The “No Surprises Act” (the “Act”) is a new federal law aimed at protecting patients from “surprise” medical bills.  This legislation, set to go into effect on January 1, 2022, creates a new federal approach to address unexpected balance billing and joins a number of state laws, regulations, and court decisions that already address this issue in a variety of ways. 

Like many states that have crafted balance billing legislation, Congress grappled with how to provide a way for payers and out-of-network providers to resolve disputes over the cost of  out-of-network services within the scope of the Act.  Some early proposals called for the creation of benchmark databases that would determine out-of-network prices.  Instead, the Act creates a “baseball-style” arbitration process in which the payer and provider present a “final offer” that is then selected by an arbitrator (or “IDR entity”) according to certain criteria set by the statute.

This Client Alert focuses on the key procedural and substantive components of the Act’s new arbitration process for payer-provider disputes.

Overview of New Arbitration Procedures

The Act applies to  (1) emergency services, (2) non-emergency services performed by nonparticipating providers at certain participating facilities (with some exceptions, if notice and consent procedures are followed), and (3) air ambulance services.  At a general level, the Act addresses both the cost sharing and “rate” aspects of the out-of-network charges issue.  Under the Act, the cost sharing requirements are calculated “as if the total amount that would have been charged . . . were equal to” what is labeled by the law as the “recognized amount.”  For purposes of the cost sharing calculation, the “recognized amount,” in turn,  is defined as (i) a rate determined by a specified State law (if any), (ii) the payer’s median contracted rate, or (iii) in States with All-Payer Model Agreements, the rates applicable under that system. 

Although the Act provides a means of determining the out-of-network provider’s rate for purposes of calculating the member’s cost sharing responsibilities, the Act does not similarly legislate a specific means of determining the rate that a payer should pay an out-of-network provider.  Rather, the Act requires a payer to send an initial payment (or notice of denial) to a provider within 30 days of receiving the provider’s bill.  If the provider does not accept the payment, then the payer and provider have 30 days to agree upon a rate.  If negotiations fail, the Act calls for a “baseball-style,” binding arbitration to be initiated by a party submitting a “notification” to the other party and the U.S. Department of Health and Human Services (HHS).

Arbitrator Selection.  Once an arbitration is initiated, the parties can jointly select a certified “IDR entity” within 3 business days or, if agreement on the arbitrator is not possible, request that HHS make the assignment within 6 business days of initiation.

Offers to Arbitrator.  Within 10 days of arbitrator assignment, each party submits an offer to the arbitrator who considers each party’s submission and selects one of the offers.  The arbitrator’s selection must occur within 30 days of arbitrator assignment.  The losing party must pay for the fees charged by the arbitrator. 

Batching of claims.  The No Surprises Act allows “batching” of claims if they occurred within the same 30-day period and involve the same provider, health plan, and medical condition. 

“Cool Down” Period.  The party that initiated an IDR process cannot submit another IDR notification against the same party during a 90-day “cool down” period following determination of the initial dispute, if the same services are at issue.

The exact contours of this process have not yet been established.  By the end of 2021, HHS, Labor, and Treasury will issue rules regarding the content of the initial “notification” to start the arbitration, the specific criteria for batching disputed services, the process for certifying IDR entities, and other details. 

The Act also requires the agencies to report on whether the “cool down” period “delays payment determinations or impacts early, alternative resolution of claims (such as through open negotiations) . . . .”  The Act calls for agencies to flag whether any payers are abusing the “cool down” period through, for example, routine denials, low payments, or down-coding of claims.

Substantive Criteria for Arbitrators: A Focus on Payers’ Median Contracted Rates

What is considered by an arbitrator when choosing an offer?

The Act provides that arbitrators should consider (1) “the qualifying payment amount” (“QPA”) and (2) “additional circumstances”:

QPA.  The QPA is defined in the Act as the payer’s median “contracted rate” for the service in question in the same geographic region and for the same type of plan (e.g., small group, large group, individual, and self-insured markets).  Under the Act, HHS, Labor, and Treasury must establish rules for the “methodology” to calculate QPA by July 1, 2021. 

Though the rules for the QPA “methodology” will provide key detail, the Act provides some general guidelines that are worth referencing now.  For example, such rules apparently will require payers to share certain information regarding their determination of QPA with nonparticipating providers.  When determining QPA, the Act also requires payers to include payments that are not on a fee-for-service basis.  Median rates are calculated as of January 31, 2019, and inflated for each subsequent year pursuant to the CPI-U.  For newly covered services, the payer can use the rate from a “database that is determined, in accordance with rulemaking [under the Act], to not have any conflicts of interest and to have sufficient information reflecting allowed amounts paid” to providers for relevant services in the same geographic region. 

