On February 23, 2022, Judge Jeremy Konodle of the U.S. District Court for the Eastern District of Texas, issued a decision in Texas Medical Association v. United States Department of Health & Human Services that invalidated portions of the federal No Surprises Act. This decision invalidated regulations applying a rebuttable presumption during the federal IDR process that the offer closest to the Qualified Payment Amount (QPA) calculated by the insurer based on their in-network rates is the correct payment rate for out-of-network services. If upheld, the decision could lead to higher out-of-network reimbursements, a positive development for providers.

The court held that these regulatory provisions violated the statutory text of the No Surprises Act, which the court interpreted as requiring IDR entities to always consider a number of factors in addition to the QPA, when determining the correct payment for out of network services. These additional factors include: (1) the level of training, experience, and quality and outcomes measurements of the provider or facility; (2) the market share held by the nonparticipating provider or facility; (3) the acuity of the individual receiving such item or service; (4) the “teaching status, case mix, and scope of services of the nonparticipating facility; and (5) demonstrations of good faith efforts (or lack of good faith efforts) made by the provider and the insurer to enter into a network agreement.

Based on this interpretation, the court found that the challenged provisions directing IDR entities to select the offer closest to the QPA unless the entity determines that credible information submitted by the parties demonstrates that the QPA is materially different from the appropriate out-of-network rate, is contrary to the plain text of the No Surprises Act, and must be invalidated. The court further found that the government failed to satisfy the federal Administrative Procedure Act’s notice-and-comment requirements before issuing the regulations.

All parties acknowledge that the now-invalidated provisions of the federal No Surprises Act regulations had the effect of lowering out-of-network reimbursement rates determined through the federal IDR process because they were almost exclusively dependent on the QPA, which is calculated by, and wholly dependent upon, the actions of insurers, who have an incentive to lower these rates. The invalidation of these provisions, therefore, will likely have the opposite effect of increasing out of network reimbursement rates, which is a positive development for providers.

Of particular note in the decision is that the judge rejected an argument by the Government that the invalidation of the regulation should apply only to the exact parties in the lawsuit before it. The judge’s decision clearly indicates that its invalidation of the challenged provisions of the regulations applies throughout the country to all parties. The Government does, however, have the right to appeal this ruling and, in connection with the appeal, seek a stay of the ruling pending the outcome of the appeal. But, as of now, the ruling stands, and federal IDR entities must consider all factors, not just the QPA, when determining the correct payment amount for out of network services. Stay tuned for more developments.

Read more: Federal No Surprises Act and New York Surprise Bill Law Coordination

Register for a No Surprises Act Webinar

The No Surprises Act (NSA) took effect on January 1, 2022 and governed how managed care companies reimburse out-of-network providers and how disputes between health plans and out-of-network providers are resolved.

Join Attorney Roy Breitenbach, leader of our Health Care Industry Team, for a webinar on the No Surprises Act on April 6. The webinar will examine the first 90 days of implementation and address:

  • How the NSA is working within the existing New York Surprise Bill Law
  • Immediate impact on health practices that are largely out-of-network with health plans
  • Frequently asked questions from health practices

Click here to register to attend.