By Sabrina Corlette, Jack Hoadley, Kevin Lucia

On June 26, 2019, the Senate HELP Committee approved S. 1895, a bill that includes provisions to address surprise medical bills, on a bipartisan 20–3 vote. The broad support reflects the agreement from all sides that patients should not have to face unexpected costs when, due to an emergency or other circumstance outside their control, they receive services from an out-of-network provider. But stakeholders remain at odds on how best to protect consumers. During the committee debate, Sen. Bill Cassidy (R-LA), the sponsor of a competing bipartisan bill, suggested that S. 1895’s approach to resolving out-of-network payment disputes “is entirely for the insurance companies” and called for an approach more favored by provider advocates.

Provider groups fear proposals, such as S. 1895, that they predict will tilt the playing field toward insurers, driving down in- and out-of-network payments and hurting their bottom line. Insurers and employer-purchasers fear proposals that do the opposite, resulting in inflationary pressure on provider prices and creating disincentives for some physician specialties to participate in plan networks. But Congress doesn’t need the wisdom of Solomon to split the baby and achieve a legislative compromise—a path forward is possible if they look to the states.

Consensus For Action But Controversy Over Solution

It is an unusual health care issue that garners a bipartisan consensus, but in the face of mounting evidence of a growing problem, protecting consumers from surprise medical bills is now high on the federal political agenda. President Donald Trump has hosted events calling for action. Bills have recently been drafted by the chairman and ranking member of the House Energy and Commerce Committee, the leaders of the Senate Health, Education, Labor, and Pensions Committee, a bipartisan coalition of senators led by Senator Cassidy, and a bipartisan group of House members led by Rep. Raul Ruiz (D-CA). Preliminary Congressional Budget Office analyses suggest such proposals would not only protect consumers but also generate cost savings for the federal government, potentially increasing the chances that some form of federal balance billing legislation will be enacted this year.

In recent years, many state legislatures have also tackled this issue, with mixed results. As of 2018, only nine states had enacted comprehensive balance billing protections, although several more states have passed legislation since January.

Policy makers and health care stakeholders broadly agree that patients who are treated by an out-of-network provider through no fault of their own (that is, in an emergency situation or when they have received medical care at an in-network facility) should be protected from bills that exceed their usual in-network cost sharing. But part of a comprehensive approach to protecting patients from balance billing means establishing a payment from the insurer to the provider that is acceptable to both parties, while also prohibiting the provider from sending the patient a bill for the balance of the original charge.

There are two primary ways state policy makers have approached this problem. The first sets a payment standard by which providers receive an established amount for treating out-of-network patients, such as a percentage of the Medicare payment rate or the in-network price for the service. The second creates a dispute resolution process when there are differences between what the provider charges and the insurer is willing to pay. The states that have enacted comprehensive surprise billing laws have been fairly evenly split between adoption of a payment standard (that is, Maryland and Oregon) and a dispute resolution process (that is, New York and New Jersey) as the primary methods to pay out-of-network providers. Still others, most recently Colorado, have established a blended approach that requires insurers to make a statutorily prescribed minimum payment. If the provider believes that amount is insufficient, he or she can dispute it via a prescribed resolution process. We take each of these approaches in turn.

In general, insurance company stakeholders have argued that arbitration is burdensome and creates incentives for providers to inflate their charges. Conversely, provider stakeholders have mostly argued that arbitration is a more fair method to determine payment but raise objections over the government setting a rate, especially when it falls below their billed charges. As Congress considers how to forge a compromise between these two positions (how to split the baby, in effect), some of the design considerations weighed by state-level policy makers could provide a useful guide.

Payment Standards, Arbitration, And Combined Approaches: Considerations For Policy Makers

Payment Standards

Under this approach, legislation or regulations establish the price providers will be paid for their services. In doing so, policy makers must create a methodology for determining that price, which could be set based on providers’ out-of-network charges (billed charges), the in-network rate, Medicare, or some other fee schedule. They must also set a rate level or at what percentage of the rate standard the provider will be paid. Examples include 140 percent of the Medicare rate (used in Maryland for certain situations) and 105 percent of the in-network rate (used in Colorado in certain situations).

Policy considerations include:

• What will be the effects on premiums and the dynamics between insurers and providers in negotiations over network participation?
• If billed charges or in-network rates are used as a benchmark, what will be the source of data to support the payment standard? Data could be provided from each insurers’ paid claims for in-network services, an all-payer claims database, or some other source.
• How much variation in the standard rate will be needed to account for local market conditions, the complexity of the case, the physician’s expertise, or other factors?

Pros:

• Easier to administer than arbitration
• Helps ensure prompt payment to providers
• Reduces uncertainty
• Depending on where the rate is set, could help keep health care price inflation in check

Cons:

• Government rate-setting, even in this context, may be politically objectionable for some policy makers.
• It may be difficult to set a rate that accurately reflects local market conditions, service complexity, quality, and provider experience.
  • A rate set too high could increase premiums and create incentives for providers to remain out of network (or to drop out of networks).
  • A rate set too low could create financial difficulties for some physicians or make it more challenging to recruit certain specialties to work at some facilities.