By October 1, 2021, the same agencies must establish an audit process to verify that plans are in compliance with their calculation of QPA.  The audits may include selection of samples of claims data “from not more than 25 group health plans” and specific audits of payers if the government has received any complaints as to a payer’s compliance with the median in-network calculation.

“Additional Circumstances.”  The “additional circumstances” that an IDR entity must consider when choosing between the two offers include (1) the provider’s training and experience, (2) the provider’s market share, (3) the “acuity” of the patient receiving the services, and (4) the teaching status and case mix of the provider. 

The IDR entity also shall consider “demonstrations of good faith efforts (or lack of good faith efforts) made by the nonparticipating provider or . . . plan . . . to enter into network agreements.”  This factor could have an effect on broader market dynamics for payer-provider contracting.  It may help prevent overuse of the IDR process and adds potential downside risk (in the form of unfavorable IDR results) to sudden shifts in network status or frivolous contract disputes. 

The IDR entity also may consider “contracted rates” between the payer and provider during the previous four plan years.  Thus, this factor may favor payers in the IDR process if a provider is newly out-of-network and seeking to obtain substantially higher rates as a result of an abrupt network status change.

What is prohibited from consideration by an arbitrator when choosing an offer?

The Act specifically prohibits an arbitrator from considering (1) billed charges, (2) “usual and customary charges,” and (3) Medicare rates (or the rates of any other public payer).

Potential impact of criteria on arbitration results.

Although the devil likely will prove to be in the details of to-be-promulgated regulations and it is far too soon to predict with certainty, the structure of the law could result in arbitrator selections that anchor around the QPA, or median contracted rate.  In fact, the only factors for IDR consideration that tie directly to dollar amounts are the median contracted rate and any recent contract rates between the payer and provider. 

The State of New York has developed an “IDRE” baseball-style arbitration process for resolving out-of-network rate disputes, and that process provides a glimpse into how the IDR factors might lead federal IDR entities to coalesce around particular dollar figures.  See 23 CRR-NY 400 et seq.  Unlike the new federal law, the New York law permits consideration of (among other factors) the fee charged for the service and “usual and customary cost,” with guidance that “usual and customary cost” is defined as the 80^th percentile of all charges for a particular service.  According to a 2019 USC-Brookings Schaeffer Initiative for Health Policy study of New York’s IDRE process, IDRE decisions for out-of-network rates average 8% higher than the 80^th percentile of charges.  Again, in contrast, the Act’s new system prohibits use of billed charges and “usual and customary charges” in an IDR entity’s decision, with a focus instead on median contracted rates.  On balance, the federal process’s deemphasis of charges and focus on median contract rates may result in more reasonable results from a payer perspective than the New York system.

Publication of arbitration results.

In what could prove to be a significant provision, the Act requires that, beginning in 2022, HHS must publish detailed results of the arbitrations on its website each quarter.  In particular, the offers and selected offers are to be published as a percentage of the QPA, alongside specific information about the services, providers, and plans involved.  Also, HHS must publish the number of times the payment amount pursuant to the IDR process was greater than the QPA.  Over time, analysis of the body of data created by the HHS’s collection and publication of arbitration information may influence tactical decisions by payers and providers regarding offers, settlements, and whether to arbitrate at all.

The Act’s Deference to State Law

One key issue going forward is how the Act might affect fully-insured plans that are already subject to some form of balance billing-related state law and regulation.

The Act defers to any “specified State laws” that shall determine the cost-sharing amount and the out-of-network rate.  Such laws are defined as state laws that “provide[] for a method for determining the total amount payable” when a member receives services from a “nonparticipating provider or nonparticipating emergency facility.”  State laws are far from uniform on balance billing issues.  It may take some time for various jurisdictions to process distinctions between existing “specified State laws” (that supersede the Act) and instances where the Act instead applies to fill a gap in state law. 

In addition, some states ultimately may choose to repeal certain balance billing laws to allow the federal rules to apply instead.  For example, states that are currently operating arbitration systems for balance billing disputes may choose to defer to the federal system since doing so could reduce state administrative costs.

Next steps

Because the Act goes into effect on January 1, 2022, federal agencies will have to move quickly to draft regulations that will create the complex new arbitration system created under the Act.  We will provide further updates as we follow implementation of the Act in 2021 and beyond.

Authored by Michael M. Maddigan and Jordan D. Teti