Fifth Circuit Affirms Lower Court’s Decision to Vacate Certain Guidance Under the No Surprises Act

In a recent win for health care providers, the United States Court of Appeals for the Fifth Circuit affirmed a lower court’s decision to vacate key portions of regulations issued by the U.S. Departments of Treasury, Labor, and Health and Human Services under the No Surprises Act (NSA). The Court held that the NSA does not permit the Departments to set substantive standards for the independent dispute resolution (IDR) entities to follow, and by issuing rulemaking favoring the Qualifying Payment Amount (QPA) over the other factors set out in the NSA, the Departments impermissibly exceeded their delegated authority.

IDR Rules Challenged

On August 26, 2022, the Departments of Health and Human Services, Labor, and the Treasury issued final rules for the federal IDR process. These rules mandated that the IDR entity first consider the QPA and then consider information regarding the additional statutory factors. They also warned the IDR entity, when considering additional evidence beyond the QPA, the entity “should not give weight to information to the extent it is not credible, it does not relate to either party’s offer for the payment amount, . . . or is already accounted for by the [QPA].” Finally, the rules provided that, if the IDR entity relies on information beyond the QPA, the IDR entity’s written decision “must include an explanation of why the [IDR entity] concluded that this information was not already reflected in the [QPA].”

Alleging that the Department lacked statutory authority to promulgate these three procedural rules for the IDR process, the Texas Medical Association filed suit challenging the rules in federal district court for the Eastern District of Texas. The district court granted summary judgment to the plaintiffs and entered a nationwide order vacating the challenged rules. The district court reasoned that, while the NSA required IDR entities to consider all of the specified information when deciding IDR disputes, the challenged rules impermissibly placed a thumb on the scale for the QPA.

Appeals Court

In a 3-0 decision, the Fifth Circuit affirmed the district court’s nationwide vacatur of the challenged IDR rules. The appeals court specifically reviewed the language of the No Surprises Act and determined that Congress delegated no authority for the Departments “to set substantive standards for the independent arbitrators to observe.” Instead, the Circuit Court held that “[t]hose standards are fully determined by the text of the Act itself” which, as discussed above, already prescribes a specific and comprehensive list of factors to consider and does not list any order in which to consider them.

The Fifth Circuit also took issue with the provision of the rules warning IDR entities to only consider non-QPA information if credible, and if not already accounted for in the QPA, as creating a situation that treats the QPA in a dramatically different fashion from the other factors and distorting the judgment granted to IDR entities. The Circuit Court accordingly criticized the rules as a “not-so-subtle” attempt to prevent IDR entities from considering non-QPA information in some cases in violation of the express, unambiguous terms of the QPA.

Finally, the Fifth Circuit rejected the government’s arguments regarding the requirement that the IDR entities must explain in their written decision whether and why they took into account non-QPA factors. The Court explained that the impermissible effect of this provision is to make the IDR entity work harder only if it gives weight to non-QPA information. Accordingly, the Fifth Circuit concluded this provision represented a “skewed interpretation” that is inconsistent with the ”evenhandedness” embodied in the NSA.