Update (03/17/23): On March 17, 2023, certified IDR entities were instructed to resume making payment determinations for disputes involving items or services furnished on or after October 25, 2022.

Update (02/27/23): On February 24, 2023, the Centers for Medicare & Medicaid Services announced that as of that date, “certified IDR entities resumed processing payment determinations for disputes involving items or services furnished before October 25, 2022. Certified IDR entities will continue to hold issuance of payment determinations for disputes that involve items or services furnished on or after October 25, 2022 until the Departments issue further guidance.”

After years of debate and advocacy related to the need to protect patients from the most pervasive types of surprise out-of-network medical bills, in December 2020, Congress enacted the landmark No Surprises Act (NSA) on a bipartisan basis.

Among its key provisions, the NSA protects people with private insurance from receiving a surprise medical bill when they receive emergency services, certain non-emergency services from out-of-network providers, and services from out-of-network air ambulance service providers. In practice, that means consumers’ costs in those cases are limited to in-network cost-sharing, and health care providers are banned from sending patients balance bills for any amounts beyond that cost-sharing.

The law also creates an independent dispute resolution (IDR) process to resolve payment disputes for out-of-network services between insurers and health care providers — keeping patients out of such disputes. The IDR process brings in a neutral third party to decide the appropriate payment amount between competing offers that best represents the value of the item or service under dispute —  following consideration of certain statutory factors.

In enacting the NSA, Congress strove to end the practice of surprise billing and reduce overall health care costs. When designing the IDR process, Congress pursued an approach that was “designed to reduce premiums and the deficit,” and structured in a manner that would “reduce costs for patients and prevent inflationary effects on health care costs.” The independent and neutral scorekeeper for Congress, the Congressional Budget Office (CBO) agreed. CBO’s analysis of the NSA explained that the law’s patient protections and IDR process would “result in smaller payments to some providers [that] would reduce premiums by between 0.5 percent and 1 percent” — projecting that the NSA would reduce the national deficit by almost $17 billion over ten years.

The passage of the NSA has resulted in a slew of litigation — nearly 20 cases to date — brought by health care providers challenging various statutory provisions, agency regulations and guidance, and even decisions by IDR entities.

Brief Background

Attempts by the Biden administration to issue regulations providing guidance to IDR entities to promote consistency and efficiency in resolving disputes between health care providers and insurers have already resulted in multiple rounds of litigation.

The core of the disputes is the role of the qualifying payment amount (QPA) in the arbitration process. The QPA — generally the median in-network rate for paying providers for a given item or service — is the basis for determining individual cost-sharing for items and services covered by the NSA’s balance billing protections. The QPA is a central factor considered during the IDR process.

While the NSA specifies that IDR entities must consider the QPA and additional information submitted (such as the level of training/experience by a provider or the acuity level of a particular patient), subject to certain limitations, the manner in which the QPA and such additional information is weighed could have significant implications. As outlined in amicus briefs by patient and employer groups, an IDR process that resolves disputes by more closely tracking the QPA could keep health care health care costs down by reducing payments to providers. Accordingly, providers have vigorously fought to prevent such an outcome.

On February 6, 2023, after the Texas Medical Association and several air ambulance providers sued, U.S. District Judge Jeremy D. Kernodle set aside key provisions of a final regulation issued by the Biden administration. The same judge had previously vacated an earlier regulatory attempt by the administration to establish guardrails related to the IDR process in February 2022.

The final IDR regulation at issue provided that the additional information submitted by a party must be related to a party’s offer, deemed credible by the IDR entity, and not already accounted for in other information that is already before the IDR entity

Judge Kernodle rejected arguments from the government that the final IDR regulation merely imposes “reasonable evidentiary and procedural rules” on the IDR process or filled gaps in the statute. Kernodle found that the regulation unlawfully prevents arbitrators from weighing certain information that the NSA requires them to consider. He focused on the “meticulous detail” specified in the NSA’s statutory factors that outlined information for IDR entities to consider. He also stated that the NSA “vests discretion in the arbitrators — not the Departments” regarding how to balance the statutory factors.

Judge Kernodle also pointed to the record in this case and suggested that the true intent of the IDR regulation was to promote cost containment. He highlighted regulatory language from the Biden administration indicating that — as in a previous IDR regulation — the goal remained to “keep costs down.” And notwithstanding the new IDR regulation finalized by the government, Judge Kernodle stated that “they have not relinquished their goal of privileging the QPA…and thereby lowering payments to providers.”

Implications for Health Policy

The Biden administration will weigh its options going forward with respect to how it can provide guidelines to IDR entities in resolving disputes in a consistent and efficient manner. Days after the decision, the government announced that IDR entities should not issue new payment determinations until receiving further guidance. The government can appeal, and seek to have Judge Kernodle’s decision reversed. Alternatively, the government could pursue yet another IDR regulation that would comport with Judge Kernodle’s analysis of the NSA and its statutory requirements.

Health care affordability remains a primary concern for Americans, and policymakers at all levels must continue vigorous efforts to address this issue in the commercial health insurance market. Judge Kernodle’s decision highlights the range of challenges in achieving meaningful cost containment at the federal level in our health care system. Notwithstanding extensive congressional debate and a recognition that the NSA’s IDR process would ultimately result in modest reductions to provider payments, Judge Kernodle suggested that such a goal (among others) contributed to his finding that the IDR regulation was unlawful.

If federal agencies are unable to provide reasonable guardrails to guide the IDR process, patients may face an inflationary federal IDR process that results in higher premiums and health care costs. Such a potential outcome is especially concerning considering an initial report released by the federal government about the IDR process through fall of 2022. The report shows a backlog in processing IDR disputes, in part due to there being “significantly more than the number of disputes the Departments initially estimated would be submitted for a full year.”

There are still several ongoing cases challenging other provisions of the NSA, which could implicate health care costs, including key consumer protections and the QPA methodology. Decisions in these cases and in others related to cost containment could chill regulatory efforts aimed at lowering health care costs. It will be critical to watch in the coming year how federal courts handle litigation related to cost containment measures going forward.