Some State Surprise Billing Resolution Processes Favor Providers

The No Surprises Act gives states the opportunity to enforce surprise billing provisions, but most are leveraging the federal independent dispute resolution process to determine out-of-network rates, according to a new report.

The report from Commonwealth Fund analyzes state and federal regulatory documents to evaluate the federal-state partnerships implementing the No Surprises Act. The analysis finds that most states are partnering with the federal government, and this includes payment disputes.

The No Surprises Act looks to fill gaps in existing state laws protecting consumers from surprise medical bills, including in areas where other federal laws preempt state actions. For example, the Employee Retirement Income Security Act of 1974 (ERISA) bans states from adopting surprise-billing protections for consumers enrolled in self-funded plans. The Airline Deregulation Act also prohibits states from applying protections for consumers using air ambulance services. The No Surprises Act provides consumer protections for both.

The federal law has a framework similar to the Affordable Care Act, the report says. States can directly enforce consumer protections, the federal government can directly enforce them, or the state and federal governments can collaborate.

Just Idaho, Iowa, Maryland, Pennsylvania, and West Virginia have opted for full state enforcement, the report shows. Meanwhile, Wyoming, Oklahoma, Missouri, Louisiana, Indiana, and Alabama have elected for full federal enforcement.

The majority of states—three-fourths, according to the report—are sharing enforcement responsibilities with the federal government.

States are also more willing to enforce provisions relating to payers. Sixteen states will take on the responsibilities themselves, while 26 will share with the federal government. Meanwhile, just five states plan to enforce provisions related to providers and facilities, and 27 share responsibilities with the federal government. That leaves 18 states leaving enforcement of provider and facility provisions solely to the federal government and just 8 states leaving enforcement of payers.

Each enforcement approach is different, but the report shows that, when it comes to out-of-network payment disputes, the majority of states will use the federal independent dispute resolution process.

The federal independent dispute resolution process is the default system for settling out-of-network payment disputes between payers and providers. If providers do not accept a payer’s initial payment or denial and negotiations between the two parties fail, then providers can trigger the arbitration process in which an independent dispute resolution entity will determine the rate based on several factors, including a payer’s median rate for a similar service in the geographic area.

The federal process does not apply in situations where a state has its own system for determining payment rates for state-regulated payers, the report points out.

Nearly half of the states are using existing state processes to determine out-of-network payment rates. These 22 states have different approaches, with some having a narrower scope than the No Surprises Act, the report finds. For example, Virginia’s law does not apply as broadly to nonemergency services.

Additionally, state processes typically do not apply to air ambulance disputes, the report says.

Researchers also find variations in whether the state or CMS will enforce the outcome of the payment dispute. Overall, 25 states plan to enforce the rates determined by the process, whether it was the federal or state one. Although, about half of those states will still get help from the federal government.

Providers have worried that the federal independent dispute resolution process favors payers, especially since regulations implementing the process direct entities to consider a payer’s median rate for the service in a specific area. Industry groups have even sued the federal government over that provision.

However, Commonwealth Fund finds that some state systems are more favorable to providers. Although, the systems could be inflationary.

The report identifies nine states—Alaska, Connecticut, Florida, Illinois, Missouri, New Jersey, New York, Ohio, and Texas—with systems “friendlier” to providers compared to the federal system. Researchers say the “states typically give a role to billed charges or usual and customary charges in determining payment amounts, factors that are prohibited in the federal system.”

The state systems could lead to higher payments for providers, but researchers worry that could increase overall healthcare costs.

They say that state systems in California, Colorado, Maine, Maryland, Michigan, Nevada, and New Mexico are better at cost containment because of the rate standards they use. For example, California sets payment rates for nonemergency, out-of-network services at the greater of 125 percent of the Medicare rate or the health plan’s average contracted rate.

Researchers say that providers may push for state payment determination processes that are more favorable to them as they are on the federal level. However, cost containment advocates may also be pushing for systems they feel reduce costs.

One question remains though. Lawsuits challenging the use of the payer’s median contracted rate for similar services are ongoing despite HHS’ willingness to change the wording of regulations implementing the No Surprises Act to deemphasize the role the median rate should play in the federal independent dispute resolution process.

“[F]urther changes could curtail the cost-containment goals that were important to congressional sponsors of the No Surprises Act,” researchers state.