Surprise billing occurs when a patient unwittingly receives care from an out-of-network provider and is responsible for all or a large portion of the cost. This canoccur when patients are unable to choose an in-network facility or providerbecause they are receiving emergency care or scheduled care and their careteam includes an out-of-network ancillary provider.

Surprise billing is not new; it is a result of preferred provider networks that createdifferential benefits and prices between in-network and out-of-network providers.Thirty-two states had surprise billing laws as of 2020, but those protections varyby state and exclude more than 100 million Americans nationwide who receivetheir health insurance through federally regulated self-funded plans.

Growing media attention and public outcry made surprise billing a priority forCongress. In 2019, Congress nearly passed legislation to address surprisebilling, but progress stalled in part because policymakers disagreed about how toresolve payment disputes for out-of-network care. Hospital and provider groupsadvocated for a baseball-style arbitration process, while insurers favored abenchmark payment standard. In December 2020, Congress reached a lastminute compromise and passed the No Surprises Act as part of the ConsolidatedAppropriations Act, 2021.

The law, which takes effect on January 1, 2022, resolves two underlying driversof surprise bills. First, the law requires insurers to reclassify specific out-of-network care as in-network when determining a patient’s financial obligations,resolving instances in which insurers set higher cost-sharing requirements forout-of-network versus in-network care. Second, the law prohibits providers frombilling patients for more than in-network cost-sharing for most out-of-networkcare, resolving instances in which providers directly bill patients when insurersdo not cover their full price, a practice known as balance billing.

The No Surprises Act is designed to protect commercially insured patients fromsurprise bills, including those enrolled in individual, group fully funded, and groupself-funded plans. The law does this by prohibiting providers from billing patientsfor more than in-network cost-sharing amounts for most out-of-network care thatpreviously led to surprise bills and requiring insurers to classify such care as innetwork when determining a patient’s financial obligations.

Services that cannot be balance billed

The law protects patients from receiving surprise bills under most scenarios inwhich surprise billing generally occurs:

• All out-of-network emergency care, including certain post-stabilization care
• Ancillary services delivered by an out-of-network provider at an in-network facility related to anesthesiology, emergency care, laboratory, neonatology, pathology, and radiology, as well as services provided by assistant surgeons, hospitalists, and intensivists
• Out-of-network air ambulance transportation that would have been covered if the air ambulance was in-network
• Non-emergency care delivered by an out-of-network provider at an in-network facility without obtaining patient consent 72 hours in advance

Services that can be balance billed

The law includes a notable exception for ground ambulance transportation:patients who are transported to a facility by an out-of-network ground ambulancecan still receive a balance bill from the ambulance provider. One study based ondata from a large national insurance plan estimated 79% of ground ambulancesproviders used for emergencies were out-of-network.

The law also outlines specific criteria that, if met, permits certain out-of-network providers to balance bill patients for non-emergency services.However, this does not apply to the ancillary services listed on the previouspage.

Eligible out-of-network providers may balance bill if the patient consents toreceiving the care. To obtain consent, the provider must give the patient awritten notice at least 72 hours before the date of service clearly explainingthat the provider is out-of-network, consent is optional, and the patient canchoose to seek care from an in-network provider, as well as any informationon prior authorization. In addition, the notice must include an estimate of theamount the patient would be charged. The patient must sign and date thenotice.

Payment for services that cannot be balance billed

Beyond eliminating most balance billing, the law also aims to keep patientsout of payment disputes by creating a new process for insurers and providersto reach an agreement on the final payment amount for out-of-network care.The new approach can stretch up to several months.

Initial payment

The law requires insurers to make an initial payment or submit a denial ofpayment to the provider within 30 days of the service. The law does not set aminimum payment amount and sunsets the Affordable Care Act’s so-called“greatest of three” rule (The greatest of three rule refers to the minimum floor set for what health plans must pay forout-of-network emergency care).

Independent dispute resolution and arbitration processes

At this point, either the out-of-network provider or the insurer can trigger a newindependent dispute resolution (IDR), which begins with a 30-day opennegotiation period. If the parties do not reach a payment agreement, either onecan initiate the law’s formal arbitration process. Providers and insurers also havethe option to combine several payment disputes into one arbitration proceeding.

The process gives both parties three days to select a certified, third-partyarbitrator; if they do not, HHS will appoint one within six days. Once an arbitratoris chosen, the provider and insurer each have 10 days to submit a final paymentoffer, as well as any additional information for the arbitrator to review. Thearbitrator then has 30 days to select one of the two offers. When making thesedecisions, the law encourages arbitrators to consider several factors, including:

• The insurer’s 2019 median in-network rate for similar services in that geographic area, adjusted based on inflation
• Demonstrations of good faith efforts to reach an agreement
• Contracted rates between the insurer and provider for the previous four years
• Both parties’ market share
• Patient acuity
• The provider’s level of training, experience, and quality, or the facility’s teaching status, case mix, and scope of services

Arbitrators are not allowed to consider the provider’s billed charges, Medicarerates, or Medicaid rates. Once the arbitrator selects the final payment amount,the insurer has 30 days to make the payment, and the losing party must pay theadministrative costs for the arbitration process.

