In late September 2022, health care providers in Texas sued the Departments of Treasury, Labor, and Health and Human Services (collectively, the Departments) over a recently issued final rule implementing the federal No Surprises Act (the NSA). The case marks the second time within a year that the Departments’ rulemaking under the NSA has come under fire from provider groups. The current case challenges the revised arbitration provisions of the new rule.

As background, the NSA aims to curb so-called “surprise bills” – bills that patients receive either after receiving emergency care at an out-of-network facility or after receiving non-emergency care from an out-of-network provider at an in-network facility. Under the NSA, providers may not bill patients for unexpected out-of-network costs. Rather, out-of-network providers must negotiate with the patient’s insurer or health plan to reach an agreed-upon amount due for the services. If the parties cannot agree, either the provider or insurer can initiate a “baseball style” arbitration, under which both parties submit payment offers to a certified independent dispute resolution entity (IDRE). The IDRE selects the offer that it believes best represents the value of the disputed services based on a set of statutorily enumerated factors.

Among the factors that IDREs are directed to consider in selecting an offer is the Qualifying Payment Amount (QPA), generally defined as the median in-network rate that an insurer would have paid had the services been rendered in-network. The QPA is a number calculated and controlled by insurers; providers have little visibility into an insurer’s setting and calculation of its QPA. When the Departments issued the previous rulemaking that directed IDREs to presume that the QPA was, as a default, the appropriate out-of-network reimbursement rate, medical providers quickly challenged that portion of the rule.

As detailed in prior alerts, the Texas Medical Association (the TMA) and an individual provider sued the Departments in October 2021, alleging that the prior version of the rule constituted an impermissible interpretation of the NSA because of its deference to the QPA. A federal court in Texas agreed. It vacated on summary judgment the portions of the prior rule that it determined implemented a “rebuttable presumption” in favor of the QPA. The Departments then published the new rule in August 2022, under which IDREs are now directed to first consider the QPA, and then to consider the other statutory factors only if the IDRE determines that credible information submitted has not already been factored into the payer’s QPA. The same plaintiffs from the previous case, now joined by a hospital, again filed suit. The plaintiffs allege that the revised provision has the same effect as the previously invalidated rule – namely, awarding undue weight to the QPA and overly favoring insurers.

In support of their arguments, plaintiffs rely primarily on the text of the NSA itself, pointing out that the statute sets out factors that IDREs “shall” and “shall not” consider in determining the appropriate payment. Among the “shall consider” factors, in addition to the QPA, are the level of training and experience of the provider, the market share of the provider or insurer, as well as any demonstrations of good faith efforts (or lack thereof) made by the provider or insurer to enter into a network agreement. Nothing in the statute, plaintiffs assert, suggests that the QPA was to be given primacy in IDRE determinations. To suggest otherwise, they argue, would grant insurers, who have almost exclusive control in determining the QPA, near certain outcomes in the IDRE process.

The plaintiffs have also argued that the new rule is unlawful as arbitrary and capricious under the Administrative Procedures Act. Specifically, plaintiffs allege that the mere fact that the QPA is listed first in the NSA does not imply that it must be the “starting point” for IDREs. Nor, plaintiffs argue, does the fact the QPA is a quantitative factor suggest that it is more appropriately considered than the other, qualitative, factors listed in the NSA. Plaintiffs argue that the new rule’s arbitration provisions are still an impermissible exercise in rulemaking beyond Congress’s intent.

Providers Assemble: Allies Rally In Support of Plaintiffs 

Since the plaintiffs filed their recent case, LifeNet, Inc., a provider of air ambulance services that previously challenged the presumption in favor of the QPA successfully in the air ambulance context, has signed on to the TMA case as a consolidated plaintiff. Additionally, numerous provider groups have filed amicus papers in support of the TMA case, including the American Society of Anesthesiologists, the American College of Emergency Physicians, the American College of Radiology, the Physicians Advocacy Institute, the American Medical Association, the American Hospital Association, the Emergency Department Practice Management Association, 14 state medical associations, and 16 medical specialty societies.

A major issue highlighted across the amicus briefs is the perverse incentives created by the new rule. As the rule stands, should the IDREs ultimately select an offer that departs from QPA, they must issue detailed rationales to explain why the outcome varied from the QPA. This requirement, some allies assert, may incentivize arbiters to take “the path of least resistance,” especially given the backlog of initiated cases under the NSA. Similarly, a bipartisan coalition in Congress has warned about the effects of anchoring the QPA as the leading and conclusive factor. Such anchoring, these legislators argue, “could incentivize insurance companies to set artificially low payment rates, which would narrow provider networks and jeopardize patient access to care – the exact opposite of the goal of the law.” In line with this admonition, some amici have pointed out that providers have already felt the effects of the rule, as insurers have taken steps to restructure or terminate preexisting network contracts.

Looking Ahead: Litigation and IDR Continue Amidst Claims Backlog

The most recent iteration of the Final Rule took effect on October 25, 2022. Since then, the Departments have filed their own summary judgment papers, claiming that the plaintiffs lack standing to bring the case, and asserting that the new rule constitutes a reasonable interpretation of the NSA that establishes a fair procedural mechanism for resolving surprise billing disputes. Briefing and arguments on summary judgment are currently scheduled to be completed by mid to late December.

Meanwhile, the backlog of claims already filed under the NSA remains. The outcome of the case will have a significant impact on both pending claims already submitted for resolution, and all claims submitted for the foreseeable future under the NSA. While awaiting resolution of the case, providers should timely submit open negotiation notices and IDR initiation forms to preserve their rights under the NSA, and should also continue to adhere to their established appeals procedures.