You don't need to be an employment lawyer to understand what a contract means when it says that a party can be terminated without cause or that a contract does not need to be renewed at the end of its term. But even employment lawyers might be surprised to learn that certain contracts with these provisions may not be so easily terminated or not renewed, especially involving doctors and other health-care providers such as under the Medicare Advantage regulations. 42 C.F.R. Sec. 422.202.

Since 1997, the federal government has allowed approved insurance companies to offer private Medicare and Medicaid coverage. In fact, today "Medicare Advantage" (MA), also known as "Part C," insures over 20 million Americans, or one-in-three Medicare beneficiaries. If one joins a Medicare Advantage Plan, the insured obtains Medicare Part A (hospital insurance) and Part B (medical insurance) from the insurance company. The government pays a fixed amount each month to the company offering the coverage, and these insurance companies must follow Medicare's coverage rules.

Medicare is a hot topic in the race for the White House. President Trump wants to expand privatization while the Democrats are pushing various forms of government provided "Medicare for All." While one can debate who is better running the program, what cannot be ignored is that the government's objective is to provide quality care that is accessible to all, while the insurance companies' objective is the almighty dollar. For example, in 2019 United Healthcare (UHC) will generate more than $20 billion in revenues from its Medicare and retirement business alone, more than one-third of UHC's total revenues.

Turning back to doctors and other health-care providers, how does this impact them? If they want to provide health care to these patients, including indigent Medicaid patients also covered in dual Medicare/Medicaid plans, they are required to enter written agreements with the insurance companies. These agreements typically are at-will and for set terms. If insurance companies want to get rid of them, whether for delivering poor quality health care, making too many referrals or for any other reason affecting the carrier's bottom line, the insurance companies can claim that the providers are at-will and can be terminated without cause. But the MA Regulations suggest otherwise.

Sections 422.202(a) and (d) of the MA Regulations provide that a physician, and members of that physician's group, must be provided with reasonable procedures, including a process for appealing adverse participation decisions, as well as written notice of the reason(s) for the action and, if relevant, "the standards and profiling data used to evaluate the physician and the numbers and mix of physicians needed" by the insurance company. In addition, the company must ensure that a majority of the hearing panel members are peers of the affected physician.  Section 422.202(d)(2). But how does this square with a provider's agreement with an insurance carrier that he or she can be terminated without cause? Or that a carrier may choose at the end of a contract simply not to renew the agreement? The answer was provided in Fairfield County Medical Association v. United Healthcare of New England, 985 F.Supp.2d 262 (D. Conn. 2013, aff'd as modified sub nom., 557 F.App'x 53 (2d Cir. 2014), where the district court held that:

[T]he Medicare Act requires that states do not interfere with the scope, implementation, or performance of Medicare plans offered by private organizations. It does not, however, preempt courts from reviewing agreements between physicians/providers and private Medicare plan providers to enforce the procedural rights set forth in the agreements and in the Medicare regulations governing physician termination. Instead, the Medicare Act's procedural requirements for terminating of physicians without cause from Plan C programs should be read as providing a baseline level of procedural protection for physicians. These provisions are complementary to United's contracts with individual physicians …. (Emphasis added.)

Some insurance companies have argued that the procedural protections only apply when a termination decision is based on quality of care issues, but the Department of Health and Human Services (HHS) in its Final Rule confirmed that the "elimination of appeal rights for any termination characterized as a 'business decision' would undermine the intent of the provider protection provisions." HHS Final Rule, Fed. Register, Vol. 64, No. 31 Feb. 17, 1999. This is also confirmed by the Medicare Managed Care Manual, 2007 WL 5443341, Pub. L. 100-16, Ch. 16.

The MA Regulations, however, do not address what standard is to be applied when challenging a termination or an insurance company's decision not to renew a provider's agreement (also referred to as "deselection"). The seminal case in this regard is Potvin v. Metropolitan Life Ins. Co., 997 P.2d 1153, 1159-61 (Cal. Ct. App. 2000), finding that providers are entitled to a common law right of fair procedure which protects an individual from arbitrary exclusion or expulsion from membership in a private entity affecting the public interest, where the exclusion or expulsion has substantial adverse economic ramification. When this common law right is found, "the decision-making must be both substantively rational and procedurally fair." Kim v. Southern Sierra Council Boy Scouts of Am., 11 Cal. Rptr. 3d 911, 913 (Ct. App. 2004).

The common law right of fair procedure has also been recognized in New Jersey. In Garrow v. Elizabeth Hosp. and Dispensary, 79 N.J. 549 (1979), the Supreme Court noted that state action was not involved and, therefore, due process was not required. However, it held that a private hospital's consideration of a doctor for staff membership required a fair process, including notice of the charges as well as a fair and unbiased tribunal. Moreover, the tribunal's action must be reasonable in relation to the interests of the public, the doctor and the hospital. In that regard, the record must contain sufficient reliable evidence to justify the result. Id. at 565.

Similarly, in Hernandez v. Overlook Hospital, 149 N.J. 68, 81-82 (1997), our Supreme Court required a "fair procedure" with regard to a hospital's decision concerning medical licensing to "ensure that all relevant evidence is considered to protect against the risk of arbitrary or capricious decision-making." There, the Supreme Court found that the right of fair procedure includes the right to adequate notice of the charges, an opportunity to examine the evidence supporting the charges, and the right to present evidence to the decision-making authority. Somewhat more recently, the Appellate Division in Souter v. Forness, 2006 WL 1725518 (N.J. App. Div. June 26, 2006), recognized the common law right but found that plaintiff was treated fairly and that being denied Eagle Scout had no significant financial impact.

Health-care providers should not give up hope if they negotiated bad agreements with an insurance company or, the more common occurrence, did not or could not negotiate at all. The common law duty of fair procedure can come to the rescue and even resuscitate those agreements despite clauses providing for termination without cause or the right to deselect a physician from the health insurance plan. In fact, just recently a AAA emergency arbitrator enjoined UHC from removing a physician from its New Jersey Dual Medicare/Medicaid Community Plan at the expiration of his contract because the appeal panel that considered his deselection did nothing more than confirm that his contract had a non-renewal provision and that UHC had given the required notice not to renew.

Steven I. Adler is a member of Mandelbaum Salsburg P.C.'s Executive Committee, and serves as the co-chair of the firm's Labor and Employment Law Practice Group and co-chair of the firm's Litigation Department.