This article will appear in several continuing installments over the next few issues of Decisions in Axis Imaging News. Their purpose is to demonstrate techniques in contract analysis from an operational standpoint. Several radiology services agreements where capitation is the sole method of reimbursement have been combined; the names used in the contract, HealthMed and RadPros Inc, are fictitious.

Suggested additions to the text or revisions will appear in italics. Deletions will be demonstrated with strike-throughs, with the author’s comments under each indented paragraph where deletions or changes have been made. As always, this does not serve as legal or other professional advice and competent professional counsel should always be sought prior to making decisions about contract analysis and revisions.


This Outpatient Radiology Services Agreement is entered into to be effective as of this 1st day of January 2000, by and between HealthMed (HealthMed), a health maintenance organization, operating as a Virginia limited liability company, and RadPros Inc (Provider), a company organized under the laws of the state of Delaware and authorized to provide outpatient radiology services.

This paragraph should fully identify the parties, including the legal names of each contracting party, their type of organization, their legal structure, and the state of incorporation. Additional information that may be entered is the for-profit or not-for-profit status of each organization. Last, make sure that the effective date is correct lest you take risk for covered services delivered prior to the contract’s true effective date. Often, health plans insert a date as a proposed effective date but the negotiation takes longer than expected.


The Recitals section is often passed up as rhetoric, especially because the appearance is so generic with each paragraph starting with WHEREAS?. The Recitals section is the most important part because it states the true purpose for the contract. All the other terms and conditions support this purpose. Therefore, if the purpose of the contract is not to your liking or your expectations, it should be changed to reflect the true intent of the parties.

WHEREAS, HealthMed has contracted with various HMOs and Health Plans to provide or arrange for the provision of medical, hospital, and ancillary care to Enrollees of the HMOs and Health Plans; and

Here is a health maintenance organization that anticipates sharing the capitation rate you have negotiated with other HMOs, preferred provider organizations (PPOs), and other types of health plans, and declares intent to act as a silent HMO or PPO. What happens if you already have fee-for-service rates that you prefer with these other plans? Can this rate be substituted at will?

Suggestions include:

  1. Obtain a written clarification about sharing these rates with entities where preexisting relationships are in place. How will it work?
  2. Obtain a list of the various HMOs and Health Plans that HealthMed has in place on the effective date.
  3. Determine if there is any conflict on the list.
  4. Enter language elsewhere in the contract to the effect that the provider has sole and absolute discretion on the application of this capitation deal with any new business not listed on the effective date.
  5. WHEREAS, Provider is duly organized and in good standing under the laws of the state of Virginia and is authorized to provide outpatient radiology services; and

    There should be a reciprocal paragraph stating that HealthMed is also duly organized and in good standing under the laws of the state of Virginia. If it is not, it may be prohibited from enrolling members or conducting business that would affect your chances of getting paid your capitation check each month. It is always a good idea to verify this fact with your state authority for HMO oversight, checking especially for any complaints, fines, sanctions, suspensions, or other problems.

    WHEREAS, HealthMed desires to enter into a written service agreement with Provider for Provider’s provision of outpatient radiology services to the Enrollees specified in this Agreement in return for certain Capitation Payments; and

    WHEREAS, Provider desires to provide such Outpatient Radiology servicesCovered Services to Enrollees in accordance with the terms of this Agreement,

    The change made here is to make narrower in scope the services that will be considered for payment under the capitation payment made to the provider. The contract should be changed as necessary to remain consistent that the capitation payment reflects only “covered” services and not services deemed “noncovered” or elective.

    NOW THEREFORE, for and in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are conclusively admitted and stipulated for all purposes, the parties agree as follows:



    Whenever used in this Agreement, the terms set forth in this Article I shall have the following meanings:

    1.01 “Agreement” shall mean this Outpatient Radiology Services Agreement and any attachments or exhibits hereto.

    1.02 “Benefits Agreement” means an agreement between an HMO or Health Plan and its members or insureds or a third party (such as an employer) under which the members or insureds are entitled to receive Covered Services.

    You might try to obtain copies of each agreement, but often will meet resistance because they may be numerous.

    1.03 “Capitation Payments” are monthly payments to Provider in a predetermined amount per Enrollee assigned to Provider as Provider’s compensation for providing or arranging for the provision of a defined set of Covered Services to such Enrollees for a specified period of time, without regard to the amount of services actually provided or the cost thereof (such as a “per member/per month” payment).

