Texas judge sides with docs in surprise billing lawsuit

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A Texas federal judge on Wednesday upended the arbitration process providers and insurers can use to settle out-of-network billing disputes by vacating parts of a Biden administration rule.

The rule, which implemented a ban on “surprise billing” that Congress passed last year, required independent dispute arbiters pick the offer closest to the insurer’s median contracted rate, a provision that providers argued would lead to lower payments and unduly favored insurers.

Judge Jeremy Kernodle of the U.S. District Court for the Eastern District of Texas agreed, ruling that that some parts of the interim final rule give too much power to insurers in the arbitration process and that HHS did not offer enough notice before it was implemented. But the decision is far from final. The federal government is expected to appeal the ruling, five related lawsuits are pending in federal courts and the Biden administration could essentially restart the process if it issues a final rule, experts said.

If the order stands, providers could have more power in negotiations and be able to recoup higher payments than under the Biden administration’s rule from September, experts say. But it could also increase premiums and healthcare spending.

“If you don’t have that guardrail, it’s more likely that providers will use (informal dispute resolution) and use it to get higher payments,” said Katie Keith, a Georgetown University law professor who has closely followed the surprise billing lawsuits.

HHS is reviewing Kernodle’s decision and remains committed to protecting consumers from surprise billing, the agency said in a statement.

“It changes the dynamic in the federal (informal dispute resolution) process,” said Jonah Retzinger, a healthcare litigation partner at Epstein Becker Green. “It levels the playing field.”

The ruling Wednesday from Kernodle, a Trump appointee and former healthcare litigator who represented providers, stemmed from Texas Medical Association’s lawsuit challenging the rule for ignoring congressional intent. TMA said in a statement that the decision was an important step toward Congress’ “fair and balanced” dispute resolution process. The association represents more than 55,000 physicians, many of which are backed by private-equity firms.

The interim final rule prevents providers from billing patients for out-of-network emergency services or for nonemergency services performed by out-of-network physicians at in-network facilities. If an insurer and provider can’t come to an agreement on how much the insurer should pay for that service within 30 days, they can enter into the informal dispute resolution process.

But HHS has also still not launched the portal providers can use to file dispute resolution claims, further complicating implementation of the rule, which took effect Jan. 1.

“Even though there are claims that could qualify for (informal dispute resolution), there is no way in which to do so,” said Ed Gaines, vice president of regulatory affairs and industry liaison at Zotec Partners, a revenue cycle management company.

Insurers “hold ultimate power” by setting the median rate they would have paid for the service provided by an in-network provider, Kernodle wrote in his ruling.

The rule’s requirement that arbiters favor the offer closest to the median contracted rate—also called the qualifying payment amount—”will systematically reduce out-of-network reimbursement,” Kernodle wrote. That reimbursement fuels many of the emergency department staffing firms based in Texas.

Physicians’ offers will always be farther from the QPA than those submitted by the insurers because the payment does not accurately reflect the cost of providing services, the association argued.

The rule should equally weigh all factors like patient acuity and the skill of the provider, rather than prioritizing the qualifying payment amount, the court ruled.

“The rule thus 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 presumption,” the ruling said.

While the rule gives an advantage to the insurers, the reasoning was sound, said Paul Ginsburg, health policy professor at the University of Southern California and senior fellow of the USC Schaeffer Center for Health Policy and Economics. Specialties where surprise billing is important, like emergency department physicians and anesthesiologists, were getting paid much more relative to Medicare than other physicians, he said.

“The way the system worked is having the QPA as the anchor,” Ginsburg said, noting that the Congressional Budget Office estimated that the No Surprises Act will lower premiums by up to 1%. “If a physician is unusually skilled or patients are sicker, these factors may lead to higher pay. But if you don’t have a starting point, then it is not workable.”

New York State had an arbitration process without any guidance, and “they gave the store away,” he added. Arbitrators would use the 80th percentile of billed charges as a starting point, which inflated payment rates. That is why the No Surprises Act bans using billed charges or Medicare rates, Ginsburg said.

But all this litigation would essentially restart if HHS publishes a final rule, said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy.

“If (HHS) isn’t granted a stay in judgment, then all guidance to the arbitrators will disappear,” he said, adding that would likely increase the rates set in the arbitration process and translate to higher premiums. “There is a strong possibility that HHS succeeds on appeal, but it could be drawn out years if it goes to the Supreme Court and presumably the final rule is published.”

As for now, the surprise billing protections that went into effect Jan. 1 still stand. The ruling means that providers will not need to present evidence refuting the QPA in arbitration, said Myra Simon, principal at Avalere.

America’s Health Insurance Plans, which represents insurers, was disappointed with the ruling and criticized private-equity backed providers, hospitals and emergency department physicians for trying to protect their profits, the association said in a statement.

“They have sued to stop the implementation of rules that would lower the cost of healthcare for everyone, defending their own financial interests over the consumers and patients they serve. And this wrong and misguided ruling will result in higher healthcare costs and premiums for consumers and businesses — once again threatening healthcare affordability and access for all Americans,” AHIP said.

The rule has split members of Congress, even though the law passed with broad bipartisan support.

Rep. Richard Neal (D-Mass.), chair of the House Ways and Means Committee and his Republican counterpart Kevin Brady (R-Texas.), who both helped draft the legislation but opposed the rule’s QPA provisions, cheered the ruling Thursday.

“Yesterday’s decision affirms that the No Surprises Act, as written, will continue to protect patients but must swiftly be implemented according to the letter of the law to ensure fairness in resolving surprise medical billing disputes,” they said in a news release.

More than 150 bipartisan members of Congress signed a letter earlier this year arguing the law intended all factors to be considered equally. But Sen. Patty Murray (D-Wash.) and Rep. Frank Pallone (D-N.J.), chairs of key health committees in the House and Senate, have said the rules follow congressional intent.

“This decision ignores the clear letter and intent of the No Surprises Act,” Pallone tweeted Wednesday. “It is a vast overreach by the district court and should be appealed immediately.”

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