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State, Federal Surprise Billing Laws Poised to Impact Lab Business


NEW YORK (360Dx) – While Congress appears unlikely to pass federal surprise billing legislation by the end of the year, the issue may become a focus for legislators, both on the federal as well as state level, in 2020.

Although laboratory services have not been at the forefront of the surprise billing discussion, they could see significant impacts from legislation, suggested Erin Duffy, a healthcare policy analyst at the University of Southern California's Leonard D. Schaeffer Center for Health Policy & Economics.

She cited recent research she did looking at surprise billing at ambulatory surgery centers.

"When I looked at the different provider types that were generating surprise bills, I was really surprised to see that independent labs came up quite a bit," she said. "The physician groups have been kind of loud and proud and have a lot of the funds behind them to do more lobbying, but I think labs could really be affected by [a surprise billing] law."

Lab services have also become a more salient issue for surprise billing legislation at the state level, said Christina Cousart, a senior policy associate with the National Academy for State Health Policy.

"I think there is an increasing recognition of the role that labs play in this discussion," she said. "A lot of the early work on surprise billing really centered on emergency departments and emergency physicians and what was going on there," she said. "But as states and others started to dig deeper into the situation, they realized that the issue for consumers went beyond just the providers they were seeing and to external facilities and labs."

In fact, 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's found that of patients who received surprise bills, 51 percent of them received surprise bills for lab testing.

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 number of high profile cases have involved emergency care in which, for instance, an unconscious patient receives treatment at a hospital that is out of network with their insurance plan. More commonly, surprise bills occur when an in-patient provider involves another, out-of-network, provider in a patient's care. For instance, a hospital in a patient's insurance network might employ an anesthesiologist who is out of network, and that patient might receive services from that out-of-network anesthesiologist without being able to agree to it.

In the case of labs, surprise billing can occur when, for instance, in-network physicians send patient samples to out-of-network labs, or when in-network pathologists send samples to out-of-network specialty labs for additional testing.

While many of the most widely publicized surprise billing cases have occurred in the emergency and hospital setting, a number of state laws and some proposals for federal legislation also include protections against surprise bills occurring in non-emergency and non-hospital settings.

According to a report published this summer by the Commonwealth Fund, 28 states currently have laws on the books regulating surprise billing. Manaasa Kona, assistant research professor at Georgetown University's Center on Health Insurance Reforms and an author on the report, said that lab services have not been a focus in the first rounds of state legislation on surprise billing, but she noted that a number of states including New York, New Jersey, and Texas cover lab testing in their surprise billing legislation.

States including Michigan, Ohio, Pennsylvania, and Connecticut also either proposed or passed surprise billing legislation in 2019 that could impact lab testing.

The Connecticut bill, in particular, drew attention from provider groups, with the College of American Pathologists, American Association of Clinical Urologists, American Urological Association, and American Academy of Dermatology submitting a letter in May opposing the law on the grounds that, as written, it did not appear to "allow for patients to voluntarily elect to receive services from out-of-network laboratories and pay a higher cost-sharing responsibility."

William Reha, a urologist and the state advocacy chair for the AACU, said the organizations were particularly concerned that the new law could limit access to specialty lab work. He provided the example of genetic testing to assess the aggressiveness of a prostate cancer.

In many cases, samples for such tests need to be sent to out-of-state, out-of-network labs, he said, noting that if these labs were not able to charge out-of-network rates and balance bill patients for the portion unpaid by their insurance, they might stop offering the tests in Connecticut.

Kevin Coughlin, press aid to Connecticut State Senator Martin Looney, the bill's sponsor, said that the bill does not, in fact, limit patients' ability to knowingly choose services from an out-of-network provider and pay whatever higher costs may be associated with those services.

Georgetown's Kona said, however, that she believed that under the law as written "when an in-network provider refers to an [out-of-network] lab, a patient is covered under [Connecticut's] protections irrespective of the patient's knowledge" of lab network status.

"The law seems to exempt cases where there is an in-network provider available and the patient knowingly elects to use an [out-of-network] provider," she said, but added that it was not clear this would apply to situations like that described by Reha, given that in those cases there would be no in-network option.

The law passed this summer as part of Connecticut's budget package and goes into effect at the beginning of the year.

While states are increasingly taking action on surprise billing, these laws don't cover certain kinds of insurance plans, including self-funded plans, which account for roughly 60 percent of people with employer-based coverage. This has led to interest in federal legislation addressing the issue.

Both providers and payors have positioned themselves as generally supportive of federal efforts to tackle surprise billing, but they have differed on the details of the solution. Providers, including lab organizations, have emphasized the need for insurer network adequacy standards to ensure payors have incentives to keep a substantial proportion of providers in-network, as well as the use of arbitration to establish payments, as opposed to basing payments on median reimbursement rates, which providers believe could give payors too much leverage over the rate setting process.

