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February 28, 2022

The No Surprises Act – A Crystal Ball for Emerging Litigation

Eric Chan, Esq.


Contrary to the seeming promise of its name, the No Surprises Act (Act) has already taken many unexpected twists and turns.  Most of its provisions officially took effect on January 1, 2022.  But substantial uncertainty remains due to fast-moving litigation in multiple courts seeking to challenge the way the Act has been implemented. 

Most, but not all, of those challenges seek to overturn one particular aspect of the implementation of the Act by the Departments of Health and Human Services, Treasury, and Labor (referred to herein as the “federal agencies”).

Specifically, on October 7, 2021, the federal agencies promulgated an Interim Final Rule (IFR) that established controversial new guidelines governing the Act’s independent dispute resolution (IDR) process.  These guidelines, which were implemented without an opportunity for notice and public comment, imposed a de facto benchmark for IDR at the payor’s median in-network rate. This was hotly criticized by provider groups as an attempt to indirectly set rates for how providers are paid for emergency and non-emergency care – though Congress, in passing the Act, had conspicuously sought to avoid such rate-setting.

As of early February 2022, no fewer than five federal lawsuits have been filed across the country to challenge this particular aspect of the Act’s implementation.

  • Texas Medical Ass’n and Dr. Adam Corley v. United States Department of Health and Human Services, et al., No. 21-cv-425-JDK (E.D. Tex.) (filed October 28, 2021) (the “TMA lawsuit”);
  • Association of Air Medical Services v. U.S. Department of Health and Human Services, et al., No. 21-cv-3031-RJL (D.D.C.) (filed November 16, 2021) (the “Air Ambulance lawsuit”);
  • American Medical Association et al. v. U.S. Department of Health and Human Services, et al., No. 21-cv-3231-RJL (D.D.C.) (filed December 9, 2021) (the “AMA/AHA lawsuit”);
  • American Society of Anesthesiologists et al v. U.S. Department of Health and Human Services et al., No. 21-cv-6823-MEA (filed December 22, 2021) (the “ASA/ACEP/ACR lawsuit”); and
  • Dr. Daniel Haller and Long Island Surgical PLLC v. U.S. Department of Health and Human Services, et al.,  No. 21-cv-7208-AMD-AYS (E.D.N.Y.) (filed December 31, 2021) (the “New York Physician lawsuit”).

Plaintiffs in the first three cases have asked for summary judgment based on highly expedited briefing schedules.  Briefing has been completed in the TMA lawsuit, and a two-hour summary judgment hearing was held on February 4, 2022, with Judge Jeremy Kernodle promising a ruling on an expedited basis.  Meanwhile, on February 2, 2022, Judge Richard Leon granted the government’s motion to fully consolidate the AMA/AHA case with the Air Ambulance case.  While Judge Leon has not scheduled a summary judgment hearing, the AMA/AHA plaintiffs have explicitly asked for relief by March 1, 2022.

This article explains why the “benchmarking” issue is so controversial in the larger context of the Act’s statutory framework, which goes out of the way to avoid rate-setting.  It then summarizes the current state of the lawsuits (as of early February 2022) and offers some predictions as to what to expect in the coming year. 

A Brief Legislative History of the Act

"Surprise billing” refers to a patient who receives an unexpected and/or unwanted bill for medical services after visiting a hospital.  There are two primary scenarios in which surprise billing happens: (1) in the context of emergency care – where a patient usually cannot control whether the hospital the patient visits is in-network or out-of-network – and (2) where an out-of-network physician sends a bill to the patient for services provided at an in-network hospital.  Surprise bills often arise in the context of payment disputes between payors and non-network physicians.

Prior to the passage of the Act, various states had enacted a patchwork of surprise billing protections of their own.  State-based solutions, however, were necessarily going to be incomplete because each state can generally only regulate health insurance products within its own state boundaries.

