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Take five steps to terminate managed care contracts

Radiology Administrator's Compliance and Reimbursement Insider, January 1, 2006

If you have a managed care contract that is no longer profitable, you'll need to take several steps to terminate the agreement. Many facilities believe a simple phone call or letter is sufficient.

"But they're in for a big surprise," says consultant Caryl A. Serbin, RN, BSN, LHRM , president of Surgery Consultants of America, Inc.

Why terminate a contract?

Payer contracts may become less profitable over time. Some may even end up costing you money.

"Any contract that drains your revenues is one you should walk away from. This can be hard, but it's necessary for many facilities," says Serbin.

There are several reasons why once-profitable contracts can become unprofitable, including the following:

  • Your organization changed the type of procedures it performs since you signed the contract

  • The payer's reimbursement rates for your most common procedures no longer adequately cover your costs

  • A payer fails to reimburse you according to contract provisions, and your staff spend too much time chasing your reimbursement, creating additional staff costs

  • Your facility doesn't serve enough of the payer's policyholders to make the contract worthwhile

    How to terminate a contract

    Each facility will have different needs, but here are five basic steps to take to get out of a contract:

    Step #1: Check your contract.

    The contract will tell you what you need to do to terminate the agreement. If you are unsure about the process, have your attorney help you determine what your contract requires. You'll probably see one of the following types of termination clauses:

  • Termination without cause. A termination-without-cause clause allows either party—you or the payer—to end the contract for any reason. These contracts generally require the terminating party to give written notice of termination to the other party. Take note of how many days' notice your contract requires and adhere to it strictly to ensure that your termination is effective, says Serbin.

    Many of the contracts that have termination-without-cause clauses also have minimum-term clauses. This type of clause sets a certain period of time that must pass under the contract before either party can initiate a termination. For example, a minimum term of 120 days would require a facility to honor the contract for 120 days before terminating it.

  • Termination with cause. A termination-with-cause contract requires a valid reason for termination. For example, you would have cause if the payer didn't comply with contract terms (e.g., not paying claims in a timely manner or repeatedly making inaccurate reimbursements), says Serbin. Most of these contracts require a written notice to the breaching party who then has a period of time to remedy the situation before the termination can take effect. If the breaching party doesn't fix the problem, the other party may usually terminate the contract immediately upon written notice.

    Step #2: Obtain board approval.

    In most cases, you'll need to obtain your governing board's approval before officially terminating a payer contract.

    "You'll want to give the board the results of your evaluation and clearly demonstrate that you are consistently losing money under the contract," says Serbin.

    A board will want information related to the plan (e.g., the number of lives covered annually, types of cases, most common cases, and profits or losses on those cases). Also present other factors (e.g., noncompliance with the contract, those that contribute to lost revenue), Serbin says. Explain to the board what type of contract you have and how you will meet all of the termination requirements.

    Step #3: Write a letter to the payer.

    Once you decide to terminate a contract and obtain board approval, write a letter to the payer stating your intention to terminate the contract.

    Your contract may spell out a contact person for contract-related issues—if it does, send your letter to that person at the address specified in the contract. Otherwise, address the letter to the contract's administrator or official who deals with contract terminations. In any case, send it by certified mail with a return receipt requested.

    "This way there is no ambiguity about whether or not the payer received the letter. If the return receipt is signed, the payer can't claim that it didn't receive the letter or didn't receive it on a certain date," Serbin says.

    Don't send a generic letter. Instead, include specific information related to your contract. For example, a termination-with-cause contract will require different information from a termination-without-cause contract (see sample letters below).

    If your contract permits you to terminate without cause, then your letter, like our sample Letter #1, should

  • state that you're terminating the contract and include the effective date of that termination [Letter #1, paragraph 1]. Your contract will tell you how much notice you have to give, so calculate the effective termination date accordingly.

  • identify the section of the contract that permits termination without cause [Letter #1, paragraph 1].

