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Find Increased Revenues in Your Managed Care Contracts but Beware Co-Insurance Clauses...

Important issues with MCO contracts and guidance from Axiom.

We are often asked to get involved in Managed Care Contracting projects where we analyze contract terms and rates, address billing issues, negotiate new agreements, etc. In this era of revenue uncertainty, improving managed care contracts is one area where you may be able to partially offset Medi-Cal and possible Medicare rate cuts. Axiom can help. If you'd like to discuss your contracts with us, simply reply to this message.

There are many important issues to consider when entering in to Managed Care contracts. The following highlights an issue we have received a number of inquiries about. The issue relates to contract terms that can restrict a nursing facility's right to bill for Medicare Part-A or Part-B co-insurance. It is important that you be prepared to act on this issue if it comes up. Here is how it lays out.

  • The nursing facility enters into a contract with the Managed Care Organization (MCO)
  • The contract specifies out how much the MCO will pay the nursing facility when the MCO is responsible for the Patient's care. Assume, for this discussion that the MCO will pay $400 per day to the nursing facility when they, the MCO, are responsible.

So far so good (not commenting on the rate), this is a normal sounding MCO contract.

However, another section of the same contract may have language that states:

The Managed Care Organization will pay the SNF the (lesser of) the following amounts:

  • The SNF's Billed Charges- see note on charges below
  • The Agreed Upon Rate Between the SNF and the MCO
  • The Medicare Rate or Fee Schedule Amount
  • AND, if the MCO doesn't pay you, you are prohibited from attempting to collect from the patient directly

Below we will explain why this language is problematic and how this will lose you money. To understand this problem let's continue with the following assumptions:

  • The amount the MCO has agreed to pay is $400 per day
  • You admit a Medicare Part-A patient that classifies into a RUG IV category with a $600 per day rate
  • This patient ALSO has a supplemental/co-insurance policy from the MCO in question
  • The Medicare Part-A patient is in the "co-insurance days" portion of the Medicare Part-A stay
  • The Medicare Part- A co-insurance amount (for days 21-100 is currently $141.50 per day

 Remember, you will be paid the lesser of:

  • The SNF's Billed Charges: Assume $700
  • The Medicare Part-A PPS Rate Assume $600 of this amount
    • Medicare Pays: $458.50
    • The Patient would normally be responsible for the Medicare co-insurance amount of $141.50
  • The Agreed Upon Rate between the SNF and the MCO: Assume $400

The lowest amount is the MCO contract rate. But here's where it gets problematic. In the agreement it also states that the MCO will never pay the nursing facility if the nursing facility gets paid more than $400 from ANY combination of sources.

So, since Medicare has paid the nursing facility more than $400, the MCO will NOT pay the co-insurance portion of the Medicare Part-A claim, even though the patient has a co-insurance policy with this MCO. In addition, it has agreed through the MCO contract NOT to collect the money from the patient either.

BOTTOM LINE - Under this arrangement the nursing facility loses the Medicare Part-A co-insurance amount.

Note on Nursing Facility Charges - Remember the MCO contract also restricts payment to the nursing facilities charges. Be CERTAIN that when you set your charges, they are high enough to exceed the contract amounts in all MCO contracts. 


Review all you MCO contracts carefully to make sure there are no problematic terms like the one described above. It is highly advisable to utilize a qualified health care contracting expert to interpret any contract provisions you are not certain about and to help you draft language that is acceptable and will ensure your rights are preserved.

If you are attending the CAHF Quarterly in San Diego next week, Mike Lesnick from Axiom and Mark Johnson from Hooper, Lundy, Bookman will be presenting more information like what you see here on the topic of Managed Care Contracts. Make it a point to attend this talk. 

If you need more information or guidance on anything you have read here, please reply to this email or call us at888.66.AXIOM.