Case Study 2 — The No Surprises Act: What Happens When One Encounter Generates Two Claims and Only One Is In Network

A real, public statute and rulemaking, still being litigated. Tier 1 facts. Where a specific figure would be needed, the point is made qualitatively.

Background

Section 1.5 of this chapter made an observation that sounded administrative: one encounter can generate two claims, from two different entities. The hospital bills the facility component. The emergency physician's group bills the professional component. They are separate companies with separate tax identification numbers, separate contracts, and separate billing systems.

For decades, that structural fact had a consequence nobody designed and everybody defended: the two entities could have different network status with the same insurer.

A patient could do everything right. Check the insurer's directory. Confirm the hospital is in network. Go to that hospital. And then be treated by an emergency physician, an anesthesiologist, a radiologist, a pathologist, or an assistant surgeon who was not in network — someone the patient did not select, could not have selected, and in most cases never met by name.

The out-of-network provider had no contract with the insurer. No contract means no allowed amount, which means no contractual adjustment, which means the entire charge stands. The insurer would pay some portion based on its own out-of-network methodology, and the provider would bill the patient for the remainder. That practice is balance billing, and in this configuration it acquired a specific name: the surprise bill.

The amounts were frequently large, because the charge — the first number in §1.2, the one nobody normally pays — was suddenly the operative figure. A patient with good insurance, treated at an in-network hospital, could receive a bill in the thousands of dollars from a clinician whose name they had to look up.

The issue

The No Surprises Act was enacted as part of the Consolidated Appropriations Act, 2021, and took effect January 1, 2022. Its core protections are straightforward to state:

• Emergency services must be covered at in-network cost-sharing levels regardless of the provider's network status, and the patient may not be balance billed.
• Non-emergency services furnished by out-of-network providers at in-network facilities — the anesthesiologist, the radiologist, the pathologist, the assistant surgeon — are likewise protected, with a narrow and heavily conditioned exception where the patient gives informed written consent in advance. That consent may not be obtained for certain specialties at all, precisely because the patient has no meaningful ability to choose.
• Air ambulance services are covered.
• The patient's cost-sharing counts toward their in-network deductible and out-of-pocket maximum.
• Patients who are uninsured or paying cash are entitled to a good faith estimate in advance, and gain a dispute process if the final bill substantially exceeds it.

The patient is taken out of the middle. That is the design.

But the money still has to be settled between the provider and the insurer, and that is where the case study becomes interesting, and where it remains unresolved.

The Act establishes a federal independent dispute resolution (IDR) process. The provider and the plan first have a negotiation period. If they cannot agree, either may initiate IDR, in which each side submits a proposed payment amount and a certified entity picks one of the two — baseball-style arbitration, with no authority to split the difference. The arbitrator is directed to consider the qualifying payment amount (broadly, the plan's median contracted rate for that service in that geographic area) along with a list of additional statutory factors.

What it shows

First: the two-claim structure is not a billing detail. It is a policy problem. Everything the No Surprises Act does is downstream of the fact that one clinical encounter is financially fragmented across multiple entities with independent contracts. Section 1.5 presented that as something a coder needs to understand to route a charge correctly. It is also the reason a federal statute was necessary.

Second: without a contract, there is no allowed amount, and the whole four-number structure collapses. This is the cleanest available demonstration of §1.2's argument. The reason a network patient's \$3,842.00 emergency department bill settles at \$1,196.40 is the contract. Remove the contract and there is nothing to reduce the charge to. The contractual adjustment is not a courtesy or a market outcome; it is a term of an agreement, and where no agreement exists the number simply does not appear.

Third: the implementation fight was about how to compute a number. The interim final rules initially directed arbitrators to presume that the qualifying payment amount was the appropriate out-of-network rate, departing from it only where credible evidence showed otherwise. Provider organizations, including the Texas Medical Association and others, sued, arguing that this effectively made the plan's own median contracted rate the default — and that plans control the inputs to that median. A series of decisions in the Eastern District of Texas vacated portions of the rules; the departments revised them; further litigation followed, including challenges to the methodology for calculating the qualifying payment amount and to the administrative fee structure. The process has been suspended and restarted more than once, and case volume has vastly exceeded what the departments projected.

Fourth: an enormous administrative apparatus was created to determine one of the four numbers. Read that sentence again in light of §1.2. Charge, allowed amount, adjustment, payment. The entire No Surprises Act dispute infrastructure — the notices, the negotiation period, the certified IDR entities, the fees, the deadlines, the litigation — exists because in the out-of-network case there is no contract to supply the second number, and so it must be manufactured, one dispute at a time.

Outcome

The patient protections have been in force since January 1, 2022 and are broadly operational. Patients receiving emergency care, or care from ancillary out-of-network clinicians at in-network facilities, pay in-network cost sharing and are not balance billed for the protected services.

The provider–plan settlement mechanism has been considerably less settled. Rules have been vacated in part and rewritten. IDR has been paused and resumed. Dispute volume has run far above projections, producing backlogs. Administrative fees have been revised, challenged, and revised again. Both provider and payer organizations continue to litigate, and the statutory framework has been the subject of proposed legislative and regulatory amendment.

For a revenue cycle department the practical consequences are concrete and permanent:

• New notice and disclosure obligations, with content and timing requirements.
• A new category of work: identifying protected claims, computing patient cost-sharing at in-network levels for an out-of-network service, initiating open negotiation, and — where it goes that far — assembling an IDR submission on a deadline.
• A new failure mode: balance billing a patient for a protected service. It is now a violation, not merely a contractual breach, with civil monetary penalty exposure and a patient complaint process attached.
• Good faith estimate obligations for self-pay and uninsured patients, which Chapter 32 §32.3 covers in full.

The lesson

Structure determines exposure. The reason surprise billing existed was not that anyone designed it; it was that the financial architecture of an encounter is fragmented in a way the clinical experience of it is not. A patient experiences one visit. The revenue cycle experiences three or four independent transactions. Every mismatch between those two views is a place where something can go wrong for the patient, and the No Surprises Act is one large, expensive correction to one such mismatch.

And the second number is load-bearing. Chapter 1 called the allowed amount "the number that matters," and this case study is what happens when it does not exist. There is no market price to fall back on, because there is no market price. There is a charge set unilaterally by one party and a payment computed unilaterally by another, and nothing in between except arbitration.

A working professional should take one concrete habit from this: when a claim is out of network, stop and check whether it is protected before you send a statement. The old reflex — bill the patient the balance — is now, in a defined and growing set of circumstances, unlawful.

This is a summary of a statute and rulemaking that are actively changing, in a book that will be read after this was written. Verify the current state of the rules, the litigation, and your state's own surprise-billing law — which may be broader — with your compliance officer before relying on any of it.

Discussion questions

1. Case Study 1 was about publishing the allowed amount. This one is about what happens when there is no allowed amount to publish. Taken together, what do they establish about the second number that §1.2 asserted but did not prove?

2. The Act removes the patient from the dispute and leaves the provider and the plan to fight. Name two ways that is better than the prior arrangement and one way it is worse — and say for whom.

3. The core of the litigation is whether the arbitrator should presume the plan's median contracted rate is correct. Explain why each side cares so much, in terms of who controls the inputs to that median.

4. Section 1.5 said a charge posted to the wrong claim "is not a small error." After this case study, describe a scenario in which a routing error between the facility and professional claim creates a compliance problem rather than merely a payment problem.

5. Your practice is out of network with a plan and has just furnished a service you believe is protected. Write the three questions you would answer, in order, before anything is billed to the patient.