  • state that you have met all other applicable contract terms regarding termination. For example, if the contract has a minimum-term requirement, write that you've met the minimum-term requirement [Letter #1, paragraph 1].

  • thank the payer for its service and ask the payer's representative to contact you with any further questions or problems [Letter #1, paragraph 2].

    If you're terminating the contract with cause, use Letter #2 as a model. Your letter, like ours, should

  • state that you're terminating the contract and include the effective date of that termination [Letter #2, paragraph 1]. Your contract will tell you how much notice you have to give, so calculate the effective termination date accordingly.

  • explain why you're terminating the contract. For example, state that the payer has violated a specific contract term [Letter #2, paragraph 1].

  • state that you've met all other applicable contract terms regarding termination. For example, state that you've made prior notification of the payer's breach and that the payer remedied it in the allotted time for cure. Also attach all previous notifications [Letter #2, paragraph 2].

  • ask the payer's representative to contact you with any further questions or problems [Letter #2, paragraph 3].

    Step #4: Make a follow-up call.

    Once the termination takes effect, follow up with a telephone call to the person who received the notice.

    "You'll want to be sure that the payer's computer system has been updated to show your facility as nonparticipating," says Serbin.

    This way, you can avoid billing problems that may arise. For example, once the contract ends, your organization will treat the payer's patients who come to your facility as out-of-network, but if the payer doesn't properly update its system, it will still regard the patients as in-network.

    Step #5: Notify staff.

    Once you've decided to terminate a payer contract, notify your staff that you no longer participate with the payer. Staff can relay this information to patients and physicians appropriately. Your staff should understand that your facility could still treat a noncovered patient, but only as an out-of-network patient. This means that the patient may have a larger copayment or deductible.

    Insider source

    Caryl A. Serbin, RN, BSN, LHRM , president of Surgery Consultants of America, Inc., Central Park, Suites 501-503, 13740 Cypress Terrace Circle, Fort Myers, FL 33907; 888/453-1144; cas@surgecon.com.

    Properly terminate payer contracts

    The following are two letters that your organization can use to officially notify a payer that you intend to terminate your contract. One can be used if you terminate an agreement without cause. The other is for a termination with-cause contract. Both letters set a termination date.

    Letter #2 describes the reasons for termination. Both letters set forth the particular contract requirements that have been met as a prerequisite to terminating the contract. Surgery center consultant Caryl Serbin, RN, BSN, LHRM, helped develop the letters. Adapt them for use in your facility.

    Letter #1: Termination-without-cause letter

    [ Insert date ]

    Via certified mail with return receipt

    Re: Contract # ___________

    Dear [ insert name ],

    This letter will serve as notice that we are terminating our contract with [ insert name of plan ] effective [ insert date ]. Our contract began [ insert date ], and therefore, we have completed the minimum term of 120 days as set forth under the contract [ insert section or article or contract ]. Pursuant to [ insert section or article of contract ], we are providing 90 days' notice with this letter. Therefore, the effective termination date will be 90 days from the date of this notification, or [ insert date ].

    Thank you for the opportunity to provide quality healthcare services to your participants. Please feel free to contact me with any questions or if you require any additional information.

    Yours truly,

    [ Insert name ]

    Letter #2: Termination-with-cause letter

    [ Insert date ]

    Via certified mail with return receipt

    Re: Contract # ___________

    Dear [ insert name ],

    Effective immediately we are terminating our contract with you. Our contract [ insert section or article of contract ] states that we may terminate this contract with-cause. Your repeated failure to pay "clean" claims in a timely manner violates [ insert article or section of contract ] and provides us with necessary cause.

    We have provided you with prior notice [ insert date of notice ], which is attached, and allowed you a 90-day period to remedy this problem, as required by [ insert section or article of contract ]. The breach has not been cured.

    Please feel free to contact me with any questions or if you require any additional information.

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