Whether or not explicit in the contract, all contracts have a mechanism for resolving disputes, the default being litigation. Left to their own devices, plaintiffs will select the forum most convenient and perceived to be most friendly to themselves that has jurisdiction over the parties and subject matter. The great majority of payer-provider contracts have some constraints over the law which may be applied, and/or provide for the use of an alternate mechanism for resolving disputes. This article takes a look beneath the hood of these contract provisions.
Businesspeople negotiating contracts are understandably focused on how the arrangement will function in the normal course – pricing, deliverables, term, etc. Less attention is paid to provisions that get handed off to the lawyers under an umbrella term like “general provisions.” Put this under the category of provisions, like entire contract clauses, assignment provisions, indemnification provisions, compliance, record maintenance, governing law, notices, that really don’t matter to most businesspeople. That is, until they do.
Choice of Law
Even absent some alternate dispute resolution language, the party writing the contract will want to control to some extent where actions may be brought, and what laws will apply. A “Choice of Law” provision may look like the following:
“Choice of Law and venue. This Agreement shall be governed in all respects by the applicable laws and regulations of the State of New Jersey and/or federal law, as applicable, without regard to conflict of law principles, and any claim arising out of or relating to this Agreement shall be brought in the State or Federal courts of New Jersey. The invalidity or unenforceability of any terms or provisions hereof shall in no way affect the validity or enforceability of any other term or provision.”
The county in which actions may be brought may be further defined.
An important consideration for a contract reviewer is the convenience or inconvenience of the named governing law and venue. A payer with locations in multiple states may well prefer a state in a location distant from the provider and its counsel. Depending upon the complexity and duration of the ensuing legislation, this could require distant travel by the provider’s officers and witnesses for appearances and depositions and battling time zones for status calls and other required teleconferences.
A good managed care contract lawyer can help negotiate changes up front, before the provision is triggered by a dispute.
Alternative Dispute Resolution
Anyone who has been involved in a civil lawsuit knows that years can pass between the time a plaintiff files a complaint and the time the dispute is resolved by a court judgment. Meeting all the requirements for pleadings, answers, counterclaims, cross-claims and other motion practice can be enormously expensive. In an effort to cut down on time and expense, many contracts permit or require alternative dispute resolution (ADR) methods, which are any nonjudicial method of resolving civil disputes. For example, parties usually first try to settle their disputes themselves by means of formal or informal negotiations (i.e., “out of court”). Mediation and arbitration are two other common forms of dispute resolution in payer-provider contracts.
Mediation is a process in which an impartial third party, known as a mediator, facilitates negotiations between the parties in an effort to create a mutually agreeable resolution of the dispute. If the parties are not able to resolve their dispute through mediation, they typically have the right to arbitration or civil litigation.
Arbitration is a process in which impartial third parties, known as arbitrators, evaluate the facts in dispute and render a decision that usually is binding on the parties. Appeals of arbitrators’ decisions are generally possible only if the arbitration was conducted improperly. Contracts often require that any disputes that arise between the contracting parties be resolved through arbitration rather than through civil litigation.
A threshold issue for anyone reviewing a provider contract is whether there should be a mediation and/or arbitration provision at all. State and federal rules of evidence, for example, do overlay time-consuming and expensive steps, but those steps also force discipline into the process and ensure thorough development of facts and sworn development of testimony. Mediation and arbitration shortcut much of this development. Mediation is non-binding, but helps both parties understand the other’s positions and likely posture in any subsequent more-formal dispute resolution forum.
A “Dispute Resolution” provision may look like the following:
“Dispute Resolution. Payer will provide an internal mechanism under which Provider can raise issues, concerns, controversies or claims regarding the obligations of the Parties under this Agreement. If after at least 30 days following the date one party sent written notice of the dispute to the other party, the dispute is not resolved, and if any party wishes to pursue the dispute, it shall be submitted to mediation, and if unsuccessful, to binding arbitration in accordance with the rules of the American Arbitration Association (AAA). The arbitrator may award only compensatory damages for breach of contract, and is not empowered to award punitive, exemplary or extra-contractual damages.”
A few points of note:
- Mediators and arbitrators are generally jointly agreed upon by the parties and a just outcome is very much reliant on the skill of the decisionmaker. Experience, judiciousness, and an ability to quickly grasp issues must be carefully considered when proposing or selecting among proposed arbitrators, and the authority of the provider to participate in the process must be clearly understood.
- The parties should agree that any discussions and negotiations held will be treated as settlement negotiations and be inadmissible into evidence in any court proceeding. This should be made plain in the contract.
- The contract could provide for a single arbitrator, except that claims over a threshold amount would be decided by a larger panel, for example, a panel of three arbitrators.
- While mediation is non-binding, arbitration usually is.
Providers should strongly consider coordinating their payer contract reviews with counsel to ensure all of the provisions, which often start with the boilerplate of payer templates, protect their interests and work in the context of their own business models.