A Texas district court has vacated portions of tri-agency regulations that implemented the federal surprise medical billing arbitration/independent dispute resolution (IDR) procedures under the No Surprises Act (NSA) (Tex. Med. Ass'n v. HHS, (E.D. Tex. Aug. 3, 2023)). The litigation challenged portions of implementing regulations issued by the Departments of Labor (DOL), Health and Human Services (HHS), and Treasury (collectively, Departments) in September 2021 (86 Fed. Reg. 55980 (Oct. 7, 2021)). Specifically, the court vacated regulatory provisions governing the batching of items or services for payment determinations and related guidance involving IDR administrative fees.

For more information on the NSA and federal IDR process, including prior litigation challenging the Departments' regulations, see:

As background, the NSA's federal IDR procedures are for use by group health plans, insurers, and providers in determining out-of-network (OON) rates for:

The federal IDR procedures can be invoked by a party after:

Under the NSA, disputing parties must pay an administrative fee, which reflects the cost to the Departments for carrying out the federal IDR process.

The Departments' implementing regulations from September 2021 addressed the IDR process—including criteria for batching items and services for payment determinations (see Practice Note, Surprise Medical Billing for Group Health Plans: Independent Dispute Resolution (IDR) Process (Part II): Payment Amount Determinations for Batched Items and Services). Under the regulations, items and services may be reviewed together only if:

The regulations also provided that the administrative fee would be set by annual guidance issued by the Departments (see Practice Note, Surprise Medical Billing for Group Health Plans: Independent Dispute Resolution (IDR) Process (Part II): Administrative Fees). For 2022, the administrative fee was $50. For 2023, however, the Departments increased the fee to $350 (a 600% increase) (fee guidance).

In its latest challenge to the Departments' surprise billing guidance, a trade association of health providers asserted that the fee guidance and regulations on batched items and services violated notice-and-comment rulemaking requirements under the Administrative Procedure Act (APA). The parties asked the court to rule on the dispute without a trial.

On a threshold issue, the district court rejected the Departments' argument that the lawsuit was prohibited by either:

The court reasoned that although the case involved the same parties as earlier litigation challenging the regulations' rebuttable presumption for QPAs, it did not involve the same cause of action—a requirement for both claim preclusion and claim splitting (see Legal Update, Texas District Court Once Again Vacates Departments' NSA Rules; CMS Orders Temporary Hold on New IDR Payment Determinations). While both cases challenged the regulations, the court found "meaningful differences" between the fee guidance and batching rules challenged in this case and the QPA presumption challenged in the earlier litigation. The court also noted that the core facts had changed from when the earlier litigation ended—namely, the Departments had issued guidance that significantly increased the administrative fee for accessing the IDR process.

The trade association argued that the Departments violated the APA by issuing their fee guidance without notice-and-comment rulemaking. The outcome for this issue turned on whether the fee guidance was a substantive or interpretive rule. The Departments argued that the guidance was interpretive because it merely provided a dollar amount as required by the NSA and regulations. Agreeing with the trade association, however, the district court held that the guidance was substantive because:

As a result, the court concluded that the guidance needed to comply with the APA's notice-and-comment requirements.

The district court also rejected the Departments' argument that good cause existed for forgoing notice-and-comment rulemaking. The court reasoned that the Departments failed to:

Additionally, the court disagreed with the Departments that it was impracticable to go through notice-and-comment rulemaking for the administrative fee each year, pointing to other types of guidance that must go through notice and comment annually.

The court also rejected the Departments' argument that the error was harmless. As a result, the court concluded that the Departments' failure to engage in notice-and-comment rulemaking violated the APA.

Regarding batched items and services, the Departments argued that the challenged rule was excused from the APA's notice-and-comment requirements under an exemption for rules of agency procedure. However, the district court held that the batching rule was a non-exempt substantive rule. In reaching this conclusion, the court reasoned that the batching rule "severely limits" the types of claims that could be batched and, in some cases, had prevented parties from batching any of their claims. The court noted that some providers would need to pay the administrative fee for each claim, making the IDR process cost-prohibitive.

The court again rejected the Departments' argument that there was good cause for bypassing notice-and-comment rulemaking. The Departments asserted that notice and comment was impracticable because they were allowed only one year to issue implementing regulations for the IDR process. The court reasoned, however, that:

The court concluded that the batching rule was subject to notice-and-comment rulemaking, and that the batching rule therefore violated the APA.

The court agreed with the trade association that the appropriate remedy was to vacate the fee guidance and the regulations' contested batching provisions. In doing so, the court:

Accordingly, the court vacated the fee guidance and the following components of the regulatory batching provisions:

The trade association also requested disgorgement of administrative fees paid under the fee guidance. Citing sovereign immunity, however, the court concluded that it lacked jurisdiction to grant this relief.

In addition, the court denied the trade association's request that the court order the Departments to extend the IDR process deadlines for providers that did not submit claims due to the Departments' actions. In the court's view, the trade association did not show that this "extraordinary remedy" was warranted.

In light of the Texas district court ruling, HHS announced that—effective August 7, 2023—IDR arbitrators could resume processing single and bundled disputes where either:

The Departments also instructed IDR arbitrators to resume processing batched disputes if the arbitrator determined that the batched dispute was eligible and collected administrative fees before August 3, 2023 (or the deadline for collecting fees expired before August 3, 2023).

However, processing of other disputes remains temporarily suspended.