Departments release surprise billing final rule on some issues and multiple FAQs on others

Executive summary:

  • Recently, courts vacated parts of last year’s interim final rules that related to determining the appropriate payment amount in the independent dispute resolution (IDR) process. These final rules fill in the gaps created by those court decisions.

  • In order to determine the appropriate payment amount, the rules now require the arbiter to give equal weight to other factors listed in the October 2021 interim final rules (see our alert here (opens a new window)) instead of presuming the “qualifying payment amount” (QPA) is the appropriate payment amount as was previously the case. In simple terms, the “QPA” is equal to the plan’s median contracted rate for the item or service in that geographic region.

  • The rules add a new disclosure requirement to the IDR process when plans either provide an initial payment or a notice of denial of payment based on a “downcoded” item or service, resulting in a lower QPA. To implement this, the rules create a definition of “downcode.”

  • The regulations go into effect Oct. 25, 2022.

  • For good measure, the Departments of Labor, Health and Human Services, and Treasury (the Departments) tossed in numerous FAQs that include details on surprise billing payment calculations, notices and clarifications regarding common scenarios.

  • While this alert is lengthy, we have divided it into relevant sections based on subject matter. Please note that plan sponsors must rely on their carriers and/or TPAs to implement these rules. However, as plans are ultimately responsible for failure to comply, it’s important to receive written assurances that the carrier and/or TPA will comply with the No Surprises Act requirements on behalf of the plan and to monitor that process. Please reach out to your Lockton account team with questions you may have.


The Consolidated Appropriations Act (CAA) included a section called the “No Surprises Act” that provides federal protections against surprise billing under typical circumstances in which surprise bills arise most frequently by (1) limiting a healthcare plan enrollee’s out-of-pocket costs and (2) prohibiting balance billing of the enrollee by out-of-network (OON) providers. Subsequent regulations address how plans must arbitrate claim disputes with OON providers where the claim involves OON emergency care, OON air ambulance services and nonemergency services provided by OON providers at certain in-network healthcare facilities.

The surprise billing rules apply to grandfathered and non-grandfathered healthcare plans but do not apply to account-based plans (like health reimbursement arrangements or HRAs) or “excepted benefits” (such as typical flexible spending accounts, dental, vision and appropriately structured fixed indemnity plans, or retiree-only plans). They do apply to health insurance carriers and ERISA group health plans (whether fully insured or self-funded), governmental plans not offered by the federal government, and church plans.

How this final rule affects the IDR (i.e., arbitration) process

The IDR process is essentially an arbitration process that may be invoked by either the plan or the OON provider. It will typically be invoked by the provider after the plan adjudicates the OON claim and pays less than the provider’s outstanding balance.

Lockton comment: Remember that the provider is not permitted to go after the plan enrollee.

As set forth in last year’s rules, before the IDR process may begin, there are some hoops and hurdles to jump through. First, the provider will either receive from the plan an initial payment it finds insufficient or a notice of outright denial of payment from the plan. Certain disclosures about the QPA must accompany the initial payment or denial, and plans must provide certain information upon request. At this point, the provider may open a negotiation period within 30 business days beginning on the date the provider receives the initial payment or notice of denial. The negotiation period may run for up to 30 business days.

Lockton comment: The Departments warned plans in the final rule that plans must not make the initiation of the open negotiation period more difficult for the provider or facility by requiring the party to utilize a plan-owned web system to initiate the open negotiation period in lieu of sending an email or written notice of intent to open negotiations.

According to the final rule, when the plan provides either an initial payment or a notice of denial of payment to the provider or facility, a new statement is required if the QPA is based on a “downcoded” service code or modifier. In those instances, the plan must include a statement that downcoding has occurred (and to which specific codes or modifiers), why the item was downcoded, and what the QPA would have been without the downcoding.

“Downcode” means the alteration by a plan of a service code to another service code, or the alteration, addition, or removal by a plan of a modifier, if the changed code or modifier is associated with a lower QPA than the service code or modifier billed by the provider, facility or provider of air ambulance services.

If the negotiation process is initiated but fails because the parties cannot agree on a payment amount, the IDR process may begin, which involves the plan and the OON provider submitting their best settlement offer, along with documents supporting their position.

Lockton comment: The floodgates opened on the IDR process in mid-April with the launch of the federal IDR portal. Anyone considering entering the portal at this juncture will want to consider donning high-water pants at a minimum, maybe even capris or, unfortunately, knickers. Between April 15 and Aug. 11, 46,000 disputes have been initiated through the portal, a far cry from the estimated 17,000 for the year. Roughly 1,200 determinations have been made. Almost half the disputes are being challenged by the non-initiating party based on eligibility (or lack thereof). This does not necessarily mean that these disputes are ineligible, only that a party has challenged the eligibility, which can be quite complex (e.g., should the claim fall under state or federal jurisdiction, was the claim batched correctly, timing of submissions, and completion of open negotiations).

