Recommendations for Implementing the No Surprises Act

Editor’s Note:  This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between Economic Studies at Brookings and the University of Southern California Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings. USC-Brookings Schaeffer Initiative research on surprise medical billing was supported by Arnold Ventures.

With the inclusion of the No Surprises Act in the year-end Consolidated Appropriations Act, Congress ushered in the end of most surprise out-of-network medical bills, starting January 1, 2022. The legislation, which follows years of debate, protects consumers from unexpected bills and establishes an arbitration mechanism to resolve payment disputes between out-of-network health care providers and insurers.[1]

However, the legislation leaves many details to be worked out by the relevant agencies (the Departments of Labor, Health and Human Services, and the Treasury) via rulemaking. In this piece, we examine several key implementation questions related to the arbitration process and discuss the agencies’ options for resolving those questions.

We begin by setting out two objectives that should guide the agencies’ implementation decisions, objectives that Congress appears to have shared in crafting the No Surprises Act: (1) minimizing the administrative costs created by the arbitration system; and (2) ensuring that the law reduces prices of health care services that were inflated by the threat of surprise billing.

Our primary recommendation is that the agencies should issue guidance clarifying how arbitrators should apply the many—and often vague—factors the law directs them to consider in making arbitration decisions. In broad outline, the agencies should instruct arbitrators as follows:

• Arbitrators should begin with the presumption that the “qualifying payment amount” (which the law generally defines to be the insurer’s median contracted price for the relevant service and geographic area in 2019, adjusted for inflation) is neither too high nor too low. Absent evidence that overturns this presumption, arbitrators should choose the offer closest to this amount.
• Arbitrators should discard this presumption only if one of the parties presents clear evidence that the services or circumstances at issue in a specific case materially differ from those reflected in the historical data used to calculate the qualifying payment amount. That evidence must pertain to one of the other factors the arbitrators are statutorily required to consider and must do so in a way that we specify in greater detail later in the piece.

Our proposed approach, which would anchor arbitration decisions to the qualifying payment amount, would advance both of the goals described above. By making arbitration outcomes more predictable, it would encourage the parties to resolve disputes without arbitration and, thus, limit administrative costs. And because median contracted rates were likely lower than mean rates (by virtue of being less affected by outliers, particularly the high prices negotiated by the minority of providers who were aggressive in using the threat of surprise billing to gain contracting leverage), it would unwind at least some of the increase in prices caused by the threat of surprise billing. It is also consistent with the central role Congress gave the qualifying payment amount throughout the No Surprises Act.

We also recommend that the agencies use a competitive process to select “default” arbitrators in cases where the parties fail to agree on an arbitrator. That process should, at a minimum, favor arbitrators who commit to charging low fees, which is consistent with the goal of minimizing administrative costs. However, the agencies should also consider using that process to favor arbitrators with a track record of decisions that show deference to the qualifying payment amount, which could be a particularly effective tool for encouraging arbitrators to comply with the guidance outlined above.

In subsequent sections of the piece, we discuss certain narrower implementation questions, including how broadly providers should be permitted to “batch” claims when submitting them to arbitration as well as the rules that should govern calculation of the qualifying payment amount. The remainder of this analysis discusses our recommendations in much greater detail.

Background and Objectives for Implementation

Before discussing specific implementation challenges, we first very briefly summarize the main provisions of the No Surprises Act and set out two objectives that should help guide the rulemaking process. For a more detailed description of the No Surprises Act, see here.

Surprise bills occur when patients are treated by health care providers that do not accept their insurance, but whom they did not, or could not, knowingly choose. For example, patients often cannot choose their facilities or clinicians in an emergency. The same is true for many ancillary clinicians, like anesthesiologists or radiologists, even in non-emergency settings. If these providers refuse a patient’s insurance, that patient can be “balance billed” for potentially large amounts.

