EM Bigs' Big Bets on No Surprises Act Arbitration
Envision & American Physician Partners cited the No Surprises Act as a contributing factor to their 2023 bankruptcies. Meanwhile, TeamHealth & SCP were the NSA arbitration's most active participants.
Can the No Surprises Act (NSA), which banned out-of-network balance billing in emergency medicine, be a cause of large private equity groups’ bankruptcies AND an essential part of other large private equity employers’ financial strategies? According to recent data, the answer appears to be yes.
Envision Healthcare and American Physician Partners (APP) declared bankruptcy in 2023. Both pointed to the No Surprises Act as contributing to their insolvency.
Envision’s public statement about its May 2023 bankruptcy explained, “The implementation of the NSA deviates from the legislation’s intent and enables health insurers to significantly delay and unilaterally reduce or deny payments. Of the eligible claims Envision has submitted through the independent dispute resolution process, only a small fraction has been resolved, and of those that were resolved, many remain unpaid by health insurers. For Envision, the flawed implementation has resulted in hundreds of millions of dollars in underpayments and delayed payments from all health insurance plans.”
John DiDonato, American Physician Partners’ Chief Restructuring Officer, wrote in his September 2023 statement to the bankruptcy court, “The regulatory implementation of the No Surprises Act was problematic, effectively shifting the balance of power in payment disputes too far in the favor of insurance companies (payors) and enabling them to significantly delay and unilaterally reduce or deny payments. Of the eligible claims the company submitted through the independent dispute resolution process, only a small portion has been resolved, and of those that were resolved, many remain unpaid by health insurers.”
According to the Emergency Department Practice Management Association, the NSA harmed emergency medicine employers in the following ways:
Decreased reimbursement: “For Out-of-Network claims, physician groups experienced a 39% reduction in reimbursement (net collections per ED visit) in 2023 compared to 2021.”
High administrative fees: Each arbitrated case costs the employer hundreds of dollars to resolve.
QPA shenanigans: Insurance companies artificially reduce their calculated median in-network rates (QPAs), which arbitrators consider when deciding appropriate payment rates.
Payment delays: Per an EDPMA survey of emergency medicine employers, “The average age of disputes in the Independent Dispute Resolution process is 211 days (7 months)… Only 7.6% of filed disputes have successfully gone through the Independent Dispute Resolution (IDR) process to closure.”
Seems bad.
However, TeamHealth and SCP Health, the two largest remaining private equity-owned emergency medicine employers, successfully engaged with the NSA arbitration process in 2023 - the same year Envision and APP went bankrupt. That year, over half (58%) of all NSA disputes were initiated by TeamHealth, SCP, or Radiology Partners (also private-equity owned).
A recent Health Affairs Scholar article by Erin Duffy, “No Surprises Act independent dispute resolution outcomes for emergency services,” shows the scope of TeamHealth’s and SCP’s Independent Dispute Resolution successes. Duffy analyzed publicly released CMS data that included all 2023 IDR arbitration cases and their outcomes. This study focused on the most common emergency medicine professional fee billing code, 99284, indicating a moderate to severe emergency department visit.
Duffy found that while approximately one-third of emergency departments are staffed by private equity-owned employers, 92% of arbitration cases for level 4 ED visits (code 99284) were initiated by private equity-owned groups. “TeamHealth accounted for 54% of dispute lines. Other PE-backed provider organizations that accounted for dispute lines are SCP Health (28% of dispute lines), Envision (5%), American Physician Partners (3%), and Sound Physicians (3%).” Almost half (46.2%) of all 99284 dispute cases in 2023 were between TeamHealth and United Healthcare.
TeamHealth’s and SCP Health’s active use of NSA arbitration in 2023 appears to have paid off. “The provider’s offer was selected in 86.4% of disputes and the mean winning offer was 2.65 times the QPA.” The mean QPA was 2.4 times that of Medicare payment rates.
Emergency medicine group win rates increased over the year. “The share of disputes won by providers increased from 82.82% in the first quarter to 91.19% in the fourth quarter.”
Duffy concludes, “Public data on IDR arbitration outcomes in 2023 reveal that arbiters are ruling in favor of providers in the vast majority of disputes, and the prevailing offer is much higher than the QPA on average.”
These findings are consistent with prior analyses of CMS’ 2023 IDR arbitration data by Matthew Fiedler and Loren Adler of The Brookings Institution. “For emergency services, the prices emerging from IDR during the second half of 2023 averaged 4.0 times what Medicare would pay; for comparison, adjusted estimates of pre-NSA mean in-network prices for similar services range from 2.6 to 3.0 times Medicare.” Emergency medicine employers had an 81% arbitration win rate in the second half of 2023.
The timeliness of payments from insurers to TeamHealth appears to have improved as well. According to Fitch Ratings’ July 2024 assessment of TeamHealth’s finances, “TMH has continued to win an overwhelming percentage of the billing disputes addressed through the NSA process. While its winning record is reassuring, the added time and cost for collections has added risk of slowing cash conversion cycles industry-wide. TMH once again has managed well in this area, with net days in accounts receivable (as reported by and defined by TMH) at 63 in 1Q24, down markedly from 68 in 1Q23 and consistent with 63 in 4Q23. With certain health insurers allegedly using the NSA to pressure rates, TMH notably reported low-to-mid single-digit increases in the last three quarters.”
Why have TeamHealth and SCP had such success in IDR arbitration? The answer is partly due to two of the criteria arbitrators must consider when determining which bid to accept:
The market share held by the provider or facility or that of the plan in the geographic region in which the qualified IDR item or service was provided; AND
Contracted rates between the provider or facility, as applicable, and the plan during the previous 4 plan years.
The market share element benefits larger medical practices over smaller ones, as the American Academy of Emergency Medicine has pointed out.
Of note, most regions in the US have consolidated health insurance markets, which benefits insurers in arbitration. According to the American Medical Association, “Based on federal merger guidelines, nearly three-quarters (73%) of 381 metropolitan statistical area-level commercial health insurance markets were highly concentrated in 2022.”
Incorporating prior in-network rates favors groups that negotiated high rates before the No Surprises Act. The 2017 study, “Surprise! Out-of-Network Billing for Emergency Care in the United States,” by Zack Cooper, published by the National Bureau of Economic Research, examined a large health insurer’s emergency medicine contracting data.
Cooper found that “TeamHealth, which has an average out-of-network billing rate of 13 percent, uses the threat of out-of-network billing to secure higher in-network payments. On average, we observe that after TeamHealth entered a hospital, out-of-network rates increased by 33 percentage points. However, in most instances, several months after going out-of-network, TeamHealth physicians rejoined the network and received in-network payment rates that were 68 percent higher than previous in-network rates.” Arbitrators can use those higher in-network rates as a factor when evaluating IDR bids.
As Charles Dickens wrote in A Tale of Two Cities, 2023 was “the best of times, it was the worst of times” for private equity-owned emergency medicine groups’ participation in the No Surprises Act arbitration process. At the same time as the NSA drove Envision and APP to bankruptcy, it anchored TeamHealth’s and SCP Health’s improving financial performance.
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Perfect example of insurers picking winners and losers. Why does TH continue to prevail? Because insurance wants consolidated markets to keep costs high.