Providers Sue (Again) Over No Surprises Act
On September 22, 2022, the Texas Medical Association (TMA) and Dr. Adam Corley—newly joined by the Tyler Regional Hospital—sued the Biden administration (again) over implementation of the independent dispute resolution (IDR) process under the No Surprises Act (NSA). The IDR process is designed to determine the amount payers pay providers for out-of-network claims. The lawsuit was assigned to Judge Jeremy D. Kernodle, a federal judge in the eastern district of Texas, who agreed with TMA’s prior challenge to an earlier IDR rule and invalidated several key parts of the IDR process.
TMA’s new lawsuit challenges a final rule on the IDR process that was issued in August 2022. In response to Judge Kernodle’s decisions, federal officials moved away from the “rebuttable presumption” in favor of the qualifying payment amount (QPA)—i.e., the insurer or plan’s median in-network rate—included in an earlier interim final rule. Even so, providers remain dissatisfied and claim the new final rule still illegally gives the QPA a privileged position in the IDR entity’s calculation.
TMA’s latest challenge comes after several other plaintiffs—including the Georgia College of Emergency Physicians (GACEP), the American Medical Association (AMA), and the Association of Air Medical Services (AAMS)—each dismissed lawsuits over the IDR process. In what appears to be a coordinated strategy among the various provider groups, the AMA and the American Hospital Association immediately committed to filing an amicus brief in support of TMA’s challenge.
The new lawsuit should not affect the NSA’s underlying ban on surprise medical bills for patients. But, if the litigation is successful, it could result in a more costly federal IDR system and undermine the savings that Congress expected when the law was enacted. The guardrails on the federal IDR process are designed to ensure a fair, predictable, cost-effective, and reasonable IDR payment determination process that is not inflationary. Without those guardrails, providers could be more likely to use the federal IDR process to obtain higher out-of-network payments when doing so is not warranted based on the circumstances. Patients would still be protected from surprise medical bills—but consumers, employers, and the government could face higher premiums.
Eight Lawsuits By Providers
The NSA uses “baseball-style” arbitration to resolve payment disputes between payers and out-of-network providers. Under this approach, each party offers a payment amount and the IDR entity selects one amount or the other. In choosing between competing offers, IDR entities must consider certain factors: 1) the QPA; 2) information on certain “additional circumstances”; and 3) any additional information that the parties provide or that the IDR entity requests. The “additional circumstances” (e.g., a provider or facility’s level of training or experience) are listed in the statute. Congress also barred IDR entities from considering a provider or facility’s usual and customary charge (i.e., the billed charge) or reimbursement rates paid by public payers (e.g., Medicare or Medicaid).
Doctors, hospitals, and air ambulance companies have sued over implementation of the IDR process, taking issue with federal guidance on how IDR entities should balance the factors laid out by Congress in the NSA. All eight lawsuits challenged the “rebuttable presumption” included in an interim final rule issued in September 2021. Under this “rebuttable presumption,” federal officials directed IDR entities to select the offer closest to the QPA unless the parties submit credible information about additional circumstances that clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate. The interim final rule also defined “material difference,” explained how IDR entities should consider the “additional circumstances” under the statute, and provided more clarity on how to address the statutorily prohibited factors.
Providers argued that the “rebuttable presumption” violates the Administrative Procedure Act and even the Fifth Amendment. Plaintiffs in six of the lawsuits additionally argued that the interim final rule was improper because there was no opportunity for advance public notice and comment. Two of the air ambulance lawsuits additionally challenged an earlier interim final rule on the methodology to calculate the QPA for air ambulances specifically. And one lawsuit argued that major provisions of the NSA, including the law’s core consumer protections, are unconstitutional.
Three Court Decisions Thus Far
In February 2022, Judge Kernodle invalidated the rebuttable presumption after holding that these provisions were inconsistent with the NSA and that the federal agencies should not have bypassed notice and comment procedures. In a surgical approach, he vacated the rebuttable presumption; the definition of “material difference”; the requirement that IDR entities only consider additional information when it is credible and demonstrates that the QPA is not the appropriate rate; examples of dispute resolution; and the requirement that IDR entities explain their decisions when they select an offer that is higher than the QPA. The government appealed Judge Kernodle’s decision to the Fifth Circuit Court of Appeals, which agreed to hold the appeal in abeyance; a status report is due in late October. In July, Judge Kernodle additionally vacated the rebuttable presumption for air ambulance companies in a challenge brought by air ambulance company, LifeNet. As of this writing, the decision has not been appealed by the government.
