Considering a Cash Pay Program? Check Your HMO/PPO Contracts for Conflicts!

A number of my clients are torn between two business models. Some have tried the managed care business model and are disappointed with how high deductible plans and out-of- pocket costs wreak havoc on their accounts receivables and drive up overheads in staffing, training and payment delays without real returns on investment. They are considering cash pay programs that offer greater discounts to patients willing to pay in full on the day of service.
But will that conflict with the managed care contracts they have signed or plan to add? Here's a helpful checklist of what to look for.

The checklist, while not exhaustive, is a new tool that will be improved over time and as new conflicts are discovered and worked through.

#1 It Should be the Patients’ Choice

It seems that the first concern is that the patient should be the one who decides if insurance is billed and benefits of reimbursement are sought against the plan or policy.

I have never seen an insurance policy that “required” a covered individual to file a claim for every service or expense under any policy… not a health policy, a business liability policy, a homeowner’s policy or any other policy.  However, I have read managed care policies and PPO network agreements that state that “the provider shall bill”  for all services rendered. All means all. There are no exceptions. But what if the patient doesn’t want the claim filed for some reason?  Your prime duty as a service provider is to respect your customer’s wishes, not what the contracts lay out as rules.

Negotiation: You may have to reserve the right to respect your patients’ wishes on this by negotiation and create an exception to the plan’s policies and rules, just for the record. Otherwise, you risk breach of contract.


  • A written waiver: You may need to implement a policy that requires the patient to decide at the time of service.  If they want the cash price instead of the negotiated discount with their health plan, they should be asked to formally document that choice with an insurance billing waiver. That way, neither your staff nor the patient will bill insurance for the services.  A patient may be deliberately trying to hide a condition from their insurance to avoid higher rates or exclusions. That’s their business between them and their plan; not yours.  What to use for the waiver? A simple one paragraph form should state that the patient has opted to pay out-of-pocket for services rendered at the cash discount rate, does not wish for the practice to bill their insurance plan, and will not bill any insurance plan on their own. Get a witnessed signature and date – and payment in full at your cash discount price.
  • Managed Medicaid/MediCal: Medicaid is granted based on need, so if someone is able to pay out of pocket for their medical care, then they may be denied future Medicaid coverage. This might be an issue if the managed care plan with which you are contracted is an “All Products” contract that includes Managed Medicaid services. In that case, negotiate the exception to apply to all claims for all claimants other than Medicaid patients.
  • Medical records requests: If the patient didn’t want the claim submitted to their insurer, it stands to reason that they probably don’t want the medical records for that service included in the event that the plan requests medical records for some reason. This gets complicated very quickly. Operationally, you’ll need to flag the record as PRIVATE, if that’s the patient’s intention. Talk with your EMR vendor to determine if this is something you can do in your software. Otherwise, you’ll need to find a workaround. If the patient is involved in a workers’ comp matter or motor vehicle accident or files a claim with their travel insurer who can exclude services on the basis of pre-existing conditions and treatments within the past 5 years, you’ll have to turn over the records anyway. How you document this in your system is an operational matter. The records release signed by the patient will come from the workers’ comp, MVA or travel accident carrier. You don’t have to verify it or initiate it. You will be compelled to respond.
  • Non-compete: The plan may declare that the patient is their corporate asset as a plan member. As such, they deem the patient’s account their privilege to audit. Every contract could contain some language that says you cannot “sell” your cash pay product/program to the patient because the don’t view the patient as your corporate asset. Ask your health law attorney for guidance as non-compete language is different state by state and their policy and viewpoint may be against public policy and established case law(s).
  • Direct-with-employer agreements: If you decide to contact a patient’s employer to pitch your cash pay rates if the employer can agree to same day adjudication and unequivocal and binding pre-authorizations that you make reliance to render the services to their employees for a cash price, you may also be in breach of a non-compete as the plans may deem the self-funded employer as their corporate asset/client and come after you for tortious interference, also known as intentional interference with contractual relations, in the common law of torts, which occurs when one person intentionally damages someone else’s contractual or business relationships with a third party causing economic harm. The argument would be that by offering the employer/patient a lower price than their negotiated rates through the network, you paint them in a bad light because they didn’t negotiate the best rates as the employer’s/patient’s advocate. Again, ask your attorney for guidance. If you are able to negotiate a direct deal, you’ll also have to implement a billing workaround as submitting claims under the employer direct deal with the same Tax ID number will cause the claim to be paid incorrectly by the TPA or ASO. Your defense may lie in the fact that you had a cost containment motive and not an intention to besmirch the plan. Sticky and complicated. at best. But plans often fail to negotiate the best terms and rates with providers, especially those who require you pay them a kickback as a percentage of revenue realized by the plan. To pay you less means they get less of a percentage kickback or withhold.
  • Different products; different corporations: Many concierge medical practices set up two corporations. One (OldCorp) to bill health plans and insurance when the patient had coverage. The second (NewCo) to bill the concierge membership fees under a separate Tax ID. In 2018, several of the managed care plans (mainly BUCHAs) changed the provider manual instead of the contract to state that regardless of what Tax ID you worked under, one contract rate was applicable and you could not operate a membership program of any kind and remain a contracted provider with that plan. So, if you were thinking to establish a “cash pay brand” under a new corporation, ask your health law attorney for guidance and an interpretation of the plan rules and policies not only under the contract form agreement and its exhibits and attachments, but also in the provider manual if you happened to have given tacit approval for any changes to their website and provider manual(s) and program documents if incorporated into the form agreement by reference.

