A Business Owner’s Guide to Contracts

It seems as if every business owner or CEO has to know something about the law in order to keep up with the day-to-day operations of his/her business.  Unless your company has an in-house legal department or you’re a business owner who doesn’t mind sending every contract that comes your way to the lawyer you have on retainer, every once in a while you’ll be forced to read through an agreement on your own.

Deciphering legalese can be intimidating at times, especially if money is on the line.  Contracts are composed by attorneys in such a way to intentionally confuse anyone reading it who isn’t a lawyer and familiar with legal jargon.  It’s almost as if lawyers have their own language.  This article will cover a few terms that are important to understand in any contract.  Knowing them and being aware of what they mean are critical before signing your name.

One of the biggest tricks that lawyers use in contracts is counting on the laziness of the person reading or signing it.  For example, if there’s a stipulation in an agreement that states something to the effect that by signing this contract, you agree to the company’s policy and procedure manual or terms of agreement.  This is a small piece of a much larger puzzle.  By agreeing to this, you have just agreed to whatever is in this other document which may or may not be presented to you at the time you sign the contract.  The other document could be a huge book that contains a whole host of terms that you may not be particularly comfortable with.  In this type of circumstance, it is definitely recommended that you request to see a copy of the other document before agreeing to the terms of the contract.

Personal Guarantees

One of the benefits to incorporating a business is that if the company is liable for damages, they can’t come after the owner personally.  If you’re ever in the unfortunate situation where you lose your business, the last thing you want is for a creditor to come after your personal assets.  When signing an agreement that holds you liable personally or individually, if the company still owes money after it is defunct, you as the owner are still responsible for its debt.

There are some cases where avoiding a personal guarantee is impossible.  For example, almost every agreement you sign with a bank or credit card company will most likely include a personal guarantee.  If you’re acquiring a business where the seller is holding the note, he would be foolish to not require a personal guarantee.  However, there are some cases where it is acceptable to challenge the presence of this sort of guarantee, such as a lease, service or sales agreement.  Just simply tell the other party that you don’t do personal guarantees and ask to strike it from the contract.

Sometimes personal guarantees are in disguise by having the word, “individually” listed on a signature line.  Don’t be fooled by this.  Guaranteeing an agreement personally or individually is the same thing.  It’s not a bad idea to include your title next to each signature to reinforce that you are signing on the capacity as the company’s CEO or President, not an individual person.

Nondisclosure

Confidentiality may be imperative when negotiation an agreement.  Nondisclosure simply means that the parties agree not to disclose any information to a third party that pertains to the agreement and all that it encompasses.  Make sure that the nondisclosure is bilateral, meaning that it goes both ways and is applicable to both parties, not just you.  Sometimes a Nondisclosure Agreement is referred to as an NDA.

Hold Harmless

Indemnification is a clause that many people would like to add into a contract but it usually is not beneficial to the person agreeing to it.  A Hold Harmless Clause basically means that you are waiving your right to sue the other party if something were to go wrong.  Sometimes this type of indemnification doesn’t hold up in court but it shouldn’t be something to knowingly risk.  Ask to strike it out of the contract if possible.

Non-Circumvent

This is an important stipulation that means one party can’t bypass you in order to get to another party.  This is particularly important if commissions are part of the agreement.  For example, if you are a sales representative, the last thing you want is for the customer to circumvent you and deal directly with the company if you were the one who made the connection.  Then you lose your commission and the company gains a new client that you didn’t get credit for.

Jurisdiction

Many contracts have a statement that includes the location of the court where claims would have to be filed in the event of a dispute or breach of contract.  If the company you’re doing business with is in a different state and a lawsuit comes out of the relationship that the agreement is bound by, this may require you and your lawyer to go out of state to fight the battle.  This can be inconvenient and costly.

Addendum vs. Amendment

This is an easy one to remember.  An Addendum is a section that gets added to a contract after it’s agreed upon and an Amendment is a change to a contract after it’s been agreed upon.  Just remember that the plural of the word Addendum is Addenda, not addendums.

Keeping a Drug Treatment Center Profitable

The general public may think that drug rehabs are cash cows but to those of us who have run them or are currently running one, it’s more challenging that most people think.  Regarding the supply and demand issue, alcoholics and drug addicts are never in short supply.  However, finding ones that are receptive to treatment can be.  Strengthening relationships with law enforcement agencies that most likely provide the lion share of your referrals is crucial to keeping numbers up.  However, what if referrals, admissions and treatment sessions are steady but cash flow is a problem?  We may need to pop the hood and take a look inside to identify the problem and devise a solution.

The first thing to determine is whether you have negotiated high enough rates with the insurance companies you are contracted with.  Managed care companies have tried to, and have been successful at, driving the treatment fees down over the course of time.  Have they gone too far with your contracts?  Let’s find out.  It’s very easy to determine your bottom line.  Go to your financial statements and add up all of your operating expenses for a given period of time…let’s say last year.  Then divide that dollar amount by the number of treatment sessions your facility has provided for the same period of time.  That number is your breakeven point.  Therefore, your fees for service must be higher than that number. 

If your operating expenses exceed your revenue, you have a fundamental problem that must be resolved immediately to ensure the fiscal stability of your operation.  One solution is to try to cut expenses.  You may need to bring your bookkeeper and accountant into the room when doing this.  Although you may not want to sacrifice clinical care for financial profits, there may be plenty of other ways to trim your company’s fat.

If it’s been years since you first negotiated your contracts with insurance providers, it may be appropriate to revisit the possibility of renegotiating your rates.  Don’t expect this to come easy but if you push a little, you may get some of your payors to give in.

If you’ve analyzed the margins between your expenses and fees for service and they seem to check out, you could be experiencing an accounts receivables issue that is causing your cash flow problems.  In other words, your fees are fine but you’re not getting paid on time.  This can either be caused by the utilization review process that is played by most managed care companies.  If you don’t receive authorization for treatment prior to actually providing the services, you won’t get paid.  If preauthorization is not the issue, the insurance or managed care companies may be participating in stalling tactics and withholding your payments. 

Many insurance companies participate in these stalling tactics so that they can earn interest on your money.  Chances are, if they are withholding your payments, they are also withholding the payments of hundreds of other health care facilities across the country.  In some states, stalling tactics are illegal and punishable by late fees.  However, keep in mind that your relationship with HMOs can be compromised if you sick the attorney general’s office against them for violating these regulations.  A more strategic and diplomatic approach may need to be implemented.  Tread carefully when going up against the people who pay you. 

One of the hardest things about running a medical office is receiving payment on time from historically the worst payors on the planet.  Insurance companies know every trick in the book to delay your payments or avoid making them entirely.  Most insurance companies create policies intentionally complicated to specifically confused health care providers, hoping that they don’t have the staff that can decipher the convolution they’ve created.

One solution to this problem is outsourcing this function to a company that specializes in billing for behavior health services.  Most of them work on a contingency basis and their system may be more sophisticated than your internal billing department.  They also may have more manpower than your office does.  Remember that your company’s area of expertise is providing substance abuse treatment.  Their area of expertise is billing.

For more information on keeping a drug treatment center profitable, please call Ashlar Consulting Services at 305-849-9399 or visit www.AshlarConsultingCorp.com.