Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Regulations

Practical Law Legal Update w-034-5925 (Approx. 8 pages)

Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Regulations

by Practical Law Employee Benefits & Executive Compensation

Regulations Created Rebuttable Presumption Based on QPA

As background, the NSA was intended to address surprise medical billing by limiting the amounts that plan participants pay for emergency services delivered by out-of-network (OON) health providers and certain non-emergency services furnished by OON providers at in-network facilities. The NSA also requires health plans and insurers to reimburse OON providers at a statutorily determined OON rate that, in some instances, is determined using an independent dispute resolution (IDR) process. The IDR process consists of "baseball-style" arbitration in which an IDR arbitrator must select from competing offers for the OON rate submitted by the parties (that is, plans or insurers versus providers). By statute, IDR arbitrators must choose a payment amount based on consideration of:

An amount called the QPA that generally means the inflation-adjusted median of contracted rates that the plan or insurer would have paid for the item or service if it had been provided by an in-network provider or facility.
Information on additional circumstances (for example, the market share held by the plan, insurer, or OON provider or facility in the geographic region in which the disputed item or service was provided).

Under a rule that proved controversial, the Departments' IFRs required IDR arbitrators to choose a payment amount (from the parties' competing offers) closest to the QPA unless certain conditions were met. In other words, the IFRs essentially established a rebuttable presumption that the amount closest to the QPA is the proper payment amount. Under an exception, IDR arbitrators need not apply the general rule if creditable information submitted by a party clearly demonstrates that the QPA is materially different from the appropriate OON rate.

A trade association comprised of more than 55,000 health providers challenged certain IFR provisions (including the rebuttable presumption), asserting that the rules were inconsistent with the NSA by overemphasizing the QPA.

Providers' "Inevitable" Injuries Gave Them Standing

On a threshold issue, the district court concluded that the providers had standing, including under Article III, to challenge the IFRs. Among other reasons, the court indicated that the providers had established injuries traceable to the IFRs, which included financial harm. Specifically, the IFRs' presumption in favor of using the offer closest to the QPA would systematically reduce the providers' OON reimbursements (versus an IDR process without this presumption). The district court observed that IDR payment amount offers submitted by providers would almost always be higher (and farther from) the QPA than those submitted by plans and insurers. This is because the QPA may not accurately reflect the providers' cost of providing services due to:

Geographic disparity.
Differences in provider training.
Differences in patient and case complexity.

The court cited with favor affidavits submitted by the providers establishing that their economic injuries were not only likely and imminent, but inevitable—and sufficient for the providers to have standing to sue.

Provider Challenges Under Administrative Procedure Act

On the merits, the district court accepted the providers' two primary arguments—both related to the Administrative Procedure Act (APA)—for why the challenged provisions of the IFRs should be vacated.

Regulations Were Inconsistent with the NSA

First, the court concluded that the challenged aspects of the IFRs violated the APA by rewriting the NSA's clear statutory terms, and were unlawful as a result. Specifically, the court reasoned that the IFRs' rebuttable presumption in favor of selecting offers closest to the QPA was inconsistent with the NSA. Applying Chevron deference, the court reasoned that the IFRs conflicted with the NSA's unambiguous framework for deciding payment disputes involving NSA-covered items and services. The court observed that the NSA expressly required IDR arbitrators, in deciding which party's offer to choose, to consider the QPA and certain information on other circumstances, including:

The provider's level of training, experience, and quality and outcomes measurements.
The market share held by the OON provider.
The acuity of the individual receiving the disputed item or service.
The teaching status, case mix, and scope of services of the OON facility.
Demonstrations of good faith efforts (or lack thereof) by the provider, plan, and insurer in entering into network agreements.

In the court's view, nothing in the NSA:

Directed IDR arbitrators to weigh one factor or circumstance more heavily than the others.
Made the QPA the primary or most important factor.
Imposed a rebuttable presumption that the offer closest to the QPA should be chosen (or suggested that the other factors or information were less important than the QPA).

Because the NSA was unambiguous on this issue, the court concluded, the Departments' interpretation of the NSA in the IFRs was not owed Chevron deference.

As noted, however, the IFRs required IDR arbitrators to choose the offer closest to the QPA unless credible information supporting the additional factors clearly demonstrated the QPA was materially different from the appropriate OON rate. With this presumption, the court observed, the Departments impermissibly placed their thumb on the scale for the QPA (that is, by presuming the QPA's correctness and imposing a heightened burden on the other statutory factors to overcome that presumption).

The court rejected the Departments' arguments in defense of this interpretation—including that the QPA should be afforded greater importance because it was the first listed factor. The court noted that, given the NSA's meticulous detail in establishing the IDR process, if Congress had wanted to limit the IDR arbitrators' discretion in considering other factors, it could have done so.

