No Surprises Act Final Rule Addresses Dispute Resolution Provisions Invalidated by District Court

Health Highlights

The Big Picture

On August 19, the Biden Administration released a final rule on the No Surprises Act (NSA) that primarily addresses regulatory provisions invalidated by the United States District Court for the Eastern District of Texas (District Court) (in the Texas Medical Association and LifeNet decisions) regarding how reimbursement amounts for out-of-network providers will be calculated when a dispute goes to arbitration. The NSA, which prohibits surprise medical billing in many cases, requires disputes over certain out-of-network reimbursements to be subject to arbitration by a certified independent dispute resolution (IDR) entity and identifies several factors that may be evaluated (as well as some factors that cannot be considered) in determining those rates. In a change from the October 2021 interim final rule with comment period (IFC), the final rule removes the “rebuttable presumption” that the most appropriate rate is the one closest to the qualifying payment amount (QPA)—the health plan’s median contracted rate for the same service with issuers in the same geographic area, adjusted for inflation. The rule also requires payers to provide additional information to providers about how the QPA was calculated to improve the transparency of the arbitration process.

The October IFC created a presumption in arbitration that the QPA was the most appropriate rate, with other factors playing a lesser role in influencing the final payment determination. As such, the IFC required an IDR entity to “select the offer closest to the QPA unless the certified IDR entity determines that credible information submitted by either party clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate.” This provision was cheered by health plans but opposed by hospitals, physicians and air ambulance providers. The Texas Medical Association (TMA) and LifeNet, an air ambulance provider, filed separate suits in the District Court, which vacated several portions of the IFC that related to the QPA presumption.

This final rule issued by the Departments of Labor, Health and Human Services, and the Treasury (the Departments) responds to this decision by walking back the primacy of the QPA and positioning the QPA as only one of several factors that should guide the IDR entity’s final determination. Other factors include the experience and skill of the provider, patient acuity, the teaching status of the facility, the market share of the payer and provider, and the history of contracting between plan and provider. The rule also states that the arbitrator should not “double count” any non-QPA factors that are already incorporated in the QPA; for example, in some cases, acuity is already factored into the QPA and should not be considered again in determining the final payment amount.

The rule requires more disclosure by payers of how the QPA is calculated, especially when the payer “downcodes,” or alters the service code or modifiers to reduce payment. Payers must disclose when downcoding occurs, why it was done, and what the QPA would have been at the higher code.

The final rule is effective for services or items furnished beginning October 25 (60 days after the August 26 Federal Register publication) for plan years beginning on or after January 1, 2022. Provisions in the IFCs published in July and October 2021 that are not finalized in this rule remain in effect and will be finalized in a subsequent final rule.

In addition, the Departments released a fact sheet on the final rule, a series of Frequently Asked Questions (FAQs) on the final and interim final rules, and an update on the dispute resolution process, which has seen more than double the volume of cases through August than it was projected to process in the first full year. Finally, the Departments released technical guidance for IDR entities, which covers eligibility, the batching and bundling of items and services into one dispute, and the failure of a party to submit required information in response to an IDR entity’s request.

Independent Dispute Resolution Standards and Procedure

The NSA applies to two types of surprise medical bills: out-of-network emergency services (including air ambulances but not ground ambulances) and nonemergency services provided by certain out-of-network providers who practice at in-network facilities. In these situations, the plan will make an initial payment that is intended to be the full amount the plan owes or will deny payment, and then the provider can formally initiate an open negotiation process. If negotiations fail, either party may initiate IDR.

In the IDR process, the provider and plan must each submit their proposed reimbursement amount along with the percentage of the QPA represented by the amount, as well as information regarding the type of plan involved, the plan’s service area, and the size of the provider or facility. In addition to the QPA, IDR entities can consider information on additional factors provided for under the statute:

  • Provider’s level of training, experience, quality, and outcome measures;
  • Provider or plan’s market share;
  • Patient acuity or item or service complexity;
  • Teaching status, case mix, and scope of services of the nonparticipating facility; and
  • History of contracting between plan and provider.

The parties may submit any other information they choose, or as requested by the IDR entity, but may not submit information regarding the provider’s usual and customary charge, the billed amount, or public payer rates. The NSA requires “baseball style” arbitration: The IDR entity must select one of the offers submitted and cannot offer its own proposed reimbursement rate.

The October IFC had dictated that the IDR entity “must presume that the QPA is an appropriate payment amount” and “must select the offer closest to the QPA, unless the credible information submitted by the parties clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate.” The Departments explained that they believed this was the best interpretation of the statutory text and was supported by public policy objectives, including that the QPA will generally “reflect standard market rates arrived at through typical contract negotiations.” The Departments also said that anchoring the out-of-network rate at the QPA will promote predictability and thereby reduce the need for IDR and its administrative costs, as well as avoid premium increases that could occur if out-of-network providers were regularly being reimbursed in excess of the QPA.