Based on the information submitted and, in some cases, requested, the arbiter will decide whether the plan’s or the OON provider’s offer is the most suitable and issue a binding determination of the OON payment amount. The October rules had the IDR entity choosing the party’s offer that best represents the appropriate OON rate for the items or services with a presumption that the QPA is the appropriate OON rate. When that anchor dropped, lawsuits began and eventually two courts vacated portions of the October 2021 interim final rules concluding that regulators overstepped their bounds in requiring greater deference to the QPA. As a result, while the QPA must be considered, the final rule is clear there is no presumption that the QPA is the appropriate OON rate.

While the QPA walked the plank as head honcho in the arbitration process, it is still alive and kicking. The final rule simply says that arbiters, in choosing between two competing offers, should select the offer that best represents the value of the item or service, considering the QPA first but also considering all additional information submitted by a party or requested by the arbiter. Additional information must relate to the party’s offer (but not be prohibited information) and be deemed credible and, importantly, not already accounted for in the calculation of the QPA or other submitted information. The written decision of the arbiter must include an explanation of what information the arbiter determined demonstrated that the selected offer best represents the value of the item or service, including what weight was given to the QPA. If the arbiter relies on information in the other factors (other than the QPA), the written decision must include an explanation of why the arbiter concluded the information was not already reflected in the QPA.

Rules are final 60 days after publication in the Federal Register, which is Oct. 25, 2022.

Lockton comment: The final rule is narrow in scope. The Departments promised to provide another final rule at a later date related to other comments received on disclosure requirements in last year’s rules.

Issues addressed in the FAQ

As mentioned above, in ACA Part 55 FAQs (opens a new window), the Departments addressed numerous issues under the No Surprises Act and provided clarity regarding a variety of issues, including:

  • No-network and closed network plans

  • Air ambulance services

  • Behavioral health crisis facilities

  • No Surprises Act disclosures

  • Information on calculating the QPA

  • Payment disputes including the IDR process

No-network or closed network plans

Application of rules

The Departments clarified that the No Surprises Act does apply to plans without a network of providers (such as a plan using reference-based pricing) with respect to emergency services and air ambulance services. However, when it comes to balanced billing for nonemergency services provided by OON providers with respect to a visit to an in-network facility, the rules cannot be triggered because the plan does not have a network of participating facilities.

Lockton comment: This makes sense. A plan that has no network of providers (e.g., one that utilizes reference-based pricing) has no direct or indirect contractual relationship with a “participating” facility or provider; therefore, the rules protecting against balanced billing for nonemergency services provided by a nonparticipating provider (i.e., no contractual relationship to the plan) within a participating facility would never come into play.

Calculation of cost sharing/OON rates

Generally, when calculating cost sharing or the OON rate, the plan must first consider the All-Payer Model Agreement or specified state law, if any. Where none exists, cost sharing is determined based on the lesser of the billed charge or the QPA. QPAs are usually calculated upon a median contracted amount; but in circumstances where there is no network of providers (e.g., a plan utilizing reference-based pricing), the plan instead must calculate the QPA using an eligible database.

In these same circumstances, the OON rate is the amount that the plan and the OON provider (including air ambulance providers) or emergency facility agree upon. However, if the parties enter into the IDR process and the certified IDR entity makes a determination of the OON rate before the parties agree on a payment amount, then the OON rate is the amount set by the certified IDR entity.

No OON coverage

With respect to plans that generally do not provide OON coverage, the No Surprises Act’s protections still apply as if emergency services, nonemergency services furnished by a nonparticipating provider with respect to a visit to a participating facility, and air ambulance services were otherwise covered under the plan.

Air ambulance services

If a plan covers air ambulance services for emergencies only, it is not required to cover nonemergent air ambulance services under the No Surprises Act.

Protections do exist to plan-covered air ambulance services even if the point of pick-up is outside of the United States. However, the Departments understand that current rules do not set forth the method for how a plan is to identify the geographic region used to calculate the QPA for such services outside of the U.S. and will address this in future rulemaking. Until that time, plans are to use a reasonable method, such as identifying the relevant geographic region based on the border point of entry to the U.S. following patient pick-up.

Emergency services at behavioral health crisis facilities

If services in response to a behavioral health emergency meet the definition of an “emergency service” and are provided in a facility meeting the definition of an “emergency department of a hospital” or an “independent freestanding emergency department” (terms all defined in July 2021 interim final rules), then they are protected under the No Surprises Act.

No Surprises Act notice

For plan years beginning on or after Jan. 1, 2022, plans are required to post a notice regarding the rights and protections under the No Surprises Act. Plans are deemed to be in good faith compliance if they use the government’s model disclosure notice. The notice is to be made publicly available and posted on the plan’s public website.