The No Surprises Act creates new strategic implications for providers and insurers.

1. Bargaining powers may shift in contract negotiations. The ability to balance billpatients historically has given providers leverage in contract negotiations with insurers. Inremoving that tool, the law adds new complexities to contract negotiations and could shiftthe balance of power. Insurers likely will face less financial risk from providers being out-of-network, which could allow them to negotiate lower prices—although insurers will stillhave to contend with selling products that exclude specific providers. The arbitrationprocess (which providers advocated for) also introduces a new degree of uncertainty forinsurers and providers, which could encourage them to complete contracting negotiations.

2. The law may create downward pricing pressure—but the extent is unclear. Thelaw’s ultimate impact on pricing is uncertain because shifts in bargaining power will notmaterialize immediately or uniformly nationwide—plus in some cases, existing state lawwill supersede this new federal law, preempting additional change. That said, similarpieces of legislation enacted at the state level offer some insight. After New Yorkimplemented a ban on surprise billing, providers experienced a 13% average reduction inpayments. But individual arbitration awards remained high as the law directed arbitratorsto consider the 80th percentile of providers’ charges, which differs from the new federallaw. Ultimately, the law’s impact on networks, provider payments, and bargainingdynamics will be influenced by the specific details that will emerge across 2021 throughHHS’ regulatory process.

3. Providers and insurers may benefit from improved patient financial experience.The No Surprises Act will reduce surprise bills and improve the consumer experience forcommercially insured patients—a positive for patients, but also for providers and insurers.In general, delivering a positive financial experience yields a tangible return on investmentfor providers, as satisfied patients are more likely to return to the hospital, recommend thehospital, and pay their bill in full. Insurers also stand to benefit from fewer surprise bills, aspolling data show that many patients blame insurers for their surprise bills. But challengesremain. Patients who receive non-emergency services may consent to balance billing andas noted above, are subject to additional exceptions for ancillary services.

The No Surprises Act also creates new practical implications for providers andinsurers. They will need to:

1. Adjust billing and communication strategies. Providers and insurers will need toadjust their billing systems and processes to account for the new requirements. Forexample, leaders need to ensure that eligible bills only include patients’ in-networkcost-sharing obligations for services that cannot be balance billed. For the specificservices that are eligible for balance billing, leaders must build a process for obtainingconsent for out-of-network care that complies with the new law. They must also prepareto clearly communicate the implications of out-of-network care to patients.

2. Prepare for the new arbitration process. Except in states where existing surprisebilling laws supersede the No Surprises Act, providers and insurers will need to preparefor the new dispute resolution and arbitration model. For example, leaders will need toassign staff to manage the process, design a method for determining their final offeramounts, and refine their arbitration strategy as they gain experience and seearbitration results over time.

3. Conduct a cost-benefit analysis of when to pursue arbitration. The newarbitration model establishes a formal and structured process for resolving paymentdisputes between providers and insurers, but it can also result in payment delays andadministrative costs. The legislation requires the losing party to pay the administrativecosts of arbitration to deter excessive use. Additionally, the initiating party is prohibitedfrom instigating arbitration for the same service with the same stakeholder for 90 days.As a result, stakeholders will need to evaluate the best cases for arbitration.

While the No Surprises Act outlines specific parameters that providers, insurers, andarbitrators must follow, HHS will need to develop detailed regulations to implement thelaw. Because the law takes effect on January 1, 2022, HHS will need to issue proposedand final rules in 2021. The federal rulemaking process requires HHS to publish aproposed rule and collect public comment for at least 60 days before finalizingregulations.

Those regulations could ultimately shape the law’s impact on network strategy,payments amounts, and any changes in bargaining power. Health care leaders shouldwatch to see:

• What criteria arbitrators will need to meet for certification
• The methodology insurers will use to determine the qualifying payment amount for emergency services
• The geographic regions that insurers use to calculate median in-network rates
• How HHS will select an arbitrator if parties do not reach a decision
• If HHS expands the list of specialties that are prohibited from balance billing patients for care delivered by out-of-network clinicians at in-network facilities
• If HHS alters the list of advanced diagnostic lab tests that qualify for balance billing under the law
• Whether HHS will offer arbitrators guidance on how to use the law’s list of factors they can consider

In addition, the law requires HHS, in consultation with the Departments of Labor andTreasury, to develop guidance surrounding the notice and consent requirements. Thatguidance is due by July 1, 2021.

Evaluate your current exposure: audit billing data to identify the extent of surprise billing at your organization.

Examine the local regulatory environment: review any existing surprise billing laws in your state, as the federal law defers to state precedent in certain scenarios.

Determine your patient communication strategy: prepare to inform patients of their consumer rights and improve price transparency.

Prepare for negotiation and arbitration: identify any changes in bargaining strength to prepare for provider-insurer contract negotiations and prepare for the new dispute resolution process and arbitration model.

Consider your feedback options: provide public comment on forthcoming rules or defer to trade organizations to represent your perspective.

These conversations might reveal that your organization is largely unaffected or that the organization should prepare for possible externalities.