Court Ruling Disrupts No Surprises Act Formula, Amplifying Financial Risks for Employers

A significant ruling from the 5th US Circuit Court of Appeals has invalidated the qualifying payment amount (QPA) formula central to the No Surprises Act, disrupting how employer health plans manage out-of-network costs. On August 12, the court determined that the formula was calculated unlawfully, siding with healthcare providers—including the Texas Medical Association and air ambulance companies—who contended the method undervalued their reimbursements. This decision casts a shadow over the operational framework of the healthcare industry and raises questions about the efficacy of the measures designed to protect both patients and providers.

The Purpose of the No Surprises Act

Since the No Surprises Act's implementation in January 2022, this formula has served as a benchmark for determining compensation for out-of-network services, particularly during emergencies. The QPA is calculated using median rates from in-network contracts, intended to protect patients from exorbitant bills. It's a complex balancing act that sought to address the sharp rises in costs that patients face when they receive care from out-of-network providers—often without their knowledge during critical health crises.

Supporting legislation like the No Surprises Act was a reaction to a troubling trend: many patients had encountered bills that they were simply unprepared for, leading to unexpected financial burdens. The act aimed to introduce fairness into the healthcare reimbursement system, which historically favored insurers while often squeezing healthcare providers. But the ruling from the 5th Circuit has opened a Pandora's box of complications.

Flaws in the QPA Formula

The majority opinion of the court highlighted flaws in the QPA formula, citing the inclusion of "ghost rates," which represent charges for services that providers have not delivered, and the exclusion of crucial bonus and incentive payments that reflect actual contracted compensation. This led to an underestimation of fair payment rates, adjusting the balance in favor of insurers. Such an oversight raises critical concerns about the validity of the formulas we rely on in defining healthcare costs and payouts. If not adequately revised, these calculations could deepen existing discontent among healthcare providers and disrupt the very fabric of patient care.

This oversight resulted not just in narrow reimbursements for providers but potentially compromised the quality of care patients receive. When reimbursements do not accurately cover the costs of services provided, healthcare providers may become increasingly reluctant to treat out-of-network patients, putting additional strain on the healthcare system. Essentially, the ruling exposes systemic weaknesses within a framework that relies on data manipulation to define fairness.

Rapid Increase in Arbitration Costs

The ramifications of this ruling could be profound for benefits brokers and employers, as the independent dispute resolution (IDR) process established under the No Surprises Act has emerged as a costly aspect for employer health plans. Recent data revealed that arbitration awards to out-of-network providers surged from about $4.1 billion in 2024 to $14.9 billion in just one year—an unmistakable tripling of costs. Notably, providers achieved favorable outcomes in approximately 85% of disputes in the latter half of 2025, with winning bids often exceeding the QPA by large margins. If you're working in this space, you’ll recognize that these escalations have implications on how both providers and employers negotiate future care agreements.

These rising costs are a clarion call for employers who may not have comprehensively prepared for the impact of arbitration on their health plans. The dynamic has shifted significantly, placing many employers in the precarious position of needing to budget for escalating disputes without visibility on specific outcomes. Leading litigation firms, such as HaloMD, TeamHealth, and SCP Health, collectively accounted for around 38% of all disputes initiated during this timeframe. This illustrates a growing trend where providers capitalize on the current arbitration mechanisms to negotiate payments that are significantly higher than conventional rates, exploiting the loopholes created by an inadequate formula.

Potential Chaos? Navigating the Interim Period

The appellate court acknowledged potential chaos stemming from its decision but asserted that insurers could temporarily operate under the previous formula while a new structure is developed. However, this interim period does not shield plan sponsors from the realities of an ongoing trend in rising arbitration costs, as providers are likely to continue filing disputes under the formula now deemed flawed. The necessity for a swift resolution cannot be understated; the longer this ambiguity persists, the more chaotic and costly the environment will become for all parties involved.

An important distinction was made in the ruling regarding the treatment of one-off contracts, such as those for air ambulances; these can be excluded from the QPA calculation, maintaining certain protections for insurers. Yet this exception alone does not remedy broader systemic challenges arising from the ruling. Instead, it leaves many employers still grappling with the ambiguity of how to appropriately manage their healthcare plans moving forward.

Implications for Employers and Future Outlook

While the No Surprises Act’s QPA formula has faced scrutiny since its inception, the latest ruling raises immediate concerns for employers managing healthcare costs amid ongoing arbitration challenges. With no definitive replacement formula anticipated, plan sponsors must adapt quickly. Those who hesitate may find themselves overwhelmed by rising costs and an increasingly complex dispute landscape.

Employers and brokers should brace for persistent IDR costs in the near term. Clients should anticipate growing financial exposure as providers are incentivized to file additional claims while the legal landscape remains uncertain. Furthermore, plan sponsors are advised to conduct reviews of their out-of-network utilization and examine prior arbitration award patterns to gauge their exposure to high-frequency filers like HaloMD and others. This is more significant than it looks — the financial stakes are high, and being proactive could make all the difference.

Despite the No Surprises Act aiming to guard patients against unexpected charges, the financial impact is significantly shifting toward employers, potentially exacerbating their fiscal vulnerabilities. Companies that take decisive action now to understand and mitigate their arbitration exposure will likely be better positioned than those awaiting further regulatory developments without clarity on timelines. There’s no silver bullet here, but timely adjustments may provide a vital buffer against future disruptions stemming from ongoing arbitration battles.