DMHC Guidance Confirms that California Law, Not the Federal No Surprises Act, Governs Payment and Dispute Resolution Processes for Certain Out-of-Network Services Provided in California

What the Federal 'No Surprises Act' Means in California | California  Healthline

Source: JD Supra, by Sheppard Mullin Richter & Hampton LLP

Executive Summary

The California Department of Managed Health Care (“DMHC”) issued a recent guidance interpreting the application of the No Surprises Act (“NSA”)—a new federal law prohibiting out-of-network healthcare providers from balance-billing patients for certain emergency and non-emergency services—in California.  Significantly, when determining which payment and dispute resolution processes will apply in a dispute regarding the value of non-contracted emergency and non-emergency services, the NSA expressly defers to existing state law which already protects patients from receiving “surprise” medical bills, as long as such state laws conform to certain requirements set forth in the NSA.  The NSA refers to such qualifying laws as “specified State law[s]”.  However, the NSA does not explicitly indicate which states’ existing balance billing laws qualify as “specified State law[s]”—rather, each state must independently review the provisions of the NSA to determine if its existing balance billing laws qualify.

The DMHC recently issued an All-Plan Letter (“APL”) confirming that California law governing health care service plans, as set forth in the Knox-Keene Health Care Service Plan Act of 1975 and its implementing regulations, constitutes “specified State law” and will continue to govern out-of-network disputes for certain emergency and non-emergency services provided in California, rather than the payment and dispute resolution provisions of the NSA.  However, in all states, the NSA governs disputes relating to air ambulance services, not state law.

Background of the NSA

The NSA, which went into effect on January 1, 2022, limits the amount an out-of-network provider can charge for emergency services, nonemergency services provided at in-network facilities, and air ambulance services.  When a patient receives services covered by the NSA from an out-of-network provider, the NSA generally caps the patient’s cost sharing obligation at the median in-network contracted rate that the health plan agreed to pay for similar services from in-network providers for the same services in the same geographic region.  In addition, the NSA also creates a dispute resolution process for out-of-network payment disputes.  Under the NSA’s “baseball style” dispute resolution process, when providers and payors cannot come to an agreement, each side submits an offer that an approved Independent Dispute Resolution Entity must select between as the final payment amount.  The payment and dispute resolution processes of the NSA do not apply to every dispute, however.  Before the enactment of the NSA, many states already had surprise billing laws in place, and the NSA does not fully preempt state payment standards.  Instead, it expressly defers to the requirements of qualifying “specified State law[s]”—e.g., a qualifying balance billing law as specified by the NSA.  The NSA also envisions that states may revise their balance billing laws to qualify as “specified State law” in response to the passage of the NSA and its implementing regulations.  See 86 Fed. Reg. 36,925 (July 13, 2021).

The DMHC’s APL Confirms the Application of the NSA in California

On March 21, 2022, the DMHC issued an APL confirming that California law qualifies as “specified State law” for: (i) non-emergency, noncontracted services at an in-network facility by a noncontracted provider; and (ii) out-of-network emergency services.  Federal law governs disputes relating to out-of-network services provided by air ambulance providers.

