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Oct 2015

Hospitals: Did You Check To See Whether the Payor Signed Your Letter of Agreement

We take this opportunity to share a cautionary tale with the hope you will avoid some of the pitfalls that can come with negotiating letters of agreement (“LOA”) with cost-containment companies.

It is not unusual for a hospital to enter into a LOA with a health plan for a specific hospitalization when the parties are otherwise non-contracted. Sometimes the LOAs are entered into prior to a planned procedure and sometimes an agreement is made following the hospitalization. Cost-containment companies are often used by health plans to negotiate the LOA’s on their behalf. Typically, the payor or the health plan is seeking a discount from the hospital’s usual rates. This particular case from one of our clients caught our eye. Our hospital was contacted by a cost-containment company after treatment was rendered to a health plan member.  The cost-containment company requested a discount off the hospital’s billed charges and sent a proposed LOA to the hospital. The LOA essentially provided that the hospital would accept 80% of its billed charges as payment for this particular hospitalization. However, there was no counter-promise in the LOA that required any party to pay the claim. The LOA also contained a provision that relieved the cost-containment company of any financial responsibility for the claim. The hospital was instructed to sign the LOA if the terms were acceptable.

The hospital signed the LOA, however, the LOA was not signed by any other party, nor were there signature lines for any other party. Although a party was listed in the LOA as the “payor,” that party was merely the third party administrator. A small payment was issued by the third party administrator but it was less than the 80% rate contained in the LOA. Unfortunately, since the payor was neither identified as a party to the LOA, nor did it sign the LOA, it will be very difficult, if not impossible, for the hospital to enforce the terms of the LOA.

We recommend that hospitals remain diligent in confirming the identity of payors  and obtaining appropriate  signatures when entering into LOAs..

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