Use of Preferred Provider Agreements with Hospitals

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The following article is about Preferred Provider Agreements with hospitals.
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Elizabeth E. Hogue, Esq.

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Use of Preferred Provider Agreements with Hospitals

Many hospitals refer patients on a regular basis to post-acute providers,
including home health agencies, private duty home care agencies, hospices,
and home medical equipment (HME) companies. Relationships with post-acute
providers assist hospitals to control costs and avoid penalties, an
essential component of financial viability. Consequently, positive
relationships with post-acute providers are increasingly important to the
success of hospitals.

Hospitals may wish to use Preferred Provider Agreements in order to enhance
their relationships with post-acute providers. That is, hospitals may agree
to make referrals exclusively or on a preferential basis to specified
post-acute providers in order to help ensure quality of care. Hospitals may
be eager to sign Preferred Provider Agreements for a number of reasons.

Hospitals may decide, for example, to limit the number of post-acute
providers to which they are willing to refer on the basis that dealing with
many post-acute providers may compromise their ability to implement
appropriate plans of care effectively. From the point of view of hospitals,
referrals to a number of post-acute providers may complicate communications,
which may have the potential to compromise implementation of appropriate
discharge plans.

Preferred Provider Agreements may obligate hospitals to refer patients to
specified post-acute providers. These Agreements should not, however,
include a specific number of patients that hospitals are expected or
required to refer. In fact, they should explicitly indicate that hospitals
make no promises about the number or types of patients who will be referred.

Preferred Provider Agreements must also take into account requirements
related to patients' right to freedom of choice of providers. Both the
Balanced Budget Act of 1997 and Conditions of Participation (COP's) for
hospitals, among other sources, guarantee patients the right to freedom of

Many patients, however, do not yet know enough about post-acute services and
providers to be able to make choices. When attending physicians indicate
that they prefer certain post-acute providers and patients do not wish to
choose other providers instead, physicians' preferences/orders must be
honored. Unless patients or physicians choose post-acute providers, it is
permissible for discharge planners/case managers to suggest that patients
may wish to choose post-acute providers with which hospitals have preferred
provider relationships.

Hospitals are not required to survey post-acute providers in their
geographic area to find every entity that provides care of a quality that is
satisfactory to them. Consequently, when patients cannot choose and their
attending physicians have not indicated preferences for particular
post-acute providers, discharge planners/case managers may wish to encourage
patients to choose preferred providers.

Hospitals certainly cannot restrict patient choice. In the final rule on
the Comprehensive Care for Joint Replacement (CJR) Payment Model for Acute
Care Hospitals; published in the Federal Register on November 24, 2015;
however, the Centers for Medicare and Medicaid Services (CMS) stated at

"Hospitals, if desired, may recommend 'preferred providers,' that is, high
quality PAC (post-acute) providers/suppliers with whom they have
relationships (either financial and/or clinical) for the purpose of
improving quality, efficiency, or continuity of care."

Based upon this language, it seems clear that Preferred Provider Agreements
are acceptable so long as the requirements described above are met.


CCopyright, 2016. Elizabeth E. Hogue, Esq. All rights reserved.

No portion of this material may be reproduced in any form without the
advance written permission of the author.
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