The No Surprises Act (NSA) was enacted in December 2020 to protect consumers from the most pervasive out-of-network surprise medical bills and constrain overall health care costs. More than three years after its passage, the law’s consumer protections are working. Extrapolations of recent data provide that since its inception, the NSA has protected Americans from more than 25 million surprise medical bills. 

However, as outlined in their legal filings ­— driven in part by fears over diminished reimbursement payments and revenues — health care providers have waged an aggressive litigation campaign against core tenets of the NSA. Ongoing litigation has created implementation obstacles for the Biden administration, caused headaches for those trying to keep up and comply with the latest developments, and created greater confusion for consumers about the law’s protections. It has also likely diminished the potential slowing of health insurance premium growth projected by the Congressional Budget Office.

Recent data released by the administration for the first six months of 2023 concerning the arbitration process — the method under the NSA for resolving payment disputes between health insurers and providers — exemplifies the stakes of such litigation. Analysis of this data shows that health care providers are winning nearly 80% of such arbitration disputes, typically at triple the qualifying payment amount (QPA), defined as the median in-network payment rate. Most of the arbitration disputes were initiated by a handful of providers and associated revenue cycle management companies, including those backed by private equity firms. Because providers are winning most arbitration cases at such high payment rates, the net result could enable providers to secure higher rates in future negotiations for in-network services.

In prior Expert Columns, we have provided deeper dives into specific litigation developments under the NSA. This article provides a higher-level status update for the slew of ongoing NSA cases in federal court, both at the district court level and on appeal. As discussed further below, these challenges encompass a wide range of constitutional and statutory challenges to core aspects of the NSA. These lawsuits could jeopardize certain consumer protections, tilt the landscape of the arbitration process to resolve certain payment disputes, and expose patients to higher out-of-pocket costs.

Constitutional Challenges to Core NSA Provisions

Daniel Haller et al. v. U.S. Department of Health & Human Services et al.

Filed by providers in New York in late 2021, Haller included constitutional claims attacking major provisions of the NSA — the ban on providers sending balance bills and the entire arbitration process itself. The providers argued that the NSA violates their Seventh Amendment right to a jury trial and their right to due process under the Fifth and Fourteenth Amendments. They asserted that the ban on balance billing amounts to an unconstitutional taking under the Fifth Amendment. The lawsuit also included certain challenges to regulations implementing the NSA.

To date, the providers in Haller have failed to succeed on any of their claims. In August 2022, the district court judge hearing the case denied the providers’ motion for a preliminary injunction. In denying the providers’ Seventh Amendment claim, the judge relied in part on the providers conceding that they lacked any cause of action against insurers prior to the NSA.

The providers only appealed the decision with respect to their Seventh Amendment and Takings Clause claims. In January 2024, a Second Circuit panel largely upheld the lower court’s decision.

On appeal, the providers shifted their approach under the Seventh Amendment to argue that providers have a common law cause of action against insurers, not just against patients. As a result, the panel remanded the Seventh Amendment claim, permitting Haller to re-plead it in district court. But as to the Takings Clause, the panel agreed with the district court, finding that “vague and speculative allegations of an unspecified diminution in future income are insufficient” to support such a claim. While allowing the case to continue at the district court level, the Second Circuit panel did not indicate how it would rule on the Seventh Amendment claim.

PHI Health, LLC et al. v. U.S. Department of Health and Human Services et al.

In PHI Health, providers challenged several implementing regulations under the Administrative Procedure Act (APA) and the Takings Clause of the Fifth Amendment, making similar constitutional arguments to those in Haller. Rather than press ahead with their constitutional claims, the plaintiffs moved to stay their case in light of certain regulations being vacated through other litigation. In September 2023, a district court in Kentucky permitted a stay of the case pending the resolution of appellate proceedings in cases brought by the Texas Medical Association (TMA) related to the arbitration process and QPA.

Neurological Surgery Practice of Long Island, PLLC v. U.S. Department of Health and Human Service et al.

In Neurological Surgery Practice, another New York provider brought a slew of claims under the Constitution and the APA. In its initial complaint, filed on April 20, 2023, the provider alleged that the “non-existent, delayed, or abysmally low reimbursement” for out-of-network services under the NSA’s arbitration process violates the Due Process Clause and Takings Clause of the Fifth Amendment. The complaint also included allegations that the administration violated its statutory obligations by failing to adopt certain procedures and policies regarding arbitration fees and operations.

In July 2023, the district court granted the government’s motion to dismiss, soundly rejecting the constitutional claims and finding that the provider failed “to identify an unambiguous statutory requirement that the defendants have skirted.” The provider filed a motion to file an amended complaint and preliminary injunction in October 2023, and briefing remains in progress.

Challenges to How Arbitration Entities Weigh Statutory Factors

The Biden administration’s regulations to implement the arbitration process under the NSA have drawn substantial litigation.

When the administration first sought to impose certain guardrails in September 2021 regarding how arbitration entities should weigh the relevant statutory factors, multiple providers filed lawsuits seeking to block the regulation to achieve the statute’s aim of containing health care costs. In response to a lawsuit brought by TMA in October 2021, a district court judge in Texas ultimately vacated that regulation nationwide in February 2022. Other providers challenging this regulation subsequently dismissed their own cases.

In response, the administration went back to the drawing board and issued a new final regulation seeking to put far more modest guardrails in place concerning the arbitration process. TMA sued again in September 2022 (TMA II), and the same district court judge vacated the regulation nationwide in February 2023.

