Court Strikes Down Some No Surprises Act Regulatory Language on Arbitration

Back in October 2021, we discussed the No Surprises Act Part II interim final rule which gave details on the federal independent dispute resolution (IDR) process.  As a refresher, here is what the law requires:

• When a health plan participant needs emergency room care, an air ambulance, or out-of-network care at an in-network facility, then:
  • The participant must only be responsible to pay in-network cost sharing.
  • The plan must determine a qualifying payment amount (QPA) based on a specific formula to determine the median in-network rate along with other relevant factors.
  • Then the plan must promptly pay the provider and include the calculations and rationale for determining the payment amount.
• If the provider disagrees with the payment amount, the provider and plan must negotiate in good faith over the next 30 days without involving the patient.
• If they cannot resolve things, they can request IDR arbitration. The plan and the provider must submit to the IDR entity their “best and final” proposals for how much the provider should be paid, and the IDR entity must choose one of the two offers as the final, binding decision.
  • This is commonly known as “baseball-style” arbitration, which doesn’t allow the IDR entity to negotiate any further compromises but makes them choose between the two final offers.
  • While the 30-day good faith negotiation period is expected to result in some compromises, the “best and final” nature of IDR could result in one or both parties making even more concessions in the hopes of their proposal being chosen.
  • The law gives general rules of what must be considered and what cannot be considered when determining which proposal is best, but it does not presume which offer will be the most reasonable. That’s up to the IDR entity to determine within parameters outlined by the law.

With that context in mind, the Biden administration’s Part II final rule had taken a surprise turn (no pun intended), stating the IDR entity must view the health plan’s QPA as the “appropriate out-of-network rate.”  The only way the provider can possibly win arbitration is to provide extra documentation clearly substantiating what material differences exist to justify paying them more than the QPA.  But since the QPA was supposed to have already factored in special circumstances, this would have made it likely the health plan typically wins arbitration.  This also would’ve undermined attempts to compromise during the 30-day good-faith negotiation period, since the plan knows an IDR entity is likely going to accept the QPA as the most appropriate amount at the end of the day.  On the one hand, this could keep costs down, but on the other hand, it strains provider relations in the employer’s community.

This language was challenged in court.  On Wednesday, February 23, 2022, a U.S. District Court struck down that language, saying regulators should have navigated the proposed rulemaking process for such a stark deviation from what the law requires instead of jumping straight to a final rule.  Therefore, the regulation is stricken of all references to the QPA being the most appropriate out-of-network payment amount the IDR entity must accept unless a material difference can be clearly identified to substantiate paying the provider more.  So we’re back to the baseball-style arbitration outlined in the No Surprises Act, requiring the plan and provider to submit their best and final offers and the IDR entity to fairly choose between them without an inherent assumption that the plan’s offer is more “appropriate.”

The result of this decision to health plans is that surprise bills might not lean as heavily in favor of the plan’s QPA, so plans once again need to be sure to engage in good faith during the 30-day negotiation period and once again need to prepare for providers potentially winning arbitration decisions that charge the plan much higher amounts for emergency room care, air ambulance services, and out-of-network care at in-network facilities.

Federal regulators responded on February 28 to indicate they will update their materials and provide training as soon as possible.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.

This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.