HHS Report: State Surprise Billing Laws Offer Limited Protection

A new report from researchers in HHS' Office of the Assistant Secretary for Planning and Evaluation (ASPE) shows that most states have enacted laws to protect consumers from surprise billing, including 18 states with “comprehensive” laws. However, state protection is limited, creating a need for federal action under the No Surprises Act.

Surprise billing provisions of the Consolidated Appropriations Act, 2021—referred to as the No Surprises Act—will go into effect on Jan. 1, 2022, researchers reported. The provisions prohibit providers from balance billing patients with most individual and employer-sponsored coverage for emergency and certain non-emergency services in most situations.

Balance billing is a common source of surprise medical bills for privately insured consumers. Providers typically balance bill patients for out-of-network services when there is a difference between what the provider charges for the service and what the individual’s insurance plan will pay for the out-of-network service plus the individual’s cost sharing.

Consumers generally do not expect a balance bill and oftentimes the amount is excessive. But the problem is limited to privately insured individuals since Medicare and Medicaid do not allow the practice of balance billing.

State laws addressing surprise billing leave even more gaps open for balance billing and surprise medical bills, the report suggests.

Only 18 states have comprehensive surprise billing laws, which according to ASPE researchers mean the laws:

• Extend protections to emergency department and in-network hospital settings
• Apply laws to all types of insurance, including both health maintenance organizations (HMOs) and preferred provider organizations (PPOs)
• Hold patients harmless from extra provider charges
• Ban providers from balance billing
• Implement either an adequate payment standard to determine how much payers reimburse providers or a dispute-resolution process to resolve payment disputes between providers and insurers

Additionally, 15 states have surprise billing laws, but they do not address all five of the criteria for a comprehensive law.

Of the states with comprehensive surprise billing laws, nine have enacted some type of independent dispute resolution process. Six of the nine states employ a “baseball-style” process in which an arbiter selects between a payer’s and a provider’s offer.

Seven of the states have established payment rates, with most stemming from a fixed fee schedule based on Medicare rates, a plan’s median contracted rate for a similar service, or information from publicly available data from multiple payers, such as a state’s all-payer claims database.

The remaining states use a combination of either payment rates and arbitration or a different approach to addressing surprise billing.

However, none of the state laws apply to self-insured employee benefit plans, which cover 67 percent of workers with employer-sponsored health coverage, the report stated. Furthermore, states have not addressed the costs of air ambulance services because of regulatory limitations on what states can regulate.

Researchers also expressed concerns that some state efforts to address surprise billing payment disputes have actually increased healthcare costs.

In New York, for example, where the surprise billing law has been in place since 2015, research has suggested the baseball-style approach to arbitration has led to higher overall costs. Arbiters in the state have received guidance to consider the 80th percentile of charges in determining which offer to select for final payment. Since provider charges are typically higher than actual negotiated rates, the approach has led to arbitration decisions that averaged 8 percent higher than the 80th percentile amount.

A similar study of New Jersey’s approach, in which billed charges or customary rates are taken into consideration, also uncovered high payments. Median arbitration awarded was 5.7 times higher than the median in-network commercial rate, the study cited in the report showed.

In both situations, costs also have the potential to increase outside of the surprise billing situation. The report explained that benchmark rates can increase a provider’s leverage for negotiating higher in-network rates.

The No Surprises Act aims to address the gaps in state surprise billing laws researchers stated.

The Act will address surprise billing in both emergency and some non-emergency situations, as well as air ambulance services, and it will generally ban balance billing, including for federal-regulated plans. It will also remove the patient from payment disputes by establishing an independent dispute resolution process, researchers stated.

The Congressional Budget Office has estimated that provisions of the No Surprises Act would reduce premiums by 0.5 to 1.0 percent in most markets, researchers added.

However, provider groups have criticized the independent dispute resolution process, which guides the independent entity selected to make payment decisions to consider the median of contracted rates for a specific service in the same geographic region, or the qualifying payment amount.

The American Medical Association (AMA) has said that the execution of the independent dispute resolution process is not in the spirit of the process Congress thought of when passing the provisions. The American Hospital Association (AHA) also stated that the process “unfairly favors” payers.

Defending the No Surprises Act and its implementation, HHS Secretary Xavier Becerra recently told Kaiser Health News that the process is fair for providers who are not overcharging for services. Those who do overcharge will have to accept their share of the costs or go out of business.

In response to the report’s findings, Becerra said, “No one should have to worry about going bankrupt after falling ill or seeking critical care. [The] report shows that despite some state efforts to tackle surprise medical bills, patients continue to experience exorbitant medical expenses due to lack of transparency and rules.”

“The Biden-Harris Administration will continue implementing federal regulations from the No Surprises Act to not only protect the patients but also curb rising costs in [healthcare],” Becerra continued in the press release.