Tex. Med. Ass'n v. United States Dep't of Health & Human Servs.

• Decision Date: 06 February 2023
• Docket Number: 6:22-cv-372-JDK
• Parties: TEXAS MEDICAL ASSOCIATION, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.
• Court: U.S. District Court — Eastern District of Texas

TEXAS MEDICAL ASSOCIATION, et al., Plaintiffs,
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.

No. 6:22-cv-372-JDK

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

February 6, 2023

MEMORANDUM OPINION AND ORDER

JEREMY D. KERNODLE UNITED STATES DISTRICT JUDGE

In these consolidated cases, Plaintiff providers challenge portions of a final rule (the “Final Rule”) issued by the Defendant Departments under the No Surprises Act (the “Act”). The Final Rule governs the arbitration process for resolving payment disputes between certain out-of-network providers and group health plans and health insurance issuers.

In two prior cases, the Court addressed the Act and reviewed an interim final rule issued by the Departments governing the arbitration process. The Court first held that the Act unambiguously requires arbitrators to consider several factors when selecting the proper payment amount-and does not instruct arbitrators to weigh any one factor or circumstance more heavily than the others.^[1] The Court then concluded

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that the interim rule conflicted with the Act because it improperly restricted arbitrators' discretion and directed them to consider one factor-the qualifying payment amount, or “QPA”-as more important than the others. Indeed, when drafting the interim rule, the Departments had publicly expressed concern that arbitrators would select higher payment amounts favored by providers, resulting in higher healthcare costs. The interim rule therefore imposed a “rebuttable presumption” that the offer closest to the QPA should be chosen. This, the Departments explained, would “have a downward impact on health care costs” by lowering payment amounts to providers.^[2] Providers challenged the interim rule, and the Court vacated certain provisions, including the rebuttable presumption in favor of the QPA, after determining that the provisions conflicted with the Act.

The Departments went back to the drawing board. In August 2022, they issued the Final Rule at issue here, replacing the provisions vacated in the prior cases with new requirements for arbitrators when considering the statutory factors. Plaintiffs now challenge these requirements and argue that they unlawfully conflict with the Act in the same manner as the vacated provisions in the interim rule-they improperly restrict arbitrators' discretion and unlawfully tilt the arbitration process in favor of the QPA. The Court agrees.

Accordingly, for the reasons discussed below, the Court concludes that the challenged portions of the Final Rule are unlawful and must be set aside under the Administrative Procedure Act (“APA”). The Court GRANTS Plaintiffs' motions for

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summary judgment (Docket Nos. 41, 42) and DENIES the Departments' crossmotions for summary judgment (Docket Nos. 63, 96).

I.

In the No Surprises Act, Congress established an arbitration process for resolving disputes between out-of-network providers and insurers, detailing the information arbitrators may consider in determining the proper payment amount. Citing the Act, the Departments issued an interim final rule limiting how arbitrators may consider that information-which this Court held unlawful under the APA. The Departments then issued the Final Rule that is the subject of these consolidated cases.

A.

Congress enacted the No Surprises Act in December 2020 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.^[3]

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

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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 an insured receives certain out-of-network medical services, 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 that 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 then 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-

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(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

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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. Notably, insurers are charged by regulation to calculate the QPA. § 300gg-111(a)(3)(E)(i)(I).

The Act also implements a parallel IDR process for determining payments to out-of-network providers of air ambulance services, which largely incorporates by reference the IDR process discussed above. § 300gg-112(b)(4)(A) (citing § 300gg-111(c)(4)). The additional circumstances the arbitrator must “tak[e] into account” for air-ambulance providers differ slightly from those listed above in ways not relevant to the present litigation. Compare § 300gg-112(b)(5)(C)(ii), with § 300gg-111(c)(5)(C)(ii).

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Finally, the Act requires the Secretaries of Health and Human Services, Labor, and the Treasury (collectively, the “Departments”) to “establish by regulation one independent dispute resolution process (referred to in this subsection as the...