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Arbitration It Is. But How to Decide Who Wins in Surprising Billing Disputes?

Analysis  |  By Alexandra Wilson Pecci  
   January 22, 2021

A new Health Affairs study compares arbitration outcomes in New Jersey to relevant benchmarks.

The No Surprises Act, which will protect patients from surprise out-of-network bills, will use final-offer arbitration to settle payment disputes between payers and providers when they can't resolve them on their own.

In this method of arbitration, also called "baseball-style" arbitration, each party offers a payment amount, and an independent arbitrator chooses one offer or the other, rather than an amount in between.

Some states use this method of arbitration already as part of their surprise billing protections. But the metrics that arbitrators use to help decide which bids to choose can differ.

"That's another detail that is, obviously, pertinent to how these disputes end up being adjudicated," says Benjamin L. Chartock, associate fellow at the Leonard Davis Institute of Health Economics.

Chartock is the lead author of a recent Health Affairs study about arbitration in out-of-network medical bill payment disputes in New Jersey. 

He told HealthLeaders that he and his coauthors wanted to "compare the bids and outcomes in arbitration to policy-relevant benchmarks that have been used either in other states or in policy proposals as what arbitrators might want to consider when resolving a surprise billing dispute."

They did this by "linking administrative data from New Jersey arbitration cases to Medicare and commercial insurance claims data," the authors wrote.

They compared the outcomes of arbitration in New Jersey with three benchmarks: median in-network payment rates; the 80th percentile benchmark (a benchmark from FAIR Health meaning that "approximately 80% of charges for a particular procedure in a specific geographic area are equal to that amount or less"); and Medicare payment rates for the same set of services as was being disputed in each arbitration case.

"We found that arbitrators were very likely to find the 80th percentile of charges to be a strong anchor when making decisions to resolve disputes," Chartock says.

The No Surprises Act calls for arbitrators to consider something different.

"Congress has decided that a major thing the arbitrators should consider is the median in-network rates for those services being considered under dispute," Chartock says. "That's different from what we found was the anchor point in New Jersey, which is the 80th percentile charges."

Using median-in network rates as an arbitration benchmark, rather than a metric like list prices, is likely a good bet for consumers. Since negotiated rates are agreed upon by providers and payers, they're more reflective of the market. 

"The incentive created by arbitration brings some elements of market dynamics into the dispute resolution process," Chartock says.

Indeed, he and his coauthors write that "arbitration decisions or a payment standard on unilaterally set provider-billed charges appears likely to increase health care costs relative to other surprise billing solutions and perversely incentivizes providers to inflate their charges over time."

Alexandra Wilson Pecci is an editor for HealthLeaders.

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