Prior to signing any payor contract, sleep labs should conduct their own due diligence to determine if the payor contract is right for their lab. Sleep labs, as providers of diagnostic testing and sleep medicine services for patients who are insured under health plans, may encounter certain pitfalls during the negotiation, execution, and renewal of payor contracts with insurance companies. In order to confidently enter a contract, sleep labs should consider delegation of duties, reimbursement for services, dispute resolution, renewal terms, and prompt payment during the negotiation process.


Payor contracts have historically been adhesion contracts that were provided to sleep labs by a managed care organization (MCO) for signature with little, if any, discussion or negotiation between the sleep lab and payor prior to the execution of the contracts. An adhesion contract is a legally binding agreement between two parties to do a certain thing, in which one party has all of the bargaining power and uses that power to write the contract primarily for that party’s benefit or advantage.

Adhesion contracts are typically standardized contract forms, also known as “boilerplate contracts,” that offer goods or services on essentially a “take it or leave it” basis without giving the other party to the contract a realistic opportunity to negotiate terms that would benefit their interests. When this occurs, the party that has not drafted the contract cannot obtain the desired product or service under the terms unless that party acquiesces to the form contract. Despite the nature of such contracts, there is room for negotiation prior to inking the contract.


Sleep labs often do not realize that payor contracts may require additional responsibilities during the course of treating patients, which include extensive involvement in utilization management, medical management, member relations, credentialing, and compliance with specific accreditation standards. A MCO typically will delegate certain administrative duties to the sleep lab, which is sharing the risk with the MCO pursuant to certain capitation agreements or risk pool arrangements.

Make sure that any responsibilities and duties that the sleep lab is expected to perform under the contract—and are contingent upon the lab’s receipt of payment—are clearly identified and defined within the parameters of the payor contract and any attached schedules, exhibits, or attachments.


Payor contracts can provide a full range of reimbursement methodologies, including fee-for-service; per diem and case rates; capitation; capitation with “Bill Aboves” for specific services; and other risk arrangements. Some states require that reimbursement issues be addressed in written agreements with providers.

While reimbursement is an obvious contract term to review, payor contracts often conceal the reimbursement scheme in incomplete or oversimplified schedules. Payor contracts sometimes are silent on specific terms for reimbursement.

When your sleep lab is contracting to provide services in exchange for traditional fee-for-service, per diem rates, per case rates, capitation, percentage of premium, or some other combination, make sure that the payor contract specifically delineates each type of service entitled to reimbursement and the rate of reimbursement for each service.


An alternative dispute resolution (ADR) should be included in the sleep lab’s managed care contract so that the parties have a mechanism to resolve disputes when they arise. Sleep labs may consider including one of the following ADR methods in their payor contract: an internal administrative determination or appeal as a prerequisite to any further process; nonbinding, conciliatory dispute resolution processes, such as mediation; and binding adjudicatory alternatives to litigation, such as arbitration. Any one of these ADR methods may assist in avoiding the cost, delay, and unpredictability of litigation.

Sleep labs should check their state law regarding any limitation on the use of arbitration because some states have placed limitations on the use of arbitration when the dispute involves professional liability. An internal administrative process or mediation may give the sleep lab greater control over the identity and qualifications of the decision-maker.

The ADR provision should include specific language identifying the ADR method, how the mediator is chosen, and minimum qualifications of the mediator. The payor contract should also identify the allocation of cost for ADR between the parties and the location of the ADR. The best time to agree to an ADR process is before a dispute occurs.

To be successful in managing payor contracts and any dispute that arises with a payor, sleep labs should know the time frames for dispute resolution, utilize state and federal statutes to receive timely payment, and carefully chart the lab’s course when negotiating and administering payor contracts.


Remember to include a provision within the contract that states that fees will be negotiated separate and apart from the renewal terms of the contract. Usually, the payor contract will automatically renew for additional 1-year terms unless one party provides written notice of termination.

A payor often ties the sleep lab’s ability to renegotiate fees received under the contract to the renewal provisions, which is automatic unless either party provides notice. Therefore, the sleep lab should make sure that fees can be renegotiated on a more frequent basis and not be tied directly to the renewal provision of the payor contract.



A sample “completed claim” definition might include the following language:

“Completed Claim” is an industry billing form (UB-92, HCFA 1500 or any successor form) which: provides the Beneficiary’s name and identification number, claim date, date of birth, Group name and number; Provider’s name and identification number; dates and location of services, description of procedures, diagnosis code (ICD-9-CM), secondary diagnosis code (ICD-9-CM), most current ICD version, procedure codes (CPT-4), DRG, units, modifiers and amount billed for each procedure, diagnostic test, or service where applicable, and includes itemized claim statements and/or Beneficiaries’ medical records if requested by Payor within twenty (20) calendar days after Payor’s receipt of a claim as described in Section __ of this Agreement.

Sleep labs should specifically review the prompt payment provisions in any payor contract as related to the state law that governs the contract and recent court decisions and legislative trends. The payor contract most likely will require the sleep lab to submit a “completed claim” as a condition to receiving payment.

Make sure that the term “completed claim” is specifically defined within the contract or an attached exhibit. A defined term will enable the parties to reach a consensus on what will be deemed a “completed claim” for coordination of benefits and the timing and recovery of payments.

Sleep labs should note that most states have prompt pay laws, which set forth detailed provisions relating to completed (clean) claims and balance billing, and state prompt pay laws may modify the contract and impact the other definitions and terms set forth in the contract. Enforcement of state prompt pay laws enables sleep labs to receive the full amount of the billed charges submitted on the claim to the payor based upon the payor contract plus interest paid on the billed amount. State prompt pay laws may also include statutory penalties, fines, and restitution for the sleep lab as a provider if the payor is “slow paying” on submitted claims or breaching the terms of the payor contract.

Most states have regulations that address MCOs, including health maintenance organizations (HMOs), preferred provider organizations (PPOs), and third-party administrators (TPAs). Emerging state and federal managed care legislation and patient rights initiatives have had a tremendous impact on payor contracts and the sleep lab’s involvement in negotiating and managing these agreements.

Check the Sleep Review online archives for more legal articles.

Prior to signing a payor contract, sleep labs need to do their homework regarding the applicable state and federal regulations that will govern the payor contract and any causes of action or remedies the lab may have against the payor if the contract is breached.

Sleep labs should also find out about the payor’s reputation in the sleep lab’s community to determine if the payor is reputable. Finally, make sure your lab is aware of any market trends that will impact the negotiation and management of the payor contract.

Jayme R. Matchinski, Esq, a partner with the law firm of Hinshaw & Culbertson, LLP, in Chicago, concentrates on health care law and has counseled sleep disorder centers, physicians, and health care providers nationally. She can be reached at (312) 704-3574 and [email protected].