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New Surprise Billing Regulations Create a Dispute Resolution Process Designed to Decrease the Risk of Higher Prices and Premiums for Consumers

On September 30, four federal agencies charged with implementing the No Surprises Act issued an interim final rule1 that spells out how the new law will establish payments to out-of-network providers when it goes into effect on January 1, 2022. An earlier interim final rule laid out the law’s core protections and established how to calculate a payer’s median in-network rate, known as the qualifying payment amount. In this post, we’ll describe the process to determine payment amounts and how the September rule will implement the law and achieve the savings the law’s architects intended.

Key Concepts in the No Surprises Act

Under the No Surprises Act, consumers are protected from financial liability beyond normal in-network cost sharing when they receive emergency services by an out-of-network facility or provider, including air ambulance services, or when out-of-network providers at in-network facilities provide nonemergency services. Under the law, out-of-network providers and facilities are banned from sending consumers bills for amounts beyond in-network cost sharing.

A key component of the law is the federal process for determining how much a patient’s insurer or health plan will pay an out-of-network facility or provider. The federal law preserves processes in state laws for determining payments in settings regulated under state laws. States use either a payment standard or an independent dispute resolution (i.e., arbitration) process to determine payments — or a combination of both methods.

The federal process relies on two measures if the provider does not accept the payer’s initial payment. First, the parties must enter into 30 days of private negotiations and are encouraged to make reasonable offers and reach an agreement on the payment amount. Second, either party may request to use an independent dispute resolution process, during which each party offers an amount and an arbitrator selects one of the two offers, which is binding on the parties.

Implementation of the Independent Dispute Resolution Process

A key component of the No Surprises Act is the creation of a federally operated independent dispute resolution (IDR) process to help determine how much a patient’s health plan must pay an out-of-network provider. This amount does not affect what the patient owes but if payments are consistently high, they may push up premiums, which are then paid by consumers.

This new rule lays out the details of how the federal IDR will work. It specifies precise timelines for negotiation and arbitration and the steps parties must take. It allows the federal government to certify IDR entities and establishes qualifications for those entities. The rule also establishes a $50 administrative fee for providers and payers that use the federal process and sets a range of $200 to $500 for the fees paid to IDR entities for conducting a single determination.

Most important, the new rule offers guidance to arbitrators in using the factors in the law to reach decisions. The new rule states that the qualifying payment amount (i.e., the median in-network rate) should be the starting point for resolving payment disputes. In most cases, arbitrators are instructed to select the offer closest to this amount, which is based on contract rates derived from market negotiations. Arbitrators should consider all information submitted by the parties, which will include other factors designated in the law, but only when one party provides credible evidence that another factor shows that the qualifying payment rate is inappropriate.2 One such factor in a complicated case could be a provider’s experience; however, this factor would not be considered in a simple procedure, like wound repair.

Impact of the Rule on Payment Amounts

Some existing state arbitration processes have awarded high payments to providers, potentially leading to higher premiums. This has been particularly true in states that allow arbitrators to consider the provider’s billed charge or “usual and customary rates” — factors not allowed under the No Surprises Act. The new interim rule emphasizes adhering closely to the qualifying payment amount; this should help prevent an inflationary effect. If providers expect to only be paid the qualifying payment amount, they are less likely to seek arbitration. Conversely, in states like New Jersey and Texas, many providers have received payments well above the qualifying amount, which has encouraged more cases to go to arbitration.

Provider groups have pushed back against the rule’s approach, preferring that arbitrators be instructed to consider all factors equally. But the rule argues that anchoring IDR outcomes to the qualifying payment amount should help achieve policy goals of increased predictability and a lower risk of inflation. They note that the Congressional Budget Office has found that the focus on market-driven rates reflected in the qualifying payment amount would result in budget savings and lower premiums.

We do not yet know whether the rate determination process will have a broader effect on network and rate negotiations between providers and payers. Consumers generally benefit from lower prices and broader provider networks. Paying at or near the median in-network rate might convince some providers to join plan networks if they cannot receive more by staying out. But other providers may stay out of network if they get paid at a network rate anyway and have a chance to win more in arbitration. Plans will need to decide whether they should opt for narrow networks, knowing that plan members are protected from paying extra when using out-of-network providers. Evidence from surprise billing laws in several states — California, New Jersey, New York, and Texas — shows declines in the share of services delivered out of network by providers.

Looking Forward

The No Surprises Act goes into effect on January 1, 2022. Until then, the federal government will be busy certifying an adequate number of independent dispute resolution entities to run the system. Payers and providers will be learning the mechanics of calculating qualifying payment amounts and strategizing about whether and how they will use the negotiation and arbitration processes.

We will learn the impact of the law as implementation proceeds and as arbitration results are reported, beginning in 2022. It will be crucial to monitor how often and in what circumstances decisions land significantly above or below the qualifying payment amount.

NOTES

1 An interim final rule is issued when federal agencies determine there is no time for a full round of notice and comment on a federal regulation. This rule is open for comment from the public, but the agencies are not obligated to respond to comments or make any changes before the rule goes into effect.

2 According to the rule, the independent dispute resolution entity is supposed to presume that the qualifying payment amount (QPA) is the appropriate out-of-network rate. This presumption can be rebutted, but only if the parties submit credible information about additional circumstances that clearly demonstrate that the QPA is materially different from the appropriate out-of-network rate.

Publication Details

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Contact

Jack Hoadley, Research Professor Emeritus, Health Policy Institute, McCourt School of Public Policy, Georgetown University

Citation

Jack Hoadley and Kevin Lucia, “New Surprise Billing Regulations Create a Dispute Resolution Process Designed to Decrease the Risk of Higher Prices and Premiums for Consumers,” To the Point (blog), Commonwealth Fund, Nov. 4, 2021. https://doi.org/10.26099/14v3-8s64