Surprises in the No Surprises Act: An Interview with Greg Fann (Part 2)
By Kristi Bohn
Health Watch, November 2024
This article represents the second half of an interview begun in the September issue of Health Watch.
Kristi Bohn (KB): Welcome back, Greg. Continuing our discussion, the No Surprises Act (NSA) was designed to shield health care consumers from unexpected bills when treated by out-of-network providers or facilities, especially when in-network options aren’t available. After reflecting on our previous conversation, do you think the law is achieving its intended goals?
Greg Fann (GF): That’s a great question, Kristi. Generally, consumers should feel reassured that the NSA is working to reduce surprise bills; most consumers are not receiving significant unexpected charges. However, while preventing surprise bills is the more straightforward aspect of the law, establishing a fair payment rate without a pre-existing agreement between payers and providers presents a more complex challenge. This disagreement has led to increased litigation, and as we discussed in September, arbitration volumes are 14 times higher than expected. So, while the law effectively prevents surprise bills, the broader goals related to payment structures and overall transparency have not yet been fully realized.
KB: Let’s dive deeper into those concerns. Why is arbitration volume so high?
GF: Perhaps we should consider the argument from another angle: the projected volume was too low. The process starts with insurers submitting an initial payment offer, which providers accept about 80% of the time. For the remaining 20%, there is a split, but the majority of cases are informally settled without proceeding to the Independent Dispute Resolution (IDR).
It’s also reasonable to expect that acceptance of initial payments will increase over time. A fundamental principle of arbitration is that parties are more likely to reach an agreement if they have a common understanding of what an arbitrator will decide. Cases that go to arbitration typically involve parties with differing expectations. As we gain more experience, the parties’ views on arbitration outcomes will likely converge, leading to a decline in the number of cases.
KB: I would suspect that the baseball method [explained in part 1 of this article] could lead to gaming and bad actors that could really elevate overall claims costs. Is there evidence that gaming is occurring in practice?
GF: Yes, there are indications that some providers are utilizing strategies to game the system, such as inflating charges or selecting arbitrators who lean favorably toward them. We have seen in other instances, outside of the NSA, that material changes in provider reimbursements could incentivize some bad actors to change coding practices or even provide alternative services deemed more financial advantageous. These behaviors can indeed escalate overall claims costs. Some aggressive disputes have emerged from providers backed by private equity firms, particularly in states like California and New York. IDR is intended as a last resort if agreements cannot be reached through informal negotiation, but it may become a preferred option for some entities.
KB: Can you comment on the backlog of claims filed under this provision?
GF: Yes, the backlog is significant. The number of cases going to arbitration has exceeded expectations, and there is a limited number of certified IDR entities, which was likely sufficient for managing the originally anticipated volume. The complexity and administrative burden of processing these claims are likely slowing down the resolution process. We may see some policy adjustments to improve efficiency in the near future.
KB: I have a question about the filing deadlines. Have there been favorable arbitrations to providers for claims that did not meet the filing deadlines outlined in the NSA?
GF: There are reports of arbitrations favoring claims despite missed deadlines, which complicates adherence to the act’s guidelines and can lead to a lack of accountability.
KB: I have heard that parties are not fulfilling their end of the bargain in terms of 30 days of good faith negotiations. Can you talk about that?
GF: Unfortunately, there are numerous reports suggesting that some parties are not engaging in meaningful negotiations within the stipulated time frame. This could stem from a few factors. Some health care entities might not engage promptly, which can be frustrating and time-consuming. There could also be strategic delays aimed at pressuring the other party into accepting less favorable terms.
KB: I have also heard that parties are choosing arbitrators who tend to look favorably on them. Can you comment on that topic?
GF: Absolutely. There have been numerous allegations regarding strategic selection of arbitrators who may exhibit bias toward the party that selected them. This is not entirely surprising, as there is always some element of strategic selection in arbitration. This dynamic may even grow as IDR history develops.
Concerns about fairness in the arbitration process are valid. Some parties may prefer arbitrators with a history of favoring similar claims, leading to potential imbalances. To mitigate this, discussions are ongoing about implementing a random assignment system for arbitrators, which could help ensure a more equitable process. Additionally, some arbitrators may have more experience or familiarity with certain types of claims, prompting sentiments to direct specific claims to particular arbitrators.
