Don’t Act Surprised

Imagine this: One day, you find yourself in a bad car accident that requires emergency surgery. The ambulance takes you to the hospital, which is fortunately in your network, as is the surgeon operating, but the anesthesiologist on call is not. Good news though – Congress passed the No Surprises Act (NSA), implemented in 2022, so you don’t have to pay any more than you normally would if the anesthesiologist was in-network. All that’s left is for your insurance company and hospital to fight over the difference. The bad news: The provider/payer fights are likely to cause your premiums to go up and make the provider market more concentrated, raising prices for everyone. How did this happen? Let’s explore below.

First, a bit of background. Back when Congress passed the NSA, there was broad agreement on the basic principle – Patients shouldn’t have to pay more when they aren’t given a choice of an in-network provider. However, there was little agreement on how the payer and provider should settle the patient bill. Providers weren’t going to accept the in-network rate without regular access to beneficiary populations (the carrot for being in-network), and insurers didn’t want to cover the entire out-of-network rate that was designed around cost-sharing to encourage cheaper in-network provider choices by patients (the stick for being out-of-network). To mediate between the parties, Congress included an independent dispute resolution (IDR) process in the NSA. This IDR was based on baseball-style arbitration, whereby two parties come to the table and an independent arbiter (chosen mutually by the parties or, failing that, by the federal government from an approved list), each submits an offer, and the arbiter chooses one. Crucially, the arbiter is not empowered to meet in the middle, which might happen normally with contract negotiations. Congress included some guidelines about which option the arbiter should choose, including the qualifying payment amount (QPA, a payer-specific median of network rates), provider characteristics, prior contracted rates between the payer and provider, market share, and level of patient care involved. Rules issued from federal agencies about how to weigh each factor (with emphasis on the QPA being the primary component), but providers sued and the rules became tied up in court.

As recent data from the Centers for Medicare and Medicaid Services (CMS) shows, these negotiations have been significantly more frequent than expected and have favored providers over payers. According to CMS, the number of disputes initiated through IDR between January 1- June 30, 2023 was 13 times greater – a whopping 288,810 disputes – than initially estimated by the Departments of Health and Human Services (HHS), Labor, and Treasury for an entire calendar year. A Government Accountability Office (GAO) report in December of 2023 stated that HHS, Labor, and Treasury expected about 22,000 disputes in 2022, but between April 15, 2022-July 1, 2023, they received over 489,000. To drive the point home: In the first year of the IDR program, more than 14 times the expected number of disputes were submitted. Due to the large number of disputes and the small number of arbiters, between January 1-June 30 of 2023, only 83,868 payment determinations were made. Of the 83,868 payment determinations made, approximately 77 percent were in favor of providers, facilities, and air ambulance providers.

So, if providers were generally winners, how much did that change payment amounts? Quite a lot, as it turns out. According to CMS, 82 percent of payment determinations were higher than the QPA. An analysis of CMS data by the Brookings Institute found that the median IDR payment determination was 3.7 times what Medicare pays for the same service. Brookings also found that in two categories of services with data on “historical mean in-network commercial prices relative to Medicare, the median [IDR] decision is at least 50 percent higher than these past prices”. According to Brookings, median IDR payments exceeded Medicare payments by 3.7 times for emergency, imaging, and neonatal/pediatric care. IDR payments also exceeded historical means for in-network commercial prices – emergency care ranged from 2.5-2.6 times more than Medicare, while imaging ranged from 1.8 to 2.4 times more than Medicare. The payment were pretty close to historical out-of-network means, with emergency care historically averaging 3.9-4.7 times what Medicare paid and imaging services averaging 2.9-3.3 times more than Medicare.

Since the QPA standard wasn’t law and regulatory implementation of it has been struck down, why should we care that insurers are paying more? First, the bill’s Congressional Budget Office (CBO) score believed that payments would be close to in-network rates and would thus avoid premium increases, which paved the way for the NSA’s passage. Now, given that IDR payments are significantly higher than expected, we can also expect premiums to rise with them. Second, part of the appeal of the NSA was that it would incentivize providers to be in-network, making care cheaper for patients and insurers. As Brookings analysis points out, not only do the higher prices discourage providers from joining insurance networks, they could possibly encourage more providers to leave if they think they’ll get better prices – which will also increase premiums as insurers have to cover the higher costs. Third, the providers benefiting from these increased payments are heavily concentrated in major provider organizations: Brookings notes that “74 percent of services analyzed in this study were tied to physicians affiliated with four large firms”. This jives with CMS’ findings that the top three initiating parties which “represent thousands of clinicians across multiple states” and “accounted for approximately 58 percent of all disputes submitted in the first six months of 2023.” This incentivizes more providers to join major provider organizations and health systems, since these systems can initiate more IDRs and secure higher payments for providers – increasing concentration, and thus prices, in the health care system.

A huge selling point of the NSA was that patients would pay less and premiums wouldn’t go up. But central planning makes fools of us all, and the government-planned arbitration process has functionally wrecked the intent of the law. Rather than let two private parties figure out how they’re going to resolve the out-of-network price and go back and forth on negotiating, we’ve installed a single-judgement arbitration system that requires the choice of specifically-approved arbiters (adding yet another special interest to our nation’s tangled web of a health care system) with no room for back-and-forth or meeting in the middle. Now premiums and concentration are both likely to increase, meaning beneficiaries are going to be paying more all around for care. If we want to fix this, Congress should toss the IDR system entirely and let adversarial negotiation work its market magic. Put another way, let’s protect patients from overpayments and let providers and insurers bloody each other for the rest.