Overview of Selected No Surprises Act Litigation

Legal Sidebari

Overview of Select No Surprises Act

Litigation

September 7, 2023

The No Surprises Act (NSA), part of the Consolidated Appropriations Act, 2021 (P.L. 116-260),

established various consumer protections related to 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. In those situations, 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.

Under the federal payment methodology, when an insurer and an out-of-network provider cannot agree on

the relevant payment amount, either party may initiate an independent dispute resolution (IDR) process

before a private arbitrator, or an IDR entity, who would select between the parties’ payment offers after

considering a list of statutory factors. This process effectively results in the provider and insurer

recognizing the same total price for care.

Since the NSA’s enactment, the Departments of Health and Human Services, Labor, and the Treasury (triagencies or Departments) have issued several rules and guidance implementing the IDR process. Various

aspects of these actions have been the subject of legal challenges. This Sidebar provides background on

the NSA and the relevant regulatory actions, an overview of a select set of legal challenges that have

resulted in certain changes to the IDR process, and certain considerations for Congress.

Background

The NSA’s Statutory Requirements

The NSA enacted a number of private health insurance reforms, including new requirements on providers

and insurers regarding surprise billing and other consumer protections. With respect to protection related

to surprise billing, the law recognizes surprise billing circumstances to include out-of-network emergency

services, out-of-network nonemergency services provided during a visit at an in-network facility, and outof-network air ambulance services. In those circumstances, the NSA generally caps the consumers’

financial responsibility to the amount they would have paid had the service been provided in-network. In

addition, the law specifies a methodology used to determine how much insurers must pay the out-ofnetwork providers for care.

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In general, under the federal 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. Each party participating in the IDR process must pay

to the tri-agencies an administrative fee established by the Secretaries, at an amount such that the total

amount of fees collected is “estimated to be equal to the amount of expenditures estimated to be made by

the [Secretaries] for such year in carrying out the IDR process.” In addition to the administrative fee, the

IDR process also entails a fee payable to the IDR entity.

Under the IDR process, the provider and insurer each submit a proposed payment amount to the arbitrator

and additional information relating to the submission. In deciding which offer to select, the statute directs

the IDR entity to consider (1) the item or service’s qualifying payment amount (QPA), defined as an

insurer’s 2019 median in-network rate for a particular service provided by a provider in the same or

similar specialty, indexed for inflation; and (2) information related to any of the specified “additional

circumstances” listed in a different subclause, including the provider’s level of training, experience, and

quality and outcome measurements. The law also prohibits the arbitrators from considering certain

factors, such as the usual and customary charges and billed charges. An arbitrator’s payment

determination, with some limited exceptions, is generally binding and not judicially reviewable. The party

whose offer is not chosen must pay the IDR entity fee.

The NSA delegates to the tri-agencies’ Secretaries the authority to establish “by regulation one [IDR]

process” under which certified arbitrators determine the amount of the disputed payment in a manner

consistent with the statute. The law also directs the Secretaries to flesh out various additional aspects of

the IDR process. The Secretaries, for example, are directed to establish through rulemaking the

methodology insurers must use to determine the QPA and the information insurers must share with

providers when making such a determination. The Secretaries are also directed to, for example, specify

additional criteria under which multiple disputed items and services may be batched together to be

considered as part of a single determination.

Tri-Agency Actions to Implement the NSA

Since the NSA’s enactment, the tri-agencies have undertaken numerous actions to implement the NSA,

including its requirements related to the QPA, the fees associated with IDR process, the scope of a single

IDR determination, and how IDR entities should select between the parties’ proposed amounts.

QPA Requirements

As to the QPA, the tri-agencies issued an initial set of interim final rules in July 2021 (July 2021 IFR) that

addressed, among other issues, how insurers should determine the QPA for a relevant item or service. The

methodology generally directed insurers to calculate the median contracted rates by looking to the

contracted payment for a particular service under each of the plans that the insurer has negotiated in

advance with providers of that service. The relevant providers should be in the same or similar specialty

within each applicable insurance market and in the same geographic region. For self-insured group health

plans administered by third-party administrators, the rules—to reduce administrative burden on plan

sponsors—permitted the third-party administrators to calculate the relevant QPA using rates recognized

under all plans administered by the third-party administrator. The rules further fleshed out the QPA

methodology by, for instance, specifying when separate QPAs for a service should be calculated (e.g., if

an insurer’s contracted rates for a service vary materially based on provider specialty).

The rules also directed insurers to exclude certain payment rates from the QPA calculation, such as rates

under “single case agreements” that the insurers may at times negotiate with a provider regarding

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particular services in unique circumstances, as well as amounts under certain “risk sharing, bonus,

penalty, or other incentive-based or retrospective payments or payment adjustments.”

