No Surprises Act’s Independent Dispute Resolution Process and Related Litigation

No Surprises Act’s Independent Dispute Resolution Process and Related Litigation

INSIGHTi

No Surprises Act’s Independent Dispute
Resolution Process and Related Litigation
April 1, 2022
On December 27, 2020, the No Surprises Act (NSA), part of the Consolidated Appropriations Act, 2021
(P.L. 116-260), was enacted to address surprise billing (i.e., circumstances where individuals receive
large, unexpected medical bills when they are unknowingly, and potentially unavoidably, treated by out-
of-network providers). Surprise billing is rooted in most private insurers’ use of provider networks, which
generally results in consumers paying more for out-of-network care (relative to the same in-network
care).
The NSA established federal surprise billing requirements with respect to out-of-network emergency
services, out-of-network nonemergency services provided during a visit at an in-network facility, and out-
of-network air ambulance services. In these situations and for plan years beginning on or after January 1,
2022, the NSA generally limits the amount consumers pay for care and specifies a methodology used to
determine how much insurers must pay providers for care, including the use of an independent dispute
resolution (IDR) process. Taken together, these requirements effectively result in the provider and insurer
recognizing the same total price for care. This Insight provides an overview of the NSA’s IDR process;
the Departments of Health and Human Services, Labor, and the Treasury’s (tri-agencies’) implementation
of these requirements; and related litigation.
The NSA’s IDR Process and the Interim Final Rule
Under the federal payment methodology, the insurer must make an initial payment (or notice of denial of
payment) to the out-of-network provider for services rendered, after which either party may initiate open
negotiations to attempt to reach an agreed-upon payment amount for services. If negotiations are
unsuccessful, the parties may use the IDR process, which is a baseball-style arbitration process wherein
the arbitrator chooses one of the parties’ proposals to resolve the dispute. Under the IDR process, the
provider and insurer each submit a proposed payment amount to the arbitrator and additional information
relating to the submission. After considering specified criteria (discussed below), the arbitrator selects one
of the two offers as the final payment amount, which is binding. This federal methodology would not
apply in states with an all-payer model agreement or in situations addressed by a state surprise billing law
payment methodology.
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On October 7, 2021, the tri-agencies established, among other things, the IDR process in an interim final
rule (IFR). The IFR specified how the arbitrator should consider the information submitted by providers
and insurers when selecting a payment amount, the treatment of batched services, and arbiter certification
and conflict of interest standards.
The October IFR built upon a previous NSA-related IFR published by the tri-agencies on July 13, 2021.
That IFR addressed, among other issues, NSA rules for determining the qualifying payment amount
(QPA), which is defined as an insurer’s 2019 median in-network rate for a service, indexed for inflation.
Litigation over the NSA’s Provisions and the IFR
One particular aspect of the October IFR, concerning how an arbitrator should select between the parties’
proposals during the arbitration process, has been the subject of ongoing litigation. The NSA generally
directs the arbitrator to consider (1) the QPA of the item or service and (2) five additional, specified
circumstances, including the provider’s level of training, experience, and quality and outcome
measurements, in making this determination. (For air ambulance determinations, the NSA directs the
arbitrator to consider a different set of additional circumstances.)
The IFR implemented these provisions by generally directing the arbitrator to “select the offer closest to
the [QPA] unless [it] determines that credible information submitted by either party ... clearly
demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.” The
additional information that the parties may submit for consideration includes the five statutorily specified
additional circumstances. In the IFR, the tri-agencies explained their view that this weighting toward the
QPA was the best interpretation of the relevant provisions because the statutory text lists the QPA as the
first factor, along with detailed rules for calculating the QPA, while the additional circumstances are
described in a separate paragraph with limited guidance on their consideration and definitions.
Several providers and their trade associations filed at least six separate lawsuits to challenge this aspect of
the IFR. According to the plaintiffs, the IFR directed arbitrators to consider the QPA as the presumptively
appropriate payment amount and this presumption conflicts with the NSA’s unambiguous statutory
directive to consider all statutory factors in every case. In Texas Medical Ass’n v. U.S. Department of
Health & Human Services, the U.S. District Court for the Northern District of Texas agreed. According to
the court, nothing in the NSA “instructs arbitrators to weigh any one factor or circumstance more heavily
than the others,” nor does the law “impose a ‘rebuttable presumption’ that the offer closest to the QPA
should be chosen.” Instead, the court concluded that the NSA unambiguously instructs the arbitrator to
select one of the two offers submitted by the parties after taking into account all statutory factors. The
court also concluded that the IFR violated the Administrative Procedure Act’s notice-and-comment
rulemaking requirements.
Based on these conclusions, the district court, on February 23, 2022, vacated five portions of the IFR
related to instructions to the arbitrator on how to select between the parties’ offers, including related
definitions and examples. On February 28, 2022, the tri-agencies announced that, consistent with the
court’s order, the guidance documents based on or referring to the vacated portions of the IFR are
withdrawn and will be revised with conforming updates.
All six NSA suits to date challenge these and other related portions of the IFR. Two of the pending suits
also raise additional claims. One case challenges the July IFR on the methodology used to calculate the
QPA for air ambulance services; these claims are subject to a pending motion for summary judgment
before the district court. Another more recently filed case broadly challenges the NSA—including
provisions that establish the IDR process and prohibit providers from sending balance bills to patients—
as violating the Seventh Amendment, the Due Process Clause of the Fifth and Fourteenth Amendments,
and the Fifth Amendment’s Takings Clause.

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Author Information

Ryan J. Rosso
Wen W. Shen
Analyst in Health Care Financing
Legislative Attorney

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