Texas Court Sides With Providers a Second Time in Litigation Related to No Surprises Act IDR Process

Health Highlights

On February 6, a Texas federal district court sided with the Texas Medical Association (TMA) and health care providers vacating regulations issued by the Office of Personnel Management and the Departments of Health and Human Services, Labor, and the Treasury (Departments) to implement the No Surprises Act (NSA).1 In TMA II, the court held that the regulations improperly tilt the balance in favor of health plans in the Independent Dispute Resolution (IDR) process established by statute to resolve disputes regarding payment for out-of-network services to which the NSA applies. In response to the ruling, on February 10, the Departments instructed arbitrators to immediately hold all payment determinations and recall any payment determinations made after the February 6 decision.

The IDR process is a baseball-style arbitration in which the provider and the plan submit proposed payment amounts and a certified IDR arbitrator selects one of the payment amounts based on the specific considerations identified in the NSA. One of the key issues is the weight that the arbitrator should place on a key piece of information that the plan must provide: the qualifying payment amount (QPA), which is a health plan’s median contracted rate for the same service in the same geographic area, adjusted for inflation. In a prior decision, the same federal court vacated provisions of an interim final rule that established a rebuttable presumption that the QPA was the correct payment amount.2

The February 6 ruling focuses on the provisions of a final rule issued in August 2022 that governs the manner in which certified arbitrators must consider the information in the IDR process. (For more on the final rule, see the Manatt newsletter here.) In TMA I, the same court determined that interim regulations issued in July 2021 exceeded the Departments’ statutory authority and were contrary to the text of the NSA due to the inclusion of a rebuttable presumption that the QPA—a health plan’s median contracted rate for the same service in the same geographic area, adjusted for inflation—is the appropriate out-of-network rate for items and services covered by the NSA.

At issue in TMA II was whether the August 2022 final rule, which eliminated the rebuttable presumption in favor of the QPA and made other changes, cured the defects in the interim rule. The court concluded it did not. In the February 6 decision, the court found that the final rule continued to improperly favor health plans and exceeded the Departments’ statutory authority under the NSA. As the court put it, while “avoiding an explicit presumption in favor of the QPA, the Final Rule nevertheless continues to place a thumb on the scale for the QPA by requiring arbitrators to begin with the QPA and then imposing restrictions on the non-QPA factors that appear nowhere in the statute.” Non-QPA factors include the provider’s level of training and experience; the quality outcomes of the provider or facility; the market share of the provider or facility; the acuity of the patient; the teaching status, case mix and scope of services of the facility; and the parties’ demonstration of good faith in resolving the dispute.

Specifically, the court found that, rather than instructing the arbitrators to consider all of the factors identified in the NSA, the final rule improperly:

  • Instructs arbitrators to consider the QPA first and only then consider the non-QPA factors.
  • “[P]rohibits arbitrators from ‘giv[ing] weight’ to such information [non-QPA factors] unless several requirements are met: the information is ‘credible,’ ‘relates to the offer submitted by either party,’ and is not ‘already accounted for by the [QPA];’” and
  • States that if such non-QPA information is considered, “the arbitrator must explain in writing ‘why [the arbitrator] concluded that this information was not already reflected in the [QPA].’” TMA II (citing 45 C.F.R. § 149.510(c)(4)(vi)).

The court found that these provisions were contrary to unambiguous language of the NSA, which it interpreted as identifying the relevant considerations for the arbitrators to consider, including QPA and non-QPA information, but otherwise leaving the weight accorded to those considerations up to the discretion of the arbitrators, whom the NSA requires to have specific medical and legal expertise and be certified for five-year terms.

The TMA II court rejected the Departments’ arguments that the final rule was appropriate. The court rejected the Departments’ argument that a key purpose of the NSA was to reduce costs for out-of-network services. Indeed, the court noted that one reason for its decision was the court’s determination that the Departments still sought to use the regulatory process to lower payments to providers as part of the Departments’ efforts to “keep costs down.”

The court also rejected the Departments’ arguments that the final rule merely imposed “reasonable evidentiary and procedural rules” and filled “gaps” in the NSA regarding how the arbitrators should evaluate the information they receive. While some of the provisions of the final rule noted by the court placed additional obligations on the arbitrator if the arbitrator based its decision on non-QPA factors, other requirements—such as the provision that the arbitrator only consider credible information that relates to each side’s proposed payment amount—appear to be more in the category of reasonable evidentiary rules.

As a result of the decision, the court vacated provisions of the final rule regarding the weighing of the considerations identified in the NSA, the examples of how that weighing process should be carried out and the provision requiring a written decision if the IDR entity relied on factors other than the QPA. The court remanded the challenged portions of the rule to the Departments for consideration in light of the decision. In determining that vacatur was appropriate, the court rejected the Departments’ contention that vacatur would be highly disruptive, finding, as it did in TMA I, that “the remaining provisions of the Rule and the Act itself provide a sufficient framework for all interested parties to resolve payment disputes.”

The Departments responded to the February 6 ruling by instructing IDR arbitrators to hold decisions on all currently pending arbitrations and call back decisions issued after February 6. Although the TMA II court found that the decision will not be “unduly” disruptive, the decision will clearly impact the IDR process and may make it more like a traditional arbitration in which the arbitrators consider a broad array of evidence and exercise substantial discretion. Given the relatively small size of some claims in the IDR process and the short time frame for resolution, it may be difficult for arbitrators to undertake the broad review that appears to be envisioned by the court. The decision also raises issues regarding the validity of disputes that may have been decided based on the final rule between its issuance in August 2022 and the February 6 ruling in TMA II.

Finally, it is worth noting that the TMA and the same set of plaintiffs have two additional cases pending in the same Texas federal district court regarding the NSA regulations.3 TMA III, filed on November 30, 2022, challenges an interim final regulation issued in July 2021, 86 Fed. Reg. 36,872 (July 13, 2021) regarding calculation of the QPA. TMA IV, filed on January 30, 2023, challenges the Departments’ decision to increase the filing fee for IDR proceedings from $50 to $350.

Stay tuned for further updates regarding the NSA, and join our NSA webinar on February 16 for a discussion of these and other issues related to the NSA.

1 Texas Medical Association et al. v. United States Department of Health and Human Services et al., Case No. 6:22-cv-373-JDK (Feb. 6, 2023) (TMA II).

2 Texas Medical Association et al. v. United States Department of Health and Human Services et al., 587 F. Supp. 3d 528 (E.D. Tx. 2022) (TMA I).

3 Texas Medical Association et al. v. United States Department of Health and Human Services et al., Case No. 6:22-cv-00450 (filed 11/3/2022) (TMA III); Texas Medical Association et al. v. United States Department of Health and Human Services et al., Case No. 6:23-cv-00059 (filed 1/30/2023).



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved