On February 6, 2023, a judge for the United States District Court for the Eastern District of Texas (“Texas District Court”) ruled in favor of the Texas Medical Association (“TMA”) and against the United States Departments of Treasury, Labor, and Health and Human Services (the “Departments”) over a challenge to the continued special status given to the qualifying payment amount (“QPA”) in the arbitration process between out-of-network providers and payors under the No Surprises Act. In its lawsuit against the Departments, TMA specifically challenged the No Surprises Act requirement that Independent Dispute Resolution Entities (“IDREs”) initially consider the out-of-network rate closest to the qualifying payment amount (“QPA”), before, and otherwise limiting consideration of other non-QPA factors[1],  when determining final amounts to be paid.

As discussed in a previous blog post, the QPA,[2] which is generally the median rate paid for the service by the payor in the community, was established as the presumptive appropriate amount in a final interim rule issued by the Departments in September 2021 based on the Departments stated goal of lowering health care costs. (The QPA is generally lower than the out-of-network rates customarily paid for emergency treatment). As set forth in the interim rule, IDREs were permitted to consider non-QPA factors in their assessment of the final payment only when credible evidence demonstrated that the QPA was not the best value of the item or service under dispute. In its lawsuit against the Departments in February 2022, TMA asserted that the interim rule placed a “thumb on the scale” in favor of the QPA and, in turn, payors. The Texas District Court rejected the regulations, holding that the interim rule continued to impose an inappropriate “rebuttable presumption” in favor of the QPA in direct conflict with the No Surprises Act.

In response to the Texas District Court’s ruling, the Departments published Final Rules in August 2022, which vacated the QPA presumption. However, as noted in another previous blog post, under these Final Rules, the Departments continued to instruct IDREs to consider the QPA first as a presumptively “credible” factor, while permitting IDREs to also weigh the credibility of non-QPA factors. The Final Rules directed IDREs to evaluate non-QPA factors only secondarily and only if they were deemed credible, were related to either party’s offer and not already accounted for in the QPA.

The TMA remained dissatisfied, and brought a follow-up December 2022 lawsuit. TMA took issue with the unfair advantage granted to payors by requiring IDREs to first consider the QPA and limit the consideration of the other non-QPA factors. Again, the TMA won. The Texas District Court acknowledged that the Final Rules avoided an explicit presumption in favor of the QPA, but it nonetheless determined that the Final Rules artificially decreased the QPA’s weight by requiring IDREs to consider that factor principally. This sequencing arrangement, and the limitation of consideration of the other factors (by the requirement that they be deemed credible, related to the party’s offer in the arbitration, and not otherwise already accounted for in the determination of the QPA or other information provided), led the Texas District Court to hold, again, that the Final Rules improperly limited IDREs’ discretion, as established by Congress, in the No Surprises Act and unjustly favored commercial payors. The court reasoned that “[n]othing in the Act…instructs arbitrators to weigh any one factor or circumstance more heavily than the others … [and that a] statute’s ‘lack of text’ is sometimes ‘more telling’ than the text itself.”[3] Accordingly, the Final Rules were found to be impermissible under the Administrative Procedures Act and were vacated.

This latest win for TMA has not prevented further litigation on the dispute resolution process. Most recently, on January 31, 2023, TMA launched another lawsuit against the Departments—this time challenging the $350 initiation fee imposed on parties to initiate the IDR process. This lawsuit claims that the nonrefundable initiation fee—expected to be paid by both parties—increased by 600 percent on December 23, 2022, less than two months after CMS stated that the administrative fee would remain $50 in 2023. TMA has argued that the dramatic increase will make the IDR process significantly more expensive for all IDR participants, especially for providers where the increased fee will likely be cost prohibitive. According to TMA, providers who bill small value claims, like radiology, will be particularly affected, because most claims billed are less than $350 and, thus, initiating the IDR process will likely be economically infeasible.

Presently, in recognition of the most recent Texas District Court’s ruling, the Departments have notified IDREs that they should not issue any new payment determinations and recall any payment determinations issued after February 6, 2023 while the Departments evaluate and update IDR guidance. The Departments are expected to create new regulations to replace the vacated provisions, and the Texas District Court is yet to rule on the newly enacted $350 IDR process initiation fee.

The No Surprises Act is significantly impacting the health care industry.  IDRE determinations remain remarkably slow (and unfortunately further delayed by the litigations) and cash flow is being materially affected.  Nevertheless, it is critical to get the IDR process, which ultimately determines reimbursement, right.  Having a fair process is thus necessary to the survival of some, and the relative prosperity of virtually all, providers.

