On August 3, 2023, the Texas Medical Association (TMA) was granted summary judgment in its challenge to (1) the $350 CY 2023 administrative fee for the No Surprises Act’s Independent Dispute Resolution (IDR) process and (2) a portion of the regulations regarding batching of claims under the IDR process. Judge Kernodle of the Eastern District of Texas ruled that the Departments of Health and Human Services, Labor and the Treasury (the Departments) violated the Administrative Procedure Act (APA) by skipping regular notice and comment rulemaking. In response, CMS has “temporarily suspended the Federal IDR process, including the ability to initiate new disputes, until the Departments can provide additional instruction.”
Background
The No Surprises Act, enacted in December 2020, prohibits balance billing patients for out-of-network emergency services and non-emergency services rendered by out-of-network providers at in-network facilities. When the No Surprises Act applies, the out-of-network rate payable by the plan is determined by an All-Payer Model or specified state law, if applicable. In the absence of an All-Payor Model or specified state law, reimbursement is determined by the IDR process when the payor and provider cannot agree on a negotiated out-of-network rate. In the IDR process, after that process is initiated, both parties must submit final offers for payment along with supportive written material to an IDR entity who is required to select between the two offers (“baseball-style” arbitration).
On September 30, 2021, the Departments issued the second set of implementing regulations (the IDR Rule) which, in part, provided significant additional detailed rules regarding the IDR process. The IDR Rule was promulgated as an interim final rule, skipping the regular notice-and-comment rulemaking required by the APA. Relevant here, under the IDR Rule, in order to batch items and services into a single IDR process, the items or services must each be “billed under the same service code or a comparable code under a different procedural code system.”
Contemporaneously with the IDR Rule, the Departments also issued “Fee Guidance” setting the fee at $50 for calendar year 2022. In October 2022, the Departments issued guidance for calendar year 2023, which again set the fee at $50. Then, in December 2022, the Departments issued new Fee Guidance for calendar year 2023 and dramatically raised the fee for 2023 to $350, a 600% increase, citing the volume of disputes and the costs associated with making disputed eligibility determinations (Fee Guidance).
Following the issuance of the Fee Guidance, TMA filed suit in federal district court alleging that the Fee Guidance and the batching regulations in the IDR rule were unlawfully issued without notice and comment and therefore must be set aside under the Administrative Procedures Act. This is the fourth lawsuit by TMA against the Departments regarding the IDR Rule. In its moving papers for summary judgment, TMA explained that the substantive impact of the $350 administrative fee, in combination with the IDR Rule permitting batching only by service code, was to make engaging in IDR very costly and often cost-prohibitive for certain healthcare providers with lower dollar claims (e.g., radiologists).
Eastern District of Texas Grants Summary Judgment
The Eastern District of Texas granted summary judgment in favor of the Texas Medical Association, vacating the Fee Guidance’s $350 administrative fee and challenged portions of the IDR Rule regarding batching.
The court held that the Department’s failure to provide notice and comment as required by the APA provided a basis to set aside the 2023 $350 administrative fee and challenged portions of the IDR rule regarding batching. The APA requires that agencies publish a notice of proposed rulemaking and give interested parties an opportunity to participate through the submission of comments. A rule promulgated without notice-and-comment is contrary to law and must be set aside unless the agency can show an exception to the requirement.
Here, the court held that Fee Guidance was a substantive rule and, therefore, the Departments were not excused from regular notice and comment rulemaking. The court also found that the good cause exception to notice and comment did not apply, as it was not “impracticable” for the Departments to seek notice and comment for the yearly notice and comment to occur regarding any updates to the administrative fee. Moreover, the court found that the error was not harmless, because the Fee Guidance had elected to include, for the first time, costs of pre-eligibility review in their projected IDR costs.
The court reached similar conclusions in addressing the challenges to the portions of the IDR Rule regarding batching. As with the administrative fee, the court found the challenged portions of the IDR rule to be substantive, given that the level of the fee made it unviable to submit claims into the IDR Process for certain providers and thus altered “regulated parties’ substantive rights and interests,” and found that the failure to have regular notice and comment was not harmless.
Impact of Judgment
The court rejected the government’s arguments for more limited relief and vacated the challenged portions of the IDR Rule. Specifically, the court vacated:
- The Fee Guidance’s $350 administrative fee;
- 45 C.F.R. § 149.510(c)(3)(i)(C);
- 26 C.F.R. § 54.9816-8T(c)(3)(i)(C); and
- 29 C.F.R. § 2590.716-8(c)(3)(i)(C).
The vacatur issued by the court is not limited to the plaintiffs and will have national effect. In the interim, CMS has “temporarily suspended the Federal IDR process, including the ability to initiate new disputes, until the Departments can provide additional instruction.”
The government may appeal this ruling to the U.S. Court of Appeals for the Fifth Circuit, but the vacatur will stand while the appeal is pending. The summary judgment order is available here.
