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New Federal Medical Billing Law Does Not Preempt California’s AB 72

The No Surprises Act goes into effect January 1, 2022. The new federal law, following much of the blueprint of California’s AB 72 enacted in 2017, holds patients harmless from surprise bills, including from air ambulance providers, and prohibits out-of-network providers from balance billing unless they give patients 72-hour notice of their network status and an estimate of the charges.

The new federal law has two main parts. The first protects patients from surprise medical bills, curbing out-of-network balance billing, especially in 18 states that currently have no statutes on balance billing protections. The second part establishes an independent dispute resolution (IDR) process for payers and providers.

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The 32 other states, including California, currently have similar statutes and the federal law clarifies it will not preempt state law. Since the federal law does not exactly track AB 72, the law creates implications that California will likely need to contend with. Specifically, the resolution dispute process for providers.

After intense lobbying by industry groups over how to settle payment disputes between healthcare payers and out-of-network medical providers, the new federal law will enact binding arbitration as its IDR process. This was the method favored by doctors and hospital groups, while employers and insurers pushed for settling disputes with payment of a median in-network rate for a particular service or procedure. Here in California, payment between the insurance company and provider is based on either 125 percent of Medicare or the average contacted rate.

Under the new federal law, however, a healthcare provider's previously billed charges and government-payer rates cannot be considered during arbitration, and it does not allow government rate-setting. The legislation does include some provisions intended to encourage in-network agreements and prevent abuse and overuse of the arbitration process. It also does not require a threshold billing amount for arbitration.

To resolve payment disputes through arbitration if payers and providers cannot reach an agreement on their own, either side may ask for arbitration. Both sides would then make an offer, and an independent third-party arbitrator would pick one. In reaching a decision, the arbitrator would have to consider several factors, including:

The median in-network rate

Information related to the provider’s training and experience

The parties’ market concentration

Previous contracting history between the parties

Complexity of the services provided

Prohibited from the arbitrator’s consideration are:

Government payment amounts (Medicare/Medi-Cal)

Billed amounts or charges

Many unanswered questions remain and it will be up to the Department of Health and Human Services (HHS), through its rule making process, to attempt to answer them. It is expected that HHS will issue an “interim final rule with comment period” sometime in July, subject to future modification based on comments received.

In the meantime, lobbying in some states is underway to bring states laws into parity with the new federal law. In which case, we should ask if the same should happen in California.  
Gabriela Villanueva is CAP’s Government & External Affairs Specialist. Questions or comments related to this article should be directed to