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Federal Judge Tosses Portion of Surprise Medical Bill Rule (2)

Feb. 24, 2022, 2:11 PMUpdated: Feb. 25, 2022, 4:55 PM

A federal judge in Texas tossed out portions of a rule that established the arbitration process Congress called for to shield patients from surprise medical bills.

The government failed to follow the text of the No Surprises Act and proper notice and comment when it required arbitrators to select the amount closest to the median in-network rate in settling payment disputes between insurers and certain out-of-network health-care providers, Judge Jeremy Kernodle of the U.S. District Court for the Eastern District of Texas said in an order Wednesday.

“It is a ‘core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate,’” he said."But here, the Departments impermissibly altered the Act’s requirements.”

The Texas Medical Association and doctor who challenged the requirement argued Congress never meant for the arbitrators to give the median in-network rate a presumptive weight.

The No Surprises Act, which took effect Jan. 1, limits the amount patients can be billed for emergency services delivered by providers who aren’t in their insurance network and for non-emergency services delivered by certain out-of-network providers at in-network facilities.

It also established this independent arbitration process to settle disputes when an insurer and an out-of-network provider can’t agree on the appropriate reimbursement amount for a patient’s care.

Arbitration Process

In that process, the provider and insurer give the arbitrator the payment amounts requested or offered, and the arbitrator selects one as the appropriate rate by considering a number of factors, including the median in-network rate, information related to the training and experience of the provider, the market share of the parties, their previous contracting history, and the complexity of the services provided.

But the Texas Medical Association and doctor said the departments of Health and Human Services, Labor, Treasury, and Office of Personnel Management fundamentally transformed the baseball-style arbitration process Congress created in joint rules issued in 2021.

“Congress did not assign primacy to any one factor, but rather left it to the IDR [independent dispute resolution] entity’s discretion to determine how best to weigh the statutory factors in light of all the facts and circumstances of a particular case,” the group and doctor argued.

The agencies, however, said the challengers’ reading of the law would give arbiters “virtually unfettered discretion to rely on any information he or she may wish to consider in choosing one of the parties’ competing offers.”

Like the statute, the rule sets forth a series of factors for the arbitrator to consider, beginning with the median rate, known as the qualifying payment amount (QPA), and ”leaves ample room” to consider the additional factors listed in the statute.

Kernodle disagreed. He said the rule “places its thumb on the scale for the QPA, requiring arbitrators to presume the correctness of the QPA and then imposing a heightened burden on the remaining statutory factors to overcome that presumption.”

In granting the Texas Medical Association’s request for summary judgment, Kernodle said the best course of action was to vacate the portions of the rule at issue instead of sending it back to the agencies to fix.

“The rule conflicts with the unambiguous terms of the Act in several key respects,” he said. “This means that there is nothing the Departments can do on remand to rehabilitate or justify the challenged portions of the Rule as written.”

A spokesperson for the Department of Health and Human Services said, “We’re reviewing the decision and remain committed to protecting consumers from surprise billing.”

Nationwide Scope

The ruling has nationwide scope, Katie Keith, a visiting professor at the Georgetown University Law Center, said.

The Department of Justice asked the court for more limited relief, but the judge “rejected all of that” and set aside the rule, said Keith, who authored an analysis of the ruling for Health Affairs. Other courts “could reach a totally different conclusion,” but that would not “reinvigorate these provisions,” she said.

The agencies will consider the court rulings and comments and issue a final rule, Keith said.

The ruling is the first of six cases filed in five district courts involving the arbitration provisions—also known as independent dispute resolution, or IDR—of the Biden administration’s interim final rule.

The ruling “inserts more uncertainty into the process,” and makes it more difficult to avoid going to arbitration, Katy Johnson, senior counsel of health policy at the American Benefits Council, said. The council represents employers that sponsor health plans and other employee benefits. Employers support the administration’s rule on arbitration, which they believe will help keep medical claim payments at a lower level.

The council participated in filing an amicus brief in the case supporting the administration’s rule.

“With a more consistent, predictable IDR system—where more often than not the IDR entity is choosing a payment amount that’s closest to the median in-network rate—that provides some certainty so you could perhaps avoid IDR” by paying doctors an amount close to the network rate, Johnson said.

AHIP, a trade group representing health insurers, and Blue Cross Blue Shield Association said in statements that the ruling, if it stands, could result in higher health-care costs and premiums.

The American Medical Association and the Texas Medical Association said in statements that the ruling correctly overturned the federal agencies’ interpretation of the arbitration provision of the No Surprises Act.

The case is Texas Med. Ass’n v. Dep’t of Health and Human Serv., E.D. Tex., No. 6:21-cv-00425.

(Updates Feb. 24 story with additional reporting on scope, impact of ruling beginning in 16th paragraph.)

To contact the reporters on this story: Lydia Wheeler in Washington at; Sara Hansard in Washington at

To contact the editors responsible for this story: Brent Bierman at; Karl Hardy at