It’s a crisp fall morning here at Turquoise HQ, and with crisp fall mornings come crisp fall blog content. Today we’ll take a deep dive into some of our most frequently asked questions regarding the Qualified Payment Amount (QPA) and the Independent Dispute Resolution (IDR) process. The QPA and IDR are old friends that came to be as a part of the Surprises Act (NoSA). NoSA was a hot topic at the beginning of the year, but as providers and payers have been further educated on the requirements, the discussion surrounding several key components of NoSA continues to evolve. There’s still a lot that remains to be seen in 2023 and beyond, so we expect the conversation to continue in the coming months.

There are a number of definitions and guidelines within this blog, but much of what is laid out below points to one essential truth when it comes to the QPA and the IDR: It is mutually beneficial for all parties involved to resolve payment disputes in the 30-day open negotiation period. We’ll repeat that again toward the end of the post, once you’re a NoSA Sensai (NoSAnsai?), but it’s helpful to have a north star to keep in mind as you read through the calculations and processes laid out below.

The QPA Origin Story

NoSA introduced the QPA as a way to determine the cost of services furnished out of network while also eliminating unexpected and expensive bills sent to patients. The QPA is the payer’s calculation of a fair payment for an out-of-network claim that previously would result in a patient responsibility amount based on total billed charges. High level, this fair payment amount should be the average negotiated rate for similar services in the same geographic area. At an even higher level, the QPA should serve as a proxy for the appropriate in-network rate.

Today’s blog isn’t for high-level verbiage though: it’s for the NoSA nitty gritty. So buckle up, fill your largest coffee mug to the brim, pet your dog, and put on your thinking caps…you know what we mean. Let’s get into it.

The QPA Defined

The plan or issuer calculates the QPA based on the median contracted rate for a qualifying item or service. The median contracted rate factors in contracted rates of all plans offered by the issuer in the same insurance market for the same or similar items or services provided in the same or similar specialty or facility of the same or similar facility type in the geographic region where the item or service is furnished. The QPA is calculated based on rates from January 31, 2019, increased for inflation.

The full methodology for calculating the QPA is found in the Code of Federal Regulations. The Centers for Medicare and Medicaid Services (CMS) issued additional guidance surrounding each individual factor of the QPA calculation. Our hope is that consolidating the information will increase education and awareness of how to operate under NoSA guidelines for fair payment of out-of-network services.

The sections below lay out the relevant definitions and calculation components that go into the total QPA as stated in the bolded sentence above.

Contracted Rate

NoSA defines a contracted rate as “the total amount (including cost sharing) that a group health plan or health insurance issuer has contractually agreed to pay a participating provider, facility, or provider of air ambulance services for covered items and services, whether directly or indirectly, including through a third-party administrator or pharmacy benefit manager.”

There are a few noted rules and exclusions to the contracted rate determination:

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  • Single-case agreements, letters of agreement, or other similar arrangements that supplement the plan of coverage in unique circumstances do not qualify as a contracted rate when calculating QPAs
  • If separate contracts exist for individual providers, the rate under each contract is a single contracted rate, even if the same rate is paid to multiple providers under separate contracts
  • If a single contract exists for a provider group/facility and the negotiated rates apply to all providers in the group/facility, the rate is a single contracted rate
  • If a single contract exists and covers multiple providers, each unique rate is a single contracted rate

Median Calculation

Once all the contracted rates for the items or services are gathered, arrange the rates from least to greatest and select the middle number as the median calculation. If the total number of contracted rates is an even number, take an average of the middle two numbers.

“...contracted rates of all plans offered by the issuer in the same insurance market…”

The insurance market includes individual, small group, and large group markets. Self-insured group plans are also included in the insurance market according to NoSA. The self-insured group plan sponsor may categorize the insurance market as all self-insured group health plans administered by the same entity, such as a third-party administrator. That entity would be responsible for calculating the QPA on behalf of the plan.

“...for the same or similar items or services…”

Similar items or services are defined as “items or services billed under the same service code or a comparable code under a different procedural code system.” Service codes are reported using CPTs, HCPCS, or DRGs.

Layered on top of the service codes, some contracts contain separate rates based on modifiers. For example, different rates may exist for the professional services component (modifier 26) or technical component (modifier TC) of a service. In this scenario, each rate and modifier combination should be included as a unique contracted rate.

In addition, some items or service codes are unit-based, meaning the charges and final rate are calculated by multiplying the contracted rate by another unit, such as the amount of time or mileage. In this scenario, the QPA must include the application of the appropriate multiplier. In short, time spent or miles traveled would factor into the final payment amount.

Lastly, service codes reporting the use of anesthesia trigger a specific calculation using the median contract rate and multiplying that rate by the sum of:

  • The base unit for the anesthesia service code
  • The time unit
  • The physical status modifier unit: a unit that measures patient health, ranging from healthy to critically ill or injured

“...provided in the same or similar specialty”

If the practice specialty of a provider is consistent with the plan or issuer’s usual business practice, it’s considered a similar specialty. There’s one exception: NoSA states that all providers of air ambulance services are considered one provider specialty.

