Texas District Court Once Again Vacates Departments' NSA Rules; CMS Orders Temporary Hold on New IDR Payment Determinations

Practical Law Legal Update w-038-4502 (Approx. 8 pages)

Texas District Court Once Again Vacates Departments' NSA Rules; CMS Orders Temporary Hold on New IDR Payment Determinations

by Practical Law Employee Benefits & Executive Compensation

Final Regulations Replaced IFRs Containing QPA Rebuttable Presumption

As background, the NSA is 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 (see Surprise Medical Billing for Health Plans, Health Insurers, and Health Care Providers and Facilities Toolkit). The NSA also requires health plans and insurers to reimburse OON providers at a statutorily calculated 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 qualifying payment amount (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).

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

Earlier Implementing Regulations and Litigation

Under a rule from the Departments' October 2021 IFRs that proved controversial, IDR arbitrators were required to choose the payment amount (from the parties' competing offers) that was closest to the QPA unless certain conditions were met. The IFRs essentially established a rebuttable presumption that the amount closest to the QPA was the proper payment amount. Under an exception, IDR arbitrators did not need to apply the general rule if creditable information submitted by a party clearly demonstrated that the QPA was materially different from the appropriate OON rate.

A trade association of health providers challenged certain IFR provisions (including the rebuttable presumption), asserting that the rules were inconsistent with the NSA because they overemphasized the QPA. In February 2022, the Texas district court agreed, holding that:

The NSA unambiguously required IDR arbitrators to consider several factors when determining the correct payment amount—as opposed to weighing any one factor more heavily than the others.
The IFRs conflicted with the NSA by improperly limiting IDR arbitrators' discretion and instructing them to view one factor (the QPA) as being more important than the others.
The Departments violated the Administrative Procedure Act (APA) by not providing the required notice and comment in developing the IFRs.

The court therefore vacated certain provisions of the IFRs, including their rebuttable presumption in favor of the QPA.

In August 2022, the Departments issued final regulations that replaced the provisions vacated in February 2022 with different standards to be used by IDR arbitrators in determining payment amounts. Once again, however, health providers asserted that the regulations improperly limited arbitrators' discretion and improperly weighted the QPA (by making it the "de facto benchmark" for OON reimbursement). For example, the providers argued that the final regulations require IDR arbitrator to evaluate the QPA first and only then consider the other non-QPA factors.

The Texas district court once again agreed, holding that the challenged provisions of the August 2022 final regulations are unlawful and must be vacated under the APA.

Providers Established Standing to Challenge Final Regulations

On a threshold issue, the district court concluded that the providers had standing, including under Article III, to challenge the final regulations. According to the court, the providers demonstrated two cognizable injuries stemming from the final regulations. First, the court agreed that the providers sustained a procedural injury in that the regulations:

Deprived them of the arbitration process established under the NSA.
Replaced that process with one that improperly emphasized the QPA (thereby making it more difficult for an IDR arbitrator to accept a provider's payment offer).

Second, the court held that the providers established that they would likely suffer financial harm in that the final regulations established an arbitration process that would result in the systematic reduction of OON reimbursements (by privileging the QPA). Here, the providers had argued that the QPA generally would not reflect the actual cost of providing services.

Provider Challenges Under Administrative Procedure Act

On the merits, the district court concluded that the final regulations' challenged provisions exceeded the Departments' authority and conflicted with the NSA. As a result, the provisions needed to be set aside under the APA.

Final Regulations Conflicted with NSA

First, the court concluded that the challenged aspects of the final regulations violated the APA by conflicting with the NSA's unambiguous statutory text. The court observed that the NSA expressly requires IDR arbitrators, in deciding which party's offer to choose, to consider the QPA and certain information on other circumstances. This information includes:

The provider's level of training, experience, and quality and outcomes measurements.
The market share held by the OON provider or facility.
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.
Required the QPA to be weighted more heavily than, or considered before, other factors.

The court also reasoned that the NSA did not:

Limit IDR arbitrators' discretion in considering the statutory factors.
Impose heightened scrutiny on information regarding non-QPA factors.
Create procedural hurdles before IDR arbitrators could consider information about non-QPA factors.

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

The court also concluded that the Departments' final regulations impermissibly changed the NSA's requirements. For example, instead of directing IDR arbitrators to consider all the factors (as required under the NSA), the final regulations require arbitrators to consider the QPA first—and then limits how arbitrators can consider information concerning non-QPA factors. Specifically, the court added, the regulations prohibit arbitrators from giving weight to information involving non-QPA factors unless that information:

Is credible.
Relates to an offer submitted by either party.
Is not already reflected in the QPA.