KB: It’s been said that parties are filing hours’ worth of paperwork for arbitrators to read—so much that it is overwhelming for the arbitrators given the relatively small fees involved. Is there evidence that arbitrators could be judging cases based on the comparative size of the paperwork involved from the two parties?
GF: There is anecdotal evidence suggesting that the volume of documentation presented may influence arbitrators. When overwhelmed with extensive paperwork, they might lean toward simpler resolutions, which can skew fairness. There is concern that excessive paperwork could overwhelm arbitrators, compromising the quality of decisions.
KB: Is it true that there have been favorable arbitrations to providers for services that were explicitly excluded by the plan document?
GF: You’re asking tough questions. Yes, there have been instances where providers have received arbitration awards for services clearly excluded from plan documents. This raises significant concerns about the consistent interpretation of the NSA provisions, suggesting that some arbitrators may interpret the law in a way that does not align with contractual agreements between payers and providers. Such rulings could set precedents that complicate future negotiations and compliance efforts.
KB: Is there evidence that health plans are reacting by inviting more health care providers to become in-network providers?
GF: Early evidence supports this and was generally expected; it’s viewed as a beneficial by-product of the law. Health plans may lose some negotiation leverage, but there’s an advantage to paying contracted amounts rather than facing arbitration risks. A Fair Health study indicates an increase in the percentage of claim lines that are in network from 84% in the first quarter of 2019 to 90% in the third quarter of 2023.[1]
However, an unintended consequence, according to Brookings’ researchers, is that the NSA may be driving up in-network prices, contrary to what the Congressional Budget Office (CBO) “predicted at enactment and something that the lawmakers who crafted the law said they wished to avoid.”[2] They support this by referencing that median IDR decisions are 370% of Medicare rates, aligning more closely with traditional out-of-network payment rates rather the in-network rates that the CBO projected.
KB: Is the high degree of claims in the system affecting the need for elevated reserves when compared to prior years?
GF: I was told all IBNR questions would be on another study note, but yes, the high volume of claims and the associated uncertainty around the outcomes of arbitration are indeed affecting reserve requirements. Insurers are now facing the challenge of estimating liabilities related to potential arbitration awards, which can fluctuate significantly. Historically, reserves have been calculated with a fair degree of confidence, but with the experienced unpredictability in emerging results, many insurers are now leaning toward holding larger reserves to account for these uncertainties.
KB: Related to claims adjudication, have new administrative resources been needed for plan sponsors, such as from carriers or third-party administrators?
GF: Certainly, and there are several processes to consider. There is the IDR process, of course, and resources from both the plan sponsor and provider side are required in that regard. Similar items and services related to claims under IDR could be bundled, which helps alleviate some administrative burdens.
Plan sponsors should consider expenses related to the additional resources that are needed, such as technology/tools; increased third-party fees; or increased staffing costs. These expenses are material enough that it is relatively common for plan sponsors to reflect these costs in shared savings programs and/or IDR submission fees.
KB: Do you think there is room for the use of artificial Intelligence (AI) in this field?
GF: “Is there room for you in the No Surprises Act?” Sorry, Kristi, that’s not my answer. I was asking AI a question on my phone. Its answer is, “Yes, AI has the potential to play a transformative role. For example, AI can enhance the efficiency of claims processing by automating data analysis and identifying patterns that may lead to quicker settlements. Additionally, machine-learning algorithms could assist in predicting arbitration outcomes based on historical data, helping both payers and providers better understand potential costs and negotiation strategies. However, implementing AI will require careful consideration of ethical implications, particularly concerning data privacy and algorithmic bias.” I can agree with that.
KB: While we are not attorneys, given ERISA’s fiduciary requirement that plan sponsors work to reduce plan’s expenses, do you see fiduciary concerns that warrant employers seeking more counsel from their ERISA attorneys on this topic?
GF: That’s an easy question for an actuary to answer. “I am not an attorney. Employers should seek counsel from ERISA attorneys to navigate fiduciary responsibilities and compliance complexities and to mitigate financial risks associated with the act’s requirements.”
