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KOMahonyLaw - Law Office of Kevin P. O'Mahony
Healthcare, Business
& Litigation Services

Healthcare Provider/Provider & Provider/Payer Disputes

At the Law Office of Kevin O’Mahony, we represent healthcare providers and businesses in both provider/provider and provider/payer disputes. Providers are the hospital or health system, physician or physician group, laboratory services provider, ambulatory care center, dentist, chiropractor, optometrist, therapist, nurse or other party that provides healthcare services and seeks payment for one or more claims from a payer.

Payers or “payors” (both spellings are often used) are the health insurance companies or other parties responsible for: (1) paying all or part of a claim relating to the rendering of healthcare services; or (2) administering the payment of such a claim for another entity. Included as payers are third parties who administer self-funded plans on the plan sponsor’s behalf. Not included are employers who sponsor benefit plans.

Disputes between providers themselves (not involving payers) can arise in multiple contexts. Many, if not all, of those contexts are discussed on the other individual Practice Area pages of this website. We invite you to review those pages, and contact us if you wish to schedule a consultation to discuss a dispute in any of those areas. But Provider/Payer disputes, which are discussed here, have some distinct characteristics, including:

  • The provider sector and the payer sector have ongoing, intertwined relationships with disputes that resurface.
  • These parties must interact with each other more than most other sectors of the healthcare industry. For example, there are patients who are members of payer plans who need ongoing services from providers such as hospitals and physicians.
  • And there are details unique to claims for payment dealing with, for instance, physician reimbursement and treatment coding, that lend themselves to more efficient and less costly handling.

Third-Party Payer & Managed Care Contracting

The United States’ third-party payer healthcare system drives most healthcare providers to enter into contracts with health insurers and managed care organizations. “Managed care” generally describes methods that are intended to lower healthcare costs and improve patient care. Theoretically, managed care delivery systems lower costs and enhance quality of care by providing financial incentives to physicians, other healthcare providers and patients to choose less expensive care options, reduce in-patient hospital stays, increase outpatient surgeries, closely monitor utilization and high-cost patient situations, and share in costs. Unfortunately, managed care also has complicated and created some new problems in our healthcare system, which make it difficult for some physicians and other providers to deliver healthcare profitably without what many consider to be unreasonable (if not unbearable) administrative burdens.

There are multiple types of managed care organizations with varying components, business structures and compensation methods. Some managed care organizations are comprised of only physicians, while others are a combination of hospitals, physicians and other healthcare providers. Specific examples are Independent Practice Associations (“IPAs”), Physician Hospital Organizations (“PHOs”), and Preferred Provider Organizations (“PPOs”) (which also include an insurer or third-party administrator).

Typically, physicians or medical groups enter into a series of contracts (directly or indirectly) with managed care organizations that require the doctors to agree to discounted fees for their services. In exchange for the physicians’ agreement to provide services at lower rates, the managed care entities are responsible for “steering” patients to the physicians or group. A physician or medical group may contract with an IPA or PHO that contracts with a PPO, health insurer or large employer in an arrangement that allows for a third-party payer (an insurer or employer health plan who pays for healthcare) to pay the provider when claims are submitted for patient care. The PPO organizes “networks” of providers that may be included in a health insurance plan pursuant to contracts called “network agreements.”

A hospital, medical group or physician may have multiple contracts in order to participate in a particular network. And a hospital, medical group or physician may participate in multiple networks to obtain additional insured patients. Hospitals, physicians and other healthcare providers may also form “alliances,” as another method of managing and (hopefully) improving care, monitoring utilization, and reducing costs.

While managed care contracts can significantly increase a healthcare provider’s patient volume, participating in networks and other managed care arrangements can be complex and pose risks for providers. Indeed, there are both business and legal risks associated with these contracts.

Providers are in the business of keeping their patients healthy. But confusing contracts filled with complicated provisions and legalese can distract providers from their core mission of improving patient outcomes. Consequently, a provider should obtain the assistance of a qualified healthcare attorney with relevant experience before signing any third-party payer or managed care contract.

