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Hospitals, physicians file lawsuit over the arbitration process in the new surprise billing regulations

News | Health Plan Payment and Reimbursement

Hospitals, physicians file lawsuit over the arbitration process in the new surprise billing regulations

  • Two prominent provider associations have asked a federal court to halt the incorporation of criteria that seemingly favor insurers in an arbitration process that will be implemented next year to determine out-of-network payment amounts.
  • A previous letter from two congressional committee leaders appears to support the contention that the arbitration process as drafted in the regulations does not align with statutory intent.
  • HFMA submitted written comments in which the Association expresses concern about a key calculation that factors into the arbitration process.

Leading hospital and physician associations have gone to court to try to stop an aspect of the looming surprise billing regulations that appears to favor insurers over providers.

The American Hospital Association and American Medical Association were among the parties that filed a lawsuit in Washington, D.C., federal court regarding the forthcoming independent dispute resolution (IDR) process.

The suit contends that the criteria to be considered in the IDR process do not match statutory intent based on the legislation passed by Congress in December 2020. The plaintiffs hope the court will issue an injunction to stop that specific component of the regulations, which are set to begin in January.

As drafted in an interim final rule issued Sept. 30 by the Departments of Health and Human Services, Labor and Treasury, the IDR process is “contrary to law and in excess of the Departments’ statutory authority,” the lawsuit states.

The lawsuit is not the first to make such a claim. In November, the Texas Medical Association filed a suit in a Texas federal court based on similar assertions regarding the arbitration process.

Why providers say the IDR process is unbalanced

The surprise billing regulations limit patients’ cost-sharing responsibility for out-of-network care to the amount they would owe in-network for a given service. An out-of-network provider then would negotiate with the patient’s insurer to determine payment on the balance.

If the parties can’t agree on an amount after a 30-day negotiating period, the IDR process will be utilized, with the arbitrator required to select one offer or the other rather than seeking out middle ground.

For providers, the primary concern with the IDR process as written in the regulations is that it places too much emphasis on the qualifying payment amount (QPA) as the benchmark for determining the payment. The QPA — which also establishes the patient’s cost-sharing amount unless there is a state regulation that takes precedence — generally is defined as the median contracted rate for a given service in a given market.

The interim final rule states that arbitrators “must presume that the QPA is an appropriate payment amount,” with the burden on the provider or insurer to show why a different rate should apply. More specifically, arbitrators are supposed to choose the offer that was closest to the QPA unless they deem the appropriate rate to be “materially different” from the QPA.

The plaintiffs in the lawsuit wrote, “Unlike the cost-sharing requirement based upon the ‘recognized amount’ paid by patients, Congress did not simply select the QPA as the appropriate ‘out-of-network’ rate to be paid by insurers.”

Instead, the No Surprises Act states that arbitrators should give equal weight to several other factors:

  • The provider’s training and experience
  • The acuity level of the patient
  • The complexity of the care involved
  • The provider’s teaching status, case mix and scope of services
  • Good-faith efforts to enter into a network agreement

2 leading members of Congress share concerns

The tri-agencies state in the interim final rule that emphasizing the QPA in the IDR process is “the best interpretation” of the statute because the QPA “represents a reasonable market-based payment for relevant items and services.” They add, “The statute contemplates that typically the QPA will be a reasonable out-of-network rate.”

From a practical standpoint, they add, “Anchoring the determination of the out-of-network rate to the QPA will increase the predictability of IDR outcomes, which may encourage parties to reach an agreement outside of the federal IDR process to avoid the administrative costs and will aid in reducing prices that may have been inflated due to the practice of surprise billing prior to the No Surprises Act.”

Regarding statutory intent, however, the plaintiffs can cite a letter to the secretaries of the tri-agencies from Reps. Richard Neal (D-Mass.) and Kevin Brady (R-Texas), the chair and ranking member, respectively, of the House Ways and Means Committee.

In their Oct. 4 letter, Neal and Brady wrote that the interim final rule “strays from the No Surprises Act in favor of an approach that Congress did not enact in the final law and does so in a very concerning manner. The rule crafts a process that essentially tips the scale for the median contract rate being the default appropriate payment amount. … We are concerned that this approach biases the IDR entity toward one factor (a median rate) as opposed to evaluating all factors equally as Congress intended.”

Additional issues with qualifying payment amounts

In its comment letter on the pending regulations, HFMA said IDR entities should have more room to exercise discretion in their determinations.

“HFMA encourages the tri-agencies to retract this regulation and reissue guidance to give IDR entities the deference to use their expertise to weigh factors according to the situation,” states the letter, which was signed by President and CEO Joseph J. Fifer, FHFMA, CPA. “We are also concerned that the current regulation does not require plans to pass any savings onto patients, once again optimizing the potential for the health plans to unjustly profit.”

Furthermore, HFMA’s letter states, there should be less ambiguity in the computation of the QPA:

“Based on the direct impact the QPA has on the IDR process and the patient’s out-of-pocket costs, the methodology and data used by the health plans to calculate the QPA should be made readily available and transparent to all stakeholders.

“HFMA is very concerned that the [interim final rule] appears to assume that the health plan QPA will be accurate and representative of the median payment for furnished services in all scenarios.”

About the Author

Nick Hut

is a senior editor with HFMA, Westchester, Ill. (

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