Congress enacted the No Surprises Act (NSA) in 2020 to reduce surprise medical bills and to provide a simple and fast procedure for out-of-network health care providers to obtain payment from insurers. The U.S. Department of Health and Human Services (HHS), with other agencies, promulgated regulations to govern this payment process, but did so in a way that many perceive stacked the deck against providers and in favor of insurers. Providers immediately bucked against these rules and brought multiple legal actions seeking to block them.
As of Aug. 3, providers have scored two victories against parts of these regulations specifying the methodology for determining the payment amount, and notched a third win last week against the fees charged for using the NSA payment process. Another case challenging the payment methodology awaits decision, as do a series of cases brought against insurers alleging manipulation of the NSA payment process. And more cases continue to be filed. In this article, we provide an update on these lawsuits.
The No Surprises Act
The NSA restricts surprise billing of insured patients by out-of-network health care providers that are not contracted with the patient’s health insurer. Lawmakers recognized that these out-of-network providers administer essential health care services and deserve to be paid. Thus, the NSA provides a process by which providers and insurers attempt to negotiate a payment amount, and if negotiation fails, they can seek a payment determination from an arbitrator in an independent dispute resolution (IDR) process. From April 2022 through March 2023, more than 300,000 disputes were brought to the IDR process, and a huge backlog of claims has developed.
Disputes about eligibility for the federal IDR process (as opposed to a state process) have exacerbated the workload. Whether the IDR process is available to resolve a particular claim depends on several factors, including whether the applicable state has its own equivalent process or state-established standard billing rates, and whether the health insurance plan is a fully insured plan or a self-insured employer plan, among other things. More than a third of claims have been subjected to eligibility challenges. The agencies have attempted to accelerate eligibility determinations, but it remains to be seen if the backlog will be resolved.
The format of the IDR process is baseball-style arbitration, in which the insurer and the provider each submit a proposed payment amount, and then the arbitrator selects one of the two numbers. The process is meant to move quickly, without discovery, lest the IDR process become both protracted and cost-prohibitive. Congress also identified specific factors for the arbitrator to consider in selecting a payment amount: the qualifying payment amount (QPA), the level of expertise involved in the care, the quality and complexity of care provided, the market share held by the out-of-network provider, the type of facility, the efforts of the provider to contract with the insurer, and, if applicable, previously contracted rates between the provider and the insurer from the past four years. Of these factors, the QPA is the most controversial among providers.
For existing insurers, QPA is defined as the median contracted rate entered into by an insurer in the provider’s insurance market for the service provided. It is calculated as of January 2019 and then increased by inflation year over year. For new insurers or new services, the NSA provides a methodology based on other data sources. The number is calculated by the insurer and submitted to the arbitrator with only limited descriptive information, and without the underlying calculations and data. The arbitrator may be able to request additional support for the insurer’s QPA calculation, but the provider has no right to insist upon it. The only real check on the insurer’s QPA calculation is a potential audit by the agencies, though it does not appear that audits have begun in earnest.
The QPA Presumption: TMA I
The government issued proposed regulations regarding this IDR process in September 2021, shortly before the IDR process was set to take effect in January 2022. One part of the regulations created a rebuttable presumption that the IDR arbitrator would select the payment amount offered by the provider and the insurer that was the closest to the QPA, “unless the certified IDR entity determines that credible information submitted by either party … clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.”
The Texas Medical Association (TMA) and others challenged the presumption in favor of the QPA in TMA I. In February 2022, the district court issued a decision agreeing with the providers and held that the NSA unambiguously requires arbitrators to consider several factors when selecting the proper payment amount and does not allow the agencies to direct arbitrators to weigh any one factor or circumstance more heavily than the others. The court vacated the presumption in favor of the QPA.
The QPA Presumption Redux: TMA II
In August 2022, the agencies issued a final rule replacing the regulations vacated by the lawsuit. The new rule did not include the express presumption in favor of the QPA. However, it still directed the IDR arbitrator to consider the QPA first, to only consider information other than the QPA if it is nonduplicative, and if the arbitrator considers information other than the QPA, to explain why that information was not already encompassed in the QPA.
