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New California Law to Curb Surprise Medical Bills Will Impact Relationships Between Health Plans and Non-Contracted Professionals

October 18, 2016

On September 23, Governor Brown signed into law Assembly Bill 72 (AB 72) that will significantly alter the relationship between non-contracted providers of professional services and commercial health plans and insurers. The new law, which does not apply to Medi-Cal managed care plans, aims to combat surprise medical bills by out-of-network professionals at in-network facilities. AB 72 does not impact provision of emergency services by such non-contracted professionals. The Association of American Physicians and Surgeons has already challenged the constitutionality of AB 72 in federal court, asserting that the new law violates the due process, takings, and equal protection clauses of the U.S. Constitution.

Beginning July 1, 2017, the legislation limits a patient’s financial cost sharing obligation to no more than what the patient would have owed if the treating professional had a contract with the patient’s health plan that governed payments for services. AB 72 also imposes additional requirements on non-contracted providers and their communications with patients and requires that the professionals refund any overpayments to patients within 30 calendar days (with 15 percent interest accruing thereafter). The amounts paid by patients to such non-contracted professionals would count toward patient out-of-pocket expense limitations and deductibles. But AB 72 permits non-contracted professionals to circumvent these restrictions by seeking a written consent of the patient to alternative payment terms. The written consent must be obtained at least 24-hours before performing the services and must include certain disclosures to the patient, including estimated out-of-pocket costs of care by the non-contracted professional.

The law also provides guidelines for determining payments to non-contracted professionals for services rendered at contracted facilities and requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to implement a dispute resolution mechanism that such professionals and health plans and insurers may utilize:

  • Specification of Reimbursement Rates: Effective July 1, 2017, unless otherwise agreed, commercial health insurers and health plans must reimburse out-of-network professionals at in-network facilities either: (a) the average contracted rate, or (b) 125 percent of the Medicare Fee-for-Service for the same or similar services. The new law establishes a process through which the average contracted rate must be determined. Health plans and insurers must report to the applicable regulator, either the DMHC or the CDI, data on contracted rates and policies and procedures pertaining to rates for most frequently provided services by non-network professionals at their facilities. The DMHC and the CDI will begin consulting with stakeholders on developing a standardized methodology for calculating the average contracted rate starting July 1, 2017. After seeking input from stakeholders, the state agencies are required to specify the average contracted rate methodology to be used by insurers and health plans starting in January 1, 2019.
  • Establishment of the Independent Dispute Resolution Process (IDRP): AB 72 requires the DMHC and the CDI to establish a new review process to resolve reimbursement disputes between commercial health plans/insurers and non-contracting health professionals that provide services at a contracted facility. The law contemplates that the DMHC and the CDI will establish conflict-of-interest standards and contract with an independent organization to conduct these proceedings. The IDRP may be utilized only after the professional has unsuccessfully appealed the initial payment determination under the plan or insurer’s internal review process. Of note, AB 72 permits bundling of claims and allows a physician’s Independent Practice Association or physician groups or other entities that are authorized to act on behalf of the physician to seek review under the IDRP. The legislation mandates that IDRP decisions are binding on the parties and requires the plan or insurer to implement the decision obtained through the dispute process. However, if dissatisfied, either party may pursue any right, remedy, or penalty established under any other applicable law.

These two major components of AB 72 will significantly impact the provision of services by non-contracted professionals at contracted health facilities.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Peter Roan
Partner – Los Angeles
Phone: +1.213.443.5571