CDI issues instructions for "average contracted rate" under new out-of-network billing and payment law

June 14, 2017
Area(s) of Interest: AB 72 Payor Issues and Reimbursement Out of Network Billing 

On July 1, 2017, a new law (AB 72, 2016) will take effect that changes the billing practices of non-contracted physicians providing non-emergent care at in-network facilities including hospitals, ambulatory surgery centers and laboratories. The law is designed to reduce unexpected medical bills when patients go to an in-network facility but receive care from an out-of-network doctor. 


While patients with out-of-network benefits can consent to treatment from out-of-network providers, absent a valid consent form, health plans and insurers are required to reimburse out-of-network physicians at an interim payment rate. The interim rate is the greater of 125 percent of Medicare or the plan/insurer’s average contracted rate (ACR).



Under the new law, payors must submit their ACR data to insurance regulators by July 1, 2017.



The California Medical Association (CMA) has been working hard to ensure that health plans and insurers do not game the system to pay artificially low reimbursement rates to physicians subject to AB 72. CMA told regulators that in order to accurately reflect an "average" of the rates, the ACR must account for the volume of claims paid at a specific contracted rate rather than simply averaging the total volume of contracts. For example, a contract that accounts for a small volume of services should not be weighted equally as a contract that accounts for 75 percent of the services provided by that payor.



CMA argued that a failure to base ACR on claims volume would result in payors having the ability to skew the data to artificially deflate the ACR and diminish the value of contracts with large groups that treat the majority of patients. CMA also expressed concern that an ACR that is below current market rate creates a disincentive for payors to contract with physicians because they can rely on the interim payment as a de facto fee schedule.



Consistent with CMA advocacy, the California Department of Insurance (CDI) recently issued instructions that requires insurers to calculate ACR based on claims volume paid at a specific contracted rate by CPT code in each geographic region, and requires that data to be submitted separately by market segment – individual, small group and large group. CMA is pleased that CDI has taken physician concerns seriously and is taking steps to ensure that insurers do not artificially deflate their ACR and manipulate the data for their own benefit.



The Department of Managed Health Care has yet to issue any specific instructions on this issue, but is expected to do so very soon.



For more information on the new out-of-network billing and payment law, see Out-of-Network Billing.



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