  • * The DMHC confirmed that the anti-balance billing laws enacted by California’s AB 72 are “specified State law[s]”, which apply when a non-contracted provider provides non-emergency services at an in-network facility: The DMHC concluded that California’s AB 72 is a “specified State law” governing the provision of out-of-contract non-emergency services at a contracted facility, which therefore continues to apply rather than the provisions of the NSA.  Under AB 72, the out-of-network reimbursement rate for out-of-network providers must be greater than the plan’s average contracted rate or 125% of Medicare.  AB 72 also limits the enrollee’s cost-sharing amount to the enrollee’s in-network rate.  And, as the DMHC recognized, AB 72’s definition of in-network facilities is broader than the NSA’s definition, because it encompasses not only hospitals and ambulatory surgery centers, but also laboratories, radiology, imaging centers, and other outpatient centers.  In its APL, the DMHC concluded that disputes governing these services must be resolved using the DMHC’s Independent Dispute Resolution Process, not the NSA dispute resolution mechanism.
  • * The DMHC confirmed that California law, including Knox-Keene Act provisions governing balance billing of enrollees for out-of-network emergency services and related case law, are “specified State law: As for out-of-network emergency services, the DMHC concluded that California’s complex legal framework (including the Knox-Keene Act, its implementing regulations, and related case law interpreting the same) adequately prohibits providers from balance billing enrollees for out-of-network emergency services, including certain post-stabilization care.  Thus, the DMHC confirmed, this legal framework qualifies as “specified State law” under the NSA.  As a result, for out-of-network emergency services, DMHC-licensed health plans must continue to comply with California law regarding enrollee cost-sharing, provider reimbursement, and the resolution of disputes between plans and providers/facilities for out-of-network emergency services.
  • * The DMHC recognized that the NSA applies to disputes relating to air ambulance services: Under the NSA, a plan that provides or covers air ambulance services must impose the same cost-sharing requirements for an out-of-network air ambulance provider that would apply if the services were provided by an in-network air ambulance provider. The Knox-Keene Act likewise prohibits balance billing for out-of-network air ambulance services.  However, because federal law (particularly the  Airline Deregulation Act of 1978) preempts state law on the “rates, routes and services of any air carrier,” including air ambulance providers, the DMHC concluded that California law does not govern air ambulance disputes.  Instead, the DMHC concluded, plans must follow the NSA and its implementing regulations when calculating reimbursement amounts for noncontracted air ambulance providers.

The DMHC stated that it expects CMS to issue an updated letter consistent with its interpretation of California’s balance billing laws.

Biden’s Band-Aid On Medical Debt

Fact Check: Can Joe Biden Eliminate All Healthcare Debt By Executive Order?Source: Axios, by Caitlin Owens

The Biden administration took new steps yesterday to reduce the burden of medical debt — but the moves don’t address its underlying causes, and may have unintended consequences.

Why it matters: The vast amount of medical debt in the U.S. is a direct reflection of the fact that many Americans can’t afford deductibles and other out-of-pocket costs, but also can’t forgo needed care.

Driving the news: The actions announced yesterday include a Health and Human Services Department evaluation of providers’ billing practices, which couldfactor in how much federal grant money they get. The administration is also directing all agencies to eliminate medical debt as a factor for participation in credit programs.

  • The administration argues that medical debt is a bad predictor of whether someone will pay other bills, since health care often isn’t a choice, unlike credit card debt or car loans.
  • “No one in our nation should have to go bankrupt just to get the health care they need,” Vice President Kamala Harris said yesterday.
  • “Having medical debt because you were sick or injured should not lower your credit score and make it more difficult to secure the help you need to get out of debt,” she added.
  • The administration’s actions follow last month’s announcement by private credit reporting agencies that they will soon no longer include most medical debt on credit reports.

Between the lines: Health insurance reduces the likelihood of someone receiving a bill they can’t pay. That means that increasing the number of people with health coverage or preventing providers from sending patients surprise medical bills for out-of-network care — policy actions touted yesterday by Biden officials — reduce the threat of medical debt.

  • But an increasing number of insured Americans can’t afford deductibles, copayments or other out-of-pocket costs that are rising with the underlying cost of care.
  • More than 40% of households don’t have enough liquid assets to pay typical private plan cost-sharing, according to a recent KFF analysis.

Reality check: Taking some of the bite out of medical debt doesn’t prevent it from accruing in the first place, and it could have unintended consequences.

  • “Policymakers should be cognizant of potential unintended consequences that could undermine some of their goals. Lenders may find ways to proxy for the hidden medical debt or try to avoid consumers likely to have them,” said the American Enterprise Institute’s Ben Ippolito.
  • “These policies may also reduce payment rates, which could affect providers’ willingness to treat certain patients,” he added.