    This definition includes language that states that you may have to “arrange for the provision” of Covered Services you do not actually perform, and may have to pay another provider from your capitation payment. Accepting this responsibility by contract could also create some extra ostensible and vicarious liabilities. Your malpractice coverage may not cover you for this liability by contract. One way to approach this problem is to receive less capitation each month but transfer this risk solely to HealthMed and relieve yourself of the burden of arranging for the provision of Covered Services not provided by the contracted provider under the contract, and the potential liabilities connected therewith.

    1.04 “Copayments” are charges that may be collected from an Enrollee at the time services are provided, pursuant to the Benefits Agreement under which the Enrollee is enrolled.

    While this is a standard definition, in most cases, the capitation is full payment and there are no copayments for Outpatient Radiology Covered Services. Therefore, it would be appropriate to delete this paragraph if this is the case.

    1.05 “Covered Services” are those Medically Necessary services that are expressly covered under an Enrollee’s Benefits Agreement, including but not limited to covered medical, hospital, and pharmaceutical services.

  6. Do not expect to see a list of these services as a service must pass several tests before it can be deemed “covered.”

    1.06 “Eligibility List” is a list of Enrollees assigned to Provider by HealthMed, to whom Provider shall provide all Medically Necessary Outpatient Radiology Covered Services.

    1.07 “Emergency Care” means health care services provided in a hospital emergency facility or comparable facility to evaluate and stabilize medical conditions of a recent onset and severity, including but not limited to severe pain, that would lead a prudent layperson, possessing an average knowledge of medicine and health, to believe that his or her condition, sickness, or injury is of such a nature that failure to get immediate medical care could result in:

    1. placing the patient’s health in serious jeopardy;
    2. serious impairment to bodily functions;
    3. serious dysfunction of any bodily organ or part;
    4. serious disfigurement; or
    5. in the case of a pregnant woman, serious jeopardy to the health of the fetus.

    This language (or similar wording) is required under the Balanced Budget Act and many state patient protection statutes that have been enacted.

    1.08 “Enrollee” means a person who is validly enrolled as a member of an HMO or who is insured pursuant to a Health Plan to whose members or insureds HealthMed has contracted to provide or arrange for the provision of Covered Services, and shall include any validly enrolled dependents of an Enrollee who are eligible to receive Covered Services under an Enrollee’s Benefits Agreement.

    Many providers have had to refund money to health plans because of dependent coverage that was assumed, especially in the case of newborns that may be assigned to another plan as primary and this plan as secondary.

    1.09 “Health Plan” means any health insurance payor or other entity engaged in the business commonly referred to as “managed health care,” other than an HMO, that is duly licensed and authorized to engage in the business of providing health insurance or health benefits in the State, and shall include any employer self-insurance plan or other form of managed health care plan that is duly organized and authorized under applicable laws and regulations to provide health insurance or health benefits to individuals. Such health insurance payor(s) or other entity(ies), including employer self-insurance plan(s) or other form of managed health care plan(s), shall be listed in Exhibit (xx) and attached hereto and incorporated herein by this reference.

    There are two options you can consider here:

    1. Annex the list as defined here to limit your exposure to “Silent HMO/PPO” occurrences;
    2. Attach a list of those entities that you expressly do not want this to include (ie, entities that you already have preexisting contracts with).

    1.10 “HMO” means a state or federally qualified health maintenance organization that is duly licensed and authorized to engage in business as a health maintenance organization in the State.

    1.11 “Hospital” means a hospital that has entered into a contract with HealthMed or with an Enrollee’s HMO or Health Plan to serve as a Participating Provider of hospital services to Enrollees.

    1.12 “Medically Necessary” services are services ordered by a HealthMed Physician or other physician under contract with HealthMed and that are commonly and customarily recognized as appropriate in the treatment of a diagnosed illness or injury and that are within the definition of medical necessity contained in the Benefits Agreement applicable to an Enrollee.

    This paragraph requires perusal of these Benefits Agreements to decipher the definition. As stated previously, they may be difficult to obtain because they may be numerous, but nonetheless, you will not be able to understand the definition without them.

    1.13 “Medical Services Agreement” means a contract between HealthMed and an HMO or Health Plan pursuant to which HealthMed agrees to provide or arrange for the provision of Covered Services to Enrollees of the HMO or Health Plan.

