by Maria K. Todd, MHA, PhD

It's been said that "no good deed goes unpunished." This is certainly true when it comes to negotiating with managed care companies, as I've learned the hard way. Little did I know; a contract that is never signed can still become binding if one party can prove that what actually happens in the relationship between the two parties demonstrates a meeting of the minds.

Many payer agreements have passed my desk during my career in managed care and healthcare administration. As a beginner, I thought that if we didn't sign the contract, we weren't bound by its terms. In one case, more than 15 years ago, a physician with whom I worked decided that he would refuse to sign the contract draft agreement.

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What he did instead was to act "as if" we had a contract with the payer: We accepted their rates, wrote off balances in excess of the allowable, and charged co-payments to the patients.

When records requests were received to substantiate and defend the treatment rendered, we complied without requesting payment for medical records copies. When the plan failed to pay secondary using the excuse that the primary paid what they would have paid, so that no additional payment would be tendered, we wrote off the balance. When a remittance summary contained a denial due to lack of pre-authorization, or pre-certification and a there was failure to obtain a non-covered waiver, we wrote off the balance owed. We did everything we could to be a good citizen--except sign the contract.

One day, the payor reduced a very large bill from us to a ridiculously low amount. The physician decided he’d had enough and resorted to balance-billing the patient. To our surprise, we soon received a letter from the payer stating that billing the patient was not permitted in accordance with the terms of our agreement. What agreement?

"We signed nothing," we asserted. We then asked the company to pay up to at least the usual and customary amount we received from all other payers. (Oops!) When they didn't, the physician took matters into his own hands and filed a lawsuit in small claims court. After all, the contract required participating providers to enter binding arbitration, and the physician had never signed a contract.

The payer challenged us with an interrogatory. One question that seemed odd at the time was a request that we provide the ledger of every patient for which we had been paid and denied by the payer--thereby demonstrating contractual adjustments we had allowed, and the accompanying EOB.

"Why do they need that?" I wondered. "They know what they paid us." Nonetheless, I had this weird feeling in the pit of my stomach.

All the while, the physician did not want to spend a dime on legal counsel. So, we complied with the interrogatory like a good citizen--and played right into their hand.

The company used our response against us to enter a motion to dismiss for lack of standing, asserting that we did indeed have a contract, and that we had repeatedly demonstrated the existence of a meeting of the minds.

Further, they asserted that the contract had a requirement of binding arbitration and therefore it was inappropriate to use the courts as the forum to resolve our dispute.

Lessons Learned

Ultimately we lost and here's why: An unsigned contract can still become binding on the parties if they can prove that what actually happens in the relationship demonstrates a meeting of the minds. This can also come about if you repeatedly allow the payor to pay you late, to deny certain claims or if you accept behaviors that differ from the terms of the signed agreement enough that a reasonable person would assume that you are actually okay with the behavior. Take heed, as this can also happen in the case of "Silent PPO" type arrangements.

Now, when I negotiate a managed care contract or assist in negotiations with a client, I make sure that a few things happen:

* We mark all changes in the contract language. For additions, we use a double underline and red text. For deletions, we use a strikethrough. This way, I can show my refusal to demonstrate that there is not a meeting of the minds on paper.

* We document all conversations with a memorandum that confirms the discussion. Each memorandum is numbered, date sequenced and filed. This includes emails, faxes, telephone calls, and Skype and text messages.

* I caution my clients not to extend the courtesies of the contractual relationship beyond the end of the initial contract terms. You have to be careful here, because sometimes the contract stipulates that if you miss a window of opportunity or a date range by which your contract negotiations must be finalized and signed, and if you continue on with the same behavior, you are obligated for the renewal term. If you do sign the contract renewal with the new terms, the other side may be able to act on the old terms and ignore the new requirements, and then assert that they were unclear as to which version is in effect.

If you want to continue to act as a participating provider and do a good deed for the patients beyond this deadline for execution, you may wish to discuss with your legal counsel the drafting and execution of a Memorandum of Understanding with a specific deadline after which you will consider the deal and the understanding "dead."

If you intend to sign, execute a Letter of Intent stating the deal breakers that need to be finalized in order to move forward and follow through on the intention - basically that you don't "intend" to follow though if you cannot resolve those differences. The documents can be binding or non-binding. Your attorney can guide you as to which is more appropriate given your particular situation.

In a nutshell, if there is no contract and no 'understanding,' don't act "as if" there is one!

I am unashamed to say that I earned Magna Cum Laude diploma from the Been There, Done That Academy. (While there is no such academy for managed care contracting, I am thinking of starting one just for managed care and healthcare revenue cycle professionals.) Yes, put that on my list of things to do for 2010--I'll get right on it!

Maria K. Todd, MHA PhD, is (www.mariatodd.com) is a consultant, speaker, author and health care industry thought leader who specializes in managed care contracting. She's the author of The Managed Care Contracting Handbook and the Physician Employment Contract Handbook (1999).