Court Strikes Down Portions of Rule Implementing Independent Dispute Resolution Process Under the Federal No Surprises Act

Please click here or on the image for a FAQ regarding the NSA’s balance billing protections.

The newly enacted federal No Surprises Act (NSA), intended to protect consumers from surprise balance billing, continues to be the subject of considerable controversy. On February 23, 2022, a U.S. District Court in Texas decided one of the six provider lawsuits pending around the country over the NSA. In the case of Texas Medical Association, et al. v. United States Department of Health and Human Services, the court struck down five portions of an interim final rule (the “Rule”), issued by the Departments of Health and Human Services, Labor, and the Treasury (the “Departments”), governing aspects of the federal independent dispute resolution (IDR) process under the NSA. The court held that the Rule conflicts with the NSA and must be set aside under the Administrative Procedure Act (APA).  On April 22, 2022, the Departments filed a Notice of Appeal.

The NSA

The NSA, which became effective January 1, 2022, is a group of federal laws that were enacted to protect patients from balance billing. The NSA seeks to address so-called surprise billing, which happens when a patient covered by a health plan receives health care from a provider or facility that the patient does not know is out-of-network with the patient’s health plan. That provider’s out-of-network status can result in bills that are far higher – as the law’s name implies, often surprisingly higher – than a patient would have received had care been provided by an in-network provider. Surprise medical bills have been an increasing problem for patients. They can result from emergency and non-emergency services and often result from situations when the insured person has no option to choose an in-network provider or facility. Surprise medical bills can frequently be in large amounts and lead to medical debt, and may reduce access to care. The NSA imposes obligations both on insurers and providers to protect patients from these situations and consequences.

The IDR Process Under the NSA and the Rule

The NSA aims to keep patients out of billing disputes between insurers and providers. To that end, the law establishes mechanisms that insurers and providers must use to resolve billing disputes. First, the law requires a 30-day open negotiation period during which insurers and providers are to agree on out-of-network rates to be paid for services. If open negotiations fail, the NSA provides for an IDR process that either insurers or providers may initiate as a last resort. Through the IDR process, insurers and providers each submit a payment offer, and a neutral party determines the out-of-network payment amount for services using criteria set forth in the NSA. Those criteria, which must be weighed equally, include:

1. the qualifying payment amount (the insurer’s median of the contracted rates for the same or similar item or service provided in a similar geographic area (QPA));
2. the level of training, experience, and quality and outcomes measurements of the provider or facility;
3. the market share held by the out-of-network provider or facility in the geographic area where the service was provided;
4. the acuity of the patient receiving the service;
5. the teaching status, case mix, and scope of services of the out-of-network provider; and
6. good faith efforts (or lack thereof) made by the out-of-network provider or the insurer to enter into network agreements.
    

The legal dispute in Texas arose out of an apparent disconnect between the NSA’s mandate to equally weigh the factors above, including the QPA, with certain parts of the Rule, issued on September 30, 2021. Specifically, the Rule requires the IDR arbitrator to select the proposed payment amount closest to the QPA unless the IDR arbitrator determines that credible information submitted by either party clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate, or if the offers are equally distant from the QPA but in opposing directions. As the Departments explained when issuing the Rule, the Rule effectively creates a “rebuttable presumption” that the amount closest to the QPA is the proper payment amount. This is problematic because the QPA is typically the median rate an insurer would pay for a service if provided by an in-network provider or facility. Because insurers have the ultimate say on what in-network rates they accept, they “hold ultimate power” under the Rule to calculate the QPA to the disadvantage of providers.

Arguments

Plaintiffs in the lawsuit, Texas Medical Association and Adam Corley, M.D., challenged the portions of the Rule relating to parameters used by IDR entities to determine the appropriate rates for out-of-network health care services subject to the NSA, arguing that these portions of the Rule improperly require arbitrators to “give outsized weight” to a single statutory factor, the QPA, in conflict with the NSA. Plaintiffs argued that, rather than having an arbitrator consider all statutory factors as provided by the NSA, the Rule puts a substantial thumb on the scale in favor of the QPA and that the Rule’s presumption in favor of the offer closest to the QPA “will systematically reduce out-of-network reimbursement compared to an IDR process without such presumption.” Plaintiffs argued on separate grounds that the Rule must be vacated because the Departments failed to provide notice and comment as provided by the APA.

The Departments countered that the overall statutory scheme of the NSA supports the Rule, that they are entitled to Chevron deference, that Plaintiffs do not have standing to challenge the Rule because their alleged injuries are speculative, and that Plaintiffs practice medicine through corporations and thus are not personally harmed by the Rule.

Outcome

The court found no merit in any of the Departments’ arguments, concluding that the NSA unambiguously establishes the framework for deciding payment disputes and that the Rule conflicts with the statutory text. More specifically, the court found that the Rule deviated from the criteria spelled out in the NSA when establishing the IDR process, which the Departments refer to as “baseball-style arbitration,” and gave outsized weight to the QPA, an amount which is ultimately set by insurers. The court also found the Rule to be invalid because the Departments bypassed the APA’s notice and comment requirement.

The Departments’ Response and Appeal

Shortly after the Texas district court’s decision was issued, the Departments issued guidance announcing the steps that they are taking in response to the decision. Specifically, the Departments will (i) withdraw guidance that is based on or refers to the portions of the Rule that the court invalidated and update and repost guidance that conforms to the court’s order, (ii) provide training on the updated/revised guidance for certified IDR entities, and (iii) open the IDR process for submissions through the IDR Portal and allow an extension for disputes for which the open negotiation period has expired.

Subsequently, on April 22, 2022, the Departments filed a Notice of Appeal. However, the appeal is currently being held in abeyance because the Departments expect to issue a final rule in early summer 2022 that will supersede the portions of the Rule that Plaintiffs challenged. The comment period on the Rule has closed, and the Departments are in the process of preparing a final rule that will address the substantive issues that were the subject of the Texas district court’s decision. Because the Departments are not bound by a deadline by which to publish a final rule, three major medical associations continue to press their challenges to block the implementation of certain parts of the Rule in the other NSA court cases pending around the country.

What’s next for surprise billing payment disputes? If open negotiations fail between insurers and providers, the IDR process is still available, and IDR arbitrators must consider the factors enumerated above and give each equal weight when determining the proper out-of-network payment amount. According to the Departments, the forthcoming final rule will address the IDR process, which suggests that the current IDR scheme may be subject to change.

Importantly, the core patient protections of the NSA remain intact, and providers, facilities and health plans remain subject to the NSA’s balance billing protections for out-of-network emergency services and certain out-of-network services received at in-network facilities.