What the Texas Ruling on the No Surprises Act Means for Employers

March 2nd, 2022
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Health care providers have sued the Biden Administration over implementation guidance for the No Surprises Act in at least six district courts around the country. Last week, a federal district judge in Tyler, TX was the first to rule on one of the cases and sided with plaintiffs – the Texas Medical Association– effectively upending a vital portion of the rule implementing the decision.

At issue are two questions:

What does this all mean for employers and purchasers? Here, the short, medium and long-term consequences.

Short-Term Consequences

The law’s rules implementing the independent dispute resolution (“arbitration”) process went into effect March 1, 2022. The Texas Medical Association ruling goes into effect immediately and has nationwide impact. Even if other district courts rule in favor of the Administration, this decision will remain in place until overturned on appeal or until the Administration produces a new implementing rule under the formal rulemaking process.

The most notable short-term impact of the rule will likely be wide variation in arbitration outcomes. The rule provided detailed and specific guidance to arbitrators on how to weigh various factors in resolving payment disputes. That guidance sought both to anchor arbitration decisions around the market rate for services (known in the rule as the “median contracted rate”) and to provide all parties with predictability, minimizing variation in arbitration outcomes. With that section of the rule vacated, each individual arbitrator will have to exercise their own judgment in weighing factors as disparate as the market payment rate, training and experience of the clinician, teaching status of the facility and whether the participants engaged in good faith efforts in resolving a payment dispute.

The upshot for employers: Expect wide and unpredictable variation in outcomes from surprise billing arbitration.

Medium-Term Consequences

The lack of predictability in arbitration decisions will likely lead to a greater use of arbitration as parties seek to identify which arbitrators are likely to rule in their favor and which factors most impact arbitration decisions. The proliferation of arbitration will increase administrative costs for all parties, most of which will be directly or indirectly passed onto employers and purchasers. The opposite would be true if a more predictable IDR process had remained in place. While its  reasonable to expect some initial testing of arbitration by providers, once a pattern of decisions emerges, the incentive for both parties will be to settle payment disputes before arbitration rather than go forward with a costly and burdensome arbitration process.

The upshot for employers: Expect a significant number of surprise billing claims to go to arbitration, rather than be settled outside of arbitration.  

Long-Term Consequences

Nearly half the states in the country implemented surprise billing protections before enactment of the federal No Surprises Act, though these state laws do not impact ERISA plans –the vast majority of large employer plans — which are regulated strictly at the federal level. The state-level experience shows the importance of the instructions provided to arbitrators and how those decisions impact long-term cost growth.

Laws enacted in New York, New Jersey and Texas direct arbitrators to consider the offer submitted by the party closest to the 80th percentile of billed charges (already a highly inflated figure). Not surprisingly, early data indicate that arbitration is leading to very high payments to out-of-network providers. In New Jersey, median arbitration decisions are more than five times the market rate for services in the state. In Texas, where state law was implemented more recently and data is less available, the Texas Medical Association reports that the use of arbitration was significantly higher in 2021 than in 2020, a likely indication that providers are finding that going to arbitration results in higher profits than settling payment disputes before arbitration, or going in-network. To entice physicians to go in-network, health plans will have to substantially increase the market rate for services by the types of providers most likely to engage in surprise billing – emergency physicians, anesthesiologists, and pathologists.

The upshot for employers: If arbitration decisions tend to favor providers, expect to pay significantly more for certain providers to go in-network.

The Bottom Line

While the ultimate impact will depend significantly on how arbitrators tend to decide arbitration claims, unless the Texas Medical Association ruling is overturned or removed  by future rulemaking, the likely impact is higher costs for employers, employees and their families.

An arbitration system that fails to anchor decisions around the market rate will likely lead to more decisions being made in favor of providers with offers well above the market rate, and those decisions will lead to substantially enhanced leverage for providers in contract negotiations. Why go in-network at market rates, when you can stay out of network and achieve significantly higher prices through arbitration?

To cope with this dysfunctional system, self-insured employers will be forced to increase their own in-network payment rates for specialties capable of surprise billing, driving up costs and ultimately harming employees and their families.

Private Equity Poses Grave Threat to Health Care System

June 23rd, 2021
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Operating largely beneath the public and regulatory radar, private equity firms have gravitated toward health care over the past decade in pursuit of outsized profits. Investments jumped 189% between 2010 and 2019, from $41 billion to $120 billion, and have totaled $750 billion over the last decade.

Health care acquisitions now represent 18% of all private equity investments, up from 12% in 2010. Key acquisition areas include outpatient care, home health, emergency medicine, dermatology, hospice and elder and disabled care.

Of course, it should come as no surprise that private equity has gravitated to health care. The health care sector is rife with economic distortions and outright market failures that allow unscrupulous actors to earn outsized returns if they are willing to act aggressively and ignore the public good.

Private equity’s expanding presence in health care has increased purchaser costs, fueled a dramatic rise in surprise billing, undermined competition and threatened markets already diminished by the pandemic.

Surprise Medical Bills: A Major Market Failure

Many surprise bills are triggered by private equity business models that intentionally withhold provider groups from insurer networks to extract maximum out-of-network payments from patients. As such, they represent a major market failure in our health care system, one that has imposed punishing bills on unsuspecting patients and added more than $40 billion in additional costs for those with employer-sponsored insurance.

Congress passed the No Surprises Act last year to put an end to surprise medical billing. But just how effective the law will be remains to be seen. Much will depend on how regulators interpret and implement the act’s legislative intent. The rulemaking process is required to wrap up in December 2021 and the law is scheduled to take effect in January 2022.

With the details of the implementation guidelines still very much in flux, legislators need to step in to ensure that the final rules truly protect consumers and produce lower overall costs for purchasers.

