Introduction
No one went into medicine to become an expert on contracts. In fact, many physicians in practice today never expected to have to deal with contract negotiations when they entered medical school. Unfortunately, with the emergence of managed care, the relevance of contracts in the practice of medicine has grown exponentially. This article is meant to give physicians a basic understanding of contracting principles and examples of how some contract clauses may pose real dangers to a physician and their practice, autonomy and financial well being.

Let me stress that this article is not intended to serve as a primer on contracts, and emphatically is not meant as a replacement for appropriate legal consultation. It does not constitute legal advice, nor is it meant to create any attorney/client relationship. What is intended is to give physicians some information which will heighten their awareness during the contracting process. Ultimately, it is intended that the physician reader will be left with a clear understanding of why obtaining legal consultation would be prudent.

Before getting to particulars, I would also like to begin with a disclaimer. In presenting this material I will review very basic contracting principles. This does not mean I have any doubt about the intelligence of any physician reader. None of you would have reached your status in life if you did not have a high level of capability. However, as the wife, daughter and granddaughter of physicians, I am also acutely aware of how time consuming and demanding medicine is. Many physicians are unwilling to expend additional time on legal affairs they never wanted to be involved with in the first place, and as a result costly mistakes are made. Hopefully this article will remedy that.

Contracts 101
I want to begin with some very basic contract principles; "first day of law school" distinctions that I am sure you all know, but bear repeating.

1. Words Are Important

A contact is nothing more than pages of "words" that legally bind people. The words are not only important they are the essence of your agreement. Why, then, do so many physicians sign a contract not knowing what those words mean? Many physician friends have confided in me that they are signing contracts they haven't even read. If this is how you operate, it is possibly because you have someone contracting on your behalf, which you can trust, but in my experience it is more frequently a function of repugnance, time pressures and a sense of futility.

Physicians frequently ask me if it really makes a difference what the contract says. Aren't they all "take it or leave it" anyhow? There are two possible answers to that question. Anecdotally I hear that most insurance companies will have such a response as their first salvo, but if challenged by a physician1 will actually be willing to move closer to a true negotiation. Assuming that is true, it makes good business sense, if a majority of physicians will accept the "take it or leave it" approach. If the answer for you is truly "yes", [i.e. that you really are left with the contract as drafted or no contract at all] then you do not have any negotiation power sitting at the table, and you need to remedy that.

A lack of negotiation leverage has nothing to do with your professional expertise or you value as a physician. It has everything to do with the field of medicine you practice and your geographical location. Are you in demand? Are their colleagues with similar training and expertise waiting to sign this contract if you decline? Now you have a problem. There are very specific rules and warning that control how you might combine forces with these colleagues for contract negotiation purposes, in particular concerns about antitrust violations. These concerns are beyond the scope of this article, but must be addressed whenever a group such as this is formed. Having said that, a body of physicians will frequently have far more bargaining power at a table than a single doctor. How do you know if you need to get yourself in a better negotiation position? You only get the "take it or leave it" contract. What do you do about it? You combine forces with other physicians and providers with appropriate legal consultation.

Last but not least, let me dispel the rumor I have heard among your colleagues that a managed care contract is non-negotiable. The definition [Black's Law Dictionary, 5th ed.] includes: "the writing which contains the agreement of parties." Trust me. These are negotiated instruments, and anyone who tells you otherwise is pulling your very weary leg.

2. No Oral Promises

Let's make this quick. There is no such thing as an oral modification of a written contract. I don't care how much the person across the table means what they say; they are not promising anything with any legal significance. If you are told "don't worry, we never exercise that clause", you must tell them to cross it out and initial the changes. Contract modifications do not require a lawyer, an entirely new document and related fees. A handwritten modification, in pen, in the margin, initialed by both parties, is sufficient. Don't settle for anything less.

3. The Devil Is In The Details

I like to joke that the people writing contracts put nothing but filler in the first 5 pages, because they are waiting for you to fall asleep. It is only when your eyes are rolled back in your head and there is a pool of drool on your desk that they get to the really scary stuff.... Obviously that is only a joke, and the entire contract is important, but there are some very important things buried deep in the text, and it is just those "details" that will get you into trouble [see examples below].

4. You Will Only Know There Is A Problem.... When There Is A Problem

This is particularly true in the employment contract context.2 Physicians are frequently heard to explain, "we don't need a contract, we've been buddies throughout residency." It is precisely because you are friends that you need a contract. When the unforeseen happens, and you are out of work for months at a time with a disability or a sick family member or a problem pregnancy, do you want to rely on your friendship or a carefully constructed agreement? It is awkward to have to talk about these possibilities when you are in the first flush of a new practice, but it is far better to agree beforehand how you will deal with business concerns, profits, losses and personal disasters. Write a good contract and save that friendship.

