BY WILLIAM CORNELL AND NAOMI AHSAN
On Jan. 1, 2022, the federal No Surprises Act (the Act) took effect.11 www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf. The No Surprises Act amends the Internal Revenue Code of 1986 as well as the Public Health Service Act. 26 U.S.C. § 223. The Act diminishes or eliminates the pain associated with unexpected or “surprise” medical bills when health care plans deny out-of-network claims or apply higher out-of-network cost-sharing. Surprise medical bills can arise when a patient, typically an enrollee in a group insurance plan, is treated in an out-of-network facility for emergency care or with an out-of-network provider at an otherwise in-network facility. Surprise bills hurt because out-of-network services are associated with higher deductibles, copayments, and out-of-pocket limits. Despite informed and vigilant efforts to stay within their health care plan’s network, otherwise “covered” patients have received unforeseen charges even for care provided at an “in-network” hospital. COVID-19 not only overwhelmed the country’s health care infrastructure but added to the surprise billing problem.
While several states—including Washington, Oregon, and California—enacted protections against surprise billing before the Act took effect, the inability of the states to regulate self-insured group health plans left many enrollees unprotected. This spurred Congress to pass the No Surprises Act, bridging the gaps left by well-intentioned yet piecemeal state legislation that could not regulate employers’ self-insured plans. The impact of the Act on how costs for medical care in our country are processed and funded extends well beyond simply banning surprise medical bills. It takes the medical consumer out of the dispute and brings predictability to providers and payors. The Act also provides a dispute resolution system for addressing disagreements between payors and providers when charges for medical services can no longer be passed on to the patient.
Surprise Billing Defined
Many academics and analysts prefer using the term “balance bill,” over “surprise bill,” to describe the associated costs when a plan enrollee seeks or requires out-of-network medical care. Whether referred to as a surprise or a balance bill, the patient’s insurance company (payor) pays only part of a bill, leaving the provider to bill the patient for the unsatisfied remainder, or the “balance.” Surprise bills usually come about when the insurance plan enrollee receives emergency care at an out-of-network facility or with an out-of-network provider at an otherwise in-network facility. Not only can the payor refuse to cover the entire bill, out-of-network services typically have higher deductibles, copayments, and out-of-pocket limits. Patients insured by public programs such as Medicare, Medicaid, and TRICARE are generally protected from balance bills.
The most common scenario involves an emergency that deprives the patient of choice in where they are treated. An infamous example is a Texas schoolteacher in his 40s who was rushed to an out-of-network hospital for a heart attack.22 “Surprise! It’s a $164,000 Bill for Your Heart Attack,” Commonwealth Fund, The Dose podcast, available at www.commonwealthfund.org/publications/podcast/2019/apr/surprise-its-164000-bill-your-heart-attack. He walked out of the hospital four days later, healthy, but burdened with significant medical debt. Ultimately the hospital sought less than $1,000 of the $164,000 originally billed, after the story gained national attention.33 Chad Terhune. “Life-Threatening Heart Attack Leaves Teacher With $108,951 Bill,” NPR Morning Edition, Aug. 27, 2018. There are many such stories predating the pandemic, but the stress of COVID-19 on the nation’s health care system forced many patients to unknowingly seek care from out-of-network providers and facilities.
Surprise billing was a common phenomenon on an upward trend well before the pandemic. In 2016, 43 percent of patients received surprise emergency room and hospital inpatient bills, more than double the number in 2010.44 Beth Duff-Brown. “Surprise Out-of-Network Billing Skyrockets,” Stanford University, Aug. 26, 2019, available at https://healthpolicy.fsi.stanford.edu/news/surprise-out-network-billing-skyrockets-privately-insured-patients. In 2020, one in six commercially insured adults had an unexpected out-of-network physician bill.55 Jack Hoadley, Kevin Lucia, Katie Keith. “Keeping surprise billing out of coronavirus treatment.” Health Affairs. April 2, 2020. Accessed February 23, 2021. www.healthaffairs.org/do/10.1377/hblog20200330.353921/full/. At the same time, close to 140 million Americans have faced medical financial hardship, requiring liquidation of personal assets, assumption of credit card debt, borrowing from friends and family, and dipping into retirement funds.66 Karen Pollitz. “Consumer Appeal Rights in Private Health Coverage,” KFF (Kaiser Family Foundation), Dec. 10, 2021, available at www.kff.org/private-insurance/issue-brief/consumer-appeal-rights-in-private-health-coverage/. A 2019 study showed that two-thirds of U.S. bankruptcies were related to medical expenses or health-related work loss.77 Id.
