Archived Insight | March 1, 2022

Continue No Surprises Act Compliance Despite Court Decision

On February 24, 2022, the United States District Court for the Eastern District of Texas issued a decision invalidating certain parts of the second Interim Final Regulation that implements the No Surprises Act.

Although the decision is a startling rebuke to the regulation, it’s likely to have few immediate implications for sponsors of group health plans. Consequently, No Surprises Act compliance efforts can continue.

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Most group health plans and health insurers are subject to the No Surprises Act for plan years beginning on or after January 1, 2022. The No Surprises Act prevents surprise billing of patients who receive emergency services in the emergency department of a hospital, at an independent freestanding emergency department and from air ambulances. In addition, the law protects patients who receive certain non-emergency services from an out-of-network provider at an in-network facility.

Part I of the Interim Final Regulation (IFR) on the No Surprises Act, which was released in July 2021, addressed patient rights and how to calculate the Qualifying Payment Amount (QPA), generally defined as the plan’s median in-network contracted rate. (We summarized that guidance in our July 14, 2021 insight, “Rule on the No Surprises Act Covers Provider Payments.”)

The Departments of Labor, Treasury, and Health and Human Services (the Departments) issued Part II of the IFR on the No Surprises Act in November 2021. It covers what happens after the participant’s cost-sharing is complete and they are protected from balance billing and how the plan resolves its claim with the out-of-network provider or facility though an Independent Dispute Resolution (IDR) process. We summarized that guidance in our November 9, 2021 insight, “No Surprises Act Rule on 2022 Independent Dispute Resolution.”

The decision

In its decision in Texas Medical Association v. U.S. Department of Health and Human Services the court held that the Departments erred in presuming that the QPA would be the determinative amount selected by an arbitrator during the IDR process unless credible information demonstrates that the QPA is materially different from the appropriate out-of-network rate. The court stated that 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 court found that the Departments’ interpretation was contrary to the plain language of the No Surprises Act. The law states that IDR entities must consider the QPA and other information. That other information includes the provider’s level of training, experience and quality, market share, acuity of the individual, teaching status and demonstrations of good-faith efforts to enter into a network contract.

Under the court’s ruling, IDR entities would have to consider all factors listed in the statute, and not weigh the QPA more heavily than other elements.

The court also held that the Departments violated the federal Administrative Procedure Act by issuing the challenged parts of the rule as an Interim Final Rule with comments, rather than through full notice and comment procedures.

Note that the court only invalidated the decision-making standard used during IDR. It did not invalidate the remaining portions of the No Surprises Act or the Interim Final Rule.

The Departments’ reaction

On February 28, 2022, Employee Benefits Security Administration issued a memorandum indicating the Departments are “reviewing the court's decision and considering next steps.”

The Departments announced that they will:

  • Withdraw guidance related to the parts of the Interim Final Rule that the court invalidated.
  • Offer training on the revised guidance for certified IDR entities and disputing parties.

Open the IDR process for submissions through the IDR Portal. If the 30-day open negotiation period required by the Act has expired, the Departments will permit the parties to request IDR within 15 business days following the opening of the IDR Portal.

What’s next?

The federal government will likely appeal the district court’s decision.

Healthcare providers have also filed cases challenging the rule. For example, a lawsuit filed by the American Medical Association and American Hospital Association is pending in the District Court for the District of Columbia. Four other cases are currently pending in other courts. Additionally, several letters have been circulated by members of Congress stating their opinion on whether the QPA presumption is consistent with legislative intent. Consequently, the issue is likely to continue to develop.

Implications for sponsors of group health plans

Plan sponsors that have implemented the No Surprises Act, including those that have amended plan documents, would generally not have to modify those changes or amendments provided the amendments did not include the IDR standard.

Plan sponsors should continue to ensure that they have processes in place to pay claims that arise under the No Surprises Act and that they comply with the law’s other requirements, such as providing ID cards with certain additional information and ensuring that provider networks are up to date. For a full list of obligations under the No Surprises Act, refer to our Compliance Plan.

To the extent a plan sponsor has decided to pay healthcare providers and facilities based on the QPA as the initial payment, that decision does not have to change. However, plan sponsors now have a new reason to closely monitor payments made for No Surprises Act-covered claims. Healthcare providers and facilities may now have an incentive to be more aggressive with their request during the IDR process, since potentially the arbitrator must consider additional factors to the QPA.

Plan sponsors should establish a process for their claims payers and other service providers to report to the plan on the number of No Surprises Act-covered claims, how they are reviewed and paid and how the process is working. Plan sponsors should assure that they receive reports on when providers request open negotiations or IDR. Once the IDR process is initiated, plan sponsors should ensure that their IDR provider (generally their administrator or out-of-network claims payer) is providing detailed information to the IDR entities for their decision-making. Plans may wish to review some or all of the IDR submissions to check how well their providers are performing.

Have questions about the court’s decision or compliance with the No Surprises Act?

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.