Key Terms & Components of Payer Contracts Providers Should Know

Payer contracts define and explain a provider’s reimbursement arrangement for delivering healthcare services to patients covered by a specific health plan. The contracts cover everything from reimbursement rates and provider networks to medical necessity and provider credentialing.

Understanding the terms and provisions in a payer contract is essential to ensure correct and timely reimbursement, prevent claim denials, achieve a smooth revenue cycle, and keep a practice running. Knowing the ins and outs of each contract is crucial to drawing patients to the practice or facility, and being able to offer comprehensive and reimbursable healthcare services to those patients.

Despite the importance of payer contract knowledge, providers (and even their practice administrators and financial advisors) often feel less than confident going up against payer organizations with legal departments, financial analysts and advanced computer software systems. The entire process of contracting and renegotiating with payers is complex, lengthy and time-consuming. And this often causes providers to feel they are at a disadvantage.

However, knowledge is power. And the more providers and their practice administrators know about the terms used in payer contracts, the more effectively they can negotiate and renegotiate contracts to maximize reimbursement and avoid disputes.

But when disputes do arise (as they sometimes unavoidably do), our healthcare, business and litigation law firm can help. Below are some of the key terms and issues involved in contracting and resolving disputes with payers.

Allowed Amount

According to the Department of Health & Human Services (“HHS”), the “allowed amount” on a payer contract is the maximum amount that a payer will reimburse a provider for a covered healthcare service. Some contracts also refer to the allowed amount as an “eligible expense,” “payment allowance,” or “negotiated rate.”

The allowed amount is what the payer will reimburse for services defined as covered or in-network. This rate may not fully cover provider charges. And patients may be responsible for covering the balance between the allowed amount and the provider charges.

Medicare, for example, sets its allowed amounts for specific services in prospective payment systems by care setting and the Physician Fee Schedule (“PFS”). Private payers tend to use Medicare’s rates as the basis for building their own allowed amounts.

Fee Schedule

A “fee schedule” is a list of fees or payments for specific provider services or supplies, according to the Healthcare Financial Management Association (“HFMA”). Each payer contract should have a fee schedule attached, and providers should push payers to provide a complete fee schedule. The list contained in that schedule should define all covered services and the negotiated rates for each service.

The Centers for Medicare & Medicaid Services (“CMS”) manages the Physician Fee Schedule (“PFS”) for Medicare. Using the PFS, CMS reimburses for physician services under Medicare Part B. Medicare Part A, on the other hand, reimburses for hospital, skilled nursing facility, hospice and home healthcare services provided to Medicare beneficiaries.

Each Current Procedural Terminology (“CPT”) code receives a relative value unit (“RVU”), which then is adjusted for the Geographical Practice Cost Index and the national conversion factor. The result is the Medicare allowed amount for a specific covered service. And other payers (health insurers, etc.) use similar processes to determine the allowed amount for each covered service listed on their fee schedules.

Clean Claim

A “clean” claim is a claim that payers can process without needing additional information, according to HFMA. Incomplete clinical documentation and coding, incorrect patient information, missing physician approvals, and other claim errors result in reimbursement delays and claim denials. Failing to ensure a claim is complete and correct, otherwise known as “clean,” can seriously impact provider revenue.

Payer contracts define what a payer needs to ensure timely reimbursement of claims. So, to ensure financial survival and (hopefully) success, providers need to pay close attention to the terms of those contracts to ensure that their claims are clean.

Providers should also track their clean claim rate to evaluate their revenue cycle performance. Higher clean claim rates indicate that medical billing, coding and claim creation processes are running properly and revenue is being collected efficiently.

Medical Necessity

Payers only reimburse providers for services that are deemed “medically necessary.” Payers define medical necessity in their contracts. So, again, in order to ensure financial survival, providers must pay close attention to and understand what types of services will be covered under their payer agreements.

