Appeals court overturns No Surprises Act QPA calculation method

In a major win for healthcare providers, a U.S. appeals court ruled against the federal government's formula for calculating qualifying payment amounts under the No Surprises Act.

The ruling released on Tuesday tossed aside two key factors insurers use to determine QPAs, which serve as anchor points in the federal independent dispute resolution process for calculating final payment determinations. Those factors include the inclusion of so-called ghost rates and the exclusion of bonuses and other incentive payments in contracted rates.

The majority of the 17-judge 5th U.S. Circuit Court of Appeals in New Orleans ruled in favor of providers in the en banc ruling. However, they sided with the government in allowing insurers to exclude one-off agreements for services, such as air ambulances, from the contracted rates for QPA calculations.

The case has been ongoing since November 2022, when the Texas Medical Association filed its third lawsuit challenging the implementation of the NSA. Each case has centered on the use of the QPA to calculate payment determinations, with the first case securing a ruling that the amount is not the primary factor arbitrators use. The second case succeeded in reducing the weight of the amount in determinations.

The latest ruling focuses on the rates insurers use to create QPAs for arbitrators. Under federal guidance, they have included rates listed in providers' network contracts for medical services they never actually perform, as long as the amount is more than $0.

The guidance also instructs insurers to exclude bonuses, incentive payments and other adjustments when factoring QPAs for medical services since these funds are rarely tied to specific contracted rates.

The NSA specifies that QPAs should be the median contracted rate that a plan pays for a specific service in a given area, adjusted for inflation. However, healthcare providers, including the TMA in this lawsuit, argue that the factors at issue have artificially deflated QPAs, thereby driving the amounts lower than true market rates and leading to a tidal wave of IDR disputes.

Providers have said the IDR process has been the only way to seek fair reimbursement in light of lower out-of-network rates offered by insurers.

The TMA celebrated the ruling, saying it ensures a fair IDR process while preserving patient access to care under the NSA.

"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. The appellate court's decision is another step in the right direction for both patients and the physicians who care for them," Bradford W. Holland, M.D., president of the TMA, said in the statement.

The federal government and payers have warned the courts that vacating the QPA methodology would create operational challenges, which could undermine patient protections against surprise medical billing.

However, the ruling stated that "administrative agencies cannot survive judicial review simply by making mistakes that are so colossal that the sky will fall if a court reviews them."

Tossing the formula "will not result in all-out chaos," the ruling continued. Instead, the court suggested federal agencies exercise their enforcement discretion to allow payers to continue using existing QPAs until new amounts can be determined.

"That way, patients will not be saddled with the balance billing of pre-NSA times," it explained. "Indeed, the agencies have been exercising enforcement discretion while their appeal from the district court has been pending, so they are more than capable of preventing immediate chaos."

The government can appeal the ruling. Although, agencies have been actively reforming the IDR process and the law itself to better serve all stakeholders, including payers and providers.

The Centers for Medicare and Medicaid Services finalized a rule in May that has overhauled the IDR process amid criticisms that it is inefficient. The rule especially targeted the growing number of ineligible disputes entering the process by tightening pre-IDR negotiation rules.

However, insurers say the rule will actually make it easier for providers to file disputes, particularly with lower administrative fees. They would have liked to see more done to level the playing field. Providers win north of 80% of disputes, raking in close to $15 billion last year alone, according to an analysis of CMS data by The Wall Street Journal.

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.