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District Court Vacates Portions of the Surprise Medical Billing Rule

February 25, 2022

By: Wolfe Pincavage Team

On February 24, District Judge Jeremy D. Kernodle of the U.S. District Court of the Eastern District of Texas granted summary judgement in favor of Texas Medical Association. The plaintiffs successfully argued that provisions of the Departments of Health and Human Services, Labor and Treasury (the “Departments”) Interim Rule (“Rule”), pursuant to the No Surprises Act, was improper under the Administrative Procedure Act (“APA”).

The No Surprises Act, which took effect on January 1, 2022, limits the amount that patients can be billed for emergency services received at out-of-network facilities and non-emergency services furnished by out-of-network providers at in-network facilities. The statute also establishes payment guidelines for insurers and out-of-network providers. In states without an All-Payer Model Agreement or specified state law, the insurers and out-of-network providers may agree to a rate on their own or they may participate in an independent dispute resolution (“IDR”) process.[1]

Under the No Surprises Act, the IDR process is a “baseball-style” arbitration, in which the insurer and the provider each submit a proposed payment amount and explanation to the arbitrator. The arbitrator must then select one of the two proposed payment amounts after considering the qualified payment amounts (“QPA”)[2] for comparable services in the same geographic region and “additional circumstances.”[3] The “additional circumstances” that arbitrators are required to consider are (1) “the level of training, experience, and quality outcomes,” (2) the market share held by the nonparticipating provider, (3) the acuity of the patient, (4) the “teaching status, case mix, and scope of services” of the provider, and (5) the parties’ good faith efforts to enter into a network agreement.[4]

However, in its Rule, the Departments switch gears. The Interim Rule creates a rebuttable presumption that the amount closest to the QPA is the proper payment amount.[5]  Providers have the burden of showing that QPA is incorrect and/or demonstrating that the other statutory factors are strong enough to overcome the presumption. Further, the Rule requires arbitrators and providers to accept insurers’ determination of the applicable QPA, without providing a way to challenge the insurers’ determination.[6]

The plaintiffs here challenged this section of the Rule under the APA, arguing that the rebuttable presumption that the QPA is the appropriate reimbursement rate is an improper administrative application of the statute.

The APA requires courts to “hold unlawful and set aside” agency rules if the rules are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”[7] As established by the Supreme Court in Chevron, U.S.A., Inc. v, Natural Resources Defense Counsel, Inc., courts should apply a two-step test in reviewing agency authority.[8] First, the court should determine whether the intent of Congress is clear. If it is clear, the court and the agency “must give effect to the unambiguously expressed intent of Congress.”[9] If the statute is ambiguous, courts should determine whether the agency’s construction of the statute is “permissible.”

The No Surprises Act is unambiguous, so the inquiry does not require an analysis of the second Chevron prong.[10] In the Order granting Summary Judgement, Judge Kernodle stated that the Act “plainly requires arbitrators to consider all the specified information in determining which offer to select.”[11] The specified information includes the QPA, five additional criteria, and “any relevant information submitted by either party.”[12]

The Supreme Court has held that a “core administrative-law principle” is that an agency may not “rewrite clear statutory terms to suit its own sense of how the statute should operate.”[13] Because the language of the Act is clear and the Departments introduced a limitation not found in the statute, the Rule violates the APA.

When the APA is violated, the appropriate remedy may be to remand the rule or to vacate provisions of it. Judge Kernodle held that “there is nothing the Departments can do on remand to rehabilitate or justify the challenged portions of the Rules as written.”[14] He therefore ordered that five provisions of the Rule be vacated.[15]

The Wolfe Pincavage team is experienced in assisting providers and medical groups through every aspect of the No Surprises Act. We work with providers in negotiating payment rates and navigating the IDR arbitration process when necessary.

[1] 42 U.S.C. § 300gg-111(c)(1).

[2] The QPA is the median rate that the insurer would have been paid for the service if the service was provided by a participating provider. 42 U.S.C. § 300gg-111(a)(3)(E).

[3] 42 U.S.C. § 300gg-111(c)(5)(A).

[4] 42 U.S.C. § 300gg-111(c)(5)(C).

[5] 86 Fed. Reg. 36,872, 56,056–61. The Rule states that arbitrators shall “select the offer closest to the QPA unless the [arbitrator] determines that . . . the [QPA] is materially different from the appropriate out-of-network rate.”

[6] 86 Fed. Reg. at 55,996 (“[I]t is not the role of the [arbitrator] to determine whether the QPA has been calculated by the plan or issuer correctly.”).

[7] 5 U.S.C. § 706(2)(A).

[8] Chevron, U.S.A., Inc. v, Natural Resources Defense Counsel, Inc. 467 U.S. 837 (1984).

[9] Id. at 843.

[10] Order at 15.

[11] Order at 17.

[12] See generally §§ 300gg-111(c)(5)(B), (5)(C).

[13] See Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 328 (2014).

[14] Order at 32.

[15] Order at 34, 35.