CMS last week issued the highly anticipated interim final rule establishing the new independent dispute resolution (IDR) process for out-of-network claims between providers or facilities and health plans—historically the driver of so-called “surprise bills.”
The interim final rule—which drew sharp criticism from hospitals and provider groups but praise from insurers—answers many questions about the IDR process set to take effect in January. For example, CMS clarified that arbiters should begin with the assumption that the qualifying payment amount—which CMS defined as the median reimbursement rate that insurers pay to in-network providers in a given geographic area—is the appropriate out-of-network payment amount.
In practice, this means that arbiters should select the offer closest to the qualifying payment amount unless parties can demonstrate why that rate should not be used. The rule also clarifies the interaction between state and federal surprise billing laws, the process for becoming an arbiter, and a separate dispute-resolution process for uninsured and self-pay patients.
Each of these policy decisions has strategic implications for both providers and insurers, and prudent executives will begin thinking through those implications now. Below, we outline the four conversations you should be having based on the latest rule.
4 conversations to have to prepare for the federal IDR process
1. Audit billing data to identify the extent of out-of-network billing at your organization.
We've previously recommended that both providers and insurers take this step to evaluate potential exposure under the No Surprises Act. For those who have not yet completed this exercise, it's not too late. And for those who have, we recommend revisiting your analyses and determining how often those out-of-network rates exceed the median in-network rate for your geographic region. This will enable you to estimate potential changes in annual payments—and it can be done at both an organization and a provider level.
2. Think critically about the services you'd want to escalate to the new dispute-resolution process.
It's worth nothing that CMS' decision to rely on the median in-network rate for the IDR process makes the outcome more predictable, as the arbiter is likely to select the rate closest to the median in-network rate. In theory, having a more predictable outcome increases the likelihood that the provider and insurer will be able to come to an agreement on an out-of-network payment during the 30-day negotiation window and avoid the IDR process altogether.
The rule also outlines exceptions when an arbiter could choose not to side with the option that is closest to the median in-network rate, giving providers and insurers an opportunity to make their case when it matters most.
To determine those instances, providers and payers can analyze their billing data further to identify outlier services for which out-of-network payments fall exceptionally above or below the median in-network rate in your geographic area. Those are the services to focus on, as they are most likely the ones that will require negotiation.
Providers and payers should consider if they can justify a substantially higher or lower payment. If the answer is yes, they should determine if they'd be willing to go through the IDR process. (CMS in previous guidance set the administrative fee for each party at $50, the losing party also will have to pay an IDR entity fee, which can vary from $200 to $500 for individual determinations and $268 to $670 for batched determinations.) If the answer is no, and providers and payers determine they can't justify substantially higher or lower payments, parties should enter negotiation with the goal of reaching a quick agreement.
3. Determine how changes in bargaining power will affect both provider-insurer and provider-provider contract negotiations.
Historically, providers have been able to leverage their ability to balance bill patients for out-of-network care in order to land higher in-network rates during contract negotiations with insurers. However, the IDR process removes that negotiating tool and could drastically shift the balance of power—providers may not benefit financially from remaining out-of-network, and insurers (knowing the IDR favors the median in-network rate) have reduced incentive to go higher. And given the new price transparency rule, hospitals will have a clearer picture of how their rates compare to others as more organizations comply with the new requirement.
Hospitals also will need to consider how the new rules impact contract negotiations with physician staffing firms. In the past, staffing firms may have accepted lower subsidies from hospitals if they were able to remain out-of-network and balance bill patients. But that option will soon be off the table for many providers, so staffing firms could look for ways to offset those revenue losses in their contract negotiations.
4. Review existing surprise billing laws in your state, since the federal law defers to state precedent in certain scenarios.
Several states already have surprise billing laws on the books, and a few of those have their own IDR processes in place with their own rules for reaching a final out-of-network rate. For example, while CMS instructs arbiters to choose the rate closest to the median in-network rate, New York's law instructs them to consider the 80th percentile of billed charges. Rather than force providers and insurers to adjust to a new IDR process, CMS' final rule defers to the state law when one exists. CMS tasks arbiters with determining when a state law should take precedent, but hospital and health plan leaders should take stock of the criteria their organizations will be subject to when determining out-of-network payments.
Additionally, HHS will defer to states to enforce the regulations unless the state informs HHS that it does not have the authority to enforce the law. One area in which CMS will not defer to state laws is the good-faith estimate. CMS clarified that good-faith estimates provided to patients under state laws must still comply with federal requirements. This means the provider must inform patients of their right to a good-faith estimate of the anticipated billed charges and supply that information upon request.
There is still time to comment
CMS' interim final rule takes effect immediately, but some provisions have different effective dates. For example, the arbiter application and certification parts of the rule take effect immediately, but other parts like the IDR process take effect on January 1, 2022. In addition, CMS previously stated it would delay some key provisions as it works to finalize regulations and give stakeholders time to prepare.
But industry stakeholders still have time to raise any concerns or objections to CMS' final policies as the agency opted to include a 60-day comment period. As one senior HHS official said during a press call last week: The interim final rule can still be updated, and CMS will review all comments that come in during the comment period.
So, go through the steps above and make your voices heard and get comments in before the 60-day window closes.