Provider Groups Each Bring Third Lawsuit Challenging No Surprises Act


On November 30, 2022, the Texas Medical Association (TMA), joined by Dr. Adam Corley and the Tyler Regional Hospital, sued the Biden administration (for the third time) with respect to the implementation of the No Surprises Act (NSA). This lawsuit concerns the methodology for the qualifying payment amount (QPA), the insurer or plan’s median in-network rate. The QPA is the basis for determining individual cost sharing for items and services covered by the NSA’s balance-billing protections and also central to the independent dispute resolution (IDR) process.

In a filing with the court, TMA argued that this lawsuit is related to its past legal challenges under the NSA, and as a result the case is being assigned to Judge Jeremy D. Kernodle. Kernodle is a federal judge in the eastern district of Texas who agreed with TMA’s prior challenge to an earlier independent dispute resolution (IDR) rule and invalidated several key parts of the IDR process.

TMA’s new lawsuit again challenges portions of an interim final rule (IFR) issued in July 2021 (July 2021 IFR) outlining the QPA methodology, as well as certain language from an August 2022 frequently asked questions guidance document (August 2022 FAQs). While previous TMA lawsuits challenged guardrails that the Administration sought to create related to the IDR process, TMA now argues that even if they were to win their second lawsuit challenging the latest IDR guardrails, the Administration’s methodology for the QPA would still cause harm to providers by improperly reducing the QPA amount. It is unclear why TMA decided to file a lawsuit in late 2022 when most of the challenged provisions in question were finalized nearly a year and a half ago.

While previous NSA lawsuits challenging the QPA methodology have been brought by air ambulance providers and those QPA lawsuits concerned regulatory provisions affecting patients receiving air ambulance services, this new TMA lawsuit represents a broader challenge that would have more far-reaching consequences for patients in a range of different health care settings. As discussed in prior articles here, the design of the QPA consistent with the statutory text is critical to the NSA’s mission to promote lower health care premiums and costs. Federal officials noted the Congressional Budget Office’s estimate that the NSA would reduce premiums between by 0.5 percent and 1 percent in most years based on the assumption that out-of-network rates would generally be consistent with the QPA. If efforts to set aside the QPA methodology are successful, patients would likely face higher cost-sharing.

On December 1, 2022, air ambulance companies, led by LifeNet, also sued the Biden Administration for the third time. LifeNet’s new lawsuit, as discussed further below, includes many of the same new claims brought by TMA. Following a request by LifeNet, the case has also been assigned to Judge Kernodle. This past July, Kernodle ruled for LifeNet in a prior case and vacated the same IDR provisions as he did in TMA’s earlier case, tracking the same rationale, this time as applied to air ambulance companies. LifeNet’s second lawsuit challenging the Administration’s subsequent attempt to implement guardrails related to the IDR process was consolidated with TMA’s second case.

The Status Of Other Lawsuits

Several cases bringing various statutory and constitutional challenges with respect to the NSA’s provisions remain ongoing.

Returning to TMA, after successfully winning its legal effort to set aside certain July 2021 IFR provisions related to the IDR process, they brought another case after the Administration tried to establish new IDR guardrails in an August 2022 final rule. After briefing from both sides, a hearing concerning the summary judgment motions is slated to be held on December 20. In that case, various amicus briefs were filed in support of the government in November 2022, including by patient groups, health insurers (AHIP), and employer groups.

The patients’ amicus brief rejected the arguments by TMA and stated that the final IDR regulations would “encourage more in-network participation by providers, leading to even more comprehensive coverage and reducing health care costs for patients and consumers.” The employer groups’ amicus brief stated that the final IDR regulation “fits squarely within the statutory text and structure adopted by Congress and that the Final Rule establishes common sense, minimum, but essential, procedural guardrails around how IDR entities should evaluate the various factors that it must consider…” And AHIP explained that “baseline rules cabining weighted factors to credible, relevant, and non-cumulative information also help foster accuracy and consistency in IDR decision-making,” warning that the desired outcome by TMA “would yield an IDR process that is wildly inconsistent from entity to entity and likely to produce inaccurate results.”

