On February 23, 2022, the U.S. District Court for the Eastern District of Texas gutted portions of the interim final rule affecting the independent dispute resolution (“IDR”) process of the No Surprises Act (the “Act”). Tex. Med. Ass’n v. U.S. Dep’t of Health & Human Servs., No. 6:21-cv-425-JDK, 2022 WL 542879, at *15 (E.D. Tex. Feb. 23, 2022). In particular, the Court found that the rule did not square with the plain language of the Act, which mandates that the IDR process equally consider a number of factors in deciding payments for out-of-network (“OON”) services. Id. at *7–9. Instead, the rule substantially favored one factor over the others. In further rejecting the IDR-related portions of the rule, the Court found that the government had failed to provide an opportunity for notice and comment in advance of publishing the interim final rule. Id. at *10–14. As a result, the Court granted the plaintiffs’ motion for summary judgment, denied the defendants’ cross-motion for summary judgment, and severed portions of the rule. Id. at *15.

Interim Final Regulations

With most of its provisions taking effect at the top of this year, the Act limits the amount patients pay for emergency services in OON facilities or non-emergency services by certain OON providers in in-network facilities. In furtherance of this, the Act commands that health plans and insurers reimburse certain OON services at a statutorily determined rate.  42 U.S.C. § 300g-111(a)(1)(C)(iv)(II), (b)(1)(D). If the parties are unable to agree on the OON rate after an unsuccessful thirty-day period of open negotiation, a dispute over payment ordinarily triggers the IDR process, through which arbitrators will consider competing positions on what the OON rate should be (unless a state has an All-Payer Model Agreement or specified state law).  Id. § 300gg-111(a)(3)(K), (c)(1). In considering these positions, the arbitrator—the certified IDR entity — must evaluate a number of factors before choosing which of the two competing rates is correct:

• the qualifying payment amount (“QPA”) or the inflation-adjusted median of contracted rates for in-network services;
• the provider’s level of training, experience, and quality and outcomes measurements;
• the acuity of the individual receiving the disputed item or service;
• the teaching status, case mix, and scope of services of the OON facility; and
• the good-faith efforts (or lack thereof) by the provider, plan, and insurer in entering into network agreements, or, if applicable, the contracted rates between the parties during the previous four plan years.

Id. § 300gg-111(c)(5)(C). On October 7, 2021, the Department of Health and Human Services, Department of Labor, and Treasury Department (collectively, the “Departments”), along with the Office of Personnel Management, published the interim final rule, which in part created a rebuttable presumption that favored the amount closest to the QPA for OON payments: “[T]he certified IDR entity must begin with the presumption that the QPA is the appropriate out-of-network rate for the qualified IDR item or service under consideration.” 86 Fed. Reg. 55,980, 55,996, 56,056–61 (Oct. 7, 2021); 45 C.F.R. § 149.510(c)(4)(ii). To rebut this presumption requires the submission of credible information that clearly demonstrates why the QPA is “materially different” from the appropriate OON rate. Id.; accord 45 C.F.R. § 149.510(a)(2)(viii).

Lawsuit

On October 28, 2021, the Texas Medical Association—a trade association made up of more than 55,000 health providers—and a Texas physician (collectively, the “Plaintiffs”) sued the Departments to challenge the portion of the interim final rule that included the QPA-favored rebuttable presumption. Tex. Med. Ass’n, 2022 WL 542879, at *3. The Plaintiffs were concerned that the “substantial thumb on the scale in favor of the QPA” would reduce their OON payments.  Id. at *3–5. The Plaintiffs sued under the Administrative Procedure Act (“APA”), contending that, by placing the QPA in such high regard, the rule effectively forced the arbitrator to ignore the other factors contemplated by the Act.  Id. at *3. The rule, contended the Plaintiffs, masqueraded as an attempt to set rates, directly in conflict with the Act, and effectively guaranteed that the arbitration would presumptively favor payers, who had the ultimate so-say on the QPA.  Id. at *2, *4, *9. Also alleged was that the Departments failed to abide by the necessary notice-and-comment rulemaking prior to the publication of the interim final rule. Id. at *3.

