Federal District Court Partially Overturns Rules Affecting No Surprises Law Arbitration Process | Cozen O’Connor

On February 23, 2022, the U.S. District Court for the Eastern District of Texas voided portions of the provisional final rule affecting the Independent Dispute Resolution (“IDR”) process of the No Surprises Act (the “Act”). Text. Med. Ass’n v. US Dept of Health & Human Servs., no. 6:21-cv-425-JDK, 2022 WL 542879, at *15 (ED Tex. 23 February 2022). Specifically, the Court found that the rule did not align with the plain language of the law, which requires the IDR process to also consider a number of factors in deciding payments for out-of-network (“OON”) services. Identifier. to *7–9. Instead, the rule substantially favored one factor over the others. Further dismissing the IDR-related portions of the rule, the court found that the government failed to provide an opportunity for notice and comment prior to the release of the interim final rule. Identifier. to *10–14. Accordingly, the Court granted plaintiffs’ motion for summary judgment, dismissed defendants’ cross-motion for summary judgment, and struck out portions of the rule. Identifier. at 15.

Provisional Final Settlement

With most of its provisions taking effect early this year, the law limits the amount patients pay for emergency services at OON facilities or non-emergency services by certain OON providers at network facilities. In addition, the law directs that health plans and insurers reimburse certain OON services at a rate determined by law. 42 USC § 300g-111(a)(1)(C)(iv)(II), (b)(1)(D). If the parties cannot agree on the OON rate after an unsuccessful thirty-day open trading period, a payment dispute typically triggers the IDR process, whereby arbitrators will consider competing positions on what the OON rate (unless a state has a standard all payers agreement or specified state law). Identifier. § 300gg-111(a)(3)(K), (c)(1). When reviewing these positions, the arbiter – the Certified IDR Entity – must weigh a number of factors before deciding which of the two competing rates is correct:

  • the Qualifying Payment Amount (“QPA”) or inflation-adjusted median of contracted rates for Network Services;
  • the provider’s level of training, experience and measures of quality and performance;
  • the acuity of the person receiving the disputed item or service;
  • the teaching status, case mix and scope of services of the OON facility; and
  • the good faith efforts (or lack thereof) of the Provider, the Plan, and the Insurer to enter into Network Agreements, or, if applicable, the contractual rates between the parties during the previous four Plan Years.

Identifier. § 300gg-111(c)(5)(C). On October 7, 2021, the Department of Health and Human Services, Department of Labor, and Department of Treasury (collectively, the “Departments”), along with the Office of Personnel Management, released the Interim Final Rule, which in part created a presumption rebuttable rule that favored the amount closest to the QPA for OON payments: “[T]The Certified IDR Entity shall assume that the QPA is the appropriate out-of-network rate for the Qualified IDR Item or Service under consideration. 86 Fed. Reg. 55,980, 55,996, 56,056–61 (7 October 2021); 45 CFR § 149.510(c)(4)(ii). Rebutting this presumption requires presenting credible information that clearly demonstrates why the QPA is “materially different” from the appropriate OON rate. Identifier.; OK 45 CFR § 149.510(a)(2)(viii).

Trial

On October 28, 2021, the Texas Medical Association – a professional association made up of more than 55,000 health care providers – and a Texas physician (collectively, the “plaintiffs”) sued the departments to challenge part of the final rule which included the rebuttable presumption in favor of the APQ. Text. Med. Ass’n, 2022 WL 542879, at *3. The claimants feared that the “substantial thumb on the scale in favor of QPA” would reduce their OON payments. Identifier. to *3–5. Plaintiffs sued under the Administrative Procedure Act (“APA”), arguing that by placing the LPQ in such high regard, the rule effectively forced the arbitrator to ignore other factors contemplated by the Act . Identifier. at 3. The rule, plaintiffs argued, posed as an attempt to fix rates, directly in conflict with the law, and effectively ensured that arbitration would presumably favor payors, who had the final say on the QPL. Identifier. to *2, *4, *9. It has also been alleged that the departments failed to follow the necessary notice and comment rules prior to the release of the interim final rule. Identifier. at 3.

