Understanding the No Surprises Act – An Overview

After years of Congressional hearings and proposals amidst heavy lobbying from providers and health plans, the No Surprises Act was signed into law on December 27, 2020. It represents a significant change in the way certain out-of-network providers can bill and be reimbursed for certain out-of-network services.

Starting January 1, 2022, the legislation prohibits providers from balance billing members in three circumstances: 

  1. Out-of-network emergency items and services 
  2. Out-of-network nonemergency items and services provided in in-network facility 
  3. Out-of-network air ambulance healthcare items and services 

But there are some exceptions based on provider notice and member consent.

For reimbursement of these three categories of items and services, providers and health plans are provided a number of opportunities under the Act to settle on a payment amount. If reimbursement cannot be settled upon, either party can access a binding Independent Dispute Resolution (IDR) process. This final-offer arbitration process will use a government-approved entity to choose either the payer’s or provider’s offered rate as a final determination. 

The goal? To eliminate medical bills that are received by patients from out-of-network medical providers that the patient did not willingly choose, like in the case of a medical emergency. Also known as surprise balance billing, these bills charge patients directly for the part of the bill not covered by insurance. 

 

How broad is the protection?

 

Protections apply to all commercially insured patients and to almost all out-of-network services where surprise bills are typical. 

The No Surprises Act will eliminate surprise bills for patients receiving:

  1. Emergency medical services from out-of-network providers
  2. Air ambulance services
  3. Non-emergency services at an in-network facility

 

How is payment determined?

 

In the three circumstances described above, the patient can generally expect to pay what they would pay for the same service if it were provided by a network provider. For the health plan’s reimbursement to the provider for those services, the Act says that if there is a state- required reimbursement process that applies to those items and services, then the state law takes precedence. If there is no applicable state law, then the Act outlines a reimbursement process that the health plan and provider must follow. 

Under the Act’s process, a health plan reimburses the provider an initial payment. The Act does not require that the reimbursement be a specific rate. If the provider does not like the payment amount, the provider has  30 days to negotiate a different amount with the health plan. If the negotiation fails, then either party may invoke arbitration. After both parties submit a proposed payment for services, the arbitrator must select either the provider’s or the health plan’s rate, with no ability to split the difference between the two proposals. The losing party must pay for the arbitration. 

 

How will this affect health care costs?

 

The new bill could affect health care costs via three main channels. Weighing these possibilities (and their variations), CBO estimates that the No Surprises Act will result in less than a 1% reduction in premiums.

1. New administrative costs 

A downside of using arbitration to resolve payment disputes is that operating the arbitration process incurs administrative costs, via the typical fees associated with each arbitration case, as well as the staff time and resources needed to manage the process.

2. Settled payments

Implementation decisions can possibly reduce costs in two ways. First, by making arbitration outcomes more predictable, providers and insurers will typically have shared expectations about how the arbitrator will ultimately rule, and the parties may recognize that reaching a negotiated agreement close to what the arbitrator will ultimately decide can make both parties better off and allow them to avoid the fees associated with arbitration. 

Second, agencies can reduce the per-service administrative costs of arbitration when it does occur, although this could backfire if it makes providers and insurers much more willing to send services to arbitration. As this may lead to prices higher than those that would have been paid prior to the No Surprises Act if arbitration awards end up being highly-favorable to providers, as they have been under some existing state systems. 

 

What does implementation look like?

 

Implementation questions generally fall into three buckets: 

1. Breadth

How widespread are the protections against surprise billing? Will they expand the list of specialities barred from balance billing out-of-network patients at in-network facilities? Will exceptions be made for certain advanced diagnostic lab tests that are typically billed out-of-network? All of these questions could, in turn, change the processes needed to become fully compliant. 

2. In-network rate calculation

To delineate the specifics of the median in-network rate calculation for insurers, a second set of decisions is needed. On what geographic level are insurers required to make these calculations? How do organizations implement the rules for dealing with new carriers, newly-covered services, or services where an insurer has an insufficient number of provider group contracts? What constitutes “insufficient”?

3. Arbitration process mechanics

Regulators will need to specify how certification of arbitrators will work, as well as how the federal government will select an arbitrator if the parties fail to agree. Should guidance be offered to arbitrators on how they should act on the law’s direction to “consider” the listed factors? How does one deal with other factors that might impact pricing, like the parties’ market shares? Can arbitrators make decisions separately for each service in dispute or are they required to choose between the insurer and provider final offers for the entire batch of services? 

 

The wrap up

 

The root market failure that created the surprise billing problem remains that patients lack meaningful choice of provider for certain services. In emergencies, patients can unavoidably end up at an out-of-network facility. The No Surprises Act addresses this market failure, but it also presents new challenges, as providers are now required to treat any patient regardless of ability to pay. Hopefully, the law’s new arbitration process will fill that role. 

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