Once again, the No Surprises Act (NSA) — the landmark bipartisan legislation enacted in December 2020 to protect patients from the most pervasive types of surprise out-of-network medical bills — faces additional implementation challenges due to an adverse court decision.
This Expert Column will discuss the latest opinion by U.S. District Judge Jeremy D. Kernodle on August 24, 2023, vacating key provisions of a regulation issued by the Biden administration under the NSA, the significance of this decision, and other ongoing legal and policy developments.
Unlike previous decisions in NSA lawsuits focused on the arbitration process where the court ruled against the government, this latest opinion is the first directly touching the law’s major consumer protections.
Brief Background
As previously discussed, in enacting the NSA, Congress strove to end the practice of surprise billing, protect consumers, and reduce overall health care costs after years of debate and advocacy. The independent and neutral scorekeeper for Congress, the Congressional Budget Office (CBO) explained that the law’s patient protections and arbitration 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.
However, with certain providers (and private equity interests) threatened by the prospect of lower reimbursement rates in the commercial insurance market, the passage of the NSA has resulted in aggressive push back in the courts. Since then, there has been 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 arbitration entities.
In various ways, the law is already working as Congress intended. As the Biden administration highlighted, the NSA spares patients from one million surprise medical bills every month. Since the implementation of the NSA’s new consumer protections, two private equity-backed emergency room and physician staffing companies that preyed on consumers with surprise medical bills declared bankruptcy.
Yet, continued waves of litigation, adverse legal decisions, and the associated burden have resulted in various obstacles for resolving payment disputes between health insurers and providers. Based on data released by the administration, analysis of the arbitration process in the first year of its operation found that the volume of cases continues to far exceed projections (14 times the estimated caseload), a high rate of the cases filed (37 percent) were dismissed as ineligible, and a substantial backlog of cases remained (driven in part by pauses in the arbitration process as a result of litigation). The data also demonstrates the large role of private-equity-backed organizations in driving substantial use of the arbitration process.
Latest Decision in Texas
The latest decision from Texas resulted from the third set of lawsuits brought by Texas health care providers and air ambulance companies under the Administrative Procedure Act (APA), largely concerning the methodology for the qualifying payment amount (QPA) established under the NSA. The QPA is the basis for determining individual cost sharing for items and services covered by the law’s balance-billing protections and also central to the arbitration process.
The lawsuits raised a number of claims (see Table #1 below) related to the regulatory provisions outlining the QPA methodology — but at bottom, the providers alleged that the Biden administration’s approach would depress the QPA. As a result, they claimed they will receive diminished income and lower reimbursement amounts for their out-of-network services.
Table #1
| Claims by Texas Providers | Claims by Air Ambulance Companies |
|---|---|
| Administration unlawfully permits insurers to include “ghost rates” in QPA calculations — rates included in contracts with providers who do not actually provide the specified item or service. | Same/similar claim as Texas providers |
| Administration unlawfully instructs insurers to, in some circumstances, calculate the QPA using rates of providers who are not in the same or similar specialty. | N/A |
| Administration unlawfully instructs insurers to exclude incentive-based and retrospective payments in QPA calculations. | Same/similar claim as Texas providers |
| Administration unlawfully permits self-insured group health plans to determine QPAs using contracted rates for all group health plans administered by the same entity, including third-party administrators (TPAs) contracted by the plan. | Same/similar claim as Texas providers |
| Administration unlawfully restricts the disclosure of relevant information from insurers related to QPA calculations. | Same/similar claim as Texas providers |
| N/A | Administration arbitrarily replaces the statute’s 30-calendar-day deadline by which an insurer must provide an “initial payment” or “notice of denial of payment” through keying the deadline to receipt of a “clean claim” by an insurer. |
| N/A | Administration arbitrarily ignored the NSA’s statutory text providing that the QPA determination should only include those “contracted rates” that are “provided in the geographic region.” |
| N/A | Administration unlawfully excluded case-specific contract agreements that out-of-network providers have negotiated with insurers from the QPA determinations. |
| N/A | Administration unlawfully imposed a new requirement that air ambulance providers undergo two separate arbitration processes for a single air transport that involves multiple billing codes. |
As outlined in an amicus brief by patient groups in support of the Biden administration, the higher the QPA, the more exposure a consumer faces in out-of-pocket costs for certain out-of-network services. A hypothetical example of a plan with a 30 percent coinsurance requirement could leave a patient responsible for $600 more if the QPA for an anesthesiologist’s services increased from $6,000 to $8,000.
In his opinion, Judge Kernodle sided overwhelmingly with the Texas providers and air ambulance companies and adopted a narrow reading of the relevant statutory text.
As to so-called “ghost rates,” Judge Kernodle found that the interpretation by the administration conflicts with the statutory text specifying that rates should be included in the QPA that are “provided by a provider.” The court dismissed the administration’s counterpoints regarding how contracted rates are generally negotiated prospectively in the health insurance industry.
Similarly, the judge held that the administration’s approach to allow insurers to include out-of-specialty rates in calculating the QPA in some instances was at odds with statutory text referencing “the same or similar specialty.” The court rejected arguments from the administration that such interpretation was harmless and designed to prevent unnecessary burden on insurers.
Judge Kernodle also found that the administration’s regulation unlawfully instructed insurers to exclude incentive-based and retrospective payments in QPA calculations, pointing to the statute’s reference to “total maximum payment” that should be considered. He rejected the administration’s argument that such a finding conflicted with the NSA’s purpose — to reduce the cost of out-of-network services.
