A New Federal Umpire: What Healthcare Providers Need to Know About Surprise Medical Billing under the No Surprises Act

A recent study found that, for people in large employer health plans, 18% of emergency visits and 16% of in-network inpatient admissions result in at least one out-of-network charge. Starting next year, however, plans, healthcare facilities, laboratories, medical transportation providers, and other healthcare providers will have to comply with a complex set of new federal requirements designed to protect patients from “surprise medical bills.”

Although the concept of holding patients harmless from unanticipated out-of-network medical bills became a national policy priority with bipartisan interest in 2019, it took nearly two years for comprehensive surprise billing reform legislation to get across the finish line. Included as part of the Consolidated Appropriations Act of 2021,¹ omnibus legislation signed into law at the end of 2020, the “No Surprises Act” (Act) contains a number of protections for patients in cases of both emergency services and non-emergency services performed by out-of-network providers at in-network facilities.²The new law applies to individual and group health plans, including fully-insured plans sold through the individual and group markets, as well as self-funded plans (also known as “ERISA” plans). Below are some of the major elements of the No Surprises Act that may impact your business as a healthcare provider or supplier.

Resetting the Count: Limits on Patient Cost-Sharing

In the case of a surprise bill from an out-of-network provider, the Act limits patient billing to an amount that is no greater than the patient’s in-network cost-sharing obligation. But how is this amount calculated when an out-of-network provider has not established a contracted rate with a plan from which to determine the cost-sharing amount? Said differently, the patient’s in-network co-insurance obligation may be 20%—but 20% of what amount?

The Act requires plans to first look to see if the state has a law that determines the total amount of payment for the particular out-of-network item or service. If so, cost-sharing is calculated from the state law amount. If there is no applicable state law, plans are required to calculate their median in-network contracted payment amount for the particular service based on their network agreements with other providers, and use that figure to calculate a patient’s cost-sharing amount. This metric, called the qualifying payment amount (QPA), will consider the plan’s in-network contracted rates for the same or similar services in the same geographic region, differentiated by insurance market.³

Notably, while the Act requires patient cost-sharing to be based on the QPA, it does not require plan payments to be based on this (or any other) particular amount.

Take Me Out to the Ball Game: Baseball-Style Arbitration

How does an out-of-network provider get paid for the remaining charges for the care it provided during the emergency or in-network visit when the patient’s obligation is limited to the in-network cost sharing amount?

Under the Act, the plan has 30 days after receiving the provider’s bill to remit an initial payment or issue a denial. Once a provider receives an initial payment (or denial notice), the provider, absent the limited exception described below, has two choices: (1) accept the initial payment plus the in-network patient cost-sharing amount as payment in full, or (2) engage in direct negotiation with the plan. Plans and providers have 30 days to settle surprise bill claims themselves. If the parties are not able to reach an agreement during that time, either party has four days to initiate the federal IDR process (or the applicable state’s existing IDR process if the state has one). The initiating party may batch claims for IDR review for the same service so long as they were furnished during a 30-day period.

When the IDR process is initiated, each party submits an offer representing the cost they think the plan should pay for the services provided. The IDR arbitrator will then select one of the two offers as the final reimbursement amount in a binding decision that cannot be appealed or modified. This incentivizes both parties to make reasonable offers, or else run the risk of losing the dispute. This arbitration method borrows from the salary negotiation process for Major League Baseball, with the twist that the IDR arbitrator is prohibited from considering certain factors (e.g., the Medicare payment rate, the provider’s usual and customary charge) and is required to consider a number of factors such as the QPA (i.e., the plan’s median in-network contracted rate for the item or service), relevant information brought by either party, and other information requested by the arbitrator.⁴ The arbitrator may not consider rates paid under Medicare, Medicaid, CHIP, and TRICARE or the provider’s usual and customary charges or list price for the service or item at issue. After the IDR arbitrator reaches a decision, the plan has 30 days to make payment on the bill (if applicable).

HHS will further define the IDR process via upcoming regulation.

You’re Out: Blocked for 90 Days

Following a determination by the IDR arbitrator, the entity initiating the IDR process is prohibited from bringing subsequent claims against the same party for the same item or service for three months. After this 90-day window, the party may once again initiate the IDR process on the basis of those accrued claims. This rule is designed to encourage efficiency in the IDR process by incentivizing parties to bundle similar claims; however, this waiting period may create a financial burden for providers who will have to wait three months to advocate for additional reimbursement for claims that they believe were underpaid and who will not be able to bundle more than 30 days of claims during that 90-day period.

