No Surprises Act litigation update: QPA methodology deemed illegal as Texas Medical Association wins in court again (updated)

Note: The first section of this article has been updated with the latest news on the status of the arbitration portal.

The fourth victory in four cases brought by the Texas Medical Association (TMA) has implications for how insurers calculate the qualifying payment amount (QPA) used to arbitrate out-of-network payment sums under the No Surprises Act.

On Thursday, Judge Jeremy D. Kernodle of the Eastern District of Texas federal court issued his fourth ruling in favor of the TMA dating back to early 2022. The latest case was about the methodology used to determine the QPA, which is defined as the insurer’s median in-network rate for an item or service.

The TMA and co-plaintiffs argued that the methodology contradicted the No Surprises Act and resulted in artificially low QPAs, which then skewed arbitration decisions in favor of insurers. After Thursday’s ruling vacated the provisions at issue, the U.S. Departments of Health and Human Services (HHS), Labor and Treasury will have to publish new guidance.

While that happens, the departments have frozen all activity in the arbitration portal for the second time this month. The departments say providers and insurers should continue using negotiations to try to reach agreement on out-of-network payments.

Update: On Sept. 5, CMS issued a notice that arbitrators can resume making decisions on cases submitted to the portal before Aug. 3. The portal remains closed to new cases for now.

Because the QPA also was established as the benchmark for determining consumers’ payment obligation in scenarios when they cannot be balance-billed for out-of-network care, the ruling stands to affect out-of-pocket costs.

Departments say chaos will ensue

In a filing, the departments argued that should Kernodle rule against them, he should not vacate the relevant regulatory language but rather should allow the departments to set their own course for rectifying the situation (as was the case with the recently announced $9 billion in remedies to hospitals for 340B-acquired drug underpayments).

Vacatur would require “an immediate pause of patient cost-sharing, offers of payment and [independent dispute resolution] proceedings under the [No Surprises] Act while payers are forced to somehow recalculate the QPA without adequate guidance from the departments,” the defendants argued.

In his ruling, Kernodle agreed with the plaintiffs that existing QPAs could continue to determine patient cost-sharing until a new methodology is deployed. He also indicated that out-of-network payment negotiations and arbitration proceedings should be able to continue while the methodology is modified. And even if that’s not the case, any interruption would be less disruptive than continuing with unlawfully calculated QPAs.  

Changes coming to QPAs

Kernodle agreed that July 2021 regulations defining the QPA veered away from legislative intent by allowing insurers to incorporate “ghost rates” in the methodology, meaning payment rates of in-market providers that have no intention to offer the service. Such rates tend to be below fair-market value — since those providers lack incentive when negotiating them — and consequently they depress the final QPA calculation.

The judge also agreed with providers that other aspects of the regulatory language and subsequent guidance are unlawful by:

• Allowing insurers to include rates for providers of different specialties when determining the QPA, even though the departments argued that their guidance permits incorporating other specialty rates only when there is no material difference in the contracted rates
• Allowing insurers to exclude risk-sharing, bonus and other incentive amounts when determining the QPA
• Giving self-insured group plans the option to consider rates of all plans serviced by the same third-party administrator
• Hedging on the 30-day deadline set by the legislation for insurers to give an initial payment decision to providers

QPA disclosure policies are upheld

Kernodle ruled against the plaintiffs on the question of QPA-related disclosure requirements for insurers, saying the departments have “wide latitude in issuing a disclosure rule” because the No Surprises Act lacks a specific directive on the matter.

Current disclosure-related provisions — such as requiring insurers to certify that the QPA calculation complies with regulations, provide notification when the QPA is not based on fee-for-service rates, and furnish information about the QPA to providers on request — thus are adequate, he said.

The plaintiffs protested that vital information can be withheld from providers under the regulations, including the rates that were factored in, the specialties of the providers that agreed to the rates, the number of times the rates actually were paid and the amount of any excluded incentive payments. Lacking such information, providers have little recourse under the formal complaint process.

“But it is the [No Surprises] Act itself that deprives plaintiffs of their preferred complaint process,” Kernodle wrote. “Under the Act, the departments are not required even to entertain a complaint,” although HHS can audit an insurer that is the subject of any such complaint.

A notable winning streak

In prior litigation before Kernodle, the TMA succeeded in overturning:

• Provisions in a September 2021 interim final rule in which the QPA was deemed to be essentially the deciding factor in settling arbitration cases, meaning whichever side’s offer was closest to the QPA typically would be accepted
• Provisions in an August 2022 final rule in which the arbitration criteria were modified but the QPA still was given more weight, relative to other factors, than Congress intended in drafting the No Surprises Act, according to the plaintiffs
• A 600% increase, from $50 to $350, in the administrative fee for arbitration cases heading into 2023, along with restrictions on batching cases

After the second case, the departments had to issue new guidance to arbitrators in which other factors (e.g., acuity of the patient, market share of the provider) were given roughly equal weight to the QPA. However, the departments have appealed the decision.

The last of those rulings led HHS to close the arbitration portal to all new cases starting Aug. 4, the day after the ruling was issued. Three weeks later, new cases still were not being accepted.

After a several-day complete shutdown, arbitrators on Aug. 8 were permitted to resume adjudicating any 2022 case and any 2023 case for which the fee was paid before Aug. 3 (the court declined to grant refunds for higher fees that providers already had paid this year). But with the latest ruling, the pause on all portal activity has been reinstated.