Failure to Engage in Notice-and-Comment Rulemaking

As a second, independent basis for its holding, the court faulted the Departments for failing to engage in notice-and-comment rulemaking, as required under the APA. The court rejected the Departments' arguments that they were excused from the notice-and-comment process, and that any resulting error was harmless. The court also disagreed with the Departments' reliance on a good cause exception to the general notice-and-comment requirements. The Departments asserted that the good cause exception was necessary because:

The NSA became effective just over a year after its enactment.
Plans, insurers, providers, and arbitrators needed lead-time to comply with the new requirements.

The court rejected the Departments' assertion that they needed to write regulations defining the QPA (which the Departments issued in July 2021) before they could issue the challenged IFRs regarding IDR procedures (which build on the July 2021 regulations) (see Practice Note, Surprise Medical Billing for Group Health Plans: Qualifying Payment Amounts (QPAs)). In the court's view, the Departments could have developed the two regulations simultaneously. As to the Departments' compliance lead-time argument, the court cited precedent indicating that the desire to furnish immediate guidance (by itself) does not justify good cause.

Moreover, the court concluded that the Departments' error was not harmless because agency rulemaking generally benefits from participation by experts and the regulated community. Among other reasons, the IFRs addressed complex arbitration procedures that almost certainly would have changed (even if in minor ways) had the Departments considered the providers' objections.

Vacatur of IFRs' Challenged Provisions

The court held that the appropriate remedy was to vacate the challenged portions of the IFRs. As a result, the court vacated the following specific provisions of the DOL's version of the October 2021 IFRs (along with the companion Treasury and HHS versions):

29 C.F.R. § 2590.716-8(a)(2)(viii) (defining "Material difference").
The second sentence of 29 C.F.R. § 2590.716-8(c)(4)(ii)(A) (statement of QPA rebuttable presumption and "materially different"/equally distant exceptions).
The final sentence of 29 C.F.R. § 2590.716-8(c)(4)(iii)(C) (provision requiring additional information to clearly demonstrate that the QPA is materially different from the appropriate OON rate).
29 C.F.R. § 2590.716-8(c)(4)(iv) (examples involving IDR determinations involving QPAs and additional information submissions by the parties).
29 C.F.R. § 2590.716-8(c)(4)(vi)(B) (written explanation requirement if IDR arbitrator does not choose offer closest to the QPA).

The court rejected the Departments' argument that plans and insurers have relied on the IFRs since their issuance to:

Hire staff.
Build out data management systems.
Negotiate contracts with service providers, vendors, and other employers.

According to the court, vacating only the challenged portions of the IFRs would not upend plans' and insurers' preparations for resolving payment disputes over NSA-covered items and services. Instead, the court stated, vacatur would permit IDR arbitrators to make payment determinations "without having their hands tied" by the IFRs' QPA presumption.

Departments' Response to Texas District Court's Decision

Shortly after the Texas district court's decision was issued, the Departments issued guidance announcing the steps they were taking in response to the decision (EBSA Memo (Feb. 28, 2022)). The Departments emphasized that the decision did not affect their other rulemaking under the NSA or otherwise limit protections under the NSA's surprise medical billing rules. However, the Departments informed plans, insurers, providers and other entities that—in response to the district court's decision—they were taking the following steps:

Effective immediately, withdrawing guidance documents that were based on (or referenced) those parts of the IFRs that the court invalidated (see Vacatur of IFRs' Challenged Provisions).
Reposting their guidance documents (after updating them to reflect the court's order).
Providing training on the revised guidance for IDR arbitrators and disputing parties (including through webinars and roundtable discussions).
Opening the IDR process for submissions through the federal IDR portal.

Regarding the last bulleted item, the Departments noted that for disputes for which the IFRs' open negotiation period had expired, the Departments would permit submission of a notice of initiation of the IDR process within 15 business days after opening of the federal IDR Portal.

The Departments indicated that plans, insurers, and providers with questions about the NSA's surprise billing rules could call the Departments' "No Surprises Help Desk" at 1-800-985-3059.

Practical Impact

The Texas district court's rejection of the Departments' rebuttable presumption regarding the QPA's primacy will, as the providers in this litigation asserted, make a significant difference in payment disputes over OON reimbursement rates that are determined using the regulations' IDR procedures. Although providers will no doubt be pleased with their victory in this first ruling, there will be more decisions to follow on this issue (and possibly appeals). As a result, plans, insurers, providers, and IDR arbitrators will want to keep a close eye on this space in the weeks and months to follow—as payment amount disputes under the NSA rules begin to make their way through the open negotiation and IDR procedures. And in an interesting side-note, the Texas district court's decision stated that the Departments "will soon issue" final regulations that reflect the providers' concerns regarding the IFRs.

Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Regulations | Practical Law