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Part 1: Fulfilling the Promises of the Surprise Billing Ban

As regulators work to implement the No Surprises Act by the end of this year, decisions made during the rulemaking process will determine the strength of the law’s patient protections, its impact on consumer premiums, and overall savings to the health care system.

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This is the first of a two-part series on implementation of the No Surprises Act, a bill banning surprise medical billing. Read Part 2: In No Surprises Act, Arbitration Design Is Key to Realizing Expected Savings.

The No Surprises Act — passed by Congress in December — bans the predatory practice of surprise medical billing in many situations starting Jan. 1, 2022. Whether the law fully realizes its promise of lowering costs and protecting patients will depend on the finer details of implementation that government regulators are currently ironing out.

Surprise medical bills are one of our health care system’s most exploitive and unfair practices. Millions of insured Americans receive surprise bills each year, often in situations where they are unable to choose the hospital or physician providing their care. Surprise bills can result from providers who are outside their insurance network, and who often deliberately remain out-of-network to extract higher payments. 

About 1 in every 5 visits to the emergency room results in at least one surprise bill. It’s worse for air ambulance rides: about 7 in every 10 rides results in a surprise bill. Surprise billing increases premiums for everyone — by about $40 billion a year — because it gives certain physicians leverage to extract inflated payments from insurers. 

As the Biden Administration works to implement the No Surprises Act by the end of the year, regulators are tasked with establishing policies and processes that will ultimately determine the breadth of the law’s patient protections, and the extent to which it reduces consumers’ premiums and results in the $17 billion in federal savings projected by the Congressional Budget Office (CBO).

One key decision that will influence the law’s savings potential is how to design the process used to determine payments for surprise out-of-network bills. When providers and insurers can’t agree on payment, the law requires them to resolve their disputes using arbitration. However, initial evidence from states that use arbitration indicates that the process, if poorly designed, can actually increase health care costs for the privately insured.

Below, we outline considerations for implementing the No Surprises Act to lower health care costs and protect patients to the maximum extent possible. 

What the Law Does

Amid a surge of surprise medical bills in recent years that often left families cash-strapped and in debt, Congress passed the No Surprises Act prohibiting providers from sending surprise bills to patients in emergency and certain non-emergency situations.

The No Surprises Act protects patients from surprise bills in health care settings where such bills are most likely. These include emergency rooms, nonemergency services where patients don’t get to choose the ancillary providers administering their care (e.g., radiologists and anesthesiologists), and air ambulances. However, the law fails to protect patients from ground ambulances, leaving them vulnerable to expensive bills in these situations. 

1 in 5

Number of emergency room visits that result in at least one surprise bill

The law removes patients from the middle of payment disputes between plans and providers for out-of-network care, only requiring them to pay the amount that they would have paid for in-network care.

The health plan and provider are left to negotiate the appropriate reimbursement for the out-of-network bill sent by the provider. If the plan and provider cannot agree, the law establishes an independent dispute resolution process, commonly called arbitration, to determine payment. When making a decision on the final payment amount, the arbiter must consider the plan’s median in-network payment amount for a specified geographic area (called the qualifying payment amount”). The No Surprises Act also directs arbiters to consider other factors, including patient acuity (the severity of a patient’s condition), evidence of previous network negotiations to establish in-network rates between plans and providers, and the level of training, experience, and quality of the clinician, among others.

By banning surprise bills, which inflate premiums and costs for everyone, the law has the potential to generate savings for families, employers, and taxpayers. Out-of-network billing has increased physician payment rates by 13.4% for privately insured patients and increased spending for people with employer-sponsored insurance by 3.4%, about $40 billion every year. The CBO estimated the No Surprises Act would partially correct for this market distortion and put downward pressure on costs, reducing premiums by up to 1 percentage point and saving the federal government $17 billion. But whether patients, consumers, employers, and taxpayers realize those savings will hinge on how the law is implemented.

