The No Surprises Act took effect in January 2022. The law banned surprise medical bills when patients are treated by out-of-network doctors at in-network medical facilities. Surprise medical bills were the result of a practice called balance billing. When physicians treated patients whose health plans would not pay them their desired fees, they were free to bill patients for the outstanding balance. The No Surprised Act put an end to balance billing.
Both doctors and health plans blame each other for surprise medical bills. Insurers claim certain physician specialties, like emergency room physicians, purposely refuse network affiliation so they can charge much higher prices, knowing their patients have no opportunity to decline their services. Physicians claimed health plans and insurers purposely keep networks small to extort submarket fees from them.
The No Surprises Act has a dispute resolution mechanism to decide compensation for physicians who treat patients with whom they have no network affiliation. After treating insured patients, physicians and other providers bill health insurers, who pay, decline to pay or pay a reduced fee. If a physician believes the fees paid are too low, they have the option of taking the case to an independent dispute resolution (IDR) board for a fee. The board invites bids from both parties and accepts one party’s offer.
IDR is a binding final-offer arbitration process in which each party makes an offer and an arbitrator, called an “IDR entity,” chooses one of those offers to be the final payment amount.
The Centers for Medicare and Medicaid Services (CMS) released detailed data on IDR disputes resolved during the first and second quarter of 2023. Brookings compared the results when disputes were resolved.
Looking across three categories of services, we find that the median IDR decision is at least 3.7 times what Medicare would pay. For the two categories of services where we have estimates of historical mean in-network commercial prices relative to Medicare, the median decision is at least 50% higher than these past prices. Decisions appear closer to the amounts insurers historically paid for out-of-network care. These outcomes reflect the fact that providers are submitting relatively high offers and that IDR entities are selecting the provider’s offer more than three-quarters of the time. And they contrast with Congressional Budget Office (CBO) projections that outcomes would hew close to prior in-network rates.
The finding that fees awarded were 3.7 times what Medicare pays for the same services surprised analysts. Medicare rates are lower than what private insurers pay, but the vast majority of physicians participate in Medicare, suggesting the program is not unprofitable. The fees awarded to physicians were also about 50% higher than in-network fees negotiated with providers willing to affiliate with insurers and health plans. More from Brookings:
The prices emerging from IDR also appear to greatly exceed estimates of historical mean in-network commercial prices for these services.
For emergency care, estimates ranged from 2.5 to 2.6 times Medicare’s price. For imaging, estimates ranged from 1.8 to 2.4 times Medicare’s price. For both categories, median IDR decisions relative to Medicare are at least 50% higher than even the top end of these ranges. We are not aware of similar estimates for neonatal/pediatric critical care services, so we cannot make similar comparisons.
Analysts were puzzled why the fees awarded in the IDR processes are so much higher than what health plans pay for in-network providers. The Congressional Budget Office predicted in-network fees and out-of-network payments would converge but that has not been the case. A likely outcome is that the dispute resolution process will encourage doctors to decline network affiliation rather than affiliate with networks to avoid the expensive, cumbersome process of arbitration.
Being out-of-network may also have exposed providers to a risk of sudden cash flow changes since insurers could unilaterally change out-of-network allowed amounts. Avoiding these (and, perhaps, other) costs of being out-of-network is presumably part of why providers were willing to accept in-network prices well below insurers’ typical out-of-network allowed amounts. With these costs now less salient, being out-of-network may now be somewhat more attractive for providers, even if collections are roughly unchanged.
Insurance premiums could ultimately rise as a result of an IDR process that inflates out-of-network fees above what would occur in a free market. A question I have has to do with the qualifications to be certified for the IDR board. Has the board been captured? Are they biased in some way? A problem inherent in boards like the IDR is that arbitrary decisions may not necessarily align with the fees that would occur in a free market. That is the same argument economists make against price controls. Price controls that are set at the market clearing price are not a problem. Prices fixed above or below the market clearing price leads to surpluses or shortages. The caveat is: nobody really knows the market clearing price, which is why markets need to set them.
The entire study is interesting: A first look at outcomes under the No Surprises Act arbitration process | Brookings
The Federal government is, as you hypothesize, setting “independent review” rules to prevent tighter management of patients in both Medicare Advantage and Commercial Health Plans and will not only increase premiums for some but likely reduce the add-on, supplemental benefits (like dental) that many offer. All in response to effective hospital and AMA lobbying.
I do not know how the IDR boards are selected and certified, but it makes me wonder about the criteria for the selection process.