The law of unintended consequences says that by solving one problem, we often end up with a new one that may be even worse than the one we just solved. This unfortunately happens all too frequently to hospitals and other healthcare providers who enter into special agreements with payors for health care services. These special agreements are called Letters of Agreement (LOA) or Memoranda of Understanding (MOU).

Typically, hospitals use these agreements when they do not have hospital services contracts (HSA) in place to obtain an agreed upon reimbursement rate from a healthcare payor. Payment for services, usually emergency services, provided in the absence of an agreed upon reimbursement rate are usually delayed and disputed by payors. As a result, hospitals will enter these agreements in a good faith attempt to reduce the number of disputes over reimbursement and to ensure prompt payment of the appropriate and necessary costs of providing medical care to patients. But these agreements, no matter how well intentioned, often backfire if they are not worded correctly.

In our work with LOAs and MOUs, we have seen that the most common problem is ambiguous language, especially surrounding reimbursement rates. Language such as “75 percent of billed charges” is usually acceptable. However, language such as “75 percent of the reasonable and customary charges” does the exact opposite of what a hospital or healthcare provider intended and creates disputes over what is considered reasonable and customary. With wording of “75 percent of billed charges,” the percentage is determined from the actual billed charges. In contrast, with the wording of “75 percent of the reasonable and customary charges,” a determination first has to be made as to what these charges are. After that is done (usually through litigation), then 75 percent of that amount is what is owed.

Another potential landmine is negotiating an agreement with a person who does not have authority to bind the payor. We see this defense a lot. The agreement is signed and is favorable to the provider, but the payor then says that the person who signed it on behalf their company did not have authority to enter into the agreement. An easy fix is to make sure the agreement indicates that the person signing has authority to do so.

Finally, the agreements should also be very specific about the length of the LOA or MOU by providing a clear start and end date. Also, if the agreement is covering services for a specific condition, then the agreement should be clear on that and specify that it ends when the care for the specified condition ends. Doing so will insure that the hospital is paid appropriately and in a timely manner..