Public Policy Analysis & Opinion

By Kevin P. Hennosy

THE NO SURPRISES ACT SNEAKS THROUGH CONGRESS

NAIC views the legislation as “overdue reforms”

In the waning days of the last Congress, something unusual happened—bipartisan legislation drafted to address a national need passed both chambers. Shortly thereafter, the No Surprises Act received the president’s signature.

Finally, some real Schoolhouse Rock! stuff!

The No Surprises Act “protects patients from surprise medical bills and promotes fairness in payment disputes between insurers and providers, without increasing premiums for patients or interfering with strong, state-level solutions already on the books,” according to the bill’s lead sponsor Senator Patty Murray (D-Wash.).

In mid-December 2020, Senator Murray startled many congressional observers by announcing a “bipartisan, bicameral” legislative deal. Through a statement issued by the Senate Committee on Health, Education, Labor, and Pensions (HELP), Senator Murray explained:

Under this agreement, the days of patients receiving devastating surprise out-of-network medical bills will be over. Patients should not be penalized with these outrageous bills simply because they were rushed to an out-of-network hospital or unknowingly treated by an out-of-network provider at an in-network facility. This is a win for patients and their families that will improve America’s healthcare system.

This compromise legislation seeks to address a national problem while balancing input from the insurance, medical provider, and private equity sectors.

This compromise legislation seeks to address a national problem while balancing input from the insurance, medical provider, and private equity sectors. Like most compromises, this one caused some grumbling in each of the interested areas.

Networks

Of course, the appearance of surprise bills is collateral damage caused by the health insurance sector’s move to various forms of managed care based on networks of contracted providers and hospitals.

Testimony submitted in May 2019 by the America’s Health Insurance Plans (AHIP) to a subcommittee of the House Ways and Means Committee, explained:

Surprise medical bills occur when patients are treated by out-of-network providers under circumstances where consumers cannot reasonably plan for or avoid treatment from these providers. For example, they can occur following an emergency trip to the hospital, or when an ancillary out-of-network provider cares for a patient during a planned procedure at an in-network facility.

Often, the bills cause financial emergencies in households. It is difficult to conjure an instance of surprise billing that does not damage trust in insurance plans.

Patients receive these bills with dismay that generates tense exchanges with producers, customer service centers, and state regulatory agencies.

The AHIP testimony cited above recognizes the confusion faced by individuals presented with a surprise bill: “Patients often don’t realize and have no way of knowing that many physicians are independent contractors who work at the hospital, but not for the hospital, and who independently choose whether or not to join a health plan network.”

States

State officials have tried to respond to what is a national problem. As of the end of 2020, 17 states had passed legislation designed to address surprise billing. The states took a wide variety of approaches to consumer protection.

The differences among state approaches made regulatory compliance by health plans needlessly complex and expensive.

To make matters more confusing to the layperson, the states lacked jurisdiction over various sources of surprise billing. For example, states lacked jurisdiction over self-funded employer plans and the wildly expensive emergency air transport.

Regulators

Just before the passage of the No Surprises Act, the National Association of Insurance Commissioners (NAIC) sent a letter to the congressional leadership of both major political parties to endorse the legislation.

The NAIC letter observed: “Too many consumers have faced unexpected expenses and financial hardship through no fault of their own because of surprise bills.”

The letter continued, “The bottom line is consumers need relief from surprise bills as quickly as possible, so we support quick action by Congress and offer any assistance state regulators can provide to move it over the finish line.”

Insurers and providers

Both insurer and provider organizations recognized that surprise billing posed a problem, and both wanted to get the patient out of the middle of any disputes. Still, finding a compromise took some time.

Insurers had pushed for a rational remuneration standard to govern payments to out-of-network providers. Suchas, the in-network payment rate plus a defined percent increase for payment of out-of-network fees.

Providers expressed concern about using an in-network payment rate as a standard because insurers controlled that number. As such, insurers could use their power over that standard to reduce both in-network and out-of-net-work payments.

Furthermore, provider advocates pointed out that in many parts of the country there is little or no competition between healthcare plans, so their members in those areas felt compelled to accept payment rate reductions.

