New legislation often triggers a cat-and-mouse game between the executive branch and regulated entities regarding how legislative language is implemented. Although we often write about environmental laws, the procedural mechanisms governing how the laws can be implemented are generally similar. Typically, legislative implementation is governed by the federal Administrative Procedure Act (APA), a law we have often discussed.
(See here, here and here.)
Our healthcare-focused colleagues have written about the Texas Medical Association v. U.S. Department of Health and Human Services Decision and substantive issues surrounding Biden administration rules governing arbitration proceedings to resolve surprise billing disputes. This message deals with the analysis of the court decision of the law on administrative procedure.
Procedurally, the Texas Medical Association The decision contains three general points for regulated parties evaluating newly issued regulations:
- Regulations found to be inconsistent with the legislative text will not carry forward for consideration by the courts.
- Agencies’ failure to adhere to the APA’s preference for developing notice and comment rules will not be excused by the courts lightly.
- Agencies generally cannot raise moot challenges by revising a previously issued rule to incorporate issues raised in legal proceedings.
We address each of these questions below.
But first, some background on the provisions of the no-surprises law that were at issue: the no-surprises law was passed as part of the 2021 consolidated appropriations process. It was intended to address “surprise medical bills” by limiting the amount an insured patient will pay for medical services provided by out-of-network providers. In addition, the No Surprises Act requires insurers to reimburse out-of-network providers at an “out-of-network rate” calculated by law, usually calculated under state law or a “model agreement at all payers”.
Where there is no “standard agreement for all payers” or state law, no surprises law establishes the procedure for determining payment. While some of this procedure is set out in the statute unsurprisingly itself, relevant here, the statute requires the Secretaries of Health and Human Services, Labor, and Treasury to “establish by regulation an independent process for of Disputes (IDR) under which … a Certified IDR Entity … determines, subject to sub-paragraph (B) and in accordance with the following provisions of this sub-section, the amount of the payment under the plan or coverage for such item or service provided by such provider or establishment.” The No Surprises Act requires arbitrators in the IDR process to “consider” a range of factors when determining a payout amount The first factor is the “eligible payment amount” (QPA), which is roughly the median network rate for the same service. Unsurprisingly, the law specified December 27, 2021 as the deadline for publishing this regulation. .P Soon after, the plaintiffs sued in federal court in Texas seeking the repeal of portions of the rule.
While agencies often have broad discretion to interpret federal laws, courts do not defer to agencies if congressional intent is unambiguous. Here, plaintiffs complained that the agencies’ rules for the IDR process were in conflict with the law unsurprisingly because they include a rebuttable presumption in favor of the price closest to the QPA. The agencies argued that the overall statutory scheme supports the rule – the QPA is listed first and the other factors are introduced as “additional circumstances”.
The court held that the no-surprises law was unambiguous; it forces the IDR arbiter to consider everything of the factors listed. Because Congress could have assigned more or less weight to specific factors but chose not to, the agencies’ emphasis on the QPA amounted to placing a “thumb on the scales” that contradicted the plain text. of the law.
Failure to Develop Notice and Comment Rules
Agencies must generally follow notice and comment procedures unless they can demonstrate that an APA exception should apply. Federal agencies have not used notice-and-comment rulemaking for three reasons.
First, Congress had expressly authorized the agencies to circumvent notice and comment when it authorized them to enact “any interim final rules.” The court quickly dismissed that argument and cited a series of other circuits that had done the same. The bylaws can modify or supersede the procedural requirements of the APA, but Congress must do so expressly. Courts won’t read between the lines to grant agencies additional permissions.
Second, the agencies argued that they did not have sufficient time to engage in notification and comment and therefore had “good reasons” to avoid the statutory deadline. But the court felt they had more than enough time – a full year. The agencies argued that they should rush the final rule to give regulated entities and involved arbitrators sufficient time to implement the rule before it takes effect, but the court found that a proposed rule following the normal notice and comment processes would have served the same purpose. The court emphasized that Congress was free to excuse notice and regulation requirements if it believed they would cause significant harm or delay. Moreover, even if there were good reasons to grant additional time for processes such as the certification of arbitrators, this did not justify rushing the proceedings at issue here.
Third, the agencies argued that while they were required to use notice-and-comment regulation, their failure to do so was harmless in that the final rule would have been largely the same. The court rejected this argument because the agencies could still claim retroactively that they would have ignored any objections. The harmless error rule looks at the process, not just the outcome, and creating a rule without input from experts and regulated entities can be evil in itself. Accordingly, agencies claiming inconsequential errors will need to show that they have fully considered all potential arguments that may have been raised in the comments.
Regulatory challenges and irrelevance
Finally, the agencies argued that the challenge was moot because they would soon release a revised rule that would fully address plaintiffs’ comments and objections raised in the lawsuit. The court flatly rejected this argument because it would allow agencies to circumvent notice and comment whenever they wanted and circumvent the “entire purpose” of the notice and comment provisions.
So what happens next for these regulations? This court decision has already resulted in a certain regulatory finality. A related matter, Association of Air Medical Services v. US Department of Health and Human Services, remains pending in DC federal court. This case concerns portions of rules issued as a result of the No Surprises Act that were not at issue in the Texas case. Regarding the issues addressed in the Texas ruling, days after the ruling, the Employee Benefits Security Administration released a memorandum stating that the agency was “considering next steps” and working “to comply with the court order”. Among other things, these actions included the removal of guidance documents based on invalidated parts of the rule and the announcement of new training on the revised documents.
We will keep an eye on further developments in the Administrative Procedure Act. Note: Lawyers for the firm have filed an amicus brief in support of the Texas Medical Association’s position in this case.