The Federal No Surprises Act (“Act”), which goes into effect on January 1, 2022, contains provisions designed to protect insured patients from unexpected hospital and physician bills when they receive emergency services in an out of network hospital. Unfortunately, the interim final rules (“Interim Rules”) issued by the Department of the Treasury, the Department of Labor, and the Department of Health and Human Services purport to impose significant restrictions on provider reimbursement that contravene clear statutory language.
Summary of the No Surprises Act Provisions Relating to Payment for Out-Of-Network Emergency Services
The Act sets forth requirements that commercial health plans and health insurers (collectively “Commercial Payors”) must follow in paying hospitals for out-of-network emergency services and includes a dispute resolution process for determining the appropriate payment amount.
Among other things, the Act is designed to protect patients from surprise balance bills that occur when they receive emergency treatment from an out-of-network provider. It requires Commercial Payors to pay out-of-network emergency services that would have been covered by the health plan or insurer if the service had been provided by an in-network provider and prohibits the provider from balance billing the patient. Instead, the provider is required to dispute the payment with the health plan or insurer.
The Act imposes a series of requirements for calculating payment amounts. To protect health plan members and insureds, the Act limits the patient’s copayment to a statutorily/regulatorily defined “recognized amount.” This amount is designed to limit the copayment to an approximation of the amount that the patient would have been responsible for if the emergency services were performed at an in-network hospital.
The “recognized amount” is defined as either:
(2) the amount determined in accordance with a specified state law that governs out-of-network payments for emergency services; or
(3) the “qualified payment amount” (“QPA”), which is basically the median in-network contracted payment amount to which the health plan or insurer agreed for similar services from in-network providers with the same specialty in the geographic area where the emergency services provider is located.
The Act expressly recognizes that the payment to the out-of-network provider may exceed the “recognized amount,” and provides that the Commercial Payor is responsible for paying the higher amount and cannot increase the patient’s co-pay to reflect the increased amount that it is ultimately required to pay.
The Act requires the Commercial Payor to pay the out-of-network provider an “out-of-network rate” which it defines as:
If the state has entered into an applicable All-Payer Model Agreement, the out-of-network rate equals the amount set forth in that agreement.
If there is no applicable All-Payer Model Agreement, then the amount determined in accordance with a “specified state law” that governs payments for out-of-network services.
If there is no specified state law, then an amount negotiated between the payer and the provider.
If there is no negotiated amount, then the amount determined by the independent dispute resolution (“IDR”) process set forth in the Act as implemented by regulations.
The IDR process is extremely expedited. Within thirty days of receiving the initial payment or notice of denial of payment from the health plan, a hospital that wants to challenge the payment must initiate “open negotiations” with the Commercial Payor. The parties then have thirty days (from the date on which the negotiations were requested) to negotiate an agreed upon payment.
If the parties have not reached agreement by the end of the thirty-day negotiation period, the hospital has four days within which to initiate the independent dispute resolution process by notifying the health plan/insurer and the Secretary. The parties then have three days to select an independent entity to resolve their dispute. If the parties do not jointly select a dispute resolution entity, the Secretary shall select one.
The statutory IDR process imposes strict limits on the bundling of claims to be considered in the IDR process. To be considered in a single IDR proceeding, the claims must be “related to the treatment of a similar condition” and must have been furnished within a thirty-day period beginning on the date on which the first service at issue in the IDR proceeding was furnished. Additionally, a party that initiated the IDR process cannot begin a new IDR process against the same payor for the same item of service within 90 days of issuance of an IDR decision on a claim involving the service (the “Suspension Period”). Instead, the thirty-day open negotiation period begins on the day after the 90-day suspension period ends.
Within ten days after the selection of the dispute resolution entity, each party must submit an offer for a proposed payment amount for the disputed claim along with such information that has been requested by the dispute resolution entity as well as supporting documentation. Within thirty days of being selected, the dispute resolution entity must select one of the party’s offers as the amount of payment.
In making the determination, the dispute resolution entity is required to consider:
(1) the “qualifying payment amount” (the median in-network contracted payment amount that the Commercial Payor pays for similar services from providers with the same specialty in the geographic area);
(2) information requested by the dispute resolution entity; and
(3) additional information provided by either party.
