Your Healthcare ADR Toolbox: A Primer on Mediating Provider Reimbursement Dispute
How These Disputes Arise: A Simple Overview
A provider (hospital, physician, or other medical professional) renders care and treatment to a patient, who is usually enrolled in a health insurance plan (or is covered by a government benefits program such as Medicare or Medicaid). The provider seeks payment for its professional services by submitting a reimbursement claim to the plan. Frequently, the plan has delegated payment responsibility, in conjunction with delegation of management of the care of the plan’s enrollees, to medical groups or physician organizations (referred to in some jurisdictions as “delegated payors”).
Who bears what responsibility for payment of a patient’s care and treatment depends in large part on whether there is a contract for medical services between the provider and plan (and/or its delegated payor). It also can depend on the terms of an agreement between the plan and payor, which usually define under what circumstances a payor is financially responsible for which services. Whether between plan and provider, payor and provider, or plan and payor, these contracts typically specify which particular test(s), treatment(s), and/or medication(s) are to be reimbursed, by what entity, at what rates, and under what conditions.
While they are intended to promote certainty among two or more parties, the reality is that contracts can provoke disagreement. It should come as no surprise that, in the complex business of healthcare, disputes often emerge over which entity is responsible for paying provider(s) how much for what medical service, treatment, and/or medication that the provider(s) rendered to the plan’s member.
Many times, especially in the context of emergency services, there is no contract between the provider, on the one hand, and plan or payor, on the other hand. An individual in need of emergency care usually rushes to the nearest hospital without regard as to whether her or his health plan has a services contract with the facility. Under these circumstances in many states, the plan or payor can still be obligated to reimburse the provider for the “reasonable and customary” value of its services. Disputes exist over, among other things, the reasonable value of the services rendered and whether and, in many instances, to what extent such obligation extends to post-emergency treatment and hospitalization.
Three C’s help explain why mediation is a helpful tool to settle these disputes, regardless of if they arise in in-network or out-of-network contexts.
Whether or not they are contracted, providers seek payment for their services by submitting patient-specific claims to insurance plans or their delegated payors. Claims for reimbursement contain a trove of personal information about the patient, her/his health history, and the medical condition(s) and treatment(s) for which reimbursement is sought. This is called protected health information, or PHI.
Two concerns pervade disputes between and/or among providers, payors, and plans: (1) patient PHI contained in the claims for reimbursement, and (2) the terms of the contracts between and among the managed care actors (especially terms pertaining to billing rates and compensation for healthcare services).
Both PHI and contract terms are protected from disclosure. Federal and state privacy laws require that PHI be kept confidential. The contracts themselves nearly always require that most terms remain confidential, especially those pertaining to billing, payment, and compensation for services. (Actors in the healthcare arena typically treat these terms as proprietary business information.)
Confidentiality is the keystone of mediation. Through a mediated settlement, the parties can make certain that PHI and contract terms are kept private. It is worth noting that, in many cases, confidentiality is an option in litigation via protective orders and sealed court records. These court-controlled mechanisms, however, are more burdensome and expensive, as well as less predictable and collaborative, to the parties. In litigation, confidentiality requires the parties to jump through several possible hoops, such as redaction, in camera review, and motions for protective orders, all of which consume lawyers’ time and clients’ money and many of which are less reliable to ensure confidentiality than an agreement between the parties.
A dispute over provider reimbursement can involve individual claims for services to hundreds if not thousands of patients over the course of several years. It is not unusual for a claimant to be a large hospital system (with multiple facilities) or medical group (e.g., affiliated associations of specialists) that initiates thousands of claims for reimbursement in a single demand, lawsuit, or arbitration. Mediation allows the parties to work together to define collectively, in a collaborative process, the universe of specific claims or sets of claims that are being settled. A dispute over provider reimbursement can involve individual claims for services to hundreds if not thousands of patients over the course of several years. It is not unusual for a claimant to be a large hospital system (with multiple facilities) or medical group (e.g., affiliated associations of specialists) that initiates thousands of claims for reimbursement in a single demand, lawsuit, or arbitration. Mediation allows the parties to work together to define collectively, in a collaborative process, the universe of specific claims or sets of claims that are being settled.
Clear agreement on the scope of the claims being resolved is essential to a fair and final settlement of a reimbursement dispute.
In the context of services rendered by providers contracted with payors and plans (i.e., in-network providers), the parties have contractual and business relationships that transcend the claims at issue in the dispute. Frequently, they have broader and far-reaching relationships that typically affect the care and treatment of thousands, if not tens of thousands, of plan members or payor enrollees. Mediation allows the parties to mitigate the antagonism inherent in litigation, reduce the tension that the current dispute has created, and structure a settlement agreement to help preserve relationships.