What they’re saying: “Hospitals and health systems do more than any other part of the health care field to support vulnerable patients: Our doors are always open, regardless of a patient’s ability to pay,” said Stacey Hughes, executive vice president of the American Hospital Association. “We look forward to learning more about this new initiative from the administration.”

House Passes Insulin Bill Over Insurers’ Opposition

House passes insulin bill over insurers' opposition - POLITICO

Source: Politico, by Alice Miranda Ollstein and Megan Wilson

The House voted Thursday in favor of a bill to cap out-of-pocket costs on insulin at $35 a month, a policy Democrats hope will give them a concrete win to campaign on when they face voters in November as the rest of their health care agenda remains stalled.

“At the end of the day, I hope that we can still bring forward a reconciliation bill with additional reforms this year. I know we need to do Medicare drug price negotiation,” Rep. Angie Craig (D-Minn.), the lead sponsor of the insulin bill, told POLITICO. “But we can’t wait any longer to act on insulin.”

Despite concerns about the bill’s policy and strategy from both sides of the aisle, nearly all House Democrats as well as a dozen Republicans voted for it Thursday. Yet it faces slim odds in the Senate, where Democratic leaders are combining an out-of-pocket cap on insulin — led by vulnerable Sen. Raphael Warnock (D-Ga.) — with a still-in-the-works bipartisan bill from Sens. Jeanne Shaheen (D-N.H.) and Susan Collins (R-Maine) to cut the drug’s cost.

The insurance industry tried to persuade lawmakers to oppose the measure, arguing it does not lower the actual price of insulin and could lead to higher premiums.

One insurance industry source close to the negotiations told POLITICO they’ve stressed that the bill “lets pharma off the hook,” calling it a “giveaway” to the drug industry.

“The premium impact is going to be substantial, and this isn’t the way to address the high cost of insulin,” said the lobbyist, who was granted anonymity to speak candidly about the process. “But all these Democrats want this win.”

America’s Health Insurance Plans, the trade association for insurers, wants Congress to target the pharmaceutical industry’s price-setting power instead of simply shielding patients from it. While the Shaheen-Collins bill in the Senate aims to do so, its details haven’t yet been released.

“Insulin prices are too high because Big Pharma alone sets and controls the price,” AHIP spokesperson David Allen said in a statement to POLITICO. “This legislation continues to empower Big Pharma to raise insulin prices with impunity leaving patients, businesses, and hardworking taxpayers paying even more for health care.”

Brian Newell, a spokesperson for PhRMA, drugmakers’ leading lobbying group, told POLITICO that, while they aren’t officially taking a position on the bill, they see it as “one way to help patients at the pharmacy counter” but believe that a more “holistic solution” that also reforms the drug rebate system is also needed.

“No amount of spin by the insurance industry changes the fact that they determine what patients pay at the pharmacy,” he added. “It’s outrageous that insurance companies are forcing patients to pay more for medicines than what insurance companies pay.”

More than a half-dozen pharmaceutical lobbyists told POLITICO that the industry has not been lobbying on the bill, saying the insurance industry is doing more to oppose the bill than drugmakers are doing to support it.

While some Democrats don’t view the insurance industry’s complaints about the bill as credible given their financial stake in the matter, others say they understand the concerns, though they ultimately voted for the measure.

“We aren’t putting that burden on Big Pharma, and I don’t blame [the insurers] for being upset about that,” Rep. Susan Wild (D-Pa.) told POLITICO, adding that she talked “at length” with insurance companies and agreed that the bill’s “big flaw”is how it changes who pays for insulin but doesn’t lower its cost.

Still, she countered, “It’s a matter of do we help people who are literally dying or rationing their insulin? … I have a greater concern for patients and for people in that position.”

Republicans largely lined up against the insulin bill during Wednesday’s House Rules Committee hearing. Some GOP members compared the price cap to President Jimmy Carter’s cap on the price of gasoline and claimed it would trigger similar shortages and long lines for the drug. Other Republicans said the policy would encourage U.S. pharmaceutical companies to relocate to China.

