Is Your Surgery Center Ready for California’s Surprise Medical Billing Law?

A new California law (AB 72) limits the amount that out-of-network surgeons and other health care professionals may bill patients for covered non-emergency services provided at a contracted facility, such as an ambulatory surgery center.  California’s surprise medical bill law went into effect on July 1, 2017.  It is intended to prevent a consumer from receiving an unexpected medical bill from a non-contracted provider as follows:

  • A patient who is enrolled (Enrollee);
  • In a health care service plan or health insurance policy (Plan);
  • Receives health care services covered by the Plan;
  • From an individual health professional (Professional);
  • Who does not have a contract with the Plan; and
  • Services are performed at (or as a result of) a contracted health facility (Facility).[1]

In such circumstances, the Enrollee may be billed no more than the same cost-sharing amount that the Enrollee would pay a contracted Professional for the same service (in-network cost sharing amount).   At the time of payment, the Plan must inform the Enrollee and the non-contracted Professional of the in-network cost-sharing amount owed by the Enrollee.


An individual health professional is a physician, surgeon, or other professional who is licensed by the state of California to deliver or furnish health care services. Licensed dentists are excluded.  A health facility is a licensed hospital, an ambulatory surgery or other outpatient setting, laboratory, or radiology or imaging center. The law does not apply to a Medi-Cal managed health care service plan or any other entity that enters into a contract with the California Department of Health Care Services.


Special requirements apply to collection of patient balances subject to this legislation.  Any communication from the non-contracted Professional to the Enrollee prior to the receipt of information about the in-network cost-sharing amount must include a notice in 12 point bold type stating that the communication is not a bill and informing the Enrollee that the Enrollee shall not pay until he or she is informed by his or her Plan of any applicable cost sharing.

A non-contracted Professional who collects more than the in-network cost-sharing amount from the Enrollee must refund any overpayment within 30 calendar days after receiving payment from the Enrollee.  If the non-contracted Professional does not refund any overpayment to the Enrollee within 30 calendar days after being informed of the Enrollee’s in-network cost-sharing amount, interest shall accrue at the rate of 15 percent per annum beginning with the date payment was received from the Enrollee. A non-contracted Professional shall automatically include in his or her refund to the Enrollee all interest that has accrued without requiring the Enrollee to submit a request for the interest amount.

A non-contracted Professional may advance to collections only the in-network cost-sharing amount, as determined by the Plan or the out-of-network cost-sharing amount that the Enrollee has failed to pay (as described below). The non-contracted Professional, or any entity acting on his or her behalf, including any assignee of the debt, shall not report adverse information to a consumer credit reporting agency or commence civil action against the Enrollee for a minimum of 150 days after the initial billing regarding amounts owed by the Enrollee. With respect to an Enrollee, the non-contracted Professional, or any entity acting on his or her behalf, including any assignee of the debt, shall not use wage garnishments or liens on primary residences as a means of collecting unpaid bills subject to this legislation.

Consent to Out-of-Network Billing

If an Enrollee has a health care service plan that includes coverage for out-of-network benefits, the non-contracted Professional may bill or collect from the Enrollee the out-of-network cost-sharing amount, only when the Enrollee consents in writing, which meets of all the following criteria:

  • Written consent is received at least 24 hours in advance of care;
  • The consent is separate from that used to obtain the consent for any other part of the care or procedure;
  • The consent shall not be obtained by the Facility or any representative of the Facility;
  • The consent shall not be obtained at the time of admission or at any time when the Enrollee is being prepared for surgery or any other procedure;
  • At the time consent is provided, the non-contracted Professional shall give the Enrollee a written estimate of the Enrollee’s total out-of-pocket cost of care;
  • The written estimate shall be based on the Professional’s billed charges for the service to be provided;
  • The consent shall advise the Enrollee that he or she may elect to seek care from a contracted provider or may contact the Enrollee’s health care service plan in order to arrange to receive the health service from a contracted provider for lower out-of-pocket costs;
  • The consent and estimate shall be provided to the Enrollee in the language spoken by the Enrollee, if the language is a MediCal threshold language; and
  • The non-contracted Professional shall not attempt to collect more than the estimated amount without receiving separate written consent from the Enrollee or the Enrollee’s authorized representative, unless circumstances arise during delivery of services that were unforeseeable at the time the estimate was given that would require the provider to change the estimate.

Payment and Dispute Resolution

The law also requires the Plan to pay for covered health services provided by the non-contracted Professional at the greater of the Average Contracted Rate or 125 percent of the amount Medicare reimburses on a fee-for-service basis for the same or similar services in the general geographic region in which the services were rendered.[2]  The Average Contracted Rate means the average of the contracted commercial rates paid by the health plan or delegated entity for the same or similar services in the geographic region.  If a health care service plan delegates the responsibility for payment of claims to a contracted entity, including, but not limited to, a medical group or independent practice association, then the entity to which the responsibility is delegated must comply with these requirements.

A payment made by the Plan to the non-contracted Professional for non-emergency services, in addition to the applicable cost sharing owed by the Enrollee, shall constitute payment in full for non-emergency services rendered unless either party disputes the reimbursement through the Independent Dispute Resolution (IDR) process that will established by the Insurance Commissioner or the Department of Managed Health Care (DMHC) by September 1, 2017.

The DMHC has provided some initial information in a presentation about the proposed IDR process posted on its website.  According to the DMHC, either party may initiate the IDR process. When initiated, both parties must participate. Completion of one level of Provider Dispute Resolution (PDR) process is required prior to initiating the IDR.  The Plan is the default responding party if the Provider initiates the IDR, and the Plan can delegate claim responsibility to a delegated entity. The IDR will be operated for the DMHC by a vendor that will provide for binding arbitration.  The IDR is expected to take approximately 90 days to complete.  The fees for the arbitration will be split equally between the parties and paid directly to the vendor.

Non-contracted surgeons and other health professionals should review their collection policies and procedures to make sure they are in compliance with this new law.  Surgery centers should make sure that the professionals who utilize their center are aware of these requirements.

[1] Health and Safety Code §1371.9

[2] Health & Saf. Code § 1371.31.

Our Health Law Ticker is a one-stop resource for everything new and noteworthy in healthcare law. We cover recent developments in healthcare legislation, healthcare reform, Medicare/Medicaid, managed care, litigation, regulatory compliance, HIPAA, privacy, peer review, medical staffs and general business operations for healthcare companies and licensed healthcare professionals.

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