Having to shoulder the costs of out-of-network care, insurers and self-insured employers responded by offering very narrow-network insurance plans. Surprise billing, however, has been more significantly driven by private equity ownership of large physician-staffing companies. Private equity deals in health care doubled between 2010 and 2020, and in 2019, health care accounted for about 13 percent of all private equity transactions.88 Samantha Liss. “Private equity sees ripe opportunity in healthcare this year,” Healthcare Dive, March 25, 2019, available at www.healthcaredive.com/news/private-equity-sees-ripe-opportunity-in-healthcare-this-year/548831/. Large physician-staffing companies in specialties like emergency medicine and anesthesia, owned by private equity investor groups, have intentionally not participated in insurance networks as a business strategy. Two private equity firms control half of all helicopter ambulance trips that have routinely “surprised billed” patients as much as $30,000 to $40,000.99 John Tozzi. “Air ambulances are flying more patients than ever, and leaving massive bills behind,” Bloomberg, June 11, 2018; Christopher Roland. “Why the flight to the hospital is more costly than ever,” Washington Post, July 1, 2019. Not surprisingly, private equity groups invested heavily in efforts to block passage of the Act. Despite well-funded opposition, the Act was passed as a result of building momentum in the court of public opinion and bipartisan support in Congress and in the Biden White House. A 2020 poll showed that 78 percent of Americans supported federal legislation against surprise medical bills.1010 www.ajmc.com/view/congress-ends-surprise-billing-implications-for-payors-providers-and-patients. The same year, the White House threatened to intervene if Congress took no action by 2021. The need for patient protections once the pandemic set in pushed the Act across the finish line.
Protections Afforded By State Law
Thirty-three states offer some level of protection against surprise billing.1111 Maanasa Kona. “State Balance-Billing Protections,” Commonwealth Fund, Feb. 5, 2021, available at www.commonwealthfund.org/publications/maps-and-interactives/2021/feb/state-balance-billing-protections. Of these, 17 have adopted more robust and comprehensive restrictions.1212 Id. These include Washington, Oregon, and California. In 2019, Washington adopted the Balance Billing Protection Act, which applies to all state-regulated health plans and state and school employee benefit plans. Self-funded group health plans, not regulated by the state, have the ability to opt in, and many have. Other states have enacted COVID-19-specific balance billing protections, such as Colorado and New Mexico.
The extent to which states can provide complete protection is limited because they do not have the ability to regulate self-insured group health plans. Such plans are federally regulated under the Employee Retirement Income Security Act of 1974. Most Americans with private insurance—more than 135 million people—are enrolled in such plans.1313 See supra note 5. Sixty-one percent of Americans are enrolled in employer-sponsored health insurance plans, and about 60 percent1414 Karen Pollitz, Matthew Rae, and Salem Mengistu. “Claims Denials and Appeals in ACA Marketplace Plans in 2020,” KFF (Kaiser Family Foundation), Jul. 5, 2022. of the benefits offered are self-insured.1515 See supra note 2. Additional federal restraint in the form of the Airline Deregulation Act prohibits states from controlling air ambulance prices. Emergency air ambulance transport is a common source1616 https://surprisemedicalbills.chir.georgetown.edu/the-challenge/air-ambulances/. of surprise medical bills. Therefore, federal action was needed to extend protections from surprise bills for all patients, including residents of states that had already legislated on the issue.
Early efforts to end balance billing
included conditioning pandemic-era relief under the CARES Act Provider Relief Fund1717 www.hrsa.gov/provider-relief/. on commitments from health care providers not to balance bill. Before that, the Affordable Care Act allowed patients to appeal denied claims: first, internally to the plan, and then, if the plan upheld the denial, to an independent external reviewer. External review is an important mechanism of patient protection from surprise bills because payors tend to uphold their initial determinations when an internal review is conducted.1818 Karen Pollitz. “Claims Denials and Appeals in ACA Marketplace Plans in 2020,” KFF (Kaiser Family Foundation), July 5, 2022, available at www.kff.org/private-insurance/issue-brief/claims-denials-and-appeals-in-aca-marketplace-plans/. External review, on the other hand, can result in a reversal of a coverage denial that was upheld in the internal appeals process. For example, from January 2018 to November 2020, external reviewers in Washington (termed “independent review organizations”) overturned 25.56 percent of denials for behavioral health services and 21.06 percent for medical and surgical services.1919 IRO Assignment Data, available at www.insurance.wa.gov/sites/default/files/2018-12/iro-charts.pdf.
Overview of The Act
In 2021, Congress was pressed to address the economic consequences of the COVID-19 pandemic. This resulted in passage of a $2.3 trillion omnibus spending bill. The No Surprises Act was included in the bill along with coronavirus-related economic relief and government funding for the fiscal year.
