backFederal Court Vacates Air Ambulance Portion of No Surprises Act Dispute Resolution – On July 26, 2022, LifeNet was granted summary judgment in its challenge to portions of the second set of implementing regulations for the Independent Dispute Resolution (IDR) process for air ambulance providers under the No Surprises Act (NSA). Judge Kernodle of the Eastern District of Texas ruled that HHS and the Departments of Labor and the Treasury (the Departments) violated the Administrative Procedure Act (APA) by substantively rewriting the NSA, in creating a presumptive out-of-network rate for plans in the No Surprises Act’s dispute resolution process that would have mirrored the in-network rates from the Qualified Payment Amount (QPA) for air ambulance providers. The court also held that the Departments were not justified in skipping regular notice and comment rulemaking. The judgment largely mirrors Judge Kernodle’s prior ruling vacating the companion portions of the rule that applied to healthcare providers and facilities’ disputes, again confirming that arbitrators cannot elevate the QPA above all the other factors that should be considered.
We view these two rulings enjoining the agencies rules about the QPA in IDR arbitrations as important steps to restoring the balance that Congress intended to create when specifying several other factors that should be considered for determining out-of-network rates. The variety of factors spelled out in the NSA beyond the QPA reflect the Legislature’s recognition that out-of-network rates typically are different and higher than in-network rates.
Background
The No Surprises Act, enacted in December 2020, prohibits balance billing patients for out-of-network emergency services and non-emergency services rendered by out-of-network providers at in-network facilities. When the No Surprises Act applies, the out-of-network rate payable by the plan is determined by state law or an all-payer model, if applicable.
In the absence of state law, reimbursement is determined by the IDR process when the payor and provider cannot agree on a negotiated out-of-network rate. In the IDR process, both parties must submit final offers for payment along with supportive written material to an IDR entity who is required to select between the two offers. The No Surprises Act directs the IDR entity to consider at least seven specifically enumerated factors in making the payment determination. These seven, include: (i) the QPA, which is defined as the plan’s median in-network rate for same or similar items or services in the geographic area; (ii) the provider’s level of training experience, and quality outcomes; (iii) the market share of the provider and plan; (iv) teaching status, case, mix, and scope of services of the provider; (v) patient acuity; (vi) demonstrations of good faith efforts to enter into a network agreement with the other party; and (vii) if applicable, prior contracted rates between the parties in the previous four years. The IDR entity cannot consider the provider’s usual and customary rate or the rates paid by government reimbursement programs.
On September 30, 2021, the Departments issued the second set of implementing regulations (the IDR Rule) which, in part, provided significant additional detail regarding the IDR process, and would have made the QPA the presumptive out-of-network rate, thereby downgrading the other factors that Congress specified for consideration. The IDR Rule was promulgated as an interim final rule, skipping the regular notice-and-comment rulemaking required by the APA.
Specifically, the IDR Rule sought to establish that the IDR entity should presume that the QPA is the appropriate payment amount and should select the offer closest to the QPA, unless either party submits credible evidence to establish that the appropriate payment amount is materially different than the QPA. Furthermore, if the IDR entity does not choose the offer closest to the QPA, then the IDR Rule sought to require the written decision to explain the additional consideration relied upon, whether the information was credible, and the basis by which it determined that the credible information demonstrated that the QPA was materially different from the appropriate out-of-network rate. In this way, the IDR Rule would have elevated one factor above others that Congress had specifically identified for consideration by arbitrators, and reduced importance that Congress had clearly placed on the others when including them in the NSA. Additional information on the IDR Rule is available here in a previous issue of Health Headlines.
On October 28, 2021, the Texas Medical Association filed suit in federal district court alleging that the Departments ignored the text of the No Surprises Act and congressional intent, effectively rewriting portions of the No Surprises Act by requiring the IDR entity to presume the QPA is the appropriate payment amount. The Texas Medical Association asked the court to strike the portions of the IDR rule that establish the presumption in favor of the QPA as to healthcare providers and facilities and reinstate the process set out in the No Surprises Act.
