BY Blinn E. Combs and Beth Anne Jackson, Brown & Fortunato
In a virtual replay of last year’s action (TMA I), on February 6, the United States District Court for the Eastern District of Texas, Tyler Division (Court) overturned portions of the August 26, 2022 final rule (Final Rule) relating to certain arbitration procedures outlined in the No Surprises Act (NSA). As reported here in October, plaintiffs Texas Medical Associates and an independent physician (TMA) sued the United States Department of Health and Human Services, the Department of Labor, the Department of the Treasury, and their respective leaders in their official capacities (Departments). The new suit (TMA II) sought a declaration that portions of the Final Rule were unlawful and an injunction against use of those challenged provisions in applicable independent dispute resolution (IDR) proceedings.
The NSA was enacted in part to help resolve payment disputes between providers and health plans for non-network 
emergency services or non-network physician services at in-network facilities. Where the conflict was not regulated by state laws, the NSA sought to close the gap between insurers and providers by both defining a procedure for arbitrators to follow and limiting their discretion in making payment determinations. Under the NSA’s IDR process, each party submits an offer and the arbitrator must choose one, a process sometimes called “baseball-style” arbitration. (Texas providers should note that the NSA typically applies to self-insured ERISA plans, but not to state-regulated PPO, EPO, and HMO plans, which are subject to Texas’ surprise billing laws.)
Although limiting the choice to the two offers, the NSA provides several criteria (Factors) that the IDR must consider, including: the qualifying payment amount (QPA); provider characteristics such as training and experience; the provider’s market share; the complexity of the patient’s presentation; the case mix and services provided by the facility; and the provider’s effort (or the absence of it) to join in network agreements. The QPA—a price point calculated by insurers—is the median in-network rate within the area for the relevant service. At the same time, the NSA forbids the IDR from considering the facility’s “usual and customary” charge or federal reimbursement rates under programs like Medicare or Medicaid.
Under a legal rule called Chevron deference, when an administrative regulation interpreting a statute is challenged, courts will defer to the administrative interpretation unless the regulation clearly conflicts with the plain meaning of the statute.
In TMA I, the Court struck down the Departments’ 2021 interim final rule (Interim Rule), finding that it conflicted with the plain meaning of the NSA by directing the IDR to treat the QPA as the presumptive fair price, rather than one Factor to consider among others in choosing between offers. The Interim Rule directed arbitrators to “select the offer closest to the [QPA]” unless credible information about other Factors showed that the QPA is materially different from the appropriate rate. TMA claimed that this posed a threat of financial harm by giving insurers an unfair advantage not available under the plain text of the NSA. The Court agreed.
In TMA II, the Court similarly struck down the revised provisions in the Final Rule. Although the Departments avoided explicitly treating the QPA as establishing the presumptive fair price, the Final Rule included three conditions indicating a preference for the QPA over the other Factors. It directs IDRs to consider the QPA first, and only then go on to consider the remaining Factors. It directs IDRs to evaluate the credibility of the other Factors, but not that of the QPA. It further requires IDRs to provide a written explanation whenever their determination relies on Factors other than the QPA.
In addition to noting the financial harm this preferential weighting of the QPA posed to providers, the Court noted evidence that it posed a risk of network termination to providers who refused to accept a contract price at or below the QPA. Against the Departments’ concern that vacating the unlawful portions of the Final Rule would disrupt ongoing arbitration, the Court noted that the decision would leave arbitrators right where TMA I left them—with the clear guidance of the statute. No surprises there.
While providers may continue to submit payment disputes to IDR, on February 10, CMS issued a notice of recall of all IDR determinations issued on or after February 6, and a halt on all determinations pending further guidance. CMS subsequently instructed IDRs to continue processing determinations for claims for services provided prior to October 25, but to pause issuing determinations on all disputes relating to services on or after that date. The pause comes at a time during which the volume of disputed claims has vastly outpaced CMS expectations. More than 90,000 disputes were submitted through the Federal IDR portal from mid-April through the end of September 2022, a number exceeding the expected volume for the entire year.