On July 1, 2017, a new law (AB 72) will take effect that will change the billing practices of non-participating physicians providing covered, non-emergent care at in-network facilities including hospitals, ambulatory surgery centers and laboratories. The law, signed in 2016, was designed to reduce unexpected medical bills when patients go to an in-network facility but receive care from an out-of-network doctor. 

While patients with out-of-network benefits can consent to treatment from out-of-network providers, absent a valid consent form, health plans and insurers are required to reimburse out-of-network physicians at an interim payment rate. The interim rate is the greater of 125 percent of Medicare or the plan/insurer’s average contracted rate (ACR).

Under the new law, payors must submit their ACR data to insurance regulators by July 1, 2017. Both the California Department of Insurance (CDI) and the Department of Managed Health Care (DMHC) recently released implementation instructions for ACR filings under the new law.

The California Medical Association (CMA) is working hard to ensure health plans and insurers do not game the system to pay artificially low reimbursement rates to physicians. CMA told regulators that in order to accurately reflect an "average" of the rates, the ACR must account for the volume of claims paid at a specific contracted rate rather than simply averaging the total volume of contracts. For example, a contract that accounts for a small volume of services should not be weighted equally as a contract that accounts for 75 percent of the services provided by that payor.

CMA argued that a failure to base ACR on claims volume would result in payors having the ability to skew the data to artificially deflate the ACR and diminish the value of contracts with large groups that treat the majority of patients. CMA also expressed concern that an ACR that is below current market rate creates a disincentive for payors to contract with physicians because they can rely on the interim payment as a de facto fee schedule.

Consistent with CMA advocacy, CDI is requiring insurers to calculate ACR based on claims volume paid at a specific contracted rate by CPT code in each geographic region, and requires that data to be submitted separately by insurance product market segment – individual, small group and large group insurance products. DMHC, however, is not requiring plans to weight their contracts based on claim volume and is instead allowing them to average the total volume of contracts.

While DMHC is not requiring plans to utilize a weighted average for their ACR calculations, plans are required to indicate when filing their ACR whether they are using a weighted average and also to submit the methodology used to calculate their ACR. Also, if plans contract at different rates by provider type and/or facility, they are required to calculate and report these ACRs separately.

CMA will be monitoring implementation of this new law very carefully. If your practice experiences a change in payor behavior regarding contract negotiations, claims payment or network adequacy concerns, or is experiencing other challenges, CMA wants to hear from you.

For more information, visit the economicservices@cmadocs.org.