The same is doubly true when you are signing on with strangers. Nobody went into medicine because they hate mankind. For most of you, your attitude about your fellow humans is both your greatest attribute and your greatest weakness. When you have relocated your life and family and are facing those extraordinary student loans that have come due you want to have more to rely on than the "word" of your new partners. Trust me.

This principle does apply to managed care contracts as well. It is precisely because these contracts don't usually "blow up" that physicians may be cavalier about details. The rule of thumb should not be how the business relationship works in the "good times", but what dangers are possible when the relationship goes sour. When you are standing against a corporate entity with all their matching lawyers, don't you want the outcome of the dispute dictated by a well-constructed contract?

Eight Ways "They" Will Get You In Your Managed Care Contracts"

Before I begin, I need to give due credit to the American Medical Association and the "Model Managed Care Contract" [2nd ed., 2000] they have drafted. This brings me to one of my favorite questions: Why is buying a house easier than signing a managed care agreement? Have you noticed that real estate contracts are standardized, and other than some very important blanks [price, closing date, escrow, etc.], you don't have a high level of concern about what may be hidden in the contract language?3 Wouldn't it make sense if we had the same degree of uniformity in managed care contracting? That is the concept behind the AMA proposed contract, and as such you will see that it is a reasonable, fair approach to both sides. Also worth noting is the AMA has annotated their sample contact extensively, and it is an outstanding teaching tool.4

In writing this material, I do not mean to imply that all insurance companies are mean, malicious, and untrustworthy. As is true in any profession, there are members of that community that have integrity, and those that do not [believe it or not, the same could be said for lawyers]. At the same time, the lawyers writing contracts for the managed care industry have a professional duty to protect their client's interests, and it would be inappropriate for them to be watching out for you. So be warned.

For purposes of this article, I am going to use Big Bad Wolf Insurance Company ["BBWIC"] as my example. BBWIC is the meanest insurance company in your area, although their representative is quite personable and attractive.

It is Friday afternoon, your family is at home waiting to go on vacation, there is an unscheduled acute in room #3, and you are an hour late. This contract needs to be signed today. Lets see what possible surprises are lurking in that seemingly innocuous document.

1. "Appendix A" is Blank or Missing

This scenario is far too common to be humorous. Appendix A is [almost without exception] the part of the contract that confirms what you are going to be paid. How, pray tell, do you know what you will be reimbursed if it is not completed before you sign? It is my understanding that many intelligent physicians are doing just that. They are signing contracts without any idea of what they will be paid. "But the representative and I had that discussion...." you might say. We all know that is meaningless, right? [see above].

When you sign this contract (without an Appendix A) with BBWIC [the worst of the worst] they will interpret that to mean they can pay you anything they want! You are appropriately alarmed and demand a full report of their payment codes before signing. Later that afternoon your fax is completely dominated by reams of material constituting ever-possible payment guideline for every known treatment. It will take your office manager days of research to figure out what you will be paid. You are being toyed with.

The bottom line is this: find out exactly what you can expect for reimbursement, at least for your top 10 to 15 codes. If you can't get that information from BBWIC now, how much better will it be dealing with them after your signature is on the contract?

2. Risk Pools

Risk Pools are not uncommon and may not even be avoidable [depending again on how much clout you have at the bargaining table]. However, you obviously want a risk pool you can live with.

What is a "risk pool"? It is a part of the contract whereby you agree that BBWIC can withhold a certain percentage of your billings to protect them in case their costs are not what they expected. That's right. You are basically insuring them. So you need to be warned that when you actually get Appendix A, and you know what you are going to get paid, that is actually a misperception. You are going to get that minus whatever percentage you "agreed" to in signing the contract. If your practice stays within BBWIC's expectations, they will refund the risk pool to you as a bolus at the end of the contract period.

Now, let's say you can't get rid of the risk pool. You know that you run a high-quality medical practice that is also extremely cost efficient. You know you will be able to operate at your level of professionalism and still meet BBWIC's expected margins. Hey! You even are looking forward to that nice return at the end of the year to help finance the year-end bonuses you want to be able to give your deserving employees!

What you don't realize is BBWIC has combined your practice with other practices in your region. A classmate from medical school (that you definitely wanted to vote off the island) is in your area with an inefficient, costly and professionally borderline practice. Unbeknownst to you, BBWIC has placed you in the same pool! Surprise! BBWIC notifies you at the end of the year that they just can't return that money, because of losses incurred by that other practice.