On February 23, 2022, the Court delivered its opinion. After initially finding that the plaintiffs had standing to sue, identifier. at *4–6, the Court granted the plaintiffs’ motion for summary judgment and struck out portions of the rule for two reasons. First, after concluding that the wording of the Act was unambiguous, thus not allowing departments to Chevron In deference, the Court found that the rule “contravenes the statutory text” of the Act. Identifier. at 7 O’clock. Notably, the Act directs arbitrators to consider all of the identified factors and, contrary to the departments’ position, does not elevate any one factor above another. Identifier. at *7–8 (“Because ‘the word ‘must’ generally implies a requirement’, the law clearly requires arbitrators to consider all specified information in determining which bid to select.”) (quote omitted). Therefore, because the rule “impermissibly altered the requirements of the Act” to “plac[ing] his thumb on the scales of the APQ,” the rule was illegal and should therefore be struck down under the APA. Identifier. at 9 o’clock.

Second, the Court ruled that the interim final rule was against the law because the departments circumvented the notice and comment process under the APA. Identifier. at *9 (citing 5 USC § 553). The Court rejected each of the three reasons given by the departments for evading the APA requirements. Contrary to what the departments claim, neither the APA nor the laws governing the departments “expressly” allowed the departments to deviate from the notice and comment protocol. Identifier. at 10. Next, the just cause exception (which arises when it is impossible, unnecessary or contrary to the public interest to allow a notice and comment period) did not serve because (a) it is not a valid excuse for the ministries to claim that they acted in haste because they had “barely twelve months” between the promulgation of the law and its entry into force; and (b) it is unreasonable to argue that the departments had to wait for the July rule defining the QPA since the two rules could have been decided “in tandem”. Identifier. at *11–12. Finally, the error in leaving the departments was not trivial: if the departments had conducted an exhaustive comment period, the rule “almost certainly would have changed, even if it is in a small way”. Identifier. to *13. The fact that the Ministries planned to “issue a final rule soon” incorporating plaintiffs’ comments did not ring the bell – the error was still not trivial. Identifier. to *14.

In light of these reasons, the Court found that the departments violated the APA and therefore struck down the following portions of the Interim Final Rule that tipped the IDR scale in favor of the APQ:

  • 45 CFR § 149.510(a)(2)(viii); the second sentence of 45 CFR § 149.510(c)(4)(ii)(A); the last sentence of 45 CFR § 149.510(c)(4)(iii)(C); 45 CFR § 149.510(c)(4)(iv); and 45 CFR § 149.510(c)(4)(vi)(B);
  • 26 CFR § 54.9816-8T(a)(2)(viii); the second sentence of 26 CFR § 54.9816-8T(c)(4)(ii)(A); the last sentence of 26 CFR § 54.9816-8T(c)(4)(iii)(C); 26 CFR § 54.9816-8T(c)(4)(iv); and 26 CFR § 54.9816-8T(c)(4)(vi)(B); and
  • 29 CFR § 2590.716-8(a)(2)(viii); the second sentence of 29 CFR § 2590.716-8(c)(4)(ii)(A); the last sentence of 29 CFR § 2590.716-8(c)(4)(iii)(C); 29 CFR § 2590.716-8(c)(4)(iv); and 29 CFR § 2590.716-8(c)(4)(vi)(B).

Identifier. to *14–15.

Government response to court decision

Five days after the Court’s decision, the Medicare and Medicaid Service Centers and Ministry of Labour indicated that it would withdraw all guidelines affected by parts of the rule removed by the ruling and reissue new guidelines in the future, that it would train arbitrators and IDR parties in accordance with the ruling, and that it would open the federal IDR portal for processing submissions. Significantly, despite the Court’s decision, the other provisions of the Act, such as protecting patients from surprise billing and balance, remain in place.

It remains to be seen whether the Departments will appeal the Court’s decision and, if so, whether they will seek a stay of the decision. In the meantime, this decision has a nationwide impact, blocking the applicability of the rule’s overridden provisions. Cozen O’Connor will continue to monitor this matter, as well as a number of ongoing challenges regarding the rule’s IDR process. See, for example, Ass’n of Air Med. Serves. v. US Dept of Health & Human Servs.No. 21-cv-3031-RJL (DDC filed November 16, 2021); A m. Med. Ass’n v. US Dept of Health & Human Servs.No. 21-cv-3231-RJL (DDC filed December 9, 2021); A m. Society of Anesthesiologists c. US Dept of Health & Human Servs.No. 21-cv-6823-MEA (ND Ill. filed December 22, 2021); Haller c. US Dept of Health & Human Servs.No. 21-cv-7208-AMD-AYS (EDNY filed December 31, 2021).

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