backFifth Circuit Finds No Private Right of Action for Providers to Enforce Surprise Billing Awards
On Thursday, June 12, 2025, a panel of the United States Court of Appeals for the Fifth Circuit issued two rulings construing parts of the No Surprises Act (NSA) to limit judicial review of arbitration awards issued under the NSA’s provider/payor dispute resolution mechanism.
The NSA protects patients from surprise bills from out-of-network emergency providers and requires that any billing dispute between provider and payor be resolved in the first instance through a statutory Independent Dispute Resolution (IDR) process, unless there is applicable state law that provides for a process to determine the out-of-network rate for the services provided.
In Guardian Flight, LLC v. Health Care Service Corporation, Case No. 24-10561 (Guardian Flight I), plaintiff air ambulance providers sought judicial enforcement of IDR awards issued under the NSA by bringing claims directly under the NSA as well as derivative claims under ERISA. The district court dismissed the NSA cause of action, holding that the NSA did not contain a private right of action to enforce IDR awards. The district court also dismissed the derivative ERISA claim based on a lack of standing, reasoning that because the NSA shielded patients from any responsibility to pay out-of-network emergency services bills, providers could not assert a derivative claim based on an assignment of benefits received from patients. The Fifth Circuit affirmed both holdings.
In Guardian Flight, LLC v. Medical Evaluators of Texas ASO, LLC, Case No. 24-20051 (consolidated with Case No. 24-20204) (Guardian Flight II), a Fifth Circuit panel addressed an air ambulance company’s suit against the third-party neutral that issued awards under the IDR process. Plaintiff’s claim challenged a health plan’s compliance with the NSA’s rules concerning the “qualifying payment amount” (QPA), which according to the NSA is the “median of the contracted rates recognized by the plan or issuer” for the relevant service in the same insurance market and geographic area. 42 U.S.C. § 300gg-111(a)(3)(E)(i). The NSA requires payors to tell a provider their QPA for the relevant service and explain how it was calculated. 45 C.F.R. §§ 149.140, 149.510.
Guardian Flight asked Aetna how it calculated its QPA, but Aetna failed to offer an explanation, and the Parties entered the IDR process after negotiations over the payment amount failed. They selected Medical Evaluators of Texas (MET) as their certified independent dispute resolution entity (CIDRE) under the NSA, and after each party submitted their proposals MET selected Aetna’s number. Guardian Flight sued Aetna and MET, alleging that Aetna misrepresented its QPA and failed to disclose how it was calculated as required under the NSA. The suit was consolidated by the district court with a suit brought by Guardian Flight affiliates against Kaiser and MET alleging similar claims. In the consolidated case against Kaiser, Kaiser issued three explanations of benefit (EOBs) stating that its payment reflected the QPA, and on three other claims issued EOBs which did not mention the QPA. MET chose Kaiser’s number for all six claims and the providers sued seeking vacatur of the award, alleging that Kaiser had cheated the IDR process by initially offering the providers one payment amount and then submitted a lower number during the IDR process as its QPA.
The payor defendants in both suits moved to dismiss on the grounds that the complaint failed to state facts sufficient to trigger vacatur, and MET moved to dismiss based on arbitral immunity, and the providers appealed. The Fifth Circuit Panel first rejected the providers’ argument that the NSA permits private challenges to IDR determinations under 42 U.S.C. § 300gg-111(c)(5)(E)(i)(I), which provides that determinations “shall be binding upon the parties involved, in the absence of a fraudulent claim or evidence of misrepresentation of facts presented to the IDR entity involved regarding such claim.” In a prior case, the Fifth Circuit had ruled that the NSA did not provide a private right of action to review IDR awards, and based on that holding held that the NSA likewise included no private right of action to seek vacatur of an award outside of the Federal Arbitration Act’s (FAA) limited scope of review, which is incorporated by reference into the NSA.
The providers argued that under the FAA, they were entitled to seek vacatur of the awards because they were “procured by corruption, fraud, or undue means” because the payors misrepresented their QPAs and refused to explain how they were calculated as required under the NSA. 9 U.S.C. § 10(a)(1). The Fifth Circuit rejected this argument, holding that in the NSA context the FAA required a showing of conduct that approaches “bribery, undisclosed bias of an arbitrator, or willfully destroying or withholding evidence” in order to support vacatur. The Fifth Circuit found that the allegations about the providers’ misrepresentations about their QPAs did not support review under the FAA because they failed to include facts supporting an inference that the payors’ alleged misstatements were intentional. The Fifth Circuit also reversed the trial court’s denial of MET’s motions to dismiss, holding that it was entitled to arbitral immunity and that there is no need to name CIDREs as parties because in the event of a judicial remand order under the NSA, the CIDREs are required to accept and follow such orders.
