A new rule on surprise medical bills drew sharp criticism from physician and hospital groups for its tilt in favor of using previously established payment rates as a benchmark, but organizations representing insurers, consumers, and large employers praised this approach.

The Department of Health and Human Service (HHS) joined other federal agencies on Thursday in releasing the third in a series of rules about surprise medical bills. They had already proposed a rule that would facilitate the collecting of data on the air ambulance industry and a rule on consumer protections against surprise billing. These rules, which would ensure that consumers are protected from most surprise bills, would take effect on January 1, 2022, HHS said.

The battles will be concentrated in fights between insurers and medical practitioners.

Thursday’s rule hones in on perhaps the most contentious issue in surprise billing, the question of how much health plans should pay for services provided by clinicians and hospitals outside of their networks. The American Medical Association (AMA) in a statement called the rule “an undeserved gift to the insurance industry that will reduce health care options for patients.”

In contrast, America’s Health Insurance Plans (AHIP) described the rule as signaling “a strong commitment to consumer affordability and lower health care spending.”

The new rule stems from a mandate to address surprise medical billing that Congress added to a December 2020 spending package.

Federal lawmakers want to protect consumers who have paid for health insurance from large, unexpected expenses for out-of-network medical care. Often such care is provided during emergencies. Congress ultimately left to federal agencies the responsibility for making some of the tough decisions on creating and enforcing this new mandate against surprise medical bills.

“Predictable Outcomes” or Negotiations at Stake?

The new rule that was unveiled on Thursday gives great clout to agreements that insurers already have in place with hospitals and clinicians.

A key benchmark for payment disputes is the qualifying payment amount (QPA), which is pegged to median contracted rates. In the dispute-resolution process outlined in the rule, there is a presumption that the QPA is the appropriate out-of-network rate. The rule allows for exceptions in which the independent mediating organization handling the payment dispute resolution has “credible information” as to why the QPA is materially different from the appropriate out-of-network rate.

This approach “encourages predictable outcomes,” which likely would reduce the number of disputes that go through the resolution process while also “providing equitable and clear standards” for cases to appropriately deviate from QPA, said HHS in the rule.

HHS was joined in issuing the rule by the Treasury and Labor Departments and the Office of Personnel Management.

AHIP said the rule that was released on Thursday will encourage more clinicians to join health plans’ networks.

“This is the right approach to encourage hospitals, health care providers, and health insurance providers to work together and negotiate in good faith,” said Matt Eyles, president and CEO of AHIP, in a statement. “It will also ensure that arbitration does not result in unnecessary premium increases for businesses and hardworking American families.”

But AMA argued that this approach will exacerbate existing problems caused by increased consolidation among health plans, to the disadvantage of physicians.

“It disregards the insurance industry’s role in creating the problem of surprise billing at the expense of independent physician practices whose ability to negotiate provider network contracts continues to erode,” said AMA President Gerald A. Harmon, MD, in a statement.

In making this case, AMA noted the recent publication of the annual edition of Competition in Health Insurance: A Comprehensive Study of US Markets. This study found that “a startling” 73% of the nation’s insurer markets can be classified as “highly concentrated,” AMA said. Insurers with little competition can drive up costs for consumers through higher premiums while also narrowing their practitioner networks, AMA said. The organization described this as “a root cause of the surprise medical billing problem.”

“Congress appreciated the negative consequences of national price setting for health care services and spent considerable time and effort developing a robust independent dispute resolution process,” in contrast to the one outlined in the new rule, Harmon said.

Harmon stressed the need for “accessible and impartial dispute resolution” as a “backstop against even greater insurer abuses.”

Hospitals Say Rule Is a “Total Miscue”

HHS and its partners issued this plan as an interim final rule, meaning they intend for it to take effect with few if any changes. AMA urged the Biden administration to delay implementation of the rule.

The American Hospital Association in a statement described the rule as a “windfall for insurers.” Chip Kahn, the chief executive officer of the Federation of American Hospitals, said in a statement that the new rule was “a total miscue.

“It inserts a government standard pricing scheme arbitrarily favoring insurers,” Khan said. It “essentially puts a thumb on the scale benefiting insurers against providers and will over time reduce patient access.”

Families USA, which describes itself as a nonpartisan consumer advocacy group, praised the approach outlined in the rule.

“Arbitration must be a last resort for payment disputes, with evidence showing it consistently favors providers over payers, leading to higher costs and worse choices for people seeking care,” said Jane Sheehan, director of federal relations for Families USA, in a statement. “On the occasions when arbitration must occur, the amount an insurer typically charges for similar in-network services in the same area should be the primary factor in deciding cases and needs to be defined clearly by regulators from the outset.”

Also in support of the rule is the ERISA Industry Committee (ERIC), an association that represents the views of large employers on issues of worker benefits. In a statement, James Gelfand, executive vice president for public affairs at ERIC, said the rule should limit the scope of arbitration and cost so that healthcare dollars aren’t wasted on administrative costs.

Arbitration “will be based upon market-driven rates determined by negotiation,” Gelfand said. “If a provider demands greater out-of-network rates than what other providers in that market have agreed to, the burden is on them to justify it.”

Kerry Dooley Young is a freelance journalist based in Washington, DC. She is the core topic leader on patient safety issues for the Association of Health Care Journalists. Young earlier covered health policy and the federal budget for Congressional Quarterly/CQ Roll Call and the pharmaceutical industry and the Food and Drug Administration for Bloomberg. Follow her on Twitter at @kdooleyyoung.

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