Foul Ball: The Real Cost of IDR

Plans and providers not only face the risk of their offer not being chosen by the IDR arbitrator; they also risk being stuck with the bill and having their private negotiation aired publicly.

The party whose offer is not chosen by the IDR arbitrator is responsible for paying all fees charged by such arbitrator. A review of state IDR processes found that a typical cost of between $300 and $600 each time the process is used. Even if parties are able to reach an agreement during the required 30-day negotiation period, there likely will be costs associated with carrying out that direct negotiation as well. The law also places an annual administrative fee on parties partaking in the IDR process during that year, in an amount that will be established by HHS in future rulemaking. Parties likely to engage in this process regularly will need to budget for these new expenses.

Moreover, HHS is required to publish detailed information about each IDR arbitration, including the names of the parties, the payment offers made by each party, and the offer selected by the IDR arbitrator.

In Scoring Position: The Notice-and-Consent Exception to Surprise Bills

For certain types of out-of-network providers, the Act includes a narrow exception to the limitations on patient cost-sharing in circumstances where the out-of-network provider provides the patient with advanced notice of the likely out-of-network costs and a list of alternative in-network providers, and obtains the patient’s consent to nonetheless furnish the out-of-network items or services. If notice and consent is obtained, the provider may charge the patient for the out-of-network cost-sharing amount and balance bill the patient for the difference between the plan’s allowed amount and the provider’s charge. In these circumstances, the IDR process is not available to resolve any dispute between the provider and plan.

The Act specifically prohibits this exception from being used for many categories of items and services, including emergency services and certain “ancillary services” (defined broadly to include items and services related to anesthesiology, pathology, radiology, neonatology, diagnostic services, laboratory services,⁵ items and services provided by other specialty practitioners to be determined by HHS via rulemaking, and any items and services provided by out-of-network providers if there is no in-network provider who can furnish the item or service at the facility). Given the breadth of this list, it is unclear for what other items and services this exception may be available, and HHS will need to address this during rulemaking.

Cover Home Plate: Patient Transparency

The Act places a number of new requirements on plans and providers relating to price transparency. Notably, the Act requires all providers—even providers who are likely to be in-network—to reach out to patients who schedule care with the provider in advance of the appointment to solicit the patient’s insurance information. Providers are then required to issue a “good faith estimate” to the patient’s insurance plan, which describes the items or services to be provided and the provider’s estimated charges. The insurance plan must then send the patient an “Advance Explanation of Benefits” prior to the scheduled care describing key elements of the care to be provided, such as whether the provider is in-network, the contracted rate for the item or service (if the provider is in-network) or a description of how to access in-network care (if the provider is out-of-network), the provider’s good faith estimate of the likely charges and the patient’s responsibility of that amount, the patient’s status vis-à-vis the patient’s deductible and out-of-pocket maximum, and other information. This Advanced EOB should be provided at least three days in advance of the scheduled services.

In addition, plans must establish and maintain up-to-date directories of in-network providers and issue insurance cards to enrollees that describe the in- and out-of-network deductibles and out-of-pocket maximum limitations for an enrollee’s plan. Plans must also offer a price comparison tool for patients.

Double Play: No Preemption of State Laws

As described above, in two instances, the Act specifically defers to the requirements of applicable state surprise billing laws: (1) to determine the total payment amount from which patient-cost sharing is calculated, and (2) as the arbitration process to resolve the parties’ disputes instead of the federal IDR process.

However, besides these two areas, providers and insurers should be prepared to account for both the Act and any state surprise billing laws that may apply. The federal No Surprises Act does not include a preemption clause, meaning the new federal law does not replace or supersede any existing state laws regulating surprise medical bills. Indeed, unless the federal law expressly conflicts with the surprise billing laws of a given state, providers and insurers will need to observe both legal regimes. It also is not clear how the federal law will interact with payers’ current appeals processes for out-of-network providers.

There are currently 32 states with laws designed to protect patients from surprise medical bills, to varying degrees and in differing ways. While there are common themes in most laws prohibiting surprise medical billing, plans and providers should prepare to comply with both applicable state laws and the No Surprises Act and monitor for variability and discrepancies that arise when two laws are at play at the same time.

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Although the Act provides plenty of new requirements impacting how patients, providers, and plans interact in the case of a “surprise bill,” many key questions regarding the new regime still need to be addressed via the rulemaking process. Interested providers should keep an eye out for upcoming notices of proposed rulemaking from HHS (as well as the Labor and Treasury Departments, who each are responsible for certain aspects of the rulemaking).

If you have any questions about the topics discussed in this Advisory, please contact your Arnold & Porter attorney or any of the authors.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.