Legal Alert

Strike Two: Court Again Invalidates No Surprises Procedure

February 14, 2023


The U.S. District Court in the Eastern District of Texas vacated certain provisions of the No Surprises regulations that it found inappropriately placed a “thumb on the scale,” and limited the discretion of arbitrators.

The Upshot

  • A district court has again struck down significant portions of dispute resolution provisions in regulations under the No Surprises rules, despite revisions to those rules aimed to address concerns previously raised by the court.
  • The court’s ruling strips away some of the procedural guidelines for arbitrators in evaluating evidence presented in No Surprises disputes and leaves more to an arbitrator’s discretion.
  • It will be important to watch how the regulators respond to the decision.

The Bottom Line

The court decision provides another victory to out-of-network providers under the No Surprises rules, but it may not be the final word as we need to see how the Departments that issued the regulations respond to the decision and how arbitrators apply the rules.

For a second time, the U.S. District Court in the Eastern District of Texas has struck down a key provision in the regulations that set forth the dispute resolution procedures under the No Surprises rules.

The Consolidated Appropriations Act, 2021, included No Surprises rules that protected individuals from large medical bills in certain situations, like emergency room care, but also addressed how much group health plans would need to pay out-of-network providers in those situations. When the provider and the plan disagree on the amount to be paid and cannot resolve their differences promptly through open negotiations, either of them may submit a proposed payment amount, with supporting documentation, to an approved arbitrator who will choose one of the two proposed amounts submitted by each party.

The initial set of regulations established an express presumption in favor of the proposal closer to the qualifying payment amount (QPA), which is typically the median of the amounts paid by a plan’s insurer or claims administrator to similar providers for the same service in the same geographic area. Almost one year ago, that court struck down that presumption, finding that it had no basis in the statute.

The Departments of the Treasury, Labor, and Health and Human Services then revised the regulations, replacing the presumption with provisions that require the QPA to be considered before other permitted evidence (such as the experience and skill of the provider and the severity of the patient’s condition). The revised regulations also require the arbitrator to take into account certain factors in considering the other evidence, including its credibility and the extent to which the QPA determination already takes elements of that evidence into account.

Provider groups challenged these revised rules before the same court that rejected the first set of rules. Even with the elimination of the explicit presumption, the court found that the process described in the regulations inappropriately places a “thumb on the scale” in favor of proposals closer to the QPA and limits the discretion of the arbitrators in a manner that the statute does not allow. On that basis, the court vacated applicable provisions of the regulations.

As a result of the ruling, the Departments again face a decision of whether to appeal, let the ruling stand, or revise the rules in its regulations.

In the meantime, arbitrators will need to consider how they evaluate evidence presented in a dispute. It is possible that many will follow an approach similar to the one described in the regulatory provisions, although others may diverge from that path.

This comes on the heels of a report that the first six months of the No Surprises rule produced more disputes and more complicated questions than expected. Often arbitrators have been called upon to decide the threshold question of whether a claim is eligible to be considered under the No Surprises rules, and sometimes they may need to gather additional evidence to make decisions. This early experience has triggered a sharp increase in the government’s processing fee for claims subject to the dispute resolution provision.

As a result of all of this, at least in the near term, the processing fee for claims under the No Surprises rules may not be as streamlined as Congress envisioned, or applied as uniformly as the Departments sought, nor result in as much of an out-of-network savings as plan sponsors hoped.

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