Emergency service providers have long opined that payors abuse the Greatest of Three Rule to reduce payments to emergency service providers.

On May 1, 2018, the U.S. Departments of Labor, Health and Human Services, and the Treasury issued guidance reaffirming the so-called Greatest of Three Rule, pursuant to which health insurers are required to reimburse out-of-network providers of emergency medical services at the “greatest of” three different rates. Emergency service providers have long opined that payors abuse the Greatest of Three Rule to reduce payments to emergency service providers. Notwithstanding the departments’ new guidance, the Greatest of Three Rule remains under legal threat.

Background of the Rule

The Greatest of Three Rule was issued by the departments in late 2015, under the authority granted to them by the Patient Protection and Affordable Care Act. The purpose of the rule is to reduce the practice of providers “balance billing” patients by requiring payors to pay out-of-network emergency service providers a reasonable, objective amount for their services. Pursuant to the rule, where an out-of-network provider renders emergency medical services to a patient, the patient’s insurer is required to pay the provider the greatest of: (1) the amount the insurer pays in-network providers for the same services; (2) the amount calculated by the insurer to be the “usual, customary, and reasonable charges” for such services; or (3) the amount that would be paid under Medicare for such services.

The American College of Emergency Physicians’ Legal Challenge

On May 12, 2016, the American College of Emergency Physicians (ACEP) filed a lawsuit against the departments, challenging both the substance of the Greatest of Three Rule and the procedure that the departments followed to enact the rule. With regard to procedure, ACEP argued that the departments violated the Administrative Procedure Act (APA) by failing to consider and respond to comments submitted to the departments during their rulemaking process—in particular, ACEP’s comment that the rates set forth by the Greatest of Three Rule “lack transparency” and can be easily “manipulated” by insurers. As to the substance of the rule, ACEP argued that even if the departments followed the proper procedure in enacting the rule, it is nonetheless invalid under the APA because it “does not fulfill the statutory requirement of [establishing] a reasonable, objective payment for out-of-network emergency services.”

On August 31, 2017, the Federal District Court for the District of Columbia issued an order ruling on the parties’ cross-motions for summary judgment. In its decision, the court addressed only ACEP’s procedural challenge to the rule, not its substantive challenge. The court held that the departments acted “arbitrarily and capriciously,” in violation of the APA, by failing to adequately consider and respond to comments submitted during their rulemaking process. The court observed that the departments did “not seriously respond to the actual concerns raised about the particular rates [set forth in the Greatest of Three Rule], and [they] ignore[d] altogether the proposed alternative of using a[n] [independent] database to set payment.” As the departments did not follow the proper procedure in enacting the rule, the court remanded the rule back to the departments with instructions to properly consider and respond to the comments submitted during the rulemaking process, and if necessary, revise or rescind the rule.

On Remand

On May 1, 2018, the three departments issued guidance “clarifying” the Greatest of Three Rule. In their guidance, the departments declined to revise or rescind the rule, and instead opted to reaffirm the rule and properly address the comments submitted during the rulemaking process. The departments rejected ACEP’s proposal to use an independent database to set payment rates, explaining that the departments do not have the authority to establish or maintain such a database and that overseeing such a database would be costly and time consuming. The departments further explained that, in its current form, the rule is sufficiently transparent because insurers and plans are required to disclose information related to how they calculate their “usual, customary, and reasonable” rate. In other provider-friendly language, the departments confirmed that the Greatest of Three Rule is merely a payment “floor,” and that “each state generally retains authority to set higher amounts for health insurance issued within the state.”

Looking Forward

The departments’ guidance is scheduled to be published in the Federal Register on May 3. The Federal District Court for the District of Columbia has not yet given any indication as to its next steps. Importantly, the court has yet to address ACEP’s substantive challenge to the rule, so even if the court determines that the departments have adequately addressed the comments submitted during rulemaking, the court may still find that the rule is invalid under the APA because it fails to establish a reasonable, objective payment rate for emergency services.