Lifenet, Inc. v. United States Dep't of Health & Human Servs.

• Decision Date: 26 July 2022
• Docket Number: 6:22-cv-162-JDK
• Parties: LIFENET, INC., Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.
• Court: U.S. District Court — Eastern District of Texas

LIFENET, INC., Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.

No. 6:22-cv-162-JDK

United States District Court, E.D. Texas, Tyler Division

July 26, 2022

MEMORANDUM OPINION AND ORDER

JEREMY D. KERNODLE, UNITED STATES DISTRICT JUDGE

Plaintiff LifeNet, Inc. challenges an interim final rule issued pursuant to the No Surprises Act (“Act”). The Rule is nearly identical to the one this Court set aside in Texas Medical Association v. United States Department of Health and Human Services, et al., 2022 WL 542879, at *1 (E.D. Tex. Feb. 23, 2022) (hereinafter TMA). Seeking to avoid that outcome here, Defendants ask the Court to transfer the case to another forum. A transfer, however would waste resources and potentially create inconsistent judgments. Accordingly, the Court DENIES Defendants' motion to transfer (Docket No. 22).

Further for the reasons stated in TMA, the Court concludes that the Rule must be set aside under the Administrative Procedure Act (“APA”). The Court thus GRANTS LifeNet's motion for summary judgment (Docket No. 27) and DENIES Defendants' cross-motion for summary judgment (Docket No 31).

I.

The facts underlying this case are the same as those set forth in detail in TMA. See 2022 WL 542879, at *1.

A.

The No Surprises Act was enacted on December 27, 2020, as part of the Consolidated Appropriations Act of 2021 to address “surprise medical bills.” Pub. L. No. 116-260, div. BB, tit. I, 134 Stat. 1182, 2758-2890 (2020). Generally, the Act limits the amount an insured patient will pay for emergency services furnished by out-of-network providers and for certain non-emergency services furnished by an out-of-network provider at an in-network facility. 42 U.S.C. §§ 300gg-111, 300gg-131, 300gg-132.^[1]

As explained in TMA, the Act also establishes an independent dispute resolution (“IDR”) process to determine the amount insurers must pay such out-of-network providers. See TMA, 2022 WL 542879, at *1 (citing § 300gg-111(a)(1)(C)(iv), (b)(1)(C)). In the IDR process, the provider and insurer each submit a proposed payment amount and explanation to an arbitrator, who then selects one of the two amounts, “taking into account the considerations specified in subparagraph (C).” See id. (citing § 300gg-111(c)(5)(A)-(B)). Subparagraph (C) in turn requires the arbitrator to consider “the qualifying payment amount” and five “additional circumstances,” including the provider's training and experience, the market share held by the provider, and any good faith efforts made by the provider to enter into network agreements. Id. The qualifying payment amount, or “QPA,” is typically the median rate the insurer would have paid for the service if provided by an in-network provider or facility. Id. at *2.^[2]Finally, the Act directs federal agencies to implement the IDR process by regulation, consistent with the Act. Id. at *3 (citing § 300gg-111(c)(2)(A)).

The problem identified in TMA was that the agencies implemented an interim final rule that conflicted with the Act. Rather than instructing arbitrators to consider all the factors pursuant to the Act, the rule required arbitrators to “select the offer closest to the [QPA]” unless “credible” information, including information supporting the “additional factors,” “clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.” See TMA, 2022 WL 542879, at *8 (quoting 45 C.F.R. § 149.510(c)(4)(ii)(A)). The Court explained:

The [agencies] in fact characterize the non-QPA factors as “permissible additional factors” that may be considered only “when appropriate.” 86 Fed.Reg. at 56,080. The Rule thus places its thumb on the scale for the QPA, requiring arbitrators to presume the correctness of the QPA and then imposing a heightened burden on the remaining statutory factors to overcome that presumption.

Id. Because the rule “rewrites clear statutory terms,” the Court held it unlawful and set it aside under the APA, 5 U.S.C. § 706(2)(A). See id. at *9 (citing Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 328 (2014)). The Court also set the rule aside on the alternative ground that it was issued without notice and comment. See id. at *14.

B.

LifeNet now challenges a nearly identical interim final rule (“the Rule”) that applies to air ambulance service providers.

