Among the many tools hospitals and other healthcare providers have at their disposal for ensuring prompt payment for the medically necessary services they provide their patients is the Letter of Agreement, or LOA for short. If used correctly, LOAs can greatly benefit a hospital.

Hospitals typically use LOAs for very specific situations, such as when they need to arrange payment for individual patients with a health insurer that has not have any other type of agreement with the hospital.  These agreements can be an important tool in managing relationships especially with low-volume and especially out-of-state health insurers or when a hospital services agreement (HSA) would be overkill.

Simply stated, LOAs are designed to address the scope of the medical services to be provided and the compensation for the treatment. But they often fall short in that they typically do not cover how the healthcare provider and the healthcare insurer will resolve any disputes they may have later over reimbursement. Unless the LOA specifically forbids it, either the hospital or the insurer is free to have informal discussions, use arbitration, or go to the courts to settle any disputes that may arise.

Hospitals should make sure LOAs do not include the same type of disadvantageous limits and deadlines typically found in an HSA that benefit the payor but can hurt the provider. Our experience at SAC tells us that agreements which establish multiple level appeals, mandatory meet-and-confer sessions, and require arbitrations are less efficient and lead to more delays in resolution than filing a lawsuit. So if the LOA must include an agreement on how to resolve a resolution dispute, make sure it also allows for litigation without any hoops to jump through. Also, it is important to make sure the LOA clearly defines where the dispute may be filed. Try to put in a provision indicating any dispute must be heard in your home state and pursuant to the laws of your home state. That will avoid procedural fighting if you ever need to file a lawsuit to get reimbursement.

LOAs can be very helpful in obtaining prompt payment concessions, in establishing an acceptable rate of reimbursement, and in providing for efficient resolution of disputes. Hospitals and other healthcare providers should use them to their advantage..