The Federal No Surprises Act And The Regulations Governing Out-of-Network Payment

Issue May/June 2022 June 2022 By Patrick J. Sheehan and Deborah J. Winegard
Health Law Section Review
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From left: Patrick J. Sheehan and Deborah J. Winegard


The No Surprises Act (“the Act”) was passed with bipartisan support in December 2020. Among other things, the Act prohibits surprise bills for out-of-network cost-sharing and balance billing amounts to individuals covered by group health plans and health issuers of group and individual health insurance coverage (collectively, “Plans”): (1) when patients receive emergency services, including post-stabilization services, from a nonparticipating provider or facility in a hospital emergency department or a free-standing emergency department (42 U.S.C. 300gg-111(a)); and (2) when patients receive nonemergency services from a nonparticipating provider at a participating facility. (42 U.S.C. 300gg-111(b)). The Act does not apply to nonemergency services provided at nonparticipating hospitals.

The regulations implementing the Act took effect Jan. 1, 2022. At the same time, one of the most important aspects of the regulations — the standard by which payment to out-of-network providers under the Act should be determined — has been struck down by one federal court and is being challenged in others. As a result, significant questions remain concerning what the Act and the regulations mean. 

How Are Out-Of-Network Payment Rates Determined Under The Act And Its Implementing Regulations?

The Act requires Plans to make a total payment directly to the provider of “the amount by which the out-of-network rate … for such services exceeds the cost-sharing amount….” 42 U.S.C. 300gg-111(a)(1)(C)(iv). The initial payment must be made within 30 days. 42 U.S.C. 300gg-111(a)(1)(c)(iv)(I). If Plans and providers do not agree on the out-of-network payment, the Act establishes an independent dispute resolution (IDR) process. 42 U.S.C. 300gg-111(c). The first step is an initial negotiation period of 30 days. If these negotiations fail to achieve an agreement on the rate, each party is required to submit an offer to the designated IDR entity in a baseball-style arbitration where the IDR entity picks one of the two offers. 42 U.S.C. 300gg-111(c)(5)(A)(i).

The Act did not establish a benchmark for the IDR entity to determine out-of-network payment rates, but rather set out “considerations in determination.” The considerations included the “qualifying payment amount” or “QPA,” which is the median in-network contract rate for the service in the same geographic region, as well as information in the “additional circumstances” clause. 42 U.S.C. 300gg-111(c)(5)(C)(i). These additional circumstances are: the level of training, experience, and quantity and outcomes measurements of the provider or facility; the market share of the nonparticipating provider or facility or that of the plan or issuer in the geographic region; the acuity of the patient or the complexity of the treatment; the teaching status, case mix, and scope of services of the nonparticipating facility; and a demonstration of good faith efforts (or lack thereof) of the provider and plan or issuer to enter into a network agreement. 42 U.S.C. 300gg-111(c)(5)(C)(ii). The IDR entity is specifically prohibited from considering usual and customary charges or amounts paid by public payers, such as Medicare, in determining out-of-network rates. 42 U.S.C. 300gg-111 (c)(5)(D).

The Departments of Health and Human Services, Labor, and the Treasury have issued two sets of interim final rules under the Act governing, inter alia, out-of-network payment rates. Part 1 established how the QPA would be determined, and generally followed the Act’s provisions. 86 Fed. Reg., No. 131 (July 13, 2021). Part 2 established the standards to be used by IDR entities. 86 Fed. Reg., No. 192 (Oct. 7, 2021). Even though the Act did not set a benchmark for the IDR entities to use in determining the out-of-network payment rate, the Part 2 regulations attempted to establish a presumption that the qualifying payment amount — the median contract rate — should be used. 

Specifically, the interim final rules direct that:

The certified IDR entity must select the offer closest to the qualifying payment amount unless the certified IDR entity determines that credible information submitted by either party under paragraph (c)(4)(i) clearly demonstrates that the qualifying payment amount is materially different from the appropriate out-of-network rate, or if the offers are equally distant from the qualifying payment amount but in opposing directions. In these cases, the certified IDR entity must select the offer as the out-of-network rate that the certified IDR entity determines best represents the value of the qualified IDR item or services, which could be either offer. 45 C.F.R. 149.510(c)(4)(ii)(A). (emphasis added). 

The comments to the rules also indicate that the qualifying payment amount is the presumptive rate: “In selecting the offer, the certified IDR entity must presume that the QPA is an appropriate payment amount….” 86 Fed. Reg. 55995 (Oct. 7, 2021). (emphasis added). Elsewhere, the comments state:

… the certified IDR entity must begin with the presumption that the QPA is the appropriate out-of-network rate for the qualified IDR item or service under consideration. Therefore, in determining which offer to select, these interim final rules provide that the certified IDR entity must select the offer closest to the QPA, unless credible information presented by the parties rebuts that presumption and clearly demonstrates the QPA is materially different from the appropriate out-of-network rate.

Id. at 55996.

How has the ongoing litigation changed the rules?

The provisions of the interim final rules seeking to establish the median contract rate as the presumptive out-of-network payment rate — which would essentially eliminate the additional considerations taken into account by the Act — have been challenged by providers and provider advocacy organizations, including the American Medical Association and the American Hospital Association, in three separate federal lawsuits. The first court to rule on the merits was the U.S. District Court for the Eastern District of Texas, which struck down the challenged rules on Feb. 23, 2022, in a lawsuit brought by the Texas Medical Association (TMA) and one of its physician members. 

TMA and its physician member had challenged the rules as inconsistent with the Act. The court agreed:

Here, the Act is unambiguous. The Act provides that arbitrators deciding which offer to select “shall consider … the qualifying payment amounts … and … information on any circumstance described in [the clause listing all of the factors to be considered.]”


Because the word “shall” usually connotes a requirement, 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 … And here, the Act nowhere states that the QPA is the “primary” or “most important” factor … Nor does the Act impose a “rebuttable presumption.” (internal quotations and citations omitted).

Texas Medical Association et al. v. U.S. Dept. of HHS, 6:21-cv-425, 2022 WL 542879 at *7 (E.D. Tex. Feb. 23, 2022.) The court also held that the government’s failure to use the notice and comment requirements provided for in the Administrative Procedure Act constituted an independent reason to strike down the challenged rules and that the plaintiffs had standing to challenge the rules. Lastly, the court considered the appropriate remedy and determined that it was to vacate the challenged rules because “the Rule conflicts with the unambiguous terms of the Act in several key respects. This means that there is nothing the Departments can do on remand to rehabilitate or justify the challenged portions of the Rule as written.” Id. at *14. Motions for summary judgment regarding the same issue are pending in a case brought by the American Medical Association and the American Hospital Association in the U.S. District Court for the District of Columbia and in a case brought by the American Society of Anesthesiologists and two other specialty societies in the U.S. District Court for the Northern District of Illinois.

Notwithstanding the TMA v. HHS decision, the Act remains in effect, meaning that its provisions protecting patients from surprise medical bills when treated for an emergency condition or by an out-of-network provider in an in-network facility continue to apply. The mechanisms of the IDR process themselves were not challenged and likewise remain in effect. On Feb. 28, 2022, the Centers for Medicare & Medicaid Services issued a memorandum stating that, effective immediately, it was withdrawing the guidance documents implementing the vacated rules and that it would be revising these documents in conformance with the court’s order. Therefore, the critical issue of how out-of-network payment rates will be determined in the IDR process going forward remains uncertain. 

Patrick J. Sheehan is a Boston-based partner with Whatley Kallas LLP, a national law firm representing health care providers.

Deborah J. Winegard is of counsel with Whatley Kallas, based in Atlanta, Georgia.