Why Third Party Contracts Demand Scrutiny

Recently, as I was speaking with one of my colleagues who specializes in reviewing and negotiating agreements with third-party payers, she lamented that no one reads their provider agreement anymore. 

I fear that she may be right. Reading a provider contract is not exactly a hoot. If you combine that with the fact that many of the payers have convinced people that the contract is “take it or leave it,” and we have a world where it’s quite common to sign payer agreements without any review whatsoever. But if you listen to the Monitor Mondays segments by Ronald Hirsch, MD, Knicole Emmanuel, and others, you’ve like noticed a pattern. Third-party payer contracts truly demand scrutiny. 

Taking a step back, it is good to remember that insurance companies do not have some divine right to impose their own definitions on you. They aren’t inherently authorized to define “inpatient,” whether it is using or rejecting the two-midnight rule. With very limited exceptions, nothing in any federal or state law requires third-party insurers to establish payment rules that mimic or differ from those imposed by Medicare or other insurance companies. The main exception is Medicare Advantage plans, which may not impose a rule that is less generous to beneficiaries than Medicare. In most other situations, whatever the payer is doing, it is doing it by choice. There are times when the variation from Medicare is beneficial to you. But even those beneficial situations come with the administrative burden of trying to implement these disparate rules.

Whether the private payer’s rules are helpful or not, you need to know what they are. Some of the more frustrating legal problems I’ve dealt with involved situations in which my client had failed to read the contract, and didn’t ask us to review it. One example is totally unrelated to third-party payer contracts. I’ve had many clients sign ambulatory surgical center management contracts without careful review. Then, after becoming frustrated with the operation of the management company, they seek to exit the agreement, only to discover that the contract renders that nearly impossible.

Returning to the third-party payer situation, I’ve had a client build an ambulatory surgical center (ASC) only to discover that their biggest private insurer required preapproval before paying any claims at a new location. The insurer refused to credential their new ASC.

Sometimes, the unread terms even prove favorable to clients. I had one client prepared to refund hundreds of thousands of dollars to a private insurer for six years of payments. But they had not noticed that under the agreement, the insurer was only allowed to reopen claims for 12 months. The insurer was seeking six times the money to which they were entitled. 

The bottom line is that many disputes are won or lost well before the first demand letter is written. In the world of private insurance, it’s the contract that controls. If you’re not paying attention when the rules are established, you’re missing your best opportunity to make sure you are treated fairly.

Programming Note: David Glaser is a permanent panelist on Monitor Mondays. Listen to his live reporting every Monday at 10-10:30 a.m. EST.


David M. Glaser, Esq.

David M. Glaser is a shareholder in Fredrikson & Byron's Health Law Group. David assists clinics, hospitals, and other health care entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David's goal is to explain the government's enforcement position, and to analyze whether this position is supported by the law or represents government overreaching. David is a member of the RACmonitor editorial board and is a popular guest on Monitor Mondays.

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