No Surprises Act: Practical effects of independent dispute resolutions
The IDR established by the No Surprises Act represents a stark departure from the far more traditional and favored settlement approach.
As expected, the No Surprises Act has been a very hot topic of conversation since its passage. Although not applicable until 2022, many of its provisions require some preparation by both medical providers and health plans.
Related: The No Surprises Act: How does it affect employer-sponsored health plans?
Historically, Congress has been hesitant to enact laws that actively regulate the amount payable by a health plan to a medical provider, but the “surprise billing” problem is considered to have grown in recent years, to a point where the federal government felt the need to step in and legislate some patient protections.
Independent dispute resolution
One major tenet of the No Surprises Act is the creation of a process for independent dispute resolution, or IDR. Although additional rulemaking will be coming down the pike, the text of the No Surprises Act lays out a basic framework. The IDR process will be “baseball-style,” such that the health plan and medical provider will each propose their desired reimbursement for the services in question, and the arbitrator will ultimately choose one of those two submissions. There is no middle ground; one party will unequivocally win, and the other will unequivocally lose.
We see two rationales for using this approach, as opposed to the approach where the arbitrator may determine that appropriate reimbursement is some compromise between those two numbers. For one, it’s simpler. The arbitrator must look at a multitude of factors, with supporting evidence provided by the health plan and provider, but Congress has specifically intended there to be a clear winner and loser. This is not to say that the decision will be easy for the arbitrator to make – but the lack of compromise, and the requirement to choose one or the other, is unquestionably simpler.
To elaborate, negotiations between a health plan and medical provider usually end up somewhere between the provider’s charge (or at least the amount requested as payment, often lower than the full billed charge) and the payor’s absolute minimum payment pursuant to the plan document. In general, payments to non-contracted providers are initially made at the plan’s minimum, to best position the plan to negotiate. The tactic is as old as time, and right out of the Settlement 101 textbook – and we would be hard-pressed to find a hospital system that doesn’t use that exact tactic as well, just from the other direction. Meeting in the middle is the essence of settlement; to its credit, the No Surprises Act does impose a mandatory 30-day “open negotiation” period prior to either party’s ability to initiate IDR, to attempt to encourage the parties to settle matters without IDR. The Act also explicitly notes that the parties may still attempt to negotiate a settlement outside of IDR, even during the IDR process.
The IDR established by the No Surprises Act, however, represents a stark departure from the far more traditional and favored settlement approach, and instead favors an unquestionably win-lose scenario – unfortunately turning the arbitration into a zero-sum game. This is the second rationale that comes to mind for why Congress has chosen this approach.
During the “open negotiation” period (and even until the so-called “IDR entity” reaches its decision), the health plan and medical provider are given the chance to amicably negotiate a settlement, for the chance to avoid that win-lose scenario. If the IDR entity is forced to choose a clear winner and a clear loser, however, it seems to effectively be almost a punishment for the parties’ failure to settle.
In this manner, IDR may be thought of less as an objective way to determine proper payment, and more as an incentive for the parties to negotiate a rate themselves. The saving grace of IDR, of course, is each party’s prospect of coming out of IDR victorious – but no matter how much of a slam dunk a party may think its case is, anything can happen, especially in the infancy of the IDR process, before there is meaningful precedent to rely on to set expectations.
Published IDR decisions
To attempt to remove some of the guesswork, part of the IDR process entails having the federal government publish all IDR decisions on a website for all to see. The intent is for published decisions to effectively constitute regulatory guidance regarding what constitutes reasonable payments, with the hope that plans and providers can view past decisions and apply those scenarios to their own – either to better gauge what a reasonable offer might be, or, in a more cynical view, to gauge whether or not the plan’s or provider’s case stands a chance at winning.
In practice, the published decision archive may ultimately function as a sort of scarecrow, where IDR decisions that favor providers may frighten plans into negotiating unreasonably high rates for fear of IDR, and vice versa. This would have a detrimental effect on the billing and payment paradigms, but remember that Congress is trying to look out for consumers – not the health care or benefits markets.
Only time will tell what actually happens in the IDR process. In theory, various IDR victories will be handed out to both providers and plans without any bias, but many are skeptical that Congressional intent skews in favor of providers, especially in light of the general historical support by state legislatures of the validity of hospital charge masters. Skeptics fear that the IDR process will turn into little more than a legislated method for providers to force health plans to pay full billed charges.
The American Hospital Association’s request
Interestingly, the American Hospital Association wrote a comprehensive letter to certain members of Congress to comment on portions of the Act. As one notable comment, the AHA’s letter requested that “the initial payment made by the insurer for out-of-network services be considered their offer for IDR, so as to incentivize them to pay a fair initial reimbursement.”
This comment is justified as being designed to “reduce burden on all parties”, which some may view as a bit disingenuous. By asking Congress to consider the Plan’s initial payment to be the plan’s IDR payment offer, the AHA is effectively attempting to skew negotiations in favor of providers, since, notably, the AHA has not asked Congress to impose a reciprocal requirement on medical providers, to encourage providers to bill more reasonably. This comment assumes that health plan payments are inherently unreasonably low, which is not an assumption that Congress has made – or, at least not overtly, anyway.
The prospect of IDR would be far more caustic for both parties if the medical provider and health plan were required to use the full billed charges and the initial plan payment as their respective choices for the IDR entity to choose between.
Congress has decided neither that a plan’s initial payment is necessarily objectively too low, nor that a provider’s full billed charges are necessarily objectively too high. When the IDR entity must choose one offer or the other with no middle ground, though, the farther apart those two amounts are, the more each party has to lose – and due to the public nature of all IDR decisions, a big loss for a plan could have a landslide effect.
Jon Jablon joined The Phia Group’s team in 2013. As the director of Phia Group Consulting’s Provider Relations Team, Jon assists TPAs, brokers, stop-loss carriers, and other entities with disputes related to both in- and out-of-network claims, various claims payment methodologies (including reference-based pricing), appeals, medical bill negotiation, and much more.
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