In a decisive victory for healthcare providers, the U.S. Court of Appeals for the Fifth Circuit has issued a ruling that significantly alters the regulatory landscape of the No Surprises Act (NSA). The decision, handed down this Tuesday, strikes a major blow to the methodology used by federal regulators to calculate the “Qualifying Payment Amount” (QPA), a figure that has served as the contentious bedrock of surprise billing disputes since the law’s inception in 2022.
By siding with the Texas Medical Association (TMA), the appellate court has effectively validated long-standing provider grievances that the current formula is inherently biased toward insurance payers. While the ruling does not mandate an immediate cessation of existing payment calculations—allowing the Departments of Health and Human Services (HHS), Labor, and Treasury time to formulate a replacement—it sets the stage for a fundamental restructuring of how out-of-network claims are valued, likely leading to higher reimbursements for providers across the United States.
The Core of the Dispute: What is the QPA?
To understand the magnitude of this ruling, one must first understand the function of the QPA within the No Surprises Act. The QPA is intended to represent the median in-network rate that health insurance plans pay for a specific medical service within a defined geographic area.
Under the NSA’s Independent Dispute Resolution (IDR) process, the QPA acts as the primary anchor point for arbitration. When a provider and an insurer cannot agree on a payment for an out-of-network service, they enter a “baseball-style” arbitration, where both parties submit an offer, and an arbiter must choose one. Because the current regulations lean heavily on the QPA as the primary data point for determining “fair” market value, the integrity of that number is of paramount importance to the financial sustainability of medical practices.
For years, the TMA has argued that federal agencies allowed payers to manipulate this median figure by including “ghost rates”—contracted rates for services that providers never intended to perform or were never actually offered in a meaningful capacity. By inflating the data set with these low, irrelevant rates, insurers were able to artificially deflate the QPA, thereby suppressing the payouts awarded in arbitration.
Chronology of Legal Conflict
The road to this week’s ruling is paved with years of administrative and judicial friction. Since the No Surprises Act took effect on January 1, 2022, it has been subjected to a barrage of litigation, primarily led by the Texas Medical Association.
- 2022: Initial Implementation and Resistance: As the NSA rolled out, the TMA filed its first wave of lawsuits, arguing that the initial guidance from federal agencies placed undue weight on the QPA, essentially forcing arbiters to favor the insurance company’s offer in nearly every dispute.
- 2023: The Pattern of Litigation: Throughout 2023, the courts repeatedly found that federal agencies had exceeded their statutory authority in how they instructed arbiters to prioritize the QPA over other evidence, such as provider training and experience or the acuity of the patient’s condition.
- 2024–2025: Regulatory Stalemate: Despite several court rulings demanding more transparency, the underlying calculation for the QPA remained largely unchanged, characterized by what critics called “regulatory intransigence.”
- March 2026: The Fifth Circuit Landmark: The Fifth Circuit’s recent decision marks the fourth successful challenge by the TMA. It represents the most significant judicial intervention yet, targeting not just the use of the QPA in arbitration, but the very construction of the formula itself.
The "Ghost Rate" Problem and Bonus Exclusions
The Fifth Circuit’s decision addressed two specific, highly technical, yet financially explosive issues: “ghost rates” and the exclusion of incentive payments.
The Death of "Ghost Rates"
The court agreed with the TMA that including “ghost rates” in the QPA calculation is arbitrary and capricious. When health plans calculate the median rate for a service, they often include rates from contracts that are technically active but effectively dormant. Including these low-ball figures pulls the mathematical median downward. The court’s order effectively demands that the government purge these non-representative rates, ensuring that the QPA reflects actual, market-relevant transactions.
Accounting for Incentives
Perhaps equally important is the court’s ruling regarding bonus and incentive payments. Under the previous methodology, insurers were permitted to exclude performance-based bonuses and other incentive-driven compensation from the QPA calculation. The court found this omission to be a significant oversight, noting that in modern healthcare, these payments constitute a substantial portion of a provider’s total compensation. By excluding them, regulators were creating a “false bottom” for payment rates. Moving forward, the inclusion of these figures is expected to drive the QPA—and subsequent arbitration awards—significantly higher.