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. If the court had agreed with his arguments, millions of patients would once again have seen surprise out-of-network bills. Dr. Haller has until mid-October to appeal the decision to the Second Circuit Court of Appeals—but it is not clear if he will do so, especially after firing his attorneys in mid-September.
The Status Of The Other Lawsuits
Two of the other lawsuits (discussed in more detail here) were paused after Judge Kernodle’s decision in TMA and after the Biden administration indicated it would move forward with a final rule that would supersede the provisions in the challenged IDR rule. This included challenges led by GACEP in Georgia and the American Society of Anesthesiologists (joined by the American College of Emergency Physicians and the American College of Radiology) in Illinois. GACEP asked to voluntarily dismiss its lawsuit on September 13; this request was granted on September 14. The lawsuit filed by the American Society of Anesthesiologists remains on hold with a joint status report due on October 20; in the most recent report from early September, the providers supported a continued stay to give them time to consider next steps in light of the final rule.
Other lawsuits proceeded, including those where decisions were issued in Haller and LifeNet (as discussed above). There has also been continued activity in lawsuits led by AAMS in DC, the AMA in DC, and PHI Health in Kentucky. We are currently awaiting decisions over parts of the lawsuits filed by AAMS and PHI Health.
The AAMS and AMA cases were consolidated before Judge Richard J. Leon. On September 20, the AMA, the other plaintiffs, and the federal government agreed to dismiss the plaintiffs’ claims, meaning that lawsuit is now over. At a hearing before Judge Leon on September 21, the AMA further stated that it would not challenge the new final rule; a subsequent statement confirmed that it would support other litigants who did so. AAMS made no such assurances that it would not challenge the final rule. AAMS stated that it would not file a new lawsuit against the final rule in DC, but it might challenge the rule in a different court. AAMS had also challenged the government’s QPA methodology for air ambulances; Judge Leon suggested he would issue a decision on the QPA-related claims in October 2022.
Finally, we are waiting to see how a district court in Kentucky will rule in a broader lawsuit brought by PHI Health, an air ambulance company, whose attorneys are the same as those in the lawsuit filed by LifeNet. PHI Health’s case is worth watching because the plaintiffs make several broader arguments not seen in the other lawsuits. For instance, PHI Health argues that NSA rules violate the Takings Clause of the Fifth Amendment, asks that additional parts of both the first and second interim final rules (including cost-sharing protections for consumers and the full IDR process for air ambulance services) be set aside for procedural issues, argues that group health plan sponsors should not be able to rely on the rates of their plan administrator (such as a third-party administrator), and wants patients to pay higher cost sharing (arguing that federal rules should not have limited patient out-of-pocket costs for air ambulances to the lesser of the QPA or billed charges).
In early July, the government asked that the case be transferred to Judge Leon’s courtroom so that the challenges brought by PHI Health could be consolidated with the challenge brought by AAMS and considered together. The court has not yet ruled on this request for a transfer, and PHI Health suggested it would amend its complaint to challenge the final rule.
TMA’s Latest Lawsuit Over The NSA
All that activity brings us to the new complaint filed by TMA, Dr. Adam Corley, and Tyler Regional Hospital on September 22 against the August 2022 final rule. In contrast to the interim final rule’s rebuttable presumption, the final rule did not dictate which offer the IDR entity should select. It instead outlined the process that IDR entities should use when choosing between two competing offers. IDR entities were directed to select the offer that best represents the value of the item or service under dispute. In determining which offer best represents this value, IDR entities must consider the QPA and then consider all additional information submitted by a party (or requested by the IDR entity), subject to certain limitations. The additional information must be related to a party’s offer, deemed credible by the IDR entity, and not already accounted for in other information that is already before the IDR entity. The final rule goes into effect on October 25, 2022.
TMA and the other plaintiffs argue that the final rule, like the interim final rule before it, unlawfully elevates the QPA above the other factors. In their view, the statute dictates the factors that IDR entities “shall” and “shall not” consider, so IDR entities must consider all the enumerated factors under the NSA, without giving priority to or otherwise elevating the QPA. By elevating the QPA, the final rule prevents IDR entities from exercising their discretion when weighing the statutory factors in a way that is inconsistent with the NSA and violates the Administrative Procedure Act. The final rule, in TMA’s view, improperly makes the QPA “the lens through which all other information must be viewed.”
