Federal Court Strikes Down Portions of the No Surprises Act Implementing Regulations

On February 23, 2022, the United States District Court for the Eastern District of Texas, Tyler Division, issued a Memorandum Opinion and Order,[1] which served to strike down certain portions of the federal No Surprises Act (“NSA”) related to the independent dispute resolution (“IDR”) process for resolving payment disputes between out-of-network providers and group health plans and health insurance issuers (hereafter, “insurers”).  The Memorandum Opinion and Order did not strike down any of the patient protections of the NSA.

Under the NSA, where there is no All-Payer Model Agreement or specified state law that determines the out-of-network rate that an insurer will pay an out of network provider, the NSA provides for the following IDR process:

  • The insurer must issue an initial payment or notice of denial of payment to a provider within 30 days after the provider submits a bill for an out-of-network item or service.
  • If the provider disagrees with the insurer’s payment or denial of payment, the provider may initiate a 30-day open negotiation period with the insurer in an attempt to resolve the payment dispute.
  • If the negotiation is unsuccessful, then the parties may proceed to IDR.

The IDR process is a “baseball-style” arbitration process.  The provider and insurer each issue a proposed payment amount and supporting documentation to the IDR entity.  The IDR entity must select one of the two proposals as the out of network rate.

In determining which proposal should be the out of network rate, the NSA directs the IDR entity to consider certain factors, including: (a) the qualifying payment amount (“QPA”) (generally, the median rate the insurer would have paid for the service if were provided by an in-network provider), (b) the level of training and experience of the provider; (c) the market share held by the provider and the insurer; (d) the acuity of the patient; (e) the teaching status, case mix, and scope of services of the nonparticipating facility that provided the service; and (f) whether there have been good faith efforts by the parties to enter into network agreements.  The NSA prohibits the IDR entity from considering the provider’s usual and customary charges for an item or service; the amount the provider would have billed for the item or service in the absence of the NSA; or the reimbursement rates under federal programs.  See 42 U.S.C. § 300gg-111(c)(5).

The NSA directed the Departments of Health and Human Services, Labor and the Treasury (the “Departments”) to establish regulations related to the IDR process.  In accordance with this directive, an interim final rule (“IFR”) was published in the Federal Register on October 7, 2021.  See 86 Fed. Reg. 55980 (October 7, 2021).

In the IFR, the Departments interpreted the NSA to require the IDR entity to select the proposed payment amount that is closest to the QPA, unless the IDR entity determines that credible information demonstrates that the QPA is materially different from the appropriate out of network rate, essentially establishing a “rebuttable presumption” that the amount closest to the QPA is the proper payment amount.

In the lawsuit, the Texas Medical Association and Adam Corley (a Tyler, Texas physician) challenged the IFR under the Administrative Procedures Act (“APA”), arguing that the IFR improperly required the IDR entity to give unduly significant weight to a single statutory factor, the QPA, in conflict with the express language of the NSA, which does not favor any one factor over the others.  Further, the IFR was issued without notice-and-comment rulemaking.  The plaintiffs requested the court to vacate provisions of the IFR establishing the presumption that the amount closes to the QPA is the proper payment amount.

Ultimately, the court agreed with the plaintiffs, finding that the IFR “rewrites clear statutory terms” and must be held unlawful on that basis.  Further, the court found that the Departments’ failure to comply with the notice-and-comment provisions for the APA constituted a second basis to hold the IFR unlawful.  The court concluded that the proper remedy was to vacate those provisions of the IFR requiring IDR entities to “presume the correctness of the QPA and then [impose] a heightened burden on the remaining statutory factors to overcome that presumption.”   As a result of this decision (which the Departments are likely to appeal), IDR entities will be permitted to weigh all statutory factors in determining which amount to choose as the appropriate out-of-network rate, without presuming that the QPA is the correct amount.

For more information on the issues relating to this article, please contact Jessica L. Gustafson, Esq. at jgustafson@thehlp.com, Abby Pendleton, Esq. at apendleton@thehlp.com, or The Health Law Partners at (248) 996-8510 or (212) 734-0128 or by email at partners@thehlp.com.

[1] Texas Medical Association and Adam Corley v. U.S. Department of Health and Human Services et al., Case No. 6:21-cv-425-JDK (E.D. Tex.).

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