A federal court ruling is set to change how health plans calculate a key payment benchmark under the No Surprises Act (NSA), with implications for insurers, providers, and the law’s dispute resolution process.
Last week, the US Court of Appeals for the Fifth Circuit issued its long-awaited decision in a case called “TMA III,” following a rehearing by the full court in September of last year. The case challenged provisions of the federal government’s 2021 Interim Final Rule regulating calculation of the NSA’s qualifying payment amount, or QPA. The QPA is generally based on the median of applicable contracted rates and plays an integral role in payments and disputes involving out-of-network care.
The court largely sided with provider plaintiffs on two of three disputed elements of the QPA’s calculation methodology: the so-called “ghost rates” and certain bonuses, incentives, and other payment adjustments, while upholding the government’s approach on a third issue involving inclusion of single-case agreements.
Ghost rates are contracted rates for services that a provider doesn’t actually perform or may never provide. As an example, a contract containing a rate for a service outside a provider’s normal practice. Under the challenged methodology, such rates could be incorporated into the median used to determine a QPA. The court concluded that these rates cannot be included merely because they appear in a contract.
From a provider perspective, including ghost rates can artificially lower QPAs because providers have little incentive to negotiate meaningful rates for services they don’t perform. The court’s decision could therefore result in some higher QPAs by removing those rates from the calculation. Providers have also argued that inaccurate benchmarks can influence reimbursement offers and arbitration outcomes connected to the NSA’s IDR process.
The ruling also addressed bonuses, incentives, and other payment adjustments – something the federal methodology had categorically excluded from QPA calculations. But the Fifth Circuit found that approach unlawful, concluding that applicable compensation must be accounted for when necessary.
For health plans and federal regulators, the ruling presents a different set of considerations. Changing the QPA’s calculation methodology would force plans to modify QPAs as well as current systems and processes. Federal officials warned the court of exactly this – that vacating, or removing, the challenged rules would require extensive recalculations. However, the court determined that vacating the provisions would not be unduly difficult and indicated that agencies could temporarily permit plans to continue using existing QPAs while new amounts are calculated, as they did while the case was pending.
Now, keep in mind, the decision was not a complete victory for providers. The Fifth Circuit upheld the exclusion of one-off, single-case agreements from QPA calculations. These agreements can involve atypical reimbursement arrangements, and their inclusion could increase benchmarks beyond what an insurer typically pays for an in-network service.
Additionally, to add a bit of context, the ruling arrives as the NSA IDR arbitration system has taken on a much larger role than initially anticipated. The Centers for Medicare & Medicaid Services (CMS) and various news outlets have recently noted that providers prevail in more than 80 percent of resolved disputes, highlighting the significance of the benchmarks used during the dispute process.
The longer-term effects of the ruling remain uncertain. The overturned provisions of the QPA calculation methodology concerning ghost rates and bonuses and incentives have been vacated, leaving a void, and CMS has already said it anticipates issuing updated guidance shortly.
In the immediate future, the impact may be limited because existing plan QPAs likely will continue being used temporarily. But over time, recalculating QPAs to align with the court’s ruling may affect how both plans and providers approach the federal arbitration process.
As CMS considers its next move, stakeholders should be watching closely to determine how all this impacts reimbursement, dispute resolution, and further implementation of the NSA.
References:
- https://www.documentcloud.org/documents/25963075-court-order-tma-iii-us-ct-of-appeals-nosurprisesact-nsa/
- https://healthexec.com/topics/healthcare-management/healthcare-policy/fifth-circuit-sides-providers-challenging-no-surprises-act-billing-formula
- https://www.benefitspro.com/2026/08/13/fifth-circuit-orders-overhaul-of-no-surprises-act-payment-rules