On February 23, 2022 the Eastern District of Texas granted summary judgment in favor of the Texas Medical Association, vacating the challenged portions of the IDR Rule as to healthcare providers and facilities, thereby confirming that the QPA was not more important than the other factors specified by Congress. The court held the challenged portions of the IDR Rule that establish the offer closest to the QPA as the presumptive out-of-network rate in the IDR process conflict with the unambiguous statutory text, by improperly placing a thumb on the scale for the QPA. The court held that the IDR Rule unlawfully “rewrite[s] clear statutory terms by ascribing additional, material terms” in instructing arbitrators to consider one factor more heavily than the others, and the IDR Rule had to be set aside.
The court additionally held that the Departments’ failure to provide notice and comment as required by the APA is a second and independent basis to set the portions of the IDR Rule aside. Additional information about the Texas Medical Association judgment is available here in a previous issue of Health Headlines.
In April 2022, in light of the Texas Medical Association judgment, the Departments issued amended guidance directing IDR entities, to give equal consideration to all of the IDR factors in disputes between plans and healthcare providers or facilities. However, for air ambulance providers, the amended guidance still maintained a presumption in favor of the QPA. This new ruling corrects that error.
LifeNet Challenge to the IDR Rule
On April 27, 2022, LifeNet, Inc., an air ambulance provider brought suit in the Eastern District of Texas challenging the portions of the IDR rule that establish a presumption in favor of the QPA in IDR disputes brought by air ambulance providers. Over the government’s objection, the case was assigned to Judge Kernodle, the same judge that presided over the Texas Medical Association case.
LifeNet and the government largely raised the same substantive arguments as were raised in the Texas Medical Association case. The government attempted to thwart LifeNet’s challenge by raising various procedural challenges. First, the government argued that the case should be transferred to the District Court for the District of Columbia where similar litigation challenging the IDR rule as applied to air ambulance providers is currently pending. The court rejected this request, finding that such a transfer would “waste judicial resources” and delay resolution of the case. The Departments also challenged LifeNet’s standing.
The court held that the portions of the Rule at issue did “exactly what the Court ruled unlawful in [the Texas Medical Association case.]” Again, the court held that the IDR rule rewrote the clear statutory terms of the No Surprises Act by placing a thumb on the scale in favor of the QPA. The court also held the Departments were not justified in bypassing the required notice and comment process under the Administrative Procedure Act when issuing the Rule. The court noted had the Departments permitted notice and comment, it would have “almost certainly changed—even if in small part—the Rule’s complex arbitration process.”
Impact of Judgment
The government asked the court for to remand the rule to the Departments to establish further justification, but the court instead vacated the challenged portions of the IDR Rule. Specifically, the court vacated:
- the final sentence of 45 C.F.R § 149.520(b)(2),
- the final sentence of 26 C.F.R. § 54.9817-2T(b)(2), and
- the final sentence of 29 C.F.R. § 2590.717-2(b)(2).
These portions of the IDR Rule serve to establish the QPA as the presumptive out-of-network rate in the IDR process for air ambulance disputes. The court’s vacatur removes any reference to this presumption or the need for the parties to demonstrate a “material difference” between the QPA and what they argue is the appropriate out-of-network rate. The vacatur issued by the court is not limited to the plaintiffs, but the impacted portions of the IDR Rule entirely and will have national effect.
Despite the procedural shortcomings of skipping notice and comment, the remainder of the second interim final rule remains in effect. Thus, the IDR process will remain in effect as implemented, with all factors enumerated in the No Surprises Act considered equally, unless and until remedied by either the agency correcting its own errors, or further court rulings based on further challenges by providers that have been or may be brought.
Numerous other challenges to the IDR rule are pending across the country. Many of these cases have been stayed pending the forthcoming Final Rule implementing the IDR process. The government has already appealed the Texas Medical Association judgment to the U.S. Court of Appeals for the Fifth Circuit, but this appeal is also stayed. The Final Rule is currently under review by the White House Office of Management and Budget (OMB), and publication is expected soon. There is not a set timeline for OMB review, but the government has repeatedly forecasted that the Final Rule will be published “this summer.”
