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February 25, 2022
Health Law Weekly

U.S. Court in Texas Nixes No Surprises Act Dispute Resolution Regulation

  • February 25, 2022

A federal judge in Texas vacated February 23 a recently issued rule to implement the No Surprises Act's (Act’s) independent dispute resolution (IDR) process after finding it conflicted with the clear text of the statute and improperly bypassed notice-and-comment rulemaking.

According to U.S. District Court for the Eastern District of Texas Judge Jeremy D. Kernodle, the rule “rewrites clear statutory terms,” and must be “h[e]ld unlawful.”

The Biden administration released in September 2021 its third in a series of regulations under the Act, which bans surprise billing for emergency services, as well as for certain non-emergency care provided by out-of-network providers at in-network facilities.

The legislation requires a “baseball-style” arbitration process, with no minimum payment threshold, to resolve billing disputes between insurers and out-of-network providers.

The interim final rule with comment period, which was issued by the Departments of Health and Human Services, Labor, and Treasury and the Office of Personal Management, details that IDR process under the Act.

The rule, however, prompted several lawsuits by physicians groups, including the instant action brought by the Texas Medical Association.

The challenges contend that the regulation unlawfully directed IDR entities to presume the median-in-network rate, known as the qualifying payment amount (QPA), is the appropriate out-of-network rate before considering other factors like provider training and quality, market share, and patient acuity contrary to the legislation, which requires the arbiter to consider all factors equally.

After finding plaintiffs had standing, the court agreed that the rule conflicts with the Act by imposing a rebuttable presumption in favor of the offer closest to the QPA.

The court found that the rule was not entitled to Chevron deference because the Act unambiguously established a framework for resolving payment disputes that requires arbitrators to consider all the factors enumerated in the statute equally.

“The Rule thus places its thumb on the scale for the QPA, requiring arbitrators to presume the correctness of the QPA and then imposing a heightened burden on the remaining statutory factors to overcome that presumption,” the court said.

The court rejected the agencies’ argument that the “overall statutory scheme” supported the rule because the QPA is listed first and the other factors are described as “additional circumstances” to consider. The agencies cited no authority holding that a statutory factor is entitled to more weight because it is the first in a list, or that the term “additional” justified weighing other factors less than the QPA.

The court also disagreed with the agencies’ characterization of the rule as not in conflict with the Act. “[T]he Rule treats the QPA—an insurer-determined number—as the default payment amount and imposes on any provider attempting to show otherwise a heightened burden of proof that appears nowhere in the statute,” the court said.

The court noted that the agencies themselves described the rule as creating a rebuttable presumption in favor of the QPA when they issued it. “And it is undoubtedly why the Departments argued to the Court that vacating the Rule would result in higher reimbursement payments to providers, would be highly disruptive to insurance companies, and would upend[]. . . efforts to control upward pressure on health care costs.’”

As an alternative basis for vacating the rule, the court also found the agencies violated the notice-and-comment requirements of the Administrative Procedure Act. The court rejected the agencies’ argument that they were exempt from the notice-and-comment requirements and found the error was not harmless.

Finally, the court concluded that the appropriate remedy was to vacate the rule rather than remand to the agencies. The court found nothing the agencies would do on remand could fix the seriousness of the deficiencies—i.e., the direct conflict with the statute.

Texas Med. Ass’n v. United States Dep’t of Health and Human Servs., No. No. 6:21-cv-425-JDK (E.D. Tex. Feb. 23, 2022).