Model Act Summary

This model legislation limits out-of-network rates for inpatient and outpatient hospital services to the lesser of (a) the state’s median in-network commercial rate for the same service; or (b) [X]% of the Medicare rate for the same service in the same geographic area.

Evidence from the Medicare Advantage program and studies analyzing the impact of price limits in several states indicate that an out-of-network rate limit can reduce in-network negotiated rates, encourage in-network participation, and reduce overall spending by limiting the value of the option of staying out-of-network, which providers can use to increase their prices. Such limits could change the dynamic between payers and powerful providers, which could result in lower costs and increased access for patients.

States have the option of limiting out-of-network rates to a multiple of Medicare rates. Determining where to set the multiple would depend on hospital costs in an individual state, which could be quantified using NASHP’s hospital cost tool. Economic models have estimated in-network rate reductions and overall savings when out-of-network payment rates were capped at 125% of Medicare rates, 200% of Medicare rates, or average in-network payment rates.[1] In 2017, Oregon enacted legislation that capped both in- and out-of-network prices for most hospitals participating in its public employee health plan, with in-network rates capped at 200% of Medicare rates and out-of-network rates capped at 185% of Medicare.[2]

Under the model, the out-of-network rate limit would be administered by a state health agency, such as a health cost commission, cost growth authority, or other body with authority over hospital rates. The Department of Insurance (DOI) would assist in collecting data from health insurance carriers to monitor providers’ compliance with the out-of-network rate limit and monitor impacts on health plan premiums. The model law leverages the federal Hospital Price Transparency and Transparency in Coverage rules, giving states the authority to ensure payers and providers are making data available and using the data to monitor compliance. To evaluate whether health insurers are passing on savings generated by the out-of-network rate limit to consumers, the DOI can use its authority under the Medical Loss Ratio requirements and rate review. It may take some time after implementation for the DOI to determine how much savings are generated from the out-of-network limit. Policymakers could use other tools such as a premium growth cap to ensure savings are passed on to consumers. However, it could take time to determine whether a premium growth cap is needed, and at what rate.

To enforce providers’ compliance with the out-of-network rate limit, the model proposes (a) making a violation an unfair trade practice enforceable by the relevant agency, state Attorney General, and affected individual; (b) requiring the provider to refund the health plan and pay a penalty payment to the affected individual; and (c) providing authority for the enforcing state agency to audit providers and payers to support enforcement.

• (1) Definitions.  As used in this section,
  • (A) “Health insurance carrier” means an entity subject to the insurance laws and regulations of this state or subject to the jurisdiction of the [Insurance Commissioner] that offers health insurance, health benefits, or contracts for health care services, including prescription drug coverage, to large groups, small groups, or individuals on or outside the [Marketplace].
  • (B) “Health benefit plan” means a plan, policy, contract, certificate, or agreement entered into, offered, or issued by a health insurance carrier or health plan administrator acting on behalf of a plan sponsor to provide, deliver, arrange for, pay for, or reimburse any of the costs of health care services, including nonfederal governmental plans as defined in 29 U.S.C. § 1002(32), but excludes any coverage by Medicare, Medicaid, TRICARE, Veterans Administration, Indian Health Services, and the Federal Employee Health Benefit Plan.

[Commentary: States may already have a definition of “health benefit plan” or “health insurance carrier” in their statutes that can be referenced instead of adopting a new definition here. We recommend defining “health benefit plan” broadly to include third-party administrators working on behalf of a plan sponsor, including self-funded employers and labor unions. States may consider whether there are any other plans that may be excluded, e.g., long-term care plans, disability plans, and dental or vision plans.]