The summary judgment opinion is available here.
Reporters, Alana Broe, Atlanta, +1 404 572 2720, abroe@kslaw.com, Glenn Solomon, Los Angeles, + 1 231 443 4330, gsolomon@kslaw.com, and Amanda Hayes-Kibreab, Los Angeles, +1 213 443 4375, ahayes-kibreab@kslaw.com.
Senate Deal Includes Drug Pricing Reform and Extension of ACA Subsidies – On Wednesday July 27, 2022, Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) reached a deal on The Inflation Reduction Act of 2022, which proposes to raise $739 billion in revenue to be invested in climate change and healthcare initiatives as well as reduce the deficit. Senate Democrats hope to vote on the bill this week, ahead of the August recess. Once the Senate Parliamentarian determines which provisions of the Act pass muster to be included in the reconciliation process, the bill will head to the Senate floor and require a simple majority to pass before moving on to the House of Representatives.
Prescription Drug Pricing Reform
The bill would require the Secretary of HHS to establish a Drug Price Negotiation Program. Under the Program, the Secretary would be required to publish a list of selected drugs, enter into agreements with manufacturers of those drugs, and then negotiate and re-negotiate as necessary maximum fair prices. The list, which would be established in part by ranking drugs according to their total expenditures, would include 10 negotiation-eligible drugs in 2026, 15 drugs in 2027 and 2028, and 20 drugs in 2029. This requirement that the Secretary establish and execute the Program differs from a prior House version of the bill, which afforded the Secretary more discretion in choosing to negotiate fewer than the maximum number of drugs.
The bill also proposes to cap Medicare patients’ out of pocket costs at $2,000 per year, with the option to break that amount into monthly payment installments. The bill would hold Medicare part D annual premium growth to existing levels and expand the population of Part D patients who are eligible for premium and co-pay assistance on prescription drugs. Lastly, the bill would require drug companies to rebate the difference to Medicare if they raise prices higher than the rate of inflation.
The bill did not include specific provisions related to insulin pricing. However, Senate Majority Leader Schumer has indicated that Democrats are hoping to add some type of insulin affordability language to the bill before it heads to the Senate floor for a vote.
Extension of ACA Subsidies
In 2021, the American Rescue Plan expanded Affordable Care Act premium tax credits to 400% of the federal poverty line, allowing individuals who purchased insurance under the program to not pay more than 8.5% of their income on coverage. This expansion was set to expire at the end of this year; the Inflation Reduction Act would extend that deadline to 2025.
The summary of the bill can be found here, as well as the full text of the bill here.
Reporter, Sophie Munroe, Washington D.C., +1 202 626 5412, smunroe@kslaw.com.
CMS Issues Three Payment Rules for FY 2023 – On July 27, 2022, CMS issued final rules for FY 2023 in its yearly update to Medicare payment policies and rates under the Inpatient Rehabilitation Facilities (IRFs) prospective payment system (PPS) and the Inpatient Psychiatric Facilities (IPF) PPS. CMS also issued an update to hospice payment rates for FY 2023.
The following discussion highlights some of the proposed changes in each final rule, effective October 1, 2022.
IPF PPS
The FY 2023 update to Medicare payment policies and rates under the IPF PPS will result in an estimated $90 million, or 2.5%, increase in payments to IPFs relative to payments to IPFs in FY 2022, and a 3.8% increase in IPF PPS payment rates. The update reflects an estimated 4.1% market basket update, less a 0.3 percentage point productivity adjustment, resulting in a final IPF payment rate update of 3.8%. The 2.5% increase in payments is greater than the 1.5% increase that CMS had proposed on March 31, 2022 as previously reported here. The rule also updates the outlier threshold amount from $16,040 to $24,630 to maintain estimated outlier payments at 2.0% of total estimated payments aggregate IPF PPS payments.
