No Surprises Here – Providers Win Again in No Surprises Act TMA III Litigation Vacating Independent Dispute Resolution Rule

On August 2, 2024, the United States Fifth Circuit affirmed the rulings in the No Surprises Act litigation brought by the Texas Medical Association and other plaintiffs[1] challenging the August 2022 Final Rule that has been issued by the Departments of Labor, Treasury, and Health and Human Services (the “Departments”) that applied to the Independent Dispute Resolution (“IDR”) process created by the No Surprises Act (the “Act”).[2]

What is the August 2022 Final Rule?

The August 2022 Final Rule addressed, in part, the specific factors arbitrators must consider in resolving disputes between out-of-network (“OON”) healthcare providers/facilities and air ambulance providers (collectively, “Providers”), on one hand, and group health plans and health insurance issuers, on the other hand, under the Act. Under the (since vacated) portions of the August 2022 Final Rule:

• Consider the QPA for Same or Similar Item/Service First. A Federal IDR entity was required to weigh specific considerations and select the offer that “best represents the value of the qualified IDR service or item” as the OON rate. Specifically, the IDR entity was instructed to consider the “qualified payment amount” (“QPA”) for the same or similar qualified IDR item/service for the applicable year “and “then” consider information regarding the additional statutory factors, if the parties elect to submit any such additional information.”[3]
• QPA’s Presumption of Credibility. IDR entities were to presume the credibility of the QPA while requiring that they evaluate the credibility of other factors.
• Limited Non-QPA Information Considered. IDR entities only considered information about additional circumstances or factors to the extent the information related to the offer submitted by either party, and was not already accounted for by the QPA.
• Write-Up Addressing Non-QPA Factors Used. If an IDR entity relied on information about non-QPA factors in selecting an offer, the written decision must include an explanation of why the IDR entity concluded that this information was not already reflected in the QPA.

Background on TMA III

Plaintiffs in TMA III successfully challenged the August 2022 Final Rule provisions related to the weight that should be given to the QPA in the IDR process. They asserted that it conflicted with the arbitration process created by the Act and improperly limited the IDR entities’ discretion by requiring that they give the QPA more deference than the other statutorily required considerations. The plaintiffs also argued that the August 2022 Final Rule created a series of prerequisites before those non-QPA considerations could even be taken into account. The Departments, they argued, had unlawfully tilted the arbitration process impermissibly in favor of the insurer-determined QPA.

On February 6, 2023, the Texas Eastern District vacated portions of the August 2022 Final Rule,[4] finding that the provisions were contrary to the Act. The Court found that the August 2022 Final Rule (the Departments’ second attempt at promulgating rules related to how the IDR entities should make determinations) “nevertheless continue[d] to place a thumb on the scale for 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.”

In the TMA III decision, the Court reiterated that the Act is unambiguous as to what factors an IDR entity must consider, and that there is no presumption or weight to be attributed to any specific factor or any additional prerequisites or hurdles for non-QPA factors. The Court also determined that portions of the August 2022 Final Rule violated the Administrative Procedure Act; the Court vacated the challenged provisions and remanded the matter to the Departments for further consideration.

The Departments subsequently appealed the TMA III ruling to the Fifth Circuit on October 20, 2023.

What did the Fifth Circuit Decide?

On appeal, the Fifth Circuit affirmed the district court’s rulings. It agreed with the district court that the plaintiffs had standing to bring the TMA III case. Further, the Fifth Circuit reiterated that the August 2022 Final Rule exceeds the Departments’ authority granted by the Act, as there is nothing in the Act that that instructs IDR entities to weigh one factor more than the others, or that directs the Departments to “superimpose regulatory rules on the clear statutory mandate.” The Fifth Circuit held that the Act grants the Departments narrow rulemaking authority, and that, by requiring IDR entities to first consider the QPA and then consider the other factors, the August 2022 Final Rule exceeded the scope of such rulemaking authority.

Similarly, the Fifth Circuit affirmed the district court’s ruling that the provisions of the August 2022 Final Rule, directing IDR entities not to give weight to additional circumstances that are statutorily required but are “not credible,” “[do] not relate to either party’s offer,” or that “is already accounted for by the [QPA]” or other information, were beyond the scope of authority granted to the Departments by the Act. The Act clearly states what factors an IDR entity must consider, and rules that attempt to direct it otherwise are contrary to the Act.

The Fifth Circuit affirmed that, by requiring IDR entities to explain in the written decision the reasons for why non-QPA factors were determined to be not already reflected in the QPA, the August 2022 Final Rule created an “unequal burden [that] tends to bias outcomes in favor of the offer closest to the QPA.” The Act itself requires that the Departments monitor how often IDR determinations exceed the QPA, not the reasons or explanations for any such determinations.

Lastly, the Fifth Circuit affirmed that vacatur of the August 2022 Final Rule was appropriate and is not disruptive, as IDR entities have been making determinations based on the requirements set forth in the Act itself.

What Now?

Certified IDR entities will continue implementing the IDR process as set forth in the Act, as they have been doing before the August 2022 Final Rule and its subsequent vacatur this past February.

Providers are reminded that the Federal IDR process is still and will continue to be available, and that eligibility requirements for claims to enter the Federal IDR process remain in effect. Providers are encouraged to become familiar with the eligibility requirements for Federal IDR, including, for those providers in “bifurcated” states, claims that may be deemed ineligible for Federal IDR if there is a state law or state arbitration process that applies.

Please contact a member of the Sheppard Mullin Healthcare Team if you have questions about eligibility for the Federal IDR process or other No Surprises Act requirements.

FOOTNOTES

[1] The Texas Medical Association was joined in this litigation by healthcare providers, including East Texas Air One; the American Society of Anesthesiologists, American Medical Association, American Hospital Association, and Emergency Department Practice Management Association submitted briefs in support of the plaintiffs’ position.

[2] Texas Med. Ass’n v. United States Dep’t of Health & Hum. Servs., No. 23-40217, 2024 WL 3633795 (5th Cir. Aug. 2, 2024).

[3] Id.

[4] Texas Medical Association, et al. v. United States Department of Health and Human Services, Case No. 6:22-cv-372. Please refer to our prior blog post.