Moreover, the court noted, an IDR arbitrator that relies on non-QPA information must describe in writing why the arbitrator determined that the information was not already accounted for in the QPA (see Practice Note, Surprise Medical Billing for Group Health Plans: Independent Dispute Resolution (IDR) Process (Part II): Written Decisions and Effects of Payment Amount Determinations). In this and other ways, the court determined, the final regulations impermissibly restricted the IDR arbitrator's statutory discretion. Citing the NSA's detailed qualification requirements for IDR arbitrators, the court rejected the Departments' argument that their final regulations simply filled gaps in the statute.

Vacatur of Final Regulations' Challenged Provisions

After concluding that the final regulations violated the APA, the district court held (as it had regarding the IFRs) that the appropriate remedy was to:

Vacate the challenged portions of the final regulations.
Remand to the Departments for additional consideration in light of the court's opinion.

As a result, the court vacated the following specific provisions of the final regulations:

The word "then" in 45 C.F.R. § 149.510(c)(4)(iii)(B) (the HHS regulations' IDR process considerations in IDR determinations; removing sequence rule).
The entirety of 45 C.F.R. §§ 149.510(c)(4)(iii)(E) and (c)(4)(iv) (the HHS regulations' weighing considerations and examples).
The final sentence of 45 C.F.R. § 149.510(c)(4)(vi)(B) (the HHS regulations' written decision rule).
The word "then" in 26 C.F.R. § 54.9816-8(c)(4)(iii)(B) (the IRS regulations' IDR process considerations in IDR determinations; removing sequence rule).
The entirety of 26 C.F.R. § 54.9816-8(c)(4)(iii)(E) and (c)(4)(iv) (the IRS regulations' weighing considerations and examples).
The final sentence of 26 C.F.R. § 54.9816-8(c)(4)(vi)(B) (the IRS regulations' written decision rule).
The word "then" in 29 C.F.R. § 2590.716-8(c)(4)(iii)(B) (the DOL regulations' IDR process considerations in IDR determinations; removing sequence rule).
The entirety of 29 C.F.R. § 2590.716-8(c)(4)(iii)(E) and (c)(4)(iv) (the DOL regulations' weighing considerations and examples).
The final sentence of 29 C.F.R. § 2590.716-8(c)(4)(vi)(B) (the DOL regulations' written decision rule).
The entirety of 45 C.F.R. § 149.520(b)(3) (the HHS regulations' weighing considerations under the IDR process for air ambulance services).
The entirety of 26 C.F.R. § 54.9817-2(b)(3) (the IRS regulations' weighing considerations under the IDR process for air ambulance services).
The entirety of 29 C.F.R. § 2590.717-2(b)(3) (the DOL regulations' weighing considerations under the IDR process for air ambulance services).

Practical Impact: CMS Directs IDR Arbitrators to Halt Payment Determinations

The Biden administration took a different approach in response to this latest Texas ruling than it did after the February 2022 ruling invalidating parts of the Departments' October 2021 IFRs. In a memo issued after the February 2022 ruling, as background, the DOL noted that the ruling did not impact other aspects of the Departments' rulemaking under the NSA. The Departments stated at the time that they would:

Immediately withdraw guidance documents based on (or that referred to) the invalidated portions of the regulations.
Revise and repost the guidance documents to reflect the district court's ruling.
Provide training on the revised guidance documents for IDR arbitrators and disputing parties.

This time, HHS's Centers for Medicare and Medicaid Services (CMS) noted that the Departments are evaluating and updating the federal IDR process guidance, systems, and related documents to make them consistent with the Texas district court's February 2023 ruling (CMS Response (Feb. 10, 2023)). Effective immediately, CMS also instructed IDR arbitrators to:

Refrain from issuing new payment determinations until they receive further guidance from the Departments.
Recall any payment determinations issued after February 6, 2023.

CMS also directed IDR arbitrators to continue working through other parts of the IDR process as they await additional direction from the Departments.

Of course, the need for clear and settled rules governing the surprise billing IDR process going forward is especially important given that the volume of IDR disputes initiated through the federal IDR portal has so far exceeded the Departments initial estimates. In a report issued in December 2022, the Departments indicated that, from April 15 through September 30, 2022, the number of disputes initiated through the federal IDR portal (more than 90,000) exceeded the number of disputes the Departments originally expected to be submitted for an entire year.

Texas District Court Once Again Vacates Departments' NSA Rules; CMS Orders Temporary Hold on New IDR Payment Determinations | Practical Law