By the way, if it makes it any easier, you should know that you probably weren't going to get your risk pool back anyhow, because the contract was so vague it did not supply any criteria BBWIC was bound to follow in making that determination.

The bottom line? If you can't get rid of a risk pool arrangement, at the very least be sure it is based on a practice you have control over [i.e. yours] and that the criteria for any refund are explicit, reasonable and predictable.

3. Indemnification

This has been a big word in medical circles in past years. "Do I want to indemnify?" "Do I want them to indemnify me?" Let me start with what we are even talking about.

Indemnification may be found in many types of contracts. Basically it is an agreement that if any problems arise, you will assume the burden of any loss to the other party [BBWIC], including the cost of their legal representation. By the way, you have decided to invest in high-quality liability insurance [as behooves you], but that policy does not cover costs incurred by BBWIC. So in a nutshell, your contract with BBWIC holds you responsible for paying their costs out of your pocket.

"Why [you are asking yourself] would I do that?" Physicians do it all the time.

This is probably less true in recent years, as physicians have grown wise to the indemnification problem. However, the next chapter in the indemnification story is a possible bilateral indemnification. (This is a legal term for an "I'll scratch your back if you scratch mine" agreement.) Doesn't that make everything all right?

Let us imagine that a problem arises and you don't want to pay BBWIC's bills. Can't they pay yours? Even if you can enforce that part of the contract, do you want to?

As I said before, you have invested in a good liability insurance policy. One of the reasons it is good [and more expensive] is because if you ever need them, the very best lawyers available will represent you. Now you want BBWIC to indemnify you? They have a buck ninety-five policy, which they got from another branch of their own company. Their buck ninety-five lawyer awaits you. Does this make sense?

My suggestion is this: Let's all just pay our own way. Nobody indemnifies anyone. You keep your Cadillac policy [you had to anyway] and we'll leave BBWIC with their own.

4. Everything Seems to Be Okay- But Next Month Your Reimbursements Suddenly Change!

You did everything right. You had the "Appendix A", you calculated the risk pool, and you told your spouse that you were going to have to get the economy car instead of the SUV. Your practice was percolating along and then your office manager is in your doorway telling you BBWIC has changed your reimbursement schedule. How did that happen?

Your contract allows for unilateral changes without notice. Why? Because you did not require a contract that required changes only with bilateral notice and agreement.

5. What Is A Clean Claim?

There are state laws (as well as federal legislation attempting to get through Congress), which may have clarified that issue for some of you, depending on where you practice. In the absence of controlling state law (and it is possible BBWIC has drafted a contract that exempts themselves from that state law) and without a federal law settling that issue once and for all, the answer to the question is: a "clean claim" is whatever the contract says it is.

If BBWIC says a "clean claim" will be paid in a reasonable period of time, but a "clean claim" is a claim filed on green paper while your Billing Manager stands on one foot whistling "Rule, Britannia", guess what? Get my point?

6. You Don't Realize You Are Being Bound By Policies & Procedures You Haven't Seen

It is not at all uncommon to have extensive additional information included in a contract by incorporation. What this means is the contract includes those details by specifically referencing them in the contract; when you sign that contract you are agreeing to those requirements as well.

These additional details [usually referred to as "policies & procedures"] may include some very important information. Who will be on the other side of the utilization review call? What does constitute a "clean claim"? What are my appeal rights? What managerial duties are you assuming?

You need to get a copy of that policy & procedure manual. In the past, a common excuse for not distributing them was the expense. However, I do not believe this argument is valid in an era of CD's, E-Mail and other means to significantly reduce the bulk weight and therefore cost of shipping.

Are you going to read that policy & procedure manual cover to cover? Probably not, but there are salient points you or your representative will want to check. Having said that, ownership of a full copy has another legal role. Should a dispute arise between you and BBWIC that involves a matter addressed in the policy & procedure manual, how will you prove the copy they produce in court is the copy that was controlling when you signed the contract? Owning a copy5 will prevent any switching in BBWIC's favor that cannot be challenged.

7. Termination

All contracts allow "escape clauses". Under certain circumstances you can fire BBWIC - they can fire you. However, the rules for termination should be fair.

In particular, you should be cautioned about the distinction between termination "with cause" and "without cause". To be terminated "with cause" should be a significantly higher hurdle. The list of what constitutes "with cause" should be stated somewhere clearly, and it should be a list we all agree on. Your drug ring was busted. You're in jail because your brothel was raided. You have had so many liability claims you are now uninsured and uninsurable. You lost your license. These things we would all agree are factors that would negatively impact your relationship with BBWIC.

