No More Surprise Medical Bills: Fifth Circuit Affirms Vacatur of Arbitration Provisions of Surprise Billing Rules (TMA II)

In this case, commonly referred to as TMA II, the Fifth Circuit held that the regulations improperly restricted the arbitrators’ authority to consider the various factors specified in the NSA when deciding on reimbursement amounts for out-of-network providers’ services. The court held that the regulations wrongly put a “thumb on the scale” in favor of one factor, the Qualifying Payment Amount (QPA), which is determined exclusively by the insurer and, providers argue, would result in lower reimbursement amounts.

*This is the 14th article in a series analyzing the No Surprises Act and its implementation. To view the entire series, click here.

Background

We have written extensively about the NSA and the various lawsuits challenging the regulations issued by the US Departments of Health and Human Services, Labor, and the Treasury (the Departments). In brief, Congress enacted the NSA with the twin goals of protecting patients from “surprise” medical bills while at the same time ensuring fair reimbursement to out-of-network providers who render medical services. “Surprise” medical bills are those for emergency services furnished by an out-of-network provider or nonemergency services furnished by an out-of-network provider at an in-network facility.

The NSA prohibits out-of-network providers from “balance-billing” patients ― that is, charging them more than what they would have paid had those services been furnished in-network. The NSA then establishes a process whereby providers and insurers negotiate among themselves to arrive at a fair and reasonable payment by the insurer for any unreimbursed amounts, known as the “out-of-network rate.” Should those negotiations fail, either side may invoke the independent dispute resolution (IDR) process, a “baseball-style” arbitration in which the arbitrator must select either the provider’s or the insurer’s proposed reimbursement amount.

Under the NSA, the IDR entity must consider each of the statutory factors and examine the particular facts of the claim to determine a fair and reasonable out-of-network rate. The NSA provides that the arbitrators must consider the QPA (typically, the median rate the insurer would have paid for in-network services) and five “additional circumstances,” including the provider’s level of training, the market share of the provider or insurer, the acuity of the patient or complexity of the case, the scope of services of the facility, and any demonstrations of good faith by the non-participating provider or plan to enter into network agreements during the previous four years.

The Regulations at Issue

The NSA authorizes the Departments to enact regulations governing the IDR process.

In the TMA I case, the Texas Medical Association (TMA) and others challenged the Departments’ October 2021 Interim Final Rule, which established a “rebuttable presumption that the QPA is the appropriate payment amount.” We previously discussed the decision of the Texas federal district court in TMA I, which vacated the Interim Final Rule on the ground that the “rebuttable presumption” in favor of the QPA conflicted with the NSA’s directive that the arbitrator consider all statutory factors. The Departments initially appealed TMA I, but then voluntarily dismissed their appeal and instead issued the regulations at issue in TMA II.

The TMA II regulations (the August 2022 Final Rule) did away with the express “rebuttable presumption” in favor of the QPA, but nevertheless included a series of restrictions regarding the other statutory factors that effectively re-created a presumption in favor of the QPA and tilted the IDR process decidedly in favor of insurers.

First, the Final Rule required that the arbitrator first consider the QPA and “then” consider the other statutory factors if the parties elected to provide such additional information.

Second, the Final Rule provided that in considering evidence other than the QPA, the arbitrator should not give weight to that information if it is not “credible” or if it is already accounted for by the QPA. Significantly, under the NSA the arbitrator may not question the QPA determined by the insurer.

Finally, the Final Rule provided that if the arbitrator relies on information beyond the QPA, the written decision must include an explanation as to why the arbitrator concluded that the information was not already reflected in the QPA.

The district court vacated the Final Rule on the ground that it privileged the QPA “by requiring arbitrators to begin with the QPA and then imposing restrictions on the non-QPA factors that appear nowhere in the statute.” The Departments appealed.

The Fifth Circuit’s Decision

The Fifth Circuit upheld the district court’s decision in its entirety, holding that the Final Rule exceeded the Departments’ rulemaking authority. According to the Fifth Circuit, “nothing in the Act instructs arbitrators to weigh any one factor or circumstance more heavily than the others.” Nor does the NSA authorize the Departments “to superimpose regulatory rules on the clear statutory mandate.”

The problems with the Final Rule included (1) prescribing a “temporal sequence” that arbitrators must follow in analyzing the statutory factors, (2) instructing arbitrators to disregard or not give weight to certain information that the NSA requires them to consider, and (3) imposing an “explanation requirement” to justify reliance on non-QPA information, thereby making the arbitrator “work harder” to give weight to non-QPA information.

Judge Edith Jones wrote the majority decision, joined by Judge Andrew Oldham. Judge Carolyn King wrote an opinion concurring in part and concurring in the judgment. Judge King agreed that the Final Rule conflicted with the NSA, but for slightly different reasons. Judge King agreed that the Final Rule placed a “thumb on the scale” in favor of the QPA, but did not believe that this conclusion was plainly evident from the statutory language. Instead, Judge King turned to the legislative history of the NSA, in which “Congress very deliberately did not intend for the QPA to serve as a ‘benchmark’ in the IDR process.” Judge King wrote that the Final Rule, while not explicitly establishing the QPA as a benchmark, “appear[s] to move the needle in that direction,” contrary to congressional intent.

Looking Ahead: Challenges

It is not yet known whether the Departments will seek reconsideration or en banc review of the panel’s decision or, failing those, certiorari to the US Supreme Court. In fact, the Departments never implemented the Final Rule for the IDR process. Instead, they issued “IDR Guidance for Disputing Parties” that essentially hewed to the NSA’s statutory language.

There were two other TMA lawsuits challenging the Departments’ rulemaking under the NSA. In one (TMA III), the plaintiffs challenged regulations governing various aspects of the QPA calculation methodology. The district court vacated some provisions of the regulations but upheld others. TMA III is now on appeal to the Fifth Circuit, with oral argument scheduled for September.

In another (TMA IV), the plaintiffs successfully challenged a surprise sevenfold increase in administrative fees for the IDR process, and new “batching” rules that made IDR cost-prohibitive for many providers. The Texas federal district court vacated those rules, and the Departments did not appeal. The Departments did issue new proposed rules early this year, which will likely become final rules by the end of this year.

In the meantime, the IDR process continues. While providers have been largely successful in legal challenges to what judges have agreed were insurer-friendly regulations, the regulatory vacuum left by these decisions has caused some on-the-ground confusion, with stakeholders reporting a lack of uniformity in the processes and approaches adopted by IDR entities. While the dust settles, providers should continue to submit claims in a timely manner for open negotiation under the NSA and to meet all other imposed deadlines.