The Act prohibits surprise bills for out-of-network emergency services, including emergency air transport. Enrolled patients also cannot be billed for nonemergency services received at in-network facilities from out-of-network providers—unless the enrollee knowingly consents to receiving out-of-network services. Charges to patients in that category are capped at the cost-sharing rates for in-network services. Providers are prohibited from billing patients for any higher amounts. While the Act now regulates self-insured plans, it is superseded to the extent state laws provide a greater degree of protection to patients enrolled in fully insured plans.
The Act also gives health care consumers the ability to make informed choices in seeking out-of-network providers. On a nonemergency basis, patients can choose out-of-network providers and execute written consent to receive balance bills. This written consent option is not available, however, for some specialties, such as radiology, anesthesiology, and neonatology.
The Act also increases transparency in billing, for both in-network and out-of-network services. Providers must submit good faith estimates of billing and service codes to health plans for all expected services prior to the services being performed, and health plans must in turn provide enrollees with an “Advanced Explanation of Benefits” prior to scheduled care, or upon request. Payors must ensure their provider directories are current, and they have one business day to respond to enrollees’ inquiries about a provider’s network status.
A Remedy for Unresolved Billing Disputes
Now that unpaid medical bill balances are no longer a patient responsibility, they are resolved between the payor/insurer and the medical service provider. The Act encourages the payor and the provider to negotiate a resolution on their own. If that effort is unsuccessful, the parties can submit their positions to “best and final offer” arbitration, also known as “baseball” arbitration. Under the Act, payors and providers are allotted 30 days for private, voluntary negotiation of a payment dispute. Public Health Service Act § 2799A–1(c)(1)(A) (2022), 42 U.S.C. § 300gg–111(c)(1)(A). When the 30 days expire, either party may initiate independent dispute resolution (IDR) within the next four business days. To implement the IDR component of the Act, the federal government has published a new website2020 www.cms.gov/nosurprises. with a portal for payors and providers and a list of certified IDR entities.
If either party objects to the other side’s selection of arbitrator, it must explain its objection and propose an alternative entity. The other party then has the option to agree or object to the alternative. If the parties fail to select an arbitrator within four business days, they must notify federal officials, who will select a certified arbitrator at random. Each side submits their offer within 10 days of the arbitrator being selected. Within 30 days, the arbitrator selects one of the offers and delivers a written decision. The arbitrator’s decision is binding, although the parties can continue to negotiate or settle on their own. Multiple cases arising within 30 days of each other can be batched together in the same arbitration when they involve the same provider, the same insurer, and the same or a similar medical condition.
The IDR process mandated by the Act discourages the submission of extreme or unsupported bids, which, in theory, are less likely to prevail. To encourage predictability, consistency, and settlement of comparable claims, an initiating party is “locked out” from taking the same opposing party to arbitration for the same item or service for a 90-day period following a decision.
The Act specifies what arbitrators may and may not consider in their decisions. First, the arbitrator must consider the qualifying payment amount (QPA). In states that have laws determining payment rates for surprise medical bills, the QPA may be the amount set by the state. Otherwise, the QPA is the insurer or plan’s median in-network rate. The arbitrator must select the offer that is closest to the QPA unless presented with credible information that compels choosing the other offer.
This is where providers benefit from the opportunity to arbitrate, because it provides the possibility of a higher payment than a government-set “payment standard” for specific types of out-of-network services. The factors an arbitrator may also consider include the provider’s training, experience level, and the acuity and complexity of the patient’s medical condition. The arbitrator may also consider the market share of both parties, the provider’s teaching status, any history of good faith effort by the provider to join the payor’s network, and prior contracted rates over the previous four years. For air ambulance providers, the arbitrator may also consider the location of the patient’s pickup, the population density of that location, and the vehicle type and medical capabilities.
All these factors are meant to be secondary to the QPA, such that the arbitrator deviates from the offer closest to the QPA only in limited circumstances. Furthermore, arbitrators cannot consider the billed charges or the “public payor” rates (for Medicare, Medicaid, CHIP, and TRICARE). From states that have used IDR in their legislative schemes to prevent surprise bills, data shows that including billed charges in the process tends to inflate the final amount.2121 Loren Adler. “Experience with New York’s arbitration process for surprise out-of-network bills,” USC-Brookings Schaeffer on Health Policy, Oct. 24, 2019, available at https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2019/10/24/experience-with-new-yorks-arbitration-process-for-surprise-out-of-network-bills/.
Finally, the Act also establishes a payment dispute resolution process for providers and uninsured (or self-pay) patients. Under the Act, uninsured patients can request a good faith estimate of their costs for health care services, and if the actual amount charged exceeds the estimated amount by $400 or more, the patient can ask an IDR entity selected by the U.S. Department of Health and Human Services to review the charges and decide whether they should be reduced.