According to HHS, healthcare services or supplies that are needed to diagnose or treat a condition, illness, disease, injury or related symptoms are considered “medically necessary.” Medically necessary services also must meet generally accepted standards of medicine, according to HHS.

Medical necessity clauses may also limit the number of times providers can perform a procedure or deliver specific care in a specified time period. And for Medicare and Medicaid, the National Coverage Determinations and Local Coverage Determinations impose limits on how many times a provider can deliver a medically necessary service within a certain period.

Providers should be sure they understand each payer’s definition of medical necessity, because definitions may vary (at least slightly) by contract. And the provider’s own definition or understanding may be different than the payer’s. Being on the same page is important not only to receive reimbursement for services. It is also crucial to avoid civil liability and even criminal penalties. That is because billing payers for services that are known to be medically unnecessary can result in healthcare fraud investigations and punishment.

Providers need to keep in mind that what they may consider to be an “innocent mistake” or mere “billing error” may be characterized by the government or a private payer as “fraud.” So, careful attention to submitting clean claims for only medically necessary and appropriately delivered medical services is crucial for providers to survive financially and legally.

Network Requirements

Network requirements are another key component of payer contracts. Such provisions detail the networks in which provider organizations can participate, as well as the credentialing requirements providers must meet in order to join a network.

Providers should ensure that they join appropriate networks for their practice to generate revenue and increase patient volume. Network requirements in payer contracts are becoming even more important as the number of value-based contracts increases.

“Value-based care” (reimbursement that ties payments for care delivery to the quality of care provided and rewards efficiency and effectiveness, as opposed to fee-for-service reimbursement, which pays providers retrospectively for services delivered based on bill charges or annual fee schedules) is producing different networks for different products. And there almost always is language in contracts that pertains to credentialing criteria that providers have to meet in order to be included in a network.

However, a contract may also have language that enables the payer to pick and choose which physicians or individual providers can participate in which networks. From the provider’s perspective, a payer contract should not contain language that allows the payer to select a provider organization’s network. And network changes should be tied to legitimate credentialing criteria only and not arbitrary selection of physicians.

Unilateral Amendments

Payer contracts that contain unilateral amendments mean that payers can change contract provisions without the consent of (and sometimes without even notifying) the provider. If a contract contains unilateral amendment language, payers can change anything from reimbursement rates to clean claim definitions, and even network participation.

Most payer contracts state that the payer can amend the contract at any time. In the worst cases, they state that no approval is required from the provider at all. In even the best cases, they usually indicate that a provider has only a limited period of time, typically 10 to 30 days, to object to a proposed amendment in writing.

Otherwise, the amendment automatically goes into effect. Providers should therefore be aware of unilateral amendment language in their contracts, and attempt to negotiate with payers to exclude (or at least improve) such language in future contracts, to the extent possible.


Payer contracts should clearly define the contract’s period and the circumstances under which the provider and payer can terminate the agreement. There can be an initial “term” (typically one year) before the contract automatically expires. Or, it may automatically renew unless specifically terminated. And there usually are both termination “for cause” and termination “without cause” provisions.

With regard to terminations for cause, there normally is a “right to cure” provision, providing a limited time to remedy or fix a material breach or violation of the contract. But for serious enough breaches (such as license suspension or revocation, conviction of a crime, etc.), the termination can be automatic and immediate. Termination without cause provisions normally specify a set number of days (typically anywhere from 15 to 180 days) in which a contract can be terminated for any or no reason at all, by simply providing written notice of termination to the other party. Post-termination duties for both parties should also be specified in the contract, including obligations for the payer to pay any outstanding compensation to the physician or true-up based on a pro rata portion of the performance year, etc.

Dispute Resolution

Statistical analyses have shown that a significant percentage (up to 10% or more) of both hospital and physician charges initially result in claim denials by payers. Therefore, providers need to ensure that their payer contracts have clear dispute resolution processes. Dispute resolution language can include anything from informal resolution processes to formal litigation.

