The No Surprises Act

No Surprises Act and how it works

The No Surprises Act and How it will Work

By: Ron Howrigon, President, Fulcrum Strategies

Important Update

After this article was written the Department of Health and Human Services released guidance regarding implementation of this new law, specifically the critical Independent Dispute Resolution (IDR) process.  This guidance came in the form of an Interim Final Rule and significantly changed the language in the law regarding how independent dispute resolution was to be implemented.  In essence the change made the payer-calculated median contracted rate the final rate unless the provider could show “credible evidence that the value of the service they provided was materially different than the QPR.” 

This change represented a significant blow to hospital-based groups as it gives payers incredible power and leverage over hospital-based physicians.  The change was so troubling that several lawsuits have already been filed in Federal Court.  In addition, a letter co-signed by over 150 members of the House of Representatives (both Democrat and Republican) has been sent to the Secretary of Health and Human Services and asks that the rules be revised to follow the letter and spirit of the law that was passed.

We will continue to follow this situation closely and will provide further updates as they are available.

After years of debate and as 2020 ended, Congress passed the No Surprises Act as part of the omnibus spending bill.  The Act, which becomes effective January 1st, 2022, will bring an end to most surprise out-of-network billing.

The Act was touted as an important patient protection measure which it most definitely is.  The big questions now are how the act will be implemented, who won in the battle of provider vs. payer, and how will this change things for hospital-based physicians going forward? 

Many of the details are still being worked out – including items like the Independent Dispute Resolution (arbitration) – and the full impact won’t be fully understood until after the first of the year when disputes are put through the new process.  There is, however, a lot we know now.

What We Know

Who Won

Let’s start with the question of who won?  During the debate over surprise billing the lobby for the insurance industry talked about the need to break the provider monopoly when it comes to hospital-based physicians. 

They told stories of exorbitant bills that put patients into financial ruin.  Statistics about individual bankruptcy caused by medical expenses were thrown around.  Huge savings to the federal budget were promised if the bill was passed. 

On the other side of the coin, the provider lobby told stories of insurance companies strong-arming providers, preemptive termination of contracts, and the death of independent hospital-based groups. 

As with all such contests, there was some validity to both sides’ arguments and, unsurprisingly, the truth was somewhere in the middle.

The worst discord of the debate focused on the use of “Median Contracted Rates” as a payment mechanism versus having an independent arbitration process for any final payment determinations.  Both sides dug in hard, pushing for their preferred version of the bill.

So, who won?  Well, in some ways both.  The final bill used both ideas to craft what I believe is a fair and balanced bill.  Here is how the new law will work.

How The New Law Will Work

The law covers nearly all claims for in-network hospital services that include at least some professional services provided by a hospital-based physician who is not in the patient’s insurance network.  When this situation occurs, the following provisions of the bill will kick in:

  1. The insurance company must pay for the covered services at in-network benefit levels.
  2. The insurance company must make payment directly to the provider group. No more sending the check to the patient.
  3. The insurance company must either pay or deny the claim within 30 days of receiving a clean submission.
  4. The initial payment is based on the “qualifying amount,” which is essentially the Median Contracted Rate for that payer, except where state law would dictate a different payment.
  5. The provider is forbidden from balance billing the patient any amount more than the benefit-required patient responsibility (co-pay, co-insurance or deductible).

No Surprises Act: Accomplishments

Let’s stop the process here and examine what the bill has already accomplished. 

  • This new law will eliminate several harmful practices that are currently employed by both providers and payers. 

  • The law protects the patient from balance billing and from reduced benefits because the physician who cared for them is out of network.

  • The bill also protects the provider by requiring claims to be paid timely and the payment to be sent directly to the provider.  No more long waits for payment, only to learn the check was sent to the patient. Good luck collecting that.

Inital Payment Tied to Median Contracted Rate

So far, so good right? Well, except for the part about the initial payment being tied to the Median Contracted Rate.

There are several problems with this: this methodology does not consider the size of the contract, the case mix and location of the hospital, or the training of the physicians in the group.

Payers can control their own destinies when determining the median contracted rate in several ways. The first, and probably easiest, would be to terminate the most expensive contracts they have, thus reducing the median rate.

Consider the following example:
Let’s say a payer has seven contracts for hospital-based radiology in a given market. The top two contracts – involving the largest groups at hospitals with the highest case severity – are both set at 200% of Medicare. The remaining contracts pay 180%, 160%, 140%, 120% and 110% of Medicare.

In this case, the Median Contracted Rate is the middle contract, which pays 160% of Medicare. If the payer terminates the top two agreements, thus removing those groups from the network, the new median contracted rate is 140% of Medicare.

That’s what the new law will set as the initial payment for the two groups that have now been terminated – groups who used to get paid 200% of Medicare!

Final Payment Rate

But wait, payers wouldn’t actually do that would they?  Well, in 2019, some payers, getting ready for federal surprise billing legislation, did exactly that.  As a matter of fact, a survey by the American Society of Anesthesiologists released early in 2020 showed that 42% of the respondents had contracts terminated by payers in the previous six months.

The good news here is the drafters of the bill resolved this situation by including the ability for an external arbitration process to determine the final payment rate.  These provisions provide significant protections for hospital-based provider groups and specifically protect groups who had a previous contract terminated by a payer.

No Surprises Act: After Initial Payment

Here is how the law works after the initial payment is made.

