On August 2,2024, the Fifth Circuit affirmed the vacatur of federal rulemaking related to the No Surprises Act’s (NSA) Independent Dispute Resolution (IDR) process. The Court held that the No Surprises Act does not permit the Departments of Health and Human Services, Labor and the Treasury (the Departments) to set substantive standards for the IDR entities to follow, and by issuing rulemaking favoring the Qualifying Payment Amount (QPA) over the other factors set out in the NSA, the Departments impermissibly exceeded their delegated authority.
No Surprises Act Background
In July 2021, the Departments issued the first set of implementing regulations, providing guidance topics such as the calculation of the patient’s cost-sharing amount and the calculation of the QPA, defined as the plan’s median in-network rate. On September 30, 2021, the Departments issued the second set of implementing regulations (the IDR Rule) which, in part, provided significant additional detail regarding the IDR process, but also made the QPA the presumptive out-of-network rate, thereby downgrading the other factors that Congress specified and permitted for consideration.
The Texas Medical Association (TMA) brought a federal action challenging the portions of the IDR rule that created a presumption in favor of the QPA. The Federal District Court for the Eastern District of Texas granted their motion for summary judgment and vacated the challenged portion of the rule as to providers and facilities on February 22, 2022. An air ambulance provider, LifeNet, obtained summary judgement vacating the same portions of the IDR Rule as to air ambulance disputes shortly thereafter. The IDR Portal opened for disputes in April 2022. In lieu of formal guidance, the Departments published informal guidance instructing IDR entities to consider all of the factors enumerated in the No Surprises Act when making a payment determination.
On August 19, 2022, the Departments issued a new final rule finalizing the IDR process (the Final Rule). The Final Rule modified the weight given to the information that IDR entities must consider when determining the out-of-network rate under the No Surprises Act. While the Final Rule did not explicitly create a presumption in favor of the QPA, it continued to elevate the importance of the QPA in IDR determinations by imposing a number of measures that require the IDR entity to give significant weight to the QPA in every dispute. Specifically, the Final Rule deemed the QPA to be credible in all disputes but required the IDR entities to evaluate the credibility of all other information submitted in support of the non-QPA factors. The IDR entity was not permitted to consider additional information if it is not deemed credible. The IDR entity was required to consider whether the additional non-QPA information “relates to” the service or items in dispute, but the QPA is assumed to relate to the offer. The Rule also requires IDR entities to consider the QPA before considering other factors, and to only consider non-QPA factors if the IDR entity determines the information is not already reflected in the QPA. Finally, the IDR entity was required to publish a written opinion explaining its decision, and why any weight was given to non-QPA factors if non-QPA factors were considered.
TMA Wins at the District Court
TMA once again challenged the IDR rule, arguing that it impermissibly established a presumption in favor of the QPA. TMA argued that like the predecessor IDR rule, the Final Rule makes the QPA the “de facto benchmark for out-of-network reimbursement” in conflict with the No Surprises Act and in violation of the Administrative Procedure Act. Plaintiffs also argued the Final Rule is arbitrary and capricious because it “flunks the APA’s fundamental requirements of reasoned decision-making.” The Departments argued that the Plaintiffs lacked standing because they could not demonstrate harm, and that the Departments were entitled to Chevron deference.
On February 6, 2023, the same federal judge in the Eastern District of Texas, Judge Kernodle, vacated the challenged portions of the Final Rule. The Court held it was “inevitable” for providers to suffer financial harm from the QPA-centric approach to the IDR process because the Final Rule created an arbitration process that would cause “the systematic reduction of out-of-network reimbursements.” The Court also held that the Departments were not entitled to Chevron deference because the No Surprises Act is not ambiguous in instructing that all factors should be considered equally. The Court explained that although the Departments purported to not create a rebuttable presumption, they were clearly holding fast to their goal of “privileging the QPA, tilting arbitrations in favor of insurers, and thereby lowering payments to providers.”
The Departments appealed to the Fifth Circuit. On appeal, the Departments raised many of the same arguments that Judge Kernodle rejected. For example, the Departments argued that the Plaintiffs lacked Article III standing because their alleged injuries were speculative. They also argued that the challenged provisions were “modest procedural and evidentiary guidelines” that were within the NSA’s delegation to “establish by regulation” an IDR process. The Departments also argued that the remedy of nationwide vacatur was inappropriate.
Fifth Circuit Affirms Vacatur
The Fifth Circuit (E. Jones, A. Oldham, C. King) affirmed Judge Kernodle’s summary judgment order. The opinion, authored by Judge Edith Jones, reviewed the district court order on an “abuse of discretion” standard, and held that Judge Kernodle did not abuse his discretion. The Fifth Circuit largely echoed what they called “district court’s able opinion,” and held that the Departments exceeded the scope of their authority. Specifically, the Court held that the Departments did so by imposing three extra statutory requirements on the IDR entities: (1) requiring the IDR entities to consider the QPA before considering other statutory factors; (2) by requiring IDR entities to not consider information that is not credible or related to the issue or information that is already accounted for in the QPA.
The Fifth Circuit explained that the delegation to the Departments to “establish” an IDR process by regulation was “purely administrative.” This delegation permits the Departments to establish “activities” such as setting up an online portal, establishing selection process and standards for IDR entities, and prescribing record keeping requirements, but does not permit the Departments to fill gaps in the arbitration process itself. The NSA does not permit the Departments setting forth decision-making criteria for IDR entities, particularly in light of the fact that the NSA already provides the specific and comprehensive factors for consideration by the IDR entities when determining the non-contracted rate. The Fifth Circuit held, “The No Surprises Act did not delegate to the Departments the authority to set substantive standards for the independent arbitrators to observe. Those standards are fully determined by the text of the Act itself.” This far-reaching holding will play a significant role in preventing or defending against future rulemaking designed to skew the IDR entity decision-making process.
The panel also rejected the Departments’ argument that the plaintiffs lacked standing to bring the complaints because, in part, the plaintiffs established they would likely suffer financial harm from the challenged rules.
Judge King authored a concurrence, flagging her concerns that the majority opinion may have gone too far by saying that the NSA’s text unambiguously bars the Departments from issuing regulations that may affect how arbitrators balance the QPA and the additional statutory factors. Judge King explained, “[a]s long as the regulations do not prevent the arbitrators from following their statutory duty to consider the QPA and the additional circumstances, such regulations may not necessarily run afoul of the NSA’s text.” Nonetheless, Judge King was persuaded to concur with the majority based on a review of legislative history that demonstrates “Congress very deliberately did not intend for the QPA to serve as a ‘benchmark’ in the IDR process.”
The Fifth Circuit opinion is available here.
