Background

In December 2020, Congress passed the No Surprises Act to mitigate patients' exposure to surprise medical bills and require insurers and providers to resolve payment disputes for out-of-network care independently or use a new arbitration process.

In 2021, CMS released two interim final rules to implement the law. One restricted out-of-pocket costs for consumers as a result of surprise and balance billing, and the other established a process to settle disputes between out-of-network providers or facilities and health plans over these surprise bills, also requiring providers and facilities to provide uninsured patients a "good faith estimate" of charges expected after an item or service is scheduled or upon the patient's request.

Last year, HHS and the Labor and Treasury Departments finalized the independent arbitration process after providers argued that the rule unfairly favored insurers. Under the final rule, arbiters should first consider an insurer's median contracted in-network rate "and then must consider all additional permissible information submitted by each party to determine which offer best reflects the appropriate out-of-network rate."

Since it was enacted, the No Surprises Act has faced several legal challenges. In 2021, the American Hospital Association and the American Medical Association filed a lawsuit against the bill's independent dispute resolution process. This lawsuit was later dropped after a final rule on the arbitration process was released in August 2022.

The Texas Medical Association (TMA) has also filed several lawsuits against the No Surprises Act, the first in October 2021. Since then, TMA has filed three other lawsuits, one of which is currently pending.

CMS pauses surprise billing arbitration for the second time

In September 2022, TMA filed a lawsuit that alleged the surprise billing arbitration process was designed to favor payers over providers. In February, Judge Jeremy Kernodle from the U.S. District Court for the Eastern District of Texas ruled in favor of the association, vacating parts of the final rule and sending it back to the federal government.

After the ruling, CMS paused the surprise billing arbitration process and recalled certain payment determinations. In a notice, CMS said its departments were "in the process of evaluating and updating" the arbitration process to be consistent with Kernodle's ruling. The arbitration process eventually resumed on March 17.

Last week, Kernodle ruled in favor of TMA in another of its lawsuits, which pushed back against an increase to administrative fees for filing a dispute and a batching rule that the association said made it difficult to combine more than two claims in one dispute. In December, HHS and the Labor and Treasury Departments raised the administrative fee from $50 to $350, citing a significant increase in the number of disputes.

In his ruling, Kernodle said the "fee increase and batching rule violate the [Administrative Procedure Act's] notice-and-comment requirement and must be set aside."

In response, CMS paused the surprise billing arbitration process for the second time this year. The filing of new disputes has also been paused. According to CMS, its departments are currently reviewing the court's decision and will issue updates to the arbitration process "in the near future."

According to Zachary Baron, an associate director of the Health Policy and the Law Initiative at Georgetown University's O'Neill Institute, "[t]he developments in [the latest lawsuit] and other ongoing litigation only magnify" challenges CMS is facing with the current backlog of disputes.

In an April report, CMS said there were over 330,000 disputes filed between mid-April 2022 and March 2023, almost 14 times more disputes than the agency expected.

Currently, another lawsuit from TMA, which argues that the qualified payment amount calculations in the arbitration process are flawed, is pending.

"Any decision siding with TMA in [qualified payment amount calculations] case could unleash even more disruption to the arbitration process and expose consumers to higher out-of-pocket costs when receiving certain out-of-network services," Baron said. (Kacik, Modern Healthcare, 8/7; Muoio, Fierce Healthcare, 3/20; Pifer, Healthcare Dive, 2/13)

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