Practice Management Alert

Signing on the dotted line can expose you to personal liability

Make sure you review indemnification and hold-harmless clauses before you sign MCO contracts - or you could wind up shelling out megabucks if you're sued.

Most standard agreements presented to providers by managed-care organizations require the physician to "indemnify and hold harmless" the MCO against all damages, expenses, and liabilities for any acts and omissions of the provider. But signing a contract with this type of clause could spell personal financial disaster for a physician in the event of litigation. This is true even if the provider is completely and ultimately exonerated, experts say.

MCOs watching their backs: MCOs are now being named as co-defendants in negligence and malpractice lawsuits along with physicians. The specific problem for the provider is that most professional liability policies will not defend or indemnify an MCO because it is not a party to the policy contract - which means the provider may have to pay these costs out of his own pocket if he has agreed to such a clause.

Take Control With These 4 Tips

The good news is that your practice can take some steps to protect itself. Here's what our experts advise:

1. Don't sign just yet. Before signing anything, have an attorney experienced in healthcare reimbursement law review the contract. A lawyer will be able to determine if some variation of this particularly troublesome clause is in the MCO's standard agreement.

2. Don't assume the standard contract can't be changed. It would be unusual for an MCO not to include the indemnification clause as part of a standard agreement. But whether it can be changed and to what extent will be determined by the relative bargaining power of the two negotiating parties, says Lester Perling, an attorney with Broad and Cassel of Ft. Lauderdale, Fla. "It's always worth challenging the terms of what may be a one-sided contract," he says.

Short of convincing the MCO to completely withdraw such clauses, the provider's best approach may be to limit the situations in which they can be invoked. Narrowing the indemnification to instances of a physician's gross negligence or intentional wrongdoing is an approach advocated by Linda Baumann, partner in the Washington, D.C., law firm of Reed Smith. "Try to modify the language used to trigger the personal liability. In some broadly worded contracts, the physician must reimburse the MCO for any monetary losses, regardless of the cause, as long as it was attributable to the provider," she says.

3. Reach into someone else's pocket first. Try to get the MCO to agree that before it will seek reimbursement for legal fees and other expenses associated with legal actions that the MCO be required to be compensated by its own insurance company instead, if such coverage exists, Perling says.

4. Insist on mutual trust. Recommend "mutual indemnification" - which should mitigate some concerns for both parties to the agreement, says Max Reinboldt, managing partner of the Atlanta-based Coker Group. Putting such a concept into effect would mean that neither party would bring certain legal actions against the other. Under this scenario, the provider would be protected from the kinds of unilateral actions by the MCO that the hold-harmless clauses allow.

If You've Already Signed, All's not Lost

But what about instances in which a physician has already signed an MCO agreement including the hold-harmless clause? There may still be a possible out - but only if the outcome of a lawsuit is that a provider is found to be not actually liable for his actions. An argument could then be made by the physician in any lawsuit brought by the MCO for legal-fees reimbursement that the allegation of negligence against the provider was untrue.

Final warning: Even if a provider manages to totally eliminate the indemnification clause, most states have a common-law right to indemnification, Perling says. This means that if one party causes a financial loss to another, then the other party can sue for compensation, despite there being no specific indemnification clause in the MCO agreement.