Unfortunately, you've probably had an experience like the following: After obtaining proper authorization and confirming eligibility, you perform surgery covered by third-party insurance on Mr. Smith. Everything goes well. You submit a claim, and 40 days later you receive payment of $1,232, representing the surgical fee and some pre-and post-op visits. Your practice administrator "books" the revenue.

Four months later you receive notice from the HMO that it's retroactively denying the claim. Further, the $1,232 fee paid for Mr. Smith's care is being deducted from your current check.

As far as the HMO is concerned, it's a slam-dunk. You get no chance to comment; you get no chance to dispute; you get nothing but a check with a large bite taken out.

And sometimes it's worse. You may have subcontracted out and paid for special diagnostic imaging, or some other service that your group is responsible for but unable to provide. It's bad enough that you're out your own fees -- now you're also out the fees you've paid to the other provider (and you probably won't feel comfortable asking for those back). So your "authorized" care to Mr. Smith has been provided at a significant loss.

What upsets most doctors isn't so much that the payer is claiming that they were overpaid. If that were true, wanting to recover the money would be understandable.

What's upsetting is the timing and manner in which this is done. The plan simply deducts the money, whittling down your current payments and cash flow. Often the explanation offered is nothing more specific than "patient ineligible" or "medically unnecessary" -- despite documentation in your medical record. And just like that, the money is gone.

No matter what the circumstances, this can be frustrating and infuriating, especially if these adjustments are an ongoing event. Managing your receivables is enough of an accounting challenge without surprises.

Here, I'll suggest some ways to lessen the adverse impact of retroactivity by creating protocols that limit both the timing and extent of financial adjustments. I'll also provide sample paragraphs you can use as a boilerplate when you and your attorney create contract wording customized to your needs.

What can you do to prevent or minimize this kind of unpleasant surprise? As with many practice management issues, it comes down to what's written in your provider agreement. Payers get away with this kind of behavior because their contracts allow it.

To protect yourself, you need to go into negotiations aware of this issue and do your best to get reasonable limitations and guidelines for correcting over- and underpayments written into your contract. Every agreement should specify:

• the circumstances under which the payer can take back money
• what protocols the payer must follow to do so.

If there are no specifics written into your provider agreement, then the payer is essentially free to do as it chooses.

There are several specific issues you'll want to address when negotiating these matters with a payer. They need to be word-smithed in proper "legalese" and inserted into the provider agreement -- either in the section on payment provisions or in a section of their own.

Because adjustments can involve both over- and underpayments, the terms should be bilateral. Generally, you'll want to include (but certainly not limit yourself to) these points:

• Notice.
Both sides should have the right to request an adjustment.
• Look-back period.
Both sides should have a reasonable amount of time after the alleged over- or underpayment in which to send notice -- but not an unlimited window of opportunity.
• Cooperation.
Both sides should agree to work cooperatively to document the disputed amount(s) and to resolve the matter expeditiously.
• Reconciliation.
Both sides should agree that following resolution of any disputed amounts, payment will be made promptly to the other party (within a specific number of days).

Each practice will have different priorities, but in my experience, the key provider issue is the look-back period -- how far back into payment history the payer will be allowed to venture. You simply can't allow the payer to have unrestricted freedom to take back monies paid to you a long time ago.

When it comes to setting a limit on retroactivity, one main concern should be your bottom line. The health plan should not be allowed to take back money so far after the date of service that you're unable to pursue an alternative source for payment. For example, suppose an insurer denies a claim 4 months after it was paid. At this point, even if you identify another insurer and submit a bill to it, that insurer is likely to state that your "new" claim is invalid because you submitted it too long after the date of service.

In my opinion, a 60-day window of opportunity (from the date of service or from the capitation payment date) for retroactivity is reasonable. A 90-day window is more common and, as you might expect, more acceptable to health plans. (Even from your point of view, it's better than no limit at all.) You'll need to decide what you're willing to accept, although the final outcome will depend partly on whether the people you're dealing with are willing to negotiate, or if they'll only play hardball.

It's often been said that the fine print in a contract is what gets people in trouble. But what's missing from a contract can be equally damaging. Clearly defined rules regarding retroactivity can keep your practice from having its financial picture turned upside down.

Yes, negotiating with a payer can be tough, depending on the situation. And there are no guarantees about the outcome of a negotiation. But if you know what the pitfalls are and decide ahead of time how great a trade-off you're willing to make to bring that payer's patients into your practice, you can at least strike a deal that you can live with. And that can be worth a lot to your peace of mind -- and your bottom line.

Dealing with uncontrolled payer takebacks on a claim-by-claim basis can be a real headache. But imagine the impact on a practice or group if there's a systemwide problem involving hundreds, perhaps thousands, of patients.

Let's say your group is capitated to provide routine vision care and med/surg services to 27,000 managed care members. The HMO is in turmoil, financially unstable and rumored to be closing or merging with another HMO. You've also heard that it's under scrutiny by the Department of Insurance for falling below mandated risk reserves.

Several employers -- including key, statewide companies -- start dropping the HMO as an insurance option for their employees, and the plan starts losing membership. However, it has so many interrelated problems, including staff turnover, that it can't keep up with the enrollment changes. As a result, it's months before these defecting memberships are deleted from the eligibility and capitation data bases.

One day you receive notice that the HMO is taking back capitation payments on 12,500 members going back 5 months. Now you're talking some real dollars and a situation that will impact many, many physicians and practices.

Suddenly, not only is your "current" capitation check much smaller, it's also being "dinged" to reconcile a considerable sum from the past. (I've actually seen retroactivity so volatile that the "current" capitation check was reduced to zero.)

The following sample paragraphs were created by Michael Lockard, practice administrator for Talley Medical-Surgical Eye Care Associates in Evansville, Ind. These should help get you started thinking about developing protocols to manage retroactivity in the contracts you negotiate for your own practice.

Remember that this sample is only a starting point. Before discussing these issues with a payer, be sure to show this text to an experienced managed care attorney. You'll want to customize the language to the specific circumstances of the contract in question. And always make sure that you go to the payer with a document that doesn't clash with any mandated federal or state language.