No Surprises Act Gives Plan Sponsors Savings Opportunities

The No Surprises Act, enacted as part of the Consolidated Appropriations Act of 2021 and made effective Jan. 1, 2022, was designed to protect patients from surprise bills for emergency services at out-of-network facilities — or out- of-network providers at in-network facilities — holding patients liable only for in-network cost-sharing amounts. To achieve this goal, the No Surprises Act was required to limit the amount, regardless of the charge, to which out-of-network providers are entitled, called the qualifying payment amount. The Texas Medical Association, together with certain other medical providers and two air ambulance service providers,[1] recently successfully challenged in the U.S. District Court for the Southern District of Texas portions of regulations issued pursuant to the No Surprises Act concerning the primacy of the qualifying payment amount in the independent dispute resolution process on two occasions.[2] While the regulations about the weight afforded the qualifying payment amount during the independent dispute resolution process remain in flux due to ongoing litigation, it is still evident that the qualifying payment amount will play a significant role. The No Surprises Act also provides an employer or plan sponsor of an Employee Retirement Income Security Act group health plan an opportunity to revisit their plan’s administrative services agreements with their third-party administrator and reduce or eliminate certain fees being charged by the third- party administrator. Indeed, because these potential savings can be significant, sponsors have a fiduciary obligation under ERISA to understand these fees and how they can be reduced in light of the act. Because the act only just became effective in 2022, many sponsors are understandably still working through a myriad of compliance issues and navigating the independent dispute resolution process. However, as discussed in this article, because the potential savings — i.e., money back to the plan — can be significant, sponsors should also focus on the negotiation of third-party administrator service agreements and, particularly, the removal of cost- containment programs to prevent their plan from paying excessive fees. Overview of the No Surprises Act Issue The animating concept of the No Surprises Act is that rates charged for certain services by out-of- network providers — that is, those providers outside a plan or insurer’s network not obligated to

charge for services at negotiated discount rates — are typically higher than those charged by in- network providers. However, the terms of many plans and insurance policies allowed them to pay an amount for the out- of-network service that was considerably less than the charged rate. To make up for the difference not paid by the plan, the out-of-network provider would typically bill the participant, a practice commonly known as balance billing. Balance billing presented participants with large medical bills that were often difficult, if not impossible, to pay. To make matters worse, these balance bills were often charged for services where the participant either had no choice or unknowingly used the out-of-network provider, for example, in emergency situations. Solution While not a perfect solution, in an effort to remediate the balance billing issue, Congress enacted the No Surprises Act, which, in a nutshell, prohibits out-of-network providers from balance billing for certain out-of-network services. Under the No Surprises Act, an out-of-network provider or facility cannot balance bill for: Emergency services performed by an out-of-network provider or at an out-of-network facility; Air ambulance services provided by an out-of-network air ambulance company; or Out-of-network services provided at an in-network facility — e.g., an out-of-network anesthesiologist that provides services at an in-network hospital. In lieu of balance billing for these protected claims, the No Surprises Act entitles the out-of-network provider to payment of a certain limited amount. The plan and/or insurer is required to apply cost-sharing requirements for services a participant receives from an out-of-network provider as it would an in-network provider. Practically, this means that the cost-sharing with the participant must be in a “recognizable amount,” which generally is the qualifying payment amount, as determined through the independent dispute resolution process.[3] Qualifying Payment Amount Generally speaking, the qualifying payment amount should equal the median in-network rate for an item or service covered by the plan in the same geographic region in which the item or service was furnished. The qualifying payment amount generally comes into play where the plan or insurer and out-of- network provider cannot agree on a payment amount and are required to engage in the independent dispute resolution process. This process works as follows: The out-of-network provider submits a complete or “clean” claim to the plan. The plan has 30 days to send an initial payment. This initial payment is the amount the plan determines that, along with the participant’s cost-sharing responsibility, it will pay the out-of- network provider in full.