A national solution finally arrived in the form of the Act, the result of two years of intense negotiation and compromise within Congress.  All sides agreed that the patient should be taken out of the middle of billing disputes between payors and providers.  Two distinct camps, however, formed over the course of the 116th Congress: those who also wanted to impose provider rate-setting, and those who sought to avoid rate-setting in favor of an independent dispute resolution (IDR) process that would fairly resolve disputes between payors and providers.

The IDR approach won out.  In announcing the bipartisan agreement that led to the passage of the Act, Congressional leaders, including the Congressional leadership of the House Energy & Commerce, Ways & Means, and Education & Labor Committees, crowed that the Act’s “text includes NO benchmarking or rate-setting.”  Rather, there would be an IDR process that “fairly decides an appropriate payment for services based on the facts and relevant data of each case.”  The Act was also designed so that it “wraps around” existing state balance billing protections.

An Overview of the Relevant Provisions of the Act

As enacted, the Act prohibits patients from receiving surprise bills from a nonparticipating hospital or provider in two scenarios: (1) for emergency care at an out-of-network facility and (2) from an out-of-network provider at a participating facility. Patients are only responsible for paying an “in-network” cost-sharing amount.  This in-network cost-share is typically calculated as a percentage of what the Act calls the “Recognized Amount.”

In most circumstances, the Recognized Amount will be what is known as the “Qualifying Payment Amount” (QPA).  For 2022, the QPA will be the payor’s median in-network rate as of January 31, 2019, adjusted for inflation each year thereafter based on the CPI-U index.  External data sources may be used to calculate the QPA only when there is insufficient information to calculate a median.

Where it applies, the Act goes out of its way not to regulate the actual level of payment due to the facility or provider.  The payor must make a timely “initial payment” to the rendering provider. But the Act leaves that term undefined, reflecting Congress's intent not to engage in rate-setting and to encourage free-market solutions.

By Statute, the Arbiter Must Consider a Variety of Factors in the IDR Process

As mentioned, the Act also provides for an IDR process that is binding on all parties.  IDR is structured as a “winner-take-all” process, or “baseball-style arbitration."  The provider and the payor each submit an amount they contend must be paid, and a neutral arbiter, known as a Certified Independent Dispute Resolution Entity, is required to pick one or the other.

The arbiter is statutorily required to consider a number of factors, including the parties’ respective offers; the QPA; the provider’s level of training and experience; the market share held by the provider or the payor in the geographic region; the acuity of the case or complexity of the patient’s condition; the teaching status, case mix, and scope of service of the furnishing provider; and any “good faith efforts (or lack of good faith efforts) made by the nonparticipating provider or nonparticipating facility or the plan or issuer to enter into network agreements and, if applicable, contracted rates between the provider or facility, as applicable, and the plan or issuer, as applicable, during the previous 4 plan years.”  By statute, the arbiter cannot consider usual and customary charges or public payor rates, including Medicare and Medicaid rates.

The Act identifies three areas where the federal agencies were obligated to engage in rulemaking to implement its provisions.  Notably, however, it does not delegate to the federal agencies the ability to instruct neutral arbiters to assign different weights to the factors listed above – only that all of those factors be considered.

The October Surprise: A Rebuttable Presumption in Favor of the QPA

Ten months after passage of the Act, the federal agencies released the IFR, titled Requirements Related to Surprise Billing, Part II.  The IFR imposed a new rule that arbiters must start with the presumption that the QPA is the appropriate level of payment:

 . . . [T]he 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. These interim final rules further provide that the certified IDR entity must select the offer closest to the QPA unless the certified IDR entity determines that credible information submitted by either party clearly demonstrates that the QPA is materially different from the appropriate out-of-network rate . . . .

In order to rebut this presumption, the provider must provide “credible” evidence of “additional circumstances” based on the statutorily enumerated factors described above.

The IFR presents this rebuttable presumption as the “best interpretation” of the Act but does not identify any statutory term that requires interpretation.  Nothing in the text of the Act permits the federal agencies to assign different weights to these factors.  The Act states only that the arbiter “shall consider” all of the listed factors – except for the factors that cannot be considered (e.g., provider charges and public payor rates).

