Advantage, providers: Study looks at surprise billing arbitration in New Jersey
An examination of New Jersey's arbitration-based system for addressing out-of-network bills shows it tends to favor providers.
A new study in Health Affairs looks at one attempt to fix the “surprise billing” phenomenon and finds that the arbitration system enacted in New Jersey tends to favor providers. The study is especially relevant given the recent federal legislation that also uses arbitration to address surprise billing disputes.
Related: Surprise billing: To arbitrate or not to arbitrate?
Surprise billing has become a big story over the past few years; the term refers to out-of-network charges being made for services performed in facilities that are in-network for patients. Ambulance services can also be deemed out-of-network, making those bills much higher.
New Jersey as a case study
In New Jersey, lawmakers tried to address the issue with a 2018 law that requires arbitration in some surprise billing disputes. The Health Affairs study looked at 1,695 cases that went to arbitration in New Jersey in 2019. It found that while relatively few cases went to arbitration, for those that did, the award amounts were significantly higher in those cases than typical in-network payments.
“The mean arbitration award was $7,222— an amount 9 times higher than the median in-network price for the same services. The median award amount was 5.7 times higher at $4,354,” the study found. “Thirty-one percent of cases decided were for amounts more than 10 times the median in-network price.”
Compared to Medicare prices, the study’s authors said, the mean and median arbitration awards were 12.8 and 8.5 times higher, respectively. Critics of the New Jersey system say that these higher payments to providers push prices up for insurers and consumers.
A model that inflates prices?
The New Jersey legislation uses a final-arbitration model, where arbitrators must rely on the insurer’s or provider’s final offer. For providers those offers were in the 80th, 90th, and 95th percentile of charges, based on the state’s formula. These are relatively high numbers, compared to average in-network charges.
The researchers found that arbitrators tended to settle on the 80th percentile of charges billed for a set of services. They argue that this practice inflates prices, and that arbitrators would do better to base decisions on commercial in-network prices and Medicare payment rates.
“Basing arbitration decisions on an inflated list price, and the 80th percentile at that, is a surefire way to increase health care costs,” said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy and coauthor of the study.
A lesson for regulators
The authors of the study say enacting the new federal law on surprise billing may be affected by case studies such as the New Jersey legislation. They noted the new federal law relies on average in-network prices, rather than higher provider rates, but there are still provider-friendly criteria in the new law. “The results of the study show that policymakers and administrators of the new bill will need to pay particular attention to the details when implementing the arbitration system,” the authors said in a statement.
“While state laws will supersede the federal protection for the health plans they regulate, states such as New Jersey that instruct arbitrators to consider provider charges should strongly consider adopting the more consumer-friendly version of arbitration established in the federal law for their entire state,” said Adler. “Such a decision could result in substantial savings for state residents and avoid the bureaucratic nightmare of two parallel arbitration systems running in a state.”
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