Suit by doctors, hospitals seeks change in how arbitrators settle surprise billing cases

Two of the largest lobbying groups representing physicians and hospitals filed a lawsuit Thursday challenging a Biden administration decision on how to implement the law shielding patients from most surprise medical bills.

The lawsuit from the American Hospital Association and the American Medical Association does not seek to halt the law from going into effect in January. Instead, it seeks a change in a key provision in regulations issued in September.

At issue is how arbitrators will decide the amount insurers pay toward disputed out-of-network bills.

That was a main point of dispute in the long and contentious debate leading up to the passage of the No Surprises Act in late 2020 — and remains so a year later.

“Our legal challenge urges regulators to ensure there is a fair and meaningful process to resolve disputes between health care providers and insurance companies,” AMA President Gerald E. Harmon said in a written release.

Two other lawsuits — one from the Texas Medical Association and one from the Association of Air Medical Services — have been filed over the regulation.

“There has been a lot of political pressure, and now they are turning to the courts to get the outcome they want to see,” said Katie Keith, director of the Health Policy and the Law Initiative at Georgetown University Law Center.

The administration has defended its interpretation of the law, with Health and Human Services Secretary Xavier Becerra telling KHN and NPR last month that if the arbitration process were “wide open” costs would go up, so it set up a system that “provides the guideposts to keep us efficient, transparent and cost-effective.”

The No Surprises law is designed to address a common practice: providers sending large, unexpected bills to patients who receive out-of-network care from physicians, laboratories, hospitals or air ambulance services.

Starting in January, the law bars most such balance bills. Instead, insured patients will pay only what they would have if the care had been provided by an in-network facility or physician. It directs insurers and the medical providers to work out whether any more is owed.

If they can’t agree, the dispute moves to “baseball-style” arbitration, in which both sides put forth their best offer and an arbitrator picks one, with the loser paying the arbitration cost, which the rule sets for next year as between $200 and $500.

The regulation issued Sept. 30 directs arbitrators to lean toward picking the amount closest to the median in-network rate negotiated for the type of care involved, although they can also consider other factors, such as the experience of the provider, the type of hospital and the complexity of the treatment.

Congress wrote into the legislation that arbitrators could not consider “billed charges,” which are often highly inflated amounts hospitals and doctors set as what they want to be paid, nor could they consider the lowest payment amounts, including reimbursement rates from Medicaid and Medicare.

The lawsuit, filed in U.S District Court for the District of Columbia, alleges that giving weight to the in-network median rate “places a heavy thumb on the scale” against medical providers and “barely resembles” the process Congress created.

Congress, it alleges, prescribed “no particular weight or presumption for any one factor,” instead directing arbitrators to consider all factors. Focusing on median in-network rates will “prevent fair and adequate compensation.”

The rule has also drawn a bipartisan rebuke from 152 lawmakers, although most members of Congress who helped shepherd the law to passage support the regulation.

The regulation’s focus on median rates while allowing for other factors is cited by policy experts as an effort to avoid inflationary effects seen in a few places where state balance bill laws allowed arbitrators to consider awarding a percentage of the inflated billed charges.

They also note it is one intention of the law to help reduce high out-of-network costs.

“The way the law is crafted, you only lose money if you were personally profiting from the leverage that surprise billing gives,” said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy.

Some doctors, he said, will see a reduction in payments. But, he noted, “those below the median, meaning half, will see some increase in leverage.”

He and Keith also said the focus on in-network rates in the regulation was not unexpected.

Keith, in an article for Health Affairs looking at the other two lawsuits against the regulation, noted that the Congressional Budget Office estimate of the law’s effect on premiums (savings of between 0.5% and 1% most years) “hinged on the assumption” that the amounts settled upon during disputes would “generally be consistent” with median in-network rates.

Joining with the AMA and the AHA in the lawsuit are plaintiffs Renown Health, UMass Memorial Health and two North Carolina physicians.

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