Tex. Med. Ass'n v. U.S. Dep't of Health & Human Servs.

• Citation: 587 F.Supp.3d 528
• Decision Date: 23 February 2022
• Docket Number: Case No. 6:21-cv-425-JDK
• Parties: TEXAS MEDICAL ASSOCIATION and Adam Corley, Plaintiffs, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.
• Court: U.S. District Court — Eastern District of Texas

587 F.Supp.3d 528

TEXAS MEDICAL ASSOCIATION and Adam Corley, Plaintiffs,

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

Case No. 6:21-cv-425-JDK

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

Signed February 23, 2022

Brenna E. Jenny, Derek A. Webb, Eric D. McArthur, Sidley Austin LLP, Washington, DC, Jaime L.M. Jones, Pro Hac Vice, Joseph R. LoCascio, Sidley Austin LLP, Chicago, IL, Penny Packard Reid, Sidley Austin LLP, Dallas, TX, for Plaintiffs.

James Garland Gillingham, United States Attorney's Office, Tyler, TX, Joel Lunsford McElvain, U.S. Department of Jusctice - Civil Division, Washington, DC, Sean Christopher Day, US Attorney, Beaumont, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

JEREMY D. KERNODLE, UNITED STATES DISTRICT JUDGE

Plaintiff healthcare providers challenge an interim final rule issued pursuant to the No Surprises Act ("Act"). The Rule governs the arbitration process for resolving payment disputes between certain out-of-network providers and group health plans and health insurance issuers. As explained below, the Court concludes that the Rule conflicts with the Act and must be set aside under the Administrative Procedure Act ("APA"). Defendants also improperly bypassed notice and comment required by the APA, and thus the Rule must be set aside for this additional reason. Accordingly, the Court GRANTS Plaintiffs’ motion for summary judgment (Docket No. 25) and DENIES Defendants’ cross-motion for summary judgment (Docket No. 62).

I.

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 an out-of-network provider 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

The Act also addresses the payment of these out-of-network providers by group health plans or health insurance issuers (collectively, "insurers"). In particular, the Act requires insurers to reimburse out-of-network providers at a statutorily calculated "out-of-network rate." § 300gg-111(a)(1)(C)(iv)(II), (b)(1)(D). In states with an All-Payer Model Agreement or specified state law, the out-of-network rate is the rate provided by the Model Agreement or state law. § 300gg-111(a)(3)(K). In states without a Model Agreement or specified state law, the out-of-network rate is either the amount agreed to by the insurer and the out-of-network provider or an amount determined through an independent dispute resolution ("IDR") process. Id.

When there is no Model Agreement or state law, the Act establishes the procedure to determine payment. Insurers must issue an initial payment or notice of denial of payment to a provider within thirty days after the provider submits a bill for an out-of-network service. § 300gg-111(a)(1)(C)(iv), (b)(1)(C). If the provider disagrees with the insurer's determination, the provider may initiate a thirty-day period of open negotiation with the insurer over the claim. § 300gg-111(c)(1)(A). If the parties cannot resolve the dispute through negotiation, the parties may then proceed to IDR arbitration. § 300gg-111(c)(1)(B).

The IDR process—which is the subject of this lawsuit—is a "baseball-style" arbitration. The provider and insurer each submits a proposed payment amount and explanation to the arbitrator. § 300gg-111(c)(5)(B). The arbitrator must select one of the two proposed payment amounts "taking into account the considerations specified in subparagraph (C)." § 300gg-111(c)(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 item or service shall consider-

(I) the qualifying payment amounts (as defined in subsection (a)(3)(E)) for the applicable year for items or services that are comparable to the qualified IDR item or service and that are furnished in the same geographic region (as defined by the Secretary for purposes of such subsection) as such qualified IDR item or service; and

(II) subject to subparagraph (D), 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 a qualified IDR item or service of a nonparticipating provider, nonparticipating emergency facility, group health plan, or health insurance issuer of group or individual health insurance coverage the following:

(I) The level of training, experience, and quality and outcomes measurements of the provider or facility that furnished such item or service (such as those endorsed by the consensus-based entity authorized in section 1890 of the Social Security Act [ 42 U.S.C. 1395aaa ]).