Providers challenged the final rule in TMA II, and again, in February 2023, the district court sided with the providers. The court concluded that the NSA requires the arbitrators to consider all the factors listed in the NSA, without granting the QPA special status or imposing burdens on considering other factors. The court then vacated the QPA presumption.
In response to TMA II, the agencies directed the IDR providers to temporarily stop issuing final payment decisions. By March 2023, the agencies allowed the IDR process to resume making determinations, in accordance with the TMA I and TMA II rulings. The agencies also noticed their appeal of TMA II to the Fifth Circuit.
In July, the government filed its opening appellate brief in TMA II. The government argued the plaintiffs lack standing because there is no evidence the rule led arbitrators to systematically select offers closer to the QPA. On the merits, the government argued that the rule in fact provides the QPA no pride of place. Instead, the rule is consistent with the NSA and merely directs arbitrators to consider only credible, relevant and nonduplicative information, and to provide reasons for their decisions to rely on evidence besides the QPA. A decision on the appeal is unlikely until late this year or early next year.
Ghost Contracting: TMA III
In another section of the rules, the agencies provided direction for how insurers should calculate the QPA. In TMA III, providers challenged several aspects of this methodology as contrary to the NSA and biased in favor of insurers.
Providers’ principal concern is that the regulations allow insurers to manipulate the QPA by permitting “ghost contracts” or “ghost rates” to be included in the QPA calculation. Ghost contracts are contracts with providers for billing codes that the provider never uses and thus has no incentive to negotiate. By allowing insurers to include ghost contracts in their QPA calculation, providers argue that insurers are able to deflate the QPA with contracted rates that are neither negotiated nor used. Relatedly, providers also argue that the regulations allow insurers to manipulate the QPA for a particular billing code by combining specialties and subspecialties.
Providers also object to the exclusion of risk-sharing payments, incentive payments, retrospective payments and payment adjustments from the QPA calculation, and to discretion the rules give insurers to decide which of their plans to include in the calculation. And, finally, providers challenge the limited disclosures insurers are required to make to providers of the methodology they use for calculating the QPA.
Argument before the district court was held in April 2023. The court examined counsel for both sides extensively and suggested both sides face problems with their textual arguments, but it was not clear from the hearing whether the court favored either side. A decision is likely coming soon, as TMA IV, argued the same day, was decided on Aug. 3.
IDR Fee Hikes: TMA IV
The last of the TMA cases, TMA IV, is also the most straightforward. In December 2022, the agencies increased the IDR fee from $50 to $350, without providing the opportunity for notice and comment. The agencies also limited the ability of providers to batch claims together. Providers argued that the combination of the fee increase with the restrictions on batching make it uneconomical for providers with a high volume of smaller-dollar claims to challenge underpayments. On Aug. 3, the district court again ruled in providers’ favor and vacated both the fee increase and the batching rules on the basis that they were issued without necessary notice and comment. The district court did not reach the merits of providers’ challenges, however, so even if they do not appeal, it is possible the agencies will promulgate the same rules after a proper notice-and-comment process.
Cases Against Insurers: Guardian Flight and Med-Trans
Air ambulance providers have sued insurers and IDR providers in multiple cases in Texas and Florida. Based on previous years’ contracted rates and market data for rates paid by the insurers, as well as admissions of errors by some insurers, the air ambulance providers allege that the insurers are miscalculating the QPA. And they allege that the arbitrators improperly applied a presumption in favor of the QPA even after TMA I vacated the rule allowing that.
The insurers and IDR providers have moved to dismiss these cases. The IDR providers argue that they are entitled to immunity as an arbitrator and that the plaintiffs lack standing, and all defendants argue that the air ambulance providers have failed to state a claim. The Texas court has placed its cases on hold pending a decision by the Florida court, but as of late July, the parties in at least some of the Florida cases appear to be settling, though in others, providers have recently reported there are no ongoing settlement talks. It remains to be seen whether any of these cases will reach a decision.