The administration subsequently appealed the case. Following the briefing’s conclusion, a Fifth Circuit panel heard the oral argument in early February 2024. The panel’s lines of questioning suggest that the judges are skeptical of the arguments set forth by the administration. Disregarding the government’s suggestion that challenging regulations would ensure arbitration awards’ consistency and predictability, multiple judges on the panel indicated their belief that the regulations are unnecessary. These judges noted that arbitrators are qualified enough to weigh the factors and make arbitration decisions without additional guidance. The panel’s questions about the role of the QPA also suggested sympathy towards the perspective of TMA and other providers.

A decision is expected in the coming months.

Challenges to QPA Methodology

As with the arbitration process factors themselves, providers have pursued substantial litigation concerning the regulations outlining the methodology used to calculate the QPA under the NSA. Also considered in the arbitration process, the QPA is the basis for determining individual cost-sharing for items and services covered by the law’s balance-billing protections.

In late November and early December 2022, TMA and air ambulance providers filed lawsuits challenging the administration’s regulations concerning the QPA methodology and other aspects of the arbitration process (which were subsequently consolidated). The cases (TMA III) were heard by the same district court judge in Texas who ruled for TMA in their previous challenges. In August 2023, the judge again sided with TMA and the air ambulance providers on almost all of their claims, vacating key provisions of the regulations related to the QPA methodology and the arbitration process. The judge’s decision in TMA III conflicted with certain aspects of a decision by another judge in Washington, D.C., considering a legal challenge to the QPA methodology by air ambulance providers. In August 2023, the judge in D.C. held that the administration’s approach to crafting such regulations was “eminently reasonable” and fully consistent with the statute.

The administration subsequently only appealed certain parts of the district court’s decision in TMA III. TMA also filed a notice of cross-appeal, suggesting that they will separately seek that the Fifth Circuit overturn certain portions of the district court’s decision. While the appeal is pending, the administration released guidance in October 2023 explaining that it is exercising enforcement discretion to allow existing QPAs to remain in place for a certain period (which helps protect consumers from facing increased cost-sharing).

The government filed its initial appellate brief in the TMA III case in January 2024. The administration asserted that the rule set out a reasonable methodology for calculating the QPA and permissibly interpreted the NSA’s statutory requirements for health plans to make initial payments or denials. It argued, at a minimum, the challenged provisions should not have been universally vacated. America’s Health Insurance Plans, the Blue Cross Blue Shield Association, and the Leukemia and Lymphoma Society (along with other patient groups) also filed amicus briefs in support of the government. The patient groups’ amicus brief warned that the lower court’s decision, “if allowed to stand, will almost surely drive up the QPA in many cases and increase already high out-of-pocket costs for patients and their families.”

Briefing remains ongoing at the Fifth Circuit. TMA’s response brief is due on March 13, 2024.

Challenges to IDR Fees/Operations

TMA brought another lawsuit (TMA IV) in January 2023, contending that regulations and guidance regarding batching certain arbitration claims and increasing arbitration fees violated the APA. The same judge who ruled on previous challenges brought by TMA heard this case. In August 2023, the court sided with TMA again, finding that the government should have provided an opportunity for notice and comment for such actions.

In light of TMA IV, the government went through notice-and-comment rulemaking and finalized new NSA arbitration fees in December 2023. The government also proposed new guidelines for the NSA arbitration process in October 2023, including batching claims, which it is currently finalizing. In addition to responding to the TMA IV litigation, these regulations are intended to promote operational improvements, incorporate stakeholder feedback, address the growing backlog of disputes submitted for arbitration, and ensure the timely rendering of payment determinations.

Challenges Seeking to Overturn Arbitration Awards

Air ambulance providers have brought several challenges seeking to overturn arbitration decisions in various courts across the country, suing both insurers and arbitration entities directly.

Two decisions have been handed down in district courts in Florida and Texas with contradictory holdings. In Florida, one judge issued an order dismissing the providers’ complaints, finding that arbitrators were not proper parties to lawsuits under the NSA. In contrast, a different judge in Texas held that if an arbitrator applied an illegal presumption in selecting an arbitration award, the conduct would violate the NSA and trigger judicial review. Both decisions are now being appealed — one in the Fifth Circuit, the other in the Eleventh Circuit. Ultimately, the administration has warned that if arbitration entities could be sued directly, “the viability of the [NSA arbitration] process would be placed at risk, jeopardizing a cornerstone of the congressional design.”

Potential Implications

From here, we await a decision in TMA II at the Fifth Circuit and further hearings and briefing in several other cases. Depending on how these cases are resolved, the Biden administration could face more barriers to regulatory action to implement the NSA, hindering its effort to protect consumers and lower overall health care costs.

In December 2023, the Government Accountability Office released a report highlighting how the rollout of the NSA arbitration process has been particularly challenging due to the sheer number of submitted disputes. Notably, the report specified that parties submitted nearly 490,000 disputes between April 2022 and June 2023, of which 61% remained unresolved in June 2023. The administration also indicated limited ability to increase enforcement efforts related to the arbitration process due to budget constraints and the role of arbitration fees.

Though the administration faces several constraints in implementing the NSA arbitration process, most claims are being resolved without arbitration. The leading insurer trade associations found that about 80% of the 10 million out-of-network claims in the first three quarters of 2023 were resolved with initial payment offers while less than 7% went to arbitration. Data also suggests those that go through arbitration are starting to get resolved faster.

While the Biden administration navigates a complicated and active litigation environment, it is also working to adopt various operational improvements to ensure that patients remain protected and the arbitration process works more smoothly on all sides. Such efforts will likely be welcomed by parties on all sides of the current litigation. However, the prospects of future litigation developments could distract additional agency resources — potentially creating new operational challenges and further jeopardizing certain consumer protections.