The final rule establishes a permanent mitigation policy that applies a 5% cap on decreases in the IPF PPS wage index for FY 2023 and subsequent years in order to smooth the impact of year-to-year changes in IPF payments related to significant decreases to the IPF wage index that may affect providers in any given year. Under this policy, an IPF’s wage index will not be less than 95% of its final wage index calculated in the prior FY.
CMS did not propose or finalize any changes to the IPF Quality Reporting Program.
The CMS fact sheet on the IPF final rule is available here. The final rule is available here.
IRF PPS
The FY 2023 update to Medicare payment policies and rates under the IRF PPS will result in an estimated $275 million, or 3.2%, increase in payments to IRFs relative to payments in FY 2022. CMS is increasing the IRF PPS payment rates by 3.9% based on an estimated 4.2% IRF market basket update, less a 0.3 percentage point productivity adjustment. The 3.2% increase in payments is greater than the 2.0% increase that CMS had proposed on March 31, 2022 as previously reported here. The rule also updates the outlier threshold amount from $9,491 to $12,526 to account for an increase in IRF PPS payments and estimated costs and to maintain estimated outlier payments at approximately 3.0% of total estimated payments aggregate IRF PPS payments for FY 2023.
The final rule establishes a permanent cap policy in order to increase the predictability of IRF PPS payments to providers and mitigate instability and significant decreases to the IRF wage index that may impact providers in any given year. This policy applies a 5% cap on any decrease in an IRF’s PPS wage index for FY 2023 and subsequent years.
CMS is codifying the existing IRF PPS teaching policy with respect to how CMS adjusts the federal prospective payment on a facility basis by a factor to account for indirect teaching costs and the policy allowing an IRF to receive a temporary adjustment to its full-time equivalent (FTE) cap to reflect residents added to its teaching program due to the closure of another IRF or of an IRF’s medical residency training program.
The final rule also updates the IRF Quality Reporting Program (IRFQRP) and finalizes a rule to require quality data reporting on all IRF patients, regardless of payer, beginning with the FY 2026 IRFQRP. As a result, providers will need to start collecting the IRF Patient Assessment Instrument on all patients receiving care in an IRF, regardless of payer, beginning on October 1, 2024.
CMS also summarizes public comments it received on the inclusion of the National Healthcare Safety Network Healthcare-Associated Clostridioides difficile Infection Outcome Measure in the IRFQRP, and public comments on the RFI for Overarching Principles for Measuring Equity and Healthcare Quality Disparities Across CMS Quality Programs.
The CMS fact sheet on the IRF PPS final rule is available here. The Final Rule is available here.
FY 2023 Hospice Payment Rate Update Final Rule
The FY 2023 update will result in an estimated $825 million, or 3.8%, increase in payments to hospices relative to payments in FY 2022. This update reflects an estimated 4.1% market basket percentage increase, less 0.3 percentage point productivity adjustment. The rule also increases the statutory aggregate cap amount by 3.8% to $32,486.92, which is the limit of overall payments per patient that are made to a hospice annually. The amount of increases in payments and the statutory aggregate cap in the final rule are greater than in the proposed rule issued by CMS on March 31, 2022 as previously reported here.
The final rule establishes a permanent mitigation policy that applies a 5% cap on any decrease to a geographic area’s wage index, so that a geographic area’s wage index would not be less than 95% of its wage index calculated in the prior FY.
With respect to the Hospice Quality Reporting Program, the final rule provides an update on the development of the Hospice Outcomes and Patient Evaluation tool and an updated on the testing conducted for the Consumer Assessment of Healthcare Providers and Systems Survey.
The CMS fact sheet on the hospice final rule is available here. The final rule is available here.
Reporter, Jason A. de Jesus, Los Angeles, +1 213 443 4343, jdejesus@kslaw.com.
