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Tip: Manage PPO contracts to avoid scam insurance companies

Patient Financial Services Weekly Advisor, May 6, 2005

A number of fraudulent health insurance companies are selling coverage ranging from traditional health plans to health savings accounts that are scamming individuals and providers out of millions of dollars.

Use these five tips to prevent scams, offered by Fred Nepple, general counsel for the Wisconsin Office of Commissioner of Insurance and chairperson of the National Association of Insurance Commissioners (NAIC) ERISA work group, and John M. Kirsner, Esq., a partner at Squire, Sanders & Dempsey, LLP, in Columbus, Ohio:

1. Require payers to perform due diligence. Negotiate to have a provision in your managed care contract in which you make it a requirement of the payer-a PPO, a third-party administrator, or the network access arrangement-that they have to perform due diligence on the new payer, Kirsner says.

This provision can help establish liability, a famously squishy topic for PPOs. "Historically, these entities are happy to get a contract whenever they can. The PPO always says that it is not the payer and is not responsible for payment of the bill. The actual payer is responsible for the payment," Kirsner says.

2. Find out what controls the PPO has in place. Ask any PPO you join or contract with whether they have procedures, training, and controls to address the issue, Nepple says. It's most important for you to address it up front. "At the back end, it's much more difficult," he says.

3. Insert a liquidated-damages provision into the contract. A liquidated-damages provision in your contract goes hand in hand with due diligence. Such a provision helps protect you if the payer is the scam artist and the PPO isn't involved. By getting the PPO to pay you a liquidated damages amount, you're guaranteed some form of payment.

When you can negotiate them, you can get a flat payment on a per-incident basis (e.g., $100 per incident) and you'll likely recoup most of your losses. Another way is to get liquidated damages as a percentage of your billed charges (e.g., 50%) "It's a bear," Kirsner says. "Generally only large providers have leverage [to get this type of provision into the contract]."

4. Keep a close eye on unfamiliar names. It is important to keep a close tab on your business relationships, especially if names are unfamiliar to you. "Don't worry if you're contracting directly with a well-known payer or your local Fortune 500 company," Kirsner says. "If you're dealing with Blue Cross Blue Shield directly, you shouldn't have to worry. Worry about national PPO contracts, or ones in which you don't know who the PPO or payer is contracting with."

5. Watch for red flags. Is the insurance inordinately inexpensive? Are they covering people who the insurance marketplace would rate or have underwriting restrictions on? Is it too good to be true? Is it a purported union plan where it was sold by an insurance agent?

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