On July 26, 2022, LifeNet was granted summary judgment in its challenge to portions of the second set of implementing regulations for the Independent Dispute Resolution (IDR) process for air ambulance providers under the No Surprises Act (NSA). Judge Kernodle of the Eastern District of Texas ruled that HHS and the Departments of Labor and the Treasury (the Departments) violated the Administrative Procedure Act (APA) by substantively rewriting the NSA, in creating a presumptive out-of-network rate for plans in the No Surprises Act’s dispute resolution process that would have mirrored the in-network rates from the Qualified Payment Amount (QPA) for air ambulance providers. The court also held that the Departments were not justified in skipping regular notice and comment rulemaking. The judgment largely mirrors Judge Kernodle’s prior ruling vacating the companion portions of the rule that applied to healthcare providers and facilities’ disputes, again confirming that arbitrators cannot elevate the QPA above all the other factors that should be considered.

We view these two rulings enjoining the agencies rules about the QPA in IDR arbitrations as important steps to restoring the balance that Congress intended to create when specifying several other factors that should be considered for determining out-of-network rates. The variety of factors spelled out in the NSA beyond the QPA reflect the Legislature’s recognition that out-of-network rates typically are different and higher than in-network rates.

Background

The No Surprises Act, enacted in December 2020, prohibits balance billing patients for out-of-network emergency services and non-emergency services rendered by out-of-network providers at in-network facilities. When the No Surprises Act applies, the out-of-network rate payable by the plan is determined by state law or an all-payer model, if applicable.

In the absence of state law, reimbursement is determined by the IDR process when the payor and provider cannot agree on a negotiated out-of-network rate. In the IDR process, both parties must submit final offers for payment along with supportive written material to an IDR entity who is required to select between the two offers. The No Surprises Act directs the IDR entity to consider at least seven specifically enumerated factors in making the payment determination. These seven, include: (i) the QPA, which is defined as the plan’s median in-network rate for same or similar items or services in the geographic area; (ii) the provider’s level of training experience, and quality outcomes; (iii) the market share of the provider and plan; (iv) teaching status, case, mix, and scope of services of the provider; (v) patient acuity; (vi) demonstrations of good faith efforts to enter into a network agreement with the other party; and (vii) if applicable, prior contracted rates between the parties in the previous four years. The IDR entity cannot consider the provider’s usual and customary rate or the rates paid by government reimbursement programs.

On September 30, 2021, the Departments issued the second set of implementing regulations (the IDR Rule) which, in part, provided significant additional detail regarding the IDR process, and would have made the QPA the presumptive out-of-network rate, thereby downgrading the other factors that Congress specified for consideration. The IDR Rule was promulgated as an interim final rule, skipping the regular notice-and-comment rulemaking required by the APA.

Specifically, the IDR Rule sought to establish that the IDR entity should presume that the QPA is the appropriate payment amount and should select the offer closest to the QPA, unless either party submits credible evidence to establish that the appropriate payment amount is materially different than the QPA. Furthermore, if the IDR entity does not choose the offer closest to the QPA, then the IDR Rule sought to require the written decision to explain the additional consideration relied upon, whether the information was credible, and the basis by which it determined that the credible information demonstrated that the QPA was materially different from the appropriate out-of-network rate. In this way, the IDR Rule would have elevated one factor above others that Congress had specifically identified for consideration by arbitrators, and reduced importance that Congress had clearly placed on the others when including them in the NSA. Additional information on the IDR Rule is available here in a previous issue of Health Headlines.

On October 28, 2021, the Texas Medical Association filed suit in federal district court alleging that the Departments ignored the text of the No Surprises Act and congressional intent, effectively rewriting portions of the No Surprises Act by requiring the IDR entity to presume the QPA is the appropriate payment amount. The Texas Medical Association asked the court to strike the portions of the IDR rule that establish the presumption in favor of the QPA as to healthcare providers and facilities and reinstate the process set out in the No Surprises Act.

