The No Surprises Act: What is a ‘surprise’?
To understand the actual impact of the act, we must dissect three important topics: First, the actual scope.
Editor’s note: Over the next three days, The PHIA Group’s Ron E. Peck is going to take us on a deep and thorough dive into the nuances of thiis much-heralded piece of health care reform. Hang on tight!
As a member of the health benefits community, I, like many of you, have heard about the No Surprises Act (NSA). Many representatives of our health insurance and benefits community have reached out to me asking whether this “new law” will make balance billing “illegal,” and thus enable plans to leave their networks behind and pay claims solely based upon a Reference Based Pricing (“RBP”) methodology. Others have asked whether it sets a mandatory pricing methodology or sets rates for Out of Network (“OON”) claims, thereby eliminating RBP as a way of pricing OON claims.
Neither of these extremes are accurate. To understand the actual impact of the NSA, we must dissect three important topics. First, the actual scope of the NSA. Second, the NSA’s actual requirements for payers as it relates to payable rates. Finally, third, predict what its impact will be on provider behavior.
Related: New ‘surprise’ medical bill law may be tricky to implement
Before we dive into what the NSA is (and isn’t), we must first recognize that it is not a law in and of itself, but rather, part of the Consolidated Appropriations Act of 2021 (H.R.133). Furthermore, it cannot be read on its own, as it is actually an amendment to The Patient Protections Act 42 U.S. Code Title 42: “Public Health and Welfare.” It adds new rights and responsibilities for providers, patients, and health insurers – including self-funded health plans – to that existing law, as it relates to the handling of “Surprise” Bills. Most provisions go into effect for plan years beginning on or after January 1, 2022.
Balance billing vs. ‘surprise’ balance billing
Regarding the scope of its impact, many have jumped to the conclusion that current methodologies applicable to OON claims have now become obsolete. This is untrue in general, and even as it relates to the subset of OON claims to which the rule actually applies. Addressing this last item first, the name of the rule is literally the no “surprises” act. The Committee leaders that spearheaded its passage specifically stated that, “Patients should not be penalized with these outrageous bills simply because they were rushed to an out-of-network hospital or unknowingly treated by an out-of-network provider at an in-network facility.”
In summary, this rule relates solely to “surprise” balance bills. This of course begs the question, what is a “surprise balance bill?”
One trend, seen from both government and media, is to confuse the term “balance billing” with the more specific term, “surprise” balance billing. In a nutshell, every brown squirrel is a squirrel, but not every squirrel is a brown squirrel. Similarly, every surprise balance bill is a balance bill, but not every balance bill is a surprise balance bill.
A “surprise” balance bill is an amount submitted to a patient for payment that is the difference between what a health plan paid, and the amount a provider charged for OON services, but only when those services were: (1) provided by an OON provider in response to an emergency; (2) provided by an OON provider at an otherwise “in network” (“IN”) facility; or (3) for purposes of the NSA, arise from services provided by a “Med Flight” air-ambulance provider. A key element of such claims is that the patient either didn’t choose the provider or didn’t have reason to know the provider was OON.
In-network vs. out-of-network
Ordinarily, benefit plans and insurance carriers will pay providers for services in one of two ways. If the provider is “in-network” or “IN,” that means the payer and provider have already agreed on a payable amount, usually a percent (discount) off of the provider’s billed charges. In exchange for paying the reduced amount within an agreed upon period of time, the provider agrees to accept this payment as payment in full – meaning there is no “balance” to “bill” the patient.
Providers with whom the payer has not negotiated terms prior to services being rendered are “out-of-network” or “OON.” These providers submit a claim for payment to the payer, with the amount being unilaterally determined by the provider. The payer, in turn, subsequently pays the provider an amount it calculates as the “maximum payable amount,” per the terms of its own plan document or policy.
Historically, payers paid OON providers an amount we label as “Usual and Customary” or “U&C.” U&C rates are usually determined by analyzing what this and other payers normally pay for such services in the same area, and what similar providers – as well as this provider – usually accept as payment in full for such services. Note, however, that as time has passed, providers have increased the amounts they charge exponentially. As a result, both the discounts secured via an IN relationship, and U&C rates paid in OON situations, increased exponentially as well.
For illustration only, imagine one provider performing an appendectomy may charge $8,000 for the service, while another will charge $50,000. Using a network, and discounts off billed charges, if we have a 20% discount with both providers, a plan using a network would pay the first provider $6,400 and the second provider $40,000. As you can see, if the providers then increase their prices from $8,000 to $80,000 and $50,000 to $100,000, a discount will do nothing to limit the exposure.
To combat this, many benefit plans shrank or eliminated their networks, and replaced U&C (which – like discounts – cannot counter rising prices) with a new method for calculating how much to pay when paying OON claims. Reference based pricing or “RBP,” utilizes objective pricing parameters – such as Medicare rates – and pays a percentage of that fixed amount. This is because Medicare calculates what it pays based on the service being provided, rather than basing the payment on the billed amount. As a result, using the same illustration, (where one provider performing an appendectomy charges $8,000 and the other charges $50,000), both receive $10,000 from Medicare.
Regardless, when a plan pays a U&C or “RBP” rate to a non-contracted (OON) provider, and the provider subsequently seeks payment from the patient of an amount that is more than the maximum allowable amount paid by the plan, this is balance billing. If the scenario does not fit into the one of the three categories of “surprise” balance bill explained above, then that balance bill is not a surprise balance bill, and – for the time being – the “NSA” is moot.
This is the first (but not only) reason why a robust, defensible approach to OON claims remains so important, even with the passage of the NSA. Many OON claims, and resultant balance bills will not be “surprise” balance bills, and will therefore fall outside the scope of the NSA.
No network, no problem?
At this time, it is appropriate to share a theory presented by some industry members that the NSA does not apply to RBP plans at all. This is, they claim, because RBP plans do not utilize any network at all. The NSA depends heavily upon networks in two ways. First, it relies upon a claims IN versus OON status when deciding whether the NSA applies, but given that RBP plans have no network, that differentiation is void. Specifically, when there is no network, a patient cannot find themselves in a situation where they visit an IN facility, only to have an OON provider provide services, because there are no IN facilities at all. Second, as we will discuss later, the NSA relies upon network rates (the rates plans pay to IN facilities) in determining what the payer should pay OON providers. Without IN rates, this – likewise – is null.
Setting RBP aside for the time being, benefit plans that do utilize networks should pay close attention because this proposal will certainly impact them.
Next, we summarize how the NSA envisions OON “surprise” claims will be handled. Upon a claim being submitted to the payer, the payer will calculate and pay the claim in accordance with their plan or policy. That means U&C, RBP, and other methodologies currently being utilized by benefit plans will remain in effect. The payment is made, and the provider may choose to accept the payment as payment in full or decide that a balance exists.
In a pre-NSA world, the latter provider would then balance bill to the patient. Post-NSA, the provider will trigger a 30 day dispute and negotiation period with the payer. During this time, the parties have an opportunity to negotiate a new payable amount that will be accepted as payment in full. Failing this, the parties will then be able to trigger “Independent Dispute Resolution” or “IDR,” with an arbitrator. The rules for IDR will be discussed later. Worthy of note now, however, is the fact that the NSA does not provide any objective guidelines to help payers and providers calculate what is a fair amount for payment, nor may an arbitrator consider objective payment metrics – such as what Medicare would pay.
This should cause payers to tremble.
But more on that later.
Ron E. Peck, Esq., is executive vice president and general counsel with The Phia Group, LLC.
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