On February 23, 2022, the Court issued its opinion. After initially finding that the Plaintiffs had standing to sue, id. at *4–6, the Court granted the Plaintiffs’ motion for summary judgment and severed portions of the rule for two reasons.  First, after concluding that the language of the Act was unambiguous, thereby entitling the Departments to no Chevron deference, the Court concluded that the rule “conflicts with the statutory text” of the Act.  Id. at *7. Notably, the Act commands arbitrators to consider all identified factors, and, contrary to the Departments’ position, does not exalt any one factor above another. Id. at *7–8 (“Because ‘the word “shall” usually connotes a requirement,’ the Act plainly requires arbitrators to consider all the specified information in determining which offer to select.”) (citation omitted). Therefore, because the rule “impermissibly altered the Act’s requirements” by “plac[ing] its thumb on the scale for the QPA,” the rule was unlawful and therefore must be set aside under the APA. Id. at *9.

Second, the Court ruled that the interim final rule was contrary to the law because the Departments had bypassed the notice-and-comment process in accordance with the APA. Id. at *9 (citing 5 U.S.C. § 553). The Court rejected each of the three reasons offered by the Departments for excusing themselves from the APA’s requirements. Contrary to the Departments’ claim, neither the APA nor the Departments’ governing statutes “expressly” authorized the Departments to depart from the notice-and-comment protocol. Id. at *10. Next, the good-cause exception (which arises when it is impracticable, unnecessary, or contrary to the public interest to provide a notice-and-comment period) was unavailing because (a) it is not a proper excuse for the Departments to claim that they acted hastily because they had “barely twelve months” between the Act’s enactment and effective date; and (b) it is not sensible to argue that the Departments had to wait for the July rule defining the QPA given that both rules could’ve been decided “in tandem.”  Id. at *11–12. Finally, the error in the Departments’ departure was not harmless: had the Departments conducted an exhaustive comment period, the rule “would have almost certainly changed—even if in a small part.” Id. at *13. The fact that the Departments planned to “soon issue a final rule” incorporating the Plaintiffs’ comments did not unring the bell—the error was still not harmless. Id. at *14.

In light of these reasons, the Court found that the Departments had violated the APA and therefore vacated the following portions of the interim final rule that tipped the IDR scale in favor of the QPA:

• 45 C.F.R. § 149.510(a)(2)(viii); the second sentence of 45 C.F.R. § 149.510(c)(4)(ii)(A); the final sentence of 45 C.F.R. § 149.510(c)(4)(iii)(C); 45 C.F.R. § 149.510(c)(4)(iv); and 45 C.F.R. § 149.510(c)(4)(vi)(B);
• 26 C.F.R. § 54.9816-8T(a)(2)(viii); the second sentence of 26 C.F.R. § 54.9816-8T(c)(4)(ii)(A); the final sentence of 26 C.F.R. § 54.9816-8T(c)(4)(iii)(C); 26 C.F.R. § 54.9816-8T(c)(4)(iv); and 26 C.F.R. § 54.9816-8T(c)(4)(vi)(B); and
• 29 C.F.R. § 2590.716-8(a)(2)(viii); the second sentence of 29 C.F.R. § 2590.716-8(c)(4)(ii)(A); the final sentence of 29 C.F.R. § 2590.716-8(c)(4)(iii)(C); 29 C.F.R. § 2590.716-8(c)(4)(iv); and 29 C.F.R. § 2590.716-8(c)(4)(vi)(B).

Id. at *14–15.

Government’s Response to Court Decision

Five days after the Court’s ruling, the Centers for Medicare & Medicaid Services and Department of Labor indicated that they would withdraw all guidance affected by the portions of the rule severed by the decision and repost new guidance in the future, they would train IDR arbitrators and parties in conformance with the decision, and they would open the federal IDR portal for the processing of submissions. Significantly, despite the Court’s ruling, the Act’s other provisions, such as its protection of patients from surprise and balance billing, remain in place.

It remains to be seen whether the Departments will appeal the Court’s decision and, if so, whether they will seek a stay of the decision. In the meantime, this decision has a nationwide impact, staunching the enforceability of the vacated provisions of the rule. Cozen O’Connor will continue to monitor this case, along with a number of ongoing challenges to the rule’s IDR process. See, e.g., Ass’n of Air Med. Servs. v. U.S. Dep’t of Health & Human Servs., No. 21-cv-3031-RJL (D.D.C. filed Nov. 16, 2021); Am. Med. Ass’n v. U.S. Dep’t of Health & Human Servs., No. 21-cv-3231-RJL (D.D.C. filed Dec. 9, 2021); Am. Society of Anesthesiologists v. U.S. Dep’t of Health & Human Servs., No. 21-cv-6823-MEA (N.D. Ill. filed Dec. 22, 2021); Haller v. U.S. Dep’t of Health & Human Servs., No. 21-cv-7208-AMD-AYS (E.D.N.Y. filed Dec. 31, 2021).