IDR under the Act and Washington’s Balance Billing Protection Act
Some form of IDR is included in the surprise billing protection laws of nine states, including Washington. Six of those states, including Washington, involve baseball-style arbitration. In Washington, the providers and payors also can only request arbitration after 30 days for informal negotiation.
There are two main differences between IDR under Washington’s Balance Billing Protection Act and the federal No Surprises Act, and Washington law will supersede the federal Act on both. First, in Washington, claims are automatically bundled when they occur between the same provider and payor within two months of each other. This makes arbitration more financially feasible for providers that may not have bills large enough to justify arbitration on an individual basis. Second, the arbitrator has a different resource to use in place of the QPA: an All Payor Claims Data Base (APCD). The APCD includes not just the median payment rate for the payor at issue, but median in-network, out-of-network, and billed rates for other providers and payors in the same region.
One of the most significant impacts of the No Surprises Act will be to deliver on its name and make healthcare more affordable to patients by eliminating surprise billing. Balance billing will no longer be a viable business strategy among payors and providers. The Congressional Budget Office expects that the Act could reduce commercial insurance premiums by 0.5 percent to 1 percent, as payors will no longer need premiums to help cover the costs they absorb for out-of-network care. The IDR component of the Act provides both structure and incentive to payors and providers to resolve payment disputes efficiently.
The similarities between the Act and Washington’s Balance Billing Protection Act mean that Washingtonians participating in self-insured plans will finally benefit from the same protections that enrollees in state-regulated plans have had since 2019. However, there are only 16 other states that have enacted patient protections as comprehensive as Washington’s. For the remaining states—and the majority of Americans with private insurance, on self-insured plans in all states—the No Surprises Act provides overdue and comprehensive reform and relief to patients from the burden of surprise medical bills.
1. www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf. The No Surprises Act amends the Internal Revenue Code of 1986 as well as the Public Health Service Act.
2. “Surprise! It’s a $164,000 Bill for Your Heart Attack,” Commonwealth Fund, The Dose podcast, available at www.commonwealthfund.org/publications/podcast/2019/apr/surprise-its-164000-bill-your-heart-attack.
3. Chad Terhune. “Life-Threatening Heart Attack Leaves Teacher With $108,951 Bill,” NPR Morning Edition, Aug. 27, 2018.
4. Beth Duff-Brown. “Surprise Out-of-Network Billing Skyrockets,” Stanford University, Aug. 26, 2019, available at https://healthpolicy.fsi.stanford.edu/news/surprise-out-network-billing-skyrockets-privately-insured-patients.
5. Jack Hoadley, Kevin Lucia, Katie Keith. “Keeping surprise billing out of coronavirus treatment.” Health Affairs. April 2, 2020. Accessed February 23, 2021. www.healthaffairs.org/do/10.1377/hblog20200330.353921/full/.
6. Karen Pollitz. “Consumer Appeal Rights in Private Health Coverage,” KFF (Kaiser Family Foundation), Dec. 10, 2021, available at www.kff.org/private-insurance/issue-brief/consumer-appeal-rights-in-private-health-coverage/.
8. Samantha Liss. “Private equity sees ripe opportunity in healthcare this year,” Healthcare Dive, March 25, 2019, available at www.healthcaredive.com/news/private-equity-sees-ripe-opportunity-in-healthcare-this-year/548831/.
9. John Tozzi. “Air ambulances are flying more patients than ever, and leaving massive bills behind,” Bloomberg, June 11, 2018; Christopher Roland. “Why the flight to the hospital is more costly than ever,” Washington Post, July 1, 2019.
11. Maanasa Kona. “State Balance-Billing Protections,” Commonwealth Fund, Feb. 5, 2021, available at www.commonwealthfund.org/publications/maps-and-interactives/2021/feb/state-balance-billing-protections.
13. See supra note 5.
14. Karen Pollitz, Matthew Rae, and Salem Mengistu. “Claims Denials and Appeals in ACA Marketplace Plans in 2020,” KFF (Kaiser Family Foundation), Jul. 5, 2022.
15. See supra note 2.
18. Karen Pollitz. “Claims Denials and Appeals in ACA Marketplace Plans in 2020,” KFF (Kaiser Family Foundation), July 5, 2022, available at www.kff.org/private-insurance/issue-brief/claims-denials-and-appeals-in-aca-marketplace-plans/.
19. IRO Assignment Data, available at www.insurance.wa.gov/sites/default/files/2018-12/iro-charts.pdf.
21. Loren Adler. “Experience with New York’s arbitration process for surprise out-of-network bills,” USC-Brookings Schaeffer on Health Policy, Oct. 24, 2019, available at https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2019/10/24/experience-with-new-yorks-arbitration-process-for-surprise-out-of-network-bills/.