Network Termination and Denied or Discounted Fees: Three Questions that Every Healthcare Provider and Payer Should Ask

09/08/2015

The financial pressures resulting from the “narrow network” phenomenon are well-known to healthcare providers and payers. Many providers have been eliminated from existing networks in order to allow participating providers access to a greater volume of patients. Those remaining providers have seen lower reimbursement rates and other cost containment measures.

These changes in the healthcare marketplace have prompted disputes between payers and providers over termination and reimbursement for services that have been discounted or denied. As courts and arbitrators review these issues and developments in the law continue to unfold, here are three questions that every healthcare provider and payer should consider and review with legal counsel.

1. Are Unilateral Changes to a Provider Agreement Enforceable?

Whether there is a dispute over payment for previously covered services or the termination of a provider on the basis of non-compliance with changed policies and procedures, both scenarios beg the question: are unilateral changes in a provider agreement or manual binding on a provider with an existing network agreement?

In many agreements, the plan insurer may retain the discretion to make unilateral changes to rules, policies, procedures and guidelines governing participants. Although such “unilateral modification terms” have become more prevalent in consumer agreements, under general principles of contract law in many jurisdictions, a material modification of contractual terms is not enforceable absent some additional consideration or compensation to the contracting party.1 Providers and payers should consider whether in the absence of additional consideration material changes to the provider manual or agreement are enforceable under the law governing such contracts.

2. Can a Provider Agreement be Terminated “Without Cause?”

Whether or not “unilateral modification” is enforceable, many participating provider agreements contain terms facially allowing termination without cause by either party after limited notice to the other.

In some jurisdictions, “without cause” termination provisions have been curtailed either by statute or common law.2  Provisions of Chapter 843 of the Texas Insurance Code, in particular, were just amended, effective September 1, 2015, to provide protection to physicians and providers, including protection against termination, with respect to communication with patients about out-of-network providers.3

Healthcare providers faced with termination from a network should consider what procedural mechanisms or other relief may be available under applicable law to challenge or avoid termination. Payers should be familiar with statutory and common law limitations on “without cause” termination to ensure compliance.

3. What Claims may be Asserted by Providers in Disputes over Reimbursement for Fees?

While some providers may be terminated outright, others may not receive payment, whether in whole or in part, for the services rendered to patients. For disputes over the existence of coverage for provider services, providers may seek recovery under ERISA, which, if applicable, may preempt other claims. Alternatively, for disputes over the rate or amount of payment owed for otherwise covered services, ERISA may not preempt other claims. A decision issued by the Fifth Circuit Court of Appeals on August 10, 2015 affirms that state law claims alleging a failure to pay contractually required rates for medical services were not pre-empted by ERISA. Kelsey-Seybold Medical Group PA v. Great-West Healthcare of Texas, Inc., No. 14-20506, __ F.3d __ (5th Cir. Aug. 10, 2015) (“[A] claim that implicates the rate of payment as set out in the Provider Agreement, rather than the right to payment under the terms of the benefit plan, does not run afoul of Davila and is not preempted by ERISA.”).

For example, providers have historically asserted claims for breach of contract and violations of various “prompt pay” statutes in disputes over the amount or rate of payment under a benefit plan. See, e.g., TEX. INS. CODE ANN. §§ 542.060 (assessing 18 percent interest and attorneys’ fees on claims unpaid after 60 days); 843.342 (authorizing graduated penalties, interest and attorneys’ fees on clean claims to HMOs unpaid after specific intervals); 1301.137 (granting penalties, interest and attorneys’ fees to preferred providers, whose clean claims remain unpaid after specific time periods). Importantly, providers have asserted these claims against insurers as well as those with whom the insurer contracts to process or pay claims. TEX. INS. CODE ANN. §§ 843.344, 1301.109.

If you have questions about modification or termination of a provider agreement or about payments for healthcare services, please contact one of the Haynes and Boone Insurance Coverage Litigation and Healthcare Practice Group representatives listed below.

Michelle "Missy" D. Apodaca
512.867.8427
michelle.apodaca@haynesboone.com

Werner A. Powers
214.651.5581
werner.powers@haynesboone.com

Stacy L. Brainin
214.651.5584
stacy.brainin@haynesboone.com

Micah E. Skidmore
214.651.5654
micah.skidmore@haynesboone.com

Michael L. Hood
214.651.5673
michael.hood@haynesboone.com

David Taubenfeld
214.651.5531
david.taubenfeld@haynesboone.com

Ernest Martin, Jr.
214.651.5641
ernest.martin@haynesboone.com

Leslie C. Thorne
512.867.8445
leslie.thorne@haynesboone.com

Kenya S. Woodruff
214.651.5446
kenya.woodruff@haynesboone.com

____________________
1 Lamb v. Emhart Corp., 47 F.3d 551, 559 (2d Cir. 1995) (“Additional consideration is required for modifications when the changes constitute a new agreement bargained for by the parties. The additional consideration is required as evidence that the parties have in fact bargained for and agreed upon what is essentially a new contract.”); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003) (“[W]e conclude that the provision affording Circuit City the unilateral power to terminate or modify the contract is substantively unconscionable.”).
2 See, e.g., Potvin v. Metropolitan Life Ins. Co., 997 P.2d 1153 (Cal. 2000) (“We therefore agree with Potvin that the ‘without cause’ termination clause is unenforceable to the extent it purports to limit an otherwise existing right to fair procedure under the common law.”); see also TEX. INS. CODE §§ 843.306, 1301.053(b), 1301.057 (2014) (providing procedures for the review of an insurer’s or HMO’s decision to terminate a contract with a provider); N.Y. PUB. HEALTH LAW § 4406-d (“Except as provided herein, no contract or agreement between a health care plan and a health care professional shall contain any provision which shall supersede or impair a health care professional’s right to notice of reasons for termination and the opportunity for a hearing or review concerning such termination. Any contract provision in violation of this section shall be deemed to be void and unenforceable.”).
3 See http://www.legis.state.tx.us/tlodocs/84R/billtext/html/HB00574F.HTM.


Email Disclaimer