USC-Brookings report: New York arbitration law leading to higher costs

Medical bill
A new analysis argues that New York's arbitration law has increased healthcare costs. (Getty/seksan mongkhonkhamsao)

New York’s arbitration process to handle out-of-network charges is “substantially increasing” healthcare costs for state residents, according to a new analysis.

The analysis released Friday from the USC-Brookings Schaeffer Initiative for Health Policy focuses on a major point of contention in the congressional debate on how to handle surprise medical bills. Providers are demanding arbitration, while insurers are pushing a benchmark rate for out-of-network charges.

New York implemented a law in 2015 to handle disputes between a provider and insurer over an out-of-network amount. Both the insurer and provider submit their own price, and an independent arbiter picks one. But the USC-Brookings analysis argued that the state’s guidance for the arbiter is driving healthcare bills higher.

The state law said that arbiters should use as guidance the 80th percentile of billed charges as calculated by an independent claims database called FAIR Health.

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“Providers’ billed charges, or list prices, are unilaterally set, largely unmoored from market forces, and generally many times higher than in-network negotiated rates or Medicare rates,” the analysis said. “And telling arbiters to focus on 80th percentile of charges—that is, an amount higher than what 80% of physicians charge for a given billing code—drives this standard still higher.”

The analysis of a state report on the program found that arbitration decisions were on average 8% higher than the 80th percentile.

USC-Brookings adds that the higher out-of-network reimbursements will likely boost physician leverage in negotiations with insurers.This will cause providers to drop out of networks or raise in-network premium rates and boost premiums.

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“If insurers are additionally increasing out-of-network payment for services in order to reduce the risk of losing in arbitration, that would further amplify this inflationary impact on premiums,” the analysis said.

USC-Brookings also doubted the state’s report that the law had saved consumers $400 million, saying there is “no supporting evidence provided and the actual data released in the report strongly suggests that the opposite is true.”

The analysis added that more bills have faced an arbitration decision each year, increasing from 396 in 2016 to 1,014 in 2018. Of that 1,014, the provider won 402 of them and the insurer won 205.

Insurers pursuing a benchmark rate lauded the analysis.

“Americans deserve a legislative solution to surprise medical bills that uses a locally negotiated market-based benchmark,” according to a statement from America’s Health Insurance Plans, an insurance lobbying group.

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But provider groups have been pushing for arbitration, arguing that a benchmark rate could lead to insurers offering very low in-network rates that will bring down their out-of-network rates. This in turn will hurt compensation for providers and adversely impact rural providers.

Bills that have advanced in House and Senate committees use a benchmark rate to handle provider payments for out-of-network charges. The House bill from the Energy & Commerce Committee has an arbitration measure only as a “backstop.”

However, neither bill has gotten any closer to a vote in their respective chamber.