The courts continue to favor providers in No Surprises Act litigation, this time at the appellate level

After a string of victories in federal district court, a medical association’s success at contesting aspects of the No Surprises Act’s arbitration process recently continued at the appellate level.

In an Aug. 2 ruling, the U.S. Court of Appeals for the Fifth Circuit upheld a lower court’s finding that regulations issued in 2022 gave too much weight to the qualifying payment amount (QPA) as a factor in deciding out-of-network payment disputes. As calculated by insurers, the QPA is a proxy for the median in-network payment rate that applies to the service in the particular market.

In an apparent effort to temper healthcare spending, the regulations unlawfully deemphasized other factors that were specified in the No Surprises Act legislation, the court said. Those factors more likely would favor providers.

Following the earlier judgment for the plaintiffs in district court, HHS and the Departments of Labor and Treasury issued new guidance to certified independent dispute resolution (IDR) entities (i.e., arbitrators). That guidance states, “The certified IDR entity must consider all information submitted to determine the appropriate OON [out-of-network] rate,” as long as the information falls under the categories referenced in the No Surprises Act.

A favorable appellate ruling would have given the departments license to reinstate the regulatory language.

Where the regulations went awry

Language in the 2022 final rule was softened compared with the original 2021 IDR rule in which the departments set “a rebuttable presumption that the QPA is the appropriate payment amount.” The Texas Medical Association (TMA), the plaintiffs in the newly adjudicated case, also challenged that first rule and prevailed in court, leading to the 2022 rule.

Providers maintained the 2022 rule still did not allow for equal consideration of statutorily defined factors such as the provider’s level of training or the acuity of the patient.

The plaintiffs specifically took issue with the instructions for arbitrators to begin the decision-making process by considering the QPA before other factors; to disregard information deemed redundant with respect to the QPA, unrelated to the case, or noncredible; and to provide a written explanation of why they included other factors in their decision.

In the district court’s decision and in this month’s ruling, judges said the regulations were overly prescriptive.

“Nothing in the [No Surprises] Act instructs arbitrators to weigh any one factor or circumstance more heavily than the others,” wrote the three-judge appeals panel (consisting of nominees by Carter, Reagan and Trump).

The appeals court’s ruling also cited the Supreme Court’s recent decision overturning the Chevron doctrine, which had guided courts to defer to agencies when statutory language is unclear. The high court’s landmark ruling did not factor into the February 2023 district-court decision.

For hospitals, a more manageable process

It’s not surprising that a physician association, rather than a hospital group, has led providers’ fight against the IDR process. That’s because hospitals have had an easier time adjusting to the No Surprises Act’s billing provisions and avoiding IDR.

In comments during an online event earlier this year, a leader with the American Hospital Association (AHA) said hospitals generally manage to avert out-of-network payment disputes ahead of arbitration.

“We said all along that the situation in which most of this out-of-network care would occur for hospitals was in emergency situations,” Molly Smith, group vice president for public policy with the AHA, said in April during the National Health Care Transparency and No Surprises Act Summit. “Hospitals, just by their nature, have a lot of experience working with payers in out-of-network situations because emergencies can happen anywhere.”

In the second half of 2023, “The majority of disputes were initiated by a small number of initiating parties or their representatives,” CMS stated in a June 2024 report. “Many of the top initiating parties are (or are represented by) large practice management companies, medical practices or revenue cycle management companies representing hundreds of individual practices, providers or facilities.”

Hospitals do use the IDR portal, and more often in certain markets as dictated by payer behavior, Smith said.

“The primary driver of high [numbers of] disputes are inadequate initial payments by payers,” she said. She cited a 2024 Brookings analysis that found QPAs, which tend to guide initial out-of-network payment amounts, are roughly 35% below established in-network payment rates.

With providers winning 82% of settled cases in Q3 and Q4 2023, according to the CMS report, the incentive to continue filing a high volume of disputes is apparent.

The state of affairs

The Fifth Circuit is also scheduled to hear the government’s appeal of a district-court decision backing the TMA’s separate grievance that the regulations unlawfully deviate from the No Surprises Act in guiding insurers on how to calculate QPAs. Per the complaint, the regulations allowed insurers to artificially suppress QPA values, leading to lower out-of-network payments.

That decision and yet another in favor of the TMA led the departments to halt some and eventually all IDR portal functions over a two-month period beginning in August 2023 (adjudication of batched disputes did not resume until mid-December). Amid the massive backlog of cases that resulted, parties brought more than 390,000 disputes to the portal during the second half of 2023, according to the CMS report.

To alleviate the persistent crush of cases, the departments have taken several steps, including issuing a proposed rule last November that would establish stricter processes for all parties leading up to the filing of disputes. The idea is to ensure fewer ineligible cases clog up the portal. Nine months later, the final rule is still pending.

In addition to the cases about the weight given to the QPA in arbitration and the QPA calculation methodology, the TMA won litigation last August about a hike in the IDR administrative fee from $50 to $350 per case for 2023.

The departments responded by reverting the 2023 fee to $50 and incorporating a notice-and-comment period for 2024. That process resulted in a current fee of $115. Restrictions on IDR case batching also were eased as part of the court decision.