Federal judge rules for providers in a case about a key component of the new surprise billing regulations

• In a ruling with nationwide implications, a federal judge found in favor of the Texas Medical Association regarding the arbitration process that’s being implemented as part of the No Surprises Act.
• The judge said the U.S. Department of Health and Human Services did not correctly consider statutory intent when it issued criteria to be used in determining some out-of-network payments.
• Providers were concerned that the regulations as written would have exerted downward pressure on payment rates.

Providers this week won a legal challenge to a key aspect of the new surprise billing regulations, with a federal judge saying regulators misinterpreted legislative intent when establishing the process for settling out-of-network payments.

A judge in the U.S. District Court of Eastern Texas ruled Feb. 23 that the U.S. Department of Health and Human Services (HHS) erred in implementing criteria for arbitrators to use as part of the independent dispute resolution (IDR) process.

The IDR process is available for scenarios in which patients can no longer be balance-billed and the provider and health plan can’t agree on payment for the outstanding amount. HHS established regulations instructing arbitrators to focus primarily on the median contracted rate for a given service in a given market — i.e., the qualifying payment amount (QPA) — in deciding the payment.

The Texas Medical Association (TMA) asserted in court that Congress had intended for other criteria to be given equal weight in the IDR process. Judge Jeremy D. Kernodle agreed in a ruling that applies nationally.

All other regulations stemming from the No Surprises Act remain in place. But barring an appeal that results in a reversal or stay, arbitrators must disregard HHS’s instructions when considering disputes over out-of-network payments. The first arbitration cases under the new law are expected to begin in March.

The disagreement at the heart of the case

In addition to the median contracted rate, other criteria that were incorporated in the legislation’s language about the IDR process include:

• The provider’s level of training and experience and its metrics on quality and outcomes
• The market share of the provider and the insurer
• The acuity of the patient
• The provider’s teaching status, case mix and scope of services
• Demonstration of any good-faith efforts by the provider to enter into network agreements with the insurer

HHS’s regulations in theory permitted arbitrators to consider factors other than the QPA, but the burden would have been on the provider (or health plan) to demonstrate why those additional factors should be taken into account. Otherwise, arbitrators would have been bound to select the offer closest to the QPA.

“Nothing in the Act … instructs arbitrators to weigh any one factor or circumstance more heavily than others,” wrote Kernodle, who was nominated by former President Donald Trump. “Nor does the Act impose a ‘rebuttable presumption’ that the offer closest to the QPA should be chosen — or suggest anywhere that the other factors or information [are] less important than the QPA.”

In November, a bipartisan group of about 150 members of the House of Representatives wrote to HHS and the Departments of Treasury and Labor to say the regulations should be amended “to align the law’s implementation with the legislation Congress passed.”

Another sticking point for providers was the absence of the requisite notice-and-comment period for the new regulations, which were issued in an interim final rule. HHS argued that the short turnaround time between the legislation’s passage and its effective date rendered a notice-and-comment period impractical. The court disagreed, saying HHS surely could have made time to accept and consider comments.

What was at stake

Providers had expressed concern that the regulations as written would negatively affect reimbursement rates. They worried that if their submitted offers reflected what they calculated as the cost of providing a given service, those offers would be farther away from the QPA than insurers’ offers would, with the arbitrator then required to select the insurer’s offer because it was closer to the QPA.  

HHS — in conjunction with the Departments of Labor and Treasury, which coauthored the regulations — argued that an emphasis on the QPA was necessary in part to support “efforts to control upward pressure on healthcare costs.”

Reactions to the ruling predictably differed among stakeholder groups.

“This decision is an important step toward restoring the fair and balanced process that Congress enacted to resolve disputes between health insurers and physicians over appropriate out-of-network payment rates,” Diana L. Fite, MD, immediate past president of the TMA, said in a news release. “The decision will promote patient access to quality care when they need it most and will guard against health insurer business practices that give patients fewer choices of affordable in-network physicians and threaten the sustainability of physician practices.”

Meanwhile, AHIP issued a statement from President and CEO Matt Eyles, who said the “wrong and misguided ruling will result in higher healthcare costs and premiums for consumers and businesses — once again threatening healthcare affordability and access for all Americans.”

The American Hospital Association and American Medical Association are among the parties to a lawsuit that’s similar to the TMA case. A decision in that case is pending in Washington, D.C., federal court. A judgment in favor of HHS wouldn’t directly affect this week’s ruling but could make an appeals court look more closely at overturning it.