Federal appeals court strikes down No Surprises Act payment calculation rules

The U.S. Court of Appeals for the Fifth Circuit ruled on August 11, 2026, that the federal government's methodology for calculating No Surprises Act payment benchmarks is partly unlawful. Siding with the Texas Medical Association, the court blocked insurers from using artificially low 'ghost rates' and mandated the inclusion of incentive-based bonuses. While the ruling temporarily leaves existing formulas in place, it is expected to increase provider payouts in arbitration, raising concerns among insurers about rising commercial premiums.

Fifth Circuit QPA methodology ruling

• ▪On August 11, 2026, the U.S. Court of Appeals for the Fifth Circuit ruled that the federal government's methodology for calculating the No Surprises Act's qualifying payment amount is partly unlawful.
• ▪The U.S. Court of Appeals for the Fifth Circuit ruled that the existing qualifying payment amount formula will remain in place while federal agencies draft a replacement methodology.
• ▪The U.S. Court of Appeals for the Fifth Circuit sided with the federal government by ruling that single-case or one-off agreements, such as those for air ambulance services, should continue to be excluded from qualifying payment amount calculations.

Ghost rates in payment calculations

• ▪Prior to the August 2026 ruling, federal guidelines permitted insurers to include ghost rates above $0, such as contracted rates of $1, in their qualifying payment amount calculations.
• ▪The U.S. Court of Appeals for the Fifth Circuit previously allowed ghost rates in a 2024 decision before agreeing to rehear the Texas Medical Association's lawsuit in the summer of 2025.
• ▪The U.S. Court of Appeals for the Fifth Circuit ruled that insurers cannot include "ghost rates"—placeholder contracted rates for services providers do not actually intend to deliver—in qualifying payment amount calculations.

Incentive payment inclusion requirements

• ▪The U.S. Court of Appeals for the Fifth Circuit ruled that qualifying payment amount calculations must include risk-sharing, bonus, penalty, or other incentive-based compensation.
• ▪The U.S. Court of Appeals for the Fifth Circuit determined that excluding incentive-based compensation from the qualifying payment amount violated the No Surprises Act, which requires the benchmark to reflect the highest possible contract rate.

Provider-insurer arbitration imbalance

• ▪Insurers warn that higher qualifying payment amounts and increased provider payouts from arbitration could threaten commercial business margins and lead to higher premiums for patients and employers.
• ▪Under the No Surprises Act dispute resolution process, healthcare providers win approximately 85% of surprise billing cases, with awards exceeding the qualifying payment amount about 87% of the time.
• ▪In some No Surprises Act arbitration cases, providers have been awarded payouts three to four times higher than comparable in-network rates, such as a plastic surgeon receiving $440,000 for a breast reduction.

No Surprises Act implementation litigation

• ▪The August 11, 2026 ruling by the U.S. Court of Appeals for the Fifth Circuit stems from a 2022 lawsuit filed by the Texas Medical Association challenging the federal government's rules implementing the No Surprises Act.
• ▪In the spring of 2026, the Centers for Medicare & Medicaid Services finalized a rule aimed at reducing the volume of ineligible disputes entering the No Surprises Act arbitration system.
• ▪The August 2026 decision marks the Texas Medical Association's fourth successful legal challenge to the implementation of the No Surprises Act since 2022.