On August 2, 2024, in Texas Medical Association, et al. v. United States Dept. of Health and Human Services, et al. (“Texas Medical”), the Fifth Circuit ruled that the Final Rule promulgated in 2022 by three separate federal agencies under different statutes exceeded statutory authority under the No Surprises Act (“NSA” or “the Act”).    

In rendering its decision on the merits, the Fifth Circuit cited the Supreme Court’s June 28, 2024 decision in Loper Bright.  Applying the law announced in Loper Bright, the Fifth Circuit concluded that in undertaking rulemaking, the agencies were not entitled to deference, and they acted contrary to the text of the NSA that was at issue in the lawsuit.  The court of appeals thus affirmed the district court, and vacated the challenged provisions in the Final Rule.   

Background                   

In December 2020, Congress enacted the NSA to address “surprise medical bills.”  The Act establishes an arbitration process for resolving disputes between out-of-network providers and insurers on the amount an insured patient must pay for two categories of services.  As specified by the Act, those services are (i) emergency services furnished by an out-of-network provider and (ii) certain non-emergency services furnished by an out-of-network provider at an in-network facility.

The three plaintiffs challenging the Final Rule were a medical association, a regional hospital and a physician.

The three defendant federal agencies that each promulgated the Final Rule had authority to implement  different statutes that were under their respective jurisdiction and that were amended by the NSA.  The defendants in the case were the Department of Health and Human Services, the Department of Labor and the Department of the Treasury (a/k/a collectively “the Departments”), as well as the heads of those departments in their official capacities.       

The NSA established the arbitration process and the duties of the arbitrator to resolve a payment dispute between the provider and the insurer not based on free-market principles.  Specifically, the provider and insurer each submit a proposed payment amount and explanation to the arbitrator who then decides the out-of-network rate.  Of significance, the Act requires the calculation of a “qualifying payment amount“ (“QPA”) which by regulation is done by the insurer.  In essence, the QPA is the median rate the insurer would have paid for comparative services at issue in the same geographic area if provided by an in-network provider or facility.  The Final Rule under challenge mandated that arbitrators consider the QPA first, and only then consider, as a secondary matter, the non-QPA factors set forth in the Act.  These factors are the physician’s level of training, the market share of the physician or insurer, the patient’s acuity or the complexity of the case, the facility’s scope of services, and efforts by the nonparticipating provider or plan to enter into network agreements.  The rule  imposed restrictions on how an arbitrator may evaluate information pertaining to the non-QPA statutorily specified factors, the weight, or credibility, to be given to this information by the arbitrator.  Additionally, the arbitrator was required to give an explanation where the decision was made to deviate from the QPA.     

The thrust of plaintiffs’ challenge to the Final Rule was that it inappropriately limited an arbitrator’s discretionary authority to consider how to balance all factors specified in the Act, making the QPA “the de facto benchmark for out-of-network reimbursement.”  The Departments contended that the Final Rule was intended to reduce reimbursements for services.  The provisions though in the Final Rule were extra-statutory, denounced as influencing reimbursement for out-of-network services in a way as embodying a systemic bias favoring insurers against the interests of providers.                        

In sum, the plaintiffs challenged the Final Rule, contending its provisions unduly restricted the arbitrator’s authority and were contrary to the Act.                                           

The Decision of the Court of Appeals 

On the merits, the Fifth Circuit concluded that the Final Rule conflicted with the Act.  Citing Loper Bright, the court of appeals wrote that where a statute delegates authority to an agency, the reviewing court is to “fix the boundaries” of that authority, and ensure the agency has applied “reasoned decisionmaking.”  The Departments departed from these guideposts.  The Act delegated to the Departments the duty to establish by regulation a dispute resolution process.  The Fifth Circuit observed that the Act did not delegate to the Departments authority to establish substantive standards for arbitrators to apply.  The court of appeals explained that Congress did not intend to delegate to the Departments permission to fill a gap in the Act.  Rather, the Act already specifies substantive standards.  The Final Rule, contrary to the Act, relegated the QPA to a higher level of significance, imposed the duty to establish the credibility of information to be considered, and if non-QPA factors were relied upon in selecting a rate, the arbitrator was required to explain why those factors were not reflected in the QPA.  For these reasons, the challenged Final Rule unlawfully supplanted the statutory scheme.                                      

Observations

The Fifth Circuit decision in Texas Medical is significant in that it brings to bear, in the Post-Chevron era, how courts are to address the merits of rulemaking under review by embracing far more limited authority of agencies in implementing statutes, in favor of the federal courts to use independent judgment to interpret statutes.  That was the cornerstone of the Supreme Court’s decision in Loper Bright. 

Stuart Silverman is a health care attorney licensed in Washington, D.C.