Independent Dispute Resolution Under the No Surprises Act—Something for Everyone, When It Applies

Manatt on Health

The long-awaited and hard-fought No Surprises Act was signed into law on December 27, 2020, as part of the Consolidated Appropriations Act, 2021 (Division BB, Title I, Sec. 101–118). The No Surprises Act governs “surprise medical bills,” which it defines to include those containing charges for out-of-network emergency care, certain ancillary services provided by out-of-network providers at in-network facilities, and out-of-network care provided at in-network facilities without the patient’s informed consent. Out-of-network providers (including air ambulance operators) in these surprise billing situations are prohibited from collecting or billing patients for more than the in-network cost-sharing amount and must negotiate the balance of their claimed payment amounts with payers. Failing successful negotiations, the process by which these surprise billing disputes are settled between payers and out-of-network providers (which have not agreed to any pre-negotiated payment rates with the payers) had been a major sticking point in the development of the bill. (Other provisions increasing transparency and providing numerous beneficiary protections were less controversial.)

Payers had wanted the No Surprises Act to set benchmark payment rates for out-of-network provider services to preclude any disputes over the amounts to be paid. That didn’t happen, and the law contains a provision that will resolve out-of-network billing disputes via an independent dispute resolution (IDR) process for payers and providers that concludes with the confirmation of one side’s asserted payment amount and the rejection of the other’s. IDR entities must be certified as unaffiliated with providers or payers by the Department of Health and Human Services (in consultation with the Departments of Labor and the Treasury) and jointly selected by the payer and out-of-network provider.

While regulations will further refine any IDR process before it becomes effective on January 1, 2022, the text of the act requires consideration of several factors that payers have long argued should be the basis for resolving payment disputes. These payer-favored provisions are paired with some provider-favored provisions on top of an IDR process designed to incentivize both sides to come to a meaningful compromise.

IDR Entity Cannot Consider a Provider’s Billed Charges or Public Payer Rates

Section 103(a)(2) of the act (adding Section (c)(5)(D) to Section 2799A–1 of the Public Health Service Act), prohibits the IDR entity from considering a noncontracted provider’s billed charges or public payer rates for similar services. Payers will likely welcome the prohibition on IDR entity consideration of a provider’s billed charges, which will prevent out-of-network providers from inflating their billed charges to increase exposure and settlement pressure on payers. Just before the bill was passed, providers requested and received the prohibition on IDR entity consideration of public payer rates, which are generally lower than private payer rates and which providers argue oftentimes fail to cover their costs for delivering services.

IDR Entity Must Consider Various Factors Favored by Payers and Some Factors Favored by Providers

Section 103(a)(2) of the act (adding Section (c)(5)(C) to Section 2799A–1 of the Public Health Service Act) requires the IDR entity to consider the following factors:

1.  The “offer” amount (i.e., the payment that each IDR participant is proposing as a settlement amount)

2.  The “qualifying payment amount” (i.e., a median insurer contracted rate for similar services, or if that information is not available, amounts derived from independent payer databases or other methods to be prescribed via regulations)

3.  “Additional circumstances,” which are defined to include:

a.  “The level of training, experience, and quality and outcomes measurements of the provider or facility that furnished such item or service (such as those endorsed by the consensus-based [performance measurement] entity...)”

b.  “The market share held by the out-of-network health care provider or facility or that of the plan or issuer in the geographic region in which the item or service was provided”

c.  “The acuity of the individual receiving such item or service or the complexity of furnishing such item or service to such individual”

d.  “The teaching status, case mix, and scope of services of the nonparticipating facility that furnished such item or service”

e.  “Demonstrations of good faith efforts (or lack of good faith efforts) made by the nonparticipating provider or nonparticipating facility or the plan or issuer to enter into network agreements and, if applicable, contracted rates between the provider or facility, as applicable, and the plan or issuer, as applicable, during the previous 4 plan years”

