No Surprise: The Federal No Surprises Act Should Preempt State Common Law Claims for Out-of-Network Payment Disputes

It’s a familiar story: A person suffers an accident or sudden illness and is rushed to the nearest emergency room. Weeks later, they receive a massive “surprise” medical bill because, unbeknownst to them, some or all of the emergency room staff who helped them were not in their insurer’s network. So they get billed the difference between what the insurer pays for out-of-network services and the standard charges of the medical staff.

Effective January 1, 2022, the No Surprises Act (NSA) protects patients from such surprise bills for either emergency services or services performed at an in-network facility by an out-of-network provider.

The NSA bars out-of-network providers from billing patients for amounts sought above the out-of-network coverage from the insurer. Instead, it requires providers to seek any additional payment from the insurers. While the NSA does not itself itemize a specified rate schedule that insurers must pay for specific out-of-network services, it does provide a clear process and defined standards for determining the “out-of-network rate.” If the service was performed in a state with a clear statutory process for resolving claims by providers for greater out-of-network payments, then the NSA tells the provider and insurer to use that process. Absent that, however, and assuming the provider and insurer cannot reach agreement, the NSA provides for an independent dispute resolution process (IDR) in which a certified private arbitrator selects between compensation proposals submitted by the parties in accordance with standards set forth in the statute.

As noted in a recent article in Health Affairs, various aspects of the NSA and its implementation have been aggressively litigated, including constitutional challenges that have so far proven unsuccessful. But one significant question raised by the NSA was not referenced in the article and has yet to surface clearly in the case law, though it surely will: Does the NSA preempt state common law claims that out-of-network providers might otherwise seek to bring against insurers? The NSA’s text and legislative history say the answer should be yes.

First, since the NSA specifies a federal process and standard dictating how providers and insurers must determine the “out-of-network rate,” any common law claim that seeks to impose a different out-of-network payment obligation (through a different venue and under a different procedure) undercuts the requirements set forth in the text of the NSA.

Second, the NSA’s legislative history reveals Congressional intent, captured in a House Committee report in 2020, to create “a comprehensive solution to the underlying issue of surprise medical billing” and expressly recognized that defining the “amount that payers must remit to providers for out-of-network items and services” was a “key element” of any such solution. And it explained exactly why defining the payment rate between out-of-network providers and insurers was a necessary part of any such “comprehensive solution,” explaining that the phenomenon of “private equity-owned firms” taking over provider groups has led to “inflated out-of-network prices” that were “directly felt” by all consumers “who share in rising overall health care costs through higher premiums.” In other words, it does consumers no good if Congress prohibits balance billing but allows provider groups to invoke nebulous common law claims against insurers to demand massive price hikes for their private equity owners, since that results in higher insurance premiums. Congress thus designed the NSA to “ensure that an efficient, market-based payment benchmark is employed, while providing for a noninflationary IDR mechanism” that “is designed to reduce premiums” while establishing “a fair payment amount.” Congress “put into effect” “guardrails--including a prohibition on consideration of provider billed charges by IDR entities” to “reduce costs for patients and prevent inflationary effects on health care costs.”

The NSA’s detailed methodology for determining the “out-of-network rate” should therefore be held to preempt all state common law claims by out-of-network providers seeking more money from insurers — at least those claims that relate to services covered by the NSA. Such claims are irreconcilable with the NSA’s procedural and venue requirements for resolving out-of-network payment disputes, with the NSA’s substantive methodologies for determining the “out-of-network rate,” and with Congress’ goal of creating a “comprehensive solution” to the balance billing problem, including the problem of “inflated out-of-network prices” that lead to “higher premiums.” 

While the NSA does not have a traditional express preemption provision, it was made subject to the same provision that governs preemption for other healthcare laws such as HIPPA. The NSA provides that state laws establishing “any standard or requirement” applicable “solely to health insurers in connection with individual or group health insurance coverage” are not superseded unless they “prevent the application of a requirement” of the NSA. So, for example, since the NSA expressly incorporates specified state statutes that govern out-of-network payment disputes, those laws are not superseded but instead are applied as part of the NSA’s comprehensive solution. By contrast, general state common law doctrines would not seem to meet the description of the kinds laws that are “not superseded” under this provision. But even if they did, for providers to use such common law doctrines to seek more money from insurers than is permitted under the NSA (or even just to invoke different legal standards in different venues subject to different procedures) would directly conflict with the requirements of the NSA. Thus, whether under the preemption statute referenced above or under the general doctrine of implied conflict preemption, the ability of providers to invoke free-floating common law principles to seek higher out-of-network payments should be found preempted by the NSA. Any other result would defeat both the mechanics and the purpose of the statute.