Texas Court Vacates Provisions of the No Surprises Act Interim Final Rule

Written by: S. David McLean, Jr., Esq., Brittany H. Cone, Esq., Jordan Johnson, Esq., and Baylee A. Culverhouse, Esq.

On February 23, 2022, United States District Judge Jeremy D. Kernodle of the United States District Court for the Eastern District of Texas, Tyler Division, entered his Memorandum Opinion and Order in Texas Medical Association and Adam Corley v. United States Department of Health and Human Services, et al., Case No. 6:21-cv-425-JDK. The Texas Court granted the Plaintiffs’ Motion for Summary Judgment, denied the Defendants’ cross-motion for summary judgment, and ordered certain provisions of the Interim Final Rule (IFR) intended to implement the independent dispute resolution (IDR) process under the No Surprises Act (NSA) vacated.

Very broadly, the NSA seeks to prevent patients from receiving a surprise medical bill from an out-of-network provider (sometimes referred to as a “balance bill”) in certain circumstances where the patient has little, if any, choice of an alternative in-network provider. Under the NSA, the insurer is required to make a payment or deny a claim within 30 days of submission by an out-of-network provider. In the event that the insurer and the out-of-network provider are unable to resolve any dispute over such payment or denial through 30 days open negotiation process, then the insurer and the out-of-network provider are required to utilize a “baseball style” arbitration process. Under the IDR process, the arbitrator (IDR Entity) receives an offer for the appropriate out-of-network payment amount from each party. The NSA specifies certain factors that the IDR Entity is required to consider (i.e., qualifying payment amounts; level of training, experience, and quality and outcomes measurements of the provider or facility that furnished the item or service; market share held by the nonparticipating provider or facility or the plan or issuer in the geographic region the item or service was provided; the acuity of the individual receiving such item or service or the complexity of furnishing such item or service to the individual; the teaching status, case mix and scope of services of the nonparticipating facility  that furnished the item or service; and demonstrations of the good faith efforts of the nonparticipating provider or facility to enter into network agreements) and certain factors that the IDR Entity is not to consider (i.e., usual and customary charges; the amount that would have been billed by such provider or facility; or the payment or reimbursement rate for such item or service payable by a public payor such as Medicare, Medicaid, CHIP or Tricare) in determining the appropriate out-of-network rate. The NSA does not assign any particular priority or weight to any one factor over any other.

However, in the IFR Part 2 published on October 7, 2021, and effective for plan years on or after January 1, 2022, the government gave emphasis to one factor in the IDR process, the qualifying payment amount (QPA), by creating a “rebuttable presumption” that the QPA is the appropriate out-of-network payment due to providers in the IDR process. The QPA is calculated by the insurance company and is generally to be determined by the median of the contracted rates recognized by the plan or issuer on January 31, 2019, for the same or similar item or service that is provided by a provider in the same or similar specialty and provided in a geographic region in which the item or service is furnished, increased for inflation. Under the IFR, the IDR Entity is required to select the payment amount closest to the QPA unless the 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 of if the offers are equally distant from the QPA but in opposing directions. Many health experts believe such a presumption would further strain the resources of healthcare providers and practices and result in more narrow networks, both of which would reduce patient access to healthcare.

The Texas Medical Association case was the first lawsuit to be filed (October 28, 2021) challenging specifically those provisions of the IFR implementing the IDR process. Similar lawsuits have now been filed and are pending in the United States District Court for the District of Columbia (American Medical Association, American Hospital Association, et al. v. United States Department of Health and Human Services, et al., Civ. Action File No. 21-cv-3231-RJL); the United States District Court for the Northern District of Illinois (American Society of Anesthesiologists, American College of Emergency Physicians and American College of Radiology v. United States Department of Health and Human Services, et al., Case No. 1:2021-cv-06823); Daniel Haller and Long Island Surgical PLLC v. United States Department of Health and Human Services, et al., Case No. 2:2021-cv-07208); and in the United States District Court for the Northern District of Georgia (Georgia College of Emergency Physicians and Brett Cannon, MD v. United States Department of Health and Human Services, et al., Civil Action File No. 1:21-CV-5267-MHC). The Texas Court ruling is the first in the pending cases challenging the provisions of the IFR implementing the IDR process under the NSA.

The Texas Court found that the IFR conflicts with the unambiguous terms of the NSA and that the government improperly bypassed notice and comment in implementing the challenged portions of the IFR. The Texas Court specifically vacated those portions of the IFR which were challenged and which created the “rebuttable presumption” in favor of the QPA. The practical effect of the Texas Court’s Order is that the IDR process remains in place for disputed claims for items or services provided on or after January 1, 2022, but no priority or “rebuttable presumption” arises to bind the IDR Entity to selecting the QPA as the appropriate out-of-network rate. Given medical billing and payment cycles, it is anticipated that the first claims could go into the IDR process as early as April 2022.

This ruling is a big win for healthcare providers and patients alike due to the anticipated impact of the QPA presumption discussed above. That said, this legal battle is ongoing as the Texas ruling is subject to appeal and the cases in the other districts remain pending.