A federal appeals court has voided the formula at the center of the US surprise medical billing system. The ruling throws into uncertainty a mechanism that employer health plans have depended on to cap out-of-network costs since 2022.
The full 17-judge 5th US Circuit Court of Appeals in New Orleans ruled on August 12 that the qualifying payment amount (QPA) formula under the No Surprises Act was unlawfully calculated, according to a Reuters report. The court sided with healthcare providers, including the Texas Medical Association (TMA) and air ambulance operators, who argued the formula systematically underpaid them. The ruling partially restored an earlier district court decision that had found against the government, which a three-judge 5th Circuit panel had since reversed.
The No Surprises Act passed in 2020 and took effect from January 2022. It was designed to protect patients from steep out-of-network medical bills, particularly in emergencies, by requiring providers and insurers to negotiate reimbursement through arbitration rather than passing costs to patients. The QPA served as the benchmark: a median rate for specific services in specific regions based on in-network contracts.
The formula's flaw, according to the 5th Circuit majority, was that it included "ghost rates," meaning rates for services providers never actually performed, while excluding bonus and incentive payments that form part of real-world contracted compensation. Providers argued this deflated the benchmark in insurers' favor. The majority agreed.
The ruling lands in already difficult terrain for benefits brokers. The independent dispute resolution (IDR) process created by the No Surprises Act has become one of the most significant and underreported cost drivers in employer health plans. Providers can use it to secure payments several times higher than standard in-network rates, according to benefits advisors tracking the market.
CMS data show that arbitration awards to out-of-network providers reached $14.9 billion in 2025, up from $4.1 billion in 2024. That is more than a threefold increase in a single year. Providers prevailed in roughly 85 percent of dispute determinations in the second half of 2025, with winning offers exceeding the QPA in approximately 87 percent of cases, according to data from the Centers for Medicare & Medicaid Services (CMS).
The three most active filers, HaloMD, TeamHealth, and SCP Health, accounted for about 38 percent of disputes initiated in the second half of 2025.
The court was not blind to the disruption its ruling could cause. The unsigned majority opinion said the decision would not lead to "all-out chaos," because agencies could continue letting insurers use the existing formula while a replacement is crafted, Reuters reported. Six judges partially dissented, arguing that QPAs should include contracted rates regardless of whether claims were paid.
On one point, the majority sided with the government. Insurers can exclude one-off agreements for services such as air ambulances from the contracted rates used to calculate the QPA.
The QPA formula has been contested almost since the No Surprises Act took effect, with earlier 5th Circuit decisions on the same case producing conflicting outcomes for both sides. CMS acknowledged in July that the arbitration system was being "gamed" to obtain higher prices.
The practical question for plan sponsors is what comes next. The government defendants, the US Treasury, Labor, and Health and Human Services departments, did not immediately respond to requests for comment, according to Reuters. No replacement formula has been announced.
Until one is in place, employers and their brokers face a period of regulatory uncertainty affecting how out-of-network claims are processed and disputed. Benefits brokers advising self-funded plan sponsors should flag this at the next client conversation.
The IDR process was designed to protect patients, and it has largely done that. The financial exposure it transferred to plan sponsors is a separate and growing problem. Tuesday's ruling makes the path to resolving it longer.