According to the FAQs, if a plan does not have a public website (even if the employer does), it can enter into a written agreement with its carrier/third-party administrator (TPA) to have the notice posted on the carrier’s/TPA’s public website on the plan’s behalf.

Lockton comment: Similar to the FAQs with regard to machine-readable files (MRFs), no guidance is provided as to what happens if a written agreement is not entered into. The guidance states that plans may use the carrier/TPA website even if the plan sponsor has a website and the plan does not … but only if there’s a written agreement. Unfortunately, the guidance also states that the plan violates the disclosure requirements if the carrier/TPA fails to comply.

The notice must include OON balance billing information on “applicable” state laws, i.e., only those state laws that are applicable to the enrollee.

Calculating QPA methodology – Separate rates based on provider specialty

The FAQs clarify that the median contracted rate must be calculated separately for each provider specialty if the plan’s contracted rates for service codes vary based on provider specialty. As plans may not have understood this requirement, the Departments won’t require a separate QPA for items/services furnished prior to the date that is 90 days after publication of the FAQs (i.e., Nov. 17, 2022).

Lockton comment: The FAQs illustrate the artificially lower QPA resulting from not following this rule where applicable. For example, an anesthesiologist’s contract may include certain rates for anesthesia services as a result of negotiations between the plan and the provider. That same contract may include contracted rates for other services the anesthesiologist does not provide (e.g., dermatology services, for which the anesthesiologist has little incentive to negotiate) and, therefore, may even accept $0 as its rate for non-utilized codes. These rates are usually identical to the contracted rates the plan has with other providers in specialties that do not bill for those services. If the median contracted rate used both of these amounts (i.e., negotiated rates for anesthesia services and the non-billed anesthesia services at $0), then the QPA will be much lower than it should be for the provider that actually charges separately for that service.

Calculating QPA methodology – Multiple plans/TPAs with same plan sponsor

If a single self-insured plan offers multiple benefits package options administered by different TPAs, the plan may allow each TPA to calculate a median contracted rate separately for those benefits package options administered by the TPA. The TPA, in turn, still calculates the QPA by using the contracted rates recognized by all self-insured plans administered by that TPA, as opposed to only those of the particular plan sponsor.

Lockton comment: This eases the burden as the median contracted rates will not need to be configured on a plan sponsor-by-plan sponsor basis. For example, if a plan offers a choice of two benefits packages, Option A administered by TPA A and Option B administered by TPA B, the QPA may be calculated separately for Options A and B, determined with respect to all self-insured plans administered by the same TPA, including from other plan sponsors.

Payment disputes/denials/federal IDR process

As mentioned above, final rules for the IDR process were issued concurrently with these FAQs. The FAQs highlight the following:

  • A provider, facility or provider of air ambulance services may not initiate open negotiation prior to receiving the plan’s initial payment or notice of denial of payment. This is true even if the plan is beyond the 30-day deadline to respond. The FAQs provide a phone number and complaint process for providers and facilities to use if concerns arise about a plan’s compliance.

  • The “notice of denial of payment” means a written notice from the plan to the provider/facility stating that payment will not be made and explaining the reasoning. This is separate and distinct from the notice of benefit denials due to an “adverse benefit determination” under the plan’s claims and appeals process. The former requires the use of open negotiations and the IDR process and will never result in the personal liability of the enrollee; adjudication of a claim under the latter may result in such personal liability.

  • When the recognized amount is the QPA (as is not always the case), plans must include certain required information about the QPA, how it was calculated, and how to dispute an initial payment or notice of denial of payment. The specific information required is listed in Q/A-19. As also described above in the final rules, the plan may not simply refer the provider/facility to a website for more information.

  • If the plan fails to disclose the information as required when sending an initial payment or notice of payment denial, the provider/facility may either: (1) initiate an open negotiation period within 30 business days after having received the initial payment or notice of denial of payment (followed by initiation of the IDR process), or (2) request an extension to initiate the IDR process by following certain requirements and guidelines as set forth in Q/A-20.

Lockton comment: These rules, of course, only apply to items and services subject to the surprise billing protections.

Conclusion and next steps

While the final rules address the limited issues of arbiters’ use of the QPA as well as adding the new requirement to disclose downcoded items and services, the FAQs are much broader, clarify a wide range of issues and apply prior guidance in specific scenarios.

It’s important for plans to know the process. However, plan sponsors must rely on their carriers and/or TPAs to implement the claim processing protocols that comply with these new rules. Therefore, if you haven’t already, you may want to make it a priority to receive written assurances that your carrier and/or TPA will comply with the No Surprises Act requirements on behalf of the plan.

Full alert (opens a new window)

Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.