Judge orders key parts of surprise billing arbitration rule vacated, handing providers crucial win

A federal judge ordered that the arbitration process in a regulation that outlaws surprise medical bills be vacated, handing providers a major legal win.

The Texas-based judge's ruling applies to the regulations setting up the arbitration process to settle disputes between payers and providers on out-of-network charges, which providers have charged is unfair and directly violates the intent of the law which went into effect last month.

The Texas Medical Association, a state medical society, sued the Department of Health and Human Services (HHS) back in October, arguing the regulation on arbitration gives insurers an unfair advantage in establishing payment rates and ignores the original intent of the No Surprises Act, which Congress passed in late 2020.

“This decision is a major victory for patients and physicians,” said Diana Fite, M.D., the association's immediate past president, on Wednesday. “It also is a reminder that federal agencies must adopt regulations in accordance with the law.”

Judge Jeremy Kernodle of the U.S. District Court for the Eastern District of Texas agreed with the association that the rule conflicts with the law that banned surprise medical bills. He also found HHS bypassed vital notice and comment regulations.

The No Surprises Act banned any balance billing by providers and called for the creation of an arbitration process for providers and payers to settle disputes over out-of-network charges. Under arbitration, the two parties each put for a preferred amount and a third party chooses one.

The regulation, however, said the arbiter must put an emphasis on choosing the amount closest to the qualifying payment amount, which is the geographic average rate for the service. The arbitrator can consider other factors as well.

Providers have charged that the rule goes against the intent of the law, which does not call for the use of such a benchmark rate to have an outsized role in the arbitration process.

Kernodle found that the rule does conflict with the statutory text in the No Surprises Act. He wrote that nothing in the law “instructs arbitrators to weigh any one factor or circumstance more heavily than the others.”

The rule “places its thumb on the scale for the [qualifying payment amount], requiring arbitrators to presume the correctness of the [amount] then imposing a heightened burden on the remaining statutory factors to overcome that presumption,” he wrote.

Lawmakers would have also explicitly put into the law if they wanted to restrict the arbitrator’s discretion.

Kernodle also had qualms with the process the Biden administration used to release the interim final rule last fall. He said the Biden administration’s rule was not excused from providing notice and comment.

While the Administrative Procedures Act (APA)—the federal law that governs regulations—allows agencies to bypass some procedural requirements, it does not allow them to issue interim final rules without any notice or comment, he wrote.

The administration claimed the notice and comment were impractical because the law went into effect this year, barely a year after it was enacted. But Kernodle said that if Congress didn’t believe it had enough time, it could have waived the APA requirements.

HHS did not say whether it will appeal the decision.

“We’re reviewing the decision and remain committed to protecting consumers from surprise billing,” the agency told Fierce Healthcare.

'Wrong and misguided'

Insurer groups slammed the ruling, with lobbying group AHIP calling it “wrong and misguided.”

“It is unconscionable for providers to fight to weaken protections for patients who deserve to be protected from surprise medical bills, and to exploit the arbitration process to pad their bottom lines,” AHIP said in a statement late Wednesday.

The Blue Cross Blue Shield Association added that the ruling “risks the affordability and accessibility of healthcare for everyone," according to a statement.

But the American Medical Association (AMA) responded the ruling doesn’t impact the patient protections included in the No Surprises Act, and that serves as confirmation the rule was flawed.

The AMA and the American Hospital Association have filed their own lawsuit against HHS over the arbitration provisions. An air ambulance group has also sued the administration over the rule.