(CN) — A group of federal agencies told a Fifth Circuit panel they had not put their thumb on the scale but merely implemented guardrails to help arbitrators decide how much providers should be paid for out-of-network medical services.
Congress passed the No Surprises Act, which took effect in 2022, to stop people from receiving large unexpected medical bills.
Prior to its passage, patients attended to by out-of-network providers — typically in emergency situations patients could not control — would be billed by those health professionals for costs exceeding the amount covered by their insurers.
With some patients being forced into bankruptcy due to their astronomical medical bills, Congress capped patients’ liability for such services at the amount their copay or deductible would be for in-network care.
Taking patients off the hook, the statute funnels pay disputes over out-of-network care to private arbitrators who choose between amounts put forth by the provider and insurer.
But the Texas Medical Association, a nonprofit representing 57,000 physicians and medical students, and Dr. Adam Corley, an East Texas emergency room medic, took issue with an interim final rule the Health and Human Services, Treasury and Labor departments released in September 2021 to guide implementation of the bill.
They sued the agencies the next month in the Eastern District of Texas for directing arbitrators to presume that the offer closest to the qualifying payment amount — an insurer-provided figure that is a proxy for an in-network rate — was the proper reimbursement amount unless other factors “clearly demonstrated” otherwise.
U.S. District Judge Jeremy Kernodle, a Donald Trump appointee, agreed with the challengers.
In a February 2022 order he wrote that the interim rule conflicted with the statute by putting “a thumb on the scale for the QPA.” He vacated several sentences in its text and remanded it to the agencies.
In response, the agencies adopted a different final rule in August 2022 that expressly tells arbitrators not to favor the qualifying payment amount.
Arguing that, despite the feds’ disclaimer, the final rule continued to prioritize the insurer-favored metric and prevent arbitrators from making independent decisions, the Texas Medical Association and Corley, joined by Tyler Regional Hospital, sued the federal agencies again in September 2023.
Kernodle presided over that case too and consolidated it with a lawsuit making identical claims filed by LifeNet Inc., an air ambulance company.
Kernodle once again sided with the plaintiffs. In a February 2023 ruling he said the final rule violated the Administrative Procedure Act by “privileging the QPA, tilting arbitrations in favor of insurers, and thereby lowering payments to providers.”
The judge vacated portions of the final rule he disagreed with and remanded it to the agencies for another redo.
The federal agencies appealed to the Fifth Circuit and a panel of the New Orleans-based appellate court heard arguments Monday.
Justice Department attorney Kevin Soter argued the agencies had adopted modest requirements to give a “degree of uniformity and predictability to the arbitration process.”
Soter said these “guardrails” still leave it up to arbitrators to decide which offer, the insurer’s or provider’s, best represents the value of the medical device, supplies or service at issue.
U.S. Circuit Judge Andrew Oldham cut to the heart of the dispute.
“How do you think the regulations are going to make the outcomes of the arbitrations more predictable than the statute that Congress passed?” the Donald Trump appointee asked Soter.
Soter focused on the qualifying payment amount.
He said that contrary to the challengers’ contentions, the regulations make clear the defendant federal agencies are not trying to “push towards this QPA number.”
But the providers’ counsel, Eric McArthur of the Washington office of Sidley Austin, claimed the departments had gone astray in promulgating what Soter called “rules of the road” for the arbitration regime because Congress had “spelled out in detail the precise factors that arbitrators should consider.”
Most problematic, McArthur said, was a no-double-count directive that bars arbitrators from giving any weight to other factors Congress required them to consider if the information is already accounted for in the qualifying payment amount.
McArthur asserted there is a fundamental problem with hinging decisions on the qualifying payment amount.
“The QPA is a black box to providers and arbitrators alike,” he said. “It is a number that is calculated in secret by the insurer based on the insurer’s own records with very limited disclosures. So how are arbitrators supposed to know whether information is or is not accounted for in the QPA?”
In the final minute of Justice Department attorney Soter’s timed opening statements, U.S. Circuit Judge Edith Jones gave him an assignment for his rebuttal.
“When you get back up I want to know why this process wouldn’t have worked perfectly well without these regulations,” the Ronald Reagan appointee said.
Soter returned to the podium and Jones rephrased her question asking him why the process wouldn't work if arbitrators look at the statute every time they’re making a decision.
“I think that view is very close to what the arbitrators are doing,” Soter replied. “The overarching standard that arbitrators are being asked to follow is to select the offer that best represents the value and these additional guardrails that are here are not telling them to deviate from it.”
His answer frustrated Oldham. “Then why are we here?” the judge said. “I just heard your answer to Judge Jones to say we don’t really need it.”
Soter clarified that though the rules are modest, in the feds’ view they are not meaningless.
“There’s a reason to specify the types of guardrails that should be applicable to decision-makers,” he added.
Senior U.S. Circuit Judge Carolyn Dineen King, a Jimmy Carter appointee, rounded out the panel, but she did not speak during the 40-minute hearing.
The judges gave no word on when they would rule on the appeal.
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