Background

In December 2020, Congress passed the No Surprises Act to mitigate patients' exposure to surprise medical bills, requiring 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. 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.

In 2022, 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."

Legal challenges to the No Surprises Act

Since it was enacted, the No Surprises Act has faced several legal challenges. In 2021, the American Hospital Association (AHA) 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, with the first in October 2021. Since then, TMA has filed three other lawsuits.

In September 2022, TMA filed a lawsuit that alleged the surprise billing arbitration process was designed to favor payers over providers. In February 2023, 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.

In August 2023, 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.

After both of Kernodle's rulings, CMS paused the surprise billing arbitration process. At the time of the August ruling, CMS said that its departments were currently reviewing the court's decision and would issue updates to the arbitration process "in the near future."

Appeals court upholds prior ruling against the No Surprises Act

Last week, the Fifth Circuit Court of Appeals upheld Kernodle's February 2023 ruling that vacated parts of CMS' arbitration methodology in the No Surprises Act. According to the Fifth Circuit judges, the agency's arbitration methodology conflicts with the goals of the No Surprises Act.

"[N]othing in the Act instructs arbitrators to weigh any one factor or circumstance more heavily than the others, nor does the Act authorize the Departments to superimpose regulatory rules on the clear statutory mandate," the judges wrote. "The Final Rule therefore exceeds the Departments' authority."

"By telling the arbitrators that they must consider the QPA [qualifying payment amount] before all other factors, the Departments place a thumb on the scale in favor of the insurer-determined QPA in derogation of the other congressionally mandated factors," the judges added. "It would distort the statutory scheme for the Departments to impose such an extrastatutory requirement here."

In response, TMA said that it was pleased with the court's ruling.

"We have long held that the federal departments lack authority to tell arbitrators how to weigh the factors during surprise billing arbitration," said TMA president Ray Callas. "We hope this resolves the issue once and for all: Congress intended the NSA [No Surprises Act] to be a fair means of protecting patients from surprise bills." AHA also expressed its support for the ruling.

So far, it is unclear what will happen next with surprise billing arbitration, but CMS will likely pause the dispute resolution process as it considers the next steps in the legal case, much like it did after other, similar rulings, Fierce Healthcare reports. (Minemyer, Fierce Healthcare, 8/6; Pifer, Healthcare Dive, 8/6; AHA News, 8/5; Kacik, Modern Healthcare, 8/7)

Download our take to learn more about hospitals' adherence to CMS'  price transparency rule, and the remaining hurdles left in store for the rule to meaningfully impact pricing.  Our analysis also covers simple steps that can be taken to meet the rule's requirements.