  1. The provider may decide if the initial payment is reasonable. If so, they accept that payment.

  2. If the provider does not agree with the initial payment, they can reject it (they don’t send the money back but rather notify the carrier they do not agree with the initial amount). Once the provider rejects the initial payment, they have 30 days to try to negotiate an acceptable fee with the insurance company.

  3. If they are not able to negotiate an acceptable payment, the Independent Dispute Resolution (IDR) process is triggered.

  4. An IDR company is selected to oversee the proceedings and both parties submit their “case” to the IDR. The payer will submit their payment offer and supporting information (most likely the Median Contracted Rate) while the provider will do the same and include information that supports the rate they’ve requested.

  5. One piece of information the provider can submit as supporting documentation is the previous contract and the rates paid under that contract. So, in the example above, the provider can use the previous contract that paid 200% of Medicare as part of their supporting documentation.

  6. The IDR will review both sets of information and decide if the provider or the payer wins this dispute. The IDR must select a winner and a loser and can’t award an amount in the middle.  The determination is final, and the loser pays for the cost of the IDR company.

  7. If the provider wins the IDR, the payer must make final payment to the provider within 30 days.

  8. At this point, the provider and payer are not allowed to initiate any new disputes for like services for the next 90 days. This is called the “cooling off period” and is designed to give the parties time to negotiate a contract and avoid future disputes.  Neither party loses the ability to dispute future claims, they just can’t file a dispute for 90 days.


Independent Dispute Resolution: What Information to Submit

Examining the process and associated time frames leads us to question what information can or should providers submit as part of the IDR?  Fortunately, the process allows for almost any piece of information to be submitted as part of the case file.  The only thing that cannot be referenced by the payer is the Medicare allowed amount, and providers may not reference their own billed charges.  Everything else is fair game.

It’s expected the payer’s submission will be largely, if not exclusively, based on the Median Contracted Rate for the service and market in question. 

With that in mind, here is a checklist of possible pieces of data providers should consider as part of their submission:

  1. Quality statistics or differentiating factors
  2. Hospital payer mix
  3. Physician training levels
  4. Previous contracted rates with the payer in question inflated to current dollars
  5. Median contracted rate from other payers.
  6. Average payment rates from other carriers
  7. National statistics or survey data on contracted rates
  8. Case mix severity differences and hospital severity statistics

Not all will be used each time.  The real trick for providers will be to select those pieces of information that support their claim and present them in a convincing argument to the IDR that is reviewing their case.

IDR: Win/Lose Process

It’s important to understand that the IDR is a win/lose process.  The IDR cannot decide to award a payment that is “in the middle” or “splits the difference.” 

The IDR must choose a winner and a loser and award the exact payment offered or demanded by whichever side wins.

It’s also important to understand the individuals who are reviewing each case are not likely to have the luxury of spending days or even many hours studying and considering each case.  They are going to need to make a relatively quick decision and then move on to the next case. 

Given that it’s important to present your information clearly and efficiently, don’t go into a 30-page dissertation on clinical quality for reading a specific study.  Don’t give the reviewer any reason to side with the payer.  Also, make sure your demand is reasonable. 

Think about it this way.  You may present three pieces of data that would support a request for payment at 200% of Medicare or above.  Think of these like the comps that realtors give us when we are buying a house. 

If you can present logical comps that show you could demand 200% of Medicare or higher, you may want to request payment at 190% of Medicare.  That will look very reasonable to the reviewer and could swing the decision in your favor.

Public Information

It’s also important to keep in mind that each of these cases will become public information – including the ruling and the rate awarded. 

While the law doesn’t mandate that these decisions set any legal precedent, it’s only logical to imagine the IRD process will consider previous determinations in future cases. 

That means winning the first dispute will put you in a very good position to negotiate a contract at that rate and/or get that rate awarded in any future decisions.

A Whole New World Coming: January 1, 2022

After January 1st, it’ll be a whole new world out there for hospital-based physicians and it’ll be important to understand how this new law works and what it will do.  Groups that understand and are ready for this change may find this law very helpful.  Those that don’t, may be missing a very real opportunity.  


Post Script:

On October of 2021 the Secretary of Health and Human Services issued his second Interim Final Rule which provided details on how the NSA was to be implemented.

This IFR caught the industry by surprise and essentially changed how the Independent Dispute Resolution process will work. Under the IFR the dispute resolution adjudicator is instructed to “select the offer closest to the Qualifying Payment Amount unless the IDR determines that credible information submitted by either party clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate.”

This dramatically changes the spirt of the law and this process and in essence hands payers a huge win. Since this IFR was released, payers have started demanding huge contract reductions from hospital-based providers groups. In some cases, the provider groups are told if they don’t agree to a decrease in rates of up to 30%, they will be terminated from the network.

Several lawsuits have been filed in Federal court to try and reverse this IFR. The AMA, AHA, ACR, ACEP, ASA along with other alphabet soup entities have all joined these law suits.

As of January 6th, none of the suits have produced a ruling so the IFR is currently the law of the land.

In the words of the late great Paul Harvey; “and now you know the rest of the story.”

Ron Howrigon, President, Fulcrum Strategies

Ron Howrigon
President, Fulcrum Strategies

Ron Howrigon is the President and Founder of Fulcrum Strategies, contract negotiation and practice marketing firm based in Raleigh, NC.

Ron has a long history in the healthcare industry that includes work with thousands of physicians across the country. He’s also the author of Flatlining: How Healthcare Could Kill the U.S. Economy.