Dive Brief:

• A federal appeals court has struck down the methodology used to determine how much providers should be reimbursed in disputes over out-of-network bills under the No Surprises Act. It’s a blow for insurers, given the ruling is set to further inflate payouts to providers.
• On Tuesday, the 5th Circuit ruled that the government’s methodology for calculating the qualifying payment amount — a metric representing average in-network rates for a service in a particular geographic area — is partly unlawful. The majority of judges agreed with the Texas Medical Association and other plaintiffs on two of their three challenges to the rule, stating that the government violated the law by letting insurers include “ghost rates” in QPA calculations and by excluding bonus and incentive payments.
• However, agencies were correct in excluding one-off agreements, like those common in air ambulance billing, the 5th Circuit said. Though the court vacated the QPA methodology, it said that agencies can allow insurers to use existing QPAs until they can calculate new ones so that the NSA’s dispute resolution process can continue without interruption.

Dive Insight:

The ruling is another setback for insurers as they jockey with providers to shape the arbitration process set up by the NSA, a watershed consumer protection law passed in 2020 to shield consumers from surprise medical bills. 

The NSA has largely been successful in that goal, preventing millions of Americans from being hit with unexpected out-of-network charges. But it came with an unintended consequence, creating a multibillion-dollar cottage industry around dispute resolution that’s enabled doctors to get paid significantly more than they normally would for providing care.

Providers are winning 85% of surprise billing cases, and their awards are higher than the QPA about 87% of the time — evidence that the process is skewed in providers’ favor, according to insurers.

Doctors argue their elevated NSA win rate and higher payouts reflect how little they’re normally paid. Insurers keep their QPAs artificially low, doctors say. Medical associations have filed a barrage of lawsuits seeking to reform the metric, usually with success.

The 5th Circuit’s new decision overturns a rare legal win in one such case for the HHS and the Labor and Treasury Departments, which promulgated the rules implementing the NSA in 2021.

At issue is whether insurers can include ghost rates, or rates for items and services that providers don’t actually provide, in their QPAs. Providers aren’t incentivized to negotiate those rates higher, so they can be exceedingly low — sometimes as low as $0.

The government directed insurers not to include $0 ghost rates in their QPAs, but anything over $0, including contracted rates of $1, was fair game.

Providers cried foul, and in 2023, a Texas judge ruled that inclusion of ghost rates in the QPA was illegal. The next year, the 5th Circuit overturned that decision, allowing ghost rates.

But the appeals court agreed to a rare readjudication of the case last summer, and is now siding with provider plaintiffs.

The QPA should be comprised of rates for services actually furnished by a provider, a majority of 5th Circuit’s 17 active judges wrote in their ruling on Tuesday.

The judges agreed that the inclusion of ghost rates resulted in artificially low QPAs, and pointed to providers’ outsized win rates in arbitration as proof.

The government telling insurers to exclude risk-sharing, bonus, penalty or other incentive-based compensation from the QPA also contravenes the NSA, the 5th Circuit ruled, given the law requires the benchmark to reflect the highest possible amount in a provider-insurer contract for an item or service.

The judges did agree with the government that single-case agreements between providers and insurers should be excluded from the NSA, given they don’t constitute an actual contract. Those agreements are prevalent for emergency services providers, especially in the air ambulance industry.

Dr. Bradford Holland, the president of the TMA, said in a statement that the ruling is “another step in the right direction for both patients and the physicians who care for them.”

But though higher payouts yoked to higher QPAs will benefit providers, it’s not a good thing for insurers and U.S. health spending writ large.

Doctors are already often awarded three or four times above comparable in-network rates when they win NSA determinations. In one instance, a plastic surgeon was paid $440,000 for a breast reduction that normally costs between $15,000 to $25,000.

Higher NSA spending is threatening margins on insurers’ commercial businesses. The companies are expected to pass those costs along to U.S. patients and employers through higher premiums.

HHS and the Labor and Treasury Departments could appeal. The Trump administration has signaled it could be more active in reforming the NSA, with health regulators telling the New York Times this summer that they are “actively working to clean up” the process.

The CMS finalized a rule this spring addressing some of arbitratation’s shortcomings, including reducing the amount of ineligible disputes that sneak into the system. But some of the rule’s provisions could actually make it easier for providers to file disputes, a key concern for insurers, and insurers said that regulators could have done more to crack down on alleged gaming of the arbitration process.