The judge also found the administration’s approach to allow TPAs to determine the QPA for all self-insured groups administered by the same entity was “not in accordance with the law” and conflicted with the plain text of the statute.
With respect to the specific air ambulance claims, Judge Kernodle held that the administration’s approach improperly extended the statutory 30-day deadline for insurers to make a payment decision. He faulted the administration by keying the 30-day clock to receipt of a “clean claim” by an insurer — since the statute uses the term “bill.” The judge also set aside administration guidance clarifying that air ambulance providers undergo two separate arbitration processes for a single air transport that involves multiple billing codes. Again, he found that the statutory text narrowly defies air ambulance service as a single service.
Judge Kernodle also agreed that the administration’s approach to exclude “case-specific agreements” for air ambulance services conflicted with the QPA’s statutory definition. The judge gave short shrift to another recent decision by a federal judge in Washington, D.C., who found otherwise (more on that below) — merely stating that such analysis was “unpersuasive.”
On a handful of claims, Judge Kernodle found for the administration and refused to vacate the challenged regulatory provisions. He found that the NSA gives the administration “wide latitude” in determining what insurers must disclose concerning their QPA calculations. The court explained that the disclosure regulation was “both reasonable and reasonably explained” in light of the administration’s rationale and various trade-offs it sought to balance. The judge also rejected the claim by the air ambulance providers that the QPA calculation methodology unlawfully permits insurers to look at rates in widely disparate geographic regions.
In considering the appropriate remedy for finding various regulatory provisions violated the APA, Judge Kernodle noted that the general rule within the Fifth Circuit is to vacate such regulations nationwide. The judge rejected arguments that doing so would be “unduly disruptive.” He suggested that the administration can exercise “enforcement discretion” to use existing QPA’s to protect patients with respect to cost-sharing and dismissed the notion that pausing the arbitration process again was especially problematic. The judge also faulted the administration for failing to present “specific facts” regarding how long the claimed disruption would last, the impact on the arbitration process, and how much vacating the regulations would cost the government.
State of Play of Other NSA Litigation
As noted earlier, this decision must be viewed in context with past decisions challenging the implementation of the NSA and other ongoing cases.
The same judge that decided this case has already ruled against the Biden administration in three other NSA cases. The first two decisions concerned two different regulations where the administration sought to provide reasonable guardrails to guide the arbitration process and determine how certain factors should be weighed by the arbitrators. One of these cases is now pending appeal with the Fifth Circuit, and briefing remains ongoing. In early August 2023, Judge Kernodle also vacated the administration’s attempt to increase administrative fees associated with the arbitration process and a regulation concerning how multiple claims can be batched together for arbitration.
Unlike Judge Kernodle, a federal judge in Washington, D.C., Judge Richard J. Leon, wholly rejected a lawsuit from an air ambulance provider trade association seeking to set aside various regulations related to the calculation of the QPA. In contrast to Judge Kernodle, Judge Leon found the administration’s approach to crafting such regulations was “eminently reasonable” and fully consistent with the statute. That decision may ultimately be appealed.
The Second Circuit is currently considering an appeal brought by New York providers arguing that major parts of the NSA are unconstitutional — after a federal district court previously rejected such claims.
Another case brought by air ambulance providers pursuing statutory and constitutional challenges against the NSA remains pending in district court in Kentucky — the case had been effectively put on hold, pending Judge Kernodle’s decision related to the QPA methodology, with activity likely to resume shortly.
Separately, air ambulance providers have brought multiple lawsuits against health insurers and arbitration entities directly seeking to overturn certain arbitration decisions. The Biden administration warned against such lawsuits being directly brought against arbitration entities — arguing that if arbitrators had to constantly defend against lawsuits, “the viability of the Act’s [arbitration] process would be placed at risk, jeopardizing a cornerstone of the congressional design.” One such lawsuit was voluntarily dismissed, but four remain pending in both Texas and Florida district courts.
Next Steps
Due to the latest decision by Judge Kernodle, the Biden administration has again temporarily suspended all federal arbitration operations until the relevant agencies provide further instructions. No guidance has yet been provided regarding how this decision impacts the manner in which individual cost sharing for items and services covered by the law’s balance-billing protections is determined. Such guidance will be critical in understanding the immediate consequences for consumers as a result of this decision. The administration may ultimately appeal this decision to the Fifth Circuit (as it did with previous decisions by Judge Kernodle).
Meanwhile, robust congressional oversight continues — with the ranking member of the Senate Committee on Health, Education, Labor, and Pensions requesting that the Biden administration respond to 41 detailed questions concerning the implementation of the NSA.
Additional pauses in the arbitration process and the potential new exposure that consumers have to higher cost-sharing in light of higher QPA calculations will undoubtedly continue to draw attention from various policymakers. Even if the administration can craft a short-term fix to protect consumers, it is unclear how the administration can work within the construct of this latest decision and ensure the QPA methodology appropriately minimizes patient exposure to higher costs for out-of-network services.
In general, the ongoing litigation pursued by health care providers will continue to pose significant implementation challenges for the administration. While some stakeholders may welcome a chaotic arbitration process or total pause in arbitration, such disruption and associated resources that the administration must put into developing new guidance to comply with court decisions only distract them from being able to address legitimate implementation concerns being raised on all sides.
The administration is already grappling with the volume of arbitration cases filed being well above expected levels, with a substantial share of the cases filed ultimately deemed ineligible for the arbitration process. And the developments from the latest decision will only magnify such challenges.
