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The ERISA Edit: Another No Surprises Act Regulation Vacated in Large Part

Employee Benefits Alert

Texas Court Invalidates No Surprises Act QPA Interim Final Rule, Shuttering IDR Process

A federal district court in Texas vacated parts of the interim final rule governing how qualified payment amounts (QPAs) are determined under the No Surprises Act (NSA) when paying out-of-network providers whose fees are subject to federal surprise billing prohibitions. Texas Medical Ass'n v. U.S. Dept. of Health and Human Services, No. 6:22-cv-00450 (Aug. 24, 2023, E.D. Tex.) (TMA III). The ruling leaves QPA calculations in a state of uncertainty and shut down the independent dispute resolution (IDR) process operations used to manage those cases for the second time this month.

The plaintiffs, a trade association representing 56,000 medical providers, an emergency physician, a Texas hospital, and several air ambulance providers, alleged that interim final regulations issued by the Departments of Labor, Health and Human Services, and the Treasury (collectively, the Departments) in July 2021 implementing the NSA unlawfully prescribe a methodology for calculating QPAs that deviates from the statute's text in violation of the Administrative Procedure Act (APA). Under the NSA and its implementing regulations, QPAs determined with reference to median in-network provider rates are among the factors IDR entities must consider when deciding an appropriate out-of-network payment rate. According to the plaintiffs, the QPA methodology is flawed because it: allows artificially low "ghost rates," described as rates agreed upon by certain network providers who don't actually provide the services at issue, to be included into the QPA calculation; allows for the inclusion of rates not in the same or similar specialty as the provider initiating the arbitration; excludes incentive-based and retrospective payments to in-network providers; and allows third-party administrators (TPA) to calculate QPAs for their self-funded plan clients based on rates across their book of business. According to the plaintiffs' lawsuit, these features of the methodology allegedly deflate QPAs resulting in improperly low provider payments from plans and insurers.

The district court agreed with the plaintiffs, declining to give Chevron deference to the Departments' interpretations and ordering that all but one of the challenged regulatory provisions governing QPA calculations be set aside under the APA. According to the court, the NSA requires that the rates factored into QPAs be for services actually provided by a provider, i.e., not ghost rates. The court stated, "not all contracted rates should be included in the QPA calculation." The court also held that including out-of-specialty rates in QPAs conflicts with the statute. According to the court, "the Departments may not ignore the plain requirements of the Act merely because insurers may be inconvenienced." The court adopted similar reasoning to find that the methodology's treatment of bonus and incentive payments and its TPA provisions "unambiguously violate the Act."

In addition, the court struck the "clean claim" standard for triggering a payor's 30-day payment obligation, technical guidance from the Departments precluding the batching of certain air ambulance services into one IDR proceeding, and the exclusion of certain case-specific rates for air ambulance services in QPA calculation. The court, however, upheld the interim final rule's provisions concerning disclosure of QPA information and calculations by plans and issuers, holding that the Departments appropriately exercised the discretion granted to them by Congress in this area. It also found lawful the regulatory definition of "geographic regions" for air ambulance services.

After the court issued the decision, the Centers for Medicare and Medicaid Services (CMS) suspended IDR process operations and, on August 30, 2023, issued the following notice, referencing the court's order in TMA III: "The [IDR] process remains temporarily suspended. Disputing parties are unable to initiate new disputes, and, effective August 25, 2023, the Departments have directed certified IDR entities to pause all IDR-related activities. . . . The Departments will issue updates in the near future and will provide specific directions to certified IDR entities and disputing parties for resuming IDR-related activities in a manner consistent with the court's judgment and order." An appeal from the Departments is expected.

Ninth Circuit Revives Lawsuit Challenging Ordinance Mandating That Airlines Using SFO Must Provide Health Benefits to Their Employees

This week, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit held in Airlines for America v. City and County of San Francisco, No. 22-15677 (9th Cir. Aug. 29, 2023), that a group representing airlines that contract to use San Francisco International Airport (SFO) can proceed with its suit against the City of San Francisco (City) challenging a COVID-19-era ordinance requiring the airlines to provide employees with certain health insurance benefits. Airlines for America (A4A) alleged that the City enacted the Healthy Airport Ordinance (HAO) in its role as a government regulator, not a market participant and, as a result, the ordinance is preempted by any number of federal statutes, including ERISA. Resolving the threshold question of whether the HAO was subject to preemption principles, the district court granted summary judgment to the City, concluding that preemption did not apply because the City was acting as a market participant: "[W]hen a state or local government buys services or manages property as would a private party, it acts as a 'market participant,' not as a regulator and courts presume that its actions are not subject to preemption" (cleaned up).  

In a 2-1 decision, the Ninth Circuit panel reversed. The court said that Supreme Court precedent required it to distinguish between "a government's exercise of regulatory authority and its own contract-based participation in a market," and to contrast between "official, government-imposed policies prescribing binding standards of conduct with contractual commitments voluntarily undertaken." Applying those principles, the court held that two civil penalty provisions of the HAO "carry the force of law and thus render the City a regulator rather than a market participant." One of those provisions authorizes the Airport Director to impose a fine of $1,000 per violation per employee per day. The court concluded that this fine was a "coercive mechanism" unavailable to private parties because the Airport Director retained "unbridled discretion to increase the fines," meaning that the provision is not meant to compensate the City for any contract breach, instead intended to "penalize the offending employer." Although phrased in terms of liquidated damages, the second penalty was, according to the court, another mechanism the City could use to punish offending employers, as the provision did not actually estimate liquidated damages and was in addition to rather than in lieu of the first civil penalty.

All in all, the court held that the civil penalty provisions "are unique governmental functions that have the 'force and effect of law' rendering the City a regulator rather than a market participant." The dissent disagreed with the analysis, stating that the civil penalties would not be enforceable, nor did they implicate criminal enforcement mechanisms, both of which would be necessary to create regulatory activity.

The majority, which made clear that it was not deciding whether the penalty provisions were invalid or unenforceable, reversed the district court's grant of summary judgment to the City and remanded for further proceedings. On remand, whether the HAO is preempted by ERISA will be squarely before the district court, likely necessitating another review of Golden Gate Restaurant Association v. San Francisco, 546 F.3d 639 (9th Cir. 2008).

Tri-Agencies Will Present Webinar on MHPAEA Proposed Rule

The Departments will conduct a webinar, "Proposed Rules on Requirements Related to the Mental Health Parity and Addiction Equity Act," on September 7, 2023, from 2:00 p.m.-3:15 p.m. ET. For more information and to register, click here.

Upcoming Speaking Engagements

Joanne Roskey will present, "What the New Mental Health Parity Guidance Means for You - Part Two," the second part of an American Benefits Council Benefits Briefing webinar series on September 11.

On October 17, Joanne Roskey will present, "Headaches, Heartburn, and Anxiety - Mental Health Parity Policy Implications," to members of the ERISA Industry Committee.

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