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Jun 2014

The Risk of Incorporating Provider Manuals Into Contracts

By Susannah Dalhberg, Esq.

When entering a contract with a payor, it is important that hospitals recognize the effect of incorporating provider manuals (a.k.a. operations manuals) by reference into the contract. Often, contracts that incorporate provider manuals, do not have as  a requirement  that the hospital agree to the rights the payor provides itself in these documents. Therefore, by allowing the provider manuals to be incorporated, the hospital is opening the door to the payor giving itself rights to which the hospital would not otherwise agree.

Recently, SAC has noticed that some payors have required that hospitals provide notification of a patient’s admission – even if the hospital obtained a pre-authorization. Pursuant to the provider manual, failure to timely provide notification means the payor can deny the claim in full or in part, depending on how “timely” the hospital provided notification of admission. Another example of incorporated provider manuals measurably changing the parties’ rights and obligations is the incorporation of Milliman Care Guidelines (the “MCG”). The payors use the MCG to deny claims as experimental and investigational. When the MCG are not incorporated by reference into a contract, SAC can make strong arguments the MCG are not controlling and can point to other scholarly sources to prove treatments were medically necessary. In contrast, when the MCG are incorporated into a contract, they become the controlling standard.

When a hospital is faced with a denial based on a provider manual that was incorporated by reference into the contract, there are a few steps it can take. First, the hospital should look to see when the manual was written. If it post-dates the effective date of the base contract, then the hospital must check whether the contract allows the payor to incorporate new provider manuals into the contract, without the hospital’s prior approval. The hospital should also consider whether the provider manual materially changes the promises made in the contract. If it does, then there may be an argument  that the provider manual should not be considered part of the contract because it unilaterally changes the rights to which the parties had mutually agreed.

At SAC, we are aware of the issues caused by incorporating provider manuals into contracts and are actively fighting claims that have been unfairly denied due to provider manuals that materially change the terms of a contract. Let us know whether you have claims that are affected by this issue..

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