A Partial Victory: The Limits of the Ruling
It is important to note that the court did not grant the TMA every item on its wish list. In a move seen as a compromise, the Fifth Circuit sided with the Department of Health and Human Services regarding the exclusion of “one-off” contracts.
Specifically, the court allowed payers to continue excluding certain single-case agreements, such as those often used for air ambulance services, from the data set used to calculate the QPA. The court reasoned that these unique, highly specific arrangements do not reflect the broader market median and therefore should not be part of the standard QPA calculation. This keeps a specific segment of high-cost medical services outside the scope of the TMA’s broader victory, preserving some discretion for payers in specialized, non-standard billing scenarios.
Official Responses and Stakeholder Perspectives
The response from the medical community has been one of vindication. Texas Medical Association President Bradford Holland released a statement emphasizing the long-term goal of the litigation.
“TMA has repeatedly urged the federal government to implement the NSA in a manner that is lawful and preserves patient access and physician practice viability,” Holland stated. “The appellate court’s decision is another step in the right direction for both patients and the physicians who care for them.”
On the other side of the aisle, the insurance industry and its lobbyists have expressed concern that higher QPAs will lead to a rise in premiums. Their argument has consistently been that the No Surprises Act was intended to lower costs for consumers, not to provide a mechanism for providers to extract higher fees. The lack of a clear timeline from the government on how to recalculate these figures leaves insurers in a period of operational uncertainty, as they must now prepare for a new, potentially more expensive reality.
The Financial and Clinical Implications
The implications of this ruling will be felt across the entire U.S. healthcare system.
For Providers
For hospitals, private practices, and specialty clinics, this is a major financial win. By correcting the “downward bias” of the QPA, practices that provide services out-of-network—often through no choice of their own, such as emergency room physicians or anesthesiologists—will likely see higher reimbursement rates. This could lead to a stabilization of practice finances, which have been under strain from rising operational costs and inflation.
For Payers
Insurance companies now face the administrative burden of recalibrating their data-gathering processes. If they are forced to include incentive payments and strip out ghost rates, the administrative cost of compliance will rise. Furthermore, they are likely to face higher payouts during the IDR process, which may trigger a broader review of their in-network contract rates. If the QPA rises, it may force insurers to offer higher in-network rates to providers to avoid the arbitration process altogether.
For Patients
The impact on patients remains the most debated aspect of the ruling. While the No Surprises Act was designed to remove the patient from the middle of payment disputes, critics of the law have long warned that if provider reimbursement is forced upward, those costs will eventually be passed on to the consumer in the form of higher monthly insurance premiums. However, supporters of the ruling argue that a sustainable healthcare system requires fair compensation for providers, and that the previous “lowball” tactics of insurers were destabilizing the very physician networks patients rely on.
What Happens Next?
The ball is now firmly in the court of the federal government. Because the Fifth Circuit did not set a specific deadline for the creation of the new methodology, the timeline for these changes remains opaque. The Departments of Health and Human Services, Labor, and Treasury are now tasked with the difficult job of proposing a new formula that satisfies the court’s requirements while maintaining the integrity of the No Surprises Act’s original intent.
In the interim, the status quo persists. Providers and payers will continue to navigate the existing IDR system, though with the clear knowledge that the current rules are legally infirm. This creates a “waiting game” that will likely see continued litigation if the government’s proposed replacements are viewed as insufficient by the provider community.
As the industry waits for the next move, one thing is certain: the era of the QPA being a simple, uncontested benchmark is over. The Fifth Circuit has signaled that the federal government’s attempt to use the QPA as a blunt instrument to control healthcare costs was legally flawed, and that the path to a functional, fair surprise billing system must include a much more nuanced and accurate assessment of the true cost of care.
