On February 23, 2022, a federal district court judge in Texas agreed with the Texas Medical Association that some provisions of the interim final rules implementing the No Surprises Act were promulgated in violation of the provisions of the Administrative Procedures Act (“APA”). As a remedy, the court ordered those provisions vacated and remanded the affected rules back to the federal agencies for further consideration.

In a memorandum issued February 28, the Centers for Medicare & Medicaid Services, one of the federal agencies that promulgated the rule (along with the Employee Benefits Security Administration and the Internal Revenue Service) indicated that it was still reviewing the court’s decision and considering next steps, which could include an appeal to the U.S. Court of Appeals for the Fifth Circuit. Additionally, CMS said that it was withdrawing any guidance documents based on the invalidated sections and will launch revised guidance and training for certified independent dispute resolution (“IDR”) entities and parties subject to the process. Those guidance documents will be edited to conform to the court’s decision and republished. Important to providers, CMS emphasized that the court’s order does not affect its other rulemaking related to the No Surprises Act.

Court vacated qualifying payment amount provisions

The provisions that the court vacated centered on the use of a statutorily defined rate, known as the qualifying payment amount (“QPA”), during the IDR process that the Interim Final Rule: Requirements Related to Surprise Billing; Part II (“Rule”) implemented to allow health care providers and insurers to work out non-contracted rates. The QPA has been the topic of much discussion among providers and insurers subject to the Rules, given its impact on calculating the payment owed to providers for services rendered to affected beneficiaries.

In its summary judgment decision, the court found that the use of the QPA as the presumptively valid amount in an IDR process, unless it is shown to be materially different from the appropriate out-of-network rate, exceeded the statutory requirements of the No Surprises Act. According to the court, the QPA was meant to be only one of a number of factors that the dispute resolution entity should take into account as part of its IDR process. Additionally, the court found that the agencies’ inclusion of the material difference provisions in the Rule violated the APA because no emergency existed that would have justified the Rule’s reach beyond the statutory requirements of the No Surprises Act. Without such an exception, the Rule could not be promulgated on an emergency basis through an interim final rule process that avoided the standard notice and comment procedures of administrative law.

The court’s opinion, which bears watching as similar challenges in other jurisdictions continue and the government considers an appeal to the Fifth Circuit, could have a major impact on the IDR process set forth in the Rule, which became effective as of March 1. We summarize the IDR rules and discuss further the impact of the court’s opinion on health care providers below.

Background on the IDR process

The No Surprises Act and its implementing regulations created an IDR mechanism for resolving disputes between out-of-network providers and health insurers. Generally, the first step prior to actually initiating the IDR process is for one party to provide the other party with notice disputing a payment amount, which initiates an open negotiation period. This notice must be provided within 30 business days from the date the provider receives an initial payment or notice of denial of payment, and the open negotiation period lasts for a subsequent 30-day period.  If the parties are unable to come to an agreed-upon out-of-network rate for services rendered by the provider by the end of the open negotiation period, either party can then initiate the IDR process and the parties will work on selecting an IDR entity or, if they do not agree, the agencies will select for them. As a practical matter, this IDR process is likely to be instituted only by providers, not insurers, and in instances of perceived underpayment by those providers.

Once the IDR entity has been selected, each party submits an out-of-network rate offer. Before the court’s order, the Rule required the IDR entity to accept the offer closest to the QPA, unless either party is able to demonstrate that the QPA “is materially different from the appropriate out-of-network rate.” The QPA, for items or services provided in 2022, is defined in the Act as the median contracted rates recognized by the insurer for the same or similar items or services in the same geographic area with percentage increases over 2019, 2020, and 2021 based on the consumer price index for all urban consumers. The QPA for items or services provided in 2023 and subsequent years will increase based on the consumer price index for all urban consumers.

Highlighting the importance of the challenged presumption in favor of the QPA, the decision of the IDR entity is final and is not subject to judicial review with the exception of the grounds for vacating an arbitration award under the Federal Arbitration Act.

Potential Impact of the Ruling on Out-of-Network Providers

Despite CMS’s announcement that it is withdrawing guidance documents for revision and republication based on the court’s opinion, it is still possible that the agencies will appeal Judge Kernodle’s decision to the Fifth Circuit, possibly requesting a stay of the opinion until the appeal is heard. If the stay is granted, the rule will remain in effect as it currently is, with the QPA remaining the presumptive amount the IDR entities must apply in making payment determinations. If the stay is not granted, however, Judge Kernodle’s opinion remains in effect until the appeal is heard. Though Judge Kernodle’s ruling vacates select provisions of the rules that guide the IDR entities in determining the ultimate payment amount when disputes arise between out-of-network providers and insurers, IDR still remains the avenue for settling these payment disputes. However, the IDR entity no longer has to consider the QPA as the presumptive appropriate out-of-network payment amount—a favorable ruling to providers concerned that the QPA unfairly favors insurers.

As discussed above, the court only vacated select portions of the rules pertaining to the IDR process. The decision does not impact the patient protection aspects of the Act’s implementing rules—i.e., the “surprise billing” and “balance billing” protections, which describe how providers must furnish Good Faith Estimates to self-pay/uninsured patients, and the general prohibition on out-of-network providers balance billing patients for amounts that exceed what patients would have paid for in-network care (with certain exceptions). See Reed Smith’s previous blog posts on balance billing and surprise billing patient protections, which took effect on January 1, 2022, for more information.

Reed Smith will continue to track developments related to the No Surprises Act and how it is implemented. Please reach out to the health care attorneys at Reed Smith if you have any questions about how this ruling might affect your organization or about any aspect of the implementation of the new law.