In the context of services provided by non-contracted (i.e., out-of-network) providers (which many times is the case when a provider performs or provides emergency services), cooperation and collaboration are equally important, as the actors operate within a relatively small sphere of healthcare services and will undoubtedly encounter each other in the future as they work together to provide patient care.
Disagreements between and among the prominent actors in this area — providers, payors, and health plans — continue to proliferate. Mediation offers a useful and effective tool to achieve a constructive and amicable resolution of these disputes.
- Mediation is a collaborative process, usually involving live (or virtual) interactive sessions, where parties use a neutral third party to resolve disputes through communication and negotiation. It typically is a voluntary process that requires the active participation of parties to a dispute. It differs from litigation and arbitration insofar as it is based on compromise, not winning or losing. It has become an increasingly popular tool to settle all kinds and sizes of disputes, including those among actors in the healthcare arena.
- This is an integral part of “managed care,” which is a widely used system for delivery of healthcare in the United States. Its aim is to manage the quality and cost of medical services provided to patient populations by using health maintenance organization (HMO), preferred provider organization (PPO) or similar provider network models. Reducing hospitalizations and improving overall health quality via early intervention and disease prevention are objectives of many managed care plans.
- There are also contracts between plans and delegated payors (e.g., physician organizations) whereby these parties agree to share the risk of medical care to the plan’s insureds and hence the cost of reimbursement paid to the provider. In addition to allocating risk for payment of medical services, these agreements frequently allocate benefits reaped from a managed care arrangement between plan and payor. Such benefits are normally in the form of savings or other cost recoupment to one of the parties. Sharing risk and benefits under such agreements is aimed at promoting efficient and effective care of large patient populations using fixed, periodic payments for defined sets of diagnosis and treatment. In such shared-risk scenarios, disputes between payors and plans often materialize over what triggers sharing risks and benefits and how sharing is done; given the complexities of these “shared-risk” arrangements, mediation is a useful and effective tool to resolve these conflicts as well.
- These conditions routinely include whether the plan or payor authorized the service that the provider rendered and/or whether the treatment was in fact “medically necessary.”
- See California Code of Regulations, 28 CCR 1300.71(a)(3)(B); Children’s Hospital Central California v. Blue Cross of California, 226 Cal.App.4th 1260 (2014).
- See, e.g., California Health and Safety Code §§ 1262.8, 1371.4 (discussing hospital’s obligations to contact patient health services plan and obtain plan authorization to admit patient for post-stabilization care to be able to bill and receive reimbursement for those services).
- Managed care contracts sometimes, but not always, require mediation as a prerequisite to arbitration or lawsuit. Many times these contracts require that the parties engage in some type of ”internal dispute resolution” process, which is something other than “mediation.” Even if the contract does not “require” mediation, there is rarely anything to prevent the parties from agreeing voluntarily to participate in this form of dispute resolution.
- See, e.g., Standards for Privacy of Individually Identifiable Health Information (Privacy Rule) implementing the Health Insurance Portability and Accountability Act of 1996 (HIPAA), 45 C.F.R. Part 160 and Part 164, subparts A and E.
- To promote candor and communication in mediation, many states have enacted laws that generally make mediation a confidential process. See, e.g., California Evidence Code §§ 1115-1129. Also, given that they define and control the mediation process, the parties can enter into a confidentiality agreement to ensure that all communications and conduct during the mediation remain confidential.
- In arbitrations, PHI and contract terms likewise are kept confidential generally through the confidential nature of the arbitral process, which typically is a creature of contract. And although arbitration is conceptually quicker and less expensive than litigation, the mere fact that it is contentious -- with “victory” as its ultimate objective – inevitably makes arbitration more burdensome, more expensive, and longer than mediation.
- Certainly, in litigation and arbitration the universe of claims that ultimately are adjudicated is also defined, but this requires proof of claims generally in one of two ways: (1) evidence of each claim for which reimbursement is sought, which usually requires proof of the medical services rendered as well as coding and billing on a claim-by-claim basis, or (2) sampling of claims and extrapolation of sample sets applied to the entire universe of claims in dispute. Inherent in these evidentiary processes, however, are conflict, time, expense, and uncertainty. Mediation allows parties to avoid these.
This page is for general information purposes. JAMS makes no representations or warranties regarding its accuracy or completeness. Interested persons should conduct their own research regarding information on this website before deciding to use JAMS, including investigation and research of JAMS neutrals. See More