No Surprises Act Controversy Takes Surprising Twist
Resolution process put on hold after federal court again strikes down parts of the regulation as being unfairly weighted in favor of insurers.
The controversy over resolution of payment disputes under the No Surprises Act (Act) took another surprising twist in February when a Texas federal court once again sided with physicians and struck down parts of the regulation as 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 can figure out how to fix the regulation to address the court’s concerns. Here’s a briefing on the whole IDR mess and where things stand now.
What the IDR Process Is All About
Congress enacted the Act to keep providers from slapping patients who have private health insurance with a bill for an amount above the patient’s in-network cost-sharing obligations under the plan. But in eliminating surprise bills, the Act set the stage for payment disputes between insurers and providers over amounts above the cost-sharing limits. The IDR process was created to ensure fair resolution of these disputes, with each side having 30 days to submit its final payment offer. Barring a negotiated settlement, an independent third-party arbitrator then picks whichever of the two final offers it deems to be more “reasonable.”
The regulations implementing the Act 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), defined as the insurer’s median in-network rate for similar services in the geographic region as of 2019, indexed for inflation by the Consumer Price Index for All Urban Consumers (CPI-U). By assigning paramount importance to the QPA that insurers themselves determine, the regulation essentially made insurers judge, jury, and executioner of the IDR process.
The First Texas Federal Lawsuit
Not surprisingly, 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.
Nothing in the Act “instructs arbitrators to weigh any one factor or circumstance more heavily than the others,” wrote Judge Jeremy Kernodle. Making the QPA the benchmark for reasonableness was like the regulation “plac[ing] its thumb on the scale” and forcing the provider to rebut the presumption that the insurer’s final offer was more reasonable, he added. [Texas Medical Association v. United States Department of Health and Human Services, et al., 2022 WL 542879 (E.D. Tex. Feb. 23, 2022)].1
The Final Rule
The Texas Medical Association case came at a fortuitous time when the interim regulation had been proposed but not yet finalized. Accordingly, the rule makers would get the opportunity to address the court’s concerns in finalizing the rule. Issued in August 2022, the final rule purports to play down the QPA and allow for other factors, such as provider training, case acuity, and demonstrations of good faith, to weigh in the reasonableness determination.2
The problem, at least in the eyes of providers, is that the final rule 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 Texas Medical Association (TMA) went back to federal court to challenge it. The formula of same plaintiff, same basic case, and same court produced the same result, with Judge Kernodle finding the IDR regulations invalid. Like their interim predecessor, the August final regulations still assigned the QPA too much weight, he reasoned.
As a result, the court struck down the provisions and ordered the federal agencies that wrote them 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].3
The Other QPA LawsuitMeanwhile, the TMA and other groups have filed another lawsuit (also called Texas Medical Association et al. v. U.S. Department of Health and Human Services et al.) challenging the formula set out in the final regulations for calculating the QPA, contending that it allows—and even encourages—insurers to set QPAs that are well below market rates.
The Current IDR Situation
On Feb. 10, in response to the second TMA ruling, the three federal departments responsible for overseeing the IDR process (Health and Human Services, Treasury, and Labor) sent a notice indicating that they were evaluating the situation and instructing certified IDR entities (i.e., the arbitrators that resolve out-of-network payment disputes under the Act) not to issue any new payment determinations until further notice.4
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.5 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.3
Various medical associations—including the American Society of Anesthesiologists, American College of Radiology, and American College of Emergency Physicians—say the departments are not moving quickly enough, recently calling on CMS to resume all IDR payment determinations as soon as possible.
“The government’s pause exacerbates the existing backlog of IDR determinations, causing harm to healthcare providers who provided those services,” the associations said in a March 6 press release.6,7
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.
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