• • (C) “Health plan administrator” means a third-party administrator who acts on behalf of a plan sponsor to administer a health benefit plan.
  • (D) “Health system” means: (i) A parent corporation of one or more hospitals and any entity affiliated with such parent corporation through ownership, governance, membership or other means, or (ii) a hospital and any entity affiliated with such hospital through ownership, governance, membership or other means;
  • (E) “Hospital” is a hospital licensed under [code section for hospital licensure];
  • (F) “Hospital-based facility” means a facility that is owned or operated, in whole or in part, by a hospital where hospital or professional medical services are provided;
  • (G) “Health care provider” means an individual, entity, corporation, person, or organization, whether for profit or nonprofit, that furnishes, bills or is paid for health care service delivery in the normal course of business, and includes, without limitation, health systems, hospitals, and hospital-based facilities;
  • (H) “Hospital price transparency laws” means Section 2718(e) of the Public Health Service Act (PHSA), as amended, and rules adopted by the U.S. Department of Health & Human Services implementing Section 2718(e);
  • (I) “Transparency in coverage laws” means 2715A of the Public Health Service Act, as amended, and Section 715 of the Employee Retirement Income Security Act of 1974 (ERISA), and Section 9815 of the Internal Revenue Code (IRC), and rules adopted by the U.S. Department of Health and Human Services, Department of the Treasury, and Department of Labor implementing Section 2715A of the PHSA, Section 715 of ERISA, and Section 9815 of the IRC.
• (2) Limits on Out-of-Network Payment Rates.
  • (A) Out-of-Network Payment Rates. Total out-of-network payments to any health care provider for inpatient or outpatient hospital services furnished to persons covered by a health benefit plan with whom the health care provider does not participate shall not exceed the lesser of:
    • i. [X]% of the amount paid by Medicare for the same item or service; or
    • ii. The median in-network amount paid by health benefit plans for the same item or service;
  • (B) Patient Cost-Sharing. A health care provider who is reimbursed in accordance with subsection (2)(A) of this section may not charge or collect from the patient or any person who is financially responsible for the patient any amount greater than cost-sharing amounts authorized by the terms of the health benefit plan and allowed under applicable law. The total payment, including amounts paid by the health benefit plan and individual cost-sharing, shall not exceed the amounts stated in subsection (2)(A).
  • (C) Alternative payment methods. If a health benefit plan does not reimburse claims on a fee-for-service basis, the payment method used must take into account the limits specified in subsection (2)(A). Such payment methods include, but are not limited to:
    • i.       Value-based payments;
    • ii.     Capitation payments; and
    • iii.    Bundled payments.
  • (D) Exceptions. This section shall not apply to:
    • i. [A rural critical access hospital as defined by [code citation]]
    • ii. [A federally qualified health center as defined by [code citation]]
    • iii. [Any other exceptions that the state may want to include, such as rural health clinics, or other types of safety net hospitals or facilities]
• (3) Reporting.
  • (A) Health care providers shall provide the [Department/Health Cost Commission] the information required by hospital price transparency laws and any such data as the [Department/Health Cost Commission] determines is necessary to calculate the growth rates of in-network and out-of-network hospital services and to monitor compliance with the out-of-network payment limits established in subsection (2).
  • (B) Health insurance carriers and the health plan administrator[s] of the [state/public employee health benefit plan] shall provide the Commissioner of Insurance the information required by the transparency in coverage laws and any such data as the Commissioner of Insurance determines is necessary to calculate the growth rates of in-network and out-of-network hospital services, to monitor compliance with the out-of-network payment limits established in subsection (2), to evaluate compliance with medical loss ratio requirements under [applicable federal and/or state laws]; and to review and approve premium rates and growth.
  • (C) The [Department/Health Cost Commission] and the Commissioner of Insurance shall keep confidential all nonpublic information and documents obtained under this subsection and shall not disclose the confidential information or documents to any person without the consent of the party that produced the confidential information or documents, except that the information may be disclosed to experts or consultants under contract with [Department/Health Cost Commission] or Commissioner of Insurance, provided that the expert or consultant is bound by the same confidentiality requirements as the state officials. The confidential information and documents shall not be public records and shall be exempt from the [state open records act].
  • (D)By [date] every year, the [Department/Health Cost Commission] shall provide a report to the legislature on trends for provider in- and out-of-network rates, health insurance premiums, patient access to providers, compliance with this act, [and a calculation of health care cost growth rates and relationship to benchmark]. The [Department/Health Cost Commission] may include recommendations for further actions to make health care more affordable and accessible to residents of the state.

  [Commentary: In states with a health cost growth benchmark, this report can be included with the health cost commission’s annual assessment of health care cost growth relative to benchmark.]

• (4)   Regulatory Authorization.
  • (A) The [Department/Health Cost Commission] may promulgate regulations necessary to implement the requirements of this act, alter or reduce the rate limits set forth in subsection (2)(A), specify the format and content of reports under subsection 3(A), and impose penalties for non-compliance consistent with the [Department’s/Health Cost Commission’s] authority to regulate health care providers.
  • (B) The Commissioner of Insurance may promulgate regulations necessary to evaluate the growth or reduction of health insurance premiums, to ensure that savings from reductions in provider payments are passed on to consumers, to ensure compliance with applicable medical loss ratio requirements under [federal and state laws], to specify the format and content of reports under subsection 3(B), and impose penalties for non-compliance consistent with the Commissioner’s authority to regulate health insurance carriers.
• (5) Enforcement.
  • (A) Any violation of any provision of this act shall constitute an unfair trade practice pursuant to [reference to code section for state unfair trade practices statute], which may be enforced by the [Department/Health Cost Commission], the State Attorney General, or an aggrieved individual.
  • (B) A health care provider that violates any provision of this act or the rules and regulations adopted pursuant hereto shall:
    • i. Refund any amount received in excess of the amount set forth in subsection (2)(A) to the health benefit plan; and
    • ii. Pay the patient or individual responsible for the patient a penalty of the greater of [$1,000] or the amount the health care provider received in excess of the amount set forth in subsection (2)(A).
  • (C) The [Department/Health Cost Commission], the Commissioner of Insurance, or its designee may audit any health care provider, health insurance carrier, or health plan administrator for compliance with the requirements of this act. Until the expiration of [four (4)] years after the furnishing of any services for which an out-of-network payment was charged, billed, or collected, each health care provider, health insurance carrier, or health plan administrator, shall make available, upon written request of the [Department/Health Cost Commission], the Commissioner of Insurance, or its designee, copies of any books, documents, records, or data that are necessary for the purposes of completing the audit.

[1] Duffy EL et al., The Price and Spending Impacts of Limits on Payments to Hospitals for Out-of-Network Care, RAND (2020), https://www.rand.org/pubs/research_reports/RR4378.html.

[2] Oregon 2017 OR S.B. 1067