    This strike-through would be required to remain consistent with the argument posed in 1.03 above.

  7. 1.14 “Participating Provider” means a physician, ancillary service provider, or health care facility that has entered into a contract with an HMO, a Health Plan, or HealthMed for the provision of servicesCovered Services to Enrollees by the provider.

    1.15 “HealthMed Physician” means a duly licensed doctor of medicine or osteopathy practicing in the area of internal medicine, family practice medicine, general practice, or pediatrics who is employed by HealthMed or who has entered into (or is a member of a Provider that has entered into) a written agreement with HealthMed to provide or arrange for the provision of primary care medical services to Enrollees who have selected or who have been assigned to such physician and who is responsible for providing primary care to Enrollees, maintaining continuity of Enrollees’ care, and initiating referrals for the care of Enrollees.

    1.16 “Rules & Regulations” means a document containing administrative policies and procedures pertaining to physician credentialing, utilization review, quality assurance, sanctions, appeals, Enrollee grievances and other administrative and regulatory protocols, policies, and procedures established by HealthMed. All such protocols, policies, and procedures are subject to change at HealthMed’s discretion.

    1.17 “Service Area” means the service area defined in the applicable Medical Services Agreement. A map detailing this area shall be attached hereto and incorporated herein by this reference as Exhibit (xx).

    Since, in most cases, the plan will not want to provide the Medical Services Agreements to you because of their proprietary nature, a map would help to clarify this ambiguity of the “service area.” Be careful not to take risk for services provided by providers other than yourself or those under your immediate corporate control.

    1.18 “Solicitation” means any action by Provider or anyone acting on Provider’s behalf that will or may cause or encourage any Enrollee, HealthMed employee, or independent contractor of HealthMed to discontinue their respective relationship with HealthMed, or to aid, encourage, or cause an Enrollee to disenroll from an HMO or a Health Plan or an independent contractor that has entered into a contract with HealthMed to discontinue performing services for HealthMed, or to encourage or cause an Enrollee to receive health care from Provider or others on a fee-for-service basis without the prior written approval of HealthMed which such consent HealthMed may decline in HealthMed’s sole discretion.

    1.19 “State” means the State of Virginia.

    1.20 “Surcharge” means a fee charged for medical services that is not disclosed to an Enrollee prior to the rendition of such services and that is not a Copayment.

    Remember where this definition is because you may need to refer to it in discussing how the provider will be compensated for noncovered or elective services.

    1.21 “Outpatient Radiology Services” means those covered outpatient radiology services, including Emergency Services, that HealthMed has agreed to provide to Enrollees, or to arrange for the provision of, pursuant to a Medical Services Agreement.

    Keep this consistent with 1.03 and the concept of Covered Services.

    1.20.1 “Utilization Management/Quality Assurance Plan” means a plan established by HealthMed to promote the consistency, quality, appropriateness, and medical necessity of medical servicesCovered Services provided to Enrollees by Participating Providers.

    At this point we have analyzed the first three parts of a contract, namely, the (1) Identification of the Parties, (2) Recitals, and (3) Definitions. Keep in mind that the Definitions section may be difficult to change, in accordance with state law. If the Definitions must remain identical to some other document, say, Benefit booklets or some regulatory required language, ask to see that requirement and relevant citations from the source of the requirement. If you cannot change the definition language, you may be able to modify it in a memorandum of understanding or by some other written means that is annexed to the contract for purposes of clarification or limitation.

    One exercise I perform routinely in active contract negotiations is to prepare a list of questions for clarification. In this phase, I ask for source materials if they are referred to, ask for written clarifications of wordings that seem ambiguous, and ask for documents such as payor lists, eligible groups, and, in this case of a capitated agreement, commensurate capitated lives attached to each payor group that will be accessing covered services under the capitation contract. I make it a point not to ask for any changes in this phase. This way I can defend that I am asking only for clarifications and documentations. Changes are not requested until I understand the nature of what I have read and determined at that point the need for a change.

    Note: Upcoming issues will cover Obligations of the Health Plan and Obligations of the Provider.

Maria K. Todd ([email protected]) is a published author on managed care and president and CEO of HealthPro Consulting Consortium Inc, a Denver-based national consulting firm specializing in managed care and integrated delivery system concerns.