Court Ruling Disrupts Surprise Medical Billing Landscape

The landscape of surprise medical billing has been thrown into uncertainty following a pivotal ruling by the 5th U.S. Circuit Court of Appeals. On August 12, 2023, the court voided the qualifying payment amount (QPA) formula central to the No Surprises Act, a legislation designed to protect patients from exorbitant out-of-network medical bills. The decision has significant implications for employer health plans and healthcare providers, particularly as the arbitration process used to resolve payment disputes evolves.

The No Surprises Act, enacted in 2020 and effective since January 2022, was intended to shield patients from unexpected charges during emergencies and situations where they may not have the ability to choose their healthcare provider. This legislation mandated that insurers and healthcare providers engage in negotiations over reimbursement rates, utilizing an arbitration mechanism to resolve disputes. At the core of these negotiations was the QPA, a benchmark reflecting median rates for specific services based on in-network contracts. However, the court's ruling has raised serious questions about the fairness and accuracy of this formula.

Understanding the Implications of the Ruling

The 5th Circuit's decision partly reinstates an earlier district court ruling that found the QPA’s calculations were flawed. Specifically, the majority opinion highlighted issues with the inclusion of “ghost rates,” which are rates for services that providers did not actually perform. This flawed approach led to systematic underpayments for healthcare providers, a concern echoed by the Texas Medical Association (TMA) and air ambulance operators involved in the case.

The Flawed QPA Formula

The QPA was intended to provide a fair median rate for out-of-network services, but the court found that it did not accurately reflect the realities of healthcare compensation. By including rates for services not rendered, while excluding important bonus and incentive payments that form part of contracted compensation, the QPA skewed the reimbursement landscape in favor of insurers. The court's ruling thus seeks to address this imbalance, which has significant implications for how out-of-network claims are processed moving forward.

The Broader Impact on Employer Health Plans

The ruling has immediate consequences for employer-sponsored health plans, which have relied on the QPA to manage out-of-network costs since the No Surprises Act took effect. Benefits brokers and plan sponsors are now faced with a complex situation where the arbitration process, which was intended to protect patients and ensure fair payments, has evolved into a significant cost driver for employers.

Rising Costs and Exposure

Data from the Centers for Medicare & Medicaid Services (CMS) indicates a dramatic rise in arbitration awards to out-of-network providers, which soared from $4.1 billion in 2024 to $14.9 billion in 2025—a staggering threefold increase. This spike reflects a growing trend where providers, emboldened by the arbitration framework, are winning disputes at an alarming rate; approximately 85% of disputes in the second half of 2025 favored providers, with winning offers exceeding the QPA in about 87% of cases.

• Historical Context: The QPA has faced scrutiny since the inception of the No Surprises Act.
• Dispute Dynamics: Providers are increasingly utilizing the independent dispute resolution (IDR) process to secure higher payments.
• Key Players: Major filers such as HaloMD, TeamHealth, and SCP Health account for a substantial portion of disputes.

What Comes Next for Plan Sponsors?

The 5th Circuit ruling leaves plan sponsors in a state of limbo, where the existing QPA formula remains in interim use while a new formula is developed. The court has advised that the current formula can still be used, but its legitimacy is now under scrutiny. Plan sponsors must brace for continued and potentially rising exposure to IDR processes, as providers are incentivized to file more disputes under a formula that has been recently criticized for benefitting insurers.

Recommendations for Employers

In light of this ruling, it is essential for employers to proactively assess their exposure to out-of-network claims and arbitration processes. Benefits brokers should encourage their clients to review their out-of-network utilization and examine prior arbitration award data. This review will help employers identify high-frequency filers and specific provider relationships that may be generating a disproportionate number of disputes.

Moreover, it is crucial for plan sponsors to stay informed about regulatory changes and potential new QPA formulas. Understanding the nuances of how their plans could be affected will better position employers to navigate the evolving landscape and mitigate financial risk.

Key Takeaways

• The 5th Circuit ruling has invalidated the QPA formula at the heart of the No Surprises Act.
• Employers should expect rising costs and increased exposure to arbitration disputes.
• Proactive review of out-of-network claims and provider relationships is essential.
• The current QPA formula remains in use while a new formula is developed.
• Staying informed and prepared is vital for plan sponsors navigating this uncertain environment.

Frequently Asked Questions

What is the No Surprises Act?

The No Surprises Act is a federal law intended to protect patients from unexpected medical bills resulting from out-of-network services, especially in emergency situations. It requires providers and insurers to negotiate reimbursement rates and utilizes an arbitration process to settle disputes over payments. The act aims to ensure that patients are not left with exorbitant costs due to factors beyond their control.

How does the QPA affect out-of-network billing?

The QPA, or qualifying payment amount, is a formula used to determine the benchmark for out-of-network reimbursement rates based on median in-network rates. It is meant to ensure fair compensation for providers while protecting patients from high costs. However, the recent court ruling has raised concerns about the accuracy of the QPA, as it was found to include rates for services not rendered, leading to systematic underpayments for providers.

What should plan sponsors do in response to the court ruling?

Plan sponsors should conduct a thorough review of their out-of-network claims and arbitration award data to understand their exposure to disputes. It is advisable to consult with benefits brokers to analyze trends and identify high-frequency filers among providers. Additionally, staying informed about potential regulatory changes and being prepared for ongoing costs associated with out-of-network services will be crucial for effective risk management.

What is the independent dispute resolution process?

The independent dispute resolution (IDR) process is a mechanism established under the No Surprises Act to resolve payment disputes between providers and insurers. When negotiations fail, either party can initiate the IDR process, wherein an independent arbiter reviews the case and makes a binding decision on the reimbursement rate. This process was designed to ensure fair outcomes in disputes, but recent trends indicate it has become a significant cost driver for employer health plans.