Banning Surprise Bills, Part 1: A New Rule On Independent Dispute Resolution

On September 30, 2021, the Departments of Health and Human Services (HHS), Labor, and the Treasury, alongside the Office of Personnel Management (OPM), issued a new interim final rule to implement additional components of the No Surprises Act (NSA). This rule focuses on the independent dispute resolution (IDR) process, good faith estimates for uninsured individuals, the dispute resolution process for patients and providers, and expanded rights to external review.

The new rule was accompanied by a press release, two fact sheets, fee guidance for 2022, accompanying materials, and a new website. The new website will be used to help educate the public on NSA requirements, solicit applications from IDR entities, and host an IDR portal for payers and providers.

The NSA was adopted as part of the broader Consolidated Appropriations Act (CAA) legislative package in December 2020 and includes comprehensive new patient protections against surprise medical bills that go into effect beginning on January 1, 2022. This post summarizes the interim final rule’s requirements for establishing a new federal IDR system to resolve payment disputes between payers and out-of-network providers. This includes certifying qualified IDR entities, developing a portal to collect dispute information, and tracking data on IDR outcomes. A second post, to be published on Monday, will discuss other provisions in the rule, including the requirement to provide good faith estimates to uninsured individuals, the dispute resolution process for patients and providers, and external review.

Overall, the interim final rule adopts a federal IDR process that will incentivize payers and providers to resolve payment disputes in a consistent and efficient manner. The Biden administration is clear that its goal is to help hold down health costs and encourage the parties to negotiate, submit reasonable offers, and resolve disputes in a way that does not add unnecessary time, cost, or complexity to this process. These goals are more likely to be met given that IDR entities must select the offer that is closest to the qualifying payment amount (i.e., the median in-network rate that payers pay to providers) and only deviate if there is credible information for the need to do so. This will help ensure that IDR outcomes are predictable and that stakeholders are not incentivized to use the federal IDR process to obtain higher out-of-network payments when doing so is not warranted based on the circumstances.

The preamble highlights much of the data on surprise medical bills and calls particular attention to the role of private equity groups in acquiring physician practices and using surprise out-of-network billing as a business strategy. The agencies also acknowledge that most physicians rarely send out-of-network bills, which are most common among certain specialties where services cannot be shopped for (e.g., emergency care, pathology, radiology, and anesthesiology). Physician staffing companies and air ambulance providers will be highly affected by the rule as well.

This interim final rule follows a prior interim final rule and proposed rule issued by the same four agencies in July 2021. The July interim final rule addressed the scope of the NSA’s requirements, patient cost-sharing protections, notice and consent standards for waivers, rules for calculating the qualifying payment amount (QPA), disclosure requirements, and complaints processes, among other standards. The proposed rule addressed the collection of air ambulance data, enforcement of the NSA, and a CAA provision requiring insurers to disclose compensation paid to agents and brokers for short-term plans and individual market coverage.

A new rule will be issued later this year to implement pharmacy and prescription drug reporting requirements, and the agencies have given additional guidance about other related provisions that will not be implemented via rulemaking before the 2022 effective date.

Use Of An Interim Final Rule And Applicability Dates

The interim final rule goes into effect immediately, but parts of the rule have varying effective dates. The IDR process—which is implemented by HHS, Labor, and Treasury—applies beginning on January 1, 2022. But the parts of the rule related to IDR certification apply upon publication in the Federal Register; the agencies will begin accepting applications from prospective IDR entities immediately. The parts of the rule that apply only to the Federal Employees Health Benefits (FEHB) program under OPM also apply beginning on January 1, 2022.

In general, federal agencies must solicit public comment on a rule before finalizing its provisions and publish a rule at least 30 days before it goes into effect. However, agencies can forgo these requirements when they have “good cause” to do so. Consistent with the rationale from the July interim final rule, the agencies believe it would be impracticable and contrary to the public interest to delay implementation of the NSA and that an immediate effective date is needed to begin certification of the IDR entities. As such, the agencies are forgoing the public comment process in advance of finalizing the rule and adopting an immediate effective date. Even so, the agencies will accept comment for 60 days after publication in the Federal Register (which is scheduled for October 7, 2021).

The agencies also make emergency review requests for the accompanying materials under the Paperwork Reduction Act. Those materials can be found here. The agencies will request approval of those information collection requests for 180 days, the maximum allowed using emergency review authority. Once the emergency request is approved, the agencies intend to develop full requests and seek up to three years of approval for the documents. The agencies will open a 60-day and 30-day comment period for each information collection request.