However, let us imagine you have taken BBWIC to task because they have treated you unfairly. You are absolutely justified; you are fighting the good fight. BBWIC sees you as a thorn in their side and they want to get rid of you, "With Cause" or "Without"?

BBWIC will be able to get rid of you "without cause" as long as they comply with whatever provisions are in the contract [ex: notice]. However, the contract BBWIC handed you is silent as to what constitutes "With Cause." They are angry and decide to characterize this as "Termination With Cause".

Why do you care? This information, once discovered by others in the industry, may make it difficult for you to contract with the companies you want to do business with. Cinderella Insurance won't take you as a provider because Big Bad Wolf Insurance Company sullied your reputation. And the contract you signed let them.

8. You Found the Perfect Contract

This article is based on a presentation that I deliver as part of SMA's daylong seminar offered to resident programs.6 The logical response of many residents is a desire to sign the "perfect" managed care contract. They want to build up their practice with happy patients under that happy agreement.

Imagine they do find "The Perfect Contract". Appendix "A" is attached, the risk pool is reasonable, there is no indemnification, it only allows for bilateral changes, and the definitions for "clean claim" and "termination with cause" are clear and agreeable. They are the happy owners of the policy & procedure manual. Life is good, the kids enjoy their school and the mortgage payment on the new house is manageable.

But let us follow our happy new physician as they establish their practice. The waiting room is filling up with those covered lives. The fees are paid on schedule. "Bumps" start to appear over time, and then Lo and Behold! The company wants the young doctor to agree to changes in the contract (remember they had a bilateral notice and agreement clause). Under the modifications the fee schedule decreases, the office management becomes more cumbersome with unreasonable rules and regulations; all those perfect details are slipping away! Of course our young physician won't sign!

But wait! Without agreement, the company [Snidley Whiplash Insurance] will terminate the contract. All those happy covered lives gone! And that is when our tragic hero first understands. The practice is basically "owned" by the insurance company. The modifications will be agreed to because the physician knows without saying "yes", the contract will be terminated, the patients will leave, and the practice will die. Unfortunately, the mortgage holder on the new little home will not care.

It is a cautionary tale, but here is the moral. No contract is "perfect" unless you can walk away from it. To the extent possible, limit the number of patients you have under any particular plan to a number you could survive if there was an abrupt departure. Remember, your patients love you, but they will follow their insurance.

Conclusion
In this limited space I have covered huge areas of law in a simplistic fashion. I do not mean to imply you wouldn't challenge any of these scenarios, but do you really want to? Sure, you can challenge the termination "with cause" [see above], but is that how you want to exhaust your time and resources [I strongly doubt your insurance carrier is going to pick up those legal fees]. Wouldn't it be smarter to spend more energy on getting the contract "right" to begin with?

Ultimately this gets to the most frequently asked question: "Do I really need to hire a lawyer to review all of my contracts?" Similarly, after speaking on this topic I am invariably approached by at least one physician asking for a good contracting text for further study.

As I said when I started, I do not doubt the intelligence or ability of any physician, but is this really an appropriate use of your valuable time? The sad truth is this. Even if you can find the time to study this topic in detail, just as you become comfortable with legal nuances of certain words and phrases, the lawyers at BBWIC will just change the words. For example, "indemnification" will not appear as a bold type subheading of the contract, and even on a more careful inspection a contract can include an indemnification agreement without ever using the word.

I truly believe your time is better spent investing precious studying time to your profession, and you should let the lawyers handle theirs. I am not advocating you incur outrageous hourly fees for contract review, but I can tell you that there are attorneys available for this purpose at a very reasonable rate.7 And the money is well spent.

I sincerely hope this article has, in fact, convinced you of 2 things: 1] that you will never sign a contract unaware of the dangers lurking within, and 2] that you will never sign a contract without the assistance of appropriate legal counsel.

1. Throughout this article I will use "physician" as a singular entity, but by extension certainly include any physician group practice or negotiating body.
2. Employment contracts are beyond the scope of this article, although many of the same principles apply.
3. I use this as an easy example, but do not want for a second to detract from my brethren and "sisteren" of the real estate Bar. Believe me, you need legal advice on that side as well.
4. Many [if not all] of the examples mentioned in this article are discussed in greater detail in AMA's Model Contract. If you would like additional information about any of these issues I would direct you to that resource. For more information, contact AMA through their website [www.ama-assn.org] 
5. At the very least have one copy available to physicians in your negotiating body [PHO, IPA, etc].
6. For more information on the Resident Workshop, consult the Southern Medical Association's website [www.sma.org]
7. For example, the Texas Medical Association has reached an agreement with at least one attorney to provide managed care contract review for a set fee. For further information consult the TMA website. [www.texmed.org ]