Health Law Scan

Legal Insights and Perspectives for the Healthcare Industry

A federal judge in Texas held on February 23 that the federal government’s interim final rule implementing the independent dispute resolution (IDR) process established by the No Surprises Act conflicted with the plain language of the statute and that the agencies improperly bypassed notice and comment rulemaking when promulgating the rule.

In the case, Texas Medical Association v. US Department of Health and Human Services, the Texas Medical Association and a Texas physician challenged how the rule governed the arbitration process for resolving payment disputes between out-of-network providers and health insurance issuers. The interim final rule was promulgated jointly by the Department of Health and Human Services, the Department of Labor, and the Treasury Department, and all three agencies were defendants in the litigation.

Under the No Surprises Act, if a provider and insurance company cannot resolve a disagreement over payment for out-of-network services through negotiation, the parties may proceed to a “baseball-style” arbitration. The statute requires the arbitrator to select from the two proposed payment amounts, taking into account certain considerations.

In a July 2021 interim final rule, the agencies adopted certain elements of the No Surprises Act, including the methodology for establishing the Qualified Payment Amount (QPA).

Essentially, the QPA is the medium rate the insurer would have paid for the service if provided by an in-network provider or facility. Under the September 2021 interim final rule, the agencies established a process in which the arbitrator must select the proposed payment amount closest to the QPA, unless certain conditions are met. In other words, the rule creates a rebuttable presumption that the amount closest to the QPA is the proper payment amount.

The plaintiffs argued that this rebuttable presumption conflicted with the No Surprises Act, which established specific circumstances for consideration in addition to the QPA.

US District Court Judge Jeremy D. Kernodle agreed that the rule conflicted with statutory text. Specifically, he determined that the rule, “[r]ather than instructing arbitrators to consider all the factors pursuant to the Act, . . . requires arbitrators to ‘select the offer closest to the [QPA]’ unless ‘credible’ information, including information supporting the ‘additional factors,’ ‘clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.’” By creating this presumption, Judge Kernodle held that the rule reworked clear statutory terms.

Additionally, Judge Kernodle held that the defendants failed to comply with notice and comment rulemaking providing a second reason to set aside the rule. Given the court’s finding that the IDR process established by the September 2021 interim final rule was contrary to the statute’s plain language, the court determined that agencies would be unable to justify the rule as written.

Accordingly, the court vacated and remanded the challenged portions of the rule. The government faces similar challenges from the American Medical Association, the American Hospital Association, and the Association of Air Medical Services. While the IDR process established by the September 2021 interim final rule has been set aside, the statutory process remains in place to provide a framework for other elements of the No Surprises Act established in the July 2021 interim final rule.