News | Health Plan Payment and Reimbursement

Arbitration approach the most likely option among pending surprise-bill legislation: analysts

News | Health Plan Payment and Reimbursement

Arbitration approach the most likely option among pending surprise-bill legislation: analysts

  • An arbitration approach — backed by hospitals — to resolve surprise medical bills remains most popular among various options in Congress.
  • Hospital advocates wrote Congress this week to criticize legislation that uses a rate-setting approach.
  • Researchers have found positive effects from one state’s arbitration approach.

May 29—Among numerous legislative approaches proposed to eliminate surprise healthcare bills, an approach using arbitration remains most popular in Congress, say legislative analysts.

The issue of surprise medical bills has drawn bipartisan condemnation and pledges of a federal statutory response before the next election. This month, two of the highest-profile efforts were unveiled as draft legislation in the House of Representatives and Senate. Those bills will add to ongoing legislative negotiations over what approach Congress ultimately endorses to resolve the surprise-bill question. 

In May, a bipartisan group of senators, including the leadership of the committee with jurisdiction over the issue, released draft legislation. Key provisions included:

  • Barring facilities and practitioners from sending patients balance bills for more than the in-network cost-sharing amount
  • Providing advance notice to stabilized emergency department patients of any out-of-network care, an estimate of a patient’s costs for out-of-network care and referrals to alternative options for in-network care.
  • Barring surprise bills or out-of-network cost-sharing if patients are not given advance  notice
  • Allowing states to require arbitration or benchmarking in markets regulated by the state
  • Requiring in-network facilities to guarantee that every practitioner at the facility will also be considered in-network 
  • Allowing either arbitration or payment based on the median contracted rate in the area

Earlier in May, a bipartisan discussion-draft bill was released by the chairman and ranking member of the House Energy and Commerce Committee. Its key provisions included:

  • Barring surprise out-of-network billing for both emergency and nonemergency services at various sites of care (including nonhospital locations)
  • Setting a minimum payment rate — based on median contracted rates — from health plans to out-of-network providers
  • Allowing balance billing with notice and consent in cases of nonemergent care provided by certain specialties
  • Requiring a methodology by the secretary of Health and Human Services to obtain median-rate reporting by insurers

Key differences emerge in various proposals

Those draft bills followed the introduction of several lower-profile bills in both chambers of Congress. The bills all agree on many provisions — such as barring balance bills for out-of-network patients — but differ over how providers would be paid.

The negotiation-type approach to provider payment remains the favored approach on Capitol Hill, analysts said this week.

“Arbitration, no question, has the best political appeal to it,” Benedic Ippolito, research fellow with the American Enterprise Institute, said at a briefing to congressional staff this week. “The advantage of arbitration is that the arbiter could take into account things that a formulaic rate doesn’t take into account.”

Loren Adler, associate director for the Center for Health Policy at the Brookings Institution, said the appeal of the arbitration approach was illustrated by the 20 co-sponsors who signed on to support another bill, the STOP Surprise Medical Bills Act, which was sponsored by Sen. Bill Cassidy (R-La.) and also uses an arbitration mechanism.

“Part of it is that providers are out there drumming up support for it,” Adler said in an interview, referring to the Cassidy bill. “And the insurers don’t hate it as much as the providers hate something that actually tackles the problem.”

Adler opposes arbitration, saying an approach that sets rate caps on out-of-network charges would be more effective.

Adler and Ippolito urged congressional staff to oppose the arbitration approach, citing concerns that there will be a lack of transparency in how payment is decided and that the scope of healthcare sent to arbitration will keep expanding.

Hospitals come out strongly against rate setting

In letters to congressional leaders, hospital advocates this week blasted the rate-setting approach.

“Rate setting would be nearly impossible to get right and ignores the many factors that providers and health plans consider when deciding whether or not to enter into a contract,” wrote the American Hospital Association (AHA). “Factors that may be relevant to one provider may not be relevant to another provider, which means that the median contracted in-network rate may not be the appropriate payment level.”

Hospitals also expressed concerns that a rate-setting approach:

  • Does not consider a provider’s size or mix of services
  • Ignores whether a provider and health plan have negotiated a value-based contracting arrangement
  • Weakens incentives for health plans to pay fairly and to engage in good business practices
  • Removes the need for health plans to form comprehensive networks and to contract and negotiate with providers

Support for arbitration seen in one state’s data

Although most state legislative approaches to surprise medical bills have been implemented too recently for extensive data to be available on their impact, New York’s five-year-old arbitration-based law has provided some evidence.

study from the Georgetown University Health Policy Institute reviewed effects of the New York law’s “baseball-style” arbitration to resolve payment disputes and found what state officials described as a “dramatic” decline in consumer complaints about surprise bills.

The independent arbitrator’s decisions were evenly split between plans and providers, and most cases were resolved before needing to go to arbitration, the analysis found. However, the study authors said a federal approach is needed since state law does not cover ERISA plans.

“We believe that such a dispute resolution process that allows a neutral third party to mediate or determine fair payment is far superior to setting a statutory payment rate and will avoid the negative consequences for patients that setting a rate will likely incur,” the Federation of American Hospitals (FAH) wrote in a letter to Congress this week. 

Specific arbitration components urged by FAH included:

  • Limiting the time allowed for private negotiations on payment
  • Allowing providers to initiate arbitration
  • Requiring the losing party to pay the cost of the arbiter
  • Lifting all restrictions on what information the arbiter can consider in making the determination

About the Authors

Rich Daly, HFMA senior writer/editor

is based in the Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

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