Federal Officials Revise Approach To Arbitration Under No Surprises Act

On August 19, 2022, the Departments of Health and Human Services (HHS), Labor, and the Treasury issued a new final rule to further implement the independent dispute resolution (IDR) process under the No Surprises Act (NSA). The final rule was accompanied by a press release, fact sheet, and a status update on the IDR process. Federal officials also released a new series of frequently asked questions on a range of topics that will be summarized in a separate article. All these materials are available here.

The final rule is narrow. It focuses almost exclusively on the IDR process, which was first addressed in an interim final rule in fall 2021, but also requires payers to provide additional information to out-of-network providers about the qualifying payment amount (QPA). As elaborated on under an earlier interim final rule, the QPA is generally the median of the plan or insurer’s contracted rates for the item or service in that geographic region.

The final rule goes into effect 60 days after publication in the Federal Register. The remaining parts of the interim final rules will be addressed in a future final rule after consideration of stakeholder comments.

The final rule’s most significant change is elimination of the “rebuttable presumption” in favor of the QPA, a part of the interim final rule that has been the subject of eight lawsuits from providers and two court decisions thus far. Under the most recent interim final rule, IDR entities were directed to select the offer closest to the QPA unless the parties submitted credible information about additional circumstances that clearly demonstrated that the QPA is materially different from the appropriate out-of-network rate.

The final rule, in contrast, does not dictate which offer the IDR entity should select. It instead focuses on the process that IDR entities should use when choosing between two competing offers. In particular, the final rule directs IDR entities to select the offer that best represents the value of the item or service under dispute. In determining which offer best represents this value, IDR entities must consider the QPA and then consider all additional information submitted by a party (or requested by the IDR entity), subject to certain limitations. Importantly, the additional information must be related to a party’s offer, deemed credible by the IDR entity, and not already accounted for in other information that is already before the IDR entity.

Overall, the final rule adopts a federal IDR process that reflects the NSA’s statutory emphasis on the QPA while being responsive to court decisions that vacated parts of the interim final rule. More information and experience with the IDR process is needed to fully understand the impact of these rules and how the overall process will work. But the Biden administration repeatedly emphasizes its commitment to a federal IDR process that is predictable, reasonable, and helps hold down health care costs.

Background

The NSA And IDR

In the NSA, Congress 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 business days, initiate the IDR process, which is administered by an entity that is free of conflicts of interest.

The NSA adopted “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, and the same or similar medical condition, and must occur within a single 30-day period.

IDR entities do not have unbridled discretion in choosing between competing offers. IDR entities must consider the QPA (i.e., the insurer or plan’s median in-network rate) and information on any circumstances submitted by the parties or requested by the IDR entity. These factors include 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.

Congress also barred IDR entities from considering certain factors. Arbitrators are thus prohibited from considering 1) a provider or facility’s usual and customary charge or the billed charge; or 2) reimbursement rates paid by public payers (such as Medicare, Medicaid, CHIP, or TRICARE). This too was the product of compromise: consideration of billed charges has been shown to be inflationary in state IDR processes, while providers believe that the rates paid by public payers are too low.

The same general factors and limitations apply to the IDR process for resolving disputes between payers and out-of-network air ambulance providers. The statute does, however, include some adjustments for the “additional circumstances” to be considered (such as the patient’s pickup location and the population density of that location, and the air ambulance vehicle type and medical capabilities).

Both parties face administrative fees associated with this process, and 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.

The Interim Final Rule

On September 30, 2021, federal officials issued an interim final rule to implement the IDR process. In doing so, federal officials directed IDR entities to select the offer closest to the QPA unless the parties submit credible information about additional circumstances that clearly demonstrate that the QPA is materially different from the appropriate out-of-network rate. This “rebuttable presumption” meant that the IDR entity should only deviate from selecting the offer closest to the QPA in limited circumstances. The interim final rule also defined “material difference,” explained how IDR entities should consider the “additional circumstances” under the statute, and provided more clarity on how to address the statutorily prohibited factors.

The agencies adopted the rebuttable presumption 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 cited 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 concluded, made 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 primary factor for determining the out-of-network rate.

This interpretation was 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. Overall, these policies were designed to help ensure that the federal IDR process would not be used by providers and facilities to obtain unjustified higher out-of-network payments and to help encourage network negotiations between payers and providers or facilities.

Litigation By Providers

Much money is at stake with implementation of the NSA, especially for the types of specialty providers that patients do not choose and where surprise billing is the most common (such as emergency providers, anesthesiologists, and providers backed by private equity firms). Displeased with federal rules, doctors, hospitals, and air ambulance companies filed at least eight lawsuits over the NSA and its implementation.

