The $547,775 Error I Found in a Work Comp PPO Contract

Posted December 5, 2017 by Jesse Larrison

Most hospitals that I encounter have at least a few Preferred Provider Organization (PPO) Network contracts that include workers’ compensation. Some have dozens. These contracts range from super simple 1-page Letters of Agreement, to massively complex multi-line managed care agreements. Hospitals typically devote staff to developing and managing these contracts, but just as is true with Group Health or Commercial contracts, work comp contracts have the same propensity for errors and abuse and left unchecked these blunders could cost hospitals dearly.

Lost in the shuffle:

When it comes to revenue percentage, hospitals typically only see 2-3% coming from work comp with some larger Trauma centers seeing closer to 10%. Steered business through networks can be even smaller, but regardless of the slice of the pie your facility designates as work comp, the revenue in the door is usually nothing to sneeze at, and in most States, work comp is one of the more profitable pay classes. In an era where hospital revenue and profit margin are being squeezed from all sides, workers’ compensation is typically a refreshing source of both and when properly constructed and implemented, work comp PPO contracts can drive lucrative business into hospitals.

Unfortunately, since work comp is complex and small when compared to the rest of the revenue bucket, hospitals struggle to devote resources to manage their agreements with payers and networks, creating an environment where lack of oversight is pervasive.

The Provider/Payer Accountability Issue:

Invariably, the work comp hospital contracting process is one-sided: Payer approaching Provider. While there are dozens of work comp networks that include hospitals as listed providers, massive industry consolidation over the past 15 years has left only a handful of major national players. In almost every case, these networks approach hospitals with a boilerplate contract and hospitals either run it through their typical due diligence process or sign it outright with few changes. What happens next is what causes all the trouble:


Most networks and hospitals have no communication after the initial contract execution. Apart from the periodic credentialing requirements, networks proceed to load the negotiated discount into their payer portals and away they go. Employers send medical bills to their TPAs or Carriers which re-price bills to the fee schedule, apply any negotiated discounts, pay the claim and that’s the end of it. Hospital revenue cycle departments are often poorly equipped to validate the work comp discounts they receive from payers and internal communication between the billing office and managed care is many times ineffective. The same lack of accountability exists on the network side as well.

What went wrong:

Such was the case with the $547,775 error. A large hospital system that I worked with had signed an agreement with a major network affiliate for multiple service lines at a very competitive rate. Wisely, this hospital had chosen not to include workers’ compensation as a benefit plan since the commercial discount agreed upon was much lower than their normal work comp discount. But that didn’t stop the network from loading the commercial discount, work comp included, into their payer portal and blasting it out to all of their employer and payer affiliates. And this went unchecked.

For over a year.

The fun was over when my team was brought in to do an analysis of all work comp PPO contracts compared to historical receivables as part of our Day-1 hospital billing platform. What we found not only appalled our client who had been giving away hundreds of thousands of dollars in erroneous discounts for so long, it was equally shocking to the network who had no reasonable explanation for how this could happen in their system, as well as no viable solution for correcting the issue. Essentially, the network had no check-and-balance system in place to ensure that what was agreed to in the contract actually made it into their system, and the hospital had no way of identifying the error once they began. To make matters worse, since the network had simply brokered the discount between the hospital and the hundreds of employers that sent patients under this contract, they had no pecuniary liability to pay claims and as such, had no mechanism to refund the hospital for the underpayments. The network offered to “send a memo” to their payers apologizing for their error and asking them to do the right thing, but neither the network nor the payers had any idea which claims were underpaid or by how much – that burden rested squarely with the hospital.

What followed was a year-long, labor-intensive project which included numerous meetings with our team, the health system and network, as well as a barrage of letters and communications sent to large payers, and countless reconciliation reports bounced around until $547,775 in additional payments were recovered and the project was successfully closed. And it all was avoidable.

Are my contracts vulnerable?


Even the best laid plans for work comp contracts are only as good as the network administering the terms and the provider managing the results. As long as networks and payers make mistakes and hospitals fail to provide oversight for their contracted work comp business, errors will continue to bleed revenue, and not always in favor of the payer. (I have seen occurrences where networks fail to invoke lesser-of clauses in their own contracts and unwittingly pay claims at higher rates.)

How hospitals can prevent these errors:

You can’t eliminate PPO errors entirely from the work comp revenue cycle, but you can certainly limit the impact with a few proven best practices:

  1. Set specific work comp contracting guidelines and hold networks to those terms during contract negotiation. (message me for a list of work comp contracting tips)
  2. Only contract with vetted PPO Networks in good standing with top payers
  3. Have your CBO or work comp billing partner do an analysis of contracts compared to paid claims to ensure compliance with agreed-to discounts

Following these guidelines will ensure that your work comp revenue stream remains strong and offers some measure of protection against issues that occur throughout the supply chain. No payer and PPO network is perfect and mistakes do happen, but ultimately, it’s up to the providers to ensure that they are being paid correctly.