Dispute Resolution

Under this approach, disagreements between insurers and providers over the appropriate out-of-network price for a service are subjected to a dispute resolution process detailed in legislation or regulations. For example, New York and New Jersey have established independent arbitration to determine the price for out-of-network services delivered in an emergency situation or by a physician in an in-network facility. The process in these states encourages the parties to negotiate a voluntary agreement to avoid the formal process, and some states have an explicit requirement to try voluntary negotiation first.

Policy considerations include:

• If using binding arbitration, how are the arbitrators chosen and what qualifications must they have?
• Should “baseball style” arbitration be used, so that the arbitrator must choose from the final offer of one party or the other, or may the arbitrator choose a different payment amount?
• What data are arbitrators allowed or required to consider during the decision-making process? For example, although New York arbitrators must consider 80 percent of physicians’ charges as a benchmark for their decision, they are not bound by that amount. The parties may submit other data, such as average in-network and Medicare rates, for consideration. Should information about the complexity of the patient’s case and the physician’s experience be factors to consider?
• What are reasonable time limits for resolving the dispute?
• Who pays for the dispute resolution process?

Pros:

• Arbitration allows the parties to present case-specific information, including clinical factors, network adequacy issues, and provider expertise.
• Creates incentives for the parties to reach a voluntary agreement before submitting to the uncertainty of winner-take-all baseball arbitration.
• Avoids the prospect of a government-set payment standard, which may not be acceptable to some policy makers.

Cons:

• Depending on the design, arbitration may be administratively burdensome for the parties and result in delays in provider payment.
• Depending on requirements placed on arbitrators as well as actual practice, decisions could result in either price inflation or cuts in provider revenue. For example, physicians in New Jersey claim that state’s law has cut their payments from insurers, and hospitals complain it has reduced their leverage in negotiations over network participation. Conversely, insurers in New York have concerns that that state’s approach creates incentives for physicians to inflate their billed charges.

A Blended Approach: Minimum Payment Plus Dispute Resolution

Some states, such as Colorado, have recently enacted balance billing protections that combine a requirement for insurers to make a minimum payment to providers with a provision for a time-limited dispute resolution process, leading to arbitration if necessary. Bills by Senator Cassidy and Representative Ruiz follow a similar model. This blended approach could reduce concerns about the administrative burdens of arbitration (assuming most providers are willing to accept the initial minimum payment), while appeasing providers concerned about an inadequate payment standard (assuming the initial minimum payment is set at a reasonable level).

Next-Level Issues

Policy makers must consider numerous other issues in designing balance billing protections. These include determining which providers should be within the scope of the legislation. For example, Illinois limits its balance billing protections to services provide by a limited list of physicians; services provided by an out-of-network doctor not on the list would not be covered. Also, states generally do not include out-of-network ambulance providers in their laws. Congress must also consider whether to include air ambulance providers in the scope of federal legislation. This is an industry sector notorious for exorbitant out-of-network prices, but states are preempted under federal aviation law from regulating their billing practices.

Other issues include whether and how protections will interact with or leverage existing state laws and dispute resolution infrastructure, and how disputes over services delivered by providers in one state to residents of another state should be resolved. For example, a New York resident receiving out-of-network emergency care in Pennsylvania could face an unexpected balance bill because Pennsylvania providers fall outside the scope of New York’s protections. A federal law setting a national floor for consumer protection could ameliorate these cross-border challenges.

Lawmakers may also want to build in mechanisms to monitor, assess, and report on the effects of the law on patients’ exposure to surprise balance bills, providers’ in- and out-of-network rates, network participation, and overall health system costs.

A Path To Compromise?

As congressional leaders craft balance billing protections that can gain support—or at least the absence of opposition—from health industry stakeholders, some state legislatures have charted potential paths forward. Although there is little data about the impact of state-level efforts, particularly the newer ones, combining a requirement that insurers make a prompt minimum initial payment with a prescribed dispute resolution process if the provider feels the amount is insufficient could become a basis of compromise. The initial payment could ease providers’ concerns that they won’t be paid promptly or adequately. At the same time, many providers may find the initial payment to be sufficient, reducing insurers’ concerns that arbitration will be administratively burdensome or inflationary. Most importantly, patients who had a medical emergency or did everything they could to seek care from in-network providers are protected from unfair surprise bills.

Authors’ Note

The authors’ research and analysis on which this post is based was supported by the Robert Wood Johnson Foundation.

Sabrina Corlette, Jack Hoadley, Kevin Lucia, “Successfully Splitting the Baby: Design Decisions for Federal Balance Billing Legislation,” Health Affairs Blog, July 15, 2019, https://www.healthaffairs.org/do/10.1377/hblog20190708.627390/full/. Copyright © 2019 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.