Imagine for a second that you were a hospital provider and you entered into an agreement with a health plan to pay for services you render to certain patients. You would probably expect that the payment process would be very straightforward – you treat a patient, send the bill to the health plan, and the health plan pays you according to the agreement.

In theory, that sounds simple enough. Unfortunately it never is in practice.

Why? Because certain health plans are allowed to transfer the obligation to pay their bills to medical groups (groups of doctors) without the knowledge of the hospital. Those health plans pay those doctors a set amount each month to assume the responsibility of covering the costs of treating the very patients for which the plan agreed to pay the hospital. Typically, the health plan and the medical group agree between themselves who will be responsible for certain services in what is called a “Division of Financial Responsibility” (a “DOFR” pronounced “doaf-er”) agreement. The hospital usually never sees the DOFR because it is usually not a party to it.  In an ideal world, the DOFR is supposed to clearly spell out what services the health plan is responsible for paying, and what services the medical group is responsible for paying. Bur DOFRs sometimes raise more questions than they answer and it is not always clear who is responsible for certain services.

Now this is where the hospital can get caught in the middle of a very frustrating game of finger-pointing between the health plan and the medical group as they slug it out over who is required to pay the hospital’s claim. When there is confusion over who is responsible to pay what, the medical group generally refuses to pay the bill and tells the hospital that it never agreed with the plan to pay for the type of services provided. In other words, the medical group will deny the claim and tell the hospital to look to the health plan for payment. Unfortunately, the health plan then usually gives the same excuse to the hospital as to why the health plan is not responsible for paying the bill and instructs the hospital to look to the medical group. A seemingly endless game of finger-pointing ensues, with the hospital stuck in the middle and wondering to whom they should be looking to for payment.

Happily, if the hospital has a contract with the health plan, many times there is language in that direct contract that will allow the hospital to receive payment directly from the health plan even if there is a medical group involved. An example where direct payment may be obtained from the health plan would be where the hospital’s contract with the health insurer forbids the plan from shifting its payment obligation to the medical group without first getting the hospital’s permission. If the DOFR does not unmistakably show who the responsible payor is, some judges have said that the hospital can sue either or both entities for payment. But hospitals need to be careful. Capitation agreements have been favored for several years and if the contract between the hospital and the health plan is silent on the ability to shift responsibility, most likely, only the medical group may be responsible.

So hospital network contracts with health plans and DOFRs are two documents hospitals should be intimately familiar with and actually review when it comes to payment. When health plans try to shift to medical groups the responsibility to pay for medical services, the hospital network contract may prohibit the health plan from doing so, despite the existence of a DOFR. If the hospital network contract allows for shifting responsibility, or if it is silent on that point, the DOFR becomes the important document. If the DOFR is not clear, or if the medical group engages in finger-pointing, the best strategy would be to go after both parties and compel them to sort out who should pay the hospital..