No Surprises Act Implementing Regulations Answer Some Questions, Leave Others Pending

The Departments of Health and Human Services, Labor, and Treasury, and the Office of Personnel Management recently issued an Interim Final Rule (IFR) implementing portions of the No Surprises Act enacted in December 2020. Effective for plan year 2022, the Act seeks to curb out-of-network bills and limit patients’ cost-sharing obligations to the amount that would be owed in-network when the Act applies, but Congress deferred many significant issues in the Act to the regulatory process.

The IFR addresses the methodology for calculating the patient’s cost-sharing obligation, the types of medical services subject to the Act’s protections, how the Act interacts with state balance-billing laws, and the requirements for notice-and-consent waivers exempting non-emergency services from the Act. The IFR invites comment on various regulations, but the Departments did not provide for a full regulatory notice and comment period, as doing so would have left insufficient time for implementation and unnecessarily exposed patients to the ongoing risk of balance bills. Additional regulations will be released in phases, including on the Act’s baseball-style Independent Dispute Resolution (IDR) process near the end of 2021.

Calculating And Processing Qualifying Payment Amounts

The Act established the Qualifying Payment Amount (a new statutory term) as both a basis for determining the patient’s cost-sharing amount and as a mandatory “consideration” in the IDR process. The QPA must be based on “the median of the contracted rates recognized by the plan or issuer,” but the Act leaves the precise calculation to rulemaking.

The IFR’s calculation of the QPA generally arranges from least to greatest the contracted rates for the plan sponsor (or all self-insured group plans administered by the same entity, at the sponsor’s option) in the same market for the same service, and then selects the middle number.¹  The IFR calculation recognizes only contracted rates as separate data points; individual charges from and payments to providers, regardless of volume, are not separately recognized, such that a provider group with a single contract rate for a particular service represents a single data point. While the calculation also includes “indirect” contract rates (i.e., accessed through third parties), it excludes single-case arrangements that supplement a provider network for specific patients.

Notably, the QPA calculation differentiates median contract rates based on facility type, at least when their contracted rates vary. The Departments explain that freestanding emergency departments have historically been able “to charge higher rates for services on an out-of-network basis, and to balance bill enrollees when the charges were denied in part or in full,” which led to freestanding departments typically remaining out-of-network. Relatedly, the IFR calculation does not distinguish between rates for teaching hospitals (which are often higher) and rates for non-teaching hospitals, since patients typically go to the nearest emergency department regardless of the facility’s features that may bear on its contracted rates.

As to claim processing, the Departments expect that an “initial” payment, as referenced in the Act, will not be a “first installment,” which some stakeholders had expressed as a concern. Instead, the Departments’ view is that the initial payment, owed within 30 days of a clean claim, should be the amount the payor reasonably intends to be payment in full under the plan’s coverage terms.

Regarding application of the prudent layperson standard for emergency medical conditions, the IFR specifies that a plan cannot determine what constitutes an emergency medical condition “solely on the basis of diagnosis codes.” Automatic code-based coverage denials, whether or not followed by application of the prudent layperson standard on appeal, are inconsistent with the No Surprises Act and the Affordable Care Act, according to the Departments. The prudent layperson standard should be applied on a case-by-case basis based on “all pertinent documentation and be focused on the presenting systems (and not solely on the final diagnosis).”²

Avoiding Interference With State Balance-Billing Laws

Although the QPA will be the basis for determining a patient’s cost-sharing amount in most instances, a “specified State law” will control, regardless of the QPA, if such a law is in effect. A “specified State law” under the Act is one that “provides a method for determining the total amount payable,” subject to ERISA preemption under § 514, but the IFR notes that only 14 states (which are not identified) have enacted payment standards for non-participating providers. Despite the current rarity of such laws, the Act’s deference to a “specified state law” raised several questions for the Departments. For example, what qualifies as a “specified State law,” and what is the minimum standard for deferring to such a law?

The Departments explained that their intent was to “supplement, rather than supplant state balance billing laws.” Thus, they interpreted the state-law provision broadly to include state laws permitting plans to negotiate and engage in a state arbitration process to determine the out-of-network rate. The Departments’ view is that Congress did not intend for the Act to preempt state balance-billing laws that address issues beyond calculating the cost-sharing amounts and out-of-network rates, provided the state laws do not prevent the application of a federal requirement or prohibition on balance billing.

Accordingly, a state law qualifies as a “specified State law,” according to the Departments, when it applies to: (1) the payor or coverage involved; (2) the non-participating provider or facility involved; and (3) the item or service involved. And because some states permit plans to opt in to their balance-billing laws, the IFR provides that the first criteria is satisfied where the payer has opted in for all items and services to which the state law applies, with such opt-in prominently displayed in plan materials.

Defining Medical Services Subject To (And Excluded From) The Act

As noted above, the No Surprises Act defines an emergency medical condition, and by extension emergency services, based on the prudent layperson standard. Services subject to the Act further include certain post-stabilization services and non-emergency services provided by an out-of-network provider at a participating facility. The IFR expounds on the scope of services subject to the Act, in addition to the circumstances and requirements for a patient’s waiver of the Act’s protections.

Under the Act, “Ancillary Services” will always qualify as emergency services, including emergency medicine, anesthesiology, pathology, radiology, neonatology, assistant surgeons, hospitalists, intensivists, laboratory services, and services provided when there is no participating provider who can provide the service at the facility. The IFR expands “Ancillary Services” to any service provided “as a result of unforeseen, urgent medical needs that arise at the time an item or service is furnished.”

For exemptions of non-Ancillary Services from the Act’s protections, the Departments issued a mandatory form for effectuating valid notice and consent. The form requires a “total cost estimate” of what the patient may be asked to pay, and the IFR clarified the circumstances for how and when patient consent may be obtained.³

Generally, the patient or their representative must be “in a condition to receive the information” and the stabilized patient must be able to travel “using nonmedical transportation” to a participating provider or facility that is “within a reasonable travel distance, taking into account the individual’s medical condition.” The determination of a patient’s travel ability is made by the attending or treating provider, whose decision is binding on the facility.

The IFR’s Practical Effects Are Uncertain

Much remains unsettled under the No Surprises Act, but the IFR is a helpful first step toward answering some important questions. We anticipate that the landscape will continue shifting as the Departments issue additional regulations and receive comments on pricing, administration, and patient experiences under the Act.

¹ The IFR provides specific guidance on calculating the QPA for anesthesia services, air ambulance services, and bundled payments or other alternative payment methodologies.

² The Departments further clarified that nothing in the IFR prevents plans from approving coverage solely on the basis of diagnosis codes or considering diagnosis codes when deciding payment for a claim for emergency services, “provided a denial of coverage is not based solely on diagnosis codes.”

³ As to the required timing for providing notice to the patient, notice generally cannot be given less than 3 days (72 hours) before the date of service. Even when the scheduling of non-participating services occurs on the same day the services are provided, notice cannot be given less than 3 hours before the services are furnished.