HHS Withdraws Two Trump Administration Rules Limiting the Agency’s Use of Guidance Documents in Civil Enforcement Actions – On Friday, July 22, 2022, HHS issued a final rule (Final Rule), rescinding two regulations issued at the end of the Trump Administration on December 7, 2020, and January 14, 2021, that would have significantly altered the agency’s practices around issuing and using guidance in enforcement actions. Specifically, these rules would have, among other mandates, required HHS to maintain a repository of guidance documents, required Secretary-level approval of agency guidance and prevented HHS from enforcing standards in agency guidance that had not been “publicly stated.” The Trump Administration justified the previous rules as necessary to ensure that the public receives notice of new standards adopted in agency guidance and, further, to ensure that these new standards do not impose obligations that are not reflected in existing statutes or regulations. The current Administration rescinded the previous rules after finding that “they create unnecessary hurdles that hinder the Department’s ability to issue guidance, bring enforcement actions, and take other appropriate actions that advance the Department’s mission.” The Final Rule is effective immediately and did not undergo a proposed rule or notice-and-comment period. Our previous summary of the Previous Rules can be read here.
Following the 2020 Presidential election, the outgoing Trump Administration sought to codify the Administration’s policies regarding HHS’s adoption, implementation and use of agency “guidance.” Agency guidance is typically described as sub-regulatory agency pronouncements that are non-binding, but explain, interpret or advise parties about the agency’s regulations and procedures. The assumption behind the Trump Administration’s prior regulations was that agencies, at times, apply guidance as legally binding standards without giving the public adequate notice that these standards will be enforced in this way and the public should have an opportunity to comment in advance of an agency’s adoption of legally binding rules. While initially issued as Executive Orders, the Trump Administration codified these principles in two separate final rules during the last days of the Administration. The final rules were entitled: “Department of Health and Human Services Good Guidance Practices” (December 7, 2020) and “Department of Health and Human Services Transparency and Fairness in Civil Administrative Enforcement Actions” (January 14, 2021).
The two final rules required HHS to comply with the following procedures before adopting, implementing and using agency guidance in civil enforcement actions against regulated parties:
- Include in guidance documents a statement that the guidance does not have the force and effect of law and is non-binding;
- Include a notice-and-comment period for “significant guidance;”
- Create a central repository for all HHS guidance documents while clarifying that guidance not included in the repository is rescinded;
- Adopt procedures for the public to petition HHS to withdraw or modify particular guidance documents;
- Limit civil enforcement actions to agency “standards and practices” that have been “publicly stated;”
- Publish in the Federal Register any decision by the agency to assert “new or expanded claims of jurisdiction;” and
- Before HHS takes a civil enforcement action, give the target party written notice of the agency’s legal and factual determinations and an opportunity to respond in writing and, in some cases, orally.
As of July 22, 2022, the Trump Administration’s rules identified above are no longer in force or effect. The Biden Administration’s Final Rule, adopted on that date, states that the regulations set out in the previous rules run counter to the Administration’s goals of advancing public health and welfare, impose burdensome standards and procedures, harm historically underserved constituencies, impede department flexibility, and divert limited HHS resources. The new Final Rule further states that the previous rules inhibit HHS’s ability to respond to public health matters in an efficient manner, emphasizing the importance of robust tools to address national priorities and issue critical information on public health and HHS programs in a timely manner.
The Final Rule also states that the previous rules’ requirements for the issuance of certain guidance documents would unnecessarily delay or prevent the issuance of agency guidance. According to the Biden Administration’s Final Rule, this is not desirable since HHS needs to be able to move quickly, especially when evolutions in public health issues need to be communicated to the public. The Final Rule is effective immediately.
Read the HHS Final Rule in its entirety here.
Reporter, Brittany Bratcher,Austin, +1 512 457 2071, bbratcher@kslaw.com.
ALSO IN THE NEWS:
Medicare Telehealth Services Extension Approved by House – On July 27, 2022, the House approved a bill which would continue Medicare telehealth services after the COVID-19 Public Health Emergency (PHE) is lifted. In addition to the Consolidated Appropriations Act of 2022 which extends Medicare telehealth provisions for 151 days after the end of the COVID-19 PHE, H.R. 4040 would extend the Medicare telehealth waivers through December 31, 2024. The measure, “Advancing Telehealth Beyond COVID-19 Act of 2022,” will now move to the Senate. The full text of H.R. 4040 can be found here.