On August 24, 2023, Judge Kernodle of the Eastern District of Texas issued a fourth judgment overturning additional aspects of the No Surprises Act (NSA) rulemaking and guidance. This latest decision vacated aspects of rulemaking related to the method for calculating the Qualifying Payment Amount (QPA) and some provisions related to the processing and dispute resolution for air-ambulance claims under the NSA. In response, CMS has suspended all Independent Dispute Resolution (IDR) process operations until the Departments of Health and Human Services, Labor, and the Treasury (the Departments) can issue additional guidance.

The Plaintiffs, led by lead plaintiff Texas Medical Association (TMA), challenged portions of rulemaking and informal guidance issued by the Departments regarding how insurers are permitted to calculate the QPA for out-of-network services subject to the NSA. TMA argued that the regulations artificially deflate the QPA, which consequently skews payor-provider disputes and negotiations against providers. Additional detail regarding the arguments made by TMA in the lawsuit is available in a previous issue of Health Headlines here. Air ambulance provider plaintiffs also challenged aspects of the Departments’ rulemaking and informal guidance regarding the timeline for insurers to make a payment decision, guidance requiring two separate IDR processes for a single air medical transport claim, and air-ambulance-specific QPA guidance.

Plaintiffs argued that the challenged portions of the rulemaking and guidance violated the Administrative Procedure Act (APA) because they conflict with the text and intent of the NSA, and because they are arbitrary and capricious. While he issued a split opinion, Judge Kernodle largely sided with the Plaintiffs, focusing on the conflicts between the challenged provisions and the NSA. The Plaintiffs won on the following issues:

• Ghost Rates in QPA Determination: The order overturned guidance that allowed the plans to consider so-called “ghost rates” in their calculation of the QPA—that is, contracted rates for services that a contracting provider or facility never expects to provide. Because the providers do not provide such a service, the provider has no incentive to negotiate a fair and reasonable price, and these “ghost rates” are typically lower than rates for services that are actually provided, sometimes as low as $0. The challenged guidance issued in August 2022 FAQs instructed that $0 rates should not be included in the QPA, but non-$0 rates (including $1 ghost rates) should be included. Judge Kernodle held that the inclusion of ghost rates contradicted the text of the NSA that states the QPA should include rates for services actually “providedby a provider.”
• Specialty Rates: The NSA defines the QPA as the plan’s median in-network rate for the same or similar service provided by a provider in the same or similar specialty as the out-of-network provider. However, in August 2022 FAQs, the Departments clarified that separate rates for specialty need only be calculated if there is a “material difference” in the contracted rates between providers of different specialties. TMA argued—and Judge Kernodle agreed—that this rule conflicts with the NSA’s directive that the QPA always be calculated based on the rates of providers in the same or similar specialty.
• ERISA Plan Administrator Rates: TMA also challenged the degree to which the first interim final rule (the First IFR) gave self-funded plans discretion to decide whether to use contracted rates recognized by all self-insured group health plans administered by the plan’s third-party administrator or only the contracted rate of the self-funded plan for the purpose of calculating the QPA. Judge Kernodle held that the NSA unambiguously requires the rates of the plan sponsor, not the plan administrator to be used, and overturned contrary guidance.
• Air Ambulance Challenges: The opinion also overturned three challenged portions specific to air ambulance providers. First, Judge Kernodle overturned provisions of the First IFR that requires plans to make payment for claims governed by the NSA within 30 days of when the plan receives “the information necessary” to decide a claim for payment. The plaintiffs argued, and Judge Kernodle agreed, that this language permits plans to indefinitely delay payment, and conflicts with the unambiguous language of the NSA that requires payment to be made within 30 days after the bill for such services is transmitted. Air ambulance rulemaking indefinitely extending the 30-day deadline for insurers to make a payment decision. Judge Kernodle also overturned aspects of Technical Guidance that requires two separate IDR process for a single air medical air transport—one for transport and one for mileage. Judge Kernodle held that air ambulance service is a single service under the NSA, and thus is eligible for challenge in one IDR process. Additionally, Judge Kernodle held that the First IFR improperly excludes contracted rates resulting from case-specific agreements and single case agreements from the QPA calculation for air ambulance services. Notably, this decision creates a circuit split with the District of Columbia, where an August opinion held that single-case agreements were properly excluded. SeeAss’n of Air Medical Services v. U.S. Department of Health & Human Services, 2023 WL 5094881, at *3–5 (D.D.C. Aug. 4, 2023).
• Impact of Adjustments:In the First IFR, the Departments instructed that health plans should use an amount less than the total payment amount to calculate the QPA if a contracted rate included risk sharing, bonus, penalty, or other incentive-based and retrospective payments or payment adjustments. Even though these adjustments and retrospective payments are included in the total amount paid to a provider, the Departments instructed that they were not to be included in the QPA. Judge Kernodle held that this directive conflicted with the NSA, because the Act “plainly requires insurers to calculate QPAs using the ‘entire,’ ‘highest possible’ payment that a provider could receive for an item or service under the contracted rate.”

The government successfully defended two challenged provisions of guidance as consistent with the NSA and not arbitrary or capricious. These provisions are the following:

• QPA Disclosure:Plaintiffs challenged the portions of the First IFR specifying what information insurers must disclose concerning the QPA calculations, arguing that the First IFR requires no meaningful disclosure and gives providers no recourse for improperly calculated claims. Judge Kernodle held that the NSA gave the Departments wide latitude in issuing a disclosure rule, and the Departments demonstrated that their rule was the result of reasoned decision making. To the extent this limited disclosure and recourse prejudices providers, Judge Kernodle explained that was the fault of Congress, not the Departments.
• Air Ambulance Geographic Region: Plaintiffs argued that the geographic regions used for the purpose of calculating the QPA for air ambulance services are too broad and do not account for variances across geographic regions, particularly between urban and rural communities. The Departments argued the scope was required to avoid instances where there was insufficient information to determine a QPA. Judge Kernodle held that this definition of geographic region was not arbitrary or capricious, and was reasonable and reasonably explained.

The overturned provisions of the rulemaking and informal guidance were all vacated, and this vacatur will have nationwide effect. In response to this order, CMS suspended all IDR disputes pending future instruction from the Departments. Some IDR operations were already on hold pending future rulemaking following a prior summary judgment order by the Eastern District of Texas. In the interim, parties are instructed to continue timely initiating open negotiations to preserve the right to bring IDR claims once the process is reopened.

The Eastern District of Texas order and opinion is available here.