Judge Vacates Provision in No Surprises Act

New court ruling in Texas makes arbitration process easier to manage during payment disputes

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Healthcare attorney Charles Dunham IV

CEO SUMMARY: It did not take long for providers to go to court to challenge the new federal No Surprises Act. A district court judge has vacated a provision in the No Surprises Act that emphasized one criterion during arbitration which put the dispute process in conflict with the wording of the Act. The court ruling resulted in a victory for the Texas Medical Association. For clinical labs, the legal development is a reminder to carefully review their own responses to lab test billing disputes covered under the Act. 

THREE MONTHS INTO THE OFFICIAL ROLLOUT OF THE NO SURPRISES ACT, a court ruling has already vacated a provision in the law’s arbitration process. Under that process, providers, emergency facilities, and health plans can resolve payment disputes for certain out-of-network (OON) charges. 

For clinical laboratory directors and pathologists, two points are worth noting. First, the ruling—in which a federal judge in Texas listed the criteria for payment disputes—may make resolution requests more straightforward for arbitrators to manage under the No Surprises Act. Second, it’s yet another example of a court ruling against a federal law that affects laboratories. 

Ruling in Another Court 

Last year, a district court judge in Hawaii decided that payments of percentage-based sales commissions to clinical lab sales representatives do not violate the Eliminating Kickbacks in Recovery Act of 2018 (EKRA). The fallout of that decision has not been fully determined, as we reported in recently. (See TDR, “Labs Should Be Cautious about ‘Surprising’ EKRA Ruling.” Feb. 22, 2022.) 

The No Surprises Act aims to protect patients covered under group and individual health plans from getting unexpected medical bills when they receive most emergency and non-emergency services, such as lab tests, from out-of-network providers at in-network facilities. 

Arbitration Process 

Attorneys following the Texas ruling said it is limited and does not vacate the actual arbitration process, but rather one aspect of it. Further, the day-to-day services of many labs don’t even fall under the No Surprises Act. 

“It doesn’t apply if a patient goes to his or her own primary care physician, or another doctor in the community, and that doctor sends that patient to an out-of-network laboratory,” stated healthcare attorney Charles Dunham IV, a shareholder at law firm Greenberg Traurig LLP in Houston. “In general, it applies to emergency services or a non-emergency service where the patient is in an inpatient or outpatient setting in a hospital that’s in network, and they utilize a lab that’s out of network.” 

The No Surprises Act ruling stemmed from a lawsuit filed by the Texas Medical Association (TMA) against the U.S. Department of Health and Human Services (HHS). The TMA argued that the HHS approach to resolving disputes under the No Surprises Act was unlawful.

35-Page ruling

Jeremy Kernodle from the U.S. District Court for the Eastern District of Texas agreed with the TMA. In a 35-page ruling on Feb. 23, Kernodle wrote that the resolution process language conflicts with the requirements of the No Surprises Act. He vacated a small portion of the arbitration clause that put more weight behind the qualifying payment amount (QPA), which is a health plan’s or issuer’s median contracted rate for a service.

The QPA is among a series of criteria listed for arbitrators to consider when resolving disputes. Other criteria include:

  • Level of experience and quality of the provider or facility that furnished the service.
  • Market share held by the provider, plan, or insurer in the region in which the service was given.
  • Acuity of the patient who received the service.
  • Scope of services at the facility.
  • Demonstration of good-faith efforts by providers, plans, or insurers to enter network agreements on rates. 
  • Additional information submitted by a party.

However, the dispute resolution wording from HHS stated the arbitrator “must begin with the presumption that the QPA is the appropriate out-of-network rate for the … service under consideration,” according to the government’s “Requirements Related to Surprise Billing, Part II,” as published in the Federal Register on Oct. 7, 2021.

Kernodle ruled that the above wording conflicted with the language in the actual No Surprises Act and thus must be vacated as a matter of law. “The Act plainly requires arbitrators to consider all the specified information in determining which offer to select … Nothing in the Act, moreover, instructs arbitrators to weigh any one factor or circumstance more heavily than the others,” he wrote.

