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Provider Contracts: Definition, Legal Issues & Consequences

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This article examines the purpose of provider contracts; the intentions that are enclosed in a provider contract and why is it so important to detail party relationships, services, obligations, and objectives. Furthermore it gives explanations for why the "definitions" section of a contract is important; why it should be carefully reviewed and drafted, and details the repercussions that can result if the definitions section is not carefully drafted. Finally, a real life health care example of a case in which the "definitions" section of contract was poorly written and the company had to bear the consequences. The solution details such consequences and ramifications, and legal underpinings of such mistakes when drafting provider contracts. APA styled references are included as well.

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Provider contracts are those contracts that exist and are usually drawn up to include agreement between managed care organizations (MCO) and health professionals as well as clinical Providers. Such contracts are germane to the managed care system as we have come to know them in North America and especially in the USA. The contracts are paramount and are critical to the stability, financial health and stability of clinical and medical organizations.


Typically, a network service agreement will stipulate the rules, guidelines, and legal standards relating to the services to be performed by providers in the network. This also includes agreed upon monetary compensations, providers' rights to dispute decisions of the contracted organization, and stipulations and guidelines regarding how they will/should care for and manage patients' care and deliver care in a professionally ethically suitable manner. As a result of the plethora of the dynamics and complexities involved in the process, the contracting process can leave many providers and health professionals feeling rather confused. As providers often feel the contracts tend to cater more to MCO's by allowing them too wide an allowance or reign over a network professional's service responsibilities, the rate of payment for specific covered benefits as well as too in-depth discretion over treatment decision-making. As such, the American Medical Association (AMA) came up with a "guideline of model" whereby provider agreement would give care providers such as practicing clinicians and physicians a reference template they can follow as they engage in the managed care contracting process. With the AMA's Contract Guide, physicians/providers can better understand, evaluate and negotiate their managed care contracts.


To date, there have been three types of cases that make up the majority of the cases litigated and initiated by plan members have been against Managed Care Organizations (MCOs), and most of the cases fit under the umbrella of the Americans with Disabilities Act (ADA).

1.The first is that the MCO as a health provider is a public accommodation and has a duty to serve individuals in a fair non-discriminatory manner. In essence, an MCO cannot simply refuse to serve a member with physical or mental disabilities, and must make reasonable accommodations if there is a case.

2.The second category relates to the incentive arrangements that tend to discriminate against individuals with disabilities and the providers who treat them.

3.The third category relates to the contractual challenges regarding coverage, and limitations specific to a disability. For example, those posing limitations in coverage of those with HIV/AIDS.

Repercussions Arising From Breach or Broken Contracts

Aside from a ruined reputation, credibility loss, 'breach of contract' lawsuit, ...

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The Effect of Electronic Contracting & Potential Pitfalls

On September 16, 1999, Governor Gray Davis signed Senate Bill 820 making California the first state to adopt an electronic contracting law. The law went into effect January 1, 2000. Its primary purpose is to "ensure that electronic contracts (records and signatures) have the same legal effect as their hard copy counterparts." In addition, the law legalizes electronic signatures and even extending the electronic signature, under certain circumstances, to satisfy requirements that a signature be notarized. The law, however, only applies to transactions where the contracting parties have agreed in advance to be bound by an electronic transaction.

Maybe the law's most extreme fault is that it fails to cover all transactions. The following contracts are excluded:

1. Wills, codicils, and testamentary trusts.
2. Certain transactions governed by various consumer protection laws (for example, notice of mortgage late fees, non-judicial foreclosure notices, and statements of finance charges).
3. Any transaction under the Automobile Sales Finance Act or the Vehicle Licensing Act.
4. Some retail installment sales contracts.

Even with these shortcomings, the law undoubtedly will have a significant effect on the future of contract law in California and the nation. Exactly what that effect will be, however, remains to be decided in the courtroom. In the following section, we will examine some of the issues.


1. What will be the long-term impact of electronic contracting on the nation's business?

2. What are the potential pitfalls you see with electronic contracting?

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