The No Surprises Act bans this type of balance billing in the vast majority of surprise billing scenarios (with the notable exception of ground ambulance services). In these cases, patients are only responsible for the cost sharing amount they would have owed if the provider was in network. The No Surprises Act requires that insurers make some initial payment to an out-of-network provider but does not specify what that payment should be. If the provider is dissatisfied with the payment, the provider can trigger an arbitration process wherein both sides submit a final proposed payment and the arbitrator picks one. The arbitrator is directed to consider several factors in choosing between those offers, most prominently the “qualifying payment amount,” which is generally the insurer’s median in-network rate for the service in the relevant geographic market as of 2019 (adjusted for inflation).

While the legislation establishes the broad framework of the arbitration system, many important details are left to the agencies. As the agencies fill in those details, they should be guided by two objectives:

• Minimizing administrative costs: A downside of using arbitration to resolve payment disputes is that operating the arbitration process incurs administrative costs. These costs will ultimately be borne, at least in part, by consumers in the form of higher premiums. In implementing the No Surprises Act, the agencies should aim to ameliorate this downside of arbitration by making choices that minimize administrative costs.

Several features of the No Surprises Act indicate that Congress shared the aim of minimizing administrative costs. Most importantly, arbitration comes with explicit financial costs for providers and insurers—both an administrative fee each party must pay to the government and a fee the losing party pays to the arbitrator—which discourages use of arbitration. Moreover, the law requires parties to complete a 30-day open negotiation period before proceeding to arbitration, and it requires a provider to wait 90 days after an arbitration decision to take the same insurer to arbitration again over similar services. These required delays show that Congress wanted to ensure that the parties had exhausted efforts to reach a settlement before proceeding to arbitration. Congress also included provisions to make each instance of arbitration less costly, like allowing providers to “batch” claims to submit to arbitration.

Broadly speaking, implementation decisions can reduce administrative costs in two ways. First, they can reduce the frequency of arbitration by making arbitration outcomes more predictable. When arbitration outcomes are predictable, providers and insurers will typically have shared expectations about how the arbitrator will ultimately rule, and the parties will recognize that reaching a negotiated agreement close to what the arbitrator will ultimately decide can make both better off by allowing them to avoid the fees associated with arbitration. Second, the agencies can reduce the per-service administrative costs of arbitration when it does occur, although this could backfire if it makes providers and insurers much more willing to send services to arbitration.

• Ensuring that the law reduces prices inflated by the threat of surprise billing: The agencies should also seek to ensure that the legislation reduces the prices paid to providers in scenarios where those prices had become inflated by the leverage providers derived from the option to surprise bill. Reducing those prices will reduce health care spending and, in turn, consumers’ costs.

Congress clearly expected that the No Surprises Act would reduce prices. Indeed, the Congressional Budget Office estimated that the No Surprises Act would reduce premiums by 0.5 to 1.0% because it believed that the prices that would emerge from the law’s arbitration system would, on average, be lower than the prices that prevailed under the status quo. Congress relied on the resulting $17 billion in federal savings to offset some of the other health provisions that were included in the Consolidated Appropriations Act.

Implementation decisions will affect negotiated prices principally by changing the prices that emerge from arbitration. While arbitration will (we hope) be used relatively rarely, the prices providers and insurers expect to emerge from arbitration will powerfully affect negotiated prices by determining what the parties expect to happen without a negotiated agreement and, thus, what level of payment they are willing to insist on during the negotiation process.
While these two objectives can help guide implementation, stating them is only a first step toward resolving the host of consequential decisions the agencies face. In the rest of the piece, we discuss a few particularly important considerations for establishing and administering the arbitration process.

Guidance to Arbitrators

The No Surprises Act instructs arbitrators to consider several factors in their decisions:[2]

1. The qualifying payment amount;
2. The level of training, experience, and quality of the clinician, or the teaching status, case mix, and scope of services offered by the facility;
3. Market shares of both parties;
4. Patient acuity; and
5. Demonstrations of good faith efforts (or lack thereof) to reach a network agreement and any contracted rates between the two parties during the previous four years.