#2 Marketing your Cash Pay Program

Many providers have been publishing their cash pay prices on their website and pushing the message out through advanced SEO/SER tactics and paid advertising. These prices are discounted prices, not the published list price or “rack rate”.  In the hotel industry, the rack rate is the maximum amount the hotel usually charges for a room, when demand for rooms in the area is highest. The rack rate is akin to the asking price of a house or car, and hotels expect that guests will request and use discounts. Can you see the parallel?

Medicare has a special provision that essentially provides that Medicare enjoys “most favored nation” status that prohibits providers from offering discounts to non-Medicare “payors” that were not offered to Medicare, being that Medicare should never pay more than any other “payor.” The crux lies in how “payor” is defined and the rule relates to overall “price setting”  for services.

Once that standardized and reportable fee is set on a universal price sheet/chargemaster however, the provider is free to negotiate discounts off of that fee with individual payers as they like.
There is a lot more to this topic and the debate of how providers arrive at their “one size fits all” pricing, so again, ask your health law attorney for guidance.

This is a commonly misunderstood issue for providers. The boundaries set by Medicare and many states surrounding “all payer rate setting” is specific to the providers’ “pricing” only. In other words a provider cannot have one fee schedule for Medicare beneficiaries and another one for other payers including self pay.

That being said, it in no way precludes the provider from accepting agreed upon discounts or negotiated rates based off of that “one size fits all price”.   This is why most institutions and medical groups mark up their “price” on their price list because some or all of their commercial contracts payment terms may have been negotiated to state that they will pay X% discounted from “billed” charges.

Again, everyone should be shown the same provider “price” that has been set no matter who is paying, but all payers (including self-pay patients) are allowed to negotiate with the provider a unique payment or discount for services.  So what price do you publish to let the world know you have a cash discount price you are willing to accept?  That’s between you and your attorney to decide after consideration of what your contracts say and Medicare / Medicaid regulations.

The hotel industry has faced this dilemma for years. The online travel sites marketed lower prices than the hotel chain’s own website. The hotels marketed that you get more amenities, loyalty points and recognition in their “clubs” when you book direct, even if that means that you pay a little more by booking direct. Then, they started matching prices with the online travel agencies (OTAs). Consumers get it. They will expect that if they pay cash, in full, on the date of service, they should get the lowest possible price. That’s reasonable.
The purpose of this checklist is to make you aware of areas to review in your contract, and not to provide individual strategic or tactical advice. Without knowledge of the exact contracts you have and your specific situation, I can only write in the most general terms on this. If I come up with additional areas of concern, I will update the checklist. 
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