Providers’ winning streak in No Surprises Act QPA litigation ends as appeals court overturns a prior ruling

Healthcare providers incurred a rare defeat in litigation over a key facet of the No Surprises Act, with an appeals court ruling that the original methodology for calculating the qualifying payment amount (QPA) is permissible.

The Oct. 30 decision restores language from prior regulations and means insurers can continue to incorporate or exclude certain disputed factors in calculating the QPA, which in turn is one of the components for arbitrators to consider in the independent dispute resolution (IDR) process. When applied, the factors at issue in the case generally would decrease the tallied QPA.

For example, in calculating the QPA, which is defined as the insurer’s median in-network rate for a service in a specified geography, insurers should include contracted rates even for provider-partners that never perform the service (i.e., ghost rates).

Meanwhile, they should exclude rates from ad hoc, case-specific contractual agreements with providers and also disregard bonus and incentive payments made in value-based payment arrangements.

The ruling by the U.S. Court of Appeals for the Fifth Circuit overturns a district court’s 2023 decision in favor of providers on those questions. Following the lower court’s decision, the U.S. Departments of Labor, Treasury and Health and Human Services issued guidance giving insurers discretion to continue applying QPAs that were calculated using the old methodology for services rendered before May 1, 2024, and that leeway was subsequently extended until Nov. 1.

That means the methodology is likely to remain unchanged for most insurers in the wake of the appeals court’s ruling.

An atypical outcome

The lead plaintiff in the case was the Texas Medical Association (TMA), which previously had a string of successful challenges to the No Surprises Act’s IDR-related regulations. One of those successes was upheld by the same appeals court and may temper the consequences of the latest ruling.

In that case, the district and appeals courts agreed that the regulations contravened the No Surprises Act by placing too much emphasis on the QPA as a factor in IDR decision making. The lower court’s ruling required the departments to issue new regulations clarifying that other criteria, among them the complexity of the procedure, the acuity of the patient and provider characteristics such as experience and teaching status, must receive equal weight if submitted for consideration.

The TMA is 4-0 in contesting aspects of the No Surprises Act in district court, having won two cases about the IDR methodology, the case about the QPA that was just overturned on appeal, and a case challenging a 2023 increase in the IDR administrative fee from $50 to $350 per filing. The last of those wins required the departments to implement a notice-and-comment process when setting the fee, which is $115 for 2024.

At the