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Federal Surprise Billing Law Looks Broadly Favorable for Lab Business


NEW YORK – Following the failure of Congress in 2019 to enact federal surprise billing legislation, many observers expected the issue to become a focus for legislators in 2020.

Turns out that wasn't the case.

Nonetheless, Congress did manage last year to pass a surprise billing law, slipping the No Surprises Act into the omnibus spending bill that was signed into law in the final week of 2020. And while the lab business has not garnered as much attention as areas like emergency medicine where surprise billing is concerned, the law is likely to have an impact on laboratory billing and negotiations with insurers.

Broadly speaking, surprise billing refers to situations when a patient receives out-of-network treatment without their knowledge and is then required to pay the oftentimes large portions of the bill not covered by their insurance. A 2019 analysis by the Health Care Cost Institute, a non-profit funded in part by major insurers including Aetna, Humana, and Kaiser Permanente that studies drivers of healthcare costs, found that of specialty claims billed as out of network during an in-network hospital admission, 22 percent were for independent lab testing. In a 2018 survey, researchers at the National Opinion Research Center at the University of Chicago found that of patients who received surprise bills, 51 percent of them received surprise bills for lab testing.

Over the course of the COVID-19 pandemic, there have been a number of high-profile incidents of surprise billing for SARS-CoV-2 testing with, for instance, the New York Times reporting patients being charged hundreds or thousands of dollars for testing.

Slated to go into effect on Jan. 1, 2022, the No Surprises Act prevents out-of-network providers from balance billing patients for emergency and non-emergency services provided at an in-network provider unless the patient voluntarily chooses to use an out-of-network provider. Instead, the patient's insurer and the out-of-network provider must negotiate between themselves a fee for the service. If they are unable to come to an agreement, they can take the dispute to arbitration, with the loser paying the costs of arbitration.

More than 30 states already have surprise billing laws on the books, but these laws vary in terms of what kind of services they apply to and they also cover only non-ERISA (Employee Retirement Income Security Act of 1974) plans, which leaves out the majority of plans, including most employer-sponsored health insurance.

Jonathan Myles, chair of the government and professional affairs committee at the College of American Pathologists, said that while the No Surprises Act wasn't perfect from a lab perspective, it did include a number of features that had been high priorities for the organization and other lab groups.

Most notably, CAP has advocated heavily for the use of arbitration for dispute resolution as opposed to other proposed mechanisms based on, for instance, the median in-network payment in a provider's geography.

Analyses by researchers like Loren Adler, associate director at the USC-Brookings Schaeffer Institute for Health Policy, have shown that in states like New York that have adopted an arbitration process to resolve surprise bills, it has resulted in payments substantially above median in-network rates, which suggests one reason they are the preferred option for providers and organizations like CAP.

Labs and other providers also feared that a median rate approach would give too much leverage to payors in negotiations over reimbursement.

"The problem with a median in-network rate [policy] with no arbitration provision is that it gives the insurance company no incentive to have providers in their network, because if you aren't in their network you are still going to get just the median in-network rate," Myles said. "And what will happen is their median in-network rate will spiral down and providers will have no recourse."

He said that CAP was also pleased to see that the law sets no minimum monetary threshold for a claim to go to arbitration.

"Several of the bills that were in Congress had high minimum thresholds for a claim to go to arbitration, and for pathology this was particularly relevant because most of our claims are less than $750," he said.

The law also allows for batching of claims, meaning multiple similar claims can be arbitrated together, which Myles said will lower the costs of arbitrating claims.

While the arbitration provisions were a win for labs, Myles highlighted the lack of provisions setting network adequacy standards as one weakness of the legislation from CAP's perspective. Providers have commonly argued that surprise billing is largely a symptom of too narrow insurance networks.

He noted that the law did call for a study on network adequacy standards, calling it "a step in the right direction, but… not exactly where we want it to be."

Ann Lambrix, VP of client relations at consulting firm Vachette Pathology, suggested that even with the arbitration provision, the No Surprises Act still substantially undercut labs' leverage with insurers by removing their ability to balance bill out-of-network patients.

"In the past we would be able to walk away and say, 'Your rates are poor, UHC, and therefore we will remain out of network. We won't accept your full rate as paid in full … your patients are going to get slapped with a big bill,'" she said. "Your patient is going to be upset, and that brings that payor to the table."

She added that Vachette has been working with clients to line up favorable contracts with payors in advance of the act passing with the expectation that their negotiating power would be reduced going forward.

Vachette CEO Mick Raich said, though, that while he likewise saw the act reducing labs' negotiating power, there could be a silver lining in that the newly established arbitration process could make it easier for labs to get paid for out-of-network testing they would in the past have simply written off.

"Some labs will look at this and say, 'OK, we're not getting anything now when we bill this out-of-network work. We'll get something if we go to arbitration because we can prove that we provided value and a diagnostic result to this patient,'" he said.

Raich added that with implementation of the bill a year away and many of the details still to be spelled out via rulemaking processes, it is possible the bill will change before going into effect.

"What does a Democratic-controlled Congress and President do to this bill?" he said. "I don't know how the left and right sit on this."

Support for the bill was broadly bipartisan. One of the main players involved in scuttling attempts to pass surprise billing legislation at the end of 2019 was Representative Richard Neal (D-MA), chairman of the House Ways and Means Committee, who promoted, among other provider-friendly provisions, inclusion of the arbitration process.

"We've been in an environment over the last year that has been such crazy, COVID times, that I wouldn't be surprised if there are changes to [the law]," Lambrix said. "It's still a year down the road."

Myles said CAP would engage with the rulemaking process for the law and particularly how portions of the arbitration process were defined by that process over the course of the year.

"We will be working very closely to advocate to make sure that those definitions are workable from a practical standpoint to ensure that we received fair payment and that the arbitration process is easily accessible and workable," he said.