By contrast, the resolution process wording “places its thumb on the scale for the QPA, requiring arbitrators to presume the correctness of the QPA and then imposing a heightened burden on the remaining statutory factors to overcome that presumption,” Kernodle concluded.

In practice, the ruling will make arbitrators look more closely at other criteria beyond just the QPA during resolution disputes, said Robert Charrow, a shareholder at Greenberg Traurig in Washington and former General Counsel at HHS. 

“This requires the person who is acting as the arbitrator to actually assess all the factors,” he noted. 

Appeal Might Be Difficult

“The potential success on appeal of the Texas ruling by the government may not be strong,” Charrow observed. “I think the government’s case is relatively weak. A government rule cannot give added weight to one factor over the others, and that’s what this dispute resolution’s wording did. It undermined the vitality of the other factors.”

The Texas Medical Association applauded the ruling. “This decision is an important step toward restoring the fair and balanced process that Congress enacted to resolve disputes between health insurers and physicians over appropriate out-of-network payment rates,” said Diana Fite, MD, immediate past president of the Texas Medical Association, in a statement.

Clinical lab directors and pathologists should consult with their legal teams about No Surprises Act developments given how new the law is written. A similar suit filed by the American Medical Association and the American Hospital Association in December 2021 also challenges the reliance on the QPA during disputes. That case is awaiting a hearing in the U.S. District Court for the District of Columbia, although it’s not clear how the Texas ruling will affect this upcoming case.

It would be timely for clinical labs and pathology groups to review their own understanding of the dispute resolution process under the No Surprises Act, including the nuances presented by the recent Texas ruling.

Contact Charles Dunham IV at 713-374-3555 or dunhamc@gtlaw.com; Robert Charrow at 202-533-2396 or charrowr@gtlaw.com.

No Surprises Act Likely to Create Headaches for Pathologists and Billing Companies

PATHOLOGISTS AND BILLING COMPANIES navigating good faith estimates, new payment dispute rules, and changes to contracted payment amounts are being challenged by the federal No Surprises Act, which took effect Jan. 1, 2022. 

The Act is designed to protect consumers from surprise medical bills from out-of-network (OON) providers that they did not choose—in other words, hospital-based OON physicians, such as pathologists, working at a hospital that is in network. Specifically, the law requires that private health plans pay their average in-network rate to OON providers.

The law also prohibits physicians, hospitals, and other providers, including clinical laboratories, from billing patients more than the in-network cost sharing amount for unexpected medical bills. In addition, the No Surprises Act establishes a process for determining the payment amount for unanticipated OON medical bills, starting with negotiations between plan and providers and, if negotiations do not succeed, an independent dispute resolution (IDR) process.

“The initial pain point created by the No Surprises Act centers on lowered payments to providers,” said Jim O’Neill, Laboratory Services Business Development Manager at Advanced Data Systems (ADS) in Paramus, N.J. ADS develops billing software for healthcare providers and revenue management firms. 

Since the law requires OON providers to be paid the same rate as in-network providers, many payers are reducing the amount they pay to in-network providers, bringing down payment rates for all hospital-based physicians. 

The law also creates more up-front administrative work, as pathologists now need to provide information to patients about what fees they will be responsible for. The act requires healthcare providers to furnish uninsured and self-pay patients a good-faith estimate of total out-of-pocket costs for services upon request.

Estimates Lead to Changes

The need for good-faith estimates also creates challenges for billing companies as they receive data on the back end of an encounter. It will be important for providers and their billing companies to ensure the good-faith estimate is consistent with what is actually being billed, said Mick Raich, president of RCM consulting at Lighthouse Lab Services in Charlotte, N.C., and Vachette Pathology in Toledo, Ohio. 

“The No Surprises Act is likely to cause some billing and collection issues,” Raich said. “Like changing any process, there will be a cost as the old way of doing business is adjusted.”

These new administrative burdens—especially the dispute resolution process—are likely to increase overall billing costs, he added, noting that the billing companies he’s spoken with say fighting for payment is labor intensive.

Contact Jim O’Neill at 609-517-6242 or jim.o@adsc.com; Mick Raich at 517-403-0763 or mraich@vachettepathology.com.

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