrontational with the MCC. Appropriate counsel can foster the relationship between the physician and the MCC by ensuring that both parties fully understand the rights and responsibilities being placed on each of them. Physicians need to understand that the contract being placed in front of them has been drafted, amended, and continually reviewed by the MCC’s counsel. So, attorneys have already been involved in the process by the time they receive the agreement.


Action Step     Physicians should not be afraid to negotiate contracts with MCCs for fear that such negotiations may alienate them from the MCC. Consulting with counsel can have a beneficial, rather than a deleterious, effect on the relationship.


Mistake 3        Believing That Managed Care Contracts Are Boilerplate

Physicians often think that MCC contracts are the same for all physicians, perhaps because they feel that the MCCs they are dealing with are so large and make no room for any negotiation. As a result, many physicians will not take the time to even read the MCC contracts before signing them. Physicians fail to realize that MCC contracts are drafted strongly in favor of the MCC and against the physician. By law, managed care contracts must be negotiated and cannot be boilerplate. Physicians may realize too late that the key is looking at the details of the contract, not the goodwill, verbal assurances, or marketing of the MCC.


Action Step     Physicians should always negotiate their managed care contracts, never accepting them as boilerplate or standard contracts that will somehow favor them.


Mistake 4        Failing to Identify External Sources to the Contract

MCC contracts almost universally attempt to refer to performance obligations of the physicians in various MCC policies or procedures that are not contained directly in the contract. For example, an MCC contract may state: “Provider shall comply with all policies and procedures established or modified by payer from time to time.” Only in the health care world would a party to a contract be asked to sign an agreement without having read, let alone read and understood, many of the terms that the provider will be subject to. More recently, MCCs have been placing certain performance obligations on their websites for physicians to access readily. While this may seem like a good way to provide easy access to the MCC’s policies and procedures, physicians have virtually no ability to determine when changes are made to those policies on the website or to even verify that they are looking at the correct external source. Physicians should not be obligated to check MCC websites to make sure that they are complying with their ever-changing policies and procedures.


It is important that all of the obligations placed on physicians be known to them and preferably attached to a single document. Physicians can also insist that the external sources referred to in a contract may not be changed without the physician’s prior written consent. MCCs are notorious for changing their policies midway through contract terms, and unsuspecting physicians may contract to accept those ever-changing policies to their detriment.


Action Step     Physicians should make sure that they check all external sources and the contract accordingly to make sure that external sources referred to in the contract are not altered without their consent, and are attached to the contract that is actually signed by the parties.


Mistake 5        Failing to Properly Define Medical Necessity

MCC contracts often attempt to limit payments to providers by maintaining ultimate responsibility for medical necessity decisions on claims according to vague standards that allow the MCC to override a physician’s clinical judgment. When defining “medical necessity” in an MCC contract, physicians should make sure that the definition accounts for relevant practice standards in the area in which the services are provided. Often, the definition of medical necessity in contracts includes “the most cost-effective services or level of care that can safely be provided to an enrollee.” This least-cost standard serves only to compromise the art of medicine and to unnecessarily allow MCCs to deny claims that are properly performed and medically necessary consistent with professional standards of medical care.


Action Step     Physicians should make sure that the definition of “medical necessity” in their contracts does not include a least-cost standard and that it is instead based on generally accepted practices in the field of medicine that they serve.


Mistake 6        Failing to Strengthen Prompt-Payment Provisions

Physicians know that delayed MCC payments are standard in today’s medical practice. Ironically, physicians experienced with late payments from MCCs do not take the time to negotiate promptness of payment with MCCs. Because delayed payment is a chronic problem in dealing with MCCs, physicians should be given a contractual right to prompt payment of all claims. For example, a naïve physician may think that the following provision is acceptable and would not cause problems for the physician in the MCC-physician relationship:


Late Payment. Payer shall make payments as provided above within an average of thirty (30) days after receipt of a timely and properly completed and submitted invoice. The thirty (30) day calendar shall not apply when there is an issue related to payment, in which case, any such issue shall be resolved by Payer.


