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Enforcing Contracts with Third-Party Payors

An Overview

The key terms that are almost universally included in healthcare provider contracts with third-party payors offer a virtual roadmap of the topics that are the most important to enforce and, therefore, most frequently lead to healthcare litigation. These key terms include: (i) the duration of the payor relationship, and early termination options for both parties; (ii) the scope of services for which the third-party payor agrees to provide reimbursement; (iii) the reimbursement rates the payor agrees to pay for those services; and, (iv) the manner and scope of the provider’s right to appeal reimbursement denials (which will frequently be governed by state laws that establish minimum requirements for a payor’s appeals process). In addition, when a healthcare provider wishes to enter into a payor contract to provide services under Medicare and/or Medicaid it must first make sure it has a complete understanding of the applicable provider manuals and regulations before it executes a third-party payor contract. Failure to comply with any Medicare or Medicaid regulation can result in substantial liability for fraud and abuse violations.

However, it is not always the case that once the provider and third-party payor negotiate and execute the contract the payor-payee relationship proceeds without any issues. This can be true regardless of whether the negotiations were cooperative or adversarial. During the course of the relationship disputes concerning the very terms of the third-party payor contract the parties worked so hard to negotiate and agree can often arise. And because these disputes often concern the most critical provisions of the payor contract, it becomes more likely that both sides will have a vested enough interest in the ultimate resolution to pursue legal action through healthcare litigation.

For example, provider-payor disputes frequently arise whenever the payor declines to reimburse the provider for a service on the grounds that the payor deems that service either not covered or not medically necessary. Even in their very early stages, and even though they are usually at least partially subject to some internal dispute resolution mechanism as provided in the payor contract, these types of reimbursement disputes frequently take on many of the same characteristics as traditional breach of contract civil litigation lawsuits. Neither party wants to concede that a particular service is or is not covered or is or is not medically necessary in any case for fear of setting a damaging precedent for future cases. Moreover, if the parties find themselves consistently disputing reimbursement decisions with no resolution in sight, one party might decide that its best course of action is to extricate itself from the contractual relationship prior to its expiration. The consequences of early termination can be substantial for either side which can lead to even more contentious healthcare litigation. Enforcing bargained-for contractual rights in the healthcare setting is unique, and it requires counsel who is has general civil litigation experience but who is also familiar with the important nuances of third-party payor arrangements in the healthcare arena.

Kelly McGee and Callan Stein prepared this overview.

Health Law

Health Law




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