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Return to Sender: ER Regulations Sent Back for Further Explanation

11.27.2017

A federal court recently ruled that the IRS, Department of Labor and Department of Health and Human Services had acted arbitrarily and capriciously in adopting final regulations under the Affordable Care Act (ACA) patient protection provisions for emergency room services. The decision came about in response to a challenge by various health care providers.

Transparency Concerns

Under the ACA, group health plans cannot impose higher co-payments or co-insurance amounts for emergency medical treatment simply because the treatment was provided by an out-of-network provider. Under interim final rules published in June 2010, a plan satisfies these limitations if it pays benefits for out-of-network emergency services in an amount equal to the greatest of three possible amounts:

  1. The median amount paid to in-network providers for the emergency service, excluding in-network co-payments or co-insurance,
  2. The amount for the emergency service calculated using the same method the plan generally uses to determine payments for out-of-network services – such as usual, customary and reasonable (UCR) charges – but substituting the in-network co-payment or co-insurance amount for the out-of-network amount, or
  3. The amount that would be paid under Medicare.

Some providers and advocacy groups expressed concern that relying on criteria such as UCR charges lacked transparency and could lead to manipulation of rates. They suggested using an independent database instead. When the agencies issued final regulations in 2015, they discounted these concerns and indicated that the “greatest of three” formulation provided adequate protection.

No Analysis

In its decision, the court ruled that the agencies didn’t “seriously respond” to the transparency and manipulation concerns raised in comments to the interim final rules. In particular, the agencies didn’t analyze any of the specific perceived problems commentators raised about the rates — especially the UCR rates. Rather, the agencies’ response was that, in circumstances where there may be concerns with any one of the three possible rates, “the others can pick up the load.”

According to the court, the agencies’ articulation of reasons supporting the regulations during the litigation couldn’t make up for their failure during the rulemaking process to seriously respond to concerns or to address at all the proposal to use an independent database.

The court declined, however, to invalidate the final regulations or address their alleged substantive shortcomings. Instead, the court sent the regulations back to the agencies, requiring them to respond to the challengers’ comments and proposals in a reasoned manner.

Meaningful Response

Although courts generally give significant deference to regulations adopted through the formal rulemaking process, judicial review isn’t a rubber stamp. Agencies must provide a reasoned decision and respond to comments in a meaningful way before finalizing regulations.

Because the court declined to vacate the emergency services regulations, they remain binding for now. But employers – along with insurers and advisors – should monitor further developments.

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