Texas Court Vacates Arbitration Provisions of Biden Administration Surprise Billing Rule

In Texas Medical Association v. Department of Health and Human Services, the court held that the arbitration procedures of the rule (summarized here) conflicted with the express terms of the No Surprises Act in violation of the Administrative Procedures Act (APA).

The No Surprises Act, which was passed in December 2020 and became effective January 1, 2022, was designed to prevent patients from being penalized by “surprise bills” – bills that a patient does not expect to receive after requiring emergency care or seeking care at an in-network medical facility. The Act limits the amount an insured patient must pay for out-of-network emergency services or for non-emergency services provided by an out-of-network provider at an in-network facility. In the event that payers and providers are unable to agree on an appropriate payment amount for these out-of-network services, the Act calls for a “baseball-style” arbitration, in which each side proposes a number and an arbitrator chooses one. The Act lists several factors that the arbitrator must consider in making that decision. Among the factors that the Act directs the arbitrator to consider, and key to the lawsuit in Texas, is the qualifying payment amount (QPA). The QPA is the median rate that an insurer would have paid had the services been provided in network. In addition to the QPA, the Act also directs the arbitrator to consider the health care provider’s training and experience, the market share of both the provider and the payer, and the scope of services offered by the provider. Crucially, the Act does not assign any greater importance to any one of these factors. 

Following the passage of the Act, in September 2021, three federal government agencies – Labor, Health and Human Services, and Treasury – issued an interim final rule implementing the Act. Under the rule, an arbitrator is required to select the proposed payment that is closest to the QPA. In response to the rule, the Texas Medical Association, a trade association representing more than 55,000 physicians, and an individual Texas physician filed suit to challenge the rule. They made two main arguments against the rule. First, the plaintiffs alleged that the rule gave “outsized weight” to the QPA, which unduly favored payers. The court agreed. The court reasoned that assigning greater weight to the QPA, a number unilaterally determined by payers, imposed an undue burden of proof on providers that were not consistent with the text of the Act and was far afield from what Congress had intended.  

Second, the plaintiffs alleged that the rule was issued without the notice and comment period required by the APA. The court agreed on this point also, rejecting the government’s theories for why it could skip the notice and comment period. The government had asserted that the text of the Act itself authorized the issuing agencies to skip the notice and comment period, but the court found nothing in the Act that expressly authorized this. In the alternative, the government argued that the agencies had good cause to forego the notice and comment period, as engaging in the full process would be “impracticable” because the Act itself went into effect “barely twelve months” after passage, leaving insufficient time to hold a full comment period. The court rejected this argument as well, holding the agencies themselves had delayed in issuing the regulations and could not, as a result, forego the required notice and comment period.  

Having accepted both challenges to the rule, the court next turned to the appropriate remedy. While the government agencies argued for remand to the agencies to cure any deficiencies with the existing rule, the plaintiffs argued in favor of vacatur of the disputed arbitration portions of the rule, arguing that the defects were too extreme for the government to cure. Here, too, the court agreed with the plaintiffs, ruling that the “seriousness of the deficiency” with the rule would be impossible for the government to cure on remand.  

Looking Ahead: More Rule-Making and Court Decisions on the Horizon

This is a developing area that health care providers, in particular, should continue to monitor closely. The Texas case is just one of a series that has been filed, so additional decisions are forthcoming in similar cases. It is also interesting to note that, before moving to the merits in this case, the Texas court rejected a standing challenge by the government, opening the door for similar challenges by other providers and medical associations. The Texas decision, while a “win” for providers, leaves the details of the arbitration process under the Act uncertain for now, as the agencies presumably go back to the proverbial drawing board. As providers await additional court decisions and agency rule-making, they should continue to adhere to well-vetted billing policies and procedures, file timely claims under the Act, and otherwise preserve their rights.