“...facility of the same or similar facility type”

This clause specifically targets emergency services and distinguishes between the emergency department of a hospital and an independent freestanding emergency department. If different contracted rates exist for the two different emergency departments, the median contracted amount should be calculated separately for each.

"...in the geographic region where the item or service is furnished.”

The geographic region is defined differently for air ambulance services vs all other items and services and factors in metropolitan statistical areas (MSAs). CMS created the table below as a reference for knowing which definition of the geographic region would apply based on different items or services:

Inflation Increase Calculation

Recall earlier in the blog (we know, it’s been a trudge of a read) you read that the QPA is calculated based on rates from January 31, 2019. We’re coming up on being three years removed from that date, and as such, current QPAs factor in an annual increase calculation for inflation. CMS refers to that annual increase as indexing. Payers and insurers annually adjust the QPA by the percentage increase calculated from the U.S. city average of the consumer price index for all urban consumers (CPI-U), which is published by the Bureau of Labor Statistics. The CPI-U for the QPA calculation should be finalized at the close of a 12-month period ending on August 31st and should be rounded to 10 decimal places. We here at Turquoise openly admit we do not carry any number out to 10 decimal places, nor could we name 10 digits of pi.

That inflation increase calculation is very likely already reflected in some way in annual increases to provider contracts or in boilerplate language within a standard contract that auto-renews and adjusts rates when the renewal occurs.

New Service Codes

For service codes added any year following 2019, the QPA calculation steps include crosswalking and ratios:

  • Identify a reasonably related service code that existed in 2019
  • Calculate the ratio of the Medicare payment rate for the new service code vs the Medicare payment rate for the reasonably related service code that existed in 2019
  • If Medicare has not established a payment rate for the new service code, calculate the ratio of the rate the plan or issuer pays for the new service code vs the plan or issuer rate for the reasonably related service code that existed in 2019
  • Multiply the ratio calculated above by the QPA for the reasonably related service code that existed in 2019
  • Hire a mathematician to check your work
  • Why did the chicken cross the road?

Similar to the inflation calculation above, seeing the crosswalking process laid out feels incredibly cumbersome. However, it’s important to remember that payers have been calculating negotiated rates on new items and services prior to the existence of the QPA. The specific nuances of QPA calculation may be new, but the base assessment of new services and inflation have been a part of rate calculation for some time.

No Fee for Service Rates? No Problem.

Sometimes items or services receive payment as part of a bundled, partially- or fully-capitated payment arrangement. When this occurs, the plan or insurer uses the underlying fee schedule rate, if available, for calculating the median contracted rate. NoSA defines the underlying fee schedule rate as the rate for a covered item or service the plan or insurer uses to calculate the patient’s cost-sharing amount.

If no underlying fee schedule rate exists, the plan or insurer defaults to a derived amount, which is the price listed on internal accounting documents, used in provider reconciliation, or for the purpose of data submission in accordance with a separate federal regulation. TL;DR: summon your trusty accountant for this one.

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Insufficient Information

Plans or insurers have what NoSA refers to as sufficient information if the item or service needing a QPA had at least three contracted rates on 1/31/2019. If the payer or insurer gained sufficient information after 1/31/2019, the QPA will be calculated using the median contracted rate for the first sufficient year.

In addition, newly-covered items or services qualify to utilize the median contracted rate after the first coverage year if there are at least three contracted rates and those contracted rates account for at least 25% of the total claims paid for the item or service. The initial calculation will utilize the year preceding the year of the first calculation. The preceding sentence is the most Inception-like statement you’ll ever find in federal law. It may even drive a DeLorean back to the future. We digress…

When a plan or insurer does not have sufficient information, a third-party database, such as Turquoise Health’s Clear Rates Data, may be utilized to calculate the QPA. The database must meet the following requirements:

  • No conflicts of interest: the database cannot be owned or controlled by an insurer or provider
  • Contains sufficient information for in-network allowed amounts paid for the relevant items or services in the applicable geographic region
  • Can distinguish which amounts paid were from commercial payers

State all-payer claims databases are also eligible to calculate the QPA. Once the payer or insurer has selected a database, the same database must be used for QPA calculation of those items and services through the final day of the calendar year.

Let’s Dance: The Open Negotiation Period

We’ve spent a lot of time analyzing the nuances of the QPA, and at this point, you may find yourself asking one of several valid questions:

  • Why am I reading a blog with a dryness that rivals an entire sleeve of Saltines?
  • The QPA doesn’t seem to be about price transparency, so why did Turquoise spend so much time understanding the QPA to this level of detail?
  • Did someone check to see if the author got carpal tunnel? (Reader: they did check. We have a good work/life balance here at Turquoise. Yes, we’re hiring)
There’s vital significance to these calculation details because the QPA is an integral part of finalizing a fair payment amount before and during the IDR process.

Recall that NoSA stipulates the QPA is calculated when a patient receives out-of-network items or services and, when calculated correctly, should closely mirror an in-network rate. The burden of QPA calculation falls on the patient’s insurer, and when the insurer issues payment equaling the QPA amount, the healthcare provider and payer enter a 30-day open negotiations window to agree to an amount if the initial QPA was lower than the provider expected. Ideally most, if not all, open negotiations would lead to resolution, because if no resolution is reached by the end of that 30-day period, and the provider feels the QPA is too low, both parties must enter the great abyss of the unknown: the federal IDR process. Gulp.