KB: OK, I’ll throw something new at you—Chevron deference. What impact might the recent Supreme Court case Loper Bright Enterprises v. Raimondo have?
GF: That’s a well-timed question, as I’m a panelist on a related Society of Actuaries (SOA) webcast on November 20. To date, the Fifth Circuit recently cited the Supreme Court’s June 28 decision, concluding that federal agencies are not entitled to deference in rulemaking and acted contrary to the text of the NSA at issue in the lawsuit. This affirmed the district court ruling and vacated the challenged provisions in the Final Rule.
Multiple lawsuits have emerged, primarily involving statutory interpretation, with the first to reach a circuit court being arguably the most prominent. The concern centers on how the administration sought to implement aspects of the law’s arbitration process. The circuit court case is often referred to as “TMA II,” being the second of four related lawsuits filed by the Texas Medical Association (TMA). The primary challenge by the plaintiffs was the federal agency’s emphasis on the qualifying payment amount (QPA), effectively directing arbitrators to prioritize it over other relevant factors.
The Fifth Circuit Court ruled that the government overstepped its bounds by imposing requirements that were not explicitly mandated by statute: “(1) arbitrators must consider the QPA first; (2) arbitrators must not consider information that is not credible or related to the issue, or that is already accounted for in the QPA; and (3) arbitrators must explain their reasoning if they do not solely rely on the QPA.”[3] Instead, arbitrators should be free to weigh all applicable factors, including the QPA, doctor’s training, market share and patient acuity.
Further, as of a ruling on October 30, the method for calculating health-provider rates in resolving surprise medical billing disputes was upheld by the Fifth Circuit, reversing a lower court’s ruling that the federal government’s methodology to determine a key benchmark under the NSA exceeded the statute’s bounds. At the time of this article’s publication, judicial review is ongoing.
KB: That’s insightful. We’ve covered regulatory dynamics and judicial reviews. Let’s not leave out the other branch of government. Is there legislation developing to address ongoing concerns?
GF: Yes, and it’s a bit of a tongue twister. The No Surprises Act Enforcement Act has been proposed, unsurprisingly, by several physicians in Congress. Its primary aims are to increase transparency and close enforcement gaps; if passed, financial penalties for noncompliance with payment deadlines will be increased. An interesting dynamic about the bipartisan nature of the law is that, unlike other legislation such as the Affordable Care Act, claims that the legislation is not properly functioning are met with “OK, what do we need to do to fix it?” rather than reactionary defensiveness, so we may be more likely to witness cooperation and swifter action in addressing some of its problems.
KB: Well, it’s great to end on a positive note about Congress. Is there anything you would like to add about the NSA that we did not discuss?
GF: Like everything in the health care policy world, my best advice is to stay current. The NSA aims to protect consumers, and while it has shifted payment dynamics positively, ongoing developments, potential legislative changes and best practices will be essential for effective implementation and compliance.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
Kristi Bohn, FSA, MAAA, is senior vice president, U.S. Group Re. Kristi can be reached at kristi.bohn@rgare.com.
Endnotes
[1] FAIR Health, “In-Network and Out-of-Network Utilization and Pricing: A Study of Private Health Care Claims,” FAIR Health, February 20, 2024, https://s3.amazonaws.com/media2.fairhealth.org/whitepaper/asset/In-Network%20and%20Out-of-Network%20Utilization%20and%20Pricing%20-%20A%20FAIR%20Health%20White%20Paper.pdf.
[2] Matthew Fiedler and Loren Adler, “A First Look at Outcomes under the No Surprises Act Arbitration Process,” Brookings, March 27, 2024, https://www.brookings.edu/articles/a-first-look-at-outcomes-under-the-no-surprises-act-arbitration-process/.
[3] Sheila Ranganathan and Zachary Baron, “A Win for Providers: Appellate Ruling Maintains Status Quo for No Surprises Act Arbitration Process,” Health Affairs, August 22, 2024, https://www.healthaffairs.org/content/forefront/win-providers-appellate-ruling-maintains-status-quo-no-surprises-act-arbitration.