On February 23, 2022 the Eastern District of Texas granted summary judgment in favor of the Texas Medical Association, vacating the challenged portions of the IDR Rule as to healthcare providers and facilities, thereby confirming that the QPA was not more important than the other factors specified by Congress. The court held the challenged portions of the IDR Rule that establish the offer closest to the QPA as the presumptive out-of-network rate in the IDR process conflict with the unambiguous statutory text, by improperly placing a thumb on the scale for the QPA. The court held that the IDR Rule unlawfully “rewrite[s] clear statutory terms by ascribing additional, material terms” in instructing arbitrators to consider one factor more heavily than the others, and the IDR Rule had to be set aside.

The court additionally held that the Departments’ failure to provide notice and comment as required by the APA is a second and independent basis to set the portions of the IDR Rule aside. Additional information about the Texas Medical Association judgment is available here in a previous issue of Health Headlines.

In April 2022, in light of the Texas Medical Association judgment, the Departments issued amended guidance directing IDR entities, to give equal consideration to all of the IDR factors in disputes between plans and healthcare providers or facilities. However, for air ambulance providers, the amended guidance still maintained a presumption in favor of the QPA. This new ruling corrects that error.

LifeNet Challenge to the IDR Rule

On April 27, 2022, LifeNet, Inc., an air ambulance provider brought suit in the Eastern District of Texas challenging the portions of the IDR rule that establish a presumption in favor of the QPA in IDR disputes brought by air ambulance providers. Over the government’s objection, the case was assigned to Judge Kernodle, the same judge that presided over the Texas Medical Association case.

LifeNet and the government largely raised the same substantive arguments as were raised in the Texas Medical Association case. The government attempted to thwart LifeNet’s challenge by raising various procedural challenges. First, the government argued that the case should be transferred to the District Court for the District of Columbia where similar litigation challenging the IDR rule as applied to air ambulance providers is currently pending. The court rejected this request, finding that such a transfer would “waste judicial resources” and delay resolution of the case. The Departments also challenged LifeNet’s standing.

The court held that the portions of the Rule at issue did “exactly what the Court ruled unlawful in [the Texas Medical Association case.]” Again, the court held that the IDR rule rewrote the clear statutory terms of the No Surprises Act by placing a thumb on the scale in favor of the QPA. The court also held the Departments were not justified in bypassing the required notice and comment process under the Administrative Procedure Act when issuing the Rule. The court noted had the Departments permitted notice and comment, it would have “almost certainly changed—even if in small part—the Rule’s complex arbitration process.”

Impact of Judgment

The government asked the court for to remand the rule to the Departments to establish further justification, but the court instead vacated the challenged portions of the IDR Rule. Specifically, the court vacated:

• the final sentence of 45 C.F.R § 149.520(b)(2),
• the final sentence of 26 C.F.R. § 54.9817-2T(b)(2), and
• the final sentence of 29 C.F.R. § 2590.717-2(b)(2).

These portions of the IDR Rule serve to establish the QPA as the presumptive out-of-network rate in the IDR process for air ambulance disputes. The court’s vacatur removes any reference to this presumption or the need for the parties to demonstrate a “material difference” between the QPA and what they argue is the appropriate out-of-network rate. The vacatur issued by the court is not limited to the plaintiffs, but the impacted portions of the IDR Rule entirely and will have national effect.

Despite the procedural shortcomings of skipping notice and comment, the remainder of the second interim final rule remains in effect. Thus, the IDR process will remain in effect as implemented, with all factors enumerated in the No Surprises Act considered equally, unless and until remedied by either the agency correcting its own errors, or further court rulings based on further challenges by providers that have been or may be brought.

Numerous other challenges to the IDR rule are pending across the country. Many of these cases have been stayed pending the forthcoming Final Rule implementing the IDR process. The government has already appealed the Texas Medical Association judgment to the U.S. Court of Appeals for the Fifth Circuit, but this appeal is also stayed. The Final Rule is currently under review by the White House Office of Management and Budget (OMB), and publication is expected soon. There is not a set timeline for OMB review, but the government has repeatedly forecasted that the Final Rule will be published “this summer.”

The summary judgment opinion is available here.