Rep. Michael Burgess (R-Texas) criticized Democrats for using the repeal of the Trump administration’s drug rebate rule —which was never implemented — as a funding mechanism.

“Those are made-up dollars. Those are not real dollars,” he said, calling it a “budgetary gimmick.”

Other GOP members on the panel pointed to a Congressional Budget Office analysis released Wednesday that appeared to back up insurers’ arguments. The CBO predicts the measure would cost the federal government more than $6 billion over a decade because it would likely force insurers to raise premiums. That would increase government subsidies paid through the Affordable Care Act and decrease income tax revenue because workers would spend more of their wages on their employers’ health plans.

Eli Lilly, one of the country’s leading insulin makers, “has long advocated for solutions to limit out-of-pocket costs on insulin,” said Shawn O’Neail, the vice president of their global government affairs division. But the company notes it hasn’t endorsed the bill.

Though the legislation easily passed the House on Thursday, it will be a much heavier lift in the Senate, where it needs support from at least 10 Republicans and all 50 Democrats. Though Warnock told POLITICO on Wednesday that he’s hearing “bipartisan interest in capping the cost of insulin,” no Republicans other than Collins have signed onto the effort, and multiple lobbyists said they don’t think it will garner enough Republican support to reach the 60-vote threshold in the upper chamber.

Still, Democrats believe those who oppose it will pay a political price in November.

“If my Republican colleagues don’t support it, I hope my voters back home see right through that,” Craig said. “You can make the case for voting against a big reconciliation bill, that you opposed this or that individual provision, but when it’s a standalone bill like this, there’s nowhere to hide.”

No End in Sight for Escalating Prescription Drug Spending

Escalator

Prescription drug costs are rising more than 10% a year, which is twice the rate of medical costs increases according to an A.M. Best report. Retail prescription drug spending grew 12.2% in 2014 compared to 2.4% in 2013. Driving the rising costs are increased spending for new medications, such as specialty drugs for Hepatitis C; patents that expired, price increases for brand name drugs, and higher health plan enrollment due to the Affordable Care Act (ACA). Drug spending from private health insurance, Medicare, and Medicaid accelerated in 2014. These costs have affected insurers. Also consumers are paying more out-of-pocket costs.

The increase in drug costs has become divergent to other health care costs. In 2014, U.S. health care spending increased 5.3% to reach $9,523 per person. The cost growth was primarily due to major coverage expansion under the ACA, particularly for Medicaid and private health insurance. The share of the economy devoted to health care spending in 2014 was 18.1%, up from 17.5% in 2013.

The medical loss ratio (MLR) remained relatively flat from 2010 through 2013 in the low 80 percentages before a decline in the past two years to around 75%. But the MLR was more than 10 basis points higher in 2010 to 2015 when prescription drugs were included.

Millenials Underestimate the Cost of Care

Millennials (ages 18 to 36) are more likely than are non-millennials to underestimate the cost of an injury or illness, including medical, household, and out-of-pocket costs (66% versus 45%), according to a survey by Aflac. Sixty-five percent say they could afford less than $1,000 for an unexpected out-of-pocket expense. Millenials are more inclined to try unconventional ways to pay for out-of-pocket health care expenses, such as borrowing from friends or family and crowd sourcing. The online study surveyed 1,500 benefit decision-makers and 5,000 employees at small, medium, and large companies

Exchange Consumers Are Becoming Savvy Shoppers

People who get health insurance through the public health insurance exchanges are increasingly confident about their ability to afford coverage. Also, they are just as satisfied with their coverage as are people with employer coverage, according to a Deloitte Consulting survey. Seventy percent of exchange consumers were able to manage their out-of-pocket expenses in the past year and only 25% had higher out-of-pocket costs than expected. However, lower-income people had a hard time paying for out-of-pocket costs.