Highly Leveraged “Roll-Up” Acquisitions

Along with the damage done by surprise billing, private equity’s go-to business model also undermines the system by focusing on rapidly increasing revenues through highly leveraged “roll-up” acquisitions across markets or regions. Researchers say the approach destabilizes already fragile markets by increasing consolidation, undermining competition and amplifying anticompetitive practices.

Aggressive acquisition strategies, researchers argue, also infuse significant risk into health care markets by loading providers with debt, stripping them of assets and putting them at risk for long-term failure.

While the 2020 closure of Hahnemann University Hospital, a 500-bed teaching facility in Philadelphia, was driven by multiple financial problems over decades, private equity ownership during the hospital’s final years led to a closure process that was “chaotic, uncoordinated and fundamentally not aligned with the needs of the patients and trainees that make up the core constituents of a teaching hospital.”   

Approximately 175 nurses, managers and support staff were laid off a little over a year after the hospital was acquired by American Academic Health System LLC. Despite a cease and desist order prohibiting any action toward closure, the owners began cutting vital hospital services, including trauma and cardiothoracic surgery. With the closure that soon followed, the community lost a vital safety net facility that had handled more than 50,000 emergency department visits per year in an underserved area.

The 171-year-old hospital’s unraveling at the hands of a private equity firm prompted an unusually blunt statement of condemnation from Pennsylvania Governor Tom Wolf and Philadelphia Mayor Jim Kenney: “The situation at Hahnemann University Hospital, caused by CEO Joel Freedman and his team of venture capitalists, is an absolute disgrace and show a greed-driven lack of care for the community.”

New Controls Needed

As the situation in Philadelphia showed, private equity investments are often beyond the reach of government oversight. The vast majority of health care deals are unreported, unreviewed and unregulated under existing law. And even when transactions are reportable, researchers say, the complex structure of private equity funds conceal the competitive impact of those deals.

Beyond working to ensure that implementation of last year’s No Surprises Act fulfills congressional intent of halting surprising billing and lowering overall health care costs, an array of other approaches for mitigating the destructive impact of private equity is needed. These include more aggressive anti-trust enforcement by the Federal Trade Commission and greater scrutiny of health care mergers by the Department of Health and Human Services. Further, Congress can take action by enacting policies to ban anti-competitive contracting practices that have driven up health care costs in cities all over the country.

Late Pressure to Change Surprise Billing Rules Could Derail Savings

June 2nd, 2021
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An eleventh-hour bid by private equity companies, hospitals and other provider interests to alter the implementation guidelines of the No Surprises Act threatens to torpedo Congress’ objectives of protecting patients from exorbitant, surprise medical bills and constraining soaring health care costs.

Two of health care providers’ most prominent political allies recently signaled they’ll push to modify the rules surrounding the act’s centerpiece arbitration process in a way they assert will help ensure “fair and clear” dispute resolutions. But we believe the effort is simply an attempt to create a backdoor opportunity for physicians and hospitals to continue collecting high, out-of-network rates.

How the arbitration guidelines ultimately shake out will likely have a major bearing on whether the legislation succeeds in protecting patients from often unaffordable medical bills and reduces costs for large, self-insured employers. The rulemaking process must wrap up in December 2021, with the law scheduled to take effect in January 2022.

New Factors Must Be Considered Before Reaching a Price

As originally drafted, the No Surprises legislation stipulated that when determining a fair out-of-network price in instances where payers and providers cannot agree, arbitrators would concentrate on the median, in-network rate used by the health plan for a specific service. The intent was to keep rates paid for out-of-network services in line with those negotiated between health plans and in-network providers.

But late changes to the law added an array of new variables arbitrators must now take into account when determining an appropriate payment. These range from particulars about the episode of care and the providers’ level of training to the type of facility in which the services were provided.

Another conspicuous change stipulates what arbitrators cannot consider when calculating an equitable price: The late language actually bars them from taking into account rates paid by government payers, including Medicare and Medicaid—a move clearly designed to help preserve above-market prices.

Setting the Stage to Keep Medical Bills High

The more pressing concern, however, is that despite the act’s original intent of using median, in-network rates to settle out-of-network payment disputes, provider allies now assert these core benchmarks should impart no greater influence in setting a price than any of the other factors inserted late in the bill.

In an April 29 letter to regulators, Senators Maggie Hassan (D-NH) and Bill Cassidy, MD (R-LA) stated that giving each arbitration factor “equal weight and consideration” will help ensure that neither party has undue leverage in contract negotiations and will “allow for fair and clear determinations that reflect the specific circumstances of each dispute.”

But PBGH and other act supporters understand that requiring arbitrators to equally consider the full range of variables will effectively reduce the median, in-network rate to merely a baseline price, which can then be subjected to multiple upcharges or add-ons, depending on which of the other variables may be applicable.

What’s more, there’s no language in the legislation that ensures the new variables will cut both ways; that they could also be used to pull the price down below the market median. The upshot is that many of added variables already are reflected in payment codes, so considering them as part of arbitration is unnecessary and redundant.

PBGH and others see the attempt to alter the arbitration rules for what it is: A last-ditch gambit by provider interests—including private equity companies currently engaged in physician-practice buying sprees—to preserve the outsized profit-making potential out-of-network charges have long provided. As such, we’re actively communicating with regulators and political leaders to head off this end run and ensure implementation of the No Surprises Act aligns with the law’s intended and desperately needed cost-cutting objectives.

 

 

Last-minute talks pushed surprise billing ban across finish line

January 22nd, 2021
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Unlike their 2019 failure, lawmakers this year succeeded in sealing the deal by including language in the massive COVID relief and federal spending package that President Donald Trump signed into law on Dec. 27. The surprise billing ban takes effect in 2022.

Learn More: Modern Healthcare