In a strongly worded, well-reasoned opinion supported by ample precedent, Judge Jeremy D. Kernodle of the United States District Court of the Eastern District of Texas struck down the sections of the No Surprises Act (“the Act”) rules governing how arbitrators are to determine the amount paid to out-of-network providers. The rules had been challenged by the Texas Medical Association and one of its physician members. The Court systematically considered and rejected all of the government’s arguments supporting the rules:

In sum, the Court holds that (1) Plaintiffs have standing to challenge the Departments’ September 2021 interim final rule implementing the No Surprises Act (2) the Rule conflicts with the unambiguous terms of the Act, (3) the Departments improperly bypassed notice and comment in implementing the challenged portions of the Rule, and (4) vacatur and remand is the proper remedy.

The litigation arose out of the Part II rules that the Departments of Health and Human Services, Labor and the Treasury issued under the Act. Congress passed the Act in order to prevent patients from being surprised by bills for out-of-network cost sharing amounts and balance bills for services provided by out-of-network providers after treatment for an emergency service or for treatment for a non-emergency service by an out-of-network provider at an in-network facility. The Act also provided a framework for resolving disputes between payers and providers regarding the amount insurers would pay for out-of-network subject to the Act. This framework included a “baseball-style” arbitration under which the provider and the insurer each submit an offer and the arbitrator selects one of the two offers.

The Act did not establish a benchmark amount for determining such payment amounts, but rather set various factors to be considered, including the qualified payment amount (“QPA,” which is the median in-network contract amount), the level of training and experience of the provider, the market share of the non-participating provider and insurer, the acuity of the patient, the teaching status or case mix of the provider, and the good faith efforts (or lack thereof) of the parties to enter into a network agreement. The challenged rules, however, created a rebuttable presumption that the QPA – the in-network payment amount – is the appropriate out-of-network payment. Under the challenged rules, the arbitrator could only deviate from the offer closest to the QPA when information submitted clearly demonstrated that the value of the service is materially different from the QPA.

TMA and its physician member challenged the rules as inconsistent with the Act. The Court agreed:

Here, the Act is unambiguous. The Act provides that arbitrators deciding which offer to select ‘shall consider…the qualifying payment amounts…and…information on any circumstance described in [the clause listing all of the factors to be considered.]’


Because the word ‘shall’ usually connotes a requirement, the Act plainly requires arbitrators to consider all the specified information in determining which offer to select.      Nothing in the Act, moreover instructs arbitrators to weigh any one factor or circumstance more heavily than the others…And here, the Act nowhere states that the QPA is the ‘primary’ or ‘most important’ factor…Nor does the Act impose a ‘rebuttable presumption.’ (internal quotations and citations omitted).

The Court also held that the government’s failure to use the notice and comment requirements provided for in the Administrative Procedure Act constituted an independent reason to strike down the challenged rules.

The government had challenged the plaintiffs’ standing to challenge the rules. Here, again, the Court rejected this argument. It found that TMA had standing because it had provided affidavits from its members that they had and would suffer harm, showing that these members had standing. The Court found that:

TMA is a medical trade association seeking to protect the interests of its members as healthcare providers, an interest germane to TMA’s purpose…and neither TMA’s claim nor the requested relief…requires the participation of TMA’s individual members in this suit…[t]he Court is satisfied that TMA has standing to bring this action on behalf of its members.

Lastly, the Court considered the appropriate remedy and determined that it was to vacate the challenged rules:

Here, the seriousness of the deficiency weighs heavily in favor of vacatur…[T]he Rule conflicts with the unambiguous terms of the Act in several key respects. This means that there is nothing the Departments can do on remand to rehabilitee or justify the challenged portions of the Rule as written.

The Court’s opinion is linked here.

The attorneys at Whatley Kallas will continue to follow developments both with respect to the government’s further issuance of rules governing the determination of out-of-network payments and with respect to litigation brought by other provider groups challenging the rules, including the lawsuit brought by the AMA and the AHA.

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