On February 6, the U.S. District Court for the Eastern District of Texas vacated key provisions in the regulations implementing a federal arbitration process to settle out-of-network (OON) payment disputes between payers and providers. The decision is the third time a federal court has ruled in favor of providers challenging the implementation of the arbitration process created under the No Surprises Act (NSA), referred to as the independent dispute resolution (IDR) process.

Although the Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the Departments) previously updated the IDR regulations in an attempt to address a February 2022 decision from the same court vacating parts of the regulations, the court found the updated regulations continued to be inconsistent with the NSA by favoring payers over providers in payment disputes. As a result, the court remanded the invalidated provisions to the Departments for further consideration. The Departments could appeal the decision or revise the IDR regulations to conform to the court’s decision. Revisions to the IDR process could allow providers to share information more easily in support of their arbitration offer and address provider concerns regarding declining in-network rates.

Background on IDR Process and First Legal Challenge (TMA I)

Congress called for the creation of the IDR process as part of the NSA, enacted in December 2020, to protect commercially insured patients from receiving surprise medical bills in certain situations. The NSA also created the IDR process as a mechanism for payers and providers to resolve disputes over OON payment rates. Under the NSA, parties may each submit an offer for what they believe the appropriate payment amount should be, and the arbitrators considering the disputes, referred to as IDR entities (IDREs), must select one of the offers.

In October 2021, the Departments issued interim final rules with instructions for how IDR entities should consider disputes. The interim final rules directed IDREs to presume the Qualifying Payment Amount (QPA) (i.e., typically the median in-network rate) was the appropriate payment amount and to generally choose the offer closest to the QPA. Providers challenged these provisions, arguing the presumption in favor of the QPA effectively set the QPA as the benchmark for OON payment rates and prevented IDREs from selecting offers submitted by providers for a higher payment amount.

In February 2022, the court issued a decision in Texas Medical Association, et. al. v. U.S. Department of Health and Human Services (TMA I) in favor of providers, holding the interim final rule improperly “place[d] its thumb on the scale for the QPA” and vacating the provisions presuming the QPA to be the appropriate payment amount. The court found that the NSA directed IDREs to consider both the QPA and additional information submitted by providers that may warrant a higher payment amount.

The same court issued a similar decision in July 2022 addressing concerns with the IDR process raised by air ambulance providers.

Second Legal Challenge (TMA II)

In August 2022, the Departments issued a final rule updating certain provisions in the interim final rules related to the IDR process. In response to the TMA I decision and comments submitted in response to the interim rules, the Departments removed the problematic provisions identified by the court. Under the final rule, the regulations no longer required IDREs to presume the QPA is the appropriate payment amount. However, the final rule required IDREs to consider the QPA first and only “then consider” additional information submitted by providers. The final rule also required IDREs to consider additional information only if it is credible, related to either party’s offer, and not already accounted for in the QPA or other information.

Providers filed a lawsuit against the final rule, arguing the updated policy was also unlawful because it continued to favor the QPA and payers over providers. Providers claimed the final rule limited the ability of IDREs to consider additional information submitted by providers and continued to make the QPA the de facto benchmark for OON payments.

In TMA II, the court once again ruled in favor of providers, finding the NSA was unambiguous in requiring IDREs to consider not only the QPA but also additional information submitted by the parties related to the following five factors, along with any other relevant information submitted by either party:

  1. The level of training, experience, and quality and outcomes measurements of the provider or facility that furnished the qualified IDR item or service (such as those endorsed by the consensus-based entity authorized in section 1890 of the Social Security Act).
  2. The market share held by the provider or facility or that of the plan or issuer in the geographic region in which the qualified IDR item or service was provided.
  3. The acuity of the participant, beneficiary, or enrollee receiving the qualified IDR item or service or the complexity of furnishing the qualified IDR item or service to the participant, beneficiary, or enrollee.
  4. The teaching status, case mix, and scope of services of the facility that furnished the qualified IDR item or service, if applicable.
  5. The demonstration of good faith efforts (or lack thereof) made by the provider or facility or the plan or issuer to enter into network agreements with each other and, if applicable, contracted rates between the provider or facility, as applicable, and the plan or issuer, as applicable, during the previous four plan years.

The court found the Departments should not instruct IDREs to weigh any one factor more heavily than the others, nor should IDREs be required to impose a higher level of scrutiny on the information submitted by providers as compared to the QPA or make it more difficult for the additional information submitted by providers to be considered. As a result, the court invalidated the provisions in the final rule requiring IDREs to only consider additional information submitted by providers if it is credible, related to the dispute, and not already accounted for in the QPA or duplicative of other information. The court remanded the issue to the Departments to be addressed further.

Implications for Providers and Next Steps

Although the court vacated the challenged provisions in the final rule and remanded the provisions to the Departments for further consideration, the court declined to share specific instructions on how the Departments must implement a future rule, as providers requested. The Departments could appeal the decision, or they could once again attempt to revise the regulations to be consistent with the court’s opinion. In the meantime, the court suggested that IDREs could decide disputes based on the language in the statute, which directs IDREs to consider both the QPA and additional information submitted by providers.

If the Departments do not appeal, it is possible they could take an approach similar to their response to TMA I. After the court invalidated provisions in the interim final rules, the Departments responded by issuing updated guidance and regulations in an effort to comply with the court’s decision. Shortly after the decision, the Departments announced they were withdrawing guidance documents that were based on, or that referred to, the portions of the interim final rule vacated by the court. The Departments then issued the final rule several months later with updated instructions to IDREs.

A revised IDR process consistent with the court’s decision would be welcome news for providers, as it could remove barriers that have made it difficult for IDREs to consider information submitted by providers in support of a payment amount higher than the QPA. Absent instructions from the Departments limiting how IDREs can consider information, IDREs would have more discretion to weigh the information submitted and make their own evaluation. A revised IDR process could also address concerns raised by providers that payers are reducing in-network payment rates to no more than the QPA based on the fact that the IDR process favors the QPA as the appropriate payment amount.

As stakeholders await the next steps following this decision, additional litigation may also impact the IDR process. Two other challenges are pending against the IDR process before the federal district court for the Eastern District of Texas, one related to how payers calculate the QPA and another contesting an increase in fees to use the IDR process.

We will continue to monitor developments related to the NSA and the Departments’ implementation. Please contact the authors if you have any questions.