Federal Court Vacates Portion of No Surprises Act Dispute Resolution Rule

King & Spalding

On February 23, 2022, the Texas Medical Association was granted summary judgment in its challenge to portions of the second set of implementing regulations that implement the No Surprises Act’s Independent Dispute Resolution (IDR) process. 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 No Surprises Act in creating a presumptive out-of-network rate for plans in the No Surprises Act’s dispute resolution process. The court also held that the Departments were not justified in skipping regular notice and comment rulemaking.


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 seven factors in making the payment determination, including: (i) the qualifying payment amount (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 made the QPA the presumptive out-of-network rate. 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 established 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. If the IDR entity does not choose the offer closest to the QPA, then the written decision must 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. 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 and reinstate the process set out in the No Surprises Act. Five other lawsuits were filed shortly thereafter challenging the IDR Rule on similar grounds.


The Eastern District of Texas granted summary judgment in favor of the Texas Medical Association, vacating the challenged portions of the IDR Rule. The court explained, “It is a core administrative law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate. But here, the Departments impermissibly altered the Act’s requirements.” The court held the 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 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 must 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. The APA requires that agencies publish a notice of proposed rulemaking and give interested parties an opportunity to participate through the submission of comments. A rule promulgated without notice-and-comment is contrary to law and must be set aside unless the agency can show an exception to the requirement. Here, the court held that the Departments were not excused from regular notice and comment rulemaking and, with respect to the disputed aspects of the IDR Rule, the error was not harmless.


The government asked the court for limited relief, but the court rejected those arguments and vacated the challenged portions of the IDR Rule. Specifically, the court vacated:

  • 45 C.F.R. § 149.510(a)(2)(viii); the second sentence of 45 C.F.R. § 149.510(c)(4)(ii)(A); the final sentence of 45 C.F.R. § 149.510(c)(4)(iii)(C); 45 C.F.R. § 149.510(c)(4)(iv); and 45 C.F.R. § 149.510(c)(4)(vi)(B);

  • 26 C.F.R. § 54.9816-8T(a)(2)(viii); the second sentence of 26 C.F.R. § 54.9816-8T(c)(4)(ii)(A); the final sentence of 26 C.F.R. § 54.9816-8T(c)(4)(iii)(C); 26 C.F.R. § 54.9816-8T(c)(4)(iv); and 26 C.F.R. § 54.9816-8T(c)(4)(vi)(B); and

  • 29 C.F.R. § 2590.716-8(a)(2)(viii); the second sentence of 29 C.F.R. § 2590.716-8(c)(4)(ii)(A); the final sentence of 29 C.F.R. § 2590.716-8(c)(4)(iii)(C); 29 C.F.R. § 2590.716-8(c)(4)(iv); and 29 C.F.R. § 2590.716-8(c)(4)(vi)(B).

These portions of the IDR Rule serve to establish the QPA as the presumptive out-of-network rate in the IDR process. 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. 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.

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. The government may appeal this ruling to the U.S. Court of Appeals for the Fifth Circuit, but the vacatur will stand while the appeal is pending. The summary judgment order is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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