Departments Survive Legal Challenge, Clarify “Greatest-of-Three” Regulation

Health Highlights

On May 1, 2018, the U.S. Departments of Labor, Health & Human Services and the Treasury (Departments) clarified the Patient Protection and Affordable Care Act’s (ACA) “greatest-of-three” regulation (GOT regulation) in response to an entry of summary judgment against the Departments in American College of Emergency Physicians v. Price, 264 F. Supp. 3d 89 (D.D.C. 2017) (ACEP). Much to the chagrin of many emergency medical service providers, the Departments issued the GOT regulation in 2015, requiring payers to reimburse out-of-network emergency medical service providers at the greatest of three different rates that providers characterized as opaque and subject to easy manipulation. The GOT regulation survived the legal battle that followed, but the Departments were required to make important clarifications.


The GOT regulation imposes an obligation on payers to pay out-of-network emergency service providers the greatest-of-three payment amounts: (1) the amount the insurer pays in-network providers for the same services; (2) the amount calculated by the insurer to be the “usual, customary, and reasonable charges” for such services; or (3) the amount that would be paid under Medicare for such services. 42 U.S.C. § 300gg-19a (ACA cost-sharing requirement); 45 C.F.R. § 147.138(b)(3) (regulation providing that cost-sharing requirement is satisfied by paying greatest-of-three amount).

The Departments previewed the regulation in 2010 as an interim final rule to implement the ACA’s patient protection provisions. Patient Protection and Affordable Care Act: Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections, 75 Fed. Reg. 37,188 (June 28, 2010). The Departments explained the purpose of the GOT approach was to mitigate the financial risk patients face when providers balance bill “for the difference between the providers’ charges and amount collected from the plan or issuer and from the patient in the form of a copayment or coinsurance amount.” Id. at 37,194. The logic was that the outstanding balance would be lower if payers were required to pay the greatest-of-three amount before providers balance bill. Id.

In 2015, the Departments issued the rule in final form. Final Rules for Grandfathered Plans, Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, Dependent Coverage, Appeals, and Patient Protections Under the Affordable Care Act, 80 Fed. Reg. 72,192 (Nov. 18, 2015). The Final Rule further clarified that although the ACA does not prohibit balance billing, the “minimum payment standards are designed to reduce potential amounts of balance billing to patients.” Id. at 72,213. Accordingly, the GOT regulation does not apply in states, such as California, that effectively prohibit balance billing. Id.

Some commenters expressed concern about the level of payment for out-of-network emergency services and urged the Departments to require plans to use a transparent national database to determine a market rate for out-of-network amounts. See ACEP, 264 F. Supp. 3d at 93. The Departments, without serious explanation, took the position that the GOT amount addressed that concern. Id.

The ACEP Litigation

On May 12, 2016—dissatisfied with the Departments’ response—the American College of Emergency Physicians (ACEP) filed a lawsuit against the Departments. ACEP challenged both the substance of the GOT regulation and the procedure the Departments followed in enacting it. According to ACEP, the Final Rule was substantively invalid because it fails to guarantee a reasonable rate and was procedurally flawed because the Departments failed to respond to ACEP’s concerns during the public comment period. Id. at 92.

The court agreed with ACEP that “the Departments acted arbitrarily and capriciously [in violation of the Administrative Procedures Act] by failing to seriously respond to comments and proposed alternatives submitted by Plaintiff and others regarding perceived problems with the GOT regulation.” Id. at 94. The court granted summary judgment in favor of ACEP on the procedural piece and remanded the Final Rule to the Departments to further address the comments and proposals at issue. Id. at 96.

The Departments’ Reaction

On May 1, 2018, the Departments reaffirmed the GOT regulation and provided updated commentary, which was published in the Federal Register on May 3, 2018. See Clarification of Final Rules for Grandfathered Plans, Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, Dependent Coverage, Appeals, and Patient Protections Under the Affordable Care Act, 83 Fed. Reg. 19,431. The Departments flatly rejected ACEP’s national database proposal, explaining that developing or utilizing a national database would exceed the scope of their authority under the Public Health Service Act. Id. at 19,434. The Departments also opined that creating and maintaining a database would be costly and time-consuming, and that such a database would not provide a better method for determining usual, customary and reasonable amounts than the final GOT regulation would. Id.

The Departments then reiterated that the GOT regulation’s “three prongs work together to establish a floor on the payment amount for out-of-network emergency service.” Id. at 19,435. States are free to impose higher rates.

Apparently satisfied—even though the court never reached the substantive challenge—ACEP stipulated to a dismissal of the case on May 23, 2018. With the ACEP challenge resolved (and no other suits challenging the GOT regulation pending), the greatest-of-three rule remains in effect for balance billing states for the foreseeable future.



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