To counter the insurers’ proposal, providers’ organizations asked Congress for a mediation system to decide fee disputes. Again, the dispute would not involve the patient.

Advocates for insurers resisted the initial mitigation proposal as potentially favoring providers’ normal and customary fees, which insurers warned could be inflationary.

Blended solution

The compromise legislation is a blended solution to the problem, in state jurisdictions that lack legal frameworks over fee disputes.

The law creates a voluntary system of dispute resolution between insurers and providers. It begins with negotiations between the parties. If the parties cannot reach agreement, both parties then submit proposed payment amounts to an arbitrator. Since the losing party will pay the arbitrator, legislators tried to build in a disincentive for frivolous disputes.

The law directs the arbitrator to consult the median in-network fees paid by the plan when considering the two parties’ proposed payments.

In addition, among other provisions, the law extends this arbitration system to cover emergency air transport. To aid this system, the emergency air transport sector must file claims data and other information.

Private equity

The passage of surprise billing legislation suffered more than a year’s delay because private equity firms and trade groups lobbied against it.

Private equity firms, including hedge funds and venture capital firms, are important investors in a relatively new subsector of medical providers: Medical Provider Staffing Firms.

Many of us still want to think of medical practices as individualistic small business. The provider receives expert training and opens an “office,” or joins one. With the introduction of provider networks and staffing firms, that independent medical practice model went the way of dial telephones.

Just as some observers worry that provider networks answerable to insurers could drive down providers’ earning power, the rise of staffing firms seems to increase fees. Yet, those fee increases do not go to the providers. Instead, that increased revenue goes to the private equity firms.

To protect that revenue, lobbyists for the private equity sector scuttled compromise legislation to eliminate surprise billing in late 2019.

Senator Murray’s compromise legislation came as a bombshell just as a bill to address COVID-19 response and federal spending was poised to pass, which allowed Congress to attach the bill to that larger “must pass” legislation. Otherwise, the private equity sector might have succeeded again.

American history includes volumes of political legend and lore about the power and prowess of “medical lobbies” and “insurance lobbies,” but today the private equity sector wields political influence beyond those groups.

The political power of medical providers and the insurance sector has always benefitted from healthy campaign treasuries; however, the geographic distribution of both sectors’ membership was just as politically potent as the money. Doctors, nurses, hospitals, insurance producers, and insurers hold social and commercial standing in every congressional district.

The money behind any private equity lobbying program dwarfs the budgets of provider and insurance lobbying programs. That bounty of political spending attracts the top political and legislative strategists, which allows them to create political power beyond campaign contributions and “grassroots” organizing. Private equity firms can create national and international social standing where none existed.

The private equity sector wields the treasure to make full use of Dark Money strategies and “Astroturf” political networks. If that sentence triggers your interest, pick up a copy of Jane Mayer’s book, Dark Money. The book tells the tale of uncounted funds moved through various forms of nonprofit entities, and political committees to exert power. Stories that your civics teacher never shared.

Furthermore, author Brian Alexander explains in his book Glass House: The 1% Economy and the Shattering of the All-American Town, the private equity sector perverts the rules of commerce, society, and politics. The book recounts the story of glassmaker Anchor Hocking, the town of Lancaster, Ohio, and how both suffered through the machinations of private equity. By logical extension, the book explains how private equity dismantled the American manufacturing sector and profited from the destruction.

And yes, when Mr. Alexander recounts the deeds of private equity groups, he mentions the names of several insurance companies dabbling in private equity operations.

The political power of private equity may make insurers pine for the days of battling trial lawyers, organized labor, and consumer groups. We can understand the passage of the act was a political defeat for an adversary that does not lose many fights.

Overdue reforms

Neither provider groups nor insurance groups completely embrace the No Surprises Act, which goes into effect in 2022. Still, the act addresses a problem that both sectors recognized was hurting their business operations and public standing.

Part of the NAIC letter echoes insurers’ continuing concerns over inflation when it explains: “While state regulators are concerned about the potential impact the compromise legislation could have on healthcare costs, we agree that protecting consumers is the priority and we hope Congress will continue to work with states and other stakeholders to address any negative impacts resulting from these overdue reforms.”

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.