In addition, some insurers have allegedly failed to promptly pay providers within 30 days of an IDR decision, as prescribed by the NSA. With no recourse under the NSA, the same air ambulance providers have turned to the courts, seeking to enforce IDR determinations due to insurers’ failure to timely pay these claims. These cases are currently pending, and no hearings have been set.
Providers have scored three wins on pushing back against the federal IDR process, which many argue is insurer-friendly. But providers continue to face an uphill battle. Insurers have financial incentives to underpay as many out-of-network claims as they can and to roll the dice with the IDR process, which seems to favor them. While the claim is stuck in the slow-moving IDR process, the insurer holds on to the money. This failure to pay, in turn, can affect provider liquidity and operations. In addition, once in the IDR process, the QPA is a black box where only the insurers know what is happening inside. And on the off chance they lose in arbitration, paying the IDR fees in cases they lose is affordable for large insurers.
In the meantime, providers and their management companies face huge pressure to agree to whatever payment terms the insurer might put on the table to avoid entering the costly IDR process and potentially suffer the consequences of denied, delayed, and reduced payment terms. In fact, we have already witnessed the impact of insurers’ delays in payment on liquidity in the health care industry, which has faced an increased number of restructuring and bankruptcy cases. In at least one instance, the burden of NSA collections on liquidity has been attributed as a factor leading up to the filing of a Chapter 11 bankruptcy.
We anticipate providers will continue litigating these cases and pressing the agencies to change their regulations or, failing that, lobbying Congress to amend the NSA. Until that happens, while navigating the current IDR process, providers should partner with companies that have systems to automate the IDR process and they should deploy data sources, including their own past contracts and commercial data sources, to demonstrate that the QPA submitted by the insurer is not accurate. And, if all else fails and there are signs that insurers are engaged in systematic manipulation of the IDR process and the QPA calculation, providers may consider not only seeking judicial review of the individual IDR determination, but also bringing common-law fraud, unfair competition and similar claims against insurers outside of the NSA.
 Requirements Related to Surprise Billing; Part II, 86 Fed. Reg. 55,980, 56,104 (Oct. 7, 2021).
 Tex. Med. Ass’n v. HHS, 587 F. Supp. 3d 528 (E.D. Tex. 2022); see also LifeNet, Inc. v. HHS, 617 F. Supp. 3d 547 (E.D. Tex. 2022).
 Tex. Med. Ass’n v. HHS, No. 22-cv-372, 2023 WL 1781801 (E.D. Tex. Feb. 6, 2023).
 Tex. Med. Ass’n v. HHS, No. 22-cv-372, 2023 WL 1781801, appeal docketed, No. 23-40217 (5th Cir. July 12, 2023).
 Tex. Med. Ass’n v. HHS, No. 22-cv-450 (E.D. Tex. filed Nov. 30, 2022).
 Tex. Med. Ass’n v. HHS, No. 23-cv-59 (E.D. Tex. filed Jan. 30, 2023).
 Tex. Med. Ass’n v. HHS, No. 23-cv-59, 2023 WL4977746 (E.D. Tex. Aug. 3, 2023).
 See, e.g., Guardian Flight, LLC v. Aetna Health Inc., No. 22-cv-3805 (S.D. Tex. filed Nov. 1, 2022) (consolidated); Med-Trans Corp. v. Capital Health Plan, Inc., No. 22-cv-1077 (M.D. Fla. filed Oct. 4, 2022).
 42 U.S.C. § 300gg-112 (c)(6); see e.g., Guardian Flight LLC v. Aetna Life Insurance Company Inc, No. 4:23-cv-00805 (S.D. Tex. filed March 3, 2023); Guardian Flight LLC v. Cigna Health and Life Insurance Company, No. 4:23-cv-00826 (S.D. Tex. filed March 6, 2023).
 See, e.g., In re Envision Healthcare Corporation, No. 23-bk-90342 (Bankr. S. D. Tex. filed May 15, 2023).