Reference Based Pricing Plan (RBP): A plan that reimburses a fixed amount for a given medical service using a formula tied to a standard reference source (e.g. a specified percentage of Medicare billing rates). RBPs typically do not have a “network” of providers with negotiated rates but pay the same flat dollar amount for a given service regardless of the provider or how much they bill.
No Surprises Act (NSA): Federal law that limits a provider’s ability to bill patients for certain emergency, air ambulance and out-of-network services and requires health plans and providers to negotiate and engage in mandatory independent dispute resolution regarding the amount of reimbursement the plan will pay the provider for those services.
By themselves these two things are complicated enough; putting them together creates quite the challenge!
The source of this complexity? Networks. As noted above, RBPs typically don’t have a network – it’s the very nature of the plan design. By contrast, most of the NSA assumes that there are in-network and out-of-network providers and rates. So does that mean the NSA just doesn’t apply to an RBP? Well…it’s complicated.
The Department of Labor (DOL), the Department of Health and Human Services (HHS), and the Internal Revenue Service (IRS) [collectively, the Agencies] recently issued a set of FAQs addressing the NSA, including how it works with RBPs. Let’s start with the types of services subject to the NSA:
- Non-emergency services provided by out-of-network providers at in-network facilities;
- Out-of-network emergency services; and
- Out-of-network air ambulance services.
An RBP has no network so there are no in-network facilities and hence no services that can be provided by an out-of-network provider at an in-network facility. Consequently, that first category of services will never arise and the NSA will simply never apply to non-emergency services under an RBP.
Is that a good thing or a bad thing? That depends on your perspective. Two of the most significant things the NSA does are: 1) limit the amounts participants must pay for covered services; and 2) prohibit the provider from balance billing participants for amounts not covered by the plan. Without the protections of the NSA, providers of non-emergency services can balance bill participants in an RBP for the amounts not covered by the plan.
But the risk of balance billing is inherent in all RBP plans, so in that sense the lack of NSA protection for non-emergency services simply maintains the status quo. Most RBP plan administrators have tools and services that are intended to deal with and help mitigate the risks of balance billing and an employer who has adopted an RBP has presumably already decided to accept those risks on behalf of its employees in the hopes of saving money.
What about the other two categories of services covered by the NSA? According to the Agencies’ FAQ, since an RBP has no network, all emergency and air ambulance services are necessarily out-of-network and the NSA does apply to those services. However, the no balance billing / no surprise billing aspects of the NSA generally looks to the plan’s in-network rates to determine the participant’s responsibility for the covered services – so how does that work when there are no in-network rates?
Calculating Cost Sharing
Under the NSA, a participant can’t be required to pay more for NSA covered services than the amount of cost sharing the participant would pay if the provider was in-network, calculated using the median amount the plan pays other in-network providers for the services in question. The provider may not balance bill the participant for anything above this cost sharing amount.
Since the RBP has no network from which to calculate a median in-network rate, the Agencies have indicated that the RBP must use a fallback procedure which requires consulting an “eligible database” of in-network payments by other plans and insurance companies to calculate the median in-network rate. That likely means the RBP is going to have to pay to gain access to an “eligible database,” adding to its overhead. It also means that the amount used to calculate the participant’s cost share for NSA purposes is likely going to be different (and higher) than what the RBP calculates under the plan, which may impact whether the provider can balance bill.
For example, consider an RBP with a $2000 deductible and 20% coinsurance once the deductible is satisfied. The member has satisfied their deductible for the year when they have a trip to the emergency room. The hospital bills the RBP $5000 for the emergency services it provided to the member. The RBP calculates a reference price under the plan of $3500 which means the member would pay 20% or $700 in co-insurance and the plan would pay $2800.
Using an “eligible database,” the RBP determines the median in-network price for the services provided is $4000. So the in-network cost sharing amount for NSA purposes is 20% of $4000 or $800. Since the member only paid $700 in co-insurance under the plan the provider could balance bill Axel another $100.
Whether a provider would actually bother balance billing over small differences in cost sharing like this is a different question. And again, that risk of balance billing is already inherent in the RBP model and the NSA may in fact result in a balance bill lower than would exist without the law, so this ability of the provider to balance bill RBP participants under NSA may not be a big deal.
Going After the Plan
Of potentially greater significance is what happens next. When the RBP receives a payment request for an NSA covered service, the plan has 30 days to make an initial payment to the provider, which will presumably be the reference amount calculated under the terms of the plan.
The RBP must then pay the provider the balance of the “out-of-network” rate minus the initial payment and the participant’s cost sharing. For NSA purposes the out-of-network rate is either: 1) the amount owed under an applicable All-Payer Model Agreement or state law; 2) the amount agreed to by the RBP and the provider; or 3) the amount determined by the NSA independent dispute resolution (IDR) process. For that first element, the federal government has provided helpful charts here addressing when state all-payer agreements or laws apply:
If the RBP and provider can’t agree on a specific amount and they wind up in IDR, the plan could be ordered to pay more than the reference-based cost calculated by the plan.
To a certain extent, this is not that different from the way RBPs normally operate – the RBP pays its reference price; if the provider thinks that payment is insufficient, it attempts to negotiate with the plan; and the parties either come to an agreement or they don’t.
The difference is that for services not covered by the NSA, the provider’s only recourse if they can’t negotiate a better rate is to balance bill the participant and send the matter to collections or litigation if the participant refuses to pay. RBPs are typically counting on the fact that most providers will just accept the amount offered and move on rather than go through the hassle and expense of balance billing, collections and/or litigation.
While not necessarily cheap, the NSA IDR process will almost certainly cost less and be faster than litigation. The provider also probably has a greater likelihood of collecting additional money through IDR than they would trying to balance bill the participant. That may make providers more inclined to challenge the payment and seek higher reimbursement for NSA covered services than they might otherwise, potentially eating into the cost savings typically promised by the RBP model.
RBP plans don’t avoid the requirements of NSA altogether and, on the surface, it seems likely NSA will result in RBPs paying more for emergency and air ambulance services than they have in the past. Whether that increase is relatively minor or more significant remains to be seen.
Written by: Michelle Cammayo
Let your IMA Benefits team know if you have any questions. We review affordability every year with our applicable large employer (ALE) clients and are happy to assist as you strategize for your plan year beginning in 2022.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.