In a payer contract, dispute resolution language normally sets out at least some of the terms for mediating, arbitrating, or (if necessary) litigating in court, provider-payer disputes. In the event of a claim denial or a disputed claim, dispute resolution provisions in the payer contract will direct a provider on how to try to resolve the claim(s) in question, and (hopefully) receive reimbursement if it is owed.

Once again, as the number of value-based contracts increases, dispute resolution language is becoming even more important, because value-based reimbursement criteria often present even more opportunities for claim denials and disputes over claims. In general, providers should try to avoid or negotiate away as much as possible language in a contract that legally binds them to a specific dispute resolution process to the exclusion of others. That is because providers (more than payers) may need the leverage of litigation to get a fair resolution of a dispute.

As the American Medical Association has observed, “in contractual disagreements between physicians and payers, the aggrieved party is often the physician.” “And the absence of language stating that these [alternative dispute resolution proceedings, such as mediation and arbitration] provisions are binding [or mandatory] may give some wiggle room for this leverage. This isn’t the place, therefore, to argue for hard-nosed [mandatory] language.”

Resolving Provider-Payer Disputes & Denied Claims Litigation

In the healthcare industry, providers and payers often have claims for both underpayment and overpayment arising from ongoing contracts or other healthcare services rendered. When claims arise between a provider and a payer, they often are aggregated and combined for purposes of litigation, sometimes totaling thousands of claims in a single action. When the parties are unable to resolve the claims informally, they often become the subject of either a civil action or arbitration proceeding. In either case, the parties usually try to settle those claims and do so often in mediation. But at least occasionally, a trial and even appeals are required to resolve a dispute.

What makes provider-payer disputes unique is that there often are multiple issues or categories of issues involving decision makers from different departments within the same organization (i.e., claims people vs. contracts people vs. case administrators, etc.). Moreover, each issue group may contain hundreds or thousands of separate claims which arise under the same contractual relationship. Because the claims are individually small, the provider usually waits until it has gathered a sufficient number of claims to make filing a legal action or mediating a case pre-litigation worthwhile.

These types of claims fall into several categories, such as lack of authorization, medical necessity, usual and customary rates, and the like. Typically, they span a range of dates of service. Then during the pendency of an action, there may accrue additional claims for additional dates of service or claims that were not part of the original claim(s), but which arose under the same contractual or non-contractual relationship as the original claim(s).

At the same time, the existing contract may be expiring, may have expired, or may be in the process of being renegotiated during the pending action. So by the time of a mediation, arbitration or trial, there are “original” claims, “accrued” claims, “future” claims certain to arise from the relationship, and often contract issues that need to be addressed since the relationship between the parties is ongoing. So the sooner a dispute can be resolved, the better for both parties from a financial and risk management standpoint.

The Medicare Secondary Payer Act

Medicare Secondary Payer (“MSP”) is the term generally used when the Medicare program does not have primary payment responsibility – that is, when another entity (i.e., a health insurer or other payer) has the responsibility for paying before Medicare. When Medicare began in 1966, it was the primary payer for all beneficiaries’ claims except for those covered by Workers’ Compensation, Federal Black Lung benefits, and Veteran’s Administration benefits.

In 1980, Congress passed legislation that made Medicare the “secondary payer” to certain primary plans in an effort to shift costs from Medicare to the appropriate private sources of payment. The MSP provisions have protected Medicare Trust Funds by ensuring that Medicare does not pay for items and services that certain health insurance or coverage is primarily responsible for paying. The MSP provisions apply to situations when Medicare is not the beneficiary’s primary health insurance coverage. The Medicare statute and regulations require that all entities that bill Medicare for items or services rendered to beneficiaries must determine whether Medicare is the primary payer for those items or services.

