(Updated 2) Texas court again backs providers in No Surprises Act independent dispute resolution litigation

A physician association continues to roil the No Surprises Act’s arbitration process through successful litigation.

For the second time in a year, the Texas Medical Association (TMA) prevailed in court after arguing that regulations governing the independent dispute resolution (IDR) process do not comply with legislative intent. Barring a successful appeal, the Feb. 6 ruling means the U.S. Department of Health and Human Services (HHS) will need to issue its second rewrite of the regulations.

The IDR portal has been hampered by backlogs stemming from a volume of cases that vastly exceeds HHS’s preliminary projections. With the decision-making criteria in limbo until HHS announces how it will proceed, the ruling injects more uncertainty. For now, the portal remains open for business as usual (note: see an update below).

With two additional cases pending, the TMA hopes to trigger further changes that would be favorable to providers while running counter to HHS’s envisioned use of IDR regulations as a means to exert downward pressure on healthcare spending.

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Feb. 10 update: CMS’s Center for Consumer Information and Insurance Oversight has posted a statement that arbitrators should cease issuing payment determinations until receiving further guidance from HHS. They also should recall any payment determinations issued after the court ruling was released Feb. 6. They can continue working on other aspects of the IDR process, such as eligibility determinations.

HHS is “in the process of evaluating and updating federal IDR process guidance, systems and related documents to make them consistent with the [court] decision,” according to the notice.

Feb. 27 update: HHS says arbitrators may resume issuing payment determinations for all cases that involve items and services provided before Oct. 25, 2022. That’s the effective date for the final rule that was the subject of the recently decided litigation in Texas.

Before the rule took effect, arbitrators were using guidance that more closely echoed the criteria described in the No Surprises Act legislative text. Still, that guidance instructed arbitrators to consider information aside from the QPA only if such information is believed to be credible and pertinent to either party’s offer. Meanwhile, consideration of the QPA was not held to any such standard.

“Certified IDR entities will continue to hold issuance of payment determinations for disputes involving items or services furnished on or after Oct. 25, 2022, until the Departments [HHS, Labor and Treasury] issue further guidance,” according to a Feb. 24 notice. “All other Federal IDR process timelines continue to apply. Therefore, disputing parties should continue to engage in open negotiations and all other aspects of the Federal IDR process, including submitting fees and offers.”

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Leading up to the latest ruling

In February 2022, the U.S. District Court for the Eastern District of Texas issued a ruling backing the TMA’s claim that the IDR regulations, as described in an October 2021 interim final rule, contradicted language in the No Surprises Act.

The TMA had argued that the regulations put too much emphasis on the qualifying payment amount (QPA, i.e., the median in-network rate for a given service in a given market) as the deciding factor in arbitration cases. Those regulations essentially established the QPA as a rebuttable presumption, meaning arbitrators would choose the submitted offer that was closest to the QPA unless presented with a compelling reason to go in a different direction.

After last year’s court ruling, HHS, along with the Departments of Labor and Treasury, released new regulations in an August 2022 final rule. Although the language about the QPA was softened relative to the interim final rule, arbitrators were instructed to first consider the QPA and to evaluate other factors only if certain conditions were met.

Saying the new regulations were likely to harm providers by putting them at a disadvantage in payment decisions, the TMA returned to the same court — and the same judge, Jeremy D. Kernodle.

In the new ruling, the court granted the TMA’s motion for a summary judgment, vacating the contested portions of the regulations. Until updated regulations are issued, arbitrators likely will have to rely on the No Surprises Act legislative text in rendering decisions. That text highlights additional factors, among them a provider’s level of training and experience and the patient’s acuity level, that should be given equal weight to the QPA in IDR decision making.

The rationale for the latest ruling

The departments “impermissibly altered the Act’s requirements,” Kernodle wrote, by allowing consideration of additional factors only if the information first is deemed to be credible and to relate directly to either party’s offer. Such standards are not applied to the QPA, he noted, and the additional criteria also can be excluded if an arbitrator interprets them as already factoring into the QPA. If any such criteria are incorporated in the decision, the arbitrator must explain why in writing.

“While avoiding an explicit presumption in favor of the QPA, the final rule nevertheless continues to place a thumb on the scale 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,” Kernodle wrote.

Nothing in the No Surprises Act “instructs arbitrators to weigh any one factor or circumstance more heavily than the others,” he said.

The pertinent language in the final rule must be vacated — as opposed to a scenario in which relief is applied only to the plaintiffs — because the rule is in direct conflict with the legislation and because payment disputes can continue to be resolved after vacatur, the judge wrote. Arbitrators simply would have to use the criteria as delineated in the No Surprises Act.

However, in remanding the final rule for HHS to rewrite, Kernodle denied the plaintiffs’ request that he issue explicit instructions on modifications to the rule.

A third lawsuit on the docket

In November, the TMA filed a third case, arguing before the same court that regulatory language establishing the process for determining the QPA does not comply with the No Surprises Act. Similar cases are pending in at least two other district courts.

The methodology “artificially deflates these insurer-calculated metrics,” the TMA argued. Even assuming the association would prevail — as it did — in the second of three QPA-related cases, the “flawed methodology that deflates QPAs will continue to harm physicians” because the QPA still would be a factor in arbitration outcomes.

“Beyond that, the QPA colors the entire negotiation and IDR process established by the NSA,” the TMA argued. “Insurers often make initial payments that are equal to the applicable QPA. And if providers do not agree to that amount, insurers frequently refuse to negotiate during the open negotiation period and offer the QPA as their bid during the IDR process.”

Among the plaintiffs’ several concerns with the calculation protocol: The regulations deviate from the No Surprises Act text by indicating that health plans can incorporate ghost rates — or reimbursement rates covering providers that never furnish the service in question — as long as any such rates are above $0.

“Unsurprisingly, these ghost rates are generally lower than they would be if providers had an incentive to meaningfully negotiate them, and therefore their inclusion artificially drives down QPAs,” the TMA wrote in its court filing.

In addition, the association argues the regulations don’t grant providers the level of transparency called for in the No Surprises Act regarding the QPA. Instead, insurers merely have to certify that they have complied with the methodology described in the regulations.

A fourth lawsuit on the docket

The TMA late last month also challenged a 600% increase in the administrative fee for filing IDR cases. The fee hike took effect Jan. 1.

The increase from $50 to $350 per case “effectively closes the door to IDR for many out-of-network physicians with small-value claims, threatening the viability of their practices and ultimately placing patient health at risk,” the TMA wrote in a Jan. 30 filing.

“If providers are forced to pay a nonrefundable $350 administrative fee just to have their claims heard, insurers — who are permitted under the statute to unilaterally decide how much they pay providers in the first instance — will be able to underpay providers with impunity,” the filing states. “Whenever the amount in controversy is $350 or less, it will be economically infeasible for the provider to initiate IDR.”

The lawsuit also argues that the timing of the increase, which was announced Dec. 23, left affected parties with no recourse for commenting or explaining why the increase would be harmful.

Whereas HHS may point to the ability to batch IDR cases as a way for stakeholders to hold down costs, the lawsuit argues that’s not a viable solution. One problem is that claims can be batched only if they’re all billed under the same service code. That’s contrary to the intent of the No Surprises Act, according to the court filing.

The provision “leads to absurd results,” the TMA wrote. “Under the same-service-code rule, a single radiology encounter between one radiologist and one patient can lead to a half-dozen or more different claims, all of which must be submitted and reviewed separately in IDR, likely by different arbitrators.”