Limit your liability before signing with a consultant

A column examining the ins and outs of contract issues

By — Posted April 5, 2004.

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While most consultants are well-qualified, there are unscrupulous consulting firms engaged in improper practices. Simply hiring a consultant does not relieve you of responsibility for complying with state and federal regulations, and dealing with federal health care programs.

If you follow bad advice, the cost to you and your practice can be enormous. You could incur legal expenses and be exposed to governmental fines and penalties.

You can, however, take steps to reduce your liability and limit your damages if you unknowingly rely upon bad advice. The first step you should take is to include an indemnification provision in all consultant contracts you negotiate and sign. An indemnification provision will assist you in recovering expenses you incur as a result of a consultant's improper actions or advice.

Here's why getting that indemnification matters. In June 2001, the Office of Inspector General issued a special advisory bulletin regarding the practices of business consultants. The OIG stated that "hiring a consultant does not relieve a provider of responsibility for ensuring the integrity of its dealings with the federal health care programs." This bulletin also indicated that consultants and their clients could face liability under the False Claims Act or Anti-Kickback Statute if the practices advocated by the consultant leads to a federal investigation or legal proceedings.

The OIG provided the following examples of abusive practices:

  • A reimbursement specialist suggesting that a client use inappropriate billing codes to elevate reimbursement; suggestion might include describing methods to avoid detection.
  • A consultant encouraging a client to modify or customize a routine medical supply in an insignificant manner to justify billing the supply as a device that generates higher reimbursement.
  • A reimbursement specialist advising a client to bill for an expensive item or service with a higher reimbursement rate when a less expensive item or service with a lower reimbursement rate actually was provided to the patient.
  • A consultant advising a client to adopt a patently unreasonable interpretation of a reimbursement law, regulation or rule to justify substantially greater reimbursement.
  • A consultant promising to increase Medicare revenues for lab services by showing its clients how to disguise double billing and claims for medically unnecessary services.
  • A consultant suggesting the creation of deceptive documentation in order to mislead potential reviewers.

If you submit a false claim or violate the law, the government has rights against you whether or not you relied on a consultant's advice.

While relying on a consultant's advice in good faith could help reduce or eliminate penalties that the government might attempt to impose, the OIG ultimately holds physicians responsible for compliance and related activities.

Protect your practice

Even if your consultant has a liability insurance policy, an indemnification clause in your consulting contracts enables you to some protection against financial disaster if the advice you rely on turns out to be incorrect or illegal.

A liability insurance policy usually covers claims for losses suffered as a result of negligent or willful actions by the consultant. But even if your consultant has this type of insurance, the insurance company could attempt to deny coverage if it takes the position that the consultant performed to the correct standard of care.

An indemnification clause might help you recover against the consultant, assuming that the consultant has sufficient assets (or insurance coverage) to cover its responsibilities.

For example, although you might be able to collect any amount you had to refund for improper claims, the law might not allow you to recover the costs you incurred in responding to a federal investigation.

With an indemnification clause, you can specify and expand the types of costs you are entitled to recover.

Inclusion of an indemnification provision is also more likely to encourage a settlement with the consultant without having to file a lawsuit.

Your indemnification provision should include the following points: state your consultant's obligation to indemnify; identify the consultant's conduct that leads to liability; and state the costs you are entitled to collect if your reliance on the consultant's advice leads to financial loss.

A consultant might ask to include language that says he or she has a right to rely on the information you give, and that if your source material contributes to liability for compliance violations, you will agree to pay for associated expenses and damages.

A consultant also might insist on narrowing the provision so that you can recover damages only for certain types of improper conduct like gross negligence or recklessness.

The following is a sample indemnification provision:

"Consultant shall indemnify, defend and hold physician harmless from and against any and all claims, losses, damages, costs or liabilities assessed against physician which are caused by any act or omission of consultant or arising from consultant's performance of services under this agreement. These costs shall include, without limitation, any litigation costs, damages, claims and judgments assessed against physician including: attorneys' fees and all other costs associated with civil or criminal lawsuits, investigations, audits, and/or administrative proceedings; civil money damages assessed by the OIG or other state, federal or local agencies; civil damage judgments, including punitive damages, rendered against physician; and any refunds required by Medicare, Medicaid or any other federal, state, local or private health care agency or plan."

Protect your practice by ensuring that the consultant you hire is competent and well-insured.

Do your homework regarding the consultant's background and reputation. And make sure that you include an indemnification provision in all your consultant contracts.

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