Using states as living laboratories to solve surprise medical billing

Although surprise billing has been the subject of vigorous debate in federal and state legislatures, work to resolve the issue on the federal level reached an impasse when the House passed a spending package that did not include anticipated surprise bill legislation.

Surprise bills are those sent to consumers from out-of-network providers for emergency services or for nonemergency services unexpectedly rendered by an out-of-network provider, typically at an in-network facility. While there is widespread agreement that consumers should be protected from paying more for a surprise bill than they would for an in-network bill, there is spirited debate about how to determine the amount that health plans should pay out-of-network providers for such care.

A number of states have succeeded in enacting surprise bill laws. These differ in their particulars, making the states, in effect, living laboratories for their distinct approaches.

Four states have adopted strategies making use of data from my organization, FAIR Health, though each has elected to use the data in different ways.

As an independent nonprofit, FAIR Health has no bias for or against any public policy position, but serves those who aim to create policy with our data resources and technical expertise. Particularly relevant to surprise billing legislation are our benchmarks. These are reports of typical costs for services in specific geographic areas, based on data from our vast repository of more than 30 billion private health care claim records.

Here is how these four states are seeking to address surprise billing.

New York. One approach to surprise billing is independent dispute resolution. In New York state, if a payer and a provider cannot agree on how much the latter should be reimbursed for a service in a surprise bill scenario, they may seek what is known as “baseball arbitration.” In this, an arbitrator chooses between the payer’s and the provider’s final bids. The law requires that arbitrators resolving such disputes consider a variety of factors, including the severity of the problem, the condition of the patient, the provider’s expertise, fees paid to the provider by other plans for the same out-of-network service, and fees paid by the payer to other providers for the same out-of-network service.

Among these factors is the “usual and customary cost” of the service, a term codified in the state’s statute. That cost has been officially designated as FAIR Health’s 80th percentile benchmark of charges — the nondiscounted fees that providers bill for an out-of-network service. The 80th percentile means that 80% of all fees billed by providers in our database for the particular service in that geographic area are at or below that level.

Connecticut. Another approach to surprise billing is to mandate a specific rate for reimbursement. For out-of-network emergency services, Connecticut requires payment at the highest of three values: (1) the in-network rate (also called the allowed amount) under the patient’s plan; (2) the FAIR Health 80th percentile charge benchmark; or (3) the Medicare reimbursement rate. Nonemergency surprise bills in Connecticut are handled differently. For those, unless there is agreement between the parties, a plan must pay a provider the insured individual’s in-network rate.

New Mexico. Like Connecticut, New Mexico mandates payment for surprise bills at a set rate, but a different one: the 60th percentile of FAIR Health’s allowed amount benchmark for the particular service in the specific geographic area, provided that no payment is less than 150% of the Medicare reimbursement rate. Because actual allowed amounts — the fees negotiated between provider and plan — are proprietary information, the FAIR Health benchmark values for allowed amounts are calculated using methods that do not disclose actual allowed amounts but closely reflect their range.

Texas. Texas adopted an approach similar to New York’s in using independent dispute resolution rather than mandated rates to address surprise bills. But Texas provides different processes for resolving disputed professional bills and facility bills. In the case of professional bills, as in New York, the arbitrator conducting the baseball arbitration must consider a list of factors, among them FAIR Health benchmarks. But in Texas, the benchmarks to be considered are not only the 80th percentile of billed charges but also the 50th percentile of allowed amounts. Facility bills are treated under a different procedure, mediation, with no prescribed factors for consideration by the mediator.

These four show that solutions can be enacted to address the problem of surprise billing, and that there is more than one way to do so. Objective, third-party health care cost data, such as those our organization provides, can be useful in a variety of approaches. The experience of these living laboratories may prove instructive to other federal and state legislators as they continue to seek solutions to this widely acknowledged issue that is harming consumers.

Robin Gelburd, J.D., is the president of FAIR Health, a national, independent nonprofit organization dedicated to bringing transparency to health care costs and health insurance information.