Now’s a good time to refresh that coffee, do some jumping jacks, and otherwise restart your engines as we transition to how the QPA plays out in negotiations and IDR review.

“IDR” Means What, Exactly?

Either the payer or provider involved with the furnished services is able to submit an IDR request within 4 business days after the 30-day open negotiation period ends. The goal of the IDR process is to determine a fair payment amount for items and services rendered if the open negotiation period failed to reach a resolution. After a significant number of IDR applications got rejected for errors in the submission process, CMS issued a job aid to assist those creating an IDR request, minimize rejections, and offer clarity on what is required for review.

A certified IDR entity, which is a third-party organization approved by HHS that must meet a specific set of requirements, gets selected to review the dispute. CMS puts the burden of IDR entity selection on whichever party did not initiate the IDR and that IDR entity must not have any conflicts of interest that would impact the final payment determination.

In the first iteration of NoSA, IDR entities were instructed to review the expected payment amounts submitted by the provider and insurer and select the amount closest to the QPA. Providers were understandably concerned about the fact that the QPA calculation came from the insurer, so if a QPA was considerably lower than the provider expected, the result of the IDR process would inherently favor the insurer. The vocal outcry was swift and effective in August 2022, the federal government published an interim final rule that updated numerous aspects of the IDR process and final payment determination. Overall, the updated rule requires greater transparency in the QPA calculation process and instructs the IDR entity to consider additional information submitted by both parties as part of the review process.

Additional information includes:

  • Level of training, the experience of the provider or facility that furnished services
  • Quality and outcome measurements of that same provider or facility
  • Market share of the provider or facility or the market share of the plan in the geographic region of the furnished services
  • Facility teaching status, case mix, and scope of services
  • Demonstration of good faith efforts (or lack thereof) made by the furnishing provider or facility or issuer to enter into network agreements with each other
  • If applicable, contracted rates between the two during the previous four plan years

We’ve already come this far, so let’s wade even deeper into the IDR waters and talk about downcoding.

During the QPA calculation process, the payer or issuer may downcode an item or service. The final rule defines “downcode” as, “The alteration, addition, or removal by a plan or issuer of a service code to another service code, or the alteration, addition, or removal by a plan or issuer of a modifier if the changed code or modifier is associated with a lower QPA than the service code or modifier billed by the provider, facility, or provider of air ambulance services.”

When an item or service gets downcoded, the issuer must provide the following to the provider or facility:

  • Documentation of which item or service has been downcoded and why the item or service was downcoded
  • The QPA based on the downcoded item or service as well as the QPA had the item or service not been downcoded

The provider can review accordingly and provide documentation to support the original coding, or, if the downcode is agreed upon, the provider can negotiate what they believe to be a fair payment rate for the downcoded items or services. Once again, all this information is shared with the IDR entity if no resolution is reached in the open negotiation process.

The IDR entity thoroughly reviews the laundry list of documentation and requirements laid out above. Finally, after the review is complete, the IDR entity is required to explain its final payment determination along with supporting rationale to the provider, payer, and federal government 30 business days after the IDR has been selected.

With all this information in mind, it will come as no surprise that as of September 2022, the backlog of open IDR requests exceeded 46,000 and the number of resolved disputes was a paltry 1,200. Resolution in 30 business days very likely feels like a pipe dream to payers and providers stuck in the queue. The clinical expertise required and the time-intensive nature of the requirements laid out are immense. When you add in the time it takes for a provider or payer to accurately and completely enter the information required to initiate an IDR dispute, the entire process feels like an administrative and clinical nightmare.

The IDR remains embroiled in lawsuits and continues to draw ire from providers who believe the current guidance for dispute resolution does not treat patients, providers, and payers equally. If you glean no nuggets of insight or wisdom from this blog other than one, we hope it’s this: It is mutually beneficial for all parties involved to resolve payment disputes in the 30-day open negotiation period. The importance of resolution cannot be overstated.

Otherwise, the timeline to payment is extended indefinitely and the administrative burden significantly increases for both sides. In the long term, the IDR process may get smoother and more efficient, but in the short term, avoiding it altogether where possible would be the least disruptive and most timely option.

In Conclusion

(^ I’ve never been happier to see the word “conclusion.” Bless you for still being here.)

We’re on a long road toward transparent pricing. Turquoise believes open-source databases are key to efficient negotiations so both parties have access to the same national, regional, and state-based rate and charge data. The biggest stressor on prior negotiations was that both parties were bringing their own data from their own private calculations. Price transparency has eliminated the element of secrecy, so a fair rate can be calculated from an unbiased source. Fair, transparent rates will bring credibility to the QPA calculation and hopefully decrease the number of IDR cases getting stuck in a backlog. They will also reduce the need for lengthy blogs like this.

Are there any stones left unturned on topics that you’re interested in learning more about? Drop us a line at info@turquoise.health.