4.  Information requested by the IDR entity regarding the offer amounts

5.  Information submitted by either IDR participant regarding their offer or the opposing offer

6.  When the IDR process is used to settle air ambulance payment disputes, the “population density of the pickup location (such as urban, suburban, rural, or frontier)”

The fact that the No Surprises Act expressly requires the IDR entity to consider the offer amounts themselves when considering which offer is appropriate may imply that the drafters intend for the IDR entity to disfavor any unreasonably high or low offers. Because many states already require payers to maintain regulator-approved methodologies for setting reimbursement of out-of-network claims, this factor may favor payers over out-of-network providers, since providers are typically not regulated or limited as to the amounts that they bill. Offer amounts derived from a state regulator-approved methodology may be seen as more reasonable than ones that are not.

Whether the qualifying payment amounts are based on median insurer contracted rates for similar services, amounts listed in independent payer databases or another similar standard market rate in any given state, this factor places emphasis on the overall insurance market, which will typically favor payers. The IDR process does not appear to contemplate recovery based on some of the models favored by providers during litigation (e.g., high-end rates paid by leased networks, amounts paid by low-volume payers that have less incentive to negotiate rate issues, average reimbursement rates paid to other out-of-network providers).

While the “additional circumstances” to be considered during the IDR process mostly allow for out-of-network providers to distinguish themselves from other providers in ways that parallel the existing process in many states (whether implemented via regulations or as developed in case law), the additional circumstance relating to good faith efforts made by the payer and provider in question to enter into network agreements and any rates that the payer and provider have agreed upon in the past four years is unique. Consideration of contracting efforts and past contract terms disfavors the practice used by some market-dominant providers (e.g., sole providers in an area of scarcity, emergency providers that will receive patients regardless of contracting status) that decline to contract with a payer in order to seek top-level billed charges when the payer’s covered enrollees inevitably require care from the provider. While this provision could be seen as also designed to discourage payers from entering into contracts with providers, a separate section 108 of the act is designed to do so more directly by requiring the Departments of Health and Human Services, Labor and the Treasury to promulgate a rule (by January 1, 2022) that prohibits payers from discriminating against providers that wish to participate in the payer’s network.

The fact that the IDR entity can consider any other information that it requests or receives from those in dispute means that much remains to be hashed out when IDR processes begin to be utilized. However, the act’s prohibition on consideration of the provider’s billed charges and the requirement that market-based qualifying payment amounts be considered sets a bright line around these “catch-all” factors that—while falling short of payers’ desired benchmark rate-setting methodology—represents an improved negotiating position for payers when compared to the status quo in many states.

Applicability of the IDR Process

Still to be determined is whether the IDR process will come into play in states where some laws already attempt to place parameters on the settlement of noncontracted provider disputes.

The act’s IDR provisions defer to existing “specified state law[s]” that “provide[] for a method for determining the total amount payable” by a payer in surprise billing situations. But existing state laws that wade into the area of out-of-network provider payment disputes often represent a patchwork of statutes, regulations and case law that may or may not cover all the billing disputes that the No Surprises Act is designed to address. It remains to be determined when and under what circumstances the act’s IDR process would supplant, defer to or even incorporate existing state laws governing surprise billing or out-of-network claims disputes.

Additionally, in states with All-Payer Model Agreements with the Centers for Medicare & Medicaid Services under Social Security Act demonstration waivers, the amounts approved for services would continue to be in effect.

Conclusion

As the No Surprises Act moves toward implementation by federal agencies and interpretation by the courts, payers, providers and savvy patients will continue to follow the twists, turns and practical effects of the act in each of the states. Much remains to be determined before the act’s provisions become effective in 2022, but the act’s text contains signs of compromise—which is appropriate, as compromise is the point of the act.

Manatt will continue to follow the development and implementation of the No Surprises Act. If you have any questions, please reach out to Steven Chiu, partner, Manatt Health, at schiu@manatt.com.

manatt-black

ATTORNEY ADVERTISING

pursuant to New York DR 2-101(f)

© 2021 Manatt, Phelps & Phillips, LLP.

All rights reserved