The Rule purports to implement § 300gg-112 of the Act, which establishes a similar IDR process for determining payments to out-of-network providers of air ambulance services. Like the statutory provision in TMA, § 300gg-112 requires the provider and insurer each to submit a proposed payment amount and explanation to an arbitrator in a “baseball-style” arbitration. § 300gg-112(b)(5)(B). The arbitrator must then select one of the two proposed amounts, “taking into account the considerations specified in subparagraph (C).” 300gg-112(b)(5)(A). Subparagraph C states as follows:

(C) Considerations in determination

(i) In general

In determining which offer is the payment to be applied pursuant to this paragraph, the certified IDR entity, with respect to the determination for a qualified IDR air ambulance service shall consider-

(I) the qualifying payment amounts (as defined in section 300gg-111(a)(3)(E) of this title) for the applicable year for items or services that are comparable to the qualified IDR air ambulance service and that are furnished in the same geographic region (as defined by the Secretary for purposes of such subsection) as such qualified IDR air ambulance service; and (II) subject to clause (iii), information on any circumstance described in clause (ii), such information as requested in subparagraph (B)(i)(II), and any additional information provided in subparagraph (B)(ii).

(ii) Additional circumstances

For purposes of clause (i)(II), the circumstances described in this clause are, with respect to air ambulance services included in the notification submitted under paragraph (1)(B) of a nonparticipating provider, group health plan, or health insurance issuer the following:

(I) The quality and outcomes measurements of the provider that furnished such services.

(II) The acuity of the individual receiving such services or the complexity of furnishing such services to such individual.

(III) The training, experience, and quality of the medical personnel that furnished such services.

(IV) Ambulance vehicle type, including the clinical capability level of such vehicle.

(V) Population density of the pick up location (such as urban, suburban, rural, or frontier).

(VI) Demonstrations of good faith efforts (or lack of good faith efforts) made by the nonparticipating provider or nonparticipating facility or the plan or issuer to enter into network agreements and, if applicable, contracted rates between the provider and the plan or issuer, as applicable, during the previous 4 plan years.

§ 300gg-112(b)(5)(C). The arbitrator's selection of a payment amount is binding on the parties and is not subject to judicial review, except under the circumstances described in the Federal Arbitration Act. § 300gg-112(c)(5)(D) (incorporating § 300gg-111(c)(5)(E)).

Pursuant to § 300gg-112(b)(2)(A), Defendants-the Departments of Health and Human Services, Labor, and the Treasury-implemented the Rule challenged here. Requirements Related to Surprise Billing: Part II, 86 Fed.Reg. 55,980 (Oct. 7, 2021). The Rule expressly incorporates the rule at issue in TMA, with only a slight modification. The Rule states:

Except as provided in paragraphs (b)(2) and (3) of this section, in determining the out-of-network rate to be paid by group health plans and health insurance issuers offering group or individual health insurance coverage for out-of-network air ambulance services, plans and issuers must comply with the requirements of § 149.510 [the rule at issue in TMA], except that references in § 149.510 to the additional circumstances in § 149.510(c)(4)(iii)(C) shall be understood to refer to paragraph (b)(2) of this section.

45 C.F.R. § 149.520(b)(1).^[3] Paragraph (b)(2) lists “additional information” for the arbitrator to consider, which mirrors the “additional circumstances” in § 300gg-112 of the Act. Compare § 149.520(b)(2), with 42 U.S.C. § 300gg-112(b)(5)(C)(ii)(I)-(VI). And like the rule in TMA, the Rule governing air ambulance services states that this “additional information” “must also clearly demonstrate that the [QPA] is materially different from the appropriate out-of-network rate.” 45 C.F.R. § 149.520(b)(2).

Thus, the Rule does exactly what the Court ruled unlawful in TMA: it creates a QPA presumption by requiring the arbitrator to select the QPA unless “credible” information “clearly demonstrate[s] that the [QPA] is materially different from the appropriate out-of-network rate.” Compare 45 C.F.R. § 149.520(b)(2), with TMA, 2022 WL 542879, at *8 (quoting 45 C.F.R. § 149.510(c)(4)(ii)(A)).

C.

Despite the Court's ruling in TMA, Defendants have continued to apply the QPA presumption to air ambulance service providers. Docket No. 27 at 10; see Docket No. 31 at 12 n.3. Accordingly, LifeNet, an air ambulance service provider transporting “hundreds of patients each year,” filed this lawsuit and shortly thereafter moved for summary judgment. Docket Nos. 1 ¶ 1; Docket No. 27.

Like the plaintiffs in TMA, LifeNet challenges the Rule under the APA, arguing that it improperly requires arbitrators to give “greater weight” to a single statutory factor, the QPA, and in so doing “deviates from the statute.” Docket No. 1 ¶ 29. LifeNet also argues that the Rule was issued without the required notice and comment. Docket No. 1 ¶ 32-39. Accordingly, LifeNet requests that the Court vacate and set aside the final sentence of 45 C.F.R. § 149.520(b)(2) and the identical...