No Surprises Act Litigation

Several lawsuits were filed to challenge how the QPA factors into rate determinations, and in two cases that have been decided, portions of the rule were vacated. The TMA successfully argued that the IFC put “outsized weight” on the QPA, contrary to the statute; the District Court found that the statute was unambiguous in requiring the consideration of non-QPA factors and that those factors are neither more nor less important than the QPA. Plaintiffs also argued that the IFC was in violation of the Administrative Procedures Act because the Departments did not engage in notice and comment rulemaking. The Departments expressed that stakeholders needed certainty regarding the rules on a more expedited timeline than was possible through notice and comment rulemaking. The District Court disagreed, saying that the Departments had a full year to issue a proposed rule between the law’s passage and implementation. Ultimately, the District Court vacated several provisions of the regulation:

  • The requirement that the IDR entity select the offer closest to the QPA unless there is credible information to demonstrate that this is not the appropriate rate;
  • The requirement that “additional information” clearly demonstrate that the QPA is materially different from the out-of-network rate;
  • The definition of “material difference”;
  • Four examples of how IDR entities should choose between competing offers; and
  • The requirement that the IDR entity explain why it did not choose the offer closest to the QPA.

Following the February TMA decision, the Departments announced they were withdrawing those provisions to comply with the court’s order. Two months later, the government filed a notice of appeal, then requested to have further proceedings held in abeyance pending future rulemaking. Several other cases have been stayed in anticipation of this final rule.

In separate litigation, air ambulance provider LifeNet, Inc., made similar arguments about the analogous air ambulance QPA determination process and, in July, won summary judgment and an invalidation of those provisions. The Center for Consumer Information and Insurance Oversight (CCIIO) recently announced that, effective July 26, 2022, IDR entities should not apply the vacated standard in reaching payment determinations.

Final Rule on Independent Dispute Resolution Payment Determinations

The final rule eliminates the presumption that the offer closest to the QPA is the most appropriate one; however, the QPA remains an important factor to consider. Under the law, the Departments wrote, the IDR entity must always consider the QPA since this is the one factor that will be present in every dispute, whereas the parties might or might not choose to submit information regarding the additional factors. The Department also notes that the QPA is the only factor that must be quantitative, while the others are likely to be qualitative.

The final rule places a few constraints on how IDR entities account for the non-QPA factors. First, the IDR entity should only consider information that is related to the offers submitted by either party and that is credible. Credible information is information “that upon critical analysis is worthy of belief and is trustworthy.” The QPA is credible if it is calculated consistent with the July 2021 IFC and communicated in a way that satisfies the disclosure requirements. The intent of a credibility requirement, according to the Departments, is to ensure that information related to the other factors clears the same bar and to give IDR entities clear guidance. Second, citing public comments, the rule also emphasizes that the IDR entity should not “double count” any factor that is already accounted for in the QPA. For example, certain factors, like patient acuity or the complexity of a procedure, might already be included in the calculation of the QPA, and therefore shouldn’t be weighed a second time. When a relevant factor is not adequately reflected in the QPA, the IDR entity should give that factor appropriate weight based on information provided by the parties.

Several examples are included in the rule to demonstrate an IDR entity’s method for selecting the offer that best represents the value of the item or service. In each, the first consideration is the QPA. Then, if additional information is provided that is related to an offer, and if that information is credible and nonduplicative of a factor already incorporated in the QPA, the IDR entity may determine that it is appropriate to give that additional information weight.

The process used by an IDR entity to select an offer in air ambulance disputes is generally the same as in other disputes. The Departments reiterate that for air ambulances, the IDR entity should consider the QPA, then all additional permissible information. The additional factors for air ambulances are slightly different than for other providers, to include the population density of the pick-up location; the ambulance vehicle type and its clinical capability; and the quality and outcomes measures of the provider.

One provision invalidated by the District Court in TMA required a written explanation of the information the IDR entity found to demonstrate that the QPA was materially different from the appropriate out-of-network rate. The final rule requires an IDR entity to provide a written decision in all cases, with details in forthcoming guidance. The rule notes that the Departments need written determinations since they are required to publish a variety of information related to the IDR process, such as the frequency with which the agreed-to or determined payment amount exceeds the QPA and the amount of each offer as a percentage of QPA. In addition, as generally agreed to by commenters, a comprehensive written decision is critical so the parties understand the basis for the outcome.

The rule also heightens transparency when a payer has downcoded a billed claim. Commenters expressed concern that more information was needed about the payers’ QPA calculations. Of particular concern was payers’ ability to downcode to a lower service code or modifier from the one billed. To address this, the rule newly defines “downcode” as the plan’s alteration of a service code to a different service code or the alteration, addition, or removal of a modifier, if the change would lower the QPA. Under this final rule, payers must disclose when downcoding occurs, why it was done, and what the QPA would have been at the higher code.

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