An Executive Order’s Potential for Setting a Precedent With Regard to the Reimbursement Rate for Out-of-Network Emergency Services

Emergency Order Issued by Governor Baker of Massachusetts

On April 9, 2020, Governor Baker issued an emergency order (the “Order”), mandating that insurers cover all medically necessary emergency department and inpatient services costs of COVID-19 treatment at both out-of-network (“OON”) and in-network hospitals and other medical facilities, without any cost to the patient, setting the OON reimbursement rate at 135% of Medicare, and prohibiting providers from balance billing.  The Governor appears to have relied on § 7 of the Massachusetts emergency preparedness and response law in issuing the Order.  Section 7 gives the Governor broad powers during a state of emergency, including “[r]egulation of the business of insurance and protection of the interests of the holders of insurance policies and contracts and of beneficiaries thereunder and of the interest of the public in connection therewith.”

Provider Concerns with the Emergency Order

From a provider perspective, the Order raises at least three concerns.  First, the OON payment is based on the Medicare rate, a rate set by the government, not intended to reflect market rates.  Second, the Order does not include the right to resolve payment disputes between an insurer and a provider.  Third, the excessively low reimbursement rate is problematic because emergency departments, and the physicians staffing them, face unprecedented financial strain because of the ongoing COVID-19 pandemic.  To address and allay these concerns, physician groups generally advocate a commercially reasonable payment, based on local charges as determined through a known independent, transparent, and verifiable database (such as FAIR Health), using baseball-style binding arbitration to resolve payment disputes between the insurer and the provider.

Existing State Law Addressing OON Reimbursement Rates for Emergency Services

At this time, the Order is the only state directive or rule that explicitly prohibits balance billing, and sets a specific reimbursement rate for OON providers that is not based on reasonable charges.  By statute, HMO plans in Massachusetts are required to reimburse OON emergency services at the provider’s reasonable charges.  See M.G.L. ch. 176G § 5(f).  Similarly, I believe that indemnity plans are required to reimburse OON emergency services at reasonable charges.  See M.G.L. ch. 176A § 8U; M.G.L. ch. 176B § 4U.  Additionally, Massachusetts regulations authorize PPO plans to reimburse OON providers the usual fees charged by similar health care providers in the same geographic area for the emergency services rendered.  See 211 C.M.R. §§ 51.02 and 51.05(2).  (Federal law further provides a minimum payment rate for OON emergency services rendered to fully-insured, as well as self-funded, patients under the “greatest of three” rule.  See 29 C.F.R. § 2590.715-2719A(b)(3).  State law regulates the terms of fully insured, but not self-funded, group health plans.).  State (and federal) law, however, does not explicitly prohibit balance billing of the patient.

State Legislative Proposals

There has been a push for state legislation because the Order is limited in scope, and prior bills that would explicitly prohibit balance billing, and set a specific reimbursement rate for OON providers, failed.  On June 22, 2020, the House considered a proposal (H.4871) that tracks closely with the Order, and sets the OON reimbursement rate at 135% of the Medicare rate, prohibits providers from balance billing, and does not adopt a dispute-resolution process to resolve payment disputes between the insurer and provider.  Unlike the Order, this proposal extends to all emergency services, not just COVID-19 related emergency department services.  The committee on House Ways and Means passed this proposal on July 27, 2020, and ordered it (H.4888) to a third reading.

A few weeks earlier, on June 18, 2020, the Senate introduced its own proposal (S.2769), requiring the Health Policy Commission (the “Commission”) to set the OON reimbursement rates for emergency (and non-emergency) services for a five-year period.  In recommending the rates, the Commission must consider a number of factors, for example:

“(i) existing contracted rates by public and private payers and the appropriateness of those rates for covering the cost of care;

(ii) the impact of each rate on: (A) patient access to health care services by geographic location; (B) the growth of total health care expenditures; (C) encouraging in-network participation by health care providers; (D) financial stability of health care providers and systems; (E) insurance premiums; and (F) provider price variation;

(v) the advisability of establishing a process for providers or payers to dispute the accuracy or appropriateness of a rate[.]”

The actual rate must be calculated by the Center for Health Information and Analysis (the “Center”), which may contract with an independent nonprofit organization, to assist the Center in calculating the OON reimbursement rate.  The Senate passed, and reprinted, this proposal (S.2796) on June 25, 2020.

Provider Concerns With The State Legislative Proposals

From a provider perspective, the House bill raises the same concerns as noted above with regard to the Order.  The Senate bill is problematic because it authorizes the government to set a default rate that is not based on a commercially reasonable reimbursement rate, based on local charges as determined through a known independent, transparent, and verifiable database.  While this bill authorizes an independent entity, such as FAIR Health, to calculate the OON reimbursement rate, the rate must be calculated in accordance with the above referenced factors.  Similarly, this bill does not guarantee the use of arbitration, let alone baseball-style binding arbitration, to resolve payment disputes between the insurer and the provider.

What Lies Ahead?

While the Massachusetts legislature seems eager to adopt balance billing and rate setting legislation, it remains to be seen they can find middle ground.  If legislation is not passed, it is possible that the Order will nevertheless set a precedent with regard to OON reimbursement rates for all emergency (and inpatient) services, whether or not COVID-19 related.  Insurers might argue that a reasonable benchmark for the value of OON emergency services is that contained in the Order; namely, an amount equal to 135% of the Medicare rate.