For air ambulance services, the arbitrator is also instructed to consider:

6. The ambulance vehicle type; and
7. The population density at the pickup location.

The statute provides essentially no guidance on how these various factors should enter into arbitrators’ decisions. The resulting ambiguity could undermine both of the objectives set out in the last section. First, it would likely result in different arbitrators applying these factors in markedly different ways. This, in turn, would cause arbitration decisions to be inconsistent and unpredictable, which would likely increase the use of arbitration and its concomitant administrative costs (in addition to being inequitable). Second, the ambiguity could result in arbitrators selecting prices that exceed those paid under the status quo, frustrating the law’s goal of reducing prices inflated by the threat surprise billing.

To resolve this ambiguity, we recommend that the agencies issue guidance on how to apply the arbitration criteria. The agencies may be able to do so using their general authority to interpret ambiguous statutory language. However, the No Surprises Act also gives the agencies authority to establish “other requirements” for arbitrators as part of the process for certifying arbitrators. Agreeing to abide by the agencies’ guidance is a natural condition of certification.

In the remainder of this section, we describe the broad approach that the agencies should take in formulating this guidance, then describe the concrete points of guidance we recommend. Finally, we describe how the agencies should ensure that arbitrators are complying with the guidance.

Guidance Should Seek to Anchor Arbitration Outcomes to the Qualifying Payment Amount

Broadly speaking, we suggest that the agencies craft guidance with the goal of anchoring arbitration outcomes to the qualifying payment amount, while still allowing arbitrators to favor higher or lower amounts when appropriate.

This approach would advance both of the goals outlined earlier. First, this approach would increase the predictability of arbitration outcomes and, thus, reduce the use of arbitration and the concomitant administrative costs. Second, this approach would reduce prices that were previously inflated by surprise billing because the qualifying payment amount is likely to be lower than current payment rates, on average, and because negotiated prices are likely to converge toward expected arbitration outcomes. (The qualifying payment amount is likely to be lower than current mean in-network rates because it is based on median in-network rates. Thus, it is less sensitive to outliers, including prices negotiated by the minority of providers who aggressively used the threat of surprise billing to secure high prices.)

Seeking to anchor the arbitration process to the qualifying payment amount is also consistent with Congress’ overall approach in drafting the No Surprises Act. While the law instructs arbitrators to consider other factors in their deliberations, the qualifying payment amount is the most concrete of those factors and the only factor that the law provides specific instructions on how to calculate. Additionally, where patients are responsible for coinsurance, the law directs that it be calculated based on the qualifying payment amount.[3] Finally, the law further emphasizes this metric by requiring arbitration decisions to be publicly reported in relation to the relevant qualifying payment amount.

We note that there are good substantive arguments for prices even lower than the qualifying payment amount. Even the 2019 median in-network prices that are the basis for calculating the qualifying payment amount were likely inflated by the threat of surprise billing to some degree.

Specific Recommendations for Guidance to Arbitrators

Consistent with this broad approach, we recommend that the agencies instruct arbitrators as follows:

• Arbitrators should begin with the presumption that the qualifying payment amount is neither too high nor too low. Absent evidence against this presumption that meets the criteria laid out below, arbitrators should choose whichever offer is closest to the qualifying payment amount.
• Arbitrators should discard the presumption in favor of the qualifying payment amount only if a party presents clear evidence that the services or circumstances at issue in a specific case materially differ from those in the historical data used to calculate the qualifying payment amount with respect to patient acuity, the characteristics of the provider delivering the service or, in the case of air ambulance services, the ambulance vehicle type or pickup location.
• Arbitrators should generally require the parties to present direct evidence of the differences described above. If that is not practicable, arbitrators may consider whether differences between the qualifying payment amount and the parties’ prior contracted rates constitute indirect evidence of such differences. In evaluating prior contracted rates, arbitrators should consider whether those rates may have been distorted by leverage that one of the parties held by virtue of having a large market share or having threatened to send surprise bills. If either of those factors are present, arbitrators should treat the prior contract negotiations as not having been in good faith and should assign no weight to prior contracted rates.
• When arbitrators conclude that the evidence meets the standard described above, they should favor offers that are higher or lower than the qualifying payment amount only to the extent that the peculiar circumstances or services at issue in a specific case would lead to higher or lower prices in a hypothetical well-functioning market for those services. Correspondingly, arbitrators should balance any benefits of higher prices (such as ensuring an adequate supply of high-quality services) against the benefits of lower prices (such as reducing enrollees’ premiums). Moreover, arbitrators should consider that the qualifying payment amount is based on median contracted rates in 2019, which suggests that services may be equally likely to differ in ways that justify higher and lower prices. Arbitrators should also document the reasons for their choices.

