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  Appeals Judges Question No Surprises Act Arbitration Pay Formula

  Posted by name on February 6, 2024 at 9:56 am

  Appeals Judges Question No Surprises Act Arbitration Pay Formula

  o 5th Circuit judge questions government’s ‘guardrails’

  o Plaintiffs say double-counting prohibition problematic

  By Sara Hansard / February 5, 2024 05:32PM ET / Bloomberg Law

  Federal appeals court judges have questioned the government’s reliance on median network rates to resolve payment disputes under the No Surprises Act at a hearing before a three-judge panel in a case key to the future of the law’s embattled arbitration program.

  The federal government is appealing a decision by Judge Jeremy Kernodle of the US District Court for the Eastern District of Texas, who ruled in February 2022 that agencies failed to follow the text of the No Surprises Act in issuing arbitration regulations. The US Court of Appeals for the Fifth Circuit held oral arguments in New Orleans Monday before a panel of Judges Carolyn King, Edith Jones, and Andrew Oldham.

  The Texas Medical Association and other provider plaintiffs have filed numerous lawsuits challenging the government’s regulations involving the arbitration process they engage in with insurers to resolve so-called “surprise bills” from out-of-network providers at in-network medical facilities. Judge Kernodle has largely sided with them in four of the cases, and the resulting confusion has led to shutdowns and backlogs of the arbitration system, which is now back in operation.

  The outcome of the case could have a major impact on costs health plans and consumers ultimately have to bear. The provider plaintiffs say the the government’s regulations could lead to payments that are too low, while groups representing employer-sponsored plans, health insurers, and patient groups fear that separating payment decisions from contracted network rates would lead to escalating costs.

  Acuity of Patient

  Under the No Surprises Act, enacted in 2020 as part of the Consolidated Appropriations Act of 2021, providers are prohibited from billing patients for amounts higher than network rates in emergencies for out-of-network services at in-network facilities.

  The plaintiffs argue that the government’s rules for resolving the billing disputes depend too heavily on the qualifying payment amount, which is based on median network rates and calculated by insurers, rather than other factors mentioned in the No Surprises statute, like the acuity of the patient’s medical problems and the provider’s experience and training level.

  Judge Jones appeared sympathetic to the providers’ arguments.

  “Medical practice often varies depending on the acuity of the patient, among other factors,” she said to Department of Justice Attorney Kevin Soter. “How can you say that the whole point of this IDR [independent dispute resolution] service is not that the arbitrator is supposed to look at each individual case and draw inferences from that?”

  If factors besides qualifying payment amount are not weighed fairly, “what’s the point of guardrails?” Jones said.

  The arbitration regulations that the government set up to determine how to weigh the qualifying payment amount against other factors like acuity of the patient are similar to the federal rules of evidence used in federal court, including rules to decide which evidence to weigh and which to exclude as irrelevant, Soter said.

  However, on questioning by Jones, Soter acknowledged that the IDR process isn’t actually bound by the federal rules of evidence.

  “The departments were mandated by Congress to come up with reasonable rules of the road, and the ones that are at issue here meet that standard,” Soter said.

  The IDR process has seen a huge volume of activity, even as it’s been open to use in fits and starts. More than 490,000 disputes were submitted for arbitration as of June 2023, according to the Government Accountability Office.

  “Far more disputes have been submitted through this process than were estimated,” Soter said. “That underscores the need for a set of uniform rules,” as Congress directed, he said.

  Government’s Authority Questioned

  Eric McArthur of Sidley Austin LLP argued for the plaintiffs that the Departments of Health and Human Services, Labor, the Treasury, and the Office of Personnel Management don’t have authority to impose “extra statutory requirements on arbitrators’ weighing of the statutory factors,” that the rules aren’t consistent with the statute, and that they don’t reasonably implement it.

  The “most problematic” provision in the challenged regulations is the prohibition against double counting, McArthur said. That provision prevents arbitrators from giving any weight to any of the factors listed in the law if that information is already accounted for in the qualifying payment amount, he said.

  Those other factors include level of experience of the provider, the quality and outcomes of the provider, the market share held by the provider or the plan in the region where the service was provided, patient acuity and the complexity of the case, and previously contracted rates between the provider and the insurer.

  The double counting ban conflicts with the statutory requirement to consider all the factors, and not just the qualifying payment amount, McArthur said. “That is re-writing the statute,” he said.

  The departments argued that the prohibition is needed because the qualifying payment amount generally already takes into consideration those factors, according to McArthur, who said that the government’s reasoning on this point isn’t valid.

  “It forces the arbitrators to use the QPA as the baseline rate, and the other factors as simply a potential reason to depart from that baseline rate,” McArthur said. Arbitrators may want to start from a different baseline, such as prior contracted rates, and adjust rates upward from that, he said.

  Further, McArthur argued that information isn’t available on how insurers determine what the qualifying payment amount is. “The QPA is a black box to providers and arbitrators alike,” he said.

  “It is a number that is calculated in secret by the insurer based on the insurer’s own records with very limited disclosures,” McArthur said. “How are arbitrators supposed to know whether information is or is not accounted for in the QPA?” he said.

  The case is Texas Medical Association v. US Department of Health and Human Services, 5th Cir. en banc, 23-40217, oral arguments heard on 2/5/24.

  To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

  To contact the editors responsible for this story: Rebekah Mintzer at rmintzer@bloombergindustry.com; Genevieve Douglas at gdouglas@bloomberglaw.com

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