Good Faith and Fair Dealing in Healthcare Contracting for Fee-For-Service, Alternative and Value-Based Payment Models
A Discussion Paper
As the State of Oregon moves toward value-based payment (VBP) contracts for mental and behavioral health services, we must acknowledge that VBP contracts are experimental. These contract must be created in good faith with fair dealing. Value-based contracts should not be vulnerable to corporate profiteering or cause failure to achieve worthwhile objectives by keeping purchasers, employers, taxpayers, providers, and patients in the dark. It is easier to diffuse a bomb before it goes off. The Healthy Contracts requirements are essential to a planful move toward new strategies for provider reimbursement.
The National Commission on Quality Assurance (NCQA) Framework for Transition from fee-for-service (FFS) to value-based payment (VBP) contracting recommends:
Value-Based Payment (VBP) Compact Principles: NCQA encourages the adoption of VBP principles that emphasize stakeholder engagement, transparency, accountability, and flexibility. These principles support the development of sustainable payment models that reward high-quality care and better outcomes.
Alternative Payment Models (APMs): Guidance on implementing APMs, which Financially reward providers for delivering high-quality, cost-effective care, is provided to support the transition from FFS to VBC.
Good faith and fair dealing is a legal principle that implies an expectation of honesty, fairness, and integrity in the execution of contracts and in interactions between parties involved in a contractual agreement. This principle mandates that parties to a contract must act in good faith and engage in fair dealing with each other, avoiding any actions that would undermine the mutual benefits of the contract. Here are key aspects of this principle:
Definition
Good Faith:
Honesty: Parties must act with honesty and sincerity in their dealings.
Integrity: Parties should uphold a standard of integrity, ensuring their actions align with the spirit and terms of the contract.
Cooperation: Parties are expected to cooperate and fulfill their contractual obligations sincerely and without deceit.
Fair Dealing:
Fairness: Parties should engage in actions that are fair and just, avoiding exploitation or unfair advantage.
Reasonableness: Parties should act reasonably, considering the interests of the other party and not just their own.
Mutual Benefit: The principle supports the idea that contracts should benefit all parties involved, and actions should be taken to uphold this mutual benefit.
Implications in Contract Law
1. Implied Duty:
This principle is often an implied duty in contracts, meaning that even if not explicitly stated, the parties are expected to act in good faith and deal fairly.
2. Preventing Opportunism:
It prevents parties from engaging in opportunistic behavior that undermines the contract's purpose or the interests of the other party.
3. Ensuring Performance:
It ensures that parties perform their contractual obligations in a manner consistent with the agreed terms and the overall intent of the contract.
4. Protecting Parties:
It protects parties from dishonest or unfair practices that could lead to harm or an imbalance in the contractual relationship.
Examples
1. Negotiations:
During negotiations, parties must disclose relevant information honestly and not mislead each other.
2. Performance:
In performing contractual duties, parties should not deliberately act in a way that harms the other party’s interests or undermines the contract’s objectives.
3. Dispute Resolution:
In resolving disputes, parties should engage in fair and honest communication, seeking resolutions that reflect the contract's terms and intentions.
Legal Context
U.S. Law: Under U.S. law, the principle of good faith and fair dealing is recognized in the Uniform Commercial Code (UCC) and common law. For instance, UCC § 1304 states, "Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement."
International Law: In international contexts, such as the United Nations Convention on Contracts for the International Sale of Goods (CISG), good faith is also a recognized principle, promoting fair and honest dealings in international trade.
For more information see:
Oregon General Provision for Uniform Commercial Code,
TITLE 8 Chapter 73
https://www.oregonlegislature.gov/bills_laws/ors/ors071.html
Example document
https://olis.oregonlegislature.gov/liz/2019R1/Downloads/CommitteeMeetingDocument/167621
See: 71.2010, General definitions
Enforcement and Breach
1. Breach of Good Faith:
A breach of the duty of good faith and fair dealing can lead to legal action, with remedies including damages, contract rescission, or specific actions or performance requirements.
2. Court Interpretation:
Courts often interpret this duty broadly, considering the overall conduct of the parties and the specific circumstances of the contract to determine if the principle has been violated.
