Texas Federal Court Strikes Down No Surprises Act IDR Standard

Health Highlights

On February 23, the federal District Court in the Eastern District of Texas struck down key provisions of regulations issued by the federal Departments of Health and Human Services, Labor, and the Treasury (Departments) and the federal Office of Personnel Management (OPM) to implement the No Surprises Act (NSA). Specifically, in Texas Medical Ass’n v. U.S. Department of Health and Human Services, the Court sided with health care providers who complained that key parts of the rule improperly favored payers by specifying that there would be a rebuttable presumption that the median in-network contract rates in a geographic area, referred to as the Qualifying Payment Amount (QPA), is the amount payers were required to pay health care providers for out-of-network services covered by the NSA.

As a result, CMS has issued a memorandum immediately withdrawing guidance documents that refer to invalidated portions of the rule, stating that CMS will provide training on revised guidance and reopening the payer-provider Independent Dispute Resolution (IDR) process for disputes as to which a statutory negotiation period had already expired. This means that until further regulations are issued, other cases are decided or the judgment of the Texas district court is reversed on appeal, the NSA’s statutory provisions will govern this key aspect of the IDR process. The government has not yet said whether it intends to appeal.

The NSA prohibits certain out-of-network health care providers and facilities from balance billing patients. Instead, providers are limited to collecting the in-network cost-sharing amount from the patient and the remaining amount determined to be owed by the payer for the service under the NSA. When state law does not set the out-of-network reimbursement and the parties cannot agree on an amount, the new federal IDR process must be used to determine the payment owed by the health plan to the provider.

The new federal IDR process is a “baseball” style arbitration which means that the arbitrator must choose whichever side’s offer is closest to what the arbitrator has determined is the correct payment amount. The arbitrator cannot decide the actual amount and cannot impose a specific number on the parties. Generally, this form of arbitration is seen as exerting a moderating force on the process by creating an incentive for both sides to present reasonable offers rather than adopt extreme valuations. Under the NSA, the certified arbitrators may consider specified evidence including the QPA to determine the offer closest to the amount that the payer should owe.

When the federal rules on the IDR process came out in September 2021, health care providers immediately objected that the rule exceeded the Departments’ statutory authority, which the providers said applied the QPA as one of several factors to be used by the arbitrator in determining the out-of-network rate. According to providers, the rule improperly tipped the scale in the arbitration in favor of payers. The Departments and payers disagreed, arguing that the rule furthered the dual purpose of the rule to resolve disputes as to the amount to be paid for out-of-network services and to “control upward pressure on health care costs.”

The Texas district court agreed with the Texas Medical Association and a physician plaintiff granting their motion for summary judgment. The Court found that the plaintiffs had standing to challenge the rule, that the Departments’ interpretation was not entitled to Chevron deference because Congress “spoke clearly in the issue relevant here” and that the rule went beyond the Departments’ authority by “placing its thumb on the scale for the QPA, requiring arbitrators to presume the correctness of the QPA and then imposing a heightened burden on the remaining statutory factors to overcome that presumption.” In addition, the Court found that, as to these provisions of the rule, the Departments should have provided notice and comment under the Administrative Procedure Act. As to that claim, the Court found that the Departments did not have good cause to avoid notice and comment because, among other things, they had sufficient time to do so.

In light of the decision and CMS’ memorandum, until there are further regulations and/or further decisions in the other cases addressing these issues pending in other courts or the Texas Medical Association court is reversed on appeal, the IDR process will proceed according to the statute, which tells the arbitrators to consider the QPA, along with (1) “the level of training, experience, and quality and outcomes measurements of the provider or facility”; (2) the “market share held by the nonparticipating provider or facility” in the relevant geographic area; (3) the “acuity of the individual receiving such item or service or the complexity of furnishing such item or service to such individual”; (4) the “teaching status, case mix, and scope of services of the nonparticipating facility”; and (5) “[d]emonstrations of good faith efforts (or lack of good faith efforts)” made by the health care provider and payer to enter into a network agreement. The arbitrators may not consider the usual and customary charges for the services, billed charges, or the amounts paid by government programs for such services.

The federal government could appeal to the U.S. Court of Appeals for the Fifth Circuit and has up to 60 days to file a notice of appeal. The NSA balance billing protections became effective January 1, 2022, and under the regulations, the earliest an IDR process could commence is in April. Several other associations representing health care providers and facilities have brought suit to challenge the rules, but the Texas Medical Association case was the first to result in a district court judgment. This decision applies nationwide.

The Departments had estimated that 17,000 IDR proceedings would occur each year, but the rules’ deference to the QPA might have discouraged providers and facilities from invoking the IDR process. If the district court’s judgment survives appeal, it may result in providers and facilities improving their reimbursement under the IDR process and increasing the likelihood that they seek IDR review of payment disputes.


Note: To help you navigate the challenges and complexities that the NSA introduces, Manatt Health has launched a No Surprises Act Toolkit that includes five high-value components:

  1. A survey tracking guidance from state and federal regulators on how state and federal laws apply. Updated every two weeks to keep pace with new developments, the tracker provides brief summaries as well as links to each state regulation, bulletin or other guidance.
  2. Deep-dive analyses of all federal NSA-related regulations and their implications.
  3. Detailed checklists for providers and payers providing a step-by-step roadmap to compliance requirements.
  4. NEW OFFERING: Detailed charts summarizing federal guidance on enforcement of the No Surprises Act.
  5. One-month free trial of Manatt on Health: Insights You Trust, Manatt’s premium information service that delivers in-depth insights and analysis focused on the legal, policy and market developments that matter to you, keeping you ahead of the trends shaping our evolving health ecosystem. Manatt on Health includes weekly analyses of federal and state health reform activity, detailed regulatory and guidance summaries and analyses of key federal legislation, and 50-state trackers of state actions across a range of key topics, from telehealth changes to 340B to Drivers of Health.

Our NSA Toolkit delivers information that is essential for both health plans and providers—particularly those operating across multiple states. Fully understanding state and federal guidance—and the interactions between them—will be imperative for ensuring that providers’ billing practices and plans’ processing practices are compliant. With guidance remaining in flux, Manatt’s NSA offering ensures that plans and providers have clear, complete and up-to-date information on what regulators are saying so they are prepared to implement the law.

To get more information or schedule a demo of Manatt on Health, contact Barret Jefferds at bjefferds@manatt.com.

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