Judge hands providers another win by striking down surprise billing arbitration process

By Robert King / February 7, 2023

A federal judge struck down key parts of a regulation outlining a ban on surprise medical bills, siding with doctors that the rule tilts too favorably to insurers. 

The ruling delivered late Monday in the U.S. District Court for the Eastern District of Texas centers on an arbitration process for settling disputes over out-of-network charges. The lawsuit was the latest to be filed by the Texas Medical Association, arguing the Biden administration still has not gotten the arbitration process right even after a prior judgment struck down a similar rule in 2022. 

TMA’s latest lawsuit has charged the administration’s arbitration method still goes against the intent of the No Surprises Act, a 2020 law that banned surprise medical bills. 

The Department of Health and Human Services did not return a request for comment on whether it will appeal the latest ruling. 

The ruling could lead to more regulatory changes over arbitration, a method that is triggered when a payer and provider cannot come to an agreement on an out-of-network charge. Under the law, both parties must submit a preferred amount to a third party which then chooses one. 

But how the arbiter chooses that amount has triggered a massive legal fight between providers and the federal government. 

An interim final rule released in Sept. 2021 said the arbiter must give major weight to the out-of-network charge closest to a qualifying payment amount, which is the average cost for the service in a geographic area. TMA and other hospital groups argued in federal court that the No Surprises Act did not call for the arbiter to put so much weight on the qualifying amount. 

A federal judge agreed with TMA last year that the arbitration portion of the interim rule should be struck down, noting that the law said arbiters cannot weigh any one factor more heavily than others. 

The administration went back to the drawing board and released a new final rule back in August 2022. That regulation called for arbiters to give more weight to other factors including patient acuity and provider training. 

Provider groups once again balked though at the regulation. TMA sued the administration again back in Sept. 2022 arguing that the new rule still tilts arbitration in favor of payers. 

Judge Jeremy Kernodle sided with TMA, writing in his opinion that the rule still “places a thumb on the scale for the QPA by requiring arbitrators to begin with the QPA and then imposing restrictions on the non-QPA factors that appear nowhere in the statute.”

Kernodle also ruled the regulation “improperly limits” the discretion of the arbiter to consider other factors. Even though the arbiter must be someone who has medical and legal expertise, the rule “attempts to control how arbitrators evaluate the information properly before them.”

While the administration counters that the rule fills a “gap” in the statute, the judge countered that there isn’t one to fill.

“The act specifies in meticulous details the qualifications for arbitrators and the information for them to consider,” the opinion said. 

Kernodle sided with the TMA and struck down the arbitration portions of the final rule. 

The ruling earned plaudits from the hospital industry.

"With the court now having struck down two regulations as inconsistent with the No Surprises Act, we hope the departments will work with hospitals and health systems to implement the fair process Congress intended," said Melinda Hatton, general counsel for the American Hospital Association, in a statement.

It remains unclear if HHS and other agencies will appeal the ruling or go back to the drawing board again. 

This is also not the only legal dispute surrounding the implementation of the No Surprises Act. TMA recently filed a new lawsuit challenging an increase in the administrative fees charged to providers and payers for initiating an arbitration dispute.