Public Policy Analysis & Opinion

By Kevin P. Hennosy

WELCOME TO THE POWER GAME

Arbitration rule for air ambulance claims expected soon

This is an opinion column, so I do not want to bury my lede—in the jargon of journalism.

From this rapidly aging observer’s perspective, insurance industry advocates like the America’s Health Insurance Plans (AHIP), Blue Cross Blue Shield Association, and even my good buddies at the National Association of Insurance Commissioners (NAIC) are doing the right thing fighting for rules to govern the air ambulance sector.

In the March 2021 issue of Rough Notes, this column focused on the congressional enactment of the No Surprises Act of 2020. In this month’s installment I will provide an update on the statute’s implementation through rulemaking.

The congressional intent of enacting the No Surprises Act was to eliminate unexpected billing for out-of-network healthcare expenses to consumers.

By pleasant extension, the elimination of those surprise bills should reduce the number of savage phone calls placed to insurance agents and brokers from seriously angry individuals and benefits officers.

Well … that is the hope.

After January 1, 2022, healthcare providers and insurance carriers will negotiate payment for out-of-network fees and expenses. If the parties cannot come to an agreement, the statute provides for an arbitration process defined by federal rule-makers.

Rulemaking

There is an old saw in politics that no one should want to watch the making of sausage or legislation. That time-honored observation should not exclude the rulemaking process, which can include ingredients and processing that may not prove appetizing.

On July 1, 2021, the U.S. Department of Health and Human Services (HHS) issued a rule to implement the general provisions of the No Surprises Act next January.

So far, so good! No one should be reaching for the air-sickness bag.

Powers that be

But then, the HHS rule-makers began the difficult part: drafting rules to create an arbitration process for use by healthcare providers and insurance carriers.

Certainly, health insurance plans, workers compensation insurers, and auto insurers receive healthcare claims from out-of-network claims on a regular basis. Disagreements arise. An arbitration process should salve the sores of these disagreements, and help the parties arrive at an agreement.

Imagine the critically ill patient in a remote area calling the ER and saying, “Doc, I will be on my way after I search this app on my phone and find a great air ambulance at a fair price!” Give us a break!

Yet, as we shall discuss, the players above are not the only ones who hold interest in what rules govern an arbitration process. Observers expect a tension-filled effort.

At least two very wealthy and politically powerful economic interests want to shape the rules to govern arbitration. Every sub-clause in those rules could equate to many millions of dollars won or lost by the arbitrating parties.

Furthermore, this process is a measure of power, and the personalities interested in this rulemaking crave to demonstrate their power at least as much as they pine for money.

The HHS rulemaking decision will impact the interests of two powerful economic factions that

are both used to getting their own way: insurance carriers and private equity funds.

One might expect arbitration proceedings limited to the type of insurance firms noted above and health providers, such as doctors, hospitals, nurses, or other frontline medical workers. That would be a rational expectation—in the twentieth century.

Network power

If insurance carriers did not abhor the prospect of losing power over any part of their business, we would not even need a term for “out-of-network” losses. Networks would not exist.

The networks should be understood as patron-client relationships. In return for delivering paying patients to providers, the latter tenders a level of subservience to the healthcare plans or insurance carriers. No one likes to describe networks using that term, but they extend power over healthcare providers.

Under those patron-client relationships, the plans can mitigate the risk of loss and better weigh the remaining risk through analyzing the financial loss data generated by claims. As clients to the networks, the providers may chafe under the agreements, but they do like the lines of patients that come with submitting to the network.

As noted above, the insurance firms and plans support the creation of an arbitration process. Insurance interests supported the passage of the No Surprises Act, but another powerful player opposed the act and does not see the arbitration process as beneficial to their business model.

Cartel power

This is where the private equity firms enter our discussion. This commentator will forgive readers who ask the question: “Where did private equity firms come into this discussion?”

In the example presented by out-of-network claims generated by air ambulance services we must consider the unfettered power of a small number of private equity firms.

In a 2020 Brookings Institution report, researchers presented analysis of air ambulance data collected by the Medicare program in 2017. Brookings researchers found that two private equity firms (KKR and American Securities) owned 64% of the helicopter air ambulance services submitting charges to Medicare.

When researchers looked at the entire subsector of fixed-wing air ambulance groups’ submissions for payment to Medicare, air ambulance “carriers owned by the same two private equity firms, plus one additional small private equity-owned carrier, represent 62%” of the charges.

