Swinging For Fairness: Law Creates New Ballgame for Surprise Billing
By Joey Berlin Texas Medicine August 2019


When Senate Bill 1264 was first introduced in February, insurers had the bases loaded, threatening to score a lopsided surprise-billing victory on one swing.

With some deft pitching in the Texas Legislature, medicine worked its way out of the jam. The “baseball-style arbitration” measure by Sen. Kelly Hancock (R-North Richland Hills) isn’t perfect, and like a hitter who’s getting busted inside, physicians will have adjustments to make. But the improved SB 1264 passed with a framework that’s fairer to everyone involved.

The law takes patients out of the complicated, stressful wrangling over surprise medical bills and leaves it to physicians and health plans to resolve payment disputes. It accomplishes that with some notable changes for physicians.

The biggest of those changes: Balance billing will be prohibited for the state-regulated plans SB 1264 will cover – preferred provider organizations, exclusive provider organizations, and HMOs, as well as plans in the Employee Retirement System and Teacher Retirement System. And for physicians, the new law also does away with mediation to resolve disputes over out-of-network bills, replacing it with arbitration. (Hospitals will maintain the mediation process.)

This new reality could make many physicians uneasy as they attempt to get paid fairly for out-of-network services. But Texas Medical Association leaders say SB 1264, which essentially takes effect on Jan. 1, 2020, is a marked improvement over how the bill started: as a proposal in which health plans would have had disproportionate control over payments for out-of-network care.

Medicine’s advocates at the Capitol, including Rep. Tom Oliverson, MD (R-Cypress), were instrumental in preventing manipulation of the playing field in favor of the health plans.

“In its original form, it was a terrible bill for physicians, and it basically looked like it had been written by the insurance companies,” said Fort Worth-area pediatrician Jason Terk, MD, chair of TMA’s Council on Legislation, who testified against SB 1264 at the Senate Business and Commerce Committee. “We spent a lot of time with Representative Oliverson and other members of the House to improve that, and what resulted was really a vastly better bill.”

Representative Oliverson says the beauty of arbitration “is that it’s like ‘The Price is Right’ at the end of the Showcase Showdown. The [arbitrators] can’t pick a number that’s in their head. They can only choose the plan’s offer or the doctor’s offer, whichever they think is more reasonable. So both parties are rewarded for coming to the middle. Both parties are rewarded for not being unreasonable to begin with in what they’re asking for.”

Bring in the arbitrator

The centerpiece of the bill is an arbitration process similar to that of Major League Baseball. In a dispute between a team and one of its players, both sides present their case to an arbitrator on what the player should earn for the upcoming season, and the arbitrator ultimately selects either the player’s proposed salary figure or the team’s. The arbitrator can’t split the difference, or otherwise pick another salary figure; it’s one or the other.

The players under SB 1264: health plans and affected physicians and health care practitioners, including out-of-network physicians at certain in-network facilities, out-of-network emergency physicians, and certain out-of-network diagnostic imaging and laboratory service specialists.

Under the new law, a health plan is required to make an initial payment for the services or supplies the measure covers. A physician who’s not satisfied with that payment may request arbitration. An independent arbitrator, chosen either by the two sides or by the Texas Department of Insurance, will determine whether the physician’s billed charge or the health plan’s initial payment is “the closest to the reasonable amount” for the services or supplies. (Those original amounts may be modified during the health plan’s internal appeal process prior to arbitration.) Whichever is closest becomes the binding payment amount.

The arbitrator’s decision is based on 10 factors. Among them:

The out-of-network physician’s level of training, experience, and education;
The physician’s usual billed charge for comparable services or supplies when out of network;
The “circumstances and complexity” of the patient’s case; and
The 50th percentile of rates in that geographic area for the service or supply the patient was provided.

Thanks to TMA lobby efforts, SB 1264 preserves the preliminary informal settlement conference call originally established for mediation. Historically, that first stage of the process has resolved more than 90 percent of balance-billing disputes.

Houston emergency physician Theresa Tran, MD, says SB 1264, as passed, was the most equitable solution available. Dr. Tran has the benefit of seeing several perspectives on how surprise bills can materialize in emergency settings. She practices in an academic emergency setting most of the time, but also contracts with both an independent physician group and a freestanding emergency center.

Dr. Tran says the arbitration process in SB 1264 establishes valuable “guardrails” in the factors the arbitrator must consider. But concerns remain over what health plans will pay initially, and about the impact arbitration could have on certain physicians, Dr. Tran adds. For instance, there’s a fear that some smaller physician groups may see cash-flow problems under the new system if health plans delay or withhold a fair payment until going to arbitration.

“This bill is great for patients, but of course it is going to be uncomfortable for both payers and providers,” Dr. Tran said. “But in this legislative environment, and really in the national conversation around surprise medical bills – around doing what’s best for our patients, which is not allowing them to be balance-billed any longer – this type of legislation became necessary.

“Between [February] and May, this bill turned into something that is much better than its alternative was – which would’ve been a bill that was devastating for physicians, or no bill at all, which would’ve been a disservice to patients.”

Advocacy at work

Reaching a more palatable alternative took some work on medicine’s part after several troubling iterations of SB 1264. For instance, once arbitration initially became part of the legislation, there was no language that would have allowed physicians to bundle claims – meaning every claim would have to be arbitrated onerously in a separate proceeding. Also, early versions of the bill didn’t require direct initial payment from the health plan to the physician.

But medicine’s advocates worked hard to reverse those provisions, with considerable success. Along with giving the physician greater say in the payment, the final law allows physicians to bundle claims where the amount in dispute is $5,000 or less.

TMA lobbyist Clayton Stewart hopes the arbitration system will generate two major results.

“One, to pay out a more market-based rate than what’s being paid out under the mediation process currently to physicians. And two, to help bring more physicians in network. … That’s the ultimate goal. Because that’s the root of surprise bills: the narrow networks of the health plans and their money-saving [tactics],” he said.

Dr. Terk acknowledges the balance-billing prohibition for the affected claims will be an adjustment for physicians trying to get paid.

“But keep in mind, a solution was coming down the pike one way or the other,” he said. “At the same time, this legislation impacts a minority of plans in the market. We’re talking about non-ERISA (federal Employee Retirement Income Security Act) plans, which make up maybe about 15-20 percent of the market in most areas. It’s going to impact upon some plans. It’s not going to impact upon the majority of plans.”

Meanwhile, elected officials in Congress are expressing concern over patients dealing with emergency medical problems, and there is growing consensus to do something to address balance billing in those situations. The U.S. House Energy and Commerce Health Subcommittee – including the only Texas physician in Congress, Rep. Michael Burgess, MD (R-Lewisville) – held a hearing on surprise billing in mid-June.

At press time, TMA had mobilized its members to stop a troubling federal measure sponsored by Sen. Lamar Alexander (R-Tenn.). In its introduced version, S. 1895 would use government price controls – local median contracted commercial amounts – as a reference point to determine fees for out-of-network care.

Tex Med. 2019;115(8):30-31 
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Last Updated On

August 02, 2019

Originally Published On

July 25, 2019