Many of the larger health plans publish operations manuals that they update regularly. These operations manuals are purportedly developed to explain to the hospitals the health plan’s policies and billing procedures.  However, the reality is that health plans use the language in these manuals to reduce their negotiated payment obligations to hospitals.

How do the health plans do this?

First, health plans will generally include language  in their agreements with the hospitals which state a combination or all of the following:

• Hospital agrees to be bound by the terms of the health plan’s operations manual;
• The operations manual is incorporated by reference into Hospital agreement (in other words, the operations manual is part of the agreement);
• Health plan can revise the operations manual at any time.

Next, the health plans include provisions in the operations manual that are designed to reduce the amount of the hospitals’ charges and thus the health plans’ payment obligations to the hospitals. For example, some health plans include provisions in their operations manual that state that they may disallow certain charges from a hospital’s bill.  The health plans typically disallow charges on claims where the applicable contractual reimbursement rate is based upon a percentage of billed charges, such as stop loss and trauma rates. By disallowing certain charges, the health plan reduces the amount it is responsible to pay. Once the applicable percentage rate is applied to the reduced bill, the health plan’s payment is likewise reduced.

Another example we have seen is a provision informing the hospitals that the health plan is applying CMS National Correct Coding Initiatives (the “CCI”) to hospital bills, which effectively bundles charges for certain billed codes with charges for other billed codes. The result is that the health plans deny reimbursement for certain codes/procedures on the basis it is a “component” of a more “comprehensive” code/procedure. Although CCI is a Medicare coding process, the health plans have been applying this process to non-Medicare claims in an effort to reduce their payment obligations.

Note that none of the hospital agreements in our examples above had provisions that permit the health plans to disallow charges or apply CCI edits. However, the health plans argue that the hospitals agreed to incorporate the operations manual into the hospital agreement, and as a result, issues that were not specifically addressed at the time the contract was negotiated can be made part of the agreement.

We recognize operations manual have been incorporated into hospital agreements for a number of years, and health plans may be unwilling to negotiate agreements that do not include their operations manuals as part of the agreement.  If that is the case, we recommend that hospitals negotiate a provision which state that in no event will the provisions of the operations manual serve to reduce the expected reimbursement rates that were negotiated. In addition, hospitals should request that they receive notice of any changes in operational manuals well BEFORE such changes in the manual take effect. By doing this, hospitals can make informed decisions regarding whether to agree to such changes.