The challenge by the Association of Air Medical Services (AAMS) to the government’s QPA methodology for air ambulances also remains pending in federal district court in Washington, D.C. A ruling may be coming in the near future; the presiding judge (Judge Leon) had previously suggested a ruling would be released in October 2022.

And a broader challenge to the NSA by PHI Health, an air ambulance company, remains pending in a district court in Kentucky. There, PHI Health argues that certain NSA rules violate the Takings Clause of the Fifth Amendment and asks that additional parts of both the first and second interim final rules related to cost-sharing protections for consumers, the IDR process, and QPA methodology be set aside. While the government requested that the case be transferred to Judge Leon’s courtroom, PHI suggested it could amend its complaint. No ruling has been made with respect to the transfer request.

In August 2022, a federal district court in New York rejected the claims brought by a New York surgeon, Dr. Daniel Haller, who argued that major parts of the NSA were unconstitutional. After some drama related to changing counsel and meeting filing deadlines, Haller did in fact manage to appeal the decision to the 2nd Circuit Court of Appeals.

Various other parties moved to dismiss their legal challenges to the initial IDR regulations after Judge Kernodle’s decision in favor of TMA and the Administration’s subsequent response, including the Georgia College of Emergency Physicians, the American Medical Association and American Hospital Association, and the American Society of Anesthesiologists.

On December 7, 2022, the Chairs of the House Energy and Commerce Committee and Senate Health, Education, Labor, and Pensions Committee sent a letter to the Administration criticizing the “seemingly endless legal challenges seeking to assign new meaning to the [NSA]…” The Chairs also expressed their disappointment regarding provider lawsuits brought directly against certified IDR entities—pointing to statutory limitations against such lawsuits, and warning that the lawsuits could “stymie the entire IDR process.”

TMA’s Latest Lawsuit Over The NSA

In its latest federal lawsuit, TMA argues that the provisions contained in the July 2021 IFR and August 2022 FAQs are inconsistent with the statutory text of the NSA and deflate the QPA in four ways. TMA maintains in its lawsuit that deflating the QPA puts providers at a disadvantage in disputes with health insurers and would lead to insurers driving providers out of insurance networks, ultimately reducing patients’ access to care.

First, TMA alleges that the July 2021 IFR and August 2022 FAQs permit insurers to include what TMA terms “ghost rates” in QPA calculations—rates included in contracts with providers who do not actually provide the specified item or service. TMA maintains that the use of these rates violates the plain text of the NSA, which requires that each QPA be calculated from “contracted rates” for services “provided by a provider.” Plaintiffs argue that providers who do not actually provide specific services have no incentive to meaningfully negotiate reimbursement rates, resulting in generally lower rates. 

Second, TMA contends that the July 2021 IFR and August 2022 FAQs incorrectly instruct insurers to, in some circumstances, calculate the QPA using rates of providers who are not in the same or similar specialty. TMA argues that this violates the NSA’s language that insurers use rates or providers in the same or similar specialty—ignoring congressional intent and resulting in artificially deflating the QPA.

Third, TMA contends that the July 2021 IFR improperly instructs insurers to use in their QPA calculations an amount lower than the total maximum payment when a contracted rate includes incentive-based and retrospective payments. TMA contends that this violates the NSA’s instruction that each contracted rate is the total maximum payment under such plans or coverage. In the July 2021 IFR, the Administration maintained that excluding incentive-based and retrospective payments is consistent with how cost sharing is typically calculated for in-network items and services.

Finally, TMA contests the July 2021 IFR provision permitting self-insured group health plans to determine QPAs using contracted rates for all group health plans administered by the same entity, including third-party administrators contracted by the plan. TMA argues that this violates the NSA’s instruction to determine the QPA based on each plan sponsor and that the Administration failed to offer sufficient justification for its methodology in the statutory text.