The plaintiffs further argue that any extra-statutory criteria imposed by federal officials—such as directing IDR entities to ensure that information is credible and not counted twice—are impermissible. This includes the requirement that IDR entities must explain why additional information they relied on was warranted and not already reflected in the QPA. These standards, the plaintiffs argue, impose a heightened standard of proof on additional information relative to the QPA.
The plaintiffs also take issue with the fact that extra-statutory criteria do not apply to the QPA, which they characterize as “an unaudited number calculated by the insurers” secretly and without transparency or any way to assess whether the amount was calculated correctly. For instance, IDR entities are not supposed to evaluate the credibility of the QPA (the accuracy of which will be assessed under a separate auditing process) or ensure that the QPA relates to the offer being submitted.
While Congress gave the agencies a role in establishing the process that IDR entities should use to determine an appropriate payment amount, the plaintiffs do not believe this authority extends to advising IDR entities on how to weigh the statutory factors when doing so. Per TMA’s position, federal officials thus cannot direct IDR entities to consider the QPA first or otherwise require them to make the QPA the starting point. Even if federal officials have this authority, TMA argues that the IDR provisions are arbitrary and capricious because it would be unreasonable, in their view, to elevate the QPA above the other statutory factors. They disagree with the agencies’ legal justification and assert that the agencies failed to explain their reasoning on certain points.
To justify its standing to challenge the final rule, TMA asserts that the final rule will disadvantage its members in negotiations and the IDR process—leading to lower out-of-network payments than they would like. TMA members have submitted offers, or expect to do so in the future, that will be higher than the QPA, making it more challenging for their offer to be chosen in the IDR process. Many of these arguments echo those made in TMA’s initial challenge, and the plaintiffs characterize the final rule’s changes as a “presumption” for the QPA even if the agencies do not call it that.
(As discussed in prior posts, federal officials explained the legal basis for their approach in both the interim final rule and final rule. They pointed to the text and structure of the NSA, emphasizing that the law lists the QPA as the first factor that an IDR entity must consider while the consideration of “additional circumstances” is listed in a separate paragraph and, unlike the QPA, is limited by the ban on considering billed charges or public rates. The QPA is also central to the rest of the NSA, and 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.)
What The Plaintiffs Want
TMA asks the court to strike the parts of the final rule that elevate the QPA. This includes the word “then” (in a provision where IDR entities are directed to consider the QPA and “then” additional information); a requirement that IDR entities evaluate whether additional information submitted by the parties is credible, related to the offer, and already reflected in the QPA; the examples on how IDR entities might balance these factors; and the requirement to explain why an IDR entity concluded that the additional information was not already reflected in the QPA.
The plaintiffs also want federal officials to be enjoined from enforcing these parts of the final rule—and they want to prevent the agencies from issuing any new rules or guidance on how IDR entities should weigh the statutory factors in a way that privileges the QPA. The plaintiffs here do not address the separate requirements for air ambulance providers, suggesting that we may see another lawsuit by LifeNet or another company to invalidate the same provisions for air ambulance companies.
The Latest On The IDR Process
In the absence of data on IDR outcomes, it is difficult to say how much this litigation will influence IDR decisions or negotiations between insurers and out-of-network providers. But, as noted above, the loss of what seem to be common-sense guardrails (i.e., ensuring that information submitted by the parties is credible, related to the dispute at hand, and not duplicative of other information) runs the risk of an inflationary federal IDR process with higher premiums and health care costs.
This is not an insignificant concern given the high volume of IDR disputes that we have seen already. In a status update on the federal IDR process, federal officials noted that more than 46,000 disputes were initiated through the federal IDR portal from April 15 to August 11 alone. Of these, only about 1,200 disputes have been resolved, meaning an IDR entity issued a payment determination. The data from only four months is already far more than the 22,000 claims that federal agencies expected to see annually.
Of the more than 46,000 disputes, nearly half—more than 21,000 disputes—have been challenged as ineligible. About a third of those 21,000 disputes were actually deemed ineligible for the process while eligibility is still being confirmed for the others. A claim might be ineligible because it falls under state (not federal) law, does not fall under the NSA at all, the claims were not batched or bundled correctly, or the parties failed to comply with required IDR timelines. In response, federal officials recently added three “eligibility screeners” to the IDR initiation form. Parties will thus have to indicate 1) the start date of their open negotiation period; 2) whether the dispute was initiated within the four-business-day time frame after open negotiation ended; and 3) if the care was provided in a state that has its own process for IDR.