Background: The NSA And IDR

The NSA directed federal officials to establish a federal IDR system to resolve disputes between payers and out-of-network providers. To help limit the use of this process, the NSA established a 30-day period for the parties to engage in private, voluntary negotiations to try to resolve the payment dispute. If negotiations fail, either party may, within four days, initiate the IDR process, which is administered by an entity that is free of conflicts of interest.

The NSA adopts “baseball-style” arbitration: each party offers a payment amount, and the IDR entity selects one amount or the other with no ability to split the difference. The decision is binding, although the parties can continue to negotiate or settle. Multiple cases can be batched together in a single proceeding to encourage efficiency, but batched cases must involve the same provider or facility, the same insurer, the same or similar medical condition, and must occur within a single 30-day period.

IDR entities must consider the QPA (i.e., the insurer or plan’s median in-network rate) and information on any circumstances raised by the parties or requested by the IDR entity. These factors include, among others, the level of training or experience of the provider or facility; quality and outcomes measurements of the provider or facility; market share held by the out-of-network health care provider or facility, or by the plan or issuer in the geographic region in which the item or service was provided; patient acuity and complexity of services provided; teaching status, case mix, and scope of services of the facility; any good faith effort—or lack thereof—to join the insurer’s network; and any prior contracted rates over the previous four years. IDR entities cannot consider the provider or facility’s usual and customary charge or the billed charge as well as the reimbursement rates paid by public payers (such as Medicare, Medicaid, CHIP, or TRICARE). The inclusion of billed charges as a factor in state IDR processes has been shown to be inflationary.

The same general factors apply to air ambulance providers, with some adjustments such as the location where the patient was picked up and the population density of that location, and the air ambulance vehicle type and medical capabilities.

The losing party is responsible for paying the fees associated with the IDR process. If a case is settled after IDR has begun, the costs are split equally unless the parties agree otherwise. Further, the party that initiates the IDR process is “locked out” from taking the same party to arbitration for the same item or service for 90 days following a decision. This provision was designed to encourage settlement of similar claims. Any claims that occur during the lock-out period can go to IDR after the period ends.

Overall Process And Timeline

The interim final rule implements these NSA requirements and begins the process of establishing a functioning federal IDR process. This process will be used to determine the out-of-network rate for NSA-covered emergency services, nonemergency items and services provided by out-of-network providers at in-network facilities, and out-of-network air ambulance providers. These items are generally referred to as “qualified IDR items or services,” and additional detail on the scope of how the NSA applies is discussed in the July interim final rule.

Each step in this process requires the parties to provide written notice to the other party or the federal government. To aid the parties in doing so, the agencies created various standard notices. The agencies also retain discretion to adjust or extend the time periods in this interim final rule on a case-by-case basis in the face of extenuating circumstances (e.g., a natural disaster means a plan cannot comply with these deadlines). Regulated entities can request an adjustment or extension using a standard request form. The only exception is for payments which must be made on a timely basis.

If a provider wants to initiate the open negotiation period, they must inform the plan or insurer and send written notice within 30 business days of an initial payment or denial of payment. The open negotiation period then extends for 30 business days from the date of the notice. The parties must exhaust this open negotiation period before initiating the federal IDR process. The agencies urge good faith negotiation during this period by encouraging the parties to reach an agreement before proceeding to the federal IDR process and incurring administrative costs. The agencies expect 25 percent of disputes to be resolved during the open negotiation period.

If the parties have still not reached an agreement on the out-of-network rate, either party can initiate the federal IDR process within 4 business days. This 4-business-day period begins on the 31st business day after the start of the open negotiation period and is triggered by a separate notice of IDR initiation from one party to the other. This notice must include, among other information, the relevant QPA, the initiating party’s preferred certified IDR entity, and the qualified IDR items or services at issue. This notice must also be submitted to federal officials (through the federal IDR portal) on the same day it is sent to the other party. This triggers the federal IDR process.

The parties can agree upon a certified IDR entity within 3 business days of IDR initiation. If no party objects to the initiating party’s preferred IDR entity (and there are no conflicts of interest), that entity will serve as the IDR entity. If a party objects to the other’s preferred IDR entity, it must explain its objection and propose an alternative IDR entity. The other party then has the option to agree or object to the proposed alternative. This process can continue for up to 3 business days. Federal officials expect agreement in 75 percent of cases and will post a list of certified IDR entities on the IDR Portal. The parties must notify federal officials of their decision by submitting a notice of IDR entity selection.

If the parties still cannot agree on a single entity, they must notify federal officials of a failure to select notice within 4 business days after IDR initiation. Federal officials will then select a certified IDR entity at random within 6 business days of initiation of the IDR process. Assuming there are no conflicts of interest, the parties will be notified of the selection. Federal officials expect to have to select the IDR entity in 25 percent of IDR determinations.

