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Avoiding contractual pitfalls

by Lisa Rabasca, Monitor Staff

Monitor on Psychology, Volume 31, No. 2, February 2000

How would you protect your practice in these scenarios?

  • A physician you often collaborate with invites you to become part of her medical group. Should you give up your private practice to join her business? Or would it be better to rent office space from her instead so that you could continue a close collaboration without giving up your autonomy?

  • A managed-care company asks you to sign a contract that requires you to give patients the "highest standard" of care. Should you sign on the dotted line?

These are some of the common business decisions psychologists face as they develop collaborative relationships with physicians and contracts with managed-care companies, says Chris E. Stout, PsyD, MBA, chief of psychology for Illinois's Office of Mental Health.

An increasing number of psychologists are entering into contractual agreements and need to be cautious, says Stout, who spent six years as chief contract negotiator and senior vice president at Forest Health Systems in Des Plaines, Ill.

"There are common pitfalls psychologists need to look out for," he says. For instance, psychologists need to ensure the contracts they sign don't limit their ability to do business in the future or make them liable for any problems that could arise with the business aspects of providing care such as billing.

"The key," he says, "is not to be afraid to negotiate changes to your contract."

Stout, of STOUT Ventures, a consulting firm in Kildeer, Ill., that helps provider groups negotiate contracts, says psychologists can protect their interests if they know more about how to negotiate.

But, he cautions, the guidance he presents in this article isn't intended to be a substitute for legal advice: It merely seeks to alert practitioners to common mistakes made when negotiating a contract.

Should you give up your practice?

When entering into a contract with a physician, psychologists have three options, says Stout. They can rent office space from a physician, enter into a partnership or become an employee of a medical group.

A partnership between a psychologist and a physician usually means the psychologist's private practice is absorbed into the physician's medical group and the psychologist becomes a partner. As such, the psychologist is able to participate in health-care or business decisions and receive a share of the group's profits. Under this arrangement, income earned by the group's health-care professionals is divvied up according to a percentage agreed upon in each partner's contract.

The danger, says Stout, is entering into an inequitable contract.

"You would need to weigh what you bring to the practice," he says, "and what the practice brings to you. If you contribute 15 percent of the income, make sure you get back at least 15 percent of the profits."

However, Stout warns, some states--such as Illinois and Texas--prevent joint ventures between psychologists and physicians because state law stipulates that only medically trained practitioners can own a medical practice. In this situation, says Stout, the psychologist might opt to become an employee of the medical practice group rather than a partner. This means the psychologist won't get a share of the profits or be able to influence health-care or business decisions unless it's specifically stated in the psychologist's contract.

Regardless of whether a psychologist becomes a partner or an employee, Stout says, it's important to check the contract for a "noncompete" clause, which generally limits the psychologist's ability to practice after he or she leaves the medical group. A clause might specify, for example, that when the psychologist leaves the group, he or she can't work within a 50-mile radius of the medical group's office.

Psychologists faced with noncompete clauses might consider negotiating an exemption or turning down the offer, says Stout. Otherwise, he says, when they leave the medical group, they'll be forced to work at least 51 miles away from the group's offices if the court considers the contract enforceable and upholds it.

Practitioners who want to maintain a portion of their practice when they become partners or employees also need to be careful.

"Look out for language that prevents you from moonlighting, consulting with another practice or running a private practice in the evenings or on weekends," says Stout.

Psychologists also need to consider who's paying for supplies and routine administrative costs, says Stout.

"Economically, these things can make a huge difference," says Stout, "and when you figure out your net income, it might get thinner when you account for these fees."

Make sure the contract delineates such items as:

  • Whether you're compensated for time on call.

  • If you're paid for time spent at a conference.

  • Whether the medical group pays for psychological testing materials.

  • Who pays for your malpractice insurance. Sometimes, psychologists aren't covered under the medical group's malpractice insurance because the Internal Revenue Service sees them as contractors, not employees, says Stout.

What about renting office space?

Psychologists who rent office space from the medical group need to be aware of several scenarios to prevent an inadvertent appearance of impropriety. Here are two examples:

  • Renting office space from a physician could be seen as a potential conflict of interest, says Stout. A patient, for example, may misconstrue that the physician is making referrals to the psychologist to ensure the rent is paid. The simplest way to avoid this scenario is to make it clear that you evaluate all patients before treating them, says Stout. Delineate for the physician the types of patients you're qualified to treat, he says, and explain that if you aren't qualified, you will refer the patient to a qualified psychologist.

