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Insurance & Benefits

Texas Physicians Win Battle Against Federal Surprise Billing Rule

The ruling removes the requirement that arbiters prioritize the median in-network rate to determine the price of a service.
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Dallas lawyers representing the Texas Medical Association succeeded in getting rid of a portion of the rules used to interpret the federal No Surprises Act, which is meant to prevent surprise medical bills.

Judge Jeremy Kernodle of the U.S. District Court for the Eastern District of Texas ruled that the government did not follow the text of the act when it required the arbitrators to use the median in-network rate in settling payment conflicts between insurers and out-of-network providers. The judge also ruled that the U.S. Department of Health and Human Services bypassed the law’s notice and comment period required.

The No Surprises Act was passed in 2020 and meant to prevent how much patients pay for a non-emergency procedure at an in-network facility done by an out-of-network provider, called “surprise bills.” The law requires insurance companies to pay these providers at an agreed rate or one determined by an arbitration process, called the independent dispute resolution (IDR). Each side makes their case for how much the procedure should cost, and the arbiter decides. As the rules formerly indicated, the arbiter often used the median rate of in-network prices for the procedure as one of the factors to determine the payment amount. Training experience, previous contracts, and the complexity of the service were also factors.

“These other factors, such as the complexity of the services, each side’s market share and historical efforts to be in-network, and prior contracted rates between the parties, can be highly relevant when determining a fair reimbursement rate,” says Penny Reid, a partner at Sidley, which represented TMA.

The plaintiff’s case focused on which factors were given more weight than others, arguing that the median in-network rate (or the Qualified Payment Amount, or QPA) was never meant to be more influential than the other factors to determine the fee. While the government agencies that helped interpret the law said that no one factor was more important than others, Kernodle disagreed. He said the rule “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.”

The federal rule interpreting the act says, “In making a determination of which payment offer to select, these interim final rules specify that the certified IDR entity must begin with the presumption that the QPA is the appropriate out-of-network rate for the qualified IDR item or service under consideration. These interim final rules further provide that 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 clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate, based on the additional factors set forth in Code sections.”

Kernodle said the rule shouldn’t be sent back to the agencies to fix but should be vacated altogether. There are five other cases involving the arbitration process in other district courts around the country. The law took effect on Jan. 1, so arbitrations may already be ongoing.

Predictably, the providers and payers have different opinions on the ruling. Blue Cross Blue Shield disagreed with the ruling in a statement, saying, “The No Surprises Act protects patients from costly and unanticipated surprise medical bills. This lawsuit could have real implications, and the Texas court’s decision risks the affordability and accessibility of health care. The American people want affordability in the health care system, and they support Congress’s actions in passing the No Surprises Act.”

A group of employers and business groups filed a friend of the court brief arguing for using QPA to set payment rates. The rule says to prioritize QPA because that is the factor that makes the most sense to use when determining a rate, their argument says. “Because the QPA is set by the median of contracted rates for the same or similar services, and accounts for factors such as provider specialties and geography, it provides an objective assessment of what providers of similar services in similar geographic areas accept for the particular service at issue,” the brief says.

The American Medical Association and American Hospital Association, in their lawsuit fighting the rule, said, “In inventing these extra-statutory barriers, the Departments acted contrary to Congress’s deliberate compromise, which mandated that the arbitrator ‘shall’ consider all enumerated factors, without giving categorical priority to any single one. Congress left it to the discretion of the arbitrator—not the Departments—to determine which factors were most important in light of the facts and circumstances of a particular case.”

Texas and many other states have their surprise billing legislation that doesn’t instruct arbiters to weigh any factor more than others. Reid says that the ruling will allow arbiters to make decisions as the rule intended. A recent memo from the Centers for Medicare and Medicaid Services reflected the impact of the ruling. The affected departments are to immediately “withdraw guidance documents that are based on, or that refer to, the portions of the Rule that the court invalidated.”

The Sidley team representing TMA consisted of Penny Reid, Brenna Jenny, Jaime Jones, Derek Webb, Joe LoCascio, with Eric McArthur handling the oral argument.


Will Maddox

Will Maddox

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Will is the senior editor for D CEO magazine and the editor of D CEO Healthcare. He's written about healthcare…

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