IRO Barred from Litigating URAC's Revocation of External Review Accreditation

Practical Law Legal Update w-015-9455 (Approx. 5 pages)

IRO Barred from Litigating URAC's Revocation of External Review Accreditation

by Practical Law Employee Benefits & Executive Compensation

Background

The IRO, a for-profit corporation, provided medical review services to health plans, health care systems, and related entities. Much of its work involved determining whether medical services are medically necessary and eligible for coverage, including:

Internal reviews of whether coverage for particular medical treatments should be approved or denied (see Practice Note, Internal Claims and Appeals Under the ACA).
External reviews in which the IRO reviewed claims decisions by other IROs and determined whether to uphold or overturn them.

The IRO was accredited by URAC in August 2015 for a three-year period, but URAC later received a grievance that reported:

Concerns about the quality of the IRO's services.
Edits of clinical determinations on reviews completed by the IRO's peer reviewers.

After investigating the grievance, URAC revoked the IRO's accreditation in January 2018 based on findings of noncompliance with several "core" URAC standards. Specifically, URAC concluded that the IRO failed to satisfy rules concerning general legal compliance, data integrity rules, quality review, and oversight of clinical decisionmaking. The IRO appealed these findings in a lengthy written response, but URAC's executive committee upheld its decision. (Although URAC did overturn three other findings of noncompliance against the IRO on review, the four violations that were upheld were sufficient on their own to sustain the revocation.)

The IRO then sought a preliminary injunction in federal district court against URAC to restore its accreditation in full, arguing that URAC's investigation of the IRO was arbitrary and capricious. URAC asserted that the case should be dismissed because an exculpatory clause in an accreditation application agreement between the parties prohibited the IRO from suing URAC.

Outcome

The district court agreed with URAC that the exculpatory clause in the parties' agreement:

Prohibited the IRO from filing a judicial action for review of URAC's revocation.
Was not unconscionable.

The court therefore denied the IRO's motion for a preliminary injunction and granted URAC's motion to dismiss.

Exculpatory Clause Bars Judicial Review

The agreement's exculpatory clause barred the IRO from filing or taking "any legal or regulatory or administrative action" against URAC (or related individuals) concerning the accreditation process. The court reasoned that the IRO's legal action fell squarely within the scope of the exculpatory clause, which was presumptively enforceable. Citing the clause's plain terms and the similarity between this case and others in which courts had upheld these clauses, the court found that the clause prohibited judicial review of URAC's decision.

Exculpatory Clause Was Not Substantively Unconscionable

The court also considered whether the clause was unconscionable, which required the IRO to establish both procedural and substantive unconscionability.

The court acknowledged that the exculpatory clause might be procedurally unconscionable. The court noted that ACA final regulations issued in November 2015 had codified URAC's role as a gatekeeper for entities seeking to offer IRO services, which strengthened the IRO's argument that URAC's services could not be obtained elsewhere (see Legal Update, ACA Final Rules Expand Claims Procedure Rules and More). Although the ACA final rules allow for accreditation by a national organization similar to URAC, URAC conceded that it was unaware that any similar accrediting organization exists, either now or in 2014. As a result, the court observed that:

URAC is the only government-sanctioned accrediting organization for determining which entities can provide IRO services.
Entities on both the supply side (that is, those subject to the ACA and seeking IRO services) and demand side (those seeking to provide IRO services) are bound by URAC's determinations.

The court noted that having the government's approval (in the form of URAC accreditation) was significant, as reflected by:

The increasing need for the accreditation for a service provider to succeed in the market.
The IRO's estimation that the majority of its IRO revenues were now accreditation-dependent.

However, the court concluded that the parties' agreement and URAC's policies were not substantively unconscionable because they:

Allowed IROs to be heard before neutral decisionmakers.
Included robust investigative and appeals procedures.

As a result, the agreement and policies were not "so outrageously unfair as to shock the judicial conscience," and were not therefore substantively unconscionable.

Although the exculpatory clause's enforceability resolved the lawsuit, the court also found that the IRO was not entitled to a preliminary injunction. Specifically, the court concluded that the IRO could not show a likelihood of success on the merits (under the preliminary injunction test) because URAC's revocation decision was the product of reasoned decisionmaking and a fair process.

Practical Impact

This case caught our eye not so much for the ins-and-outs of URAC's IRO accreditation and revocation process, but for its implications to group health plans under the ACA's external review rules. The ACA's final regulations require external review to be conducted by an accredited IRO, and agreements between plans and IROs must satisfy certain content requirements. As a result, it may be advisable for a services agreement between the plan and its IRO to address what happens if an accredited IRO has its accreditation revoked (for example, requiring the IRO to notify the plan of any revocation of its accreditation within a set time period). (For more information, see Standard Document, SPD Language, External Review for Self-Insured Health Plans.)

IRO Barred from Litigating URAC's Revocation of External Review Accreditation | Practical Law