The additional information can include:
(b) the market share held by the provider and the health plan/insurer;
(c) the acuity of the patient and the complexity of the services provided;
(d) the teaching status, case mix, and scope of services offered by the provider;
(e) demonstrations of good faith efforts (or bad faith) by each party to enter into network agreements; and
(f) any contracted rates that were in effect between the parties during the previous four plan years.
The independent dispute resolution entity is prohibited from considering:
(a) usual and customary charges;
(b) the provider’s billed charges; and
(c) the payment rates under public programs, including Medicare, Medicaid, and the Children’s Health Insurance Program.
The decision of the dispute resolution entity is binding on the parties in the absence of a fraudulent claim or evidence of misrepresentation of facts presented to the dispute resolution entity. The decision is not subject to judicial review unless it meets the requirements for seeking review of an arbitration decision under the federal arbitration act. The party whose offer is not accepted by the dispute resolution entity is required to pay the dispute resolution entity’s fees for adjudicating the claim.
Analysis of the Statutory IDR Provisions
The statutory provisions of the No Surprises Act create a cumbersome process for determining out-of-network reimbursement. The extremely tight time limits and the restrictions on bundling claims against a single commercial payor will likely increase the complexity, cost, and burden of the dispute resolution process. It will also make it more difficult for providers to present complex economic arguments about the proper reimbursement rates. These procedural requirements may be well suited to one-off complaints about the reimbursement for individual claims. But they are not well suited to situations in which a Commercial Payor is systematically underpaying claims because the tight deadlines, lack of a robust discovery process, lack of an evidentiary hearing, and restrictions on having claims that relate to different medical conditions decided in a single proceeding.
The substantive statutory provisions of the Act that set forth the factors that the IDR entity is allowed to consider are not unduly restrictive and are like the factors that can be considered under California law. Under California law, virtually anything can be considered in determining the value of an emergency medical service. The statutory provisions of the Act allow much of the same information to be considered, except for governmental rates and the billed charges of the provider or of other providers in the community. This limitation focuses the inquiry on the rates actually paid by commercial payors and does not prohibit providers from presenting evidence that supports higher payments. Unfortunately, as will be discussed later, the Departments’ Interim Regulations are inconsistent with the statutory language.
As was previously mentioned, the IDR procedures only apply in situations where there is no “specified state law” governing reimbursement for out-of-network emergency services. The statute defines “specified State law” as “a State law that provides for a method for determining the total amount payable under such a plan, coverage, or issuer.” California’s Knox-Keene Act and the regulations promulgated thereunder (collectively referred to as “Knox-Keene”) does just that. Like the No Surprises Act, Knox-Keene prohibits a hospital from balance billing health plan members for emergency services and provides a method for determining the amounts payable by the health plan. Each health plan is required to establish a methodology for paying for out-of-network emergency services that is based on statistically credible information that is updated at least annually and that considers certain specified factors. Each health plan is required to file a description of the methodology with the DMHC. The health plan is required to pay for out of network emergency services pursuant to its filed methodology. Hospitals that are not satisfied with a health plan’s payment can challenge the payment in court.
Because Knox-Keene prohibits balance billing a health plan member for emergency services and contains a method for determining the amount that the health plan must pay for the emergency service, Knox Keene should continue to govern health plan payments for out-of-network emergency services and the provisions of the No Surprises Act (including the IDR process) should not govern claims covered by the Knox-Keene. However, it is possible that Commercial Payors may claim that the Knox Keene does not fall with the definition of a specified state law.
Not all health coverage is governed by Knox-Keene. Health coverage that is not covered by Knox-Keene (or other similar legal or regulatory scheme governing payments for out of network emergency services) will be subject to the Act’s requirements for payments for out-of-network emergency services.
Differences Between the Statutory Provisions of the Act and the Interim Final Regulations
The Departments’ Interim Regulations contain several provisions that are inconsistent with the express statutory language and are much less balanced than the statute itself. The regulations are skewed against providers, creating a regulatory scheme that is irrational and ignores the statutory provisions that attempts to balance the interests of providers and Commercial Payors.
