On August 3, 2023, health care providers in Texas scored yet another victory when a federal court vacated additional portions of the Biden Administration’s rules governing fee collection and claim batching under the federal No Surprises Act (the Act). This most recent ruling is the third time the court has vacated portions of rules issued by the US Departments of Treasury, Labor, and Health and Human Services (the Departments) implementing the Act.
*This is the ninth article in a series analyzing the No Surprises Act and its implementation. To view the entire series, click here.
As background, Congress passed the Act to limit what a patient must pay when forced to obtain emergency care or certain non-emergency services rendered by out-of-network providers at in-network facilities. If the Act applies and the provider and patient’s insurer disagree over the payment for these services, either party may initiate a baseball style arbitration proceeding in which an independent dispute resolution entity (IDRE) decides the out-of-network payment for the disputed services. The Texas Medical Association (TMA), a trade association representing more than 56,000 Texas physicians and medical students, along with a physician and a hospital, previously twice challenged (successfully) the Departments’ rules addressing the deference that IDREs should pay to insurers’ rates when making determinations, and they have a third challenge pending to how insurers calculate those rates. This time, in their fourth challenge (TMA IV), the TMA, now joined by two trade associations for Texas radiologists, challenged the administrative fee and claim batching provisions of the Departments’ regulations.
The Fee Increase
The TMA’s first challenge centered on the non-refundable administrative fee parties must pay to access the Act’s arbitration proceedings (this is an administrative fee, separate from the fees paid to IDREs). Previously, the Departments had set the fee at $50 for claims initiated in 2022. Throughout 2022, the Departments confirmed in guidance that the fee would remain unchanged. However, in December 2022, with less than a month’s notice, the Departments issued additional fee guidance that increased the administrative fee for 2023 sevenfold to $350. The Departments provided little advance notice of the increase and did not afford stakeholders the opportunity to weigh in on the potential impact of the increase. The TMA alleged that this sudden increase rendered the arbitration process prohibitively expensive for providers with lower value claims.
In support of its argument, the TMA asserted that the fee increase was issued without the notice and comment period required under the Administrative Procedures Act (APA). The court agreed and concluded that the Fee Guidance was not “interpretative guidance” as the Departments had contended, but rather substantive rulemaking under the APA which was required to undergo the requisite notice and comment period. The court also concluded that the failure to undergo that notice and comment period was not harmless, as the TMA (and other providers) could have pointed out the cost-prohibitive effect the fee increase may have. Finally, the court also rejected the Departments’ argument that it would have been impracticable to undergo the required notice and comment period and that they had good cause to forego it. Accordingly, the court found the fee increase to be contrary to law and struck it down.
The Batching Regulations
The TMA’s second challenge focused on the claim batching provisions of the Departments’ regulations. The Act permits parties to submit multiple underpaid claims for resolution together by an IDRE so long as the services rendered were related to the treatment of a “similar condition” and meet other requirements. The Departments’ rules, however, permitted batching only where services were billed under the same service code. This service-code-only approach, the TMA asserted, was overly restrictive and effectively foreclosed the arbitration process for providers with lower value claims. The TMA argued that the inability to batch similar services together, combined with the costs and fees to arbitrate, made it financially impossible for some providers to access the arbitration process.
The TMA again alleged that the batching regulations were issued without first undergoing the required notice and comment period. Again, the court agreed, holding that the batching rules were substantive in nature, as they deprived providers of the ability to submit multiple claims for arbitration. The court also determined that the failure to provide notice and comment was not harmless, as the Department failed to consider alternatives to the service-code-only approach that stakeholders may have suggested, such as batching by provider sub-specialty or by service code section. Accordingly, the court ruled that the batching regulations were required to undergo the notice and comment period. The court vacated that portion of the Departments’ regulation.
Notably, the TMA also pursued more substantive challenges to both the fee increase and the batching rules, arguing that they were arbitrary and capricious under the APA. However, because the court had already determined that the Departments had improperly bypassed a notice and comment period, requiring vacatur on procedural grounds, the court did not address the TMA’s substantive challenges. Additionally, the court also rejected the TMA’s requests for equitable disgorgement of the increased fees that had already been paid by providers and declined to extend arbitration deadlines for claims previously withheld from arbitration by providers.
Looking Ahead: Arbitrations Paused Pending Additional Department Rulemaking
Having determined that the Departments improperly bypassed the notice and comment period for both the fee and batching provisions, the court vacated the challenged provisions in their entirety. While the court’s decision was a win for providers, it was not a substantive adjudication on the merits. Following the decision, the Departments paused future arbitration submissions while they determine how to proceed forward and whether to issue new regulations. It is unclear whether the Departments will look to issue the same rules after engaging in notice and comment, or whether substantive changes will be made.
The Departments issued a FAQ regarding administrative fees on August 11, 2023, which indicates that the administrative fee has reverted back to $50 for any disputes for which the administrative fee was not already paid prior to the August 3, 2023 court decision.
Meanwhile, TMA II has gone up on appeal to the Fifth Circuit, and the resolution of TMA III remains pending in the district court in Texas (though a federal court in Washington, DC recently dismissed a separate provider challenge to the same provisions at issue in that case). Thus, the current legal framework governing future submissions remains far from settled. Accordingly, while the dust settles, providers should continue to submit open negotiation notices to payers and comply with deadlines imposed by IDREs in order to preserve their rights under the Act.
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