Executive Summary

The California Department of Managed Health Care (“DMHC”) issued a recent guidance interpreting the application of the No Surprises Act (“NSA”)—a new federal law prohibiting out-of-network healthcare providers from balance-billing patients for certain emergency and non-emergency services—in California.  Significantly, when determining which payment and dispute resolution processes will apply in a dispute regarding the value of non-contracted emergency and non-emergency services, the NSA expressly defers to existing state law which already protects patients from receiving “surprise” medical bills, as long as such state laws conform to certain requirements set forth in the NSA.  The NSA refers to such qualifying laws as “specified State law[s]”.  However, the NSA does not explicitly indicate which states’ existing balance billing laws qualify as “specified State law[s]”—rather, each state must independently review the provisions of the NSA to determine if its existing balance billing laws qualify.

The DMHC recently issued an All-Plan Letter (“APL”) confirming that California law governing health care service plans, as set forth in the Knox-Keene Health Care Service Plan Act of 1975 and its implementing regulations, constitutes “specified State law” and will continue to govern out-of-network disputes for certain emergency and non-emergency services provided in California, rather than the payment and dispute resolution provisions of the NSA.  However, in all states, the NSA governs disputes relating to air ambulance services, not state law.

Background of the NSA

The NSA, which went into effect on January 1, 2022, limits the amount an out-of-network provider can charge for emergency services, nonemergency services provided at in-network facilities, and air ambulance services.  When a patient receives services covered by the NSA from an out-of-network provider, the NSA generally caps the patient’s cost sharing obligation at the median in-network contracted rate that the health plan agreed to pay for similar services from in-network providers for the same services in the same geographic region.  In addition, the NSA also creates a dispute resolution process for out-of-network payment disputes.  Under the NSA’s “baseball style” dispute resolution process, when providers and payors cannot come to an agreement, each side submits an offer that an approved Independent Dispute Resolution Entity must select between as the final payment amount.  The payment and dispute resolution processes of the NSA do not apply to every dispute, however.  Before the enactment of the NSA, many states already had surprise billing laws in place, and the NSA does not fully preempt state payment standards.  Instead, it expressly defers to the requirements of qualifying “specified State law[s]”—e.g., a qualifying balance billing law as specified by the NSA.  The NSA also envisions that states may revise their balance billing laws to qualify as “specified State law” in response to the passage of the NSA and its implementing regulations.  See 86 Fed. Reg. 36,925 (July 13, 2021).

The DMHC’s APL Confirms the Application of the NSA in California

On March 21, 2022, the DMHC issued an APL confirming that California law qualifies as “specified State law” for: (i) non-emergency, noncontracted services at an in-network facility by a noncontracted provider; and (ii) out-of-network emergency services.  Federal law governs disputes relating to out-of-network services provided by air ambulance providers.

  • The DMHC confirmed that the anti-balance billing laws enacted by California’s AB 72 are “specified State law[s]”, which apply when a non-contracted provider provides non-emergency services at an in-network facility: The DMHC concluded that California’s AB 72 is a “specified State law” governing the provision of out-of-contract non-emergency services at a contracted facility, which therefore continues to apply rather than the provisions of the NSA.  Under AB 72, the out-of-network reimbursement rate for out-of-network providers must be greater than the plan’s average contracted rate or 125% of Medicare.  AB 72 also limits the enrollee’s cost-sharing amount to the enrollee’s in-network rate.  And, as the DMHC recognized, AB 72’s definition of in-network facilities is broader than the NSA’s definition, because it encompasses not only hospitals and ambulatory surgery centers, but also laboratories, radiology, imaging centers, and other outpatient centers.  In its APL, the DMHC concluded that disputes governing these services must be resolved using the DMHC’s Independent Dispute Resolution Process, not the NSA dispute resolution mechanism.
  • The DMHC confirmed that California law, including Knox-Keene Act provisions governing balance billing of enrollees for out-of-network emergency services and related case law, are “specified State law: As for out-of-network emergency services, the DMHC concluded that California’s complex legal framework (including the Knox-Keene Act, its implementing regulations, and related case law interpreting the same) adequately prohibits providers from balance billing enrollees for out-of-network emergency services, including certain post-stabilization care.  Thus, the DMHC confirmed, this legal framework qualifies as “specified State law” under the NSA.  As a result, for out-of-network emergency services, DMHC-licensed health plans must continue to comply with California law regarding enrollee cost-sharing, provider reimbursement, and the resolution of disputes between plans and providers/facilities for out-of-network emergency services.
  • The DMHC recognized that the NSA applies to disputes relating to air ambulance services: Under the NSA, a plan that provides or covers air ambulance services must impose the same cost-sharing requirements for an out-of-network air ambulance provider that would apply if the services were provided by an in-network air ambulance provider. The Knox-Keene Act likewise prohibits balance billing for out-of-network air ambulance services.  However, because federal law (particularly the  Airline Deregulation Act of 1978) preempts state law on the “rates, routes and services of any air carrier,” including air ambulance providers, the DMHC concluded that California law does not govern air ambulance disputes.  Instead, the DMHC concluded, plans must follow the NSA and its implementing regulations when calculating reimbursement amounts for noncontracted air ambulance providers.

The DMHC stated that it expects CMS to issue an updated letter consistent with its interpretation of California’s balance billing laws.  For more information on how the NSA will affect California health plans and providers, please contact Sheppard Mullin’s healthcare litigation team.