As one would expect, this concentration of ownership in the sector tracks with inflated prices for services. For helicopter air ambulances, private equity-owned services charged more than seven times the Medicare approved rate. For fixed-wing service, private equity-owned services charged nearly nine times the Medicare reimbursement rate.

To make matters worse for those paying the bills, 80% of the air ambulance services are out-of-network. This situation not only has harmed the injured person who cannot “shop around” for an in-network air ambulance from a wrecked car in a North Dakota ditch, it also hampers health insurers’ attempts to price air ambulance transports because they do not have statistical material loss data from in-network claims.

Some may argue that the delivery of air ambulance service is simply an expensive proposition. Yet, the Brookings report found that helicopter and fixed-wing ambulances owned by municipalities, nonprofits, hospitals and others delivered care at prices much closer to the Medicare standard than those services offered by publicly traded companies or the private equity firms.

No wonder the private equity firms opposed the No Surprises Act.

Complications

Beyond the parties’ well-earned reputation for intransigence, the several factors complicate HHS’s construction of a successful arbitration process.

The two complications reflect unusual characteristics inherent to air ambulance services, as well as restrictions placed upon future arbitrators by the enabling statute.

The first complication reflects the relatively rare and expensive nature of the air ambulance service. As noted above, the charges arise from a relatively infrequent but expensive covered claim event. Such claims are extraordinarily difficult to price for insurance, purposes, even under in-network situations.

We should note that such claims have become less rare in states that did not expand Medicaid programs under the Affordable Care Act of 2010 (ACA). In those states, the number of rural hospitals has diminished as larger hospitals have consolidated the market. Consolidated markets have forced the closing of smaller institutions. In the best cases, rural hospitals have specialized the use of their space, and assumed that cases outside of those designs would be airlifted to urban centers.

This complication could be addressed by applying the same regulatory framework that applies to ground-based ambulances. At the federal level, the ACA contains provisions to regulate pricing for ground ambulances.

Many state-based fair trade practice statutes provide similar public interest protection. Such laws and regulations recognize that ambulance service is not subject to “market power.” In such cases, public officials usually apply regulatory frameworks.

Oddly enough, some special interests with enough money to pay for good attorneys have succeeded in winning court challenges to such state and federal oversight for air ambulances. Courts ruled that air ambulances fall under the price deregulation provisions of the Airline Deregulation Act of 1978 (ADA).

Of course, the ADA presupposed, if deregulated, airlines would follow the market demand and airfares would respond to informed consumer choice.

Never mind that informed consumer choice seems seriously lacking among the market for air ambulance “rides.” Imagine the critically ill patient in a remote area calling the hospital emergency room and saying, “Doc, I will be on my way after I search this app on my phone and find a great air ambulance at a fair price!” Give us a break!

I hope those judges never hear about the Law of the Sea when considering cases dealing with water ambulances! If so, we will be footing the bill for piracy risk.

In less colorful terms, The National Association of Insurance Commissioners (NAIC) recently called attention to the air ambulance pricing problem with a letter addressed to an advisory committee of the U.S. Department of Transportation. The NAIC letter urged the department to provide Congress with the advisory committee’s report on air ambulance pricing.

In a classically buried lede, the NAIC observed, “States should have the authority to shield consumers from unfair trade practices of air ambulance providers as they do in nearly every other industry.”

A second complication that will increase tensions during the HHS rulemaking process reflects constraints placed on future arbitrators by the No Surprises Act. Readers should remember, in the legislative process there are at least two bills. The first bill is pro-posed. The second bill is enacted.

In the example of the No Surprises Act, the enacted bill included a provision that prohibits arbitrators from considering cost data garnered from Medicare, Medicaid, or other public payment sources. This provision chains the hands of arbitrators.

Now, if this column did not carry a warning to readers that it presents commentary, the columnist would not observe the following: The provision that constrains use of public-payor data appears to be a dream come true for higher priced private equity or publicly traded air ambulance services and probably came from them in the legislative process. I was not in the room to know how it got there, but I have been in some rooms where legislation was hammered together.

A hope

It is my hope that by the time that this column goes to press, HHS will deliver rules that clean up the price gouging and other abuses in the air ambulance sector. That said, I know that the relative handful of services owned by private equity and publicly traded firms will be fighting such public interest-oriented regulation. Check with your representatives in Washington … and keep your fingers crossed.

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.