3. Burden of Proof:
The party alleging a breach of good faith and fair dealing typically bears the burden of proving that the other party acted dishonestly or unfairly.
In late December 2023, the Oregon Supreme Court issued a landmark ruling in the case of Moody v. Oregon Community Credit Union. This case overturned prior precedent and established a legal basis for policyholders to pursue first-party bad faith claims against their health insurers in Oregon. This 4-3 decision creates a significant shift in Oregon insurance law. Previously, the state was one of the few that didn't recognize this kind of claim. Here's a breakdown of the situation:
Before Moody: Policyholders could only sue for breach of contract, limiting their ability to recover damages beyond what the policy itself outlined.
After Moody: This decision opens the door to tort claims for bad faith. This means policyholders can potentially recover additional damages for emotional distress and other losses caused by the insurer's actions.
The Importance of Legislation
Oregon Law does not exist by which providers participating in risk shares contract (e.g. alternative payment, value-based contract payment models, etc.) that requires action on the part of Healthplans to protect purchasers, taxpayers, and the public for contracts which are not enforceable because of errors of omission, or defects that are material. There are State and Federal Laws which protect taxpayer interests is the concerns involve fraud or conspiracy to commit fraud. An additional remedy would seem to be tort action by the aggrieved entity or person, which can be very expensive and time-consuming; which often precludes timely and necessary protective actions.
Alternative payment and value-based payment contracts affect the public and specifically public health. These contracting methods are untested and unproven. The have a high failure rate. These are experimental Healthplan and medical care investigation using human subjects. The indirect “side effects” of these contracts have not been identified.
Alternative payment methods are not complex. In their most simple form, they are:
pay-for-measurement,
pay-for-analysis,
pay-for-reporting, and
pay-for-performance.
Lack of good faith and fair dealing in value-based payment contracts can have material consequences to purchasers, taxpayers, employers, public health, patients and provider practices. The achievement of values, objectives, controls and oversight of contracts and policies that are enforceable and not voidable:
use of alternative payment methods for data collection to establish baselines and set benchmarks to measure quality and outcomes,
oversight by Independent CIA,
contract language that defines a minimum enforceable contract,
transparent, plain, understandable language in Healthplan contracts and policies',
the presumption that a contract that is not enforceable is potentially voidable,
providers to have the time and resources to bring a tort action in court,
that the contract must have structure that assures providers that the contract is almost certainly enforceable if the contract was has not been negotiated in good faith, and
good faith can be assured by Oregon State statutes, regulation and oversight.
An unenforceable contract is voidable. Proving that contracts are unenforceable is not the solution. Ensuring that a contract is enforceable and not voidable supports a collaboration and removes distrust and contract “gaming”. The goal is to increase enforceability and reduce the risk of gaming as Oregon moves toward increased quality of care.
The State’s Attorney General is made responsible to protect the health and financial well-being of the citizens of Oregon by enforcing the statutes in this bill. It is not the place of providers to protect the purchasers, employers, taxpayers, and the public from contracts.
Conclusion
The principle of good faith and fair dealing is fundamental to contractual relationships, ensuring that parties engage with each other honestly, fairly, and with integrity. It fosters trust, cooperation, and mutual respect, which are essential for the successful execution and fulfillment of contracts.
Discussion Outline for Legislation
Draft Legislation for the Implementation of Healthy Contracts Requirements
Following is brief summary of a Legislator Draft Request available from Mentor Research Institute by request.
Title: An Act to Ensure Transparency, Accountability, and Integrity in Value-Based Payment Contracts for Mental and Behavioral Health Services
Section 1: Purpose The purpose of this Act is to ensure that value-based payment contracts for mental and behavioral health services are transparent, accountable, and free from fraud. This Act mandates the implementation of Independent Certified Internal Auditors’ contract oversight, the establishment of ethics point portals, and the requirement that all contracts and policies be written in plain and understandable language.
Section 2: Definitions
Healthplan: Any organization that provides health insurance or health benefits to enrolled members.
