Modeling the pandemic risk
How to model the COVID-19 pandemic and forge a path to better risk insurance.
The No Surprises Act1 is a component of federal law that will take effect beginning January 1, 2022. The government has recently issued two interim final rules (IFRs), which update the existing regulation. It prohibits “surprise billing” in the following settings:
In any of these cases, a patient may unknowingly receive services from an out-of-network provider. Prior to this legislation, the out-of-network provider could bill the patient for the difference between their billed charges for the service and the payment from the insurer, a practice known as balance-billing.3
This law explicitly prohibits providers from balance-billing patients in these scenarios. It also establishes a methodology for insurers to calculate the qualifying payment amount (QPA), which is used to determine member cost sharing. The QPA can influence the initial payment submitted by the insurer and it is a benchmark amount for payment disputes.
The provider can refuse the initial payment offered by the insurer as reimbursement for services provided and can instead negotiate directly with the insurer during an initial period or, after that period, trigger a third-party arbitration process called Independent Dispute Resolution (IDR), which must be performed by a certified IDR entity.
The QPA is defined4 as the median of the contracted rates5 recognized by the insurer. It should be calculated separately for insurance market, provider specialty, service rendered, and geographic region, where sufficient information is available. The definitions for each of these criteria come with varying degrees of specificity.
"Insurance market" is a general term that broadly identifies the line of business for the services provided. For example, separate QPAs should be calculated for an insurer’s individual, commercial large group insured, commercial small group insured, and commercial self-funded lines. Self-funded plan sponsors may choose to use their specific negotiated rates or the rates for all self-funded groups administered by the same entity. If the insurer uses a rental network, the QPA should reflect that network’s contracted rates.
A separate QPA should be calculated for providers in different specialties when a health plan’s contracted rates vary by provider specialty or facility type, as described in Figure 1.
|Provider Type||Specialty/Provider Type Definition|
|Physician||The practice specialty of a provider, as identified by the plan or issuer consistent with the plan’s or issuer’s usual business practice.6 If the business practices vary between contracting and other business needs, then the method of determining provider specialty for contracting should be used.|
|Air ambulance||Not applicable: No distinction is made between types of air ambulance providers, because the service codes make the distinction between rotary and fixed wing aircraft.|
|Facility||Facility type, specifically emergency department of a hospital or a freestanding emergency department.7|
The QPA should be calculated separately for each procedural code. Service procedure codes can include Current Procedural Terminology (CPT), Healthcare Common Procedure Coding System (HCPCS), or diagnosis-related group (DRG) codes, and can also utilize different systems.8 The service identification should also include any relevant procedure code modifiers that affect provider payment rates. If the service is rendered under a new code for which the insurer does not have existing contracted rates, a similar code may be used. The definition of similar code is vague, but the QPA IFR suggests the code should reside in the same code family or have similar relative value units. In this case, Medicare payment rates or another established fee schedule could be used to adjust for the difference in relative cost between the two services. For unit-based services, such as anesthesia services and air ambulance mileage, the QPA is determined for the applicable base unit.
The U.S. Department of Health and Human Services (HHS) has defined geographic region at three levels, metropolitan statistical area (MSA), state, and census division as defined by the U.S. Census Bureau.9 Figure 2 provides detailed definitions for how regional differences are applied in the No Surprises Act. Figure 3 outlines how plans should determine the appropriate regional definition that applies to a given service.
|1) Metropolitan statistical area (MSA)||Each MSA is defined by a grouping of counties. MSAs that cross state lines are further divided based on the state boundaries.|
|2) State||Each state is split into two geographic areas based on the counties that fall within an MSA and the counties that are not within an MSA.|
|3) Census division||Each census division is split into two geographic areas based on the counties that fall within an MSA and the counties that are not within an MSA. There are nine census divisions that make up the United States. Therefore, there will be 18 geographies: the nine census divisions times the MSA/non-MSA split.|
An insurer is deemed to have sufficient information if, as of January 31, 2019, they have at least three contracted rates for a combination of insurance markets, specialty/provider types, services, and geographic regions as described above. Figure 4 describes all the conditions for an insurer to have sufficient information.
|Year used to calculate the median rate||Sufficient information conditions|
|2019||If three or more contracted rates as of January 31, 2019|
|First year after 2022||Where the following are true:
|For new services, the first year after the first coverage year|
An insurer may use a third-party database to calculate the QPA when the insurer does not have “sufficient information” to calculate the QPA. The third-party database must:10
The allowed amounts for all contracted services within an insurance market, provider specialty, service type, and region will be used to calculate the median for the QPA. The resulting median calculated from these databases is weighted by claim rather than by contract, which generally gives more weight to providers with larger market share and less to providers with lower market share in the claims submitted to the third-party database.
