MANAGED CARE

Third-party contracts:
Understanding the deal

Pharmacists don't understand the terms stated in the participating provider agreement in third-party contracts, yet they still sign these deals. So said Walter Fitzgerald Jr., B.S. Pharm., M.S., J.D., professor, department of pharmacy practice, University of Tennessee College of Pharmacy.

Speaking to attendees of the National Community Pharmacists Association/Chain Drug Marketing Association Expo 2002, held recently in Las Vegas, Fitzgerald said he's a lawyer and there are provisions in third-party contracts that even he doesn't understand. "All of you agree to these contracts. You don't read them. You just sign them, thinking, I've got to sign them or I'll lose my business. There's fear amongst you of losing the contract entirely. You sign these things without objecting to things. There's a degree of compromise here that third parties are willing to accept."

Fitzgerald provided several examples of wording in third-party contracts that pharmacists should challenge. The first: "Pharmacy agrees to refund any overcharges made by a participant for covered services within 15 business days."

Pharmacists should ask the third party to clarify what it means by "overcharges made by a participant," insisted Fitzgerald. "How does a participant make an overcharge? It means if you overcharged a participant, you have to repay that within 15 business days. Is it 15 business days as processed from the date of the overcharge? It can be, but you may not know about it (the overcharge) until 30 days later," he pointed out.

Another contract Fitzgerald analyzed stated, "Health Plan will be entitled to make an adjustment of any payment to pharmacy if it discovers that it overpaid or underpaid Pharmacy within one year from the date on which it made such improper payment."

Fitzgerald said, "Suppose today they discovered they underpaid you. Does that mean that they can wait a year from today to repay you?" The wording of the contract should be changed to read, "... 15 days from the date on which the provider is notified of the overcharge," he said. "I can't imagine any third party's legal counsel office not agreeing to make that change. In fact, I think it is beneficial to them to clarify some of these things."

Still another contract Fitzgerald dissected stated that the third party "shall have the right to submit all prescriptions relating to this agreement to manufacturers in connection with manufacturer rebate programs and any similar programs."

He warned pharmacists that if they sign this contract, "you are allowing the third party to use your patient's confidential data to send off to manufacturers." He went on to say that "under the new privacy standard that goes into effect April 2003, that's unacceptable unless your patient consents to such use of that information. See the leverage you just picked up right there? If all your patients refuse to consent to that, doesn't that put the third party in an awkward position or in a position of being unable to document any rebate amounts that it served? Yes, it does. They can't get the data. Health Insurance Portability and Accountability Act (HIPAA) will change your relationship with your patient and your third-party contracts. There is a window of opportunity coming for you to try to renegotiate your contract terms outside of these other issues, because some of these contracts, if not all of them, will have to be revised due to the new privacy," he said.

Still another contract issue Fitzgerald warned about concerns insurance that pharmacists must carry. It states, "Pharmacy agrees to give Health Plan 30 days' prior written notice of cancellation, modification, or termination of such insurance." Fitzgerald countered, "Can you give them 30 days' notice if you're sent a notice of nonrenewal or cancellation today? Of course not. What can they do if you notify them tomorrow that your insurance carrier has just dumped you?" Fitzgerald said he would change this contract to read, "Pharmacy agrees to immediately notify Health Plan of cancellation, modification, or termination of such insurance."

Yet another contract sentence Fitzgerald identified as needing revisions stated, "Pharmacy agrees to implement a drug intervention program for nonformulary physician 'dispense-as-written' Rx orders."

"What is an intervention program? And do your patients really want you to intervene on their behalf if they've gotten a brand-name drug? What are you expected to do? What do they mean by nonformulary? Are we still talking generic substitution? Not necessarily. We may be talking about therapeutic interchange now. Do you need to be calling doctors, trying to get that prescription from the third item in the class to the first item in the class?" he asked.

Yet another contract read, "Pharmacy agrees to use best efforts to resolve, respond to, and remedy all service-related issues and restore goodwill with participants within three business days to Health Plan's satisfaction." Fitzgerald said pharmacists should ask this third party: "Three business days from when? This will be a consumer complaint. The contract says, 'restore goodwill.' What made the participant mad is the plan's limitation itself. They are telling you that you have to be their public relations person. You have to restore goodwill. I won't get a lot of goodwill from the reimbursement rates on one of these contracts. What does it mean, 'Health Plan satisfaction?' I guess it means whether the patient goes away happy or just goes away," he said.

In conclusion, Fitzgerald offered the following strategies for responding to third-party programs:

• Cancel or refuse to renew contracts with unacceptable terms.

• Negotiate/demand acceptable contract terms.

• Have a local attorney review contracts before signing them.

• Reengineer your pharmacy to enhance cost efficiency. You will have to do some of this anyway with privacy regulations.

• Enlist federal and state political action support.

Sandra Levy

Sandra Levy. Third-party contracts: Understanding the deal.

Drug Topics

2002;6:48.