In parallel cases, health care providers are continuing to challenge rulemaking by the US Departments of Treasury, Labor, and Health and Human Services (the Departments) under the No Surprises Act (the Act). Having already won two prior cases involving the Departments’ rulemaking, the providers are now challenging different provisions of those same rules in two separate lawsuits — TMA III and TMA IV.

*This is the seventh article in a series analyzing the No Surprises Act and its implementation. To view the entire series, click here. 

TMA III

Under the Act, independent dispute resolution entities (IDREs) are directed to consider multiple factors in deciding cases. One factor is the Qualifying Payment Amount (QPA), which is defined as the median rate that an in-network provider would have been paid for the service. As detailed previously, the Texas Medical Association (TMA) has already won two challenges to rules prioritizing consideration of the QPA above other factors. Now, in TMA III, filed in November 2022, the TMA is challenging the methodology in the Departments’ July 2021 interim final rule (the July Rule) that insurers should use to calculate the QPA, which the TMA claims deflates the QPA and favors insurers who seek to pay lower rates. The TMA makes four arguments in support of this position.

First, the TMA claims that the July Rule allows insurers to calculate the QPA based on information otherwise excluded by the Act. Specifically, under the Act, payers must calculate the QPA based only on the contracted rates for items and services that are actually provided by a provider. The July Rule, however, permits payers to include in their calculations any contracted rates, whether or not those services were actually rendered. Including these so-called “ghost rates,” the TMA alleges, drives down the QPA, as the rates themselves are frequently negotiated by providers who have little incentive to negotiate fair reimbursement rates for those services. The result, the TMA asserts, is that the QPA is unduly skewed towards payers even before the IDR process has begun.

Second, the TMA argues that the July Rule departs from the Act’s requirement that payers calculate QPAs based on rates of providers “in the same or similar specialty.” Under the Act, QPAs must always be determined using only those rates belonging to providers in the same or similar specialty. The July Rule, however, directs insurers to calculate rates by specialty only where the payer determines that it varies contracted rates by provider specialty as a usual business practice. This too, the TMA argues, artificially depresses QPAs and discourages fair negotiations. Out-of-specialty rates are often ghost rates, and therefore less likely to be prioritized during contract negotiations. For this reason, Congress explicitly directed that QPAs be specialty-specific; allowing payers to go beyond specialties in their calculations contradicts the Act.

Third, the TMA alleges that the July Rule’s requirement that payers exclude risk sharing, bonus, penalty, or other incentive-based or retrospective payments or payment adjustments from their QPA calculations goes against the terms of the Act. The Act directs calculation of the QPA using contracted rates that reflect “the total maximum payment” under relevant benefit plans. TMA argues that it is, therefore, immaterial under the Act’s text that part of a payment may be added or deducted on a retrospective basis. Excluding these payments, the TMA contends, departs from the Act.

Finally, the TMA asserts that the provisions of the July Rule that allow self-insured group health plans and their administrators to aggregate QPAs go against the terms of the Act. Specifically, the TMA observes that under the Act, each plan sponsor must use only its own contracted rates when calculating QPAs; multiple plan sponsors are not permitted to aggregate rates across plans to generate a single, uniform QPA. The July Rule, however, permits third-party aggregation in exactly this manner — third-party administrators working with multiple sponsors’ plans can (and often do) calculate QPAs based on the median contracted rates of all plans they administer. Aggregation in this manner, the TMA asserts, contradicts the Act, and skews the QPA downward in favor of payers.

TMA IV

To access the IDR process, parties must pay two fees — a non-refundable administrative fee and an entity fee that is refunded to the prevailing party. Under the Act, the Departments may determine when and how parties pay the administrative fee so long as the total amount paid for all submissions covers the costs of the IDR process in a given year. The September 2021 interim final rule (the September Rule) largely mirrors these requirements. However, the September Rule departs from the Act in one key aspect — it allows the Departments to set the amount of the administrative fee through sub-regulatory guidance, rather than through notice-and-comment rulemaking. Those fees were then quickly increased sevenfold through sub-regulatory guidance. Throughout 2022, the administrative fee was fixed at $50 per submission. However, in sub-regulatory fee guidance issued in December 2022, the Departments increased the 2023 administrative fee from $50 to $350.

Thus, in a fourth lawsuit — TMA IV, filed in January 2023 — the TMA, joined by a professional medical society of radiologists and a radiology group practice, has challenged those specific provisions of the September Rule and the December fee guidance. The TMA first argues that the fee increase constitutes substantive rulemaking that was issued without the requisite notice-and-comment period. The TMA points out that payers determine how much to pay for medical claims, and the administrative fee increase effectively forecloses the IDR process for providers that have large numbers of small-value claims which payers can (and frequently do) pay at rates far below the new administrative fee amount. For example, it will never be cost-effective for a provider to pay a $350 non-refundable fee to seek recovery on a $200 claim. The TMA argues that the increased fee constitutes a material limitation on provider access to the IDR process, and therefore requires a notice-and-comment period under the Administrative Procedures Act (the APA).

The TMA also argues that the fee increase must be set aside as arbitrary and capricious under the APA because it was not the product of reasoned decision-making. Here, the TMA asserts that the Departments failed to consider several alternatives that would have allowed them to cover their administrative costs without so limiting access to the IDR process. For instance, the Departments could have required payment of the administrative fee earlier in the arbitration process. Alternatively, the Departments could have apportioned the fees between the parties to the arbitration. The Departments overlooked both options. This oversight, the TMA alleges, contravenes the APA’s requirement for reasoned decision-making.

Finally, the TMA also challenges the batching provisions of the September Rule. As background, the Act permits parties to submit multiple claims to IDREs if the services were rendered by the same provider, within the same thirty business days, were paid for by the same payer, and were related to the treatment of a similar condition. The September Rule largely mirrors these provisions. However, the September Rule departs from the Act in one crucial regard – it allows batching only where the services rendered were billed under the same service code. This service-code-only approach, the TMA argues, effectively forecloses the arbitration process for providers with smaller value claims (such as radiologists), who will be unable to aggregate claims even where those services may have been provided by the same provider, on the same day, to the same patient. Here too, the TMA points to several alternatives the Departments overlooked, including allowing batching by episode of care, service code sections, and by provider sub-specialty. For all these reasons, the TMA argues that the September Rule is unlawful and unreasonably restrictive.

Looking Ahead: Third (and Fourth) Time’s the Charm?

Both cases are currently scheduled to appear before the court on April 19, 2023, for summary judgment arguments. While the TMA has previously had some success in challenging the rules related to IDRE decision-making, and while the same judge who previously ruled in favor of the TMA’s two prior cases is overseeing the two new cases, it remains to be seen how the court will rule on the TMA’s new challenges to the July and September Rules. Meanwhile, the backlog of claims submitted under the Act persists. Should the court rule in the TMA’s favor and strike down in particular the challenged fee and batching provisions, the volume of claims submitted under the Act is likely to increase. While awaiting resolution of both cases, providers should timely submit open negotiation notices and IDR initiation forms to preserve their rights under the NSA, as well as adhere to their established appeals procedures.