If there is a question about whether the federal IDR process applies at all, this will be determined by the IDR entity within 3 business days. And a party cannot initiate the federal IDR process for an item or service that the party knows (or reasonably should know) that the provide or facility obtained consent to balance bill the patient.

The parties can still agree on a payment amount even after the federal IDR process is initiated. If agreement is reached, the parties must notify federal officials through the IDR portal within 3 business days. The plan or insurer must then pay the balance to the out-of-network provider or facility within 30 business days of the agreement. In these circumstances, each party must pay half of the IDR entity’s fee (unless the parties agree to a different arrangement). No party can seek additional payment from a patient (even if the out-of-network rate exceeds the QPA). The agencies expect about 1 percent of disputes to be resolved in this manner and during this timeframe.

If there is still no resolution, each party must submit their offer amount and other information within 10 business days of selecting an IDR entity. The offer must be listed as both a dollar amount and a percentage of the QPA. Providers and facilities must disclose the size or their practice or facility (based on the number of employees) and the practice specialty or type. Plans and insurers must disclose their coverage area, relevant geographic area, and whether their coverage is fully insured or self-insured. This, and any other information provided by the parties or requested by the IDR entity, must be submitted through the IDR portal.

The IDR entity must select one of the party’s offers within 30 business days, provide notice to the parties, and deliver a written decision. The written decision must include the entity’s underlying rationale including a detailed explanation of additional considerations relied upon if the IDR entity did not choose the offer closest to the QPA. The offer selection process is discussed in more detail below.

The decision from the IDR entity is binding on all parties unless there is fraud or evidence of intentional misrepresentation of material facts. The IDR entity’s determination is not subject to judicial review except in limited circumstances (e.g., the award was due to fraud or corruption). Once the IDR entity makes a determination, the party that initiated IDR cannot initiate a new round of IDR for the same services with the same party for 90-calendar-days after the determination was made. The interim final rule includes more specific details about how this “cooling off” period will operate.

Under the NSA, patient cost sharing for out-of-network care is generally determined based on the QPA (or a specified state law). The agencies confirm that the amount the consumer owes in cost sharing will not change simply because the parties used the federal IDR process. Patient cost sharing remains the same even if the federal IDR process results in an out-of-network rate that is different from the QPA.

The federal IDR process described above is largely identical to the process for resolving disputes regarding out-of-network air ambulance providers and FEHB carriers. The only exception for FEHB carriers is if the OPM contract with a carrier includes terms that adopt state law for the purposes of resolving disputes. And FEHB carriers must notify OPM if the federal IDR process is initiated by a carrier or a provider or facility. OPM will then coordinate with the other federal agencies to use the federal IDR Process to resolve the dispute.

Arbitration Factors

In a closely watched issue, the interim final rule directs certified IDR entities to select the offer that is closest to the QPA. Said another way, the IDR entity is supposed to presume that the QPA is the appropriate out-of-network rate. This presumption can be rebutted but only if the parties submit credible information about additional circumstances that clearly demonstrate that the QPA is materially different from the appropriate out-of-network rate. The interim final rule defines both “credible” and “materially different” to provide even more specific guidance to IDR entities. If the two offers are equally distant from the QPA, the IDR entity must select the offer that, in its view, best represents the value of the items or services. For batched items and services, the IDR entity can select different offers if the QPAs within the batch are different.

This means that the IDR entity should only deviate from selecting the offer closest to the QPA in limited circumstances. While the NSA permits arbitrators to consider other factors when determining which offer to select (e.g., the level of training or experience), the interim final rule makes clear that these other factors should be considered secondary to the QPA. This policy makes it less likely that the federal IDR process can be used by providers and facilities to obtain unjustified higher out-of-network payments and will thus likely encourage network negotiations between payers and providers or facilities. Federal officials will provide more guidance about the factors to certified IDR entities as necessary, and the regulatory text includes several examples for IDR entities to consider.

The agencies reach this conclusion based on the statutory text of the NSA. The statute lists the QPA as the first factor that an IDR entity must consider and notes the consideration of “additional circumstances” in a separate paragraph. Those secondary considerations are also limited by the ban on considering billed charges or public reimbursement rates. The agencies also cite the centrality of the QPA to the entire NSA—with many requirements linked to the QPA—compared to the relative lack of guidance on how to consider or define the additional circumstances. The statutory detail about the QPA, the agencies conclude, makes it central to the IDR entity’s determination of the out-of-network rate. Federal officials are also required to report how IDR outcomes compare to the QPA, further suggesting that the QPA is a benchmark for determining the out-of-network rate.

