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'Surprise' billing 101: Inside Congress' epic fight over out-of-network billing

In recent months, Congress has focused on finding ways to address so-called "surprise" billing in the U.S. health care system, and lawmakers have zeroed in on two main solutions: benchmark payment rates and/or arbitration. But the progress made appears to have stalled in recent weeks as lawmakers and industry stakeholders are divided on the best path forward.

What is surprise billing?

Broadly speaking, surprise billing occurs when an insured patient receives care from a provider that is out of the individual's insurance network.

But exactly how, and how much, a patient is charged is a bit more nuanced, as surprise bills typically have two components. One component occurs at the insurance level: insurers typically set higher cost-sharing requirements for out-of-network vs. in-network care.

The other component is a practice known as balance billing. Under the Affordable Care Act (ACA), when a patient receives emergency care, insurers are required to pay "reasonable" rates to an out-of-network provider. However, if the insurer's rate does not cover the provider's full rate, the out-of-network provider can bill the patient directly for the remainder. Under current law, in-network providers are prohibited from the practice.

The result, of course, is patients can be responsible for both surprise bills from their insurer's higher out-of-network cost-sharing and the balance of charges from out-of-network providers.

While the problem is not new, it gained renewed attention this year in part because of journalistic projects like Kaiser Health News' and NPR's "Bill of the Month" series and Vox's deep dive into ED billing practices. Each of these projects spotlights the large surprise bills patients have received, including a patient who woke up in an in-network ED with a broken jaw only to receive a $7,924 bill, and a potentially record-setting $474,725 bill resulting from a life-saving air ambulance ride.

While some states have attempted to protect patients from surprise billing, "only Congress has the power to effectively and comprehensively fix surprise out-of-network bills," Hunter Kellett, Alexandra Spratt, and Mark Miller, all of Arnold Ventures, wrote in Health Affairs Blog.

Congress' dueling solutions

Over the summer, two bills emerged as key contenders for lawmakers to begin negotiations on a unified path forward: The House Energy and Commerce Committee's No Surprises Act (HR 3630) and the Senate Health, Education, Labor and Pensions Committee's Lower Health Care Costs Act (S 1895).

Both bills would establish a benchmark payment rate for out-of-network care based on the median in-network rate for services in a geographic region, as well as extend funding for community health centers, the National Health Service Corps, Teaching Health Centers, and special diabetes programs.

But there are distinctions, too. The House bill would structure the benchmark payment so it increases annually with the CPI-U. The measure also would create a so-called arbitration "backstop" to allow providers to appeal benchmark payment rates above $1,250 to an arbiter if they feel the rates are too low. In comparison, the Senate Lower Health Care Costs Act does not specify how it would update median in-network rates each year or offer providers an option to appeal payments to an arbiter.

Despite Congressional efforts to resolve the issue, progress on the legislation has stalled because of a major sticking point: whether to use benchmark payment rates or arbitration for out-of-network billing.

Option 1: The arbitration solution

Hospital and provider groups have pushed for a binding arbitration process that is commonly referred to as "baseball-style arbitration," because it resembles the way baseball players in Major League Baseball negotiate their salaries. Under the arbitration process, an insurer and provider each would put forward a proposed payment rate for the services provided, and then an independent arbiter would determine a fair price.

Provider groups, including the American Hospital Association, support arbitration because the process would allow them to challenge and negotiate payments they view as too low. However, Jeanette Thornton—SVP of product, employer, and commercial policy at America's Health Insurance Plans (AHIP)—has argued that arbitration would delay the claims process and increase costs.

Fortunately, some states, including New York, have adopted versions of this process for settling out-of-network bills, giving us a glimpse of the potential outcomes for consumers, insurers, and providers. In New York, for instance, arbiters from 2015 to 2018 have resolved a total of 2,595 out-of-network payment disputes using New York's arbitration process, according to a report from the state's Department of Financial Services (NYDFS). Overall, NYDFS found arbiters have ruled in favor of providers more often than health plans. Specifically, NYDFS found arbiters usually favored health plans in payment disputes related to emergency department services.

