Compliance News | January 5, 2022

Guidance on the No Surprises Act’s Qualifying Payment Amount

The Treasury Department and Internal Revenue Service, in consultation with the Departments of Health and Human Services and Labor, recently released the first of what will become annual guidance on how to calculate indexing for the Qualifying Payment Amount as required under the federal No Surprises Act, enacted as part of the Consolidated Appropriations Act, 2021.

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Most group health plans and health insurers are subject to the No Surprises Act for plan years beginning on or after January 1, 2022. The No Surprises Act prevents surprise billing of patients who receive emergency services in the emergency department of a hospital, at an independent freestanding emergency department, and from air ambulances. In addition, the law protects patients who receive certain non-emergency services from an out-of-network provider at an in-network facility. (We summarized the No Surprises Act in our January 14, 2021 insight, “New Law Requires Transparency and Prohibits Surprise Billing.”)

Participant cost-sharing is calculated using the Qualifying Payment Amount (QPA). The QPA will also be a central component of the Independent Dispute Resolution (IDR) process because it will be the determinative payment amount unless it is demonstrably in error. Part 1 of the No Surprises Act interim final rule, which was released on July 13, 2021, addressed patient rights and how to calculate the Qualifying Payment Amount (QPA), generally defined as the plan’s median in-network contracted rate.  (We summarized that guidance in our July 14, 2021 insight, “Rule on the No Surprises Act Covers Provider Payments.” We summarized Part 2 of the guidance in our November 9, 2021 insight, “No Surprises Act Rule on 2022 Independent Dispute Resolution.”)

How to calculate the QPA is perhaps the most difficult compliance issue with respect to the new emergency services rules. In general, the QPA for 2022 is the median of the plan’s contracted rate on January 31, 2019, for the same item or service that is provided by a provider in that specialty in that geographic region, adjusted for inflation. The median contracted rate is generally determined with respect to all group health plans of the plan sponsor or all group or individual health insurance coverage offered by the health insurance issuer offered in the same insurance market.

Self-insured plan sponsors have a choice of whether to calculate the contracted rate based on their self-insured group health plans (other than account-based plans and excepted benefits) or the entirety of self-insured group health plans administered by the same entity (including a third-party administrator) that is responsible for calculating the QPA on behalf of the plan.

The median contracted rate for an item or service is calculated by arranging in order, from least to greatest, the contracted rates of all plans of the plan sponsor (or of the administering entity, if applicable) for the item or service (defined by service code) that is provided by a provider or facility in that geographic region and selecting the middle number. If there is an even number of contracted rates, the median contracted rate is the average of the middle two contracted rates.

The QPA for 2022 is calculated by increasing the median contracted rate by the percentage increase in the consumer price index for all urban consumers (CPI-U) over 2019, the percentage increase over 2020 and the percentage increase over 2021. The QPA will be adjusted annually thereafter.

New guidance

The new guidance, IRS Revenue Procedure 2022-11, sets forth the amount of the percentage increase for 2022 claims. For items and services provided on or after January 1, 2022, and before January 1, 2023, the combined percentage increase to adjust the median contracted rate is 1.0648523983. The formula for the combined percentage increase for 2019, 2020 and 2021 is expressed as: (CPI-U 2019/CPI-U 2018) × (CPI-U 2020/CPI-U 2019) × (CPI-U 2021/CPI-U 2020). Group health plans may round any resulting QPA to the nearest dollar.

Special rules apply to calculation of the QPA for anesthesia services and air ambulance services, but the formula for increasing the base rate reflects the same rules for the percentage increase.

The Revenue Procedure contains one example. A group health plan calculates the median contracted rate for a service code at $12,480 as of January 31, 2019. For that same service code furnished during 2022, the plan would increase the median contracted rate by the combined percentage increase of 1.0648523983, resulting in a QPA of $13,289.36. The plan may round the amount to the nearest dollar, resulting in a QPA of $13,289.

Implications for plan sponsors

Because the No Surprises Act has an effective date of plan years beginning on or after January 1, 2022, plan sponsors have had to implement the law’s requirements on a very short timeline. Nevertheless, plan sponsors and their administrative service providers must ensure that claims are processed correctly for their effective date.

Plan sponsors should review compliance considerations including which provider will determine the QPA, how the claims administrator will know which claims are subject to the No Surprises Act and how will participants be protected from balance billing. Plan sponsors should ensure that the federal No Surprises Act Model Notice is available on the plan’s website and on Explanation of Benefits forms. They should also determine who will handle requests from health care providers for an “open negotiation” period and subsequent IDR process.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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