Texas Court Vacates Provisions of the No Surprises Act Arbitration Process

On February 23, 2022, in Texas Medical Association vs. HHS, a Texas district court struck down key parts of the federal rule governing the surprise billing independent dispute resolution (IDR) process of the No Surprises Act (NSA). The vacated provisions of the NSA’s Interim Final Rule Part II (the “Rule”) prescribed the methodology for determining the out-of-network (OON) payment amount for disputed claims between healthcare providers and group health plans or insurers. (For more information on the Rule, please see our prior article.) The legal challenge to the Rule was brought by healthcare providers (the “plaintiffs”) against the federal agencies, including the DOL, HHS and IRS (the “defendants”), that issued the Rule.

The NSA provisions of the Consolidated Appropriation Act, 2021 apply to both insured and self-funded group health plans and are effective for plan years beginning on or after January 1, 2022. Amongst other items, NSA provisions protect participants from surprise bills for OON emergency and air ambulance services, as well as certain OON services received at in-network facilities. The NSA limits participant cost-sharing for covered OON services, leaving plans and insurers to address the balance of the bill from an OON provider. In states with an applicable All-Payer Model Agreement or specified state law, the OON provider rate is determined by the Model Agreement or state law.

Otherwise, if a plan or insurer and provider cannot agree on the OON payment amount after a 30-day negotiation period, the federal IDR process can be initiated. The arbitrator in the federal IDR process (termed the “certified IDR entity”) must select either the payment amount proposed by the healthcare provider or the amount proposed by the plan or insurer. In evaluating the proposals, the certified IDR entity may consider various specified factors. However, the Rule requires that presumptive weight be given to the qualifying payment amount (QPA), which is the median contracted rate for an item or service for a geographic region. Accordingly, under the Rule, the certified IDR entity must select the offer closest to the QPA unless either party submits information that clearly demonstrates the QPA is materially different from the appropriate OON rate.

In the lawsuit, the plaintiffs challenged the Rule’s presumption that the QPA is the correct OON payment amount. Specifically, they argued that such a presumption is inconsistent with the NSA statutory language, which allows for equal consideration of the QPA and other factors (e.g., the provider’s level of training and experience, patient acuity, case complexity) when determining the OON payment rate. Furthermore, the plaintiffs asserted that the defendants improperly circumvented the required notice and comment process when issuing the Rule.

Upon review, the district court granted summary judgment in favor of the plaintiffs. As an initial matter, the court ruled that the plaintiffs had standing to bring the challenge because they would suffer injuries, including lower reimbursement rates, traceable to the Rule.

Significantly, the court then held that the Rule's rebuttable presumption that the QPA is the correct OON payment amount and the requirement that an IDR entity gives more weight to the QPA over other permissible factors conflicted with the “unambiguous terms” of the NSA. The court emphasized that the NSA does not specify that the QPA is the primary or most important factor in determining the appropriate OON payment amount. As a result, the court vacated that portion of the Rule.

Furthermore, the court ruled that the defendants improperly bypassed the notice and comment period under the Administrative Procedures Act when implementing the Rule. The court rejected the defendants’ assertion that notice and comment were not practicable given the deadline to issue a rule. The court noted the defendants had a full year to release guidance and could have issued a proposed rule with a notice and comment period rather than an interim final rule.

The court’s ruling has a nationwide effect, so the provisions of the Rule regarding the QPA presumption and weighting are vacated throughout the country. However, the Rule’s other provisions regarding the IDR process remain in effect.

In response to the ruling, the DOL released a memorandum on February 28, 2022, which stated they are reviewing the court's decision and considering the next steps. The memorandum also indicated that guidance documents based upon the invalidated portion of the rule would be withdrawn, updated and reposted. Training will also be provided to parties involved in the IDR process based upon the revised guidance. Additionally, the memorandum specified that the IDR process would be open for submissions through the IDR Portal. However, for payment disputes for which the open negotiation period has expired, submission of a notice of initiation of the IDR process will be permitted within 15 business days following the opening of the IDR Portal.

Employers who sponsor group health plans should be aware of the court’s decision and the DOL response memorandum and should consult with their service providers regarding the potential impact. Employers should also monitor future guidance and developments regarding the federal IDR process.

Texas Medical Association et al v. United States Department of Health and Human Services et al, Docket No. 6:21-cv-00425 (E.D. Tex. Oct 28, 2021), Court Docket »

DOL Memorandum Regarding Continuing Surprise Billing Protection for Consumers »