Management of Pathology Practices

April 2009

Management Home Page


Billing Contracts verses Managed Care Contracts

By Mick Raich, Vachette Pathology


Imagine this scenario: You are looking over your EOBs from an insurance company and you see that you have missed billing a payable CPT code.  Now imagine you do a full audit and you find that there has been a $300,000 error made by your billing company.  Think of your shock and surprise when you find that even though this error has occurred, you can only collect about $30,000 from the billing company due to the contract you signed with them six years ago.  This is a true story.  


Over the past few months many of the medical practices we work with have had issues with their billing companies.  This is the nature of the business as billing is a complex and multifaceted process.  In some cases the group has chosen to terminate their billing relationship due to a lack of response, and in other cases, they were upset due to a series of billing errors that damaged the group financially.


As a practice management company, we are asked to review existing billing contracts and review proposed billing contracts.  In both cases our findings were quite disturbing.  After reviewing these contracts, several things come to mind but in the end the question that we need to answer was if this billing contract was as punitive as a managed care contract.  This may seem a rather aggressive concept.  Could your billing company’s contract have the same pitfalls as a managed care contract?  


Over the years we have reviewed hundreds of billing and managed care contracts. It seems that the billers have taken a clue from the managed care plans when they write up their contracts.  The reasoning behind this is interesting.  As small private billing companies are bought up by larger corporations, these corporations are looking at these contracts as a more legal document.  This overview makes the contract more binding and in return makes the contract more punitive for the medical practice.


Consider these common traits: 


Assignment Clauses: It seems as more and more billing companies are bought and sold they are building clauses into their contracts that allow the work to be “assigned” to the new buyer.  The real issue here is when a biller decides that this work can all be done by someone other than themselves and assigns the work.  In some cases, a billing firm can just be a middle man and ship the actual billing overseas.  We all know billers outsource things but the day is coming when they assign everything to someone else and do only sales and marketing.  Managed care contracts often have the same terminology. They want to “assign” the claims management to another payer.  This usually means the work is assigned to a payer that will pay you a lower rate for your services.


Termination Clauses: Many billers now have a clause that states they cannot be terminated unless they are notified within 90 days of the initial term date of the contract.  This means that if there is an issue, you must wait until 90 days before the signing date before you can terminate the group.  Many managed care plans use this tactic also to delay their problem solving and delay fixing unpaid claims.   


Gag Clauses: Lately we have seen some contracts that limit what you can say about the biller.  This means that if they are failing, you cannot talk to your friends and colleagues about their performance under penalty of damages.  In fact, some billing contracts limit your ability to even talk to another biller; this is a true gag clause.  Imagine if you bought a car and signed a contract saying you cannot look at another car without first contacting the people who sold you the lemon.  Again this is a direct copy from managed care contracts.  Many managed care plans limit what you can say about them.


Another point is that many billing companies prohibit someone from auditing them.  This means that you cannot hire someone to review your billing process and results.  This would be equal to your CPA stating that no one can audit their efforts. Not a smart business decision and in many cases if someone is hiding something they do not want anyone looking over their shoulder.  


Minimum Damage Clause: This clause limits the damages that the billing company can be made to pay if they fail.  Consider this situation.  You audit your billing firm and find they have made a grievous error that has cost you $500,000 over the past two years.  Imagine your surprise when you find out that you cannot collect these damages as your contract limits the damages paid to 1/15 of that amount.  Troubling isn’t it?  


Take a good hard look at your managed care contracts.  Many of these have stop loss measures built into them also.  Many contracts say you can only recoup so much in losses or go only so far back in time to get paid correctly.


The lesson to be learned here is simple.  You must learn to defend yourself and your income.  Punitive billing contracts or managed care contracts can hurt you equally as much.


If your biller fails and you do not notice, in many cases there is nothing you can do to cure your losses.  If your managed care plan is underpaying you and you do not notice it, you are in the exact same position.


This is one of the biggest problems we see when we audit billing companies and managed care contractual relationships.  It is amazing how much money is lost each year to medical practices.  The most frustrating part is sometimes we find the problem but are unable to gain adequate payment due to the contract terminology. It is not an understatement to say there are millions of dollars in losses each year.  

Here are three simple steps to help: 


1.  Have every contract reviewed by your lawyer.  It may cost you more up front but it is well worth the cost.

2. Do not sign any contracts with gag clauses, assignment clauses, minimum damage clauses or unrealistic termination clauses.  If the company or insurance plan won’t change the contract then look elsewhere for an answer.  There are always options. 

3. Review your current billing contract to see if you have these clauses and work to renegotiate these terms out of your contract.  If your biller will not remove them then you have all the answer you need about their position.   


Remember that you are in charge of your practice.  These contract terms are not to be taken lightly. They can easily affect your revenue in a negative manner.   In these tough economic times, it is vital that you consider each and every option that could affect your financial viability.


Be aggressive and audit what is going on.  Do not sign contracts that do not fit your template.  Remember if you fail in this part of your practice, you may not be able to recover your damages.   


Mick Raich is President / CEO of Vachette Pathology, a national pathology and laboratory management and consulting firm.  He can be reached for further inquiry toll free at 866-407-0763 or e-mail