The TMA Lawsuit is Filed Just Weeks After the IFR Is Released, And Quickly Proceeds Through Full Briefing on the Issues and a Summary Judgment Hearing

The TMA lawsuit, which was the first lawsuit to challenge the Act, was filed just three weeks after the publication of the IFR in the Federal Register The TMA lawsuit is aimed squarely at the rebuttable presumption in favor of the QPA established in the IFR. Plaintiffs filed their Motion for Summary Judgment on December 10, 2021, arguing that the federal agencies acted in excess of their statutory authority in establishing the QPA rebuttable presumption via the IFR.  As a secondary theory, the TMA plaintiffs also argue that the IFR – and in particular, the rebuttable presumption – violated the federal Administrative Procedure Act (APA) because they were implemented without notice and comment.

The government defendants filed their opposition to TMA’s Motion for Summary Judgment as well as their own Cross-Motion for Summary Judgment on January 11, 2022. At the outset, the defendants argue that plaintiffs cannot sue because they have not suffered real economic harm.  They also argue that Dr. Corley, the individual physician plaintiff, lacks standing because he sued in his own personal capacity, rather than in the name of the professional limited liability company. Not surprisingly, the government argues that the QPA rebuttable presumption is consistent with the text of the Act, which they contend “does not unambiguously prohibit the Departments from guiding the discretion of arbitrators.”  The government essentially argues that the rebuttable presumption can be inferred from the structure of the Act – for instance, from the fact that the QPA is the first-listed statutory factor, while all of the others are lumped under a heading titled “additional circumstances.”  Last, the government insists there was “good cause” for imposing the QPA rebuttable presumption without notice and comment because “regulated entities would need months of lead time to prepare” for the implementation of the Act.

Per a November 23, 2021 order by U.S. District Court Judge Jeremy D. Kernodle, briefing was completed by February 2, 2022, and an in-person hearing was held in the federal courthouse in Tyler, Texas on February 4, 2022. Full briefing on the Cross-Motions for Summary Judgment was completed in record time, and numerous parties filed friend-of-the-court briefs in the case on behalf of both sides.

The February 4, 2022 hearing on the Cross-Motions for Summary Judgment lasted for roughly an hour and forty-five minutes.  Judge Kernodle was very prepared and asked good and thoughtful questions of both sides.  He did appear to ask more skeptical questions of the government – indeed, he more than once commented that the government was insisting “the sky will fall” if the QPA rebuttable presumption was overturned.  He also got the government’s attorney to agree that, if he found the statute to be unambiguous, then the government’s interpretation would not be entitled to Chevron deference.

Judge Kernodle did, however, entertain argument at length on the issue of whether plaintiffs had standing.  He also asked both sides about the status of the surprise billing litigation in Washington D.C., and whether those proceedings should affect his decision.  (The answer from counsel was generally no.)  And he asked very specific questions about the relief sought by the TMA plaintiffs, including which particular parts of the IFR they sought to invalidate.

The oral argument on the issue of whether the IFR violated the APA was also nuanced and thoughtful.  Counsel for the TMA plaintiffs emphasized that the correct inquiry was not whether there was “good cause” for the entire IFR to be issued without notice and comment, but rather, whether it was appropriate that the QPA rebuttable presumption be implemented in that manner.  The issue of whether the APA was violated, however, will likely not be dispositive, as counsel for defendants announced that the federal agencies are working on a new rulemaking that will follow regular notice and comment procedures.

At the close of the hearing, Judge Kernodle thanked the parties and indicated that he would endeavor to get out a written ruling as quickly as possible.