All eight lawsuits challenged the interim final rule’s “rebuttable presumption” as violating the Administrative Procedure Act and even the Fifth Amendment. And plaintiffs in six of the lawsuits argued that the interim final rule was improper because there was no opportunity for advance public notice and comment. Two of the air ambulance lawsuits additionally challenged the earlier interim final rule on the methodology to calculate the QPA for air ambulances specifically. And one lawsuit additionally argued that major provisions of the NSA, including the law’s core consumer protections, are unconstitutional.

There have been three court decisions so far. In February 2022, a federal district court judge in Texas invalidated provisions related to the rebuttable presumption. He held that the Texas Medical Association and individual physicians had standing to challenge the rule, that the rule is inconsistent with the NSA, and that the federal agencies should not have bypassed notice and comment procedures. The court vacated the rebuttable presumption; the definition of “material difference”; the requirement that IDR entities only consider additional information when it is credible and demonstrates that the QPA is not the appropriate rate; examples of dispute resolution; and the requirement that IDR entities explain their decisions when they select an offer that is higher than the QPA.

The federal IDR process went on, albeit after a delay to comply with the court’s decision, and is currently being used to resolve payment disputes between payers and out-of-network providers. The court’s decision was appealed to the Fifth Circuit Court of Appeals, which agreed to hold the appeal in abeyance. In July, the same judge additionally vacated the rebuttable presumption for air ambulance companies.

In August 2022, a federal district court in New York rejected the claims brought by a New York surgeon who argued that major parts of the NSA were unconstitutional. If the court had agreed with the plaintiffs, millions of patients would have once again seen surprise out-of-network bills. It is not clear whether or not the plaintiffs in that case will appeal the decision.

Many of the other cases were put on pause because the Biden administration indicated it would move forward with a final rule in summer 2022 that would supersede the provisions in the challenged IDR rule. The government previously noted that the final rule “will address the substantive issues that were the subject of the district court’s decision.” The final rule discussed here completes that process. (We expect the final rule will be a hot topic at an upcoming status hearing on August 24 over lawsuits filed by the Association of Air Medical Services and the American Medical Association in DC.)

Comments On The Interim Final Rule

Commenters were split on the IDR process adopted in the interim final rule. Many supported the approach of directing IDR entities to begin with the QPA as a baseline when making a payment determination. These comments emphasized the importance of lowering costs for consumers, achieving savings estimated by the Congressional Budget Office, and promoting predictable IDR outcomes. The rebuttable presumption, these commenters argued, was consistent with and reinforced the NSA’s inclusion of the QPA as the primary factor for IDR entities. They also argued that the QPA represents a reasonable, market-based rate that encourages in-network contracting between payers and providers.

Other commenters disagreed with the approach. Echoing arguments made in the lawsuits above, critics asserted that the rebuttable presumption tipped the scales of federal IDR in favor of payers and will drive down reimbursement rates. They also raised concerns about the transparency of calculating the QPA and asserted that the QPA fails to account for the complexity of billing by creating an incentive for payers to downcode claims in bad faith. Critics suggested other alternatives—such as applying equal weight to the QPA and prior contracted rates or replacing the QPA with the actual amount paid to a particular out-of-network provider. Similar points were raised regarding the IDR process for air ambulance services as well as concerns about the QPA methodology for air ambulance claims. These arguments are, again, consistent with those made in legal challenges from air ambulance companies.

The Federal IDR Process Thus Far

In addition to the final rule and other accompanying materials, federal officials issued a status update on the federal IDR process, which was formally launched on April 15, 2022. From April 15 to August 11, more than 46,000 disputes were initiated through the federal IDR portal. (This data from four months dwarfs the agencies’ prior estimate of about 17,000 claims from providers and facilities and about 5,000 claims from air ambulance companies annually and shows a high volume of disputes.) Of these more than 46,000 disputes, nearly half—more than 21,000 disputes—have been challenged as ineligible. (A claim might be ineligible for many reasons: among others, it could fall under state (not federal) law or not fall under the NSA at all. Claims might not be batched or bundled correctly, or the parties may have failed to comply with required IDR timelines.)  At least 7,000 of those 21,000 disputes were deemed ineligible for the process; eligibility is still being confirmed for the others. So far, only about 1,200 disputes have been resolved, meaning an IDR entity issued a payment determination.

Federal officials urge the parties to submit complete information to initiate IDR since this will speed the eligibility reviews. They point to resources that include a recent checklist for payers and new guidance for IDR entities that was issued in August 2022. Federal officials expect these processes to become smoother and swifter over time.