However, there's dueling data on the effect of New York's arbitration backstop has had on out-of-network billing and physician payments. A 2018 working paper published by the National Bureau of Economic Research showed New York's arbitration process lowered out-of-network billing statewide by 34% and decreased in-network payments to ED physicians by 9%.

But a third-party analysis of the NYDFS report's data found New York's arbitration process is driving up provider payments, as well as consumer health care costs, in part because state guidance directs arbiters to consider the 80th percentile of provider charges when determining final payment amounts.

The Congressional Budget Office (CBO) last month projected similar outcomes for the arbitration process proposed in the House's No Surprises Act. While CBO noted that provider payment changes would vary by geographic region, overall it predicted the bill's arbitration provision would increase administrative costs for insurers, which likely would be passed on to consumers via higher premiums, and result in larger provider payment rates.

Option 2: Benchmark rate setting

It's not too surprising, then, that insurers prefer to use benchmark payment rates to resolve out-of-network bills. Benchmark payment rates would guarantee providers are paid a standard rate for out-of-network services. Under the House's No Surprises Act and the Senate's Lower Health Care Costs Act, the standard rate for out-of-network service payments would be based on in-network rates for services in a geographic region. The key difference is the House bill would tie payment rate growth to inflation, which CBO predicted would slightly slow down the rate of payment growth.

AHIP and 16 other groups representing health insurance brokers, insurers, and businesses in a letter to congressional leaders wrote that benchmark payment rates are necessary because, "in many cases, the charges [for health care services] bear no relation to the actual cost of care or market rates." For example, insurers have noted out-of-network anesthesiologists on average bill 580% of the Medicare reimbursement rate.

According to CBO, tying those benchmark payment rates to the CPI-U is key to restraining those annual growth rates. CBO estimated the House's bill, which would tie annual median in-network rates to CPU-I, would lower the rates insurers pay to in-network and out-of-network providers. Specifically, CBO projected the benchmark payment rate would cause in-network and out-of-network payment rates to converge around the lower, median in-network rates. CBO predicted the lower payments would reduce premiums and consequently decrease federal spending on subsidies for ACA exchange plans. Though, CBO said, those declines would be offset by the House's arbitration provision discussed above.

As with arbitration, there are few states shedding light on the real-world implications of benchmark payment rates. For instance, researchers have found tying benchmark payment rates to the insurer's local average contracted rate (ACR) or 125% of Medicare's reimbursement rate in California reduced payment rates for in-network and out-of-network providers, decreased the number of surprise bills patients have received, and increased the number of in-network providers.

However, researchers also have found California's benchmark payment rate has had unintended consequences. For example, the benchmark payment rates have given insurers an incentive to cancel or reduce contracts with providers who charge above-average rates—and led more physician groups to consolidate because of the lower provider payments. Separately, providers have argued rate-setting would create a payment ceiling and hurt access to care.

Where Congress will go from here?

These disagreements over which approach is the best have hindered progress on legislation to resolve out-of-network bills. Lobbying efforts from providers to prevent benchmark rates have slowed negotiations and forced lawmakers to reconsider what approach they will take.

House Ways and Means Committee Chair Richard Neal (D-Mass.) has proposed a potential compromise to help legislation on out-of-network bills advance. Neal recommended HHS collaborate with insurers and providers to draft regulations to set up benchmark payment rates and an arbitration process.

The problem? Republicans appear to have already dismissed the proposal. Rep. Kevin Brady (R-Texas), the ranking member on the House Ways and Means Committee, has rejected the proposal. Brady last month told reporters, "I think we ought to go back to the drawing board rather than pursue that."

Erin Hatch, a Neal spokesperson, said federal lawmakers are "still working in a bipartisan way and exploring all options to find a solution."






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