No Surprises Act Challenges, Win For Providers – Food, Drugs, Healthcare, Life Sciences

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No Surprises Act Challenges, Win For Providers

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On Wednesday, February 23, 2022, U.S. District Court Judge
Jeremy Kernodle of the Eastern District of Texas granted the Texas
Medical Association’s and Adam Corley’s (the Plaintiffs)
motion for summary judgment on their challenge to portions of the
Federal No Surprises Act (NSA) and simultaneously rejected the
defendants’ cross motion for summary judgment. This is viewed
as a win for health care providers who argue that portions of the
NSA are disproportionately harmful to their industry and ability to
provide care to patients. For a discussion of all the requirements
applicable to the provider industry as of January 1, 2022, please
see our prior posts (Part I | Part II).

The Plaintiffs filed a complaint against the United States
Department of Health and Human Services, Department of Labor,
Department of the Treasury, Office of Personnel Management (the
Agencies), on October 28, 2021 (the Complaint). In the Complaint,
Plaintiffs claimed that the portion of the NSA governing the
arbitration process between out-of-network providers and health
plans/health insurance issuers for resolving payment disputes (the
Challenged Rule) violated the Administrative Procedure Act (APA).
This section was laid out in “Requirements Related to Surprise
Billing”; Part II, 86 Fed. Reg. 55,980 (Oct. 7, 2021)
(Implementing Regulation Part II).

The court agreed and held that:

  • Plaintiffs have standing to challenging Implementing Regulation
    Part II;

  • The Challenged Rule conflicts with the original statute;

  • The Agencies “improperly bypassed” the notice and
    comment required by APA; and

  • Vacatur and remand of the Challenged Rule is the proper

Specifically, the Court determined that the NSA requires
arbitrators to consider all the specified information, including
the qualifying payment amounts (QPA) and five circumstances set
forth at 42 U.S.C. 300gg-111(c)(5)(C)(ii) in determining which
offer to select to resolve a payment dispute.  Rather than
instructing arbitrators to consider all factors pursuant to the
Act, the Court held the Challenged Rule requires arbitrators to
select the offer closest to the QPA unless
“credible” information clearly demonstrates that the QPA
is materially different from the appropriate out-of-network rate.
Thus, in the Court’s words, the Challenged Rule “places
its thumb on the scale for the QPA, requiring arbitrators to
presume the correctness of the QPA and then imposing a heightened
burden on the remaining statutory factors to overcome that

The specific sections of Implementing Regulations Part II that
were vacated are the parallel portions of the Independent Dispute
Resolution Process outlined by the Agencies, respectively:

  • Definition of Material Difference in 45 C.F.R. §
    149.510(a)(2)(viii); 26 C.F.R. § 54.9816-8T(a)(2)(viii); and
    29 C.F.R. § 2590.716-8(a)(2)(viii)

    • Material difference means a substantial likelihood that a
      reasonable person with the training and qualifications of a
      certified IDR entity making a payment determination would consider
      the submitted information significant in determining the out of
      network rate and would view the information as showing that the
      qualifying payment amount is not the appropriate out-of-network

  • Second sentence of 45 C.F.R. § 149.510(c)(4)(ii)(A); 26
    C.F.R. § 54.9816-8T(c)(4)(ii)(A); and 29 C.F.R. §

    • Select as the out-of-network rate for the qualified IDR item or
      service one of the offers submitted under paragraph (c)(4)(i) of
      this section, taking into account the considerations specified in
      paragraph (c)(4)(iii) of this section (as applied to the
      information provided by the parties pursuant to paragraph (c)(4)(i)
      of this section). The certified IDR entity must select the offer
      closest to the qualifying payment amount unless the certified IDR
      entity determines that credible information submitted by either
      party under paragraph (c)(4)(i) clearly demonstrates that the
      qualifying payment amount is materially different from the
      appropriate out-of-network rate, or if the offers are equally
      distant from the qualifying payment amount but in opposing
      In these cases, the certified IDR entity must
      select the offer as the out-of-network rate that the certified IDR
      entity determines best represents the value of the qualified IDR
      item or services, which could be either offer.

  • Final sentence of 45 C.F.R. § 149.510(c)(4)(iii)(C); 26
    C.F.R. § 54.9816-8T(c)(4)(iii)(C); and 29 C.F.R. §
    2590.716- 8(c)(4)(iii)(C).

    • Additional information submitted by a party, provided the
      information is credible and relates to the circumstances described
      in paragraphs (c)(4)(iii)(C)(1) through (5) of this section, with
      respect to a qualified IDR item or service of a nonparticipating
      provider, facility, group health plan, or health insurance issuer
      of group or individual health insurance coverage that is the
      subject of a payment determination. This information must also
      clearly demonstrate that the qualifying payment amount is
      materially different from the appropriate out-of-network

  • Examples as laid out in 45 C.F.R. § 149.510(c)(4)(iv); 26
    C.F.R. § 54.9816-8T(c)(4)(iv); and 29 C.F.R. §

  • 45 C.F.R. § 149.510(c)(4)(vi)(B); 26 C.F.R. §
    54.9816-8T(c)(4)(vi)(B); and 29 C.F.R. §

    • If the certified IDR entity does not choose the offer
      closest to the qualifying payment amount, the certified IDR
      entity’s written decision must include an explanation of the
      credible information that the certified IDR entity determined
      demonstrated that the qualifying payment amount was materially
      different from the appropriate out-of-network rate, based on the
      considerations allowed under paragraph (c)(4)(iii)(B) through (D)
      of this section, with respect to the qualified IDR item or

Notably, the vacatur of the above provisions is not limited to
the named Plaintiffs in the case. It is well established that when
a court sets aside agency rules that are arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with the law,
the ordinary result is that the rules are vacated.  As such,
Judge Kernodle’s decision may be telling for similar challenges
to the NSA brought by other health care providers (for example the
lawsuit brought by the American Medical Association and the
American Hospital Association on December 9, 2021). We will
continue to monitor these and other cases which challenge the

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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