Independent Dispute Resolution Process

If the out-of-network provider disagrees with the initial payment from the plan, the parties are expected to resolve the dispute through open negotiations. If those negotiations are unsuccessful, the parties can initiate the independent dispute resolution process whereby a certified entity determines the qualifying payment amount.[4] The parties are required to abide by the determination of the entity. Third-Party Administrator Cost-Containment Programs As part of their services, many third-party administrators offer to negotiate sky-high out-of-network provider charges downward on behalf of the plan. Once the payment amount is agreed to, it is considered payment in full, and the out-of-network provider agrees to not balance bill the participant, a service commonly referred to as a cost- containment program. The starting point of these negotiations is typically the — sometimes arbitrarily high — amount billed by the out-of-network provider. The goal of these cost-containment programs is to both reduce the amounts paid by the plan or insurer to the out-of-network provider and prevent participants from being balanced billed. However, the third-party administrator also benefited from this arrangement. In return for providing the cost-containment services, the administrator typically receives a percentage of any negotiated savings. For example, Hospital A charges $200,000 for an appendectomy with an out-of-network specialist. The third-party administrator negotiates payment of $140,000 by the plan to the out-of-network provider, and the administrator receives 25% of the $60,000 in “savings” from the negotiated amount, or $15,000. Therefore, in addition to the fees charged for providing administrative services to the plan, including cost containment, the third-party administrator also receives additional and often, significant compensation in the form of a percentage of the negotiated reduction of out-of-network charges. Negotiation of Mitigated Fees in Cost-Containment Programs Regardless of the ultimate contours of the independent dispute resolution process under which plans and out-of-network providers will resolve payment disputes for items and services covered by the No Surprises Act, the act greatly restricts an out-of-network provider’s payments. Accordingly, any third- party administrator fee based on savings from out-of-network charged amounts will no longer be reasonable. This implicates both a legal duty and the potential for a plan to save on third-party administrator fees. Under ERISA, the sponsor is a fiduciary that is required to carefully monitor the fees and expenses paid by the plan. In this regard, sponsors are required to explore the structure, costs and fees of not just their third- party administrator agreement but all of the plan’s service provider agreements and, where possible, ensure that the plan is not overpaying for its services, including any cost containment services. Sponsors Are Obligated To Negotiate Cost-Containment Programs In short, the No Surprises Act obligates sponsors to revisit their third-party administrator agreements to ensure that the plan and its participants are not paying for an administrator to contain costs that are in a much narrower range. The potential savings to the plan and participants are significant. Failure to review, understand and reduce these fees in light of the No Surprises Act could expose sponsors to breach of fiduciary claims for payment of excessive fees.

Sponsor Action Steps

In order to protect the sponsor from a breach of fiduciary duty claim and achieve potentially significant savings for the plan and its participants, sponsors are encouraged to take the following steps:

Review your plan’s third-party administrator agreement for any cost-containment provisions.

Where such cost-containment services are offered, work to better understand how the fees are determined.

To the extent that fees are based on a percentage of savings from initial out-of-network provider charges, arrange to have the third-party administrator agreement negotiated and revised to exclude or reduce those services and fees.

Ensure the third-party administrator has been updated to include the new No Surprises Act language.

Ensure the third-party administrator has also been updated to reflect the various recent requirements under the Consolidated Appropriations Act of 2021 and is clear as to which party is obligated to comply with each provision.

Document each of the above steps to memorialize the due diligence required of ERISA fiduciaries when making decisions regarding plan expenses and general compliance.

Grant Shuman and Tim Kennedy are partners, and Anne Tyler Hall is a managing partner, at Hall Benefits Law.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

---

[1] The medical providers are Dr. Adam Corley and Tyler Regional Hospital, LLC. The air ambulance service providers are LifeNet, Inc., and East Texas Air One, LLC.

[2] See Tex. Med. Ass’n v. U.S. Dep’t of Health and Human Servs ., 2023 WL 1781801, *1-*6 (S.D. Tex. Feb. 6, 2023). Regardless, the No Surprises Act states that the IDR entity “shall consider” the qualifying payment amount. See 42 U.S.C. § 300gg-111(c)(5)(C)(i). Consequently, consideration of the QSA in the IDR process is inevitable.

[3] Under the No Surprises Act, the “recognizable amount” technically means (in this order), (a) the amount determined by any All Payer Model Agreement, (b) state law, (c) the lesser of the amount billed by the provider, or (d) the qualifying payment amount.

[4] Note, that while the role of the qualifying payment amount and how it is weighted in determining the amount payable to the out-of-network provider is currently being litigated, it is understood that the amount determined during the IDR process will typically be significantly lower than what the out- of-network provider sought to charge.