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Federal Court Strikes Down No Surprises Act Dispute Resolution Rules

by | Mar 9, 2023 | News, Open Content

The rules unfairly favor insurers in out-of-network payment disputes, court says.

The controversy over resolution of payment disputes under the No Surprises Act (Act) has taken another twist, with a Texas federal court once again striking down parts of the regulation for being unfairly weighted in favor of insurers. As a result, federal agencies in charge of implementing the rule have put the independent dispute resolution (IDR) process on hold until they figure out how to fix the regulation in light of the court’s concerns.

The No Surprises Act IDR Process

Congress enacted the Act to keep providers from billing privately insured patients for amounts above the plan’s in-network cost-sharing obligations. The IDR process was established to resolve the payment disputes between insurers and providers over amounts above the cost-sharing limits. Each side has 30 days to submit its final payment offer. Barring a negotiated settlement, an independent third-party arbitrator decides which of the two final offers is more “reasonable.”

The regulations list the factors arbitrators must weigh in making a reasonableness determination. The controversy comes from the provision in the interim regulation instructing arbitrators to consider reasonable whichever of the two final offers comes closest to the “qualifying payment amount” (QPA). By assigning paramount importance to the QPA that insurers themselves determine, the regulation essentially made insurers judge, jury, and executioner of the IDR process.

Physicians and other providers were appalled by the proposed regulation and went to court to challenge it. In February 2022, they won a stunning victory when a federal judge in Texas ruled that the IDR regulations were unfair and in conflict with the Act’s intent and purpose. Making the QPA the benchmark for reasonableness was like “placing the thumb on the scale” and forcing the provider to rebut the presumption that the insurer’s final offer was more reasonable, the judge reasoned [Texas Medical Association v. United States Department of Health and Human Services, et al., 2022 WL 542879 (E.D. Tex. Feb. 23, 2022)].

The Final Rule

Issued in August 2022, the final rule responds to the TMA case by purporting to play down the QPA and allowing for other factors to weigh in reasonableness determinations. However, it still instructs arbitrators to consider these non-QPA factors only after looking at the QPA, reasoning that it’s the only factor that’s quantitative rather than qualitative in nature.

The Second Texas Federal Lawsuit

Unsatisfied with the final rule, the TMA went back to the same federal court that struck down the interim version. Once again, it prevailed, with Judge Jeremy Kernodle finding the final rule invalid because it still assigned the QPA too much weight and left the de facto rebuttal presumption in favor of insurers in place. So, the court invalidated the provisions and ordered the federal agencies that wrote the regulations to go back to the drawing board and come up with new rules [Texas Medical Association et al v. United States Department of Health and Human Services et al., Case No. 6:22-cv-372-JDK, February 6, 2023].  

The Current IDR Situation

In response to the second TMA ruling, on Feb. 10, the three federal departments responsible for overseeing the IDR process (Health and Human Services, Treasury, and Labor) sent a notice instructing certified IDR entities not to issue any new payment determinations until further notice.  

On Feb. 24, the departments instructed IDR entities to resume processing payment determinations, but only for disputes involving services or items before October 25, 2022, in accordance with the interim rules that were in effect at that time. These cases are unaffected by the second TMA case dealing with the final rules, the notice explains.

However, payment claims involving items or services provided on or after October 25, 2022 remain on hold unless and until the departments issue IDR entities new instructions on how to resolve them. “The Departments are working diligently to complete necessary guidance and system updates in order to allow certified IDR entities to resume processing payment determinations for these disputes,” the notice states.

Meanwhile, the other IDR process timelines continue to apply, including the 30-day payor-provider negotiation window and the deadlines for submitting offers and fees. In other words, the current freeze applies only to the arbitration rather than the negotiation and settlement of payment disputes. Thus, insurers and providers won’t feel the effects of the freeze unless and until they seek to arbitrate their payment disputes via the IDR process.

For the full article, see our upcoming April 2023 National Lab Reporter, posted in advance of PDF publication.