The July 2021 IFR also specified the information an insurer must share about the QPA with a provider. In

general, at the time of each initial payment or notice of denial of payment, the insurer must disclose the

(1) QPA for each item or service involved; and (2) a statement certifying that each QPA shared was

determined in accordance with the applicable regulatory requirements.

IDR Process Fees

In a second set of interim final rules published in October 2021 (October 2021 IFR), the tri-agencies

addressed, among other issues, the applicable IDR process fees. The rules specified when and how the

parties must pay the IDR entity and administrative fees. The rules further provided that the amount of an

administrative fee, as well as a predetermined range of IDR entity fees that such entity generally can

charge, will be specified by the tri-agencies through annual guidance.

Based on these rules, the tri-agencies also issued a CY2022 fee guidance setting the fee and fee ranges,

with the administrative fee set at $50 per party. In October 2022, the tri-agencies issued a CY2023 fee

guidance that kept the administrative fee at $50 per party. In December 2022, however, the tri-agencies

amended the guidance to increase the administrative fee to $350 per party, based on newly available data

and analysis on the costs of the IDR process. The tri-agencies explained that the fee increase reflected the

rising volume of disputes as well as the additional costs incurred by the tri-agencies in assisting IDR

entities with making certain threshold eligibility determinations. The tri-agencies stated that the increase

was necessary to comply with the statutory directive for the estimated total administrative fees collected

to cover the estimated expenditures of administering the IDR process.

IDR Determination

More broadly, the October 2021 IFR also established the IDR process. The rules, among other things,

specified how an arbitrator should select between the parties’ offers in a determination, when multiple

items or services may be batched together in a single determination, and arbitrator certification standards.

As to the arbitration determination, the rules generally directed the arbitrator to “select the offer closest to

the [QPA] unless [the arbitrator] determines that credible information submitted by either party . . .

clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.” As

to the treatment of batched items and services, the rules generally permitted multiple items and services to

be batched jointly as part of one payment determination if (1) the items and services were part of a bundle

payment arrangement; or (2) the items and services had the same service code and were billed by the

same provider or facility to the same insurer and furnished within a specified period.

Select Litigation Over Tri-Agency Actions

Since the NSA’s enactment, several providers and/or their professional organizations have challenged the

law or various implementing agency actions on different grounds. This section provides an overview of

one set of litigation focused on some of the implementing agency actions discussed above.

Litigation Over How Arbitrators Should Select Between Offers

As discussed in this Insight, one aspect of the October 2021 IFR, concerning how an arbitrator should

select between the parties’ offers during the IDR process, was subject to challenge soon after the rules’

issuance. The U.S. District Court for the Eastern District of Texas, in Texas Medical Ass'n v. U.S.

Department of Health & Human Services (TMA I), agreed with the plaintiffs that the rules applied a

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presumption in favor of the QPA and that such presumption conflicted with the NSA’s unambiguous

statutory directive to consider all statutory factors in every case.

In response to the order, the tri-agencies issued an August 2022 final rule that removed the presumption in

favor of the QPA and provided other instructions to the arbitrators on how to consider the relevant

statutory factors. Under the August 2022 final rule, the arbitrator, for instance, must consider only

credible information that is related to the item of service at issue, and must avoid double-counting

information—such as patient acuity and complexity—that the QPA already takes into account. The final

rule also requires the arbitrator to provide a written decision that includes an explanation of the

determination, including why the arbitrator concluded that any additional information considered was not

already reflected in the QPA. The tri-agencies expressed the view that these requirements reflect an

appropriate exercise of their authority to “establish by regulation one [IDR] process” because they

“encourage[] a consistent methodology for evaluation of information when making a payment

determination,” thereby promoting consistency and predictability in the arbitration process.

The same plaintiffs (plus one additional provider) sued again, in TMA II, to challenge these portions of the

final rule. In February 2023, the district court again ruled in favor of the plaintiffs, holding that the final

rule “improperly limits arbitrators’ discretion by dictating how they may consider the statutory factors—

in direct conflict with the [NSA],” which “vests discretion in the arbitrators—not the Departments—to

determine the proper payment based on their expertise as set forth in the statute.” In so holding, the court

rejected the tri-agencies’ position that the final rule, pursuant to the authority granted to the Departments

to establish the IDR process, merely imposed “reasonable evidentiary and procedural rules” that filled “a

‘gap’ in the statute concerning how to evaluate the various pieces of information that go into selecting

payment amounts.” The court vacated the challenged portions of the final rule, and the tri-agencies have

modified their guidance to IDR entities accordingly. The government’s appeal of the district court’s order

is pending in the U.S. Court of Appeals for the Fifth Circuit.

