A closer look at the new surprise billing regulations: How cost sharing will be calculated

The qualifying payment amount that establishes cost sharing for out-of-network care also is intended to factor into negotiations — and, if necessary, arbitration — between providers and health plans regarding reimbursement.

New regulations on surprise billing will affect revenue cycle processes for hospitals and health systems starting in 2022, including the amounts for which they’ll be allowed to bill patients.

A recent post examined the criteria that will determine when balance billing is allowed. This article looks at the process for determining a patient’s cost sharing for out-of-network care based on a qualifying payment amount (QPA), which the regulations define as the insurer’s median contracted rate.

The first option for determining a patient’s cost sharing is to use the amount established by an all-payer model agreement or by state law. If neither of those applies, the QPA comes into play. However, if the billed amount is less than the QPA, the patient would simply owe the billed amount.

The QPA will be used to cap a patient’s cost-sharing responsibility for out-of-network care unless they have formally consented to be balance-billed (such consent cannot be sought for out-of-network emergency care). Health plan payments then will be determined via either negotiations or an independent dispute resolution (IDR) process that will be spelled out in rulemaking later this year.

The QPA is “important in informing the negotiation process,” the regulations state. “In addition, IDR entities are directed by statute to consider the QPA when selecting an offer submitted by the parties through the IDR process.”

Factors in the qualifying payment amount

Drawing on language in the No Surprises Act, which was passed in late 2020, the regulations state that the median contracted rate (i.e., the QPA) for 2022 and subsequent years should be based on insurer pricing data as of Jan. 31, 2019, for “the same or similar item or service that is provided by a provider in the same or similar specialty and provided in a geographic region in which the item or service is furnished, increased for inflation.”

To clarify that statement, the regulations provide the following information.

Ensuring sufficient data. The regulations consider information to be sufficient for determining median contracted rates if at least three contracted rates were available as of Jan. 31, 2019, in the given region and insurance-market type and for the given service.

If an insurer lacks sufficient data to calculate a median contracted rate, it can use a database that has been deemed eligible in accordance with the new regulations. Options include state all-payer claims databases and other third-party databases that meet various conditions.

If an insurer reaches the three-rate threshold after the regulations take effect, it can shift to calculating the median rate using its own contracts as long as those contracts account for at least 25% of the claims paid for that item or service in a given year by that insurer. The 25% rule does not apply to the calculation of Jan. 31, 2019, median rates. It’s needed in future years, the regulations state, to avoid allowing insurers to “engage in selective contracting practices that artificially change the median contracted rate.”

Defining the market. Calculation of the median contracted rate must include all rates between the insurer and providers in a geographic region in one of three markets: individual, small-group or large-group. For self-insured group health plans, the consideration would be all such plans operated by the sponsor or by a contracted third-party entity.

Short-term, limited-duration health plans will not factor into the calculation of the median contracted rate, nor will Medicare Advantage or Medicaid managed care plans, according to the regulations.

A geographic region “generally is defined as one region for each metropolitan statistical area (MSA) in a state and one region consisting of all other portions of the state,” according to the regulations. If the insurer lacks sufficient information to calculate the median contracted rate for an item or service within an MSA, it should combine data from all MSAs in the state as if they constituted a single region. If that step does not provide at least three contracted rates to use in the calculation, the geographic region would be based on all MSAs in a U.S. Census division.

Defining the services. With respect to classifying items or services as “same or similar” when determining the median contracted rate, the key factor is the CPT, HCPCS or DRG code. The regulations specify that separate median contracted rates must be calculated for CPT code modifiers that distinguish the professional services component from the technical component, as well as for any other modifier that causes variance in contracted rates.

Defining the specialty. Categorization of a provider’s specialty is based on the insurer’s methodology. The regulations don’t require the median contracted rate to be calculated for every provider specialty if the insurer groups some specialties together for contracting purposes.

Additional rules will be in place for applying multipliers to determine the contracted rate for anesthesia services.

Incorporating APMs. For alternative payment models, insurers are required to calculate a median contracted rate for each item and service using relevant underlying fee-schedule rates.

“Using an underlying fee schedule or derived amount will allow plans or issuers to, in essence, convert each of their non-fee-for-service contracts into fee-for-service arrangements for purposes of calculating the median contracted rate,” the regulations state. Payment adjustments based on performance in a risk-based contract would be excluded from the calculation.

In the absence of an applicable underlying fee schedule, the calculation would hinge on “a derived amount,” i.e., the price assigned “for the purpose of internal accounting, reconciliation with providers or for the purpose of submitting data in accordance with” Affordable Care Act regulations.

A potential issue stemming from consolidation

The regulations were released in an interim final rule, allowing for a public comment period that could spur changes. One area called out for further consideration is “the impact of large consolidated healthcare systems on contracted rates, and the impact of such contracted rates on prices and the QPA.”

The Departments of Health and Human Services, Labor and Treasury, which jointly issued the rule along with the federal Office of Personnel Management, “are concerned that the contracting practices of such healthcare systems could inflate the QPA, and seek comment on whether adjustments to the QPA methodology are needed.”