This interpretation is bolstered by the agencies’ policy goals of implementing a federal IDR process that encourages predictable outcomes and reduces the use of (and fees associated with) IDR while allowing for circumstances when the payment amount should deviate from the QPA. Anchoring IDR outcomes to the QPA will increase predictability, encourage private negotiations, help reduce prices that may have been inflated by pre-NSA practices, and prevent premium hikes if the IDR process became inflationary. The preamble also notes the Congressional Budget Office score and that the NSA was expected to reduce premiums by 0.5 percent to 1 percent in most years.

Federal officials considered other approaches, such as requiring IDR entities to give equal weight to all statutorily listed arbitration factors. But this approach was rejected because it would disregard the weight that the NSA places on the QPA.

Additional Circumstances

The preamble also includes guidance on how IDR entities should consider the additional circumstances identified in the statute. In general, this information should be considered only to the extent that it is not already accounted for in the QPA. For instance, even if a party submits credible information about the level of training, experience, and quality and outcome measurements they have, this information must clearly show that the QPA fails to account for these factors and that the level of experience or training was necessary for or had an impact on the care that was provided. A provider’s higher level of training or experience alone should not warrant an out-of-network payment that deviates from the QPA since most services—such as simple repair of an artificial wound—should not be reimbursed at a higher rate simply because a provider has 30 years of experience versus 10 years of experience.

The same is generally true for teaching status, case mix, the scope of services, and patient acuity or case complexity (and for additional factors specific to air ambulance services). A party would have to submit credible information showing that the teaching status or case mix was critical to the delivery of the care at issue and not adequately accounted for in the QPA. The QPA should already reflect service codes and modifiers so factors such as patient acuity and case complexity would only be relied on in rare instances where the QPA did not reflect this context. An IDR entity could, however, conclude that the QPA does not fully account for patient acuity or complexity if the parties disagree on the appropriate service code or modifier. This will allow IDR entities to resolve disputes over downcoding by selecting the offer that best represents the value of the qualified IDR item or service.

Prohibited Factors

The agencies clarify the ban on consideration of usual and customary charges, billed charge, and reimbursement rates paid by public payers (such as Medicare, Medicaid, CHIP, or TRICARE). The parties cannot express their offer or otherwise submit information with a proportion of these amounts (e.g., 150 percent of Medicare) or construe billed charges as the amount that would have been billed in the absence of the NSA. The IDR entity can still consider the QPA even if contracted rates themselves are based off of a percentage of Medicare or other public programs.

Batched Claims

As noted above, the NSA allows multiple cases to be batched together in a single IDR proceeding. However, batched cases must involve the same provider or facility, the same insurer, the same or similar items for treatment of the same or similar medical condition, and must occur within the same single 30-business-day period.

The same provider or facility means the same provider, the same group of providers, the same facility, or the same provider of air ambulance services. This test is satisfied if items and services are billed with the same National Provider Identifier or Taxpayer Identification Number. Similarly, payment would be made by the same plan or insurer. The same or similar items include those billed under the same service code or a comparable code under a different procedural code system. And batched items or services must be furnished within the same 30-business-day period or the 90-calendar-day suspension period to be considered collectively. The interim final rule provides some flexibility for alternative periods to the 30-business-day period if, for instance, the batched claims are for low-volume items and services.

If batched claims have different QPAs (e.g., because one claim is for an enrollee with individual market coverage while another is for an enrollee with a group health plan), the parties must provide information relevant for each QPA and the IDR entity must consider each QPA separately.

The agencies do not have data or a way to estimate how prevalent batching will be. But federal officials believe the limitations included in the interim final rule will help ensure that batching is efficient and not unnecessarily complicated by combinations of unrelated claims. Federal officials ask for comment on whether additional conditions should be added to limit batching or facilitate broader batching.

The interim final rule also allows bundled claims—i.e., the federal IDR process could be used to resolve disputes over multiple services that an individual received during an episode of care. If out-of-network care is billed as part of a bundled arrangement, or the plan or insurer makes an initial payment as a bundled payment, the parties could use the federal IDR process for a single bundled payment. Federal officials ask for comment on this policy and whether allowing the consideration of bundled claims could be used to circumvent batching requirements and incentivize overuse of the IDR process.

IDR Entity Certification Standards

The agencies will accept applications from prospective IDR entities beginning on September 30 and intend to certify IDR entities on a rolling basis. Applications should be submitted by November 1, 2021 for entities that wish to be certified by January 1, 2022. The agencies expect that IDR entities are likely to be organizations that have staff with expertise in arbitration, health care claims experience, managed care, billing and coding, and health care law. The agencies estimate that 50 IDR entities will seek certification, including entities currently providing external review or state IDR services.

