On February 6, 2023, health care providers scored a second significant victory when a federal court in Texas again vacated portions of the Biden Administration’s rules governing the arbitration procedures to resolve surprise billing disputes under the federal No Surprises Act (NSA).

In its most recent ruling, in a case being referenced as “TMA II,” the District Court for the Eastern District of Texas held that rulemaking issued by the US Departments of Treasury, Labor, and Health and Human Services (the Departments) improperly restricted arbitrators’ authority to consider multiple factors outlined under the Act.

As background, Congress enacted the NSA to curb amounts paid by patients when they receive out-of-network emergency care or are treated by out-of-network providers at in-network facilities. In these situations, under the Act, patients pay at most the amount they would have otherwise paid had the services been rendered in-network. Importantly, the Act forbids providers from “balance billing” patients for the remainder of the balance. Instead, the Act establishes a “baseball style” arbitration process under which a neutral Independent Dispute Resolution Entity (IDRE) selects an offer submitted by either the provider or the payer as the appropriate value of the out-of-network services rendered. In making this determination, the IDRE must rely on a series of factors listed in the Act.

The Texas Medical Association (TMA), a trade association representing more than 55,000 physicians, previously challenged the Departments’ first attempt at rulemaking under the Act. In that case (TMA I), the plaintiffs asserted that the interim rule issued by the Departments in September 2021 contradicted the Act by requiring IDREs to select the offer closest to the qualifying payment amount (QPA). The QPA is just one of the factors listed in the Act and is generally defined as the median rate an insurer would have paid had the out-of-network services been rendered in-network. Notably, it is a figure determined exclusively by payers. Under the interim rule, IDREs could consider the listed factors other than the QPA (including 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) only when credible evidence demonstrated that the QPA was not the best measure of the value of the out-of-network services. This requirement, plaintiffs asserted, favored the QPA and, by extension, payers. The court agreed and, as detailed in prior alerts, held in TMA I that the interim rule’s preference for the QPA imposed an impermissible “rebuttable presumption” in favor of the QPA in conflict with the Act.

Following TMA I, the Departments issued a Final Rule in August 2022, which replaced the interim provisions vacated in TMA I. Under the new Final Rule, IDREs are directed to consider the QPA first, but may consider the non-QPA factors. The Final Rule, however, requires IDREs to presume that the QPA is credible, but directs them to evaluate the credibility of the non-QPA factors. Under the Final Rule, IDREs may only consider the non-QPA factors if they are credible, related to either party's offer, and not already accounted for in the QPA. Notably, IDREs are not required to appraise the credibility of the QPA. In short order, TMA, joined by LifeNet, Inc., a provider of air ambulance services, as well as an individual physician located in Texas (collectively, the “Plaintiffs”) challenged these provisions in a second case, TMA II. As with the first case, the Plaintiffs alleged that the revised arbitration provisions still improperly restricted IDREs’ authority to consider the non-QPA factors. The court agreed again at the summary judgment stage and ruled that the Final Rule had once again exceeded the Departments’ rulemaking authority.

The court based its holding on two principal findings. First, the court reasoned that the Act plainly requires IDREs to consider all factors — QPA and non-QPA alike. Nothing in the Act, the court held, instructs IDREs to weigh any one of these factors more heavily than the others. Nor, the court declared, does the Act limit the IDREs’ ability to consider the non-QPA factors or impose heightened scrutiny on those factors. Second, in requiring IDREs to consider the QPA first and restricting their ability to consider the non-QPA factors, the court reasoned that the Departments’ Final Rule also impermissibly altered the Act’s core requirements. As the court noted, the QPA on its own was not a fair measure of the value of out-of-network services since the QPA not only fails to consider patient acuity, it also ignores insurers’ efforts to terminate network contracts specifically in anticipation of the Act’s passage to depress their QPA rates. For both reasons, the court determined that the Final Rule improperly prioritized the QPA.

Ultimately, the court acknowledged that the Final Rule avoided an explicit presumption in favor of the QPA, but it nonetheless determined that the new rule favored the QPA by requiring IDREs to consider that factor first. This sequencing requirement, the court held, improperly restricted the IDREs’ discretion and overly favored insurers in any arbitration under the Act. Accordingly, the court found the Final Rule impermissible under the Administrative Procedures Act. In crafting an appropriate remedy, the court found that the Departments could not salvage the challenged portion of the Final Rule and vacated those provisions of the rule, sending the Departments back to the drawing board once again.

Looking Ahead: Provider Challenges Continue & Claims Pile Up

In the wake of the court’s decision, the Departments are expected to promulgate new regulations to replace the vacated provisions, but the timeline for that is not clear. Notably, prior to addressing the merits of the case, the court also rejected a standing challenge from the Departments, reasoning that the Plaintiffs in TMA II had suffered both a procedural injury and a financial injury under the Final Rule. Thus, the court’s decision may have paved the way for additional provider challenges to any future rulemaking. Given this and other currently pending challenges to portions of the Final Rule, the Departments may be expected to proceed carefully.

On February 10, CMS posted a notice stating that the Departments are “in the process of evaluating and updating Federal IDR process guidance, systems, and related documents to make them consistent with the TMA II decision.” CMS instructed IDREs not to issue any additional decisions under the NSA until they have received further guidance, but to otherwise continue their work.

Meanwhile, the backlog of claims submitted under the Act continues to pile up, and its submission deadlines remain in place. While awaiting regulations that withstand judicial scrutiny, providers should timely submit open negotiation notices and IDR initiation forms to preserve their rights under the Act.