TMA also contends that the Administration’s approach restricting the disclosure of relevant information from insurers related to QPA calculations compounds the above issues. TMA claims that this lack of transparency prevents providers from having the insight into the QPA needed to conduct an effective review and submit complaints as required by the NSA.

To justify its standing to challenge the July 2021 IFR and August 2022 FAQs, plaintiffs assert that they have participated or expect to participate in the IDR process. Plaintiffs suggest that when arbitrators consider the improperly calculated QPA during the IDR process, the methodology outlined by the Administration will artificially depress the QPA. As a result, plaintiffs allege they will receive lower reimbursement amounts for their out-of-network services and diminished income.

LifeNet’s Latest Lawsuit Over The NSA

There is substantial overlap between LifeNet’s latest lawsuit and TMA’s new lawsuit described above. Analogous to the TMA suit, LifeNet alleges that regulatory provisions related to the QPA methodology for air ambulance services unlawfully deflate the QPA. LifeNet makes largely identical arguments to TMA concerning “ghost rates,” incentive-based and retrospective payments, and allowing group health plans to incorporate rates from third-party administrators contracted by the plan. LifeNet also raises legal concerns similar to TMA’s with respect to disclosure of certain information related to the QPA calculation.

LifeNet brings four different claims that TMA did not include in their lawsuit, generally related to issues specific to air ambulances. First, LifeNet argues that the July 2021 IFR arbitrarily replaces the statute’s 30-calendar-day deadline by which an insurer must provide an “initial payment” or “notice of denial of payment” after the provider “submits its ‘bill’ to the insurer”—and which triggers other potential IDR deadlines.  The July 2021 IFR specifies that the 30-day clock begins when the insurer “receives the information necessary to decide a claim for payment for the services.” LifeNet alleges that this allows improper “gaming” by insurers to delay an initial payment and the start of the IDR process.

Second, LifeNet argues that the July 2021 IFR arbitrarily ignored the NSA’s statutory text providing that the QPA determination should only include those “contracted rates” that are “provided in the geographic region.” LifeNet contends that the Administration improperly defined “geographic region” in an expansive manner whenever a plan lacks a sufficient number of contracted rates—the regulation requires that insurers include in the QPA all metropolitan statistical areas (MSAs) in the Census Division or all other areas in that Census Division.

Third, LifeNet contends that the July 2021 IFR unlawfully excluded case-specific contract agreements that out-of-network providers have negotiated with insurers from the QPA determinations. LifeNet argues that such agreements are “extremely common” in the air ambulance industry.

Fourth, separate from the QPA methodology, LifeNet claims that the Administration recently changed its position and unlawfully imposed a new requirement that air ambulance providers undergo two separate IDR processes for a single air transport that involves multiple billing codes (a base/“lift” rate and a per-mile rate). LifeNet argues that this has “significantly increased the burden of participating in the IDR process” and imposes higher costs.

What The Plaintiffs Want

TMA contends that the challenged provisions violate the Administrative Procedure Act (APA) because they violate the text of the NSA and because they are arbitrary and capricious. As such, plaintiffs request a declaratory judgment that the Administration acted unlawfully by issuing the July 2021 IFR that instructs insurers to calculate the QPA “in ways inconsistent with Congress’s commands,” and that impedes needed transparency. In addition, TMA requests that the court order the Administration to vacate the relevant provisions from the July 2021 IFR and August 2021 FAQs that plaintiffs contend deflate the QPA calculation. Finally, TMA seeks an injunction prohibiting the Administration from enforcing the contested provisions.

As with TMA, LifeNet seeks a declaratory judgment that the challenged provisions are arbitrary and capricious and in excess of statutory authority, requests the challenged regulations be vacated, and seeks an injunction prohibiting the Administration from enforcing the contested provisions.

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