On February 23, 2022, Eastern District of Texas Judge Jeremy Kernodle sided with the Texas Medical Association (TMA), a trade association representing more than 55,000 physicians, and decided that the Department of Health and Human Services (HHS) interim final rule governing the Independent Dispute Resolution (IDR) process conflicted with the No Surprises Act by creating a rebuttable presumption that the Qualifying Payment Amount (QPA) (which is typically the median in-network rate) was the appropriate out-of-network rate for purposes of the Independent Dispute Resolution (IDR) process.

Prior to the the Court’s ruling, the IDR Entity would have to select the offer closest to the QPA absent extraordinary circumstances. TMA was able to show that the rules deprived them of the arbitration process established by the No Surprises Act (NSA) and that the rules would unfairly pressure healthcare providers to lower their offers to increase the likelihood their offer would be selected. Further, TMA was able to show harm based on HHS confirmation that the rules would “systematically reduce out-of-network reimbursement compared to an Independent Dispute Resolution (IDR) process without such a presumption.”

The Court determined that the NSA unambiguously establishes the framework for deciding payment disputes and concluded that the rule was in conflict with that statutory text.

What happens now?

The Court’s decision does not delay implementation of the IDR process. The IDR process will still go forward. However, it is as if the interim final rule regarding what the IDR Entity can consider was never drafted. The standard to be applied to the original text of the NSA is a good faith compliance standard. Therefore, the participants in the IDR process (the provider, payers and the IDR Entities) must act reasonably in implementing the IDR process requirements of the NSA.

A reasonable interpretation of the NSA is that the IDR Entity can weigh all of the following factors:

• The median contracted rate in the geographic region for the same items or services;
• The contracted rates between the provider and the plan during the previous four plan years;
• The level of training, experience, quality and outcome measurements of the provider;
• The market share held by the provider and/or plan in the geographic region in which the items or services were provided;
• The complexity of the items or services;
• The teaching status, case mix and scope of services; and
• The good faith efforts (or lack thereof) by the parties to enter into network agreements.

And cannot consider the following factors:

• The usual and customary charges;
• The chargemaster (or billed) rate;
• The Medicare reimbursement rate;
• Children’s Health Insurance Program reimbursement rate; or
• TRICARE reimbursement rate.

What will HHS do next?

HHS could file an appeal to the Federal Appeals Court for the Fifth Circuit. However, that process is likely to take a significant amount of time and is not likely to lead to the resolution HHS may be looking for.

More likely, HHS will withdraw the interim final rule addressing the IDR process and follow the procedures for notice and comment under the Administrative Procedures Act.

While we wait for further guidance, the parties should use their best judgment and provide complete and detailed submissions to the IDR Entities. An even better practice is to adopt a reference-based pricing plan, which allows the parties to avoid certain NSA provisions (including the IDR process) and potentially eliminate the negative effects of excess charges otherwise shared by the employer and the participant.