“Primary payers” are those that have the first responsibility for paying a claim. Medicare remains the primary payer for beneficiaries who are not covered by other types of health insurance or coverage. Medicare is also the primary payer in certain instances, provided several conditions are met. CMS develops Conditions of Participation (“CoPs”) and Conditions for Coverage (“CfCs”) that healthcare organizations must meet in order to begin and continue participating in the Medicare and Medicaid programs. These health and safety standards are the foundation for improving quality and protecting the health and safety of beneficiaries. CMS also ensures that the standards of accrediting organizations recognized by CMS (through a process called “deeming”) meet or exceed the Medicare standards set forth in the CoPs / CfCs.

When there is more than one payer potentially responsible to pay a claim, coordination of benefits (“CoB”) rules decide which one pays first. The “primary payer” pays what it owes on patient bills first, and then sends the rest to the “secondary payer” to pay. In some cases, there may also be a third or “tertiary” payer. The insurance that pays first (the primary payer) pays up to the limits of its coverage. The one that pays second (the secondary payer) only pays if there are costs the primary insurer did not cover. The secondary payer (which may be Medicare) may not pay all the uncovered costs. If the insurance company does not pay the claim promptly (usually within 120 days), a provider may bill Medicare. Medicare may then make a “conditional” payment to pay the bill, but will seek to recover any payments the primary payer should have made.

In providing services to Medicare beneficiaries, providers need to keep these Medicare Secondary Payer rules in mind, to the extent the patient may have other coverage, which may be primary. And disputes over such issues are another area where we, as healthcare counsel, may be of assistance.

How We Can Help & Services We Provide

Certain provisions in third-party payer contracts can have a great impact upon a provider’s revenue stream and financial viability. Hospitals and physicians often write off tens of thousands – sometimes even millions — of dollars due to payers improperly denying or underpaying claims. Our healthcare and business law firm can help by:

  • Negotiating and reviewing health insurer plan documents.
  • Negotiating and reviewing IPA, PHO and PPO network agreements.
  • Negotiating and reviewing provider contracts with third-party payers.
  • Negotiating with plan sponsors regarding potentially unlawful plan terms.
  • Representing providers in disputes that arise under documents such as those listed above.
  • Representing providers in disputes with insurers, including terminations of provider agreements.
  • Evaluating denied claims against the terms of the provider-payer contract and helping clients determine the next steps in proceeding against payers’ improper denials.
  • Reviewing and evaluating fact questions like prior authorizations and legal questions like potential violations and penalties.
  • Enforcing insurer and payer compliance with preferred provider arrangements, third-party network contracts and treatment agreements.
  • Challenging payers who violate the MSP Act and other coordination of benefits rules.
  • Challenging audit findings, overpayment demands and recoupment actions issued by third-party administrators, insurers and health plans.
  • Challenging plan fiduciaries for failing to follow proper claims and appeals procedures.
  • Representing providers in mediations, arbitrations and lawsuits.
  • Helping providers recover damages caused by improperly denied or underpaid claims.


Claims denied improperly by managed care payers fall within the scope of the provider participation agreement signed by the provider and payer. Therefore, any wrongly denied claims are subject to the terms of the signed agreement, as well as applicable laws relating to contract breaches. A health plan’s breach of its own contract is subject to the dispute resolution terms of the signed contract, which allow for either an arbitration demand or a lawsuit to be filed against the payer.

Even if the contract or related provider manual contains specific terms not met by a provider, some denials may be unenforceable as illegal penalties. Therefore, healthcare providers who have rendered valuable services to a health plan’s members should not give up on improperly denied claims without first consulting legal counsel.

Our healthcare and business law firm helps healthcare providers by reviewing, negotiating and drafting contracts. We assist hospitals, physicians and physician groups in negotiating and contracting with health insurance payers, plans and managed care entities. And we represent healthcare providers in mediations, arbitrations and lawsuits when disputes arise with payers, managed care plans or entities over reimbursement or other matters. Please call or email us if you wish to schedule a consultation.

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