The Air Ambulance Lawsuit Targets Both the Rebuttable Presumption and “Intentional Deflation” of the QPA

The Air Ambulance lawsuit was filed a few weeks after the TMA lawsuit.  It also seeks to invalidate the rebuttable presumption favoring the QPA.  It additionally challenges a different aspect of the earlier Interim Final Rule, Part I that particularly affects the air ambulance industry, which the plaintiff in that case terms “intentional QPA deflation.”  Specifically, plaintiff Association of Air Medical Services argues that by defining the QPA to “[e]xclud[e] single-case agreements and other types of historical payments,” the federal agencies will artificially depress the QPA. Plaintiff further contends that by focusing on in-network agreements and excluding single-case agreements, the QPA methodology lumps hospital-based air ambulance providers in with independent air ambulance providers.Plaintiff filed a Motion for Summary Judgment on December 10, 2021.  On December 22, 2021, Judge Richard J. Leon issued a scheduling order calling for briefing on cross-motions for summary judgment to be completed by February 11, 2022.  As of early February 2022, Judge Leon still has not set a hearing date.

The AMA/AHA Lawsuit, Which Targets the IFR’s Rebuttable Presumption, Has Been Consolidated with the Air Ambulance Case

The Complaint in the AMA/AHA lawsuit was filed December 9, 2021, along with a concurrently filed Motion for Stay Pending Judicial Review, or In the Alternative, Summary Judgment.  Like the Air Ambulance lawsuit, the AMA/AHA Lawsuit was filed in the U.S. District Court for the District of Columbia and was assigned to Judge Leon as a related case.  On December 22, 2021, Judge Leon set a briefing schedule that will be completed by February 18, 2022 but did not set a hearing on the parties’ cross-motions for summary judgment.

Like the TMA lawsuit, the AMA/AHA lawsuit challenges the rebuttable presumption in favor of the QPA.  However, the Motion for Stay / Motion for Summary Judgment also includes concrete and persuasive evidence of the irreparable harm that will be suffered by hospitals and physicians if a ruling does not issue by March 1, 2022.  This includes declarations from providers indicating that, in light of the QPA rebuttable presumption, payors have already begun to treat the QPA benchmark as setting the rate they must pay – in some cases, even threatening to terminate existing contracts if providers do not agree to immediate and drastic rate cuts of up to 15-30 percent.  Like the TMA lawsuit, the AMA/AHA lawsuit has also attracted significant amicus support on both sides.

On January 26, 2021, the government filed a motion to consolidate the Air Ambulance case with the AMA/AHA case.  The AMA/AHA plaintiffs opposed consolidation even though they agreed to a number of measures that would have coordinated the two cases, such as allowing the government to file a single, longer brief in both cases and a single joint appendix containing the administrative record.  The AMA/AHA plaintiffs underscored that the Air Ambulance plaintiffs also challenge a separate rulemaking (the IFR, Part I), not just the QPA rebuttable presumption set forth in the IFR, Part II, and the AMA/AHA plaintiffs have sought emergency relief on an expedited basis, unlike the Air Ambulance plaintiffs.  These arguments were unavailing because on February 2, 2022, Judge Leon granted the motion to consolidate the cases and adjusted the briefing schedule, which is still scheduled to complete by February 18, 2022.  As of early February 2022, Judge Leon has still not set a hearing.

Two Subsequent Cases Filed by Physicians and Physician Associations Have Not Progressed

On December 22, 2021, three physician associations – the American Society of Anesthesiologists, the American College of Emergency Physicians, and the American College of Radiology – filed suit in the Northern District of Illinois.  The ASA/ACEP/ACR lawsuit, like the AMA/AHA lawsuit and the TMA lawsuit, also challenges the QPA rebuttable presumption.  The government defendants were served on January 5, 2022.  As of early February 2022, no summary judgment motion has been filed, nor has any briefing schedule been set.  The case has been assigned to Judge Marvin E. Aspen.  The government’s answer is due March 7, 2022 and a case management conference has been scheduled for March 17, 2022.

