Fifth Circuit Strikes Down Key Rules Governing the No Surprises Act
Highlights
- On Aug. 11, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc, ruled that the methodology used by federal agencies to calculate provider reimbursement rates for out-of-network insurance claims violated the No Surprises Act (NSA).
- The court held that the agencies’ inclusion of non-negotiated “ghost rates” and exclusion of bonus and incentive payments from the “qualifying payment amount” (QPA) violated the plain text of the statute.
- The decision has significant implications for health insurers and healthcare providers, as it will likely result in higher QPAs.
Background: The No Surprises Act and the July Rule
The No Surprises Act protects patients from unexpected medical bills from out-of-network providers, particularly in emergencies. Under the NSA, insurers and providers negotiate reimbursement rates and resolve payment disputes through an independent dispute resolution process, which centers on the QPA. The QPA drives the reimbursement rate for a given item or service and is intended to reflect market rates and is equivalent to the median of an insurer’s maximum contracted rates for a specific medical item or service according to specialty and geographic area.
These contracted rates reflect the total maximum payment (i.e., the highest amount) for an item or service under a provider-insurer contract. The NSA authorized the Departments of Health and Human Services, Labor, and Treasury to refine the methodology for calculating the QPA through rulemaking.
In July 2021, the agencies promulgated an interim-final rule (the July Rule), issued without notice and comment. The July Rule established the QPA calculation methodology, three aspects of which the Fifth Circuit ultimately examined.
First, according to the July Rule, insurers must include “each contracted rate” in calculating the median rate of an item or service, regardless of how many claims are actually paid at this rate. In practice, this meant that insurers were required to account for services a provider never performed but that were listed in form contracts between insurers and providers. These non-negotiated rates are known as “ghost rates” and are often very low (if not $0).
Second, insurers must exclude bonuses or other incentives in calculating the “total maximum payment.”
Third, insurers must exclude from the “contracted rate” any one-off, single-case agreements between providers and insurers. Such agreements are typical in cases involving air ambulances transporting critically ill patients in need of emergency care.
The July Rule’s inclusion of ghost rates and exclusion of bonuses and incentives in the QPA calculation led to artificially low QPAs and, as a result, artificially low reimbursement rates.
Fifth Circuit Decision: No Surprises Act QPA Calculation Rules
In Texas Medical Association v. United States Department of Health and Human Services, the Fifth Circuit addressed three key issues: (1) the inclusion of ghost rates in the QPA calculation, (2) the exclusion of bonuses and incentives from the QPA calculation, and (3) the exclusion of single-case agreements from the QPA calculation.
The Inclusion of Ghost Rates Violates the No Surprises Act
The court held the July Rule violates the plain text of the NSA by including ghost rates in the QPA calculation. The NSA limits the QPA to rates for items or services “provided by a provider” and “furnished” in the relevant geographic region. Because ghost rates represent items and services not actually “provided” or “furnished,” the July Rule’s inclusion of ghost rates in the QPA was arbitrary, capricious, and contrary to the law.
The Exclusion of the Bonus and Incentive Payments Is Unlawful
Consistent with its reasoning on ghost rates, the Fifth Circuit also found the exclusion of bonuses and incentives from the QPA conflicts with the language of the NSA. The statute requires that contracted rates reflect the “total maximum payment” for an item or service. “Total” means “the whole, entire payment and the sum of all payments from the insurer to the provider.” This plainly includes payments in the form of bonuses or incentives.
Single-Case Agreements Are Properly Excluded
The court did uphold the portion of the July Rule that excluded single-case agreements from the QPA calculation, finding such agreements do not equate to “contracted rates” under the NSA. The word “rate” indicates “a per-unit price for multiple units,” which does not align with the concept of single-case agreements.
Vacatur Is the Default Remedy Under the Administrative Procedure Act
Finally, the court affirmed that vacatur is the default remedy under the Administrative Procedure Act, voiding the challenged portions of the July Rule. As a result, the agencies will need to establish a compliant methodology, and insurers will need to recalculate their QPAs. The court rejected the agencies’ argument that the disruption would be too severe, noting that the agencies can exercise enforcement discretion to allow insurers to continue using existing QPAs while new ones are calculated, preventing any gap in patient protections.
Impact on Insurers and Providers
While the agencies will likely exercise enforcement discretion to allow insurers to continue using their current QPAs during the rulemaking phase, insurers should begin evaluating their current QPA methodologies and planning for recalculation. In light of this decision, the recalculated QPAs will now exclude ghost rates and include bonus and incentive payments. This is expected to result in higher QPAs. For providers, higher QPAs mean a more favorable position in negotiating reimbursement rates and in the independent dispute resolution process.
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