Health Care Risk Sharing, Integration & Accountable Care – Part 12


Contractual Terms of Note and Basic Principles:  Provider-counsel should pay particular attention to the following issues, and the associated contractual terms:

  • Scope of Services Required, Capitated Payments, Withholding Pools and Agency/Sub-Contracting: The scope of services offered by provider should be adequately defined.  Furthermore, protocol for the amendment of the services offered, or the elimination of a line of service, should as well be described.  By example, if hospital, or integrated provider network, whom wishes to eliminate a line of service, such as throat surgery, where such service is covered by the managed care plan, eliminate same? If so, what protocol for elimination is required?  Can these services be contracted to a third-party provider?  Again, if so, what protocol, or approval procedures, is required to contract-out these services.  In capitated or global fee payment arrangements, providers must determine whether the “covered service” are limited only to those services capable of being rendered by a specific physician; whether this fee covers all services capable of being rendered by a physician group; or whether these “covered services” also allocate risk-allocation for all service an individual-member may require (therefore covering referral services associated with any individual member).  With increased services covered allocated to provider, the increased risk must be hedged through a higher capitated or global rate and a larger pool of covered-individuals in order to mitigate against outlier loss.  Likewise, the terms of any withholding pool, used in combination with traditional fee-for-service  or capitated arrangements, to mitigate payer’s risk for outlier cost by “withholding” certain funds-due with release contingent upon provider utilization targets, must be clearly delineated.  Withholding pools must define the aggregate target utilization rate, the percentage of withholding, whether provider places only his withheld-fee at risk or whether provider will be required to reimburse payer for any cost beyond the fee-withheld. Again, in consideration for the withhold, provider may seek to hedge the risk by securing a higher capitated rate or fee-for-service or seek utilization bonuses for reaching aggregate target utilization rates.
  • Discount Limitations based on Managed Care Performance and Utilization Bonuses: Providers who contract with managed care plans without established market-share may wish to include provisions that tie discounts to the performance of the managed care plan.  Providers may reward  payer through prospective reimbursement methodologies, rather than discounts to fee-for-service which predicate discount on the MCO obtaining a certain number of contracts and/or members or by limiting the network to specific providers within a geographic area (thereby, driving up the covered individuals the particular provider will service).  Payer may wish to reward provider through bonus payments which are based on actual utilization rates falling at or below target levels.

Multiple other clauses come into play in this area and will be discussed in further postings.  This article is part of a series of articles in risk sharing and accountable care.