(written by William McGovern, Health Care Campaigns Associate)
Consumer activists, like us, are still shaking our heads at the speed at which a major consumer protection bill we’d been supporting in Congress became law in December 2020. The No Surprises Act passed both houses of Congress and was signed by the President in just sixteen days, after months of logjam. The Act protects insured Americans from most out-of-network surprise medical bills that can amount to hundreds or even thousands of dollars. Surprise medical bills arise when a patient through no fault of their own receives services from an out-of-network provider and is then charged for the remaining balance that their insurance won’t cover. Consumer activists had waged a two year campaign calling for a comprehensive federal solution to supplement protections enacted in more than half of the states. But the federal advocacy effort only gained momentum with a last minute compromise over a key feature - how to settle payment disputes between out-of-network providers and health plans.
What had stymied lawmakers for months was consumer advocates' insistence that any legislative solution needed to include provisions to prevent insurers from simply passing back the cost of these surprise bills to consumers as higher premiums. Consumer groups insisted that fixing one problem (preventing patient billing for these unfair bills) had to be combined with a payment mechanism that settled the outstanding out-of-network bills in a simple and fair way, to keep overall costs down.
High out-of-network rates drive up health care costs - the patients’ out of pocket costs and in higher premiums when plans have to pay exorbitant rates untempered by a pre-negotiated network contract. Hospitals and certain providers have almost unlimited discretion in setting out-of-network rates, which also acts as an incentive to remain outside plans’ coverage networks. Simply banning balance bills doesn’t address the high prices that health plans pay for providers who remain out-of-network. Those high prices are then passed on to consumers in higher premiums. A mechanism had to be established to ensure fair payment to these providers without allowing prices to continue to rise unchecked.
Even before the federal debate, states struggled with this question which resulted in a patchwork of approaches that revolved around either setting a benchmark rate to pay for out-of-network services or establishing an arbitration process to be used by providers and plans for settling disputes.
- The benchmark rate model avoids the use of arbitration by setting a payment amount for how out-of-network bills will be paid. For example, under California’s system, out of network providers are paid either 125% of what Medicare pays for that service or the median in-network rate, whichever is higher. This model means providers are paid quickly and there is an expected payment amount that providers can rely on.
- The arbitration model establishes an independent dispute resolution (IDR) process which plans and providers can use if they cannot come to an agreement for how to pay any out-of-network surprise medical bills. State IDR processes vary but arbitrators are often given specific factors to consider in making a payment decision. Some states ask the arbitrator to consider the region’s median in-network rates, and in states like New York and New Jersey, the arbitrator may consider billed charges. Other factors can include the geographic location of the facility or provider, the level of physician expertise, or the complexity of the particular case.
Federal lawmakers circled around these two approaches for months, with consumer groups preferring the cost-efficient benchmark rate, and the providers’ lobby arguing that an arbitration system was the only option. The final compromise bill landed as most compromises do, somewhere in the middle - an arbitration model with guardrails. The No Surprises Act sets up a 30 day window for plans and out-of-network providers to negotiate a payment. If they cannot reach a deal, either party can use arbitration. The compromise established three important guardrails.
- The No Surprises Act establishes “baseball arbitration” in which each party comes to the table with their best offer to settle the out-f-network bill. The arbitrator must choose one offer or the other. The either/or choice forces both parties to be more reasonable than their opponent in the hope of winning the arbitrator’s decision. Baseball arbitration deters outrageous offers thereby limiting costs to the system overall.
- The IDR process uses a “loser pays” rule - the party which made the losing offer is required to pay the full cost of arbitration. This fee helps prevent frivolous use of the arbitration system, which wastes resources of both parties and drives up costs for all.
- Arbitrators cannot consider “billed” charges in making payment decisions. This third guardrail addresses what a recent Health Affairs study showed: that IDR models which allow arbitrators to consider billed charges have an inflationary impact on payments to out-of-network providers. The study found that New Jersey arbitrators considered the 80th percentile of provider charges when making their rulings which resulted in payments to out-of-network providers on average 5.7 times the median in-network rate and 8.5 times the Medicare rate. To avoid these unsupportable payment hikes, the federal No Surprises Act prohibits arbitrators from considering billed charges. Instead, they are instructed to consider median in-network rates when determining what is fair.
Compromise can be difficult. And while the No Surprises Act may not be exactly what consumer advocates like ourselves wanted, the bill remains one of the most comprehensive consumer health protections the previous Congress addressed. Consumers will be protected from most surprise medical bills and the IDR system with its guardrails should keep overall costs down. We’ll continue to work to ensure strong regulations are written and that the states will be ready to enforce the law when it goes into effect in January 2022.
Photo by Piron Guillaume on Unsplash