Provider charges for out-of-network care increased by $1,157 after the passage of state surprise billing laws that allow arbitrators to consider provider charges in a surprise billing dispute.
State surprise billing laws that allow arbitrators to consider provider charges when determining out-of-network payment amounts for surprise medical bills led to an increase in billed charges for out-of-network care, according to a Health Affairs study.
Prior to the federal No Surprises Act, many states passed laws protecting patients from surprise billing. They also established a process to determine the out-of-network rate when surprise billing occurred.
Under state surprise billing laws, payment rates are usually determined by a payment standard or an independent dispute resolution (IDR) process. Some state laws allow arbitrators to use IDR processes that consider provider charges.
The No Surprises Act, which went into effect on January 1, 2022, prohibits arbitrators from considering providers’ billed charges when determining out-of-network rates. However, states with existing surprise billing laws that allow this can continue to consider provider charges during the IDR process.
In these states, providers may increase their charges to boost their out-of-network reimbursement.
Researchers looked at provider charges for out-of-network care in New York, where the state law uses an IDR process that ties payment rates to charges, and California, where the law uses a payment standard tied to in-network prices to determine reimbursement rates. Researchers also looked at comparison states that had no surprise billing laws.
The study reflects claims data between July 2011 and March 2020 for more than 3.5 million members had a nonemergency inpatient hospitalization. The study sample included 28,245 surprise bill scenarios from New York, 31,718 scenarios from California, and 60,810 scenarios from the comparison states—Kentucky, Ohio, Wisconsin, Indiana, Georgia, Virginia, and Colorado.
Before the state surprise billing laws, classified as the pre-period, provider charges were similar in New York, California, and the comparison group. However, provider charges changed in both states after the laws were passed, referred to as the post-period.
Provider charges in New York increased by $1,157 in the post-period. This signified a 24 percent increase from the pre-period average of $4,864. In contrast, provider charges decreased by $752 in California during the post-period, indicating a 25 percent reduction from the pre-period average of $3,038.
Assistant surgeon out-of-network charges in New York grew substantially after state surprise billing laws were passed, increasing by $4,358 (43 percent). There were no significant changes in assistant surgeon charges in California compared with other states, the study noted.
After provider-level panel regressions that took the mean charge per provider that maintains the composition of out-of-network providers in the pre- and post-periods, New York charges rose by $815 (10 percent), and California charges decreased by $474 (15 percent).
Similarly, after a hospital-level panel regression, charges increased by $1,009 in New York and fell by $900 in California.
Results were similar when using the law’s effective date instead of the passage date, with New York charges growing by $1,157 and California charges decreasing by $929.
It is important for policymakers to understand how considering billed charges during arbitration for surprise bills can raise out-of-network costs for consumers.
Where provider charges are an input to an arbitrator’s decision, and because charges are set by providers and not insurers, it is possible that over time, providers who might enter arbitration could selectively increase charges for infrequently performed (within a given geographic market) nonemergency procedure codes to receive higher payments during an independent dispute resolution process.
New York has begun to align its state surprise billing law with the No Surprises Act, but it is not known yet whether provider charges will still be a part of the IDR process. Other states, including New Jersey, have maintained their laws that tie out-of-network payment rates to provider charges and override the No Surprises Act.