The College of American Pathologists has been particularly active in advocating that any federal surprise billing laws include requirements on insurer network size and use arbitration to set payment levels.

The arbitration process used under New York's state surprise billing law is often cited by providers as a potential model for federal legislation. A recent analysis by Loren Adler, associate director at the USC-Brookings Schaeffer Institute for Health Policy, might suggest why that model is viewed favorably. According to Adler, the arbitration process has resulted in surprise bill payments substantially above median in-network rates.

Under the New York law, when an insurer and out-of-network provider are unable to agree on payment for a surprise bill, it goes to arbitration. In providing guidance to arbiters, the state has recommended they consider as a benchmark the 80th percentile of charges for a procedure —that is," Adler wrote, "an amount higher than what 80 percent of physicians charge for a given billing code."

For the level IV surgical pathology CPT code 88305, the 80th percentile charge in New York is $305, more than triple the median in-network rate of $90.

Adler noted that data from the New York Department of Financial Services shows that in actual practice, "arbitration decisions have averaged 8% higher than the 80th percentile of charges."

One piece of federal surprise billing legislation promoted by CAP, the Protecting People from Surprise Medical Bills Act introduced into the House of Representatives by California Democrat Raul Ruiz and Tennessee Republican Phil Roe in June, likewise, creates an arbitration system for resolving billing disputes and instructs arbiters to consider the 80th percentile of charges as a benchmark.

Adler has criticized both the Ruiz-Roe proposal and the New York arbitration process as potentially driving rising healthcare and insurance costs.

Adler said that while the issue of lab testing comes up in discussions of surprise billing, he didn't believe labs would be strongly impacted by the proposed federal legislation.

Eliminating surprise bills will likely dent lab revenues somewhat, he said, "but I actually don't think it will have much impact on the underlying in-network prices [labs] are able to negotiate."

That might be the case for large national labs like Quest Diagnostics and Laboratory Corporation of America, but, said Mick Raich, CEO of consulting firm Vachette Pathology, for smaller independent labs, surprise billing laws threaten to eliminate one of the only sources of leverage they have in negotiations with insurers — their ability to charge out-of-network patients for the balance of a bill their insurers won't pay.

"When I'm sitting across the table from Humana or UnitedHealthcare, or Aetna, I've got to be able to negotiate," Raich said. "They come to me and say, I want to pay you 40 percent of Medicare, and I can say, you know what, we want 140 percent, and if they say, nope, 40 percent, take it or leave it, what option do I have?

"Well, I can say, I'm going to balance bill your patients, and those patients have employers, and those employers are going to get complaints from their employees," he said. "Then the employer goes back to [the insurer] and says, look, my premiums have gone up 18 percent a year the last five years and yet my employees aren't covered for this. What's going on?"

Removing the ability to balance bill out-of-network patients leaves smaller independent labs with little leverage to negotiate terms with payors, Raich said, noting that state surprise billing laws have, along with factors like the Protecting Access to Medicare Act and other downward pressures on test reimbursement, been drivers of consolidation within the industry.

"If you look around, more and more you are seeing where health systems are consolidating all their providers into one big group and then taking them on as salaried," he said, citing the example of health system HCA Healthcare in Florida where "they have taken all their [formerly independent] pathologists in Florida over the last five years, made most of them salaried, built a big lab to do the work themselves, and got economies of scale. They lowered their costs because they knew their revenue was going to come down."

Raich said that despite CAP's endorsement of the Ruiz-Roe bill, he does not see arbitration as much of a protection for smaller labs barring the threat of significant penalties to incentivize payors to start the arbitration process promptly.

"You're going to call [an insurer] and say, hey, we have $35,000 worth of claims we want to mediate, and they're going to say, who is this? Oh, yeah, take a number. We'll call you back when we're ready," he said.

"It's going to drive the majority of practices into huge companies that have some economy of scale," Raich said. He pointed to recent acquisition of labs in which the buyers have been predominantly Quest, Sonic Healthcare, or LabCorp because they have "because those three have great economies of scale. They can do it at a discounted rate, at 20 percent of Medicare, whereas the smaller guy, every pay cut he gets from a payor is a pay cut to his bottom line instantly."

Such an outcome is obviously less than ideal from the perspective of a small independent lab or an individual pathologist, but from a system-wide perspective if does offers the advantage of lower healthcare costs.

Raich suggested, though, that it runs the risk of reducing patient access to lab testing and pathology as lower payments lead to lower salaries and fewer people entering those fields. Indeed, staffing is one of the primary challenges currently facing the lab industry.

Regardless, with no surprise billing law included in the end-of-year spending package that passed the House this week, federal legislation will likely wait until next year, or possibly beyond.

Adler said, though, that he thought it probable that a bill would pass in the relatively near term.

"The two side on this debate right now just aren't that far apart," he said. "I still think there's a pretty good chance of this getting done."