The surprise billing arbitration process unjustly favors insurers, a Texas federal judge ruled Monday, dealing the latest blow to the heavily litigated No Surprises Act.
Judge Jeremy D. Kernodle of the U.S. District Court for the Eastern District of Texas tossed portions of the final rule issued by three federal agencies in August related to the independent resolution process that aims to settle payment disputes between out-of-network insurers and providers. The regulation instructs a third-party arbiter to consider both an insurer’s median in-network rate, or qualified payment amount, and additional information when determining the correct payment for a surprise bill.
While the final rule “avoided an explicit presumption in favor of the (qualified payment amount)” set by insurers, it “continues to place a thumb on the scale for the (qualified payment amount) by requiring arbitrators to begin with the (qualified payment amount) and then imposing restrictions on the non-(qualified payment amount) factors that appear nowhere in the statute,” Kernodle said in his ruling. The regulation also improperly “limits arbitrators’ discretion by dictating how they may consider the statutory factors,” he added.
Kernodle kicked the regulation back to the Health and Human Services Department to design new regulations around the dispute resolution process, which may face additional legal challenges. Meanwhile, there is a growing backlog of arbitration cases as the federal government has received 90,000 requests from April 15 through Sept. 30.
The ruling was well received by providers including the plaintiffs, the Texas Medical Association, which has filed four lawsuits challenging the federal government’s implementation of the No Surprises Act. The initial lawsuit led to a favorable ruling for the association, validating its argument that there was too much emphasis on the qualified payment amount.
“This is an important next step after (the Texas Medical Association) successfully challenged an interim final rule that similarly skewed the (independent dispute resolution) process in health plans’ favor. This decision is a major victory for patients and physicians. It also is a reminder that federal agencies must adopt regulations in accordance with the law,” Dr. Gary Floyd, association president, said in a statement.
Melinda Hatton, general counsel of the American Hospital Association, said in a statement that the court “correctly observed that the government’s final rule would have tilted arbitrations in favor of insurers, thereby inappropriately lowering payments to health care providers and threatening patient access to care.”
A spokesperson from HHS said the agency is reviewing the ruling. The insurer trade association America’s Health Insurance Plans did not immediately respond to a request for comment.
The federal government’s No Surprises Act, which took effect in January 2022, looks to protect patients from unexpected medical bills and ultimately lower healthcare costs. The law is expected to reduce health insurance premiums by up to 1%, the Congressional Budget Office estimated in 2019.
Some providers opt to maintain out-of-network status with insurers to preserve profitable balance billing policies. That leaves patients susceptible when they seek emergency care, or when they are treated by out-of-network anesthesiologists, radiologists or other ancillary providers at in-network facilities.
A previous iteration of the regulation instructed arbiters to begin deliberations with the assumption that an insurer’s median contracted in-network rate is the appropriate out-of-network rate. That process was flawed, Kernodle ruled in February, prompting the Centers for Medicare and Medicaid Services to update its guidance outlining the arbitration process.
Under the final regulation issued in August, arbiters don’t have to choose the offer closest to a median contracted rate but should select the best offer after considering that rate and other information.
The Texas Medical Association’s latest lawsuits against HHS allege that portions of the regulation skew the qualified payment amount lower and that the administrative fees for dispute resolutions are too high.