Georgetown / Commonwealth Fund: Are Surprise Billing Payments Likely to Lead to Inflation in Health Spending?

By Jack Hoadley & Kevin Lucia

• “The federal No Surprises Act protects consumers from ‘surprise’ bills from out-of-network providers and also establishes a method to determine how much insurers will pay those providers. Establishing payment is critical to ensuring that stakeholders are satisfied and comply with the law. But an upward trend in payments for out-of-network care could push rates higher in in-network contracts. These costs, in turn, could push premium costs higher for employers and consumers.”
• “Under the law, parties must first attempt private negotiations. If negotiations fail, either party may request arbitration. The law requires that arbitrators consider the plan’s median in-network rate…Arbitrators may not consider billed charges, usual and customary rates, or Medicare or Medicaid rates.”
• “Whether arbitration means higher prices depends on arbitrators’ decisions and on what insurers currently pay for out-of-network care. When payment amounts selected by arbitrators are higher than in-network rates, it can raise spending in two ways: it can raise the cost of the out-of-network service if the payer previously limited its payment to the in-network rate, or it can lead to higher in-network rates in future contract negotiations if providers see that they can receive more out of network. Arbitrator decisions that are reasonably close to median in-network rates should avoid these scenarios, making an inflationary impact less likely.”
• “Three arbitration states — New Jersey, New York, and Texas — allow consideration of billed charges, with potentially inflationary results. In each, 80 percent of billed charges — a factor not allowed in the federal system — has become a guideline. According to one study, median awards by New Jersey arbitrators were 5.7 times median in-network prices and often much higher. Similarly, Connecticut and Ohio have payment standards that rely in part on charges, with a potentially inflationary result.”
• “The agencies designing the federal arbitration system have considerable ability to avoid inflationary impacts. Stakeholders and policymakers will be watching these decisions closely. Regulators should heed the lessons from states such as New Jersey, New York, and Texas by reinforcing the law’s focus on the in-network rate as a key arbitration factor that is consistent with controlling costs.”

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