Federal lawmakers are debating legislation to address surprise medical bills that, if passed in its current form, would significantly impact how hospitals, physicians and insurers negotiate payment for the provision of certain out-of-network services. A bipartisan coalition led by Senator Lamar Alexander (R-Tennessee), Chairman of the Senate Health, Education, Labor and Pension Committee, and Senator Patty Murray (D-Washington) aims to present to the President for signature a bill to curb surprise billing practices by the end of the year.

Instances of surprise medical billing frequently arise in emergency care situations, where patients often lack the capacity to select the emergency room, their treating physician, or their ambulance provider. Surprise medical billing also occurs in scheduled-care settings, where a patient receives planned services from an in-network provider, but other out-of-network ancillary physicians and providers participate in the course of care.  In the absence of governing state or federal law, when an insured individual receives care from an out-of-network provider, the insurer pays the lower contracted in-network rate and the out-of-network provider then bills the patient for the remaining balance, resulting in a practice known as surprise medical billing or balance billing.

Currently, twenty-five states have enacted laws to address surprise billing. However, in the absence of federal legislation, a substantial number of patients covered under health plans regulated by the federal Employee Retirement Income Security Act of 1974 (ERISA) are not subject to state regulation of surprise bills , thus prompting Congress to look into the issue.

There is a clear appetite on Capitol Hill to address surprise billing, with one policy gaining unanimous support among lawmakers — holding patients harmless from surprise medical bills. Legislators appear to agree that surprise billing should be prohibited even in instances where the patient received scheduled rather than emergency care, and therefore had greater opportunities to discover that a provider from whom they were to receive care was out-of-network.  Despite this broad consensus, however, lawmakers disagree over the proper payment dispute resolution mechanism for non-contracted providers, leaving a legislative solution very much in-flux.

At issue is a choice between three payment dispute resolution models.

One proposal, modeled after the “baseball-style arbitration” approach currently in effect for surprise bills in New York, would require an insurer and a provider — if the parties are unable to reach an agreement — to enter into a formal dispute resolution process wherein each would present to an independent arbitrator their best offer for how much an out-of-network service should cost. The arbitrator would then choose between the two proposals. A recent report by the New York State Health Foundation indicates that the policy has had at least some effect in lowering out-of-network billing for emergency care.  However, it is unclear whether a federal legislative fix will ultimately follow New York’s lead.

A second legislative proposal, referred to as network matching or an in-network guarantee, would require a facility-based provider to either contract with every insurer that the facility accepts or secure alternative payment from the hospital rather than the insurer. In fact, Senator Alexander had expressed an early preference for this approach and had included the policy in the initial Committee draft of the bill. However, in response to vocal opposition from hospitals and providers, he and Senator Murray ultimately eschewed the in-network guarantee in favor of a third alternative, known as benchmarking.

Benchmarking would require insurers to pay out-of-network providers the median in-network negotiated rate for the service in the geographic area where that service was delivered. This alternative to resolving payment largely mirrors the original proposal offered by Chairman Frank Pallone (D-New Jersey) and Ranking Member Greg Walden (R-Oregon) of the House Energy and Commerce Committee, who have crafted their own version of the bill. However, the House bill includes an arbitration backstop: providers and insurers would be allowed to appeal to a neutral arbiter the median in-network rate in cases where it exceeds $1,250. Moreover, the current Senate version of the bill also extends the benchmarking policy to air ambulances, with Sen. Alexander noting that nearly 70% of transports by air ambulances were out-of-network in 2017, according to the Government Accountability Office.

Stakeholders should also take specific note of the preemption provisions in the proposed legislation. Notwithstanding ERISA, except with respect to self-insured group health plans, the Senate bill would not interfere with or pre-empt state solutions for out-of-network payment dispute resolution mechanisms. Rather, the provisions of the Senate bill would only apply to group health plans or health insurance coverage in an individual or group market offered in a state that has not enacted a dispute resolution process for non-contracted provider payment. The provisions would also be limited to self-insured group health plans that are not subject to state insurance regulation.

Similarly, the House bill provides that federal law shall not supersede any existing state laws that set a benchmark or provide for an arbitration process for the fully insured plans that the state may regulate.  As a result, one criticism of the initial draft legislation was that it would allow state laws that have less robust protections than federal law to preempt federal law. Certain stakeholders recommended clarification that federal law applies unless state law is equally or more robust. Despite those concerns, however, the preemption provisions were not amended in the version of the bill that was voted out of Committee. An amendment to clarify federal preemption could still be offered on the floor; however, as of now those criticisms remain intact.

Looking forward, while a broad coalition of health payers and employer benefit groups successfully lobbied Senators to include the benchmarking proposal, an equally broad coalition of hospital and provider groups, were able to amend the House bill to include the arbitration backstop. While at this writing there is legislative momentum for a pathway that allows payors and providers to arbitrate at least some claims, the House and Senate are not yet in sync over the issue and so the shape of a final legislative solution is presently unclear. EBG will continue to monitor the progress of federal legislation and will provide further updates as they are known.

Christopher Taylor, a 2019 Summer Associate (not admitted to the practice of law) in the firm’s Washington, DC, office, contributed significantly to the preparation of this post.