Background

In December 2020, Congress passed the No Surprises Act to mitigate patients' exposure to surprise medical bills and require insurers and providers to resolve payment disputes for out-of-network care independently or use a new arbitration process. The Congressional Budget Office projected the law would reduce private health plan premiums by an average of 0.5%-1%, and reduce the federal deficit by $17 billion over 10 years.

In 2021, CMS released two interim final rules to implement the law. One restricted out-of-pocket costs for consumers as a result of surprise and balance billing, and the other established a process to settle disputes between out-of-network providers or facilities and health plans over these surprise bills.

In 2022, HHS and the Labor and Treasury Departments finalized the independent arbitration process after providers argued that the rule unfairly favored insurers. Under the final rule, arbiters should first consider an insurer's median contracted in-network rate "and then must consider all additional permissible information submitted by each party to determine which offer best reflects the appropriate out-of-network rate."

Since the independent arbitration process has gone into effect, federal officials have struggled to get through a significant backlog of requests. Through June 2023, 490,000 arbitration requests were filed, and 61% of these requests remain unresolved as of December 2023, according to a report from the Government Accountability Office.

"It's awesome that patients aren't getting surprise bills, but it's also clear this has become an administrative albatross," said Zack Cooper, a health economist at Yale University who has studied issues surrounding surprise billing.

How is the No Surprises Act impacting stakeholders so far?

According to Advisory Board's Max Hakanson, the No Surprises Act has largely fulfilled its primary goal of protecting patients from massive surprise bills, making it a big win for consumers.

In a recent analysis, Fair Health found that the number of in-network claims grew notably as the No Surprises Act took full effect. The study compared claims in Q1 of 2019 to those in Q3 of 2023, and found a rise in in-network utilization in all professional settings. In-network services as a percentage of total claims grew from 84.1% to 90% during that window.

"However, while the immediate impact on patients is definitely positive, the longer-term impact is a bit murkier," Hakanson said.

A new report from CMS found that in over 80% of payment disputes over surprise bills, the arbiter ultimately settled on an amount that was greater than the median in-network rate for a service, which is also known as the qualifying payment amount (QPA). This means that insurers were required to pay more to an out-of-network provider than to one who was in-network.

The report also found that providers, facilities, and air ambulances won 77% of disputes in the first half of 2023. Many of these filings are concentrated among a few large providers, with three private equity-backed organizations representing around 58% of all disputes in the first six months of 2023.

According to the report, providers based their payment offers on a variety of sources, including previous in-network rates paid to insurers and previous out-of-network rates. In comparison, health insurers largely used the QPA.

"There must be some extent to which providers are able to successfully argue that the qualifying payment amount is not fair or too low," said Katherine Hempstead, a senior policy advisor with the Robert Wood Johnson Foundation. "From the outside, the QPA sounds like a fair price, but the providers argue it's not."

According to Zachary Baron, the director of Georgetown University's Health Policy and Law Initiative, the fact that final pay rates from the arbitration process usually exceed QPAs means that insurers are paying more now than before the No Surprises Act was passed.

"It raises concerns for folks that envisioned the arbitration process as helping to moderate costs rather than be a tool these companies can leverage to obtain even higher payments," Baron said. These increases in costs to insurers could also have downstream effects on patients.

"They may not feel it right away, but maybe premiums are going up 4% or 6%," he said. "That is the concern in terms of whether it ultimately if things continue trending this way."

So far, it is unclear whether the No Surprises Act's arbitration process is "truly moderating healthcare costs or just shifting the burden of surprise bills to the larger patient population," Hakanson said. (Rosenthal, KFF Health News, 2/14; Bannow, STAT+ [subscription required], 2/16; AHA News, 2/16; Pifer, Healthcare Dive, 2/16)

Download our cheat sheet to learn what the No Surprises Act is, how it will work, why it matters, and more.