The Final Rule

On August 19, the tri-agencies issued a final rule and fact sheet focused on 1) the IDR process; and 2) the information that payers must share with providers about the QPA. On the IDR process, the final rule moves away from the rebuttable presumption while still making clear that IDR entities should begin their consideration with the QPA. This and other guardrails on the process are critical to achieving the agencies’ goal of a fair, cost-effective, and reasonable IDR payment determination process that is not inflationary. Payers will also have to disclose more information to providers about the QPA when claims are subject to downcoding; this will help ensure that providers have the more accurate information when entering into negotiation and IDR processes. Finally, federal officials provide a few clarifications and reminders about processes related to disclosing the QPA and initiating the IDR process. The preamble includes a nod to severability (in the event of more litigation).

IDR Process

While the interim final rule directed IDR entities on which offer to choose, the final rule focuses on the process that IDR entities should use in making their own determination. Under the final rule, IDR entities must select the offer that best represents the value of the item or service under dispute. In determining which offer to select, IDR entities should consider the QPA and then consider additional information submitted by a party (or requested by the IDR entity) to determine which offer best reflects the appropriate out-of-network rate.

The final rule reflects the NSA’s emphasis on the QPA. Under the NSA, the QPA must be considered in all cases. It is the only factor identified by Congress that will always be under consideration in every dispute under the federal IDR process. IDR entities must also consider “additional information” or “additional circumstances”—but only when submitted by the parties themselves or requested by the IDR entity.

The QPA will typically be an appropriate rate because it should already reflect many of the factors identified as “additional.” But additional factors, when submitted or requested, may be important to the IDR entity’s determination if the QPA does not fully account for all relevant information. IDR entities will thus consider the QPA (a quantitative figure) and then evaluate whether the parties have presented “additional” information (typically subjective qualitative data) that is not already reflected in the QPA to determine which offer best represents the value of the disputed item or service.

The rule includes several guardrails on the process for considering additional information and finalizes new examples on how IDR entities should approach and weigh additional information when making a payment determination. These provisions apply equally to providers, facilities, and air ambulance companies (although there is a different list of additional factors relevant to air ambulance companies). Federal officials intend to continue monitoring payment determinations and will make adjustments as needed to ensure that the federal IDR process is cost-effective and noninflationary.

Credible, Related Information

First, when selecting the offer that best represents the value of the disputed item or service, IDR entities can consider only credible information that is related to a party’s offer for that specific IDR dispute. If the IDR entity determines that the information does not relate to a party’s offer or is not credible, it should not give weight to that additional information. Each IDR entity will determine, based on its judgment, whether information is related to the offer and credible.

When is information related to a party’s offer? Per the preamble, when it tends to show that the party’s offer best represents the value of the item or service in dispute. When is information credible? When it is worthy of belief and is trustworthy upon critical analysis. These broad standards will be left to IDR entities to interpret but are included to help ensure that IDR entities have clear guidance on how to consistently evaluate what could be a large volume of complex information on additional information and circumstances. Several of the new examples included in the final rule show how IDR entities can apply these definitions.

The QPA will be related to a payment determination in all cases. And, if calculated and communicated in a way that complies with earlier federal rules, the QPA satisfies the credibility requirement. Consistent with prior rules, IDR entities are not responsible for assessing the accuracy of a payer’s QPA calculation methodology; this is the role of federal or state regulators who audit these calculations.

Nonduplication Of Information

Second, IDR entities should not give weight to additional information submitted by the parties if it is already accounted for in any other information. Said another way, IDR entities should always consider whether additional related, credible information is already accounted for by the QPA or other additional information. If so, the IDR entity should not give that extra information weight. If the parties submit related, credible information on more than one additional factor, the IDR entity should also consider whether that information is already accounted for so as not to weigh any information more than once—such “nonduplication” or “double-counting” requirement would be redundant, lead to determinations that do not best represent the value of the item or service, and potentially increase health care costs. Commenters, for instance, suggested that many factors listed as potential additional circumstances—such as patient acuity or the complexity of care—will generally be accounted for in the QPA, which must be calculated based on service codes and modifiers that reflect those two factors.

An IDR entity can conclude that the QPA does not reflect patient acuity or complexity of care—such as when a payer calculated the QPA based on a downcoded claim instead of the billed claim—and choose an offer accordingly. But IDR entities should take care to ensure that each factor is weighted only once when evaluating each party’s offer. One of the new examples included in the final rule, which is focused on how to consider prior contracted rates, further illustrates that IDR entities should not double-count the same information submitted by both parties.

Prohibited Factors

Though this is not a new requirement, IDR entities must ensure that additional information does not include information on any of the statutorily prohibited factors. IDR entities are expected to conduct a thorough review of the information from the parties and can request a confirmation that the parties’ submitted information does not include any prohibited factors.