Greg Scott of Deloitte said, “Health care consumers’ expectations for information and transparency are increasing, as is their interest in intuitive tools to access relevant information. Meeting these expectations should lead to increasingly more confident and satisfied customers.” Paul Lambdin of Deloitte said, “Out-of-pocket costs… are making exchange consumers pay close attention to the details of their coverage and changes in benefits and premiums.”

Knowing what costs to expect could also be increasing confidence. More exchange consumers understand the costs of their coverage than do people with employer insurance. Sixty-one percent of exchange consumers look at the total costs – not just premiums – when evaluating coverage options.

Also, more exchange customers are willing to accept network tradeoffs for lower payments than in 2015. These tradeoffs include a smaller network of hospitals (27% in 2016 as compared to 18% in 2015), a network that does not include their primary-care provider (26% in 2016 as compared to 16% in 2015), and a smaller network of doctors (26% as compared to 18% in 2015).

Sixty-six percent of exchange consumers used online tools to compare out-of-pocket costs compared to 58% of consumers with employer coverage. Scott said, “Exchange consumers continue to shop around for coverage and evaluate costs before making decisions and appear to be responding to messages about going online to look for health insurance information.”

Costs, Not Utilization Are Driving Children’s Healthcare Spending

In 2014, rising prices were largely to blame for the growth in children’s health care spending, according to a report from the Health Care Cost Institute (HCCI). Health care spending  for children under employer-sponsored plans grew 5.1% a year from 2010 to 2014, reaching $2,660 in 2014. But the use of health care services declined from 2012 to 2014. HCCI senior researcher Amanda Frost said, “The decline in children’s use of health care services is a relatively new trend…While we know that prices have fueled much of the spending growth in 2014, future research should examine whether these higher expenditures are leading to better health care outcomes for children.” The survey also reveals the following:

  • Out-of-pocket health care spending on children increased 5.5% a year to $472 in 2014. This growth was due partly to higher out-of-pocket spending on ER visits, which increased 11.7% annually.
  • The average price for brand prescriptions went from $7 a day in 2010 to $16 a day in 2014.
  • The rise in the average price of brand prescriptions drove spending increases. In 2014, spending for brand prescriptions rose 6.8%. The average price for generic prescriptions remained stable.
  • In 2010, the average price of a surgical admission for a child was $35,423, and jumped to $53,372 in 2014.
  • ER visits accounted for 8% of health care spending for children in 2014.
  • The average price of an ER visit increased $298 from 2010 to 2014. At the same time, the number of ER visits dropped from 181 visits per 1,000 children in 2010 to 177 visits in 2014.
  • In 2014, there were 3,228 doctor visits per 1,000 children, down slightly from the previous year.
  • Doctor visits accounted for 12% of spending in 2014 ($339 a child), and made up the largest share of health care spending for the average child.

Drug Spending Growth Reaches 8.5% in 2015

Total spending on drugs in the United States reached $310 billion in 2015, up 8.5% from the previous year, according to a report by the IMS Institute for Healthcare Informatics. The surge of new drugs remained strong last year, and demand for new brands was high. Savings were relatively low from branded drugs facing generic competition. Price increases on brands had a limited effect due to higher rebates and price concessions from manufacturers. Specialty drug spending reached $121 billion on a net price basis, up more than 15% from 2014. (Net-price spending does not relate to a patient’s out-of-pocket costs or the amount health plans pay for drugs. It estimates the amount received by pharmaceutical manufacturers so it reflects rebates, off-invoice discounts, and other price concessions that manufacturers make to distributors, health plans, and intermediaries.)

Manufacturers are accepting lower price increases on existing products. At the same time, spending on new brands continued at near-historic levels. Increasingly, healthcare is being delivered by different types of healthcare professionals and from different facilities while patients face higher out-of-pocket costs and access barriers. The study predicts mid-single digit growth for drug spending through 2020, driven by innovative treatments and offset by brands facing generic or biosimilar competition.