This guidance would directly anchor arbitration outcomes to the qualifying payment amount, while instructing arbitrators on when and how to modify their decisions in response to each of the other factors that the statute direct arbitrators to consider and ensuring that any deviations are justified by the benefits those deviations would produce for patients. We note, in particular, that our approach would ensure that providers who had previously secured higher prices by virtue of having a dominant market position or having previously threatened to send surprise bills could not use that history to secure higher prices via arbitration, which we believe would be substantively undesirable and inconsistent with Congress’ goals.

Audit Process

To ensure that arbitrators are complying with this guidance, the agencies should randomly select a percentage of arbitration cases for audit. Audits should examine whether the arbitrator’s decision was consistent with the guidance, including whether the arbitrator’s decision to deviate from the qualifying payment amount was supported by sufficient evidence. In instances where an arbitrator fails an initial audit, the agencies should audit a larger fraction of the arbitrator’s decisions to determine whether the arbitrator exhibited a “pattern or practice of noncompliance,” and, if so, decertify the arbitrator as the law requires.

Selecting Default Arbitrators

Under the No Surprises Act, the parties have three days after arbitration is triggered to jointly select an arbitrator. If they fail to agree on an arbitrator, then the federal government selects one on the parties’ behalf, which we refer to as a “default” arbitrator. The law provides almost no guidance on how the agencies should choose default arbitrators, so the agencies must define this process themselves.

We recommend that the agencies use a competitive process to select arbitrators that commit to charging a reasonable administrative fee. In detail, we propose the following procedure:

• On an annual basis, arbitrators would apply to be default arbitrators. Each applicant would submit the number of cases it could adjudicate, and the fee it would charge per case.
• The agencies would rank applicants according to their proposed fees (from lowest to highest). The agency would work down the list from those with the lowest to the highest fees until it had selected arbitrators with sufficient capacity to accommodate the expected demand for default arbitrators, plus some appropriate contingency margin.
• In any particular case, the federal government would randomly select a default arbitrator from that list (subject to the statutory requirements not to select an arbitrator with a conflict of interest relevant to any specific case), with each arbitrator’s chance of selection being proportional to the volume of cases it said it could accommodate.

Before proceeding, we note the process for selecting default arbitrators could, in principle, be used to broadly shape arbitration outcomes (not just limit administrative fees). Indeed, a provider or insurer is unlikely to agree to an arbitrator that it expects to be less friendly to its interests than the anticipated default arbitrator. Thus, whether the arbitrator is ultimately chosen by mutual agreement between the parties or by the federal government, the expected arbitration outcome is likely to be close to the expected outcome with a default arbitrator. It follows that the federal government could powerfully shape arbitration outcomes by influencing the characteristics and behavior of default arbitrators.

With this in mind, we believe that there is a strong argument for selecting default arbitrators that have a track record of rendering decisions that are, on average, close to the qualifying payment amount and that typically select whichever party’s offer is closest to this amount. Concretely, the agencies could do this by changing the bidding process outlined above so that applicants are ranked based on some combination of fees and a metric of how their past decisions compared to the qualifying payment amount. Alternatively, the agencies could simply disqualify arbitrators whose recent decisions have deviated from the qualifying payment amount by more than a specified amount, on average (perhaps contingent on adjudicating a sufficiently large sample of cases).

