Texas District Court Vacates Still More Provisions Under Surprise Billing Regulations and Guidance; Federal IDR Process Temporarily Suspended

Practical Law Legal Update w-040-5533 (Approx. 7 pages)

Texas District Court Vacates Still More Provisions Under Surprise Billing Regulations and Guidance; Federal IDR Process Temporarily Suspended

by Practical Law Employee Benefits & Executive Compensation

Provider Challenges to QPA Calculation Methods

The plaintiff/providers in this case challenged various rules addressing QPA calculations under the July 2021 regulations and August 2022 FAQs. Under the NSA, as background, Congress established an IDR process for resolving payment disputes between health plans, insurers, and out-of-network providers. Under this process, arbitrators must consider the QPA (that is, the median rate a plan would pay for the service if furnished by an in-network provider), among other factors, in determining the proper payment amount. For more information on QPAs under the federal IDR process, see Practice Note, Surprise Medical Billing for Group Health Plans: Qualifying Payment Amounts (QPAs) and Legal Update, Texas District Court Vacates Surprise Billing Rules on Application Fees and Batched Items: Federal IDR Process Under the NSA.

Inclusion in QPA Calculations of Contracted Rates/Services That Were Not Provided

Under the NSA, plans and insurers generally must calculate QPAs based on contracted rates for the same or a similar item or service that is furnished by a provider in the same or similar specialty and provided in the geographic region in which the item or service is furnished (see Practice Note, Surprise Medical Billing for Group Health Plans: Qualifying Payment Amounts (QPAs): General Method for Calculating MCRs). The providers objected to a rule in the July 2021 regulations which, the providers argued, required them to include so-called "ghost rates" in calculating QPAs (that is, rates for items or services that providers had not furnished or never supplied).

Agreeing, the district court ruled that the Departments' July 2021 regulations conflicted with the NSA by allowing plans and insurers to include ghost rates in calculating QPAs. The court reasoned that the Departments' interpretation allowed plans and insurers to include contracted rates for items or services that were not provided and never would be.

Inclusion in QPA Calculations of Out-of-Specialty Rates

The providers also objected that the July 2021 regulations allowed plans and insurers to include provider rates for different specialties in QPA calculations—whereas the NSA allows only rates of providers in the same or similar specialty. The providers asserted that these out-of-specialty rates could sometimes be extremely low (or near zero), thereby applying downward pressure on QPAs. The district court agreed, concluding that inclusion of out-of-specialty rates in QPA calculations conflicted with the NSA—meaning that this rule had to be set aside under the Administrative Procedure Act (APA).

Exclusion of Bonus and Incentive Payments from QPA Calculations

The providers also challenged a rule from the July 2021 regulations requiring them to exclude from rates used in calculating QPAs certain risk-sharing, bonus, penalty, or other incentive-based or retrospective payments or payment adjustments. This rule, the providers complained, impermissibly drove down the QPA. The district court agreed, reasoning that the NSA clearly requires insurers to calculate QPAs using the entire/highest possible payment that a provider may receive for an item or service under the contracted rate. The court therefore set aside the rule excluding bonus and incentive payments from QPA calculations.

Use by Self-Funded Plans of Rates from All Plans Administered by TPAs

The providers also argued that the July 2021 regulations impermissibly permitted self-funded group health plans or plan sponsors to calculate QPAs using rates from either:

Their own plans.
All plans administered by their third-party administrators (TPAs).

(For more information, see Practice Note, Surprise Medical Billing for Group Health Plans: Qualifying Payment Amounts (QPAs): Insurance Market and Special Rules for Self-Funded Plans.)

The court observed that the NSA defines the QPA as the median of contracted rates recognized by a plan or insurer—determined as to all of a plan sponsor's plans offered in the same insurance market. In the court's view, the NSA did not allow plans to "pick and choose" from among plans and rates to reach a lower QPA. As a result, the court concluded, the rule under the July 2021 regulations allowing a self-funded plan's TPA to determine a QPA using the contracted rates recognized by all self-funded plans administered by the TPA (versus only those of the particular plan sponsor) was inconsistent with the NSA. The court set aside this rule under the APA.

