A study published in Health Affairs by Benjamin Chartock, Loren Adler et al. finds that the arbitration of out-of-network bills established by New Jersey's balance billing protection law has yielded extraordinarily high payments to providers:
Arbitration awards were considerably higher than typical in-network payment amounts Compared with the HCCI data, we found that the mean and median arbitration awards were 9.0 and 5.7 times higher, respectively, than the median in-network price for the same set of services, with 31 percent of cases decided for amounts more than ten times the median in network price (exhibit 1). Because commercial insurers tend to pay more than Medicare, the contrast is even starker with Medicare rates. The mean and median arbitration awards were 12.8 and 8.5 times Medicare prices, respectively, with 45 percent of cases awarded at amounts more than 10 times what Medicare would have paid (exhibit 2). In both comparisons, the large divergence between the relative mean and median awards primarily stemmed from the skewness of arbitrated payment amounts
The New Jersey law mandates "baseball" arbitration, in which arbitrators must rule in favor of one of the two competing bids, rather than than splitting the difference. The study authors note that arbitration awards in New Jersey track pretty closely with the 80th percentile of billed charges -- which are many times higher than in-network rates:
Importantly to policy makers, it appears that arbitrators in New Jersey place a strong emphasis on the eightieth percentile of charges for services in dispute, which is an extremely high amount that is unilaterally set by providers and is largely untethered to market forces. Arbitrators in New Jersey are shown and instructed to consider this amount at the local level, as well as the ninetieth and ninety-fifth percentiles of charges, along with the same percentiles of in-network rates, based on data collected and compiled by FAIR Health. Although it is not the only metric shown to arbitrators, we found that decisions tracked closely to our approximation (using the HCCI data) of the benchmark of the eightieth percentile of charges.
If arbitrators in NJ are "shown and instructed" to consider the high percentile-of-billed-charges benchmarks, it's not by statute. The statute specifies no standards at all by which arbitrators are to judge:
(4) The arbitration shall consist of a review of the written submissions by both parties, which shall include the final offer for the payment by the carrier for the out-of-network health care provider’s fee made pursuant to subsection c. of section 9 of this act and the final offer by the out-of-network provider for the fee the provider will accept as payment from the carrier; and
(5) The arbitrator’s decision shall be one of the two amounts submitted by the parties as their final offers and shall be binding on both parties.
While the statute does not stipulate that arbitrators should consider benchmarks based on billed rates, it doesn't stipulate that they shouldn't, either. Fortunately, the new federal balance billing protection law incorporated in the Covid-19 relief/omnibus bill (Title 1 of Section BB, the No Surprises Act), does include such a bar -- as well as barring consideration of Medicare and other public insurance rates. From Sect. 103 (5):
D) PROHIBITION ON CONSIDERATION OF CERTAIN FACTORS.—In determining which offer is the payment to be applied with respect to qualified IDR items and services furnished by a provider or facility, the certified IDR entity with respect to a determination shall not consider usual and customary charges, the amount that would have been billed by such provider or facility with respect to such items and services had the provisions of section 2799B–1 or 23 2799B–2 (as applicable) not applied [that is, what they would have balance-billed if not prevented by this act*], or the payment or reimbursement rate for such items and services furnished by such provider or facility payable by a public payor, including under the Medicare program under title XVIII of the Social Security Act, under the Medicaid program under title XIX of such Act, under the Children’s Health Insurance Program under title XXI of such Act, under the TRICARE program under chapter 55 of title 10, United States Code, or under chapter 17 of title 38, United States Code.
The legislative language largely tracks with the recommendations of the authors of the New Jersey study (though it also bans Medicare rates as a factor to be considered, placing implicit emphasis on the insurer's median bill rate, which is the basis of initial payment):
Arbitrators should be prohibited from considering provider charges, which are unilaterally set, are largely untethered by market forces, and tend to be extremely high. Instead, arbitrators should be equipped with information about commercial in-network prices and Medicare payment rates for the services under dispute.
While the federal law does allow for arbitration of bills from out-of-network providers, as providers wished, it appears to avoid the provider-friendly arbitration basis pioneered in New York and adopted in New Jersey.
* Correction: I originally misread the section numbers and wrote that Sections 2799B--1 and B--2 concerned the initial payment that an insurer makes to an out-of-network provider, stipulating that it should be based on "the median of the contracted rates recognized by the plan or issuer, respectively (determined with respect to all such plans of such sponsor or all such coverage offered by such issuer that are offered within the same insurance market)." That's Section 2799A--1.
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