Congress Prohibits Surprise Medical Bills, Sends Payment Disputes to Mandatory Arbitration

Congress’ year-end COVID-19 Relief Bill includes the No Surprises Act, aimed at curbing surprise medical bills starting in plan year 2022. Applicable to federally regulated health plans, the Act caps patient responsibility for out-of-network emergency services and removes the patient from resulting payor-provider reimbursement disputes. Such disputes will be resolved through mandatory baseball-style arbitration, subject to guidelines potentially limiting abuse of the arbitration process. The Act precludes consideration of both billed charges and governmental-payor reimbursements, and it imposes a loser-pays rule for arbitrator fees if the parties cannot agree on a reimbursement rate. The Act also regulates air ambulance bills and certain non-emergency services from out-of-network providers at in-network facilities (e.g., where the patient does not have the ability to choose an in-network provider at the facility).

Patient Protections

The Act prohibits balance billing for out-of-network ER services in any amount exceeding the patient’s in-network cost-share amount. The patient’s cost-share obligation will be based on a “qualifying payment amount” (determined under regulations promulgated by July 1, 2021) if applicable state law does not otherwise set the reimbursement amount.¹ Additionally, the plan must make an initial payment or deny the claim in 30 days, and the total payment will be the amount: (1) specified by state law, subject to ERISA preemption under § 514; (2) agreed upon by the parties; or (3) determined through the statutory dispute-resolution process, described below.

Other services covered by the Act include air ambulance and non-emergency services at participating facilities by out-of-network providers. Some non-participating providers may avoid the balance-billing ban with a signed consent from the patient, but the provider must give advance notice to the patient (generally 72 hours prior) that the provider is out-of-network, with a good-faith cost estimate and a list of participating providers for the service at the facility. This consent exception will be construed narrowly and will also exclude “ancillary services” (e.g., anesthesiology, pathology, radiology, neonatology, and out-of-network services when a participating provider is not available at the facility).

The Act further requires that plans provide cost-comparison tools and satisfy provider-directory standards (e.g., updating the provider database within two business days of receiving notice of a change in network status), in addition to providing advance EOBs allowing the member to assess in-network and pricing options in certain situations.

Baseball-Style Arbitration

The Independent Dispute Resolution (“IDR”) Process commences with a 30-day “open negotiation” period following the provider’s receipt of the initial claim payment or denial. The parties may continue negotiating after this period and agree on an applicable rate until the IDR decision, but mandatory deadlines govern the process:

• Four days for either party to commence IDR after the open negotiation period;
• Three business days for the parties to agree on a “certified IDR entity,” or, if no joint selection, the Secretary will appoint the IDR entity within six business days;
• Ten days from appointment of the IDR entity/arbitrator for the parties to submit payment offers and information on the statutory factors for consideration;
• Thirty days from appointment for the IDR entity/arbitrator to select one of the parties’ offers as the payment amount; and
• Thirty days from the IDR/arbitrator decision for payment to the provider.

In selecting which party’s offer to apply, the arbitrator “shall not consider usual and customary charges” or reimbursement amounts from public payors. However, the arbitrator must consider the “qualifying payment amount” (i.e., the plan’s median contracted rate in the market, with the precise methodology established by regulation) and any other information requested from or submitted by the parties relating to the offers. Other statutory factors include quality and outcome measurements of the provider; market share of the provider or plan; patient acuity; the facility’s teaching status and case mix; good faith efforts (or lack thereof) to enter network agreements; and historical contracted rates between the parties.²

The Act further allows batching multiple claims in a single arbitration if the claims are between the same parties and related to treatment of a similar condition provided within 30 days of the initial disputed service, but the Act also includes provisions that may deter overuse of the arbitration process. A loser-pays rule applies for the arbitrator’s fee, split if the parties settle through ongoing negotiation unless otherwise agreed. In addition, a 90-day lockout period prevents the initiating party from commencing another IDR arbitration against the same party for the same item or service, although claims that accrue during the 90-day period can be pursued after the lockout.

IDR entities are subject to conflict-of-interest restrictions, but the decisions are not otherwise subject to judicial review, except for fraudulent healthcare claims, misrepresentation of facts to the arbitrator, or on grounds that would establish vacatur under the Federal Arbitration Act.

Stakeholder Compromises and Pending Implementation Issues

The No Surprises Act reflects a compromise among stakeholders on surprise billing. Provider groups generally favored arbitration, as incorporated into the final Act, rather than a benchmark payment standard. But insurer groups likewise succeeded in precluding consideration of providers’ billed charges and lessening the potential for abuse of the arbitration process with the loser-pays provision and lockout period. Patient advocacy groups have expressed general satisfaction with the removal of patients from the dispute-resolution process.

Potential issues that may arise through the rulemaking process and implementation of the IDR procedures include the methodology for determining qualifying payment amounts, handling of coverage disputes, application of the prudent layperson standard for emergency services, and disagreements over coding and claim-edit methodologies.

¹ The “qualifying payment amount” will be determined by reference to the median of the plan’s contracted rates “with respect to all such plans of such sponsor or all such coverage offered by such issuer that are offered within the same insurance market,” for the applicable geographic region and type of plan.

² The statutory IDR factors for consideration do not refer to the rates established through contracted out-of-network relationships or other leased-network arrangements.