Independent Certified Internal Auditor (ICIA): A professional auditor certified by a recognized accrediting body, such as the Institute of Internal Auditors, who is not part of the Healthplan’s management and has no conflicts of interest.
Ethics Point Portal: A secure, anonymous platform for reporting unethical practices, non-compliance, and other concerns related to Healthplan operations.
Value-Based Payment Contract: A contract that ties reimbursement to the value of care. The Oregon Health Authority defines value as evidence-based, patient-centered, and increased quality and improved outcomes and health.
Section 3: Independent Certified Internal Auditors
Appointment and Role: a. Healthplans must appoint one or more Independent Certified Internal Auditors. b. The ICIA must report directly to the audit committee or board of directors of the Healthplan, not to operational management. c. The ICIA will be responsible for monitoring the Healthplan’s practices to ensure they do not undermine mental and behavioral Health service quality, access, outcomes, or medically necessary and reasonable care. d. The ICIA will conduct regular audits to detect and prevent fraud, ensuring compliance with all relevant laws and regulations.
Responsibilities: a. Evaluate the design and effectiveness of internal controls. b. Ensure the Healthplan's practices align with state, federal, and industry guidelines and best practices. c. Report findings and recommendations to the audit committee or board of directors. d. Ensure transparent shared values, objectives, controls, key leading indicators, rigorous tests of design and effectiveness, a risk impact analysis (RIO), a risk control matrix (RCM), and inherent risk analysis are implemented.
Section 4: Ethics Point Portal
Establishment: a. Healthplans must establish and maintain an ethics point portal for the anonymous reporting of unethical practices and non-compliance. b. The portal must be accessible to all stakeholders, including providers, employees, and patients.
Operation: (a) The portal must allow for secure and confidential reporting. (b) Healthplans must ensure reports are reviewed promptly and appropriate action is taken. (c) Summary reports of the issues raised and actions taken must be presented to the audit committee or board of directors quarterly or as necessary.
Section 5: Plain and Understandable Language in Contracts and Policies
Requirements: (a) All contracts and policies related to value-based payment shall be written in plain and understandable language. (b) Contracts shall include clear definitions of values, objectives, controls, key indicators of success, obligations, policies, performance metrics, audit procedures, algorithms, and terms of reimbursement to ensure all parties can easily comprehend the requirements.
Implementation: (a) Healthplans shall review and revise existing contracts and policies to comply with this requirement. (b) All new contracts and policies must be drafted to meet this standard.
Section 6: Enforcement and Compliance
Oversight: (a) The state’s regulatory authority will oversee the implementation and compliance of this Act. (b) Healthplans must submit annual compliance reports to the state’s regulatory authority, detailing their adherence to the requirements of this Act.
Penalties: (a) Healthplans found in violation of this Act may be subject to fines, sanctions, or other penalties as deemed appropriate by the state’s regulatory authority. (b) Continuous non-compliance may result in the suspension or revocation of the Healthplan’s operating license.
Section 7: [Effective Date]. This Act shall take effect on [Date], and Healthplans must comply with all provisions within six months of the effective date.
Section 8: Severability. If any provision of this Act is found to be unconstitutional or otherwise invalid, the remaining provisions shall not be affected and will continue in full force and effect.
Section 9: Legislative Intent. It is the intent of the Legislature that this Act be liberally construed to effectuate its purposes.
Section 10: Legislative Findings. The Legislature finds that ensuring transparency, accountability, and integrity in value-based payment contracts for mental and behavioral health services is essential for protecting public funds, improving access to quality healthcare, and maintaining public trust.
DISCLAIMER and PURPOSE: This discussion document is intended for training, educational, and or research purposes only. The information contained herein is based on the data and perspectives available at the time of writing. It is subject to revision as new information and viewpoints emerge.
For more information see: https://www.mentorresearch.org/disclaimer-and-purpose
DISCLAIMER and PURPOSE: This discussion document is intended for training, education, and research purposes only. The information contained herein is based on the data and perspectives available at the time of writing. It is subject to revision as new information and viewpoints emerge.
For more information see: https://www.mentorresearch.org/disclaimer-and-purpose