  • Make sure you're renting the space at fair market value, says Stout. If the physician gives you free office space or only charges a nominal fee, you can't treat Medicare patients. Generally speaking, it's a conflict of interest to refer a Medicare patient to a laboratory or health-care professional that a physician or an immediate family member has a financial relationship with because, says Stout, the Health Care Financing Administration considers that a self-referral.

Before you sign

Psychologists also need to be aware of potential legal consequences when signing a contract to be a network provider with a managed-care company.

A common misunderstanding among psychologists is that they must accept the contract as it's written, says Stout. But, he says, that isn't true.

"Don't be afraid to send the contract back with changes," he says.

Stout estimates that he's altered 80 percent of the contracts he's signed with managed-care companies.

Red flags to look out for include:

  • Care standards. Providers shouldn't sign contracts that call for the "highest standard" of care, because one could argue that such a standard would require a complete psychological evaluation, social history, blood work-ups and psychiatric consultation--all for the cost of what may have been calculated by the provider as psychotherapy alone.
  • One-sided indemnification. By signing a contract with this clause, you agree to be responsible for everything that happens to the patient, including problems that might occur in billing or with another provider. "You are signing a contract that indemnifies the company," says Stout. He suggests asking an attorney how to alter the contract so you're responsible only for actions you have control over within the scope of your practice as a licensed psychologist. The contract should also stipulate that the managed-care company is responsible for all the activities involving the business aspects of care.
  • Confidentiality. Managed-care contracts often aren't in line with state confidentiality laws, yet state law always takes precedence. So, ask a lawyer to draft language that says patient medical records will be provided in accordance with the state's confidentiality laws.
  • "Say-no-evil" and "gag" clauses. According to these clauses, which many states prohibit, if you say something considered to be negative about the managed-care company, your contract could be terminated. Renegotiate or don't sign a contract that includes this clause.
  • Restrictive covenants. Providers should be wary of any contract that limits them to a geographic area or type of service, since it might preclude them from contracting with other companies. Negotiate an exemption or don't sign the contract, he says.

Stout advises that your contract include:

  • Term-of-contract considerations. Many contracts are for only one year, but it's typically better to negotiate a longer contract so the terms don't change annually. Providers also need to stay on top of renewal dates for their contracts so they can be ready to renegotiate terms. Some contracts have automatic rollovers known as "evergreen" clauses.
  • "With cause" and "without cause" clauses. Most contracts include both. "With cause" allows the company to terminate providers from a network if they do something that breaches their contract, such as inadvertently billing a patient incorrectly or failing to send the managed-care company an updated copy of their license. In such instances, the contract allows for appeal and due process to determine whether the cause was indeed actionable. "Without cause" allows either the provider or the company to terminate the contract at any time for no reason as long as notice is given, typically 60 or 90 days, says Stout.
  • Contract termination. Providers should be aware of circumstances that would provide cause for their contract to be terminated. For example, a managed-care company might seek termination if the provider fails to send the company an updated copy of the provider's malpractice insurance. Or a provider could seek termination because the managed-care company isn't paying him or her within 45 days, as stipulated in the contract. "It's always good to know where trap doors are as well as emergencies exits," says Stout.
  • Liability for patient care. The contract should outline how cases are handled if the contract is terminated by either party. For instance, the contract should state that the insurer will pay for a set number of sessions while the patient makes the transition to another provider.
  • Appeals process. Not all contracts articulate an appeals process for utilization review decisions, but they should. Better companies typically provide independent, third-party peer reviewers.
  • Provider evaluations. The contract should delineate how providers are evaluated on their performance.

"Read the contract and understand it," says Stout. "If you want to be part of it, sign it or negotiate changes and then remember them. Keep track of what you've obligated yourself to do."

And finally, if you don't understand something in the contract, hire an attorney to explain it to you. Says Stout, "It'll be money well spent."

Don't be afraid to negotiate changes to your contract with a primary-care physician or a managed-care company, says Chris E. Stout, a specialist in contract negotiations.

When you enter into a partnership with a primary-care physician make sure your contract delineates such items as:

  • Whether you're compensated for time on call.
  • If you're paid for time spent at a conference.
  • Whether the medical group pays for psychological testing materials.
  • Who pays for your malpractice insurance.
Date created: 2000
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