Proskauer will continue to follow developments of the No Surprises Act, its implementing regulations, and the pending dispute resolution and fee processes.

 

 

[1] Non-QPA factors include the market share of the provider and payer, the provider’s level of training, the acuity of the patients treated, the teaching status of the hospital or treatment center, and good faith efforts to enter into a network agreement.

[2] The QPA represents the median contracted rates recognized by a payer for the same or similar items or services in the same geographic area. Notably, it is a number determined exclusively by payors.

[3] Texas Medical Association, et al. v. United States Department of Health and Human Services, et al., No. 6:22-CV-372-JDK, 2023 WL 1781801, at *11 (E.D. Tex. Feb. 6, 2023).

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Photo of Edward S. Kornreich Edward S. Kornreich

Past long-standing chair of Proskauer’s Health Care Department, Ed Kornreich is a recognized authority on the legal, regulatory and business issues related to health care services.

Areas of Concentration

Ed works primarily on health care transactions, regulatory compliance, health care payment and governance…

Past long-standing chair of Proskauer’s Health Care Department, Ed Kornreich is a recognized authority on the legal, regulatory and business issues related to health care services.

Areas of Concentration

Ed works primarily on health care transactions, regulatory compliance, health care payment and governance issues for varied providers (both for-profit and not-for-profit), vendors, GPOs, distributors and entrepreneurs. His approach combines sensitivity to meeting regulatory business goals with a comprehensive and realistic assessment of the health care environment, and he is particularly experienced in dealing with the complex issues related to integrated health care systems.

Industry Experience

After working for the Legal Aid Society, Ed entered private practice, where he helped represent a major public hospital corporation in a series of reimbursement disputes with the state and federal governments, and counseled New York area hospitals and nursing homes on reimbursement and operational issues. Thereafter, Ed served as General Counsel of St. Luke’s-Roosevelt Hospital Center, one of the largest teaching hospitals in New York. After leaving St. Luke’s-Roosevelt Hospital Center, Ed joined Proskauer as a Partner in 1990.

Thought Leadership

Ed frequently writes and lectures on Medicare and Medicaid reimbursement, health care integration, not-for-profit law and corporate governance issues, and the application of federal and state anti-kickback and “Stark” laws to health care transactions.

Photo of Matthew J. Westbrook Matthew J. Westbrook

Matt Westbrook is an associate in the Corporate Department and a member of the Health Care Group. His practice focuses on providing regulatory compliance advice for the Firm’s health care clients, including service providers, health plans, operators, investors, and lenders, among others. Matt

Matt Westbrook is an associate in the Corporate Department and a member of the Health Care Group. His practice focuses on providing regulatory compliance advice for the Firm’s health care clients, including service providers, health plans, operators, investors, and lenders, among others. Matt specifically provides advice on fraud and abuse matters arising under the Federal False Claims Act (FCA), Civil Monetary Penalties Law, Federal Anti-Kickback Statute (AKS), and Physician Self-Referral Law (Stark Law), as well as on the regulations promulgated by the Drug Enforcement Administration (DEA) and the Department of Health and Human Services, including the Office of Inspector General (OIG), Centers for Medicare & Medicaid Services (CMS), and Food and Drug Administration (FDA).

Before joining the Firm, Matt served as senior counsel in OIG’s Administrative and Civil Remedies Branch. At OIG, Matt was responsible for determining whether to impose administrative sanctions, including civil money penalties and Federal health care program exclusions, against health care providers and suppliers, and whether to impose civil money penalties on hospitals and physicians in connection with matters referred to CMS under the Emergency Medical Treatment and Labor Act (EMTALA). During his tenure, Matt also litigated exclusion appeals before administrative law judges and appellate panels of the Departmental Appeals Board; advised United States Attorney’s Offices on exclusions appealed to Federal district courts; resolved voluntary self-disclosures submitted by providers and grant and contract recipients; and participated in the negotiations and settlements of FCA matters by the Department of Justice involving the AKS, Stark Law, CMS reimbursement issues, and DEA and FDA compliance issues. In connection with certain FCA resolutions, Matt also negotiated and monitored corporate integrity agreements.

On the Florida junior circuit and in college, Matt was a competitive tennis player. Matt played on the varsity team and was captain his senior year at Rhodes College, earning ITA Division III and SCAC All-Academic Honor Roll awards his sophomore, junior, and senior years. Matt is an active member of the American Health Law Association (AHLA) and currently serves as a Vice Chair of AHLA’s Fraud and Abuse Practice Group.