In addition to directly steering volume to arbitrators that hew close to the qualifying payment amount, this approach would create strong incentives for any arbitrator that wished to serve as a default arbitrator in the future to hew close to the qualifying payment amount. Correspondingly, we believe that this approach might be more effective in anchoring typical arbitration decisions to the qualifying payment amount than solely issuing guidance like that described in the last section. Therefore, we encourage the agencies to explore the feasibility of this approach.

Determining Which Claims Can Be Batched for Arbitration

In an effort to constrain administrative costs, the No Surprises Act allows multiple claims between the same two parties to be “batched” into a single arbitration dispute if “such items and services are related to the treatment of a similar condition” or they are part of a bundled payment. Additionally, the items and services must have been furnished during a 30-day period, with limited exceptions. In this section, we consider (1) how to define a provider for purposes of batching; and (2) how to identify which claims are similar enough for inclusion into a single arbitration case.

In assessing different approaches to batching, it is useful to first consider what the consequences of allowing broad batching or requiring narrow batching might be. Two types of effects are possible:

• Effects on the administrative costs of the arbitration system: Allowing broad batching is likely to reduce the per-service cost of arbitration since the arbitration process likely exhibits at least some economies of scale. That is, adjudicating an arbitration case involving 10 services is likely less than twice as costly as adjudicating a case involving five services. In this way, allowing broader batching could directly reduce aggregate administrative costs. However, reducing the per-claim cost of arbitration could also reduce the parties’ incentive to avoid arbitration and thereby increase the number of claims going to arbitration. The resulting increase in arbitration volume could offset at least part of the administrative savings from lower per-claim costs and could conceivably even increase aggregate administrative costs on net.

In light of these competing effects and the lack of relevant empirical evidence, we are uncertain what approach to batching would minimize the aggregate administrative costs of the arbitration system. We do note that we expect arbitration volume to be relatively small in the long run regardless of how the agencies approach batching, at least if the agencies implement arbitration in a way that makes arbitration outcomes reasonably predictable. In particular, once providers and insurers have a good sense of what arbitrators will decide, most will likely recognize that they are better off striking a deal close to the arbitrator’s expected decision and avoiding the costs of arbitration (whatever they may be). This suggests that the agencies’ decisions about batching are likely to have little effect on aggregate administrative costs in the long run, although they could have larger effects in the arbitration system’s initial years.

• Effects on negotiated prices: Decisions about batching could also affect the prices that providers and insurers negotiate. All else equal, increasing the administrative costs a provider bears if a dispute goes to arbitration is likely to increase the provider’s desire to avoid arbitration and, thus, make it willing to accept a lower price in negotiations with the insurer. Similarly, increasing the costs an insurer bears if a dispute goes to arbitration is likely to increase its desire to avoid arbitration and make it willing to offer a higher price in negotiations with providers. (We note that the relevant costs here are not just the fees charged by the arbitrator and the federal government, but also the costs the parties incur to submit and respond to arbitration claims.)

If allowing broader batching reduces administrative costs for providers and insurers equally, these effects may offset one another, causing negotiated prices to change little on net. But if switching to broader batching reduced costs for one party much more than the other, then negotiated prices could change substantially. Unfortunately, we have no basis for assessing whether allowing broad batching would affect one party’s administrative costs more or less than the other’s and, thus, whether broad batching would increase or reduce negotiated prices.

Since we are uncertain whether allowing broad batching would increase or decrease administrative costs or negotiated prices (and suspect that any effects on administrative costs would be small in the long run), we do not have a strong view on how the agencies should approach this decision. However, we do briefly comment on what a broad or narrow batching approach might look like in practice:

• Defining a “provider” for batching purposes: Since only claims from the same provider or facility may be batched, it will matter whether a “provider” is defined as an individual clinician or a group of providers who work for the same entity. (Note that we assume there is no such ambiguity for bills from facilities). Policymakers have a variety of options here.

