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District Court Once Again Invalidates No Surprises Act Regulations

by | Feb 15, 2023 |

By Roberta Casper Watson, Dannae Delano and Barry Salkin

The No Surprises Act directs the Departments of Treasury, Labor, and Health and Human Services (the “Departments”) to establish a Federal Independent Dispute Resolution Process (the “Federal IDR Process”), including dispute arbitration rules that must be followed by nonparticipating facilities, nonparticipating providers, nonparticipating air ambulance services, group health plans, and health insurance issuers to resolve disputes that cannot be successfully negotiated. The Federal IDR Process is used following the end of an open negotiation period to determine the out-of-network rate for out-of-network emergency services, certain items and services provided by nonparticipating providers at in-network facilities, and the payment for qualified services provided by nonparticipating providers of air ambulance services, when a specified state law or All-Payer Model Agreement does not apply and there is no agreement between the plan/issuer and the service provider as to the appropriate payment to be made. There are detailed procedural rules that must be followed as part of the Federal IDR Process, and to date there have been frequent disputes as to the eligibility of certain matters for the Federal IDR Process. However, the litigation challenging the regulations has focused on a substantive element of the Federal IDR Process, and specifically the weight to be given by an arbitrator to the “qualified payment amount,” which is generally the plan’s, carrier’s, or third party administrator’s median contracted rate for a specified service in the same geographic area within the same insurance market.

In the initial regulations that were invalidated by the Eastern District Court in Texas, the Departments had established a rebuttable presumption that the qualified payment amount was the appropriate amount.  In revised regulations issued in August 2022, the Departments eliminated the rebuttable presumption in favor of the qualified payment amount, but the court has now held that the revised regulations did not go far enough in correcting the deficiency addressed in the District Court’s earlier opinion.  In its most recent decision, the District Court stated that “while avoiding the explicit presumption in favor of the QPA, the final rule nevertheless continues to place a thumb on the scales 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.”  The DOL argued that its interpretation of the No Surprises Act was entitled to Chevron deference, a favorable standard of review, but the District Court disagreed, finding the statute to be unambiguous and the Department’s regulation inconsistent with that unambiguous language.

The Departments can appeal the District Court decision or could once again seek to revise the regulations, but there is no assurance that the third time will be the charm.  The Departments and the providers have fundamentally different views as to the manner in which the No Surprises Act should be read.  The Departments believe that some priority needs to be given to the QPA, which they believe will result in lower costs, while the providers believe that all factors referenced in the No Surprises Act should be given equal weight.  However, while the litigation process continued, the providers hoped the Federal IDR Process would do likewise because the arbitrators seeking to resolve the disputes before them, in light of the District Court decisions, are likely to side with the providers’ view of the law, which the providers believed would result in higher rates of reimbursement.

Nevertheless, following the District Court’s decision, the Departments through the U.S. Centers for Medicare & Medicaid Services (“CMS”) halted the Federal IDR Process by instructing Independent Dispute Resolution (“IDR”) entities to hold all payment determinations in out-of-network disputes until CMS issues further guidance.  IDR entities were further instructed to recall any payment determinations issued after February 6, 2023.  This surprise instruction likely means the Departments will quickly determine whether to appeal the District Court decision or seek to further revise the regulations. In the meantime, plans/issuers and providers should be prepared for an even further backlog in the Federal IDR Process.