While on its face, the 30-day time frame is sound, that time frame, as indicated, can, and often will, be delayed by the MCC. Physicians should insist that “clean” claims be paid promptly. Furthermore, contracts should also require MCCs to return claims that lack the necessary information within a certain number of days of receipt, and pay the claims within a certain number of days of receipt of the additional information requested. Physicians should also make sure that they attempt to negotiate interest on delayed payments to avoid chronic payment delays from MCCs or, more preferably, that claims not paid in a timely manner be paid at charges.


Action Step     Physicians should clearly define prompt payment and force clean claims to be paid quickly and uniformly and make sure there are no gaps for MCCs to delay payments according to the terms of the contract.


Mistake 7        Failing to Account for Termination of the Contract

Physicians often do not pay attention to termination clauses in dealing with MCCs. Managed care contracts should include a statement of the parties’ continuing obligations after termination. The MCC should be obligated to pay the provider for services rendered to enrollees after the termination date at charges. Continuation of benefits is regulated in many states, and contract provisions should closely match state law requirements. Physicians should also be wary of patient abandonment upon termination of their relationship with an MCC. Concerns over physicians abandoning patients is receiving heightened attention in the courts, and unwary physicians without appropriate provisions in termination clauses could find themselves being sued for patient abandonment.


Action Step     Physicians should pay close attention to termination clauses and make sure that continuity of care is provided even after the contract ends with the MCC.


Mistake 8        Failing to Enforce Agreements with MCCs

Many physicians are left powerless by breaches of MCCs—if they even know about the breaches. Physicians should be careful to monitor and track MCC activities. For example, physicians should track the timeliness of MCC payments. Often, physicians do not realize that each and every payment made by an MCC over the course of a year may, in fact, be late and in breach of the contract provisions. Physicians should promptly notify MCCs when they are delinquent in making timely payments to avoid late payment pile-ups. Physicians should also be aware of individual state late payment statutes.


When there is a problem in the relationship with the physician and an MCC, the physician should immediately seek to quantify the scope and cause of the problem. The physician should then meet with the MCC to resolve the issue informally. This is the most cost-effective route to dealing with problems with MCCs. After analyzing the situation and meeting with the MCC, the physician needs to determine whether to demand compliance from the MCC or whether to negotiate revisions to the contract.


Action Step     Physicians should monitor, monitor, and monitor their relationship with their MCC and promptly notify the MCC when it is breaching contract terms or acting unfairly under the contract.


Mistake 9        Defining “Covered Services” Inappropriately

MCCs may require that providers furnish all basic health care to enrollees. The definition of “covered services” should, however, limit a provider’s obligation to the services it customarily provides at the time the contract is signed. The definition should also acknowledge changes in codes relative to existing services, as well as new services, and the reimbursement that will be paid for such services.


Action Step     Physicians should be mindful of “covered services” definitions in their MCC contracts to prevent MCCs from unilaterally changing these definitions, which could result in denied claims.

Mistake 10      Failing to Allow Physicians to Audit MCCs

Typically, MCC contracts have detailed and lengthy provisions allowing MCCs to have access to physician records with respect to payments received by the physician. However, physicians often fail to have a reciprocal clause in their contracts allowing the physician access and audit procedures against the MCC. Usually, MCCs have rights to inspect, review, and make copies of records maintained by a physician and to conduct periodic audits of physician records whereby the MCC will unilaterally notify the physician of the audit results. MCCs will also sneak in a clause requiring that all amounts that the MCC deems owing as a result of an audit should be promptly paid by the physician. A more beneficial provision would allow both parties to have access to the audit procedures of the other party. Identifying a standard for audits, such as the National Health Care Billing Audit Guidelines, is often beneficial in that such a standard prevents physicians from being subject to onerous or burdensome audits by the MCC. Physicians should also require that the parties negotiate in good faith to resolve any disputes identified in the audit. Finally, any audit disputes that cannot be resolved should be submitted to arbitration for prompt resolution.


Action Step     Physicians should seek to make audit procedures reciprocal and take steps to audit questionable practices by the MCC in an effort to maintain fairness in the MCC-physician relationship.



Physicians who become aware of these mistakes will be better equipped monetarily, psychologically, and legally to deal with MCCs in everyday practice. Failing to understand these mistakes can lead to expensive problems for physicians and an altogether unwieldy relationship with an MCC.


Written by:

Neville M. Bilimoria, Esq. 

Peer reviewed by:

Gregory A. Brodek, Esq.

Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them