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California Joins New York and Florida, Passes Out-Of-Network Legislation

Last month the California legislature passed AB-72, which amends the Health & Safety Code to address reimbursement for out of network (OON) providers who provide services at in-network facilities, such as hospitals and laboratories. In so doing, California joins several other states, including New York, Connecticut and Florida, which offer consumers protections against surprise OON bills, as well as a process for providers and insurers to resolve payment disputes for OON care.  If signed into law as expected, the legislation will apply to plans issued, amended or renewed on or after July 1, 2017.

Out of Network Coverage

The legislation provides that if an insured receives services covered by his/her health plan by an OON provider at an in-network facility, the insured is only obligated to pay the OON provider the cost sharing amount that he/she would otherwise be obligated to pay had the same covered service been provided by an in-network provider.

The OON provider is prohibited from billing or collecting any amount beyond the insured’s cost sharing obligation, unless the insured has a plan that includes an OON benefit and the insured consents in writing to receive services from the OON provider at least 24 hours in advance of the episode of care.  At the time consent is provided, the OON provider must give the insured a written estimate of his/her total out-of-pocket cost of care. 

Reimbursement for OON Services

A health plan must pay an OON provider who provides covered services to an insured at an in-network facility the greater of the average contracted rate or 125% of the amount Medicare reimburses for the same or similar service in the general geographic region in which the service was rendered.  Payment made by the plan to the OON provider will constitute payment in full unless either party uses the independent dispute resolution process or other means to resolve the dispute.

Independent Dispute Resolution Process

The State Department of Managed Health Care (DMHC) is charged with establishing an independent dispute resolution process (IDRP) for resolving payment disputes between OON providers and payors.  The parties must complete the plan’s internal appeals process prior to proceeding to the IDRP.


Health plans must provide the DMHC with data identifying its average contracted rates for the services most frequently subject to OON bills during calendar year 2015 and their methodology for determining the average contracted rates.  By January 1, 2019, DMHC will specify a methodology that plans will have to use to determine the average contracted rates.

What’s Next?

With Florida and New York passing similar laws, and states such as New Jersey, Pennsylvania, Rhode Island, Georgia and Hawaii exploring their own legislation, it is clear that the issue of surprise bills has caught fire.  While it is generally agreed that patients should be held harmless from paying surprise bills when they unknowingly receive treatment from an OON provider, the legislative debates revolve around how much the OON provider should be paid.  New York requires health plans to pay the OON provider a “reasonable amount,” and Florida requires plans to pay the OON provider’s “usual and customary charge” or an agreed-upon amount before heading to dispute resolution.  AB-72 is less equivocal: the plan must pay either the amount it normally pays an in-network physician for the service or 125% of the Medicare rate, whichever is greater.

Another area that lawmakers – as well as payors and providers – are paying close attention to is how the dispute resolution process is playing out.  Thus far there has been very little public information on which of the two sides is prevailing in their disputes; although a few months ago Crain’s reported that in New York, preliminary data shows “the results so far have been fairly even.”

The Governor has until the end of the month to sign or veto AB 72.

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