The finalized arbitration process in new surprise-billing regulations appears to favor insurers over hospitals

• A new rule establishes a process for resolving payment disputes between health plans and hospitals when regulations on surprise billing begin in 2022.
• Hospital groups expressed disappointment in the rule because it deemphasizes consideration of factors that may warrant a higher out-of-network payment amount in some situations.
• The rule spells out the procedures that will be involved in going to arbitration.

Hospital advocates came out quickly and strongly against a new rule that establishes the process for deciding provider-payer disputes over out-of-network payments when protections against surprise billing take effect next year.

Within a few hours after federal agencies released the interim final rule with comment period (IFC) on Sept. 30, the Federation of American Hospitals (FAH) issued a statement in which President and CEO Chip Kahn called the regulations “a total miscue.”

Stacey Hughes, executive vice president of the American Hospital Association, said the rule amounts to a “windfall for insurers.”

“The rule unfairly favors insurers to the detriment of hospitals and physicians who actually care for patients,” she added in a statement.

The independent dispute resolution (IDR) process is being implemented as part of protections to ensure patients don’t get balance-billed for out-of-network care unless they have formally consented and that they never owe out-of-network cost-sharing amounts for emergency services or, in some circumstances, for other services.

A previously issued IFC established the consumer protections that will be in place starting Jan. 1, 2022, while a proposed rule set forth enforcement procedures and penalties for violations.

Arbitration criteria appear to favor insurers

From the perspective of hospital groups, the disappointing part of the new rule is the criteria that will be considered in the event an out-of-network payment dispute reaches the IDR phase.

The IDR entity (i.e., the arbitrator) will be required to consider the qualifying payment amount (QPA) as the primary factor in determining the out-of-network payment. The difference between a patient’s cost-sharing obligation, which is to be determined via a process established in the earlier IFC, and the QPA will be the amount the payer owes the provider. The owed amount is subject to change during a 30-day negotiating period and then, if necessary, during the IDR process.

The QPA is the insurer’s median contracted rate for a particular service in the geographic market, and the burden will be on the provider to show why a different rate should apply.

“In making a determination of which payment offer to select, these interim final rules specify that the certified IDR entity must begin with the presumption that the QPA is the appropriate out-of-network rate for the qualified IDR item or service under consideration,” the rule states. “These interim final rules further provide that the certified IDR entity must select the offer closest to the QPA unless the certified IDR entity determines that credible information submitted by either party clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate.”

Not what hospitals were expecting

Language in the rule appears to deviate somewhat from the No Surprises Act, the 2020 law that the regulations will implement. The legislation established that the IDR process should include consideration of factors such as:

• The provider’s level of training and experience
• The respective market share of the provider and health plan
• The acuity of care provided
• The provider’s teaching status, case mix and scope of services
• Demonstrations of good-faith efforts by either party to enter into network agreements

The regulations likewise say those aspects may be considered, but they instruct the IDR entity that, for example, “Credible information must clearly demonstrate that the QPA failed to take into account that the experience or level of training of a provider was necessary for providing the qualified IDR item or service to the patient or that the experience or training made an impact on the care that was provided.”

The U.S. Departments of Labor, Treasury and Health and Human Services, which jointly issued the regulations along with the federal Office of Personnel Management, “are of the view that qualified IDR items or services should not necessitate an out-of-network rate higher than the offer closest to the QPA simply based on the level of experience or training of a provider, as this would lead to an increase in prices without a valid reason and does not align with the goal of the No Surprises Act,” the rule adds.

Similar caveats apply to the other factors that the IDR entity may take into account.

In his statement, Kahn sharply criticized the differences between the No Surprises Act and the new rule.

“For two years, hospitals and other stakeholders stood shoulder to shoulder with lawmakers to develop legislation that would protect patients from surprise medical bills and last December, Congress passed a bill with a fair and balanced payment dispute resolution process,” he said. “This regulation discards all of that hard work, misreads congressional intent, and essentially puts a thumb on the scale benefiting insurers against providers and will over time reduce patient access.”

The federal agencies hope that focusing on the QPA as the basis for IDR decision-making “encourages predictable outcomes, which will reduce the use of the federal IDR process over time and the associated administrative fees born by the parties, while providing equitable and clear standards for when payment amounts may deviate from the QPA, as appropriate.”

Not surprisingly, AHIP (formerly known as America’s Health Insurance Plans) had a different reaction to the new rule than did the AHA and FAH.

“This is the right approach to encourage hospitals, healthcare providers and health insurance providers to work together and negotiate in good faith,” Matt Eyles, president and CEO of AHIP, said in a statement. “It will also ensure that arbitration does not result in unnecessary premium increases for businesses and hardworking American families.”

Mechanics of the IDR process

The IDR option becomes available if the provider and payer can’t agree on an out-of-network amount during a 30-day negotiating period. The following conditions apply:

• Either party may initiate the IDR process within four business days of the end of negotiations.
• The parties jointly select a certified IDR entity within three days of initiation of the IDR process.
• If the parties do not agree on an IDR entity, HHS will select one.

The process will follow baseball-style arbitration rules, meaning the arbitrator selects one offer or the other as the binding amount. Both parties owe an administrative fee that will be set at $50 for 2022, and the losing party must pay the IDR entity’s fee. That fee will be regulated and in 2022 is projected to amount to between $200 and $500 for single determinations and between $268 and $670 for batched determinations.