About a week later, on December 31, 2021, the New York Physician lawsuit was filed in the Eastern District of New York. Unlike the preceding four suits, this one appears to have been filed by a single New York physician and his professional limited liability company.  Also unlike the other four cases, it is not targeted solely at the QPA rebuttable presumption.  Rather, the main focus of the lawsuit is the purported unconstitutionality of the IDR process.  The Complaint alleges that by forcing physicians in New York to submit their claims to IDR, they are deprived of their right to obtain the reasonable and customary value of their services under New York common law, and that this is, for instance,  a violation of the Seventh Amendment right to trial by jury or the Fifth Amendment right to due process.

There has been no activity in the case beyond the filing of the Complaint.  In the author’s view, this case is by far the least likely to succeed.  It misapprehends the role of IDR in two ways. First, it seems to assume that IDR is always mandatory – when in fact it must be initiated by either the provider or the payor on a case-by-case basis.  Second, the New York Physician lawsuit Complaint does not analyze whether the Act will defer to existing state law (namely, New York common law).  If New York “State law [] provides for a method for determining the total amount payable under” health insurance coverage in New York, then the federal IDR process may not be available at all.


It is impossible to predict the outcomes of these five lawsuits.  Based on the TMA hearing, it seems likely that Judge Kernodle will either find that the providers have no standing, or he will rule to invalidate the QPA rebuttable presumption based on lack of statutory authority.  It seems unlikely that his decision will be based solely on the failure to follow APA notice and comment requirements, or that he will delay ruling in deference to Judge Leon in the consolidated Washington D.C. litigation.

Also, regardless of the outcome in the TMA case, the fact that several other cases – the AMA/AHA lawsuit, the Air Ambulance lawsuit, and the ASA/ACEP/ACR lawsuit – also target the rebuttable presumption in favor of the QPA would seem to work in providers’ favor.  Assuming that the judges are willing to issue nationwide injunctive relief, only one of the three federal judges handling these cases would need to invalidate the rebuttable presumption in order to potentially alter the Act’s implementation. 

In the meantime, a few things are for certain.  First, regardless of how the district courts rule, their decisions will almost certainly be appealed to the respective Courts of Appeal – the Fifth Circuit (in the TMA lawsuit), the D.C. Circuit (in the AMA/AHA and Air Ambulance lawsuits), the Seventh Circuit (in the ASA/ACEP/ACR lawsuit), and the Second Circuit (in the New York Physician lawsuit). There is simply too much at stake.  After all, four of the five lawsuits were brought by either statewide or nationwide provider associations that collectively represent tens of thousands of providers.

Second, the vast majority of the  Act’s requirements still became effective on January 1, 2022, and will not be affected by the outcome of the pending lawsuits.  In addition, the Act’s new transparency requirements – relating to the good faith estimate that must be provided, at least to uninsured patients, for care scheduled in advance – have taken effect as planned.

Finally, the very existence of these pending lawsuits is likely to impact the “open negotiations” between payors and providers – which, by statute, are a necessary predicate to initiating IDR.  The situation will remain fluid until the decisions in these cases are issued.

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    Eric Chan, Esq.

    Athene Law LLP, Los Angeles, CA

    Eric Chan is a technology enthusiast and trial lawyer who represents a wide range of healthcare provider clients, including health systems, medical groups, and ancillary providers.  He has deep experience in managed care disputes, having recovered tens of millions of dollars in underpayments and nonpayments on behalf of providers.  Mr. Chan writes and speaks on a variety of issues relating to surprise billing, price transparency, the Employment Retirement Income Security Act (ERISA), and the Patient Protection and Affordable Care Act.  He received his B.S. degree in Cybernetics, summa cum laude, from the University of California at Los Angeles, and his J.D. at Stanford University, where he was Co-Editor-In-Chief of the Stanford Technology Law Review and a Student Fellow in the Stanford Cyberlaw Clinic.  After law school, Mr. Chan clerked for the Hon. Mariana R. Pfaelzer of the U.S. District Court for the Central District of California.  He may be reached at [email protected].