Litigation Over Administrative Fee Increase and Batching Rules

In TMA IV, the TMA II plaintiffs and several additional providers challenged both the December 2022 fee

guidance’s increase of the administrative fee to $350 as well as the portions of the October 2021 IFR that

permitted only items and services of the same service code to be batched together in a single

determination. Plaintiffs argued that the fee increase and the same-service-code batching criteria violate

the Administrative Procedure Act (APA) because they should have been subject to notice-and-comment

rulemaking. Plaintiffs also argued that each action also violates the APA because they were arbitrary and

capricious. According to plaintiffs, the fee increase and same-service-code rule together unreasonably

block access to the IDR process by making it cost prohibitive to arbitrate small-value claims.

On August 3, 2023, the district court held that the tri-agencies’ failure to provide notice and comment for

the December 2022 fee guidance and the batching portion of the October 2021 IFR violated the APA. The

court concluded that the fee guidance was a substantive rule that binds would-be arbitration participants

and thus must undergo notice-and-comment rulemaking. In so concluding, the court rejected the triagencies’ argument that the fee guidance was an interpretive rule exempt from notice and comment

because the guidance merely supplies the specific dollar amount the statute and regulations already oblige

IDR participants to pay. The court also concluded that the tri-agencies lacked good cause to bypass notice

and comment with respect to the fee guidance. In the court’s view, the tri-agencies failed to show why

they could not have engaged in rulemaking between October 2022 and January 2023, nor had they

sufficiently demonstrated that it would be “eminently impracticable” to undergo annual notice and

comment to determine the IDR administrative fee. As to the batching rule, the court concluded that it was

not a rule of agency procedure exempt from notice and comment and that the tri-agencies failed to explain

why they could not have provided notice and comment in the one-year time frame Congress gave them to

promulgate rules related to the IDR process. The court further concluded that the procedural defects on

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both actions were not harmless, and accordingly, vacated the December 2022 fee guidance’s $350

administrative fee and the same-service-code batching criteria. As of the time of this writing, the

government’s time to appeal the order has not expired, and the tri-agencies have reverted the

administrative fee to $50 for disputes initiated on or after August 3, 2023.

Litigation Over the QPA Methodology and Disclosure Requirements

In TMA III, the TMA II plaintiffs challenged portions of the July 2021 IFR that set forth the methodology

for calculating the QPA as well as the related disclosure requirements. Plaintiffs argued that the rules at

issue were inconsistent with the statutes or arbitrary and capricious. Regarding the QPA calculation,

plaintiffs argued, for instance, that the rules impermissibly or arbitrarily allow for the inclusion of certain

rates such as “ghost rates” that are included in contracts but not actually paid to providers, as well as rates

from providers not within the same specialty. According to plaintiffs, inclusion of those rates artificially

lowers the relevant services’ QPA. Plaintiffs also objected to the rules’ exclusion of bonus and incentive

payments, as well as one-off single case agreements from QPA calculations. For self-insured plans,

plaintiffs also objected to the flexibility provided by the rules for third-party administrators to calculate

contracted rates using rates across all self-insured plans administered by an administrator. Regarding QPA

disclosure, plaintiffs contended the rules should require the disclosure of additional information, including

each rate included in the QPA calculation. (The district court also consolidated the claims of several air

ambulance plaintiffs into TMA III. Those claims are beyond the scope of this Sidebar.)

In an August 24, 2023, decision, the district court largely agreed with plaintiffs, holding that the

challenged rules related to the QPA methodology are inconsistent with the statute. In the court’s view, the

challenged rules generally conflict with the NSA’s unambiguous directive to calculate the QPA using

“contracted rates” recognized by the plan or issuer “as the total maximum payment” for the same or

similar item or service “that is provided by a provider in the same or similar specialty.” In so concluding,

the court generally rejected the tri-agencies’ position that the relevant terms left undefined in the statute—

such as “contracted rates,” “total maximum payment,” or “ provided by a provider in the same or similar

specialty”—or arguably conflicting references within the statute—left room for the agencies to reasonably

interpret the provisions based on applicable industry norms, administrative burden, or other

considerations. The court, however, upheld the rules’ QPA disclosure requirements as reasonable. Based

on these conclusions, the district court vacated the relevant QPA methodology rules and guidance. As of

the time of this writing, the IDR process is temporarily suspended while the tri-agencies update the

relevant guidance, and the government’s time to appeal the order has not expired.

Consideration for Congress

Litigation over the NSA highlights areas in which the law grants or potentially grants the tri-agencies with

authority to implement a range of policy choices within the statutory parameters, as well as potential areas

of statutory ambiguity. The set of litigation discussed in this Sidebar, for instance, highlights certain

stakeholder concerns related to the IDR decisionmaking process, IDR determination costs and scope, and

the QPA methodology. To the extent Congress determines that the relevant range of policy choices should

be limited or expanded, or that the law should be otherwise clarified, Congress may amend the NSA to

alter its scope or method of implementation.

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Author Information

Wen W. Shen

Legislative Attorney

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