Imagine you're involved in a serious auto accident. You are taken to the nearest emergency facility and receive life-saving treatment. Although you have good insurance coverage, unexpected bills start arriving in excess of your deductible and copays, possibly reaching into the thousands of dollars. What gives?

Hospital emergency rooms and urgent care facilities often employ providers such as anesthesiologists or emergency physicians who are not part of your health insurance network and are therefore not bound by reimbursement rates agreed to by in-network providers. Previously, the out-of-network providers could set their own fees and charge you directly for the additional amount above the in-network rate, a practice known as "balance billing," even though you had essentially no choice in choosing the doctor. A new law called the No Surprises Act became law Jan. 1 that aims to provide necessary protection to consumers from potentially devastating surprise medical bills.

The need for relief from surprise medical charges is well known and widely acknowledged. The U.S. health care system relies heavily (although not exclusively) upon market forces involving private insurance companies, government payers, doctors, hospitals, drug and device manufacturers and patients. That is quite unlike single-payer models in many developed countries. However, a significant market failure or breakdown in market forces occurs when customers cannot exercise any choice. One can hardly Google in search of an in-network radiologist from the back of the ambulance. According to the Kaiser Family Foundation, about 1 in 5 visits to the ER result in unexpected out-of-network bills from providers the patient did not choose.

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In a remarkable and rare episode of bipartisanship, Congress overwhelmingly passed the No Surprises Act in December 2020, providing meaningful relief but also setting the stage for legal challenges.

The act applies to enrollees in group and individual health insurance plan coverage as well as Federal Employees Health Benefits plans. Significantly, the law mandates that health care providers and facilities may not balance bills for out-of-network emergency services, including air ambulance services. The law also prohibits balance billing for non-emergency services at in-network facilities unless the patient has consented in advance to the charges. That includes both hospital emergency departments and stand-alone emergency service facilities.

Interestingly, the new legislation does not apply to ground ambulance service providers, one of the most frequent sources of surprise charges. Most local ambulance services are provided by state or local government entities, many already struggling financially, and Congress did not wish to tackle the issue at that time.

About 4 million ER visits require hospital admission of patients to continue treatment. The No Surprises Act considers post-emergency stabilization services to be an extension of the ER trip and continues to ban balance billing until the patient is deemed safe for travel to an in-network facility.

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Additionally, the No Surprises Act also covers non-emergency services rendered at in-network facilities. While a hospital may be a network participant, it is not unusual for doctors who work in the hospital to bill separately, sometimes out-of-network.

An arbitration process is also created to settle disputes between insurers and providers if excess out-of-network charges cannot be successfully negotiated, taking the patient out of the fight.

While the action is welcome, the devil is always in the details. The complex legislation requires a slew of rules and regulations to be promulgated by the secretaries of the federal Labor, Health and Human Services and Treasury departments to implement the law. One provision, in particular, has garnered the ire of provider groups. The law stipulates that several factors be considered in the arbitration process when doctors bill more than the network rate. However, the rules put forth by the agencies specify that the average prevailing in-network rate be considered the default starting point. The American Medical Association and the American Hospital Association have filed suit to challenge the rule, arguing that no one factor should be overweighted and that this presumption would pressure reimbursements to providers and possibly lead to narrower network options. Several other physician groups have filed amicus briefs in support, and over 150 members of Congress signed a letter voicing opposition to the rule. Now the courts will decide.

Still, regardless of the outcome on the legal front, the act is a big win for patients as it addresses a major obstacle to market price discovery previously beyond the ability of consumers to impact.

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Providers must furnish a statement of patient rights under the No Surprises Act including contact information for disputing or reporting a suspected excess out-of-network charge. It will be up to individual patients to monitor bills for charges they did not expect or which seem excessive. And while there will likely be tweaks to the implementation rules, the No Surprises Act represents an important step that was long overdue.

Chris Hopkins is a chartered financial analyst in Chattanooga.