On February 6, 2023, a judge for the United States District Court for the Eastern District of Texas (“Texas District Court”) ruled in favor of the Texas Medical Association (“TMA”) and against the United States Departments of Treasury, Labor, and Health and Human Services (the “Departments”) over a challenge to the continued special status given to the qualifying payment amount (“QPA”) in the arbitration process between out-of-network providers and payors under the No Surprises Act. In its lawsuit against the Departments, TMA specifically challenged the No Surprises Act requirement that Independent Dispute Resolution Entities (“IDREs”) initially consider the out-of-network rate closest to the qualifying payment amount (“QPA”), before, and otherwise limiting consideration of other non-QPA factors[1],  when determining final amounts to be paid.

As discussed in a previous blog post, the QPA,[2] which is generally the median rate paid for the service by the payor in the community, was established as the presumptive appropriate amount in a final interim rule issued by the Departments in September 2021 based on the Departments stated goal of lowering health care costs. (The QPA is generally lower than the out-of-network rates customarily paid for emergency treatment). As set forth in the interim rule, IDREs were permitted to consider non-QPA factors in their assessment of the final payment only when credible evidence demonstrated that the QPA was not the best value of the item or service under dispute. In its lawsuit against the Departments in February 2022, TMA asserted that the interim rule placed a “thumb on the scale” in favor of the QPA and, in turn, payors. The Texas District Court rejected the regulations, holding that the interim rule continued to impose an inappropriate “rebuttable presumption” in favor of the QPA in direct conflict with the No Surprises Act.

In response to the Texas District Court’s ruling, the Departments published Final Rules in August 2022, which vacated the QPA presumption. However, as noted in another previous blog post, under these Final Rules, the Departments continued to instruct IDREs to consider the QPA first as a presumptively “credible” factor, while permitting IDREs to also weigh the credibility of non-QPA factors. The Final Rules directed IDREs to evaluate non-QPA factors only secondarily and only if they were deemed credible, were related to either party’s offer and not already accounted for in the QPA.

The TMA remained dissatisfied, and brought a follow-up December 2022 lawsuit. TMA took issue with the unfair advantage granted to payors by requiring IDREs to first consider the QPA and limit the consideration of the other non-QPA factors. Again, the TMA won. The Texas District Court acknowledged that the Final Rules avoided an explicit presumption in favor of the QPA, but it nonetheless determined that the Final Rules artificially decreased the QPA’s weight by requiring IDREs to consider that factor principally. This sequencing arrangement, and the limitation of consideration of the other factors (by the requirement that they be deemed credible, related to the party’s offer in the arbitration, and not otherwise already accounted for in the determination of the QPA or other information provided), led the Texas District Court to hold, again, that the Final Rules improperly limited IDREs’ discretion, as established by Congress, in the No Surprises Act and unjustly favored commercial payors. The court reasoned that “[n]othing in the Act…instructs arbitrators to weigh any one factor or circumstance more heavily than the others … [and that a] statute’s ‘lack of text’ is sometimes ‘more telling’ than the text itself.”[3] Accordingly, the Final Rules were found to be impermissible under the Administrative Procedures Act and were vacated.

This latest win for TMA has not prevented further litigation on the dispute resolution process. Most recently, on January 31, 2023, TMA launched another lawsuit against the Departments—this time challenging the $350 initiation fee imposed on parties to initiate the IDR process. This lawsuit claims that the nonrefundable initiation fee—expected to be paid by both parties—increased by 600 percent on December 23, 2022, less than two months after CMS stated that the administrative fee would remain $50 in 2023. TMA has argued that the dramatic increase will make the IDR process significantly more expensive for all IDR participants, especially for providers where the increased fee will likely be cost prohibitive. According to TMA, providers who bill small value claims, like radiology, will be particularly affected, because most claims billed are less than $350 and, thus, initiating the IDR process will likely be economically infeasible.

Presently, in recognition of the most recent Texas District Court’s ruling, the Departments have notified IDREs that they should not issue any new payment determinations and recall any payment determinations issued after February 6, 2023 while the Departments evaluate and update IDR guidance. The Departments are expected to create new regulations to replace the vacated provisions, and the Texas District Court is yet to rule on the newly enacted $350 IDR process initiation fee.

The No Surprises Act is significantly impacting the health care industry.  IDRE determinations remain remarkably slow (and unfortunately further delayed by the litigations) and cash flow is being materially affected.  Nevertheless, it is critical to get the IDR process, which ultimately determines reimbursement, right.  Having a fair process is thus necessary to the survival of some, and the relative prosperity of virtually all, providers.

[1] Non-QPA factors include the market share of the provider and payer, the provider’s level of training, the acuity of the patients treated, the teaching status of the hospital or treatment center, and good faith efforts to enter into a network agreement.

[2] The QPA represents the median contracted rates recognized by a payer for the same or similar items or services in the same geographic area. Notably, it is a number determined exclusively by payors.

[3] Texas Medical Association, et al. v. United States Department of Health and Human Services, et al., No. 6:22-CV-372-JDK, 2023 WL 1781801, at *11 (E.D. Tex. Feb. 6, 2023).