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Eastern District of Texas Invalidates Parts of Implementing the No Surprises Act

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On July 26, 2022, Judge Jeremy Kernodle of the Eastern District of Texas affirmed that certain parts of the Interim Final Rule Part II implementing the No Surprises Act (the Act) were invalid. This ruling is nearly identical to Judge Kernodle’s February decision in Texas Medical Association & Corley v. US Dept. of Health and Human Services. This decision vacated a portion of the Interim Final Rule that required arbitrators to give more weight to the out-of-network rate, including what is called the Qualified Payment Amount (QPA), over other permissible factors. The rule’s requirement ultimately contradicted the Act’s direction that arbitrators consider various factors, and not weight any one more heavily than another.

Recently, the court addressed a challenge to a nearly identical interim final rule (the Rule), which purportedly implements § 300gg-112 of the Act and applies to air ambulance service providers. The challenge was brought by LifeNet, an air ambulance service provider, against the Departments of Health and Human Services, Labor, and the Treasury (the Departments). LifeNet moved for summary judgment on the grounds that the Rule improperly gives “greater weight” to the QPA. LifeNet also argued that the Rule was inappropriately issued without a notice and comment period.

The Act sets up an independent dispute resolution (IDR) process by which out-of-network providers and insurers are required to arbitrate payment rates. The challenged portion of the Rule outlined a “baseball style arbitration” process for determining payments by requiring providers and insurers to each submit a proposed payment amount and explanation to an arbitrator.

Exactly like the rule challenged in TMA, this Rule required that arbitrators select the QPA unless “credible” information were able to demonstrate that the reported QPA is “materially different from the appropriate out-of-network rate.” In TMA, the rule required a presumption in favor of the QPA unless “additional information” could be provided to show a more appropriate rate. Thus, the court found that “the Rule does exactly what the Court ruled unlawful in TMA.”

The Departments argued that the case should be transferred to an alternative forum under the first-to-file rule. The Departments believed that because a different plaintiff challenging the same rule first filed in the U.S. District Court for the District of Columbia in November 2021 (Air Medical), the case should be transferred there. The court disagreed with this argument finding that the first-to-file rule is a “discretionary doctrine” and that TMA, not Air Medical, should be considered the first-filed case. This is because TMA “challenged the identical wording of a nearly-identical rule” and that the core issue of TMA is the same issue present here and in Air Medical: “whether Defendant’s establishing a QPA presumption in IDR process violated the Act.”

The court ruled that LifeNet could show both injury and redressability, establishing standing. The Departments next argued that the court should not follow its TMA ruling because the “overall statutory scheme” supported the Rule. The court disagreed and determined that the Act “unambiguously” allows for arbitrators to consider the QPA amongst other factors, but does not instruct arbitrators to weight QPA higher than any other factor. Therefore, the Rule “rewrites clear statutory terms” and is unlawful. Alternatively, the court also found that the Departments improperly bypassed the notice and comment period. The court vacated the unlawful portions of the Rule and remanded to the Departments for review. The remaining portions of the Rule and Act are still in effect to guide payment disputes.

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