Heightened competition among manufacturers, along with more aggressive efforts by health plans and pharmacy benefit managers to limit price growth, resulted in significantly lower price increases than in prior years. The report also reveals the following:

  • Spending on specialty drugs has nearly doubled in the past five years, contributing more than two-thirds of drug spending growth from 2010 to 2015. Treatments for hepatitis, autoimmune diseases, and oncology drove increased specialty spending. The year 2015 saw a 21.5% spending increase for specialty drugs.
  • Forty-three new active substances were launched in 2015 with a third receiving orphan drug designations from the FDA. An additional 30 brands were launched last year, bringing new combination therapies, alternative dosing, and treatment administration options to patients. The strong momentum of breakthroughs and R&D productivity is reflected in the 2015 cohort of new drugs.
  • Total prescriptions dispensed in 2015 reached 4.4 billion, up 1% year over year. Demand was higher in some therapy areas, such as antidepressants and anti-diabetes, each of which increased about 10% in 2015.
  • Over the past five years, integrated-delivery networks have expanded their affiliations with healthcare professionals to increase negotiating power with insurers, save money, and drive pay-for-performance initiatives. More than 54% of healthcare professionals are affiliated with integrated-delivery networks. In the past five years, there has been a 115% increase in urgent care centers and pharmacy in-store clinics. The number of prescriptions written by nurse practitioners and physician assistants more than doubled over the past five years.
  • While brand price increases are expected to continue in the 10% to 12% range, they will be significantly offset by rebates, discounts, and other price concessions.
  • The are very bright prospects for innovative drugs becoming available through 2020. The late-phase pipeline holds 2,320 novel products, with an average 43 to 49 to be launched annually over the next five years.

Obamacare Enrollees Face Growing Out-of-Pocket Costs

 

StethoscopeObamacare enrollees were already warned to prepare for double-digit rate hikes. Now, the structure of Obamacare’s tax credits is ratcheting up the out-of-pocket costs of premiums – especially for the lowest earning enrollees, according to a report by National Center for Policy Analysis senior fellow John Graham. “This ratchet effect on the out-of-pocket cost of premiums is greatest for the lowest earning enrollees [who are] only slightly above the federal poverty level. Some of them will see hikes of 50% or more. What’s behind this ratchet effect? Obamacare’s tax credits are determined by an enrollee’s income and the second-least expensive Silver plan in the locating region. This introduces harmful leverage into most enrollees’ renewal, which can increase the net premium by a significantly higher percentage than the increase in gross premiums. If every single enrollee who chose the second-lowest cost Silver plan in 2015 took the time to shop around and found the second-lowest cost Silver plan, which is usually different, the average gross premium hike would be 7.5%. This is an unlikely, best-case scenario, given enrollees’ behavior renewing from 2014 to 2015,” says Graham.

Numerous reports of double-digit rate hikes in Obamacare’s health insurance exchanges understate the increases most consumers are facing. The gross premium for the average Silver plan increased 10%. However, the subscriber earning 150% of the Federal Poverty Level has seen a 28% increase in net premium. “This is because of the perverse way tax credits are allocated to insurers in the exchanges. This ratchet effect explains why subscribers are more outraged by premium hikes than Obamacare’s advocates appreciate,” says Graham.

Health Costs for Older Singles vs. Couples

During a two-year period, single and couple households ages 65 and older spent an average of $2,500 per-person on out-of-pocket costs for recurring health care services. Recurring services include doctor visits, dentist visits, and prescription drugs, according to the study by the Employee Benefit Research Institute (EBRI). However, there are large differences in non-recurring health care spending between older singles and older couples. This includes overnight hospital stays, outpatient surgery, home health care, nursing home stays, and other services. Singles 85 and older spent and average of $13,355 on non-recurring health care while couples 85 and older spent and average of $8,530 during the two-year period. Some of the largest differences involve home health care and nursing home expenses.

Last Updated 08/10/2022

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