Three Administrative Law Takeaways from the Texas Medical Association Rule Challenge Decision

(See here, here, and here.)

Our health-care focused colleagues wrote about the Texas Medical Association v. US Department of Health & Human Services decision and the substantive issues surrounding the Biden Administration’s rules governing arbitration procedures to resolve surprise billing disputes. This post addresses the court ruling’s analysis of the Administrative Procedure Act.
 
Procedurally, the Texas Medical Association decision contains three big-picture points for regulated parties evaluating newly issued regulations:

• Regulations found to be inconsistent with statutory text will not be deferred to when reviewed by courts.
• Agencies’ failure to heed the APA’s preference for notice-and-comment rulemaking will not be excused by courts lightly.
• Agencies generally cannot moot challenges by revising a previously issued rule to incorporate issues raised in court proceedings.

We discuss each of these issues below.
 
But first, some background on the provisions of the No Surprises Act which were at issue: The No Surprises Act was passed as part of the 2021 consolidated appropriations process. It was intended to address “surprise medical bills” by limiting the amount an insured patient will pay for medical services by out-of-network providers. In addition, the No Surprises Act requires insurers to reimburse out-of-network providers at a statutorily calculated “out-of-network rate” generally calculated under state law or under an “All-Payer Model Agreement.”
 
Where there is no “All-Payer Model Agreement” or state law, the No Surprises Act establishes the procedure to determine payment. While some of this procedure is set forth in the No Surprises Act itself, relevant here, the Act requires the secretaries of Health and Human Services, Labor, and the Treasury to “establish by regulation one independent dispute resolution (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.” The No Surprises Act requires that arbitrators in the IDR process “shall consider” a range of factors when determining a payment amount. The first factor is the “qualifying payment amount” (QPA), which is roughly the median in-network rate for the same service. The No Surprises Act specified December 27, 2021, as the deadline for issuance of this regulation. Shortly thereafter, plaintiffs filed suit in a Texas federal court seeking to have portions of the rule vacated. 

Regulatory Deference

While agencies often have broad discretion to interpret federal statutes, courts will not defer to the agencies if congressional intent is unambiguous. Here, the plaintiffs complained that the agencies’ rules for the IDR process conflict with the No Surprises Act because they include a rebuttable presumption in favor of the price closest to the QPA. The agencies argued that the overall statutory scheme supports the rule — the QPA is listed first, and the other factors are introduced as “additional circumstances.”
 
The court held that the No Surprises Act is unambiguous; it requires the IDR arbitrator to consider all of the listed factors. Because Congress could have assigned more or less weight to specific factors but chose not to, the agencies’ emphasis on the QPA amounted to placing a “thumb on the scale” that contradicted the plain text of the statute.

Failure To Conduct Notice-and-Comment Rulemaking

Agencies generally need to follow notice-and-comment procedures unless they can show an exception to the APA should apply. The federal agencies did not use notice-and-comment rulemaking on three grounds.
 
First, Congress had expressly authorized the agencies to bypass notice-and-comment when it authorized them to promulgate “any interim final rule.” The court quickly dismissed this argument and cited a string of other circuits that had done the same. Statutes can modify or supersede APA procedural requirements, but Congress must do so expressly. Courts will not read between the lines to grant agencies additional authorizations.
 
Second, the agencies maintained they lacked sufficient time to engage in notice-and-comment and therefore had “good cause” to avoid the deadline contained in the statute. But the court felt they had more than enough time — a full year. The agencies argued that they needed to rush the final rule in order to give regulated entities and involved arbitrators sufficient lead time to implement the rule before it came into effect, but the court held that a proposed rule following the usual notice-and-comment processes would have served the same purpose. The court emphasized that Congress was free to excuse the notice-and-rulemaking requirements if it felt they would cause significant harm or delay. Moreover, even if there was good cause to allow extra time for processes like certifying arbitrators, that did not justify rushing the procedures at issue here.
 
Third, the agencies argued that, even if they were required to use notice-and-comment rulemaking, their failure to do so was harmless in that the final rule would have been largely the same. The court rejected this argument because agencies could always retroactively claim that they would have ignored any objections. The harmless error rule looks at the process and not just the result, and creating a rule without the input of experts and regulated entities can be a harm in itself. Accordingly, agencies asserting harmless errors will need to show that they fully considered any potential arguments that could have been raised in comments.   

Regulatory Challenges and Mootness

Finally, the agencies argued that the challenge was moot because they would soon issue a revised rule that would fully address the plaintiffs’ comments and objections that were raised in the lawsuit. The court flatly rejected this argument because it would allow agencies to bypass notice-and-comment whenever they wanted and would circumvent the “entire purpose” of the notice-and-comment provisions.
 
So what happens next for these regulations? This court decision has already resulted in some regulatory finality. A related case, Association of Air Medical Services v. US Department of Health and Human Services, remains pending in DC federal court. This case involves portions of rules issued following the No Surprises Act which were not at issue in the Texas case. Related to issues that were addressed in the Texas decision, a few days after the ruling, the Employee Benefits Security Administration issued a memorandum saying that the agency was both “considering next steps” and working “to conform to the court’s order.” Among others, these steps included withdrawing guidance documents that were based on invalidated portions of the rule and announcing new training on revised materials.
 
We will keep an eye out for further Administrative Procedure Act developments. Note: Firm attorneys filed an amicus brief in support of the Texas Medical Association’s position in this matter.