Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Rules for Air Ambulance Service Providers

Practical Law Legal Update w-036-4525 (Approx. 7 pages)

Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Rules for Air Ambulance Service Providers

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 (among other things) limiting the amounts that plan participants pay for air ambulance services furnished by OON providers of air ambulance services (see Surprise Medical Billing for Health Plans, Health Insurers, and Health Care Providers and Facilities Toolkit). The NSA generally 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 in the air ambulance services context 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, including:
- the quality and outcomes measurements of the provider that furnished the services;
- the acuity of the participant receiving the service or the complexity of furnishing the service to the participant;
- the training, experience, and quality of the medical personnel that furnished the services;
- the ambulance vehicle type, including the vehicle's clinical capability;
- the population density of the pick-up point for the air ambulance (for example, urban, suburban, rural, or frontier); and
- demonstrations of good faith efforts (or lack thereof) made by an OON provider, plan, or insurer to enter into network agreements with each other and, if applicable, contracted rates between the provider, plan or insurer, as applicable, during the previous four plan years.

(42 U.S.C. § 300gg-112(b)(5)(C); see Practice Note, Surprise Medical Billing for Group Health Plans: Overview: Additional IFRs (Oct. 2021) Address IDR Process and Other Issues; QPA Litigation.)

As issued, the Departments' IFRs required IDR arbitrators to choose a payment amount (from the parties' competing offers) that was 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 was the proper payment amount. Under an exception, IDR arbitrators need not apply the general rule if creditable information submitted by a party clearly demonstrated that the QPA was materially different from the appropriate OON rate.

In February 2022, as noted, the Texas district court vacated companion provisions of the IFRs in litigation brought by a trade association of more than 55,000 health providers. The February 2022 ruling involved a challenge to the rebuttable presumption regarding emergency services delivered by OON providers and certain non-emergency services furnished by OON providers at in-network facilities. The trade association in that case asserted that the rules were inconsistent with the NSA by overemphasizing the QPA. The disputed IFR provisions in the current litigation are nearly identical to the provisions vacated by the court in February 2022—except that they address air ambulance service providers.

Court Denies Departments' Motion to Transfer

On a threshold issue, the district court denied the Departments' motion to transfer or change venue. The Departments argued that the case should be transferred to another district court under the first-to-file rule. This rule says that when related cases are pending before two federal courts, the court in which the case was last filed has discretion to refuse to hear the case if the issues raised by the cases substantially overlap. The Departments argued that another case filed in November 2021 in the D.C. Circuit by a different plaintiff—but challenging the same rule—was the first-filed case. Rejecting this argument, the Texas district court reasoned that:

The Texas litigation (rather than the D.C. Circuit litigation) was filed first.
Transferring the case to another district court would waste judicial resources and likely delay resolution of this case.

Providers Have Standing to Sue

On another threshold issue, the district court concluded that the provider had standing to challenge the IFRs, because the provider had established injuries that were traceable to the IFRs. Specifically, the court concluded that the provider established that it:

Was regulated by the IFRs.
Would suffer a procedural injury (that is, because the IFRs deprived the provider of the NSA's arbitration process).
Would likely suffer financial harm because the IFRs' QPA presumption would make the QPA a de facto benchmark, which would significantly reduce the provider's compensation (versus an IDR process without the presumption).

According to the court, the provider also showed a significant risk of either:

Losing its contract with a national air ambulance company provider that contracted with local partners.
Receiving lower payments under a future contract.

Challenges to IFRs Based on Administrative Procedure Act

On the merits, the district court agreed with the provider's argument—based on the Administrative Procedure Act (APA)—that the challenged provisions of the IFRs conflicted with the NSA's statutory text. Quoting its ruling from February, the district court observed that nothing in the NSA instructed IDR arbitrators to weigh any one factor or circumstance more heavily than the others in making payment determinations. Rather, the court reasoned that the NSA unambiguously required arbitrators in the air ambulance IDR process to consider both the QPA and several additional circumstances. The court rejected the Departments' arguments to the contrary (for example, that the regulations were entitled to Chevron deference).

The court therefore held that, for the same reasons stated in its February 2022 decision, the disputed provisions of the IFRs regulating air ambulance services conflicted with the NSA and must be set aside under the APA (see Legal Update, Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Regulations: Regulations Were Inconsistent with the NSA).

Failure to Engage in Notice-and-Comment Rulemaking

In addition, the court held that the Departments' failure to comply with APA notice-and-comment requirements provided a second, independent basis to set aside the IFRs. As in the earlier case, the Departments argued that:

Congress authorized them to bypass notice and comment in implementing the NSA.
The good cause exception applied to this case.
Any failure to comply with the notice-and-comment requirement was harmless.

Rejecting these arguments in turn, the court held that:

The language cited by the Departments neither expressly nor implicitly exempted them from the APA's notice-and-comment requirement.
The Departments failed to show that complying with the notice and comment rules was impracticable or contrary to public interest.
The Departments' administrative rulemaking errors were not harmless because:
- they deprived the provider of an opportunity to comment on the proposed rule; and
- notice and comment almost certainly would have changed the IFRs' arbitration procedures.

Vacatur of IFRs' Challenged Provisions

As it did in February, the court held that the appropriate remedy was to vacate the challenged portions of the IFRs. As a result, the court vacated a sentence (found in the companion DOL, HHS, and Treasury versions of the IFRs) stating that additional information submitted by parties to the IDR process needed to clearly demonstrate the QPA amount was materially different from the appropriate OON rate (29 C.F.R. § 2590.717-2(b)(2); 45 C.F.R. § 149.520(b)(2); 26 C.F.R. § 54.9817-2T(b)(2); (final sentence of each)).

Practical Impact

This case was perhaps inevitable given that, as the Texas district court notes in its analysis, the Departments had continued to apply the previously invalidated QPA presumption to air ambulance service providers after the court's February ruling. Offering a sense of the NSA rules' overall impact, the court also emphasizes in its latest ruling that "thousands of claims" have already been submitted to the IDR process by air ambulance providers—all presumably occurring in the just-over seven months that the requirements have been in effect.

The QPA-related provisions at issue in this case and the Texas district court's February 2022 ruling will likely be among the first that practitioners and others review when the Departments finalize their NSA implementing regulations. Those final regulations were submitted to the Office of Management and Budget (OMB) just over a month ago and are expected to be issued shortly.

Texas District Court Vacates Rebuttable Presumption Under No Surprises Act Rules for Air Ambulance Service Providers | Practical Law