If an all-payer model agreement or a state law prescribes a methodology for calculating a recognized amount for surprise billing, then the all-payer model agreement or state law will be used whenever it applies to the insurer, the nonparticipating provider, and services rendered. If the all-payer model agreement or state law does not apply to all of these criteria, then the QPA will be calculated using the methodology described above.11
The interim final rule Requirements Related to Surprise Billing; Part I details the process of trending the QPA using services from 2019 to 2022 and beyond. A trend factor equal to the percentage increase of the average consumer price index for all urban consumers (CPI-U) will be applied to the QPA, determined using services from 2019. The CPI-U inflation factor to be used will be published by the Internal Revenue Service (IRS).
The provider can refuse to accept the initial payment proposed by the insurer and invoke an open negotiation period instead. The plan and the nonparticipating provider have 30 business days to agree upon the reimbursement amount. If the parties do not come to an agreement after 30 business days, then either party can submit to begin the federal independent dispute resolution (IDR) process. The request to begin IDR must be submitted within four business days after the negotiation period ends.12
The dispute will be resolved by a certified IDR entity, which is a federally approved entity that must not have a conflict of interest.13 Once the open negotiation period has ended, either party may initiate the IDR process by submitting a Notice of IDR Initiation through the federal IDR portal. The initiating party will suggest its preferred IDR entity. The other party may object and recommend an alternative IDR entity along with an explanation of its reason for objecting. This back and forth can continue until an agreement is made. If the parties fail to agree on an IDR entity, then one will be selected for them. In all cases, the selected IDR entity must not have a conflict of interest.
Within 10 business days of the selection of the IDR entity, each party must submit a final offer in total dollars and percentage of the QPA, information required for public reporting, and any additional information requested by the IDR entity described in Figure 6.
While this should be considered and addressed during the open negotiation period, the non-initiating party and the IDR entity should also consider whether the services provided are covered under the No Surprises Act.
Figure 6 outlines the factors that the IDR entity may and may not consider when making a decision on which offer to select.
|Primary Consideration||The QPA calculated by the insurer.|
|Prohibited From Consideration||
The IDR entity is instructed to anchor its decision to the QPA by selecting the offer closest to it unless credible and material additional considerations demonstrate that QPA is not a reasonable payment for the service(s) in question. If the offer further from the QPA is chosen, the IDR entity must identify which additional consideration(s) influenced that decision. Outcomes of the IDR decision will be sent to both parties and HHS.
The selection criteria are intended to standardize the IDR process and ensure that the outcomes are “predictable, fair, and equitable."15
The initiating party cannot begin the IDR process with the same counterparty for the same or similar items for 90 calendar days after the Notice of IDR Initiation. For services that fall within this 90-day suspension period, the parties have the 30 business days following the suspension period to submit a Notice of IDR Initiation.
Both parties have the option to batch similar IDR requests, which may reduce the administrative burden of entering the IDR process.
The fees16 for the IDR process will be paid by the losing party. If an agreement is reached during the IDR process, but prior to the IDR determination, the fees will be split evenly between both parties. Both parties may agree upon an alternative method for allocating the fees as well.
Insurers and providers can prepare for the No Surprises Act now by:
Additionally, the calculation of member cost sharing and explanations of benefits (EOBs) should be updated to reflect the No Surprises Act. Making these changes in advance of the January 1, 2022, effective date will at a minimum save time and effort.
1This paper refers to the No Surprises Act contained within Division BB, Title 1, of the Consolidated Appropriations Act of 2021 and subsequent details provided by the U.S. Department of Health and Human Services (HHS).
3Balance-billing protection applies only to services covered under the No Surprises Act. In some cases, the balance-billing is permitted when the provider gives advance notice to an individual and receives their consent to waive balance-billing protections.
4The interim final rule Requirements Related to Surprise Billing; Part I, published July 13, 2021, details the QPA calculation methodology. The full text can be found here: https://www.cms.gov/files/document/cms-9909-ifc-surprise-billing-disclaimer-50.pdf.
5Contracted rate is also known as the allowed amount. This is the total dollar amount including member cost sharing (e.g., copays) that a health plan has agreed to pay a provider. This should be sourced from the rates in a contract between an insurer and provider.
9U.S. Census Bureau. Census Regions and Divisions of the United States. Retrieved November 12, 2021, from https://www2.census.gov/geo/pdfs/maps-data/maps/reference/us_regdiv.pdf.
12The interim final rule Requirements Related to Surprise Billing; Part II, published October 7, 2021, outlines the regulations for the federal IDR process. The full text can be found here: https://public-inspection.federalregister.gov/2021-21441.pdf.
15See p. 56 of the interim final rule Requirements Related to Surprise Billing; Part II, published October 7, 2021. The full text is here: https://public-inspection.federalregister.gov/2021-21441.pdf.
16CMS has released guidance on total fees for the IDR process here: https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Technical-Guidance-CY2022-Fee-Guidance-Federal-Independent-Dispute-Resolution-Process-NSA.pdf.