Explanations Required For All Payment Determinations

Finally, IDR entities will have to explain and document their rationale for every determination. Additional guidance is forthcoming, but the explanation must reflect the information used by the IDR entity in making their determination, including the weight given to the QPA and any additional related, credible information. If the IDR entity relies on additional information or circumstances in selecting an offer, the written decision must explain why the IDR entity concluded that this information was not already reflected in the QPA. This information is needed so the agencies can fulfill their requirements under the NSA to monitor and report on how often and why an offer exceeds the QPA; it will also inform future policymaking on the QPA methodology.

Alternatives Considered But Rejected

The agencies considered alternatives as well. Federal officials considered leaving the rule in its current state (i.e., by not replacing the parts of the interim final rule that were vacated in court). But this would lead to uncertainty in the federal IDR process and confusion among the parties and IDR entities. The absence of any guidance would make IDR determinations less predictable and increase the cost of the federal IDR process. Alternatively, federal officials considered allowing IDR entities to consider additional information without a nonduplication or double-counting provision (i.e., allowing consideration by the IDR entity without explicitly instructing them to address the possibility that these factors may already be accounted for in the QPA). This approach was rejected because it would increase administrative burdens on IDR entities and could lead to inaccurate outcomes that do not reflect the fair value of an item or service.

Providing More QPA Information When Downcoding

To help resolve out-of-network billing disputes in a timely manner, the NSA and July 2021 interim final rule required payers to make an initial payment (or send a payment denial notice) 30 days after the provider or facility submits a clean claim, as determined by the payer, and share certain information about the QPA with out-of-network providers and facilities. With each initial payment or payment denial, payers were instructed to provide 1) the QPA for each item or service; 2) a statement certifying that the QPA is the recognized amount (for purposes of patient cost sharing) and was calculated in compliance with the QPA methodology; and 3) a statement confirming the option for a 30-day open negotiation period followed by the IDR process within four business days of the end of the open negotiation period. The latter statement must include contact information—including a phone number and email address—for the appropriate person or office at the plan or insurer that can initiate this process.

In the final rule, the agencies respond to concerns raised by commenters, address confusion around this process, and adopt changes to better ensure that providers have more information about the QPA. Some commenters wanted payers to disclose additional information on how the QPA is determined (e.g., the use of modifiers in calculating the QPA, whether the QPA is based on downcoding, etc.) with each initial payment or payment denial. These commenters raised concerns that payers might calculate the QPA for a lower-level service code or modifier (as opposed to the billed service code or modifier from the initial claim) in a way that could reduce reimbursement.

The agencies, upon consideration of the comments, agree that additional disclosure about the QPA is appropriate when a payer has downcoded a billed claim. The rule explicitly defines “downcode,” which occurs when a payer alters a service code by changing it to another code or altering, adding, or removing a modifier in a way that results in a lower QPA relative to the billed claim. Although downcode was not formally defined before, the concept was reflected in both prior interim final rules.

In addition to the definition of downcode, the final rule newly requires payers to disclose to providers if a claim has been downcoded for purposes of computing the QPA. If so, the payer must explain why the claim was downcoded (including a description of service codes or modifiers that were altered) and what the QPA would have been had the claim not been downcoded. This information must be provided when the payer sends the initial payment or payment denial.

Since this is a new requirement, payers may need time to update their systems to provide these notices or amend existing notices. Payers can use reasonable methods to do so but must still meet deadlines outlined in the earlier interim final rules. The agencies estimate that payers will incur about $4.3 million annually to comply with this new disclosure requirement and that about 10 percent of out-of-network claims that fall under the NSA will involve downcoding.

This information, the agencies note, is critical to informing the negotiation process and ensuring that providers can develop an appropriate offer in IDR, especially if the provider believes that the QPA calculated by the payer does not reflect the appropriate value. This additional level of transparency could, for instance, lead an IDR entity to understand that the QPA for a downcoded service is not appropriate and select an appropriate offer between the parties. One of the final rule’s new examples focuses on the issue of downcoding to better illustrate this issue for IDR entities.

Other Reminders About The QPA And IDR Processes

Payers are reminded of their obligation to provide additional detail to providers about the QPA. This includes any database used to determine the QPA and any related service codes (where relevant). Upon request, payers must also disclose whether the QPA reflects rates that were not set on a fee-for-service basis (including whether the QPA was determined using underlying fee schedule rates or a derived amount) and whether the QPA excludes risk-sharing, bonus, penalty, or other incentive-based or retrospective payments or payment adjustments.

Federal officials also use the preamble to clarify some process issues. Payers cannot, for instance, require providers to use a plan or insurer’s own web system to initiate an open negotiation period. Payers can encourage the use of an online portal and request additional information (such as a supplemental open negotiation form). But they cannot reject a standard notice simply because it was not submitted through a portal. Under earlier rules that remain in effect, the open negotiation period is initiated once a provider sends the standard notice to the email address included with a payer’s initial payment or payment denial.