For example, the statute allows the IDR entity to consider virtually all relevant evidence in determining the out-of-network rate for services and to evaluate the evidence as it sees fit. The Interim Regulations place undue restrictions on the analysis: “The certified IDR entity must select the offer closest to the qualifying payment amount unless the certified IDR entity determines that credible information submitted by either party under paragraph (c)(4)(i) clearly demonstrates that the qualifying payment amount is materially different from the appropriate out-of-network rate, or if the offers are equally distant from the qualifying payment amount but in opposing directions.”
This provision is inconsistent with the plain language of the statute because it provides that the qualifying payment amount is the rebuttably presumptive correct out-of-network payment, while the statute merely provides that the qualifying payment amount is one of many factors that the IDR entity is required to consider. Furthermore, the requirement that the provider has the burden of establishing its case by submitting credible information that clearly demonstrates that the QPA is inadequate deprives the hospital of due process because there is no adequate discovery process that the hospital can use to obtain the necessary credible information.
Not only do the Interim Regulations improperly make the qualifying payment amount the presumptively correct payment, the Interim Regulations also improperly limit the payments that are to be included in calculating the qualifying payment amount. The Act defines the qualifying payment amount as the median contracted rates of the health plan offered within the same insurance market calculated utilizing “the total maximum payment (including the cost-sharing amount imposed for such item or service and the amount to be paid by the plan or issuer, respectively) under such plans.” The Interim Regulations improperly provide that “risk-sharing, bonus, penalty, or other incentive-based or retrospective payments” may be excluded from the Qualified Payment Amount. This improperly reduces the Qualified Payment Amount and the reduction can be significant because a material portion of a hospital’s payment from a health plan can be in the form of incentive payments.
The regulations are also inconsistent with the statute in the provisions limiting the claims that can be batched in a single proceeding. The statute provides that in order to be considered in a single IDR proceeding the disputed items must, among other things, be “related to the treatment of a similar condition.” The regulations appear to implement a different standard. They require that in order to be batched, the disputed payments must be for the same or similar items and services. The qualified IDR items and services are considered to be the same or similar items or services if each is billed under the same service code, or a comparable code under a different procedural code system, such as Current Procedural Terminology (“CPT”) codes with modifiers, if applicable, Healthcare Common Procedure Coding System (“HCPCS”) with modifiers, if applicable, or Diagnosis-Related Group (“DRG”) codes with modifiers, if applicable.
The regulation appears to be much narrower than the statute in that the statute merely requires that the disputed items be related to the treatment of a similar condition, whereas the regulation appears to require that only items billed under the same (or similar) service code can be batched.
Another significant issue arises from the regulations’ treatment of a provider’s experience and expertise. The statute requires the IDR entity to consider “The level of training, experience, and quality and outcomes measurements of the provider or facility that furnished such item or service.” (§ 103 (5)(C)(ii)(I)). The regulations are inconsistent with this requirement, limiting it to circumstances in which “the experience or level of training of a provider was necessary for providing the qualified IDR item or service to the patient or that the experience or training made an impact on the care that was provided.” This new requirement would (if upheld by the courts) mean that a state-of-the-art hospital facility would receive the same payment as a lower quality facility when treating illnesses or injuries that do not require special expertise and fails to recognize that hospitals must receive sufficient compensation to allow them to offer necessary, but possibly underutilized services (such as burn units), the costs of which are often spread among the patients that utilize the facility in order to keep the services reasonably priced.
The regulations contain many more problematic provisions that are inconsistent with the Act and favor the profitability of Commercial Payors over the legitimate financial needs of hospitals and other health care providers.
The No Surprises Act attempted to balance the interests of health care providers and Commercial Payors while protecting patients from balance billing. The interim final rules appear to disrupt that balance and unduly favor insurers and health plans over the interests of health care providers, thereby undermining the interest of the public in obtaining high quality emergency services at a reasonable price. Hospitals and other emergency services providers should consider challenging the regulations in court once they become final.