To become certified IDR entities, organizations must show that they satisfy certification standards. IDR entities (and their personnel) must, for instance, comply with conflict-of-interest standards, meaning they must have no relationships, conditions, or statuses that impact their ability to make an unbiased and impartial decision. To avoid the risk of (or appearance of) biased IDR payment decisions, certified IDR entities and their personnel cannot be or be associated with an NSA regulated entity (e.g., a plan, insurer, provider, facility, air ambulance provider, short-term limited duration insurance issuer, affiliate thereof, etc.), nor can any assigned personnel have a material relationship (whether familial, financial, or professional) with a party in the IDR dispute.

IDR entities must also ensure that personnel are not assigned to various disputes based on the likelihood that their decision might favor a particular party or type of party. The rule explicitly defines what it means to have a relevant material familial, financial, or professional relationship and provides further detail on conflicts of interest for personnel.

Additionally, IDR entities must have sufficient expertise and staffing to ensure that decisions are made in a timely manner. Staff must be accredited or otherwise trained in arbitration practices, and must have or be able to secure appropriate medical expertise. IDR entities must provide a fixed fee for single determinations and a separate fee for batched determinations, adopt procedures on administrative fees, be able to screen for conflicts of interest, adhere to audit standards, maintain records for six years, and be able to report data to the federal government, among other requirements. The interim final rule also discusses the confidentiality, information security, and privacy requirements that apply to IDR entities. Additional information about qualifications and how to become certified is available here and here. The agencies considered, but did not require, IDR entities to have knowledge of air space law.

IDR entities will be certified for a five-year period. To ensure that all certified IDR entities meet and maintain compliance with these criteria, the interim final rule allows individuals and regulated entities to petition for the denial or revocation of certification. Petitioners may, but do not have to, use a standard petition notice, and the agencies expect three petitions per year. The agencies also discuss reasons why an IDR entity’s certification might be revoked before the end of the five-year period (e.g., a pattern of noncompliance) and intend to closely monitor the implementation of the federal IDR process.

IDR Fees

There are two fees related to the federal IDR process: an administrative fee charged by the federal government to use the federal IDR process and a fee charged by the IDR entity for its services. For convenience, both fees will be paid directly to IDR entities and the IDR entity will remit the administrative fee to the federal government. To further incentivize resolution before initiation of the federal IDR process, the IDR entity can retain half of each party’s fee if the parties reach an agreement before a determination. The administrative fee will not be refunded either.

For 2022, the administrative fee will be $50. The IDR entity fees are set by the entities themselves but must generally remain within a pre-determined range consistent with annual guidance. For 2022, this range is set at $200 to $500 for a single determination and $268 to $670 for batched determinations. Drawing from New York’s experience, the agencies estimate that the federal IDR process will be used to resolve 17,333 claims from providers and facilities and 4,899 claims from air ambulance providers. The same guidance outlines the process for IDR entities to adopt a lower or higher fee for 2022. A set range of fees will help promote transparency and mitigate concerns about overcharging and overuse of the federal IDR process. Total fees are expected to result in a cost of $8.9 million.

Each party must pay the entire IDR entity fee upon submitting an offer; that amount is then held in a trust or escrow account until the IDR entity makes its determination. The party that won the dispute receives a refund of the fee while the losing party forfeits the fee. For batched claims, the party with the fewest determinations in its favor is treated as the losing party. If there are an equal number of determinations, the fee will be split evenly between the parties.

Other IDR Requirements

Insurers, patients, and providers will submit IDR requests through a federal IDR portal. A single portal should help maximize efficiency and reduce burdens. The multi-use portal will be used by IDR parties and IDR entities and to satisfy reporting requirements. One-time costs to build and maintain the portal are estimated to be $6 million for 2021, followed by annual costs of $1 million thereafter.

Federal officials intend to publish information on IDR payment determinations on a quarterly basis. These reports will promote transparency and help the public and regulated entities assess IDR outcomes. Many states release public data on IDR outcomes: recent reports have been issued by Colorado, Texas, Virginia, and Washington.

To populate these reports, federal officials will need IDR entities to report information on IDR outcomes on a monthly basis. IDR entities must submit data on the number of IDR initiations, the parties, the number of final determinations, the types of items and services, the relevant geographic area, the offers submitted by each party, total fees, and the number of times that the out-of-network rate exceeded the QPA, among other information. Similar information will be reported for IDR processes that involve air ambulance services.