If policymakers decide that they wish to require narrow batching, then a natural approach would be to allow claims to be combined only if they involve the same provider as defined by an individual provider’s National Provider Identifier (NPI). Based on our understanding of state surprise billing legislation, it is commonplace for each arbitration case to be specific to an individual NPI. On the other hand, if policymakers decide that they wish to allow broader batching, they could allow batching at the physician practice level. Practices could be defined based on an existing identifier like the practice’s Taxpayer Identification Number.

• Identifying “similar” claims for batching: The No Surprises Act further restricts batching to those “items and services [that] are related to the treatment of a similar condition.” If policymakers wished to constrain batching to be relatively narrow, one natural approach would be to limit batching to claims that include the same Current Procedural Terminology (CPT) codes.

By contrast, if policymakers wished to allow broader batching, they could define groups of CPT codes that fall in the same clinical domain and allow providers to batch together claims that include at least one CPT code in a specified domain. Under either approach, policymakers could also allow providers to include claims pertaining to services delivered to the same patient on the same day even if it would not otherwise qualify to be included in the batch.

Calculating the Qualifying Payment Amount

The qualifying payment amount plays a central role in the No Surprises Act. In general, the law defines the qualifying payment amount for a given item or service as the median of contracted rates for “the same or similar item or service” from “a provider in the same or similar specialty in the same geographic region” across all of an issuer’s plans in the same insurance market (i.e., the individual, small group, or large group markets or the self-insured market) on January 31, 2019, inflated forward by the Consumer Price Index for All Urban Consumers (CPI-U). Each issuer will be responsible for calculating the qualifying payment amount that applies to any particular service and will be subject to potential audits by HHS to ensure accuracy. The law specifies special procedures, which we discuss further below, for cases where an insurer enters a new market or lacks “sufficient information” to calculate the median contracted rate including for new items and services.

The law leaves many details of these calculations to be fleshed out by the agencies. In this section, we discuss several in turn: (1) how the agencies should define a “geographic region;” (2) when insurers should be considered to lack “sufficient information” to calculate a median contracted rate (and, in particular, how insurers should calculate the qualifying payment amount for new items and services); and (3) how insurers entering new markets should calculate the qualifying payment amount.

Before proceeding, we note that the law appears to envision that the median contracted rate should be calculated as the median rate across an insurer’s contracts covering a given service, treating each contract as a single data point. This approach will assign a lower weight to large (high-volume) practices than a “volume-weighted” median that treats each claim as a single data point.

We highlight the fact that the law uses a contract-weighted median primarily because it is relevant to some of the discussion that follows. However, this aspect of the law’s design does have some substantive advantages. Large staffing companies appear to have been the most aggressive in using the threat of surprise billing to extract high contracted rates, so assigning a lower weight to larger practices likely mitigates the effect those inflated amounts will have on qualifying payment amounts.

Defining Geographic Regions

The No Surprises Act directs the agencies, in consultation with the National Association of Insurance Commissioners, to define the geographic regions to be used in calculating the qualifying payment amount. In defining those regions, the agencies face a tradeoff.

Specifying large regions reduces the risk that calculations in any particular region will be heavily influenced by one or a small number of “outlier” contracts. That is a particular concern in this context since a minority of provider groups appear to have been responsible for the overwhelming majority of surprise billing. Consistent with our earlier discussion, Congress’ decision to base the qualifying payment amount on the median (rather than the mean) contracted rate and to compute that median on a contract-weighted basis rather than a claims-weighted basis suggests that Congress may have been attuned to the problems that could be created by outliers. Defining broad regions would also reduce the number of cases in which insurers will lack “sufficient information” to compute a median.

On the other hand, at least part of the variation in prices across geographic areas in 2019 likely reflected differences in the cost of delivering services in different areas. Thus, specifying narrower regions could help mitigate the risk that the qualifying payment amount could be set too low to cover providers’ costs in high-cost areas. Narrower regions could also place competing insurers on a more level playing field by reducing the number of cases in which some insurers serve part of a geographic region (and therefore calculate their qualifying payment amounts based on just part of the region), while others serve the whole region (and calculate their qualifying payment amounts based on the whole region). These considerations may have been part of why Congress specified that the qualifying payment amount should vary by region.

