Federal District Court Invalidates Some Surprise Billing Rules: What It Means for the No Surprises Act

On February 23, 2022, the United States District Court for the Eastern District of Texas invalidated portions of Part II of the interim final rule (“IFR”) issued by the U.S. Departments of Health and Human Services, Labor, and Treasury (“Tri-Agencies”), implementing the dispute resolution provisions of the No Surprises Act (“NSA”).  While the ruling in the case, Texas Medical Association v. U.S. Department of Health & Human Services, may impact medical plan costs, it does not substantively affect the consumer protections against surprise medical billing added by the NSA, which took effect in 2022.

As background, Congress enacted the NSA to address “surprise medical bills,” meaning out-of-network charges billed by providers when an individual receives treatment at an out-of-network facility in an emergency situation, or when an individual is treated by an out-of-network provider at an in-network facility.  The NSA prohibits surprise medical billing, establishes a statutory framework for determining the “out-of-network rate” to be paid by a health plan to a provider or facility, and creates an independent dispute resolution (“IDR”) process for health plans and providers to negotiate payment rates after a health plan has paid the provider an initial payment amount for the out-of-network services.

The out-of-network rate is determined using one of three methods:

  1. By reference to an applicable All-Payer Model Agreement under section 1115A of the Social Security Act.
  2. In some states, the out-of-network rate may be specified by statute.
  3. If there is no applicable All-Payer Model Agreement and no applicable state statute, the out-of-network rate may be determined by agreement between the health plan and the provider.

If none of the three methods applies, a health plan or provider may invoke the IDR process. IDR under the NSA is a “baseball-style arbitration” in which the provider and health plan each submit a proposed out-of-network rate to the arbitrator, and the arbitrator must select one of the two proposals, taking into consideration certain factors set by statute.

The plaintiffs in Texas Medical challenged certain portions of the IFR related to the IDR process that govern how much discretion the arbitrator has in weighing the relevant factors to decide which out-of-network rate (i.e., the provider’s proposal or the health plan’s proposal) should be used.  Specifically, the plaintiffs argued that the IFR created a rebuttable presumption in favor of a single factor, the “qualifying payment amount” (“QPA”) rate (typically the median rate the plan would have paid for the service if provided by an in-network provider or facility), rather than allowing the arbitrator to determine in its discretion how to weigh the various factors.

The Texas Medical court ruled in favor of the plaintiffs, invalidating the challenged portions of the IFR and finding that the Tri-Agencies exceeded their authority in issuing these portions of the IFR.

Although the ruling applies nationwide, its substance is narrow—it invalidates only specific language in the IFR that creates the rebuttable presumption in favor of the QPA.  This means that the IDR process in general remains intact and can be invoked by providers and plans, as the DOL clarified in a memo issued shortly after the court’s decision.  However, because arbitrators may not invoke a presumption in favor of the QPA, plans using the IDR process could see an increase in costs based on the out-of-network rates chosen by arbitrators.  The court’s ruling also has no effect on the other methods under the NSA for calculating the permissible out-of-network rate, nor does the ruling impact the consumer protections under the NSA generally.

For questions regarding the Texas Medical case or the requirements of the No Surprises Act, contact your Faegre Drinker attorney. The Tri-Agencies previously issued Part I of the IFR, generally to implement the consumer protections against surprise medical bills provided under the NSA. Our discussion of Part I of the IFR can be found here.

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