Disclosures Concerning QPA Calculations

In another claim in this case, the providers argued that the Departments' QPA-related disclosure requirements for plans and insurers under the regulations were:

Insufficient and prevented effective review of plans and insurers' QPA calculations.
Required plans and insurers to reveal nothing of substance about their QPAs.

(For more information, see Practice Note, Surprise Medical Billing for Group Health Plans: Qualifying Payment Amounts (QPAs): Information Disclosure Requirements for QPAs.)

As background, the July 2021 regulations' disclosure rules require plans to provide:

A certification that the QPAs were calculated consistent with the regulations.
A notice if QPAs were not established on a fee-for-service basis.
A notice of when related service codes were used to calculate the QPA.
Additional information on request from a provider.

Rejecting the providers' argument, the district court concluded that the Departments were afforded wide latitude in implementing this disclosure rule—and had demonstrated that the rule resulted from reasoned decisionmaking. The court noted that, unlike the statutory provisions concerning QPA calculations themselves, the NSA's QPA disclosure rules and audit procedures for ensuring that plans calculated QPAs correctly did not contain significant detail. The court therefore held that the July 2021 regulations' disclosure rules were not arbitrary and capricious under the APA.

Challenged Air Ambulance Provisions

The plaintiff/air ambulance providers challenged regulatory provisions that:

Did not start the 30-day deadline for notice or denial of payments until a plan or insurer received the information necessary to decide a claim.
Required two separate arbitration proceedings to adjudicate a single air transport.
Excluded case-specific or single-case agreements from QPA calculations for air ambulance services.

The district court agreed with most of the air ambulance providers' arguments and therefore set aside several provisions of the Departments' regulations and related guidance. Regarding the first claim, for example, the court rejected the Departments' argument that the 30-day payment deadline should not start until plans and insurers received a "clean claim" (that is, a claim containing the information necessary to decide a payment claim for services). The court reasoned that the NSA tied this rule to receipt of a bill for services, not a clean claim.

Vacatur of Successfully Challenged Provisions

Reasoning that the successfully challenged regulatory provisions conflicted with the NSA's unambiguous terms in key respects, the district court held that vacatur was the appropriate remedy. To carry out its ruling, the district court vacated and remanded for further consideration a list of more than a dozen specific provisions under the July 2021 regulations and preamble material, FAQ guidance (Aug. 2022), and related technical guidance for IDR arbitrators. In many instances, the court vacated particular phrases from an offending regulation (as reflected in companion DOL, IRS, and HHS versions) or piece of guidance.

Practical Impact: Status of Federal IDR Operations

To-date, health providers have been largely successful in the Texas federal courts with chipping away at aspects of the Departments' NSA regulations and related guidance they find problematic. In February 2022, for example, the Texas district court agreed with providers that the Departments had impermissibly restricted arbitrators' discretion and shifted the arbitration process in favor of the QPA (see Legal Update, Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Regulations).

More recently, the Texas district court concluded—in a ruling issued August 3, 2023—that the Departments had circumvented the APA's notice-and-comment rules in issuing regulations concerning the administrative fee and batching claims in the arbitration process (see Legal Update, Texas District Court Vacates Surprise Billing Rules on Application Fees and Batched Items). As a result of the August 3 ruling, the Departments temporarily suspended all federal IDR process operations to make changes necessary to comply with the court's ruling. On August 8, 2023, IDR arbitrators resumed processing batched disputes if the arbitrator concluded that the batched dispute was eligible and administrative fees had been paid (or the deadline for collecting fees expired) before August 3, 2023. However, processing of other batched disputes and dispute initiation under the federal IDR system remained temporarily suspended.

After this latest Texas district court ruling (issued August 24, 2023), HHS announced that it had temporarily suspended all federal IDR operations—including operations that had resumed on August 8—until the Departments could provide additional guidance reflecting the court's decisions. However, the Departments instructed disputing parties to continue using the regulations' open negotiation process.

In a follow-on announcement, the Departments indicated that—effective September 5, 2023—they had instructed IDR arbitrators to proceed with eligibility determinations for single and bundled disputes submitted on or before August 3, 2023. All other aspects of the federal IDR process operations remained suspended (though disputing parties could continue engaging in open negotiation).

For more information, see Legal Updates:

Texas District Court Vacates Still More Provisions Under Surprise Billing Regulations and Guidance; Federal IDR Process Temporarily Suspended | Practical Law