Evidence from States: Arbitration Can Inflate Health Care Costs

Some states that banned surprise medical billing in recent years — including Texas, New Jersey, and New York — rely on a similar arbitration approach to resolve surprise billing payment disputes. However, early evidence suggests that without certain guardrails, arbitration can drive up health care spending and premiums.

In New York State and New Jersey, arbiters are allowed to consider the 80th percentile of providers’ billed charges — list prices set by providers that are often exorbitant. In emergency medicine — a specialty commonly associated with surprise billing — evidence indicates that providers charge upwards of 800% of Medicare prices for the same services. [AS1]


Total amount by which surprise medical billing has increased spending for people with employer-sponsored insurance

Initial research suggests that many arbitration decisions in New York State result in average payments that are often higher than the 80th percentile of charges — sometimes much higher. In New Jersey, cases that went to arbitration resulted in payments to providers that were much higher — on average 9 times as high — as in-network prices for the same services. Higher payments to providers result in rising health care costs, which are passed along to consumers in the form of higher premiums.

The federal No Surprises Act prohibits arbiters from resolving disputes using billed charges, a good first step in ensuring lower health care costs. However, state experience suggests arbitration must be carefully designed to maximize the law’s potential to reduce costs and protect patients. This should be taken into account during rulemaking.

Guiding Principles for Implementing the No Surprises Act

  • Implementation should protect savings to commercial premiums. As noted, CBO estimated the No Surprises Act could result in as much as a 1% reduction in health care premiums by partially correcting for the inflated payments that result from surprise billing. The law should be implemented in a manner to ensure consumers and purchasers realize those savings as Congress intended. The state experience suggests that the design of the arbitration process, particularly the factors the arbiter considers when determining the payment amount, are critical to achieve savings.
  • The arbitration process should 1) produce predictable outcomes, and 2) be used infrequently. These recommendations go hand in hand. Predictability will help reduce the use of arbitration — which adds costs to the system — and encourage health plans and providers to pursue good faith negotiations on in-network rates, rather than relying on out-of-network rates and the arbitration process as a ways to increase profits. Greater predictability will also mitigate against premium increases that could result from health plans’ uncertainty about how the arbitration process will play out and their payments. Regulators should consider other guardrails to limit the number of cases that go to arbitration to minimize the administrative burden and costs associated with the arbitration process.
  • The qualifying payment amount (generally, the median in-network payment rate) should be the primary factor for determining payment for out-of-network services to increase predictability and maximize the law’s downward pressure on costs. The median in-network rate is the typical amount paid for services delivered by providers who choose to participate in an insurer’s network. Arbiters should presume that the qualifying payment amount, which is market-based and results from negotiations between providers and health plans, is appropriate. It should be the primary factor they consider in their decision — the other factors should only be considered in extenuating circumstances. In addition, the regulation should ensure that the other factors are not used as a one-sided ratchet” to increase payments from the qualified payment amount. Finally, regulators should clarify that billed charges should not be the baseline for any information shared with the arbiter; for example, arbiters should not be directed to refer to third party database information that reflects charges, rather than paid amounts.
  • Consumers should have broad protection from surprise bills. Patients may still receive surprise bills in certain non-emergency situations if they are notified several days in advance and sign a consent form. The regulation should ensure that the notice and consent process is meaningful and easily understandable to patients, rather than a loophole that allows certain physicians to continue surprise billing patients. The regulation should also expand the definitions of services or settings protected by the law to ensure the broadest protections possible. For example, urgent care settings should be covered under emergency services.
  • Regulators should establish robust enforcement and reporting, which are key for meaningful oversight. This includes rigorously enforcing the protections by establishing a robust federal backstop when states don’t enforce the law. Regulators should also establish a transparent reporting and auditing process to allow policymakers and experts to track and understand the impact of the law, and to ensure oversight of arbiters and their decisions.

For more information about surprise out-of-network billing, check out our fact sheet.

Read Part 2: In No Surprises Act, Arbitration Design Is Key to Realizing Expected Savings