On February 23, 2022, the United States District Court for the Eastern District of Texas – Tyler Division issued a legal opinion in the case of Texas Medical Association and Adam Corley v. United States Department of Health and Human Services. As set forth in the opinion, the Court determined that certain provisions concerning the independent dispute resolution (“IDR”) processes in the interim final rule (the “Rule”) issued pursuant to the No Surprises Act (the “Act”) were in conflict with the Act and must be set aside under the Administrative Procedure Act.

The decision of the Court is significant for both healthcare providers and healthcare facilities located within the State of Texas, as both are subject to the independent dispute resolution processes of the Act. The below summary outlines the key elements of the Court’s determination.

Overview of the No Surprises Act

The Act was enacted on December 27, 2020, as part of the Consolidated Appropriations Act of 2021 to address “surprise medical bills.” The Act generally limits the amount an insured patient will pay for emergencies furnished by an out-of-network provider and for certain non-emergency services furnished by an out-of-network provider at an in-network facility.

Of note, the Act requires insurers to reimburse out-of-network providers at a statutorily calculated “out-of-network rate.” Within the State of Texas, the “out-of-network rate” is either (a) the amount agreed to by the insurer and the out-of-network provider, or (b) an amount determined through the IDR process.

Independent Dispute Resolution Process

As set forth in the Act, the arbitrator overseeing the IDR process is instructed to account for a number of considerations, one of which is the “qualifying payment amounts” with respect to reimbursement rates. The “qualifying payment amount” is generally the median rate the insurer would have paid for the service if provided by an in-network provider or facility. (Note that because insurers typically have the ultimate say on what in-network rates are accepted, insurers hold extreme power in calculating the qualifying payment amount).

However, under the Rule, the arbitrator overseeing the IDR is instructed to select the proposed payment amount that is closest to the qualifying payment amount and deviate from that number only if “credible information” “clearly demonstrates” that the qualifying payment amount is “materially different from the appropriate out-of-network rate.”

Determination of the Texas District Court

The plaintiffs in this case—including the Texas Medical Association, on behalf of approximately 55,000 physicians—argued that the IDR procedures set forth in the Rule conflicted with the IDR procedures prescribed in the Act. Specifically, the plaintiffs argue that while the Act instructs arbitrators to consider the qualifying payment amount and five other factors in deciding which offer to accept, the Rule requires arbitrators to select the offer closest to the qualifying payment amount only in extraordinary circumstances, thereby creating a “rebuttable presumption” that the qualifying payment amount is the appropriate offer.

The Court agreed that the Rule “rewrites clear statutory terms” and therefore must be “h[e]ld unlawful and set aside” on this basis. The Court therefore vacated the challenged portions of the Rule pertaining to the IDR processes, though the remaining, unchallenged provisions of the Rule remain in effect.