How to weigh these competing considerations is not completely clear, but, if forced to choose, we would lean toward specifying relatively broad regions. One approach would be to specify two regions for each of the nine Census divisions, an “urban” region that consisted of counties in the division that are part of a metropolitan statistical area (MSA) and a “rural” region consisting of all other counties in the division.

If the agencies wished to specify narrower regions, they could consider defining an “urban” and “rural” region for each state, rather than for each Census division. Alternatively, they could consider each MSA to be a region, perhaps consolidating adjacent MSAs that are part of the same combined statistical area, and consider the collection of non-MSA counties in each state to be a region. However, we recommend against adopting one of these narrower definitions of geographic region for air ambulance services; nearly 80% of air ambulance rides are delivered out-of-network and the market is dominated by two companies, so we are concerned that many regions would lack any meaningful number of contracted rates in 2019.

Cases with “Insufficient Information”

In cases where an insurer lacks “sufficient information” to calculate a median contracted rate, the No Surprises Act instructs carriers to calculate the qualifying payment amount using a database that is free of “conflicts of interest.” This continues until the first year in which the insurer has sufficient information to calculate a median contracted rate, and that rate is then inflated forward thereafter by the CPI-U.

The law leaves three key features of this process to be specified in rulemaking: (1) what constitutes “sufficient information;” (2) what databases should be considered free of “conflicts of interest;” and (3) what methodology insurers should use. We consider each of these three issues in turn:

• Defining “sufficient information”: We propose that an insurer be considered to have insufficient information if it has fewer than three provider group or facility network contracts that cover a given service in a given geographic region and insurance market as of January 31 of the relevant year (or, for years after 2019, its contracts account for less than 25% of the insurer’s claims volume for those services in that geographic region and market).

While a median can be calculated for smaller numbers of contracts, this approach reduces the potential for the qualifying payment amount to be heavily influenced by an “outlier” contract. The claims volume requirement would also prevent insurers from manipulating its qualifying payment amount by signing contracts at artificially low prices with a small number of providers.

• Defining databases free of “conflicts of interest”: The No Surprises Act specifies that state all-payer claims databases should be considered to be free of conflicts of interest but does not specify what other claims databases should fall into this category. We propose that this category also, at a minimum, include databases maintained by non-profit organizations such as FAIR Health or the Health Care Cost Institute.

• Calculation methodology: We recommend that insurers be required to use the selected database to calculate the median contracted payment for the relevant service and geographic area. This calculation would produce a volume-weighted median. While, as noted earlier, there are advantages to calculating contract-weighted rather than volume-weighted medians, it is not possible to calculate a contract-weighted median in most claims databases.

A different procedure would be necessary in the case of completely new services (or the introduction of new billing codes for old services). In these instances, we recommend that the agencies, through guidance, issue a list of related billing codes that existed in the prior year in question. For each in-network claim in the database, insurers would then calculate the ratio of the actual payment amount to the amount Medicare would have paid for that service. It would then calculate the median of those ratios and multiply by the Medicare rate for the new service to obtain the qualifying payment amount for that service.

New Carriers

The No Surprises Act tasks the agencies with determining qualifying payment amounts for the first year that a new carrier exists, after which those amounts will be inflated forward by the CPI-U. In these instances, we suggest relying on a procedure similar to the one the law specifies when there is insufficient information. That is, we recommend that insurers be required to use a conflict-free database to calculate the median contracted rate in a geographic region for each service for the prior year covered by the database and make that amount the qualifying payment amount. We note that this approach would have the advantage of placing new carriers on a reasonably level playing field with incumbents.

[1] To streamline the prose, we use the term “arbitration” and “arbitrator” throughout, but we note that the law uses the terms “independent dispute resolution process” and “independent dispute resolution entity.”

[2] This presentation of this list of factors to be considered in arbitration is adapted from this prior analysis.

[3] Technically, the law directs that this calculation be based on the “recognized payment amount,” but this amount is equal to the qualifying payment amount except for fully-insured plans in states with their own surprise billing laws.