Gaps in First Rule on Surprise Billing Create Not-So-Surprising Risk for Providers

Medical providers preparing to engage in arbitration with payors pursuant to the just-announced No Surprises Act dispute rules should be prepared to counter some tough tactics from payors. For health care providers, the first Interim Final Rule represents a reasonable solution against arbitrary rates for out-of-network services, but raises concerns that certain policies may result in a financial windfall for insurers at the expense of providers and consumers.

On July 1, 2021, the Departments of Treasury, Labor, and Health and Human Services issued “Requirements Related to Surprise Billing; Part I”, the first in a series of regulations implementing the “No Surprises Act,” which was signed into law in December 2020 as part of the Consolidated Appropriations Act of 2021 (H.R. 133). Effective January 1, 2022, the Act purports to: (i) protect patients from unexpected medical bills arising from emergency care and certain non-emergency care provided by an out-of-network provider at an in-network facility, including for air ambulance services; and (ii) allow out-of-network providers and insurers to use an independent dispute resolution (“IDR”) process if, after a 30-day negotiation period, the parties are unable to agree to  reimbursement amounts for services subject to the Act.

The IDR process follows “baseball-style” arbitration rules, where each party submits an offer for reimbursement (along with any supporting materials) and the arbitrator selects one of the offers—without modification—as the final payment amount. Notably, the Act requires the losing party to pay for the administrative costs of the IDR process, and provides that the party initiating arbitration is “locked out” from bringing another case against the same party for the same item or service for 90 days following the decision. Once the 90-day “cooling off” period has ended, however, the initiating party is free to submit such claims within four days.

The Rules provide a payment methodology for determining a patient’s cost-sharing amount for covered services and for calculating the so-called qualifying payment amount (“QPA”), which, as discussed below, are key factors in IDR proceedings. Despite the comprehensive approach outlined in the proposed Rules, several policies require further clarification and, as currently drafted, are  poised to be hotly-contested issues in future arbitrations. Specifically, providers should be wary of the following three areas of concern:

1. The relative weight of the QPA for IDR Purposes. The Act requires the arbitrator in an IDR proceeding to “consider” the following factors when deciding on a payment amount: the QPA and, upon request by the IDR entity or either party, the provider’s training and experience, the complexity of the procedure or medical decision-making, the patient’s acuity, the market share of the insurer and provider, teaching status of the facility, scope of services, any demonstrations of good faith efforts to agree on a payment amount, and contracted rates from the prior year. The Rules do not indicate, however, the relative importance of each factor or whether any one factor should or should not be given preferential weight, leaving open the possibility that arbitrators may either directly or indirectly consider the QPA as the predominant factor. Such reliance on the QPA as the benchmark rate could hinder a provider’s ability to utilize the other factors in good faith negotiations with the insurer.

2. The definition and calculation of the QPA. This is an issue of significant importance to insurers and providers as it determines patients’ cost liability, influences the financial stability of providers, and must be considered by arbitrators if the provider and payor cannot agree on a payment amount. QPA is defined in the Rules as the median of the contracted rates recognized by the health plan in 2019 for the same or similar item or service provided by a similar provider in the same geographic region (indexed for inflation). To ensure adequate reimbursement for out-of-network services, providers should push for the arbitrator to also consider the weighted average of contracted rates for all providers of that type that are in-network with the insurer in that particular geographic area, rather than a median of contracted rates at the group level, regardless of practice size. For instance, if an insurer has five group contracts in a particular region, the QPA should be the weighted average of the individual rates of all relevant providers from those five groups (and not the median of the five group rates). In addition, given the acceleration of payor-controlled medical service providers, independent providers should advocate that any weighted averages exclude the rates of providers acquired by or in partnership with major payors.

3. Initial Payment Based on Insurer’s Reasonable Belief. The Act directs insurers to send an “initial payment” (or notice of denial of payment) within 30 days after the provider submits a claim for services subject to the Act. The Rules clarify that the initial payment should represent an amount that the insurer reasonably intends to be payment in full, and that the payment should not be used as a first installment. The Rules do not, however, establish a minimum initial payment amount or an objective methodology for determining that amount. Instead, the insurer can rely on what it subjectively believes to be payment in full. In addition, the Rules fail to expressly require insurers to take definitive action within the 30-day period, instead reiterating one of the Act’s requirements that disputes be resolved “in a timely fashion.” The lack of such safeguards creates loopholes that insurers can exploit to disrupt the financial stability of providers through systemic underpayment and prolonged “good-faith” negotiations.

The Act, together with the Rules, provides mechanisms that promote network contracting, good-faith negotiations between insurers and providers, and ultimately broader access to quality care. A number of gaps and ambiguities in the proposed regulations, however, create yet another opportunity for insurers to engage in self-dealing by financially destabilizing providers and thus restricting patient access to medical care—without any guarantee that insurers’ savings will pass on to consumers. Providers should closely monitor these issues during the rulemaking process and advocate for greater protections to ensure a balanced method of resolving payment disputes.