Court Strikes HHS No Surprises Act’s Independent Dispute Resolution Procedures

February 25, 2022

UPDATE (Aug. 19, 2022): Court Strikes No Surprises Act’s Dispute Resolution Process for Air Ambulance Providers

On Feb. 23, 2022, the U.S. District Court for the Eastern District of Texas granted a motion for summary judgment in favor of the Texas Medical Association and Dr. Adam Corley, striking down a portion of an interim final rule issued pursuant to the federal No Surprises Act, related to out-of-network payment arbitration.

The court found that the Department of Health and Human Services (HHS) had run afoul of the No Surprises Act’s statutory scheme and the Administrative Procedure Act (APA) in implementing the arbitration system designed to handle payment disputes between out-of-network providers and facilities (collectively, the providers) and group health plans and health insurance issuers (collectively, the health plan).

IDR Process Under No Surprises Act and the Rule

The No Surprises Act was enacted on Dec. 27, 2020, and generally prohibits out-of-network providers, facilities and providers of air ambulance services from balance billing covered individuals beyond in-network cost-sharing limits for certain out-of-network services. Where balance billing is banned under the No Surprises Act, health plans must determine the amount that it will pay out-of-network providers, and out-of-network providers may only charge patients up to the patient’s in-network cost sharing amount.

Where a provider disputes the out-of-network rate paid by a health plan, the No Surprises Act requires that the dispute be resolved through the independent dispute resolution (IDR) process, except in states that specify an out-of-network rate in state law. Pursuant to the No Surprises Act’s statutory requirements, the provider and health plan both submit offers for payment, and the certified IDR entity, which is given authority to resolve the dispute, then chooses one, taking into account enumerated statutory considerations, including the qualifying payment amount (QPA), generally the health plan’s median contract rate for the item or service in the geographic area); the provider’s level of training, experience, and quality and outcomes measurements; and the acuity of the individual receiving such item or service or the complexity of furnishing such item or service to such individual.

On Sept. 30, 2021, an interim final rule implementing the No Surprises Act’s IDR process was released. Under the rule, if a provider and a health plan cannot come to an agreement during the IDR process, the certified IDR entity must select the payment offer closest to the QPA, unless the certified IDR entity determines that credible information submitted by either party clearly demonstrates that the QPA is materially different from the out-of-network rate, or if the offers are equally distant from the QPA in opposing directions.

Allegations and Holdings

The Texas Medical Association (TMA), a physician advocacy group based in Austin, Texas, argued that the rule’s IDR process conflicted with the No Surprises Act’s statutory requirements. In the alternative, the TMA argued that HHS failed to comply with the APA’s notice and comment requirements. The court agreed with both arguments.

Specifically, the TMA argued that it was improper to weigh the QPA so heavily in the IDR process, because it would ultimately give payers significant power and influence over reimbursement rate pricing. Judge Jeremy D. Kernodle of the Eastern District of Texas agreed that a “presumption in favor of the offer closest to the QPA [would] systematically reduce out-of-network reimbursement compared to an IDR process without such a presumption” (internal citations omitted).

The TMA further argued that, while the No Surprises Act does include the QPA in a list of factors that certified IDR entities should consider when rate setting, the legislation intended for each enumerated factor to be weighed relevant to the individual facts presented in each case. Kernodle agreed, finding that the rule “rewrites statutory terms” and must be “held unlawful and set aside” (internal quotations omitted).

Kernodle explained:

The rule . . . places its thumb on the scale for the QPA, requiring arbitrators to presume the correctness of the QPA and then imposing a heightened burden on the remaining statutory factors to overcome that presumption. . . . If Congress had wanted to restrict arbitrators’ discretion and limit how they could consider the other factors, it would have said so—especially here, where Congress described the arbitration process in meticulous detail.

The court also found that implementation of the rule was improper, noting that HHS’ “failure to comply with the notice-and-comment requirement [of the APA] provides a second and independent basis to hold unlawful and set aside the Rule.”

Stakeholder Reaction

This ruling will likely be viewed positively by many providers, who have argued that the rule’s preference for QPAs had created an unfair reimbursement system favoring health plans, which may be able to manipulate QPAs by strategically manipulating contracts with providers in certain areas. The TMA released a statement following the ruling explaining that “[t]his decision is a major victory for patients and physicians. It also is a reminder that federal agencies must adopt regulations in accordance with the law.” Others provider groups have spoken positively about the ruling, generally noting that the rule would have allowed insurers to manipulate payment standards with little or no transparency on the health plan’s calculation of “median in-network” rates, which would have harmed commercially insured patients and rural, medically vulnerable and indigent populations.

Health plans will likely view this ruling negatively, as many have argued that providers are fighting to weaken protections for patients who deserve to be protected from surprise medical bills, and to exploit the arbitration process to pad their bottom lines.

HHS’ No Surprises Act rulemaking contains numerous other requirements including patient notices and good-faith estimates for prices, which many providers are still trying to implement. McGuireWoods will monitor if this ruling, particularly with respect to the need for notice and comment rulemaking — as opposed to emergency interim final rules — supports ongoing challenges to other HHS provider requirements. However, HHS may have stronger arguments to have issued such interim rules where regulatory provisions are more tailored to the statutory requirements, and providers may not gain as much if challenged, as the statute also requires notices and therefore court injunctions may not have the same benefit as removing the QPA focus on the arbitration process.