(II) The market share held by the nonparticipating provider or facility or that of the plan or issuer in the geographic region in which the item or service was provided.

(III) The acuity of the individual receiving such item or service or the complexity of furnishing such item or service to such individual.

(IV) The teaching status, case mix, and scope of services of the nonparticipating facility that furnished such item or service.

(V) 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 or facility, as applicable, and the plan or issuer, as applicable, during the previous 4 plan years.

§ 300gg-111(c)(5)(C).

The Act also prohibits the arbitrator from considering the provider's usual and customary charges for an item or service, the amount the provider would have billed for the item or service in the absence of the Act, or the reimbursement rates for the item or service under the Medicare, Medicaid, Children's Health Insurance, or Tricare programs. § 300gg-111(c)(5)(D). 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-111(c)(5)(E).

Important to the challenge here is "the qualifying payment amount" ("QPA"), referenced in § 300gg-111(c)(5)(C)(i)(I). The QPA is generally "the median of the contracted rates recognized by the plan or issuer ... under such plans or coverage, respectively, on January 31, 2019, for the same or a similar item or service that is provided by a provider in the same or similar specialty and provided in the geographic region in which the item[s] or service is furnished," with annual increases based on the consumer price index. § 300gg-111(a)(3)(E)(i)(I)-(II). In other words, the QPA is typically the median rate the insurer would have paid for the service if provided by an in-network provider or facility. And because insurers had ultimate say on what in-network rates they accepted in 2019, insurers now hold ultimate power—and are charged by regulation—to calculate the QPA. § 300gg-111(a)(3)(E)(i)(I) ; e.g. , 86 Fed. Reg. 36,872, 36,891 (explaining that certain definitions of the July interim final rule "will make it easier for plans and issuers to calculate the QPA, and for providers and facilities to understand the QPA"); 86 Fed. Reg. at 55,996 ("[I]t is not the role of the certified IDR entity to determine whether the QPA has been calculated by the plan or issuer correctly.").

Finally, the Act requires the Secretaries of Health and Human Services, Labor, and the Treasury, to "establish by regulation one independent dispute resolution process (referred to in this subsection as the ‘IDR process’) under which ... a certified IDR entity ... determines, subject to subparagraph (B) and in accordance with the succeeding provisions of this subsection, the amount of payment under the plan or coverage for such item or service furnished by such provider or facility." § 300gg-111(c)(2)(A). The deadline for the regulation was December 27, 2021. Id.

B.

On September 30, 2021, the Departments issued an interim final rule implementing the IDR process (herein, the "Rule"). Requirements Related to Surprise Billing: Part II, 86 Fed. Reg. 55,980 (Oct. 7, 2021). Under the Rule, the arbitrator must select the proposed payment amount closest to the QPA unless certain conditions are satisfied, as set forth below:

Not later than 30 business days after the selection of the certified IDR entity, the certified IDR entity must: (A) Select as the out-of-network rate for the qualified IDR item or service one of the offers submitted under paragraph (c)(4)(i) of this section, taking into account the considerations specified in paragraph (c)(4)(iii) of this section (as applied to the information provided by the parties pursuant to paragraph (c)(4)(i) of this section). The certified IDR entity must select the offer closest to the [QPA] unless the certified IDR entity determines that credible information submitted by either party under paragraph (c)(4)(i) clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate, or if the offers are equally distant from the [QPA] but in opposing directions. In these cases, the certified IDR entity must select the offer as the out-of-network rate that the certified IDR entity determines best represents the value of the qualified IDR item or services, which could be either offer.

45 C.F.R. § 149.510(c)(4)(ii).² The Rule defines "material difference" as "a substantial likelihood that a reasonable person with the training and qualifications of a...