The Guardian Flight I opinion can be found here. The Guardian Flight II opinion can be found here.
Reporter, David Tassa, Los Angeles, +1 213 442 8848, dtassa@kslaw.com.
OIG Audit of Provider Relief Fund Payments to Hospitals Finds Substantial Noncompliance with Federal Requirements
On June 13, 2025, OIG announced the results of an audit it conducted of 30 hospitals that received provider relief fund (PRF) payments during COVID-19 (the Audit). OIG found that 11 of the 30 audited hospitals failed to comply with federal terms and conditions for expending PRF payments, either by using funds for unallowable costs or by inaccurately reporting lost revenues. Based on its findings, OIG made two recommendations to HRSA: (1) that HRSA require selected hospitals to return any unallowable expenditures and lost revenue amounts to the federal government; (2) that hospitals be required to properly account for expenditures and lost revenues. HRSA agreed with both recommendations.
At the outset of COVID-19 public health emergency, many states ordered hospitals and other providers to postpone elective and nonurgent procedures to free up staff and facilities to care for COVID-19 patients. As a result, hospitals and providers faced declining revenues and increased costs, and many hospitals depleted their cash reserves. Rural hospitals and facilities especially faced financial risk and uncertainty.
In response to the public health emergency, Congress established the PRF program to provide funds to eligible providers for healthcare related expenses or lost revenue attributable to COVID-19. Congress allocated $178 billion in funding to HHS, and it distributed $145.9 billion in PRF payments to providers. HRSA oversaw and managed day-to-day aspects of the PRF program.
Providers had to meet several conditions to receive PRF payments. They were required to ensure that payments were: (1) used to prevent, prepare for, or respond to COVID-19; (2) used for healthcare-related expenses or lost revenues (i.e., patient care revenues) attributable to COVID-19; (3) not used to reimburse expenses or losses already reimbursed from other funding sources; and (4) not used to pay salaries in excess of a certain threshold or to pay for certain prohibited activities (e.g., lobbying). Hospitals and providers that received PRF payments were also obligated to meet reporting requirements to HRSA.
As part of a series of audits reviewing PRF payments to various provider types, OIG conducted the Audit of 30 selected hospitals to assess whether selected hospitals that received PRF payments complied with the terms and conditions and Federal requirements for expending PRF funds. The Audit covered $6.6 billion in PRF payments to a nonstatistical sample of 30 hospitals during CY 2020.
OIG made the following findings in its Audit report:
- 19 of the 30 hospitals used PRF funds for allowable healthcare related expenditures and to offset lost revenues;
- 10 of the 30 hospitals used PRF funds for unallowable expenditures;
- 2 of the 30 hospitals inaccurately calculated lost revenues;
- 11 of the 30 selected hospitals used PRF payments for unallowable expenditures totaling $63 million and/or inaccurately calculated lost revenues totaling $645.6 million; and
- Hospitals made clerical errors in their reporting of expenditures and did not always correctly interpret HRSA guidance, maintain documentation to support reported expenditures, or have procedures to verify the accuracy of lost revenue calculations.
As noted above, as a result of its Audit, OIG made two recommendations to HRSA. First, OIG recommended that the 10 audited hospitals which used PRF payments for unallowable expenditures be required to return those funds to the federal government or replace them with allowable lost revenues or eligible expenses. Second, OIG recommended that the 2 audited hospitals that inaccurately calculated and reported lost revenues be required to identify and return funds improperly used to offset lost revenues or, alternatively, replace them with allowable lost revenues or eligible expenses. HRSA concurred with both recommendations and said it would seek repayment as appropriate.
Notably, HRSA’s intention to seek repayment from the audited hospitals does not signal a general amnesty for PRF recipients. Unless and until more visibility into HHS enforcement policy is available, non-audited PRF recipients remain at risk for enforcement depending on the circumstances.
A copy of OIG’s Audit report is available here.
Reporter, Doug Comin, Atlanta, GA, +1 404 572 3525, dcomin@kslaw.com.
Oregon Enacts Further Restrictions Against Private Equity Investment in Medical Practices
Last week, Oregon enacted into law SB951, which strengthens Oregon’s corporate practice of medicine doctrine by implementing greater restrictions on arrangements between medical practices and management services organizations (MSOs). The new law amends ORS 58.375 and 58.376 to provide that MSOs may not interfere with a practice’s medical judgment, employ practicing physicians, or use nondisclosure agreements, non-competition agreements or nondisclosure agreements to restrain criticism. These restrictions will significantly impact investments by private equity sponsors in physician practices located in Oregon.
Most private equity investments in medical practices are structured under a “friendly PC” arrangement where the medical practice, which is typically organized as a professional corporation (PC) owned by a licensed professional, enters a management services agreement (MSA) with the MSO, which is owned by a private equity sponsor or other lay investors. Under the MSA, the MSO provides nonclinical management services to the PC in exchange for a management fee. The new law prohibits an MSO or its employees, shareholder, or officers from owning a majority of shares in the PC and restricts the MSO’s involvement in the PC including:
- Entering into an agreement that restricts the sale or transfer of shares in the PC except under specific circumstances;
- Removing or replacing physician equity holders, subject to certain limited exceptions; or
- Being able to exercise “de facto control” over the PC’s clinical decision-making such as being the ultimate decision-maker.
The law also specifically prohibits MSOs from performing certain tasks on behalf of the PC including setting clinical staffing levels, negotiating or executing agreements with third-party payors, setting the rates for clinical services, or advertising the PC under another name. The MSO can assist the PC with these services but may not exercise “de facto control” over those services.
If a MSO contract violates the new restrictions, a medical practice or medical licensee that has suffered “an ascertainable loss” may bring a lawsuit against the MSO for damages, injunctive relief or other equitable relief. The statute also provides that punitive damages may be awarded along with attorneys’ fees.
The new law also voids non-compete, nondisclosure and non-disparagement agreements between MSOs and PCs, subject to certain narrow exceptions.
MSOs and PCs incorporated or organized in Oregon after the law comes into effect are required to comply by January 1, 2026. MSOs and PCs already in existence must comply by January 1, 2029.
Reporter, Taylor Whitten, Sacramento, +1 916 321 4815, twhitten@kslaw.com.
Vermont Enacts Two Landmark Health Care Laws Targeting Drug Prices and Hospital Oversight
On June 12, 2025, Vermont Governor Phil Scott signed into law two major healthcare reform bills — H.266 and S.126 — marking a coordinated legislative effort to curb healthcare spending and enhance regulatory oversight in the state. The bills take aim at escalating hospital costs and drug pricing, while laying the groundwork for broader delivery system transformation.
Background
Vermont continues to struggle with rising healthcare costs, particularly in the commercial sector, where some health providers allegedly charge prices significantly above Medicare benchmarks. With H.266 and S.126, lawmakers have taken steps to rein in these costs through both immediate pricing constraints and long-term system redesign. Together, the laws signal the state’s most aggressive healthcare policy shift in over a decade.
H.266 – Capping Hospital Charges for Outpatient Prescription Drugs
Signed on June 11, 2025, H.266 targets the high cost of hospital-administered outpatient drugs—such as chemotherapy and specialty infusions—by placing a cap on how much hospitals can charge for these treatments. Key provisions include:
- 340B Program Safeguards: The law establishes strong protections for 340B-covered entities (i.e., entities participating or authorized to participate in the federal 340B drug pricing program) and their contract pharmacies. It prohibits drug manufacturers and their agents from denying, restricting, or interfering with the delivery of 340B drugs to contract pharmacies, except as expressly permitted by federal law. The statute also bars manufacturers from requiring claims or utilization data as a condition of access unless mandated by the U.S. Department of Health and Human Services. Additionally, manufacturers must provide 340B pricing as an upfront discount, not in the form of a rebate. Violations of these provisions may be enforced through a private right of action.
- Annual Reporting: Hospitals participating in the federal 340B drug pricing program must submit detailed annual reports to the Green Mountain Care Board (GMCB), in a form and manner prescribed by the Board. These reports must outline how 340B savings are used to support patient care and community health efforts, and must include—but are not limited to—information on the aggregate acquisition cost of all 340B drugs and the aggregate payments received by the hospital for those drugs.
- Outpatient Drug Cap: Beginning in January 2026, Vermont hospitals—excluding unaffiliated critical access hospitals—will be subject to limits on what they may charge for prescription drugs administered in outpatient or office settings. For any drug that a hospital billed at more than 120% of the Average Sales Price (ASP), as calculated by CMS, as of April 1, 2025, the hospital may not submit claims to health insurers exceeding 120% of the current ASP. For drugs billed at or below 120% of the ASP as of that date, hospitals may not increase the percentage markup beyond the level charged on April 1, 2025. Hospitals must update ASP-based pricing twice annually. Hospitals are expressly prohibited from engaging in cost-shifting—meaning they may not raise prices for other prescription drugs, procedures, tests, imaging, or any other healthcare goods or services—in an attempt to offset revenue losses resulting from the outpatient drug pricing limits described above.
S.126 – A Blueprint for Health Care System Reform
Signed on June 12, 2025, S.126 lays out a long-term plan for reshaping how Vermont regulates, pays for, and delivers healthcare, particularly in the hospital sector. Among its most notable features:
- Reference-Based Pricing (RBP): GMCB is directed to establish reference-based pricing that sets the maximum amounts hospitals may accept as full payment for items and services provided in Vermont. These prices must be based on Medicare reimbursement or another appropriate benchmark, with adjustments permitted to ensure predictability and account for local cost drivers. GMCB must begin implementation no later than hospital fiscal year 2027 and review prices annually thereafter as part of the hospital budget process. GMCB may also extend reference-based pricing to non-hospital services, such as primary care, to enhance access and align with statewide delivery goals. Importantly, the Board is prohibited from applying these prices to Medicare or Medicaid patients.
- Global Hospital Budgets: The law directs GMCB to evaluate the feasibility of implementing global hospital budgets in Vermont. By February 15, 2026, the Board must report to the legislature on its definition of “global hospital budgets,” the potential timeline for adopting such a model, and the anticipated advantages and disadvantages.
- Statewide Health Care Delivery Plan: Vermont agencies are required to work with a newly created Health Care Delivery Advisory Committee and a Primary Health Care Steering Committee to develop a statewide delivery plan by 2028, with triennial updates thereafter.
- Expanded Oversight of Hospital Networks: S.126 expands GMCB’s oversight authority, including the power to investigate hospital and hospital network financial operations—such as executive compensation—and to evaluate whether network structures align with the public interest and statewide healthcare reform goals. GMCB is also authorized to require more detailed financial disclosures and to standardize hospital budget submissions as part of the annual budget review process.
Key Takeaway
The passage of H.266 and S.126 represents a comprehensive approach to tackling Vermont’s healthcare cost crisis. H.266 delivers short-term savings by directly targeting high drug markups, while S.126 builds a regulatory architecture designed to achieve long-term cost containment and quality improvement through reference pricing, global budgets, and systemwide planning. Though the reforms are expected to reduce premiums and promote more sustainable spending, Vermont’s hospitals have warned of financial strain and potential service cutbacks. Implementation will be closely watched by policymakers and payors across the country as other states look for blueprints to reform commercial health care spending and drive value-based care adoption.
Reporter, Francis Han, New York, +1 212 556 2154, fhan@kslaw.com.
CMS Proposes Rule to Close Medicaid Tax “Loophole”
On May 12, 2025, CMS released a proposed rule concerning state Medicaid provider tax structures that it says exploit federal matching rules, particularly those taxes on Managed Care Organizations (MCOs). The proposed rule targets what the agency describes as a loophole that allows states to disproportionately tax Medicaid business (such as Medicaid business of MCOs) to maximize federal matching funds. Current rules permit certain broad-based and uniform tax waivers if they meet statistical tests (known as the P1/P2 and B1/B2 tests). CMS argues these tests have been used to justify taxes that are not truly broad-based or uniform and seek to prohibit taxes where the rate on Medicaid business exceeds the rate on non-Medicaid business, even if those statistical tests are met. States using such arrangements would need to seek new waivers or change their tax programs within two years. CMS estimates the rule save over $30 billion over five years.
This proposed rule is part of a broader federal effort to limit the use of provider taxes, as also reflected in provisions of the House-passed reconciliation bill—covered in the May 19 and May 27 editions of Health Headlines. With comments due by July 14, the proposed rule signals a clear shift in how the federal government views state Medicaid financing mechanisms and may force certain states to rethink how they finance the state share of certain Medicaid payments going forward.
A copy of the proposed rule can be viewed here.
Upcoming Events
Dan Hettich and Amanda Hayes-Kibreab Speaking at AHLA Annual Meeting
June 30 – July 2, 2025
Join King & Spalding at the AHLA Annual Meeting in San Diego, California. Washington, D.C. Partner Dan Hettich will be speaking on the following topic: “A (Loper) Bright Future?: How the Demise of Chevron Deference Will Affect the Health Care Industry.”
Los Angeles Partner Amanda Hayes-Kibreab will be speaking on the following topic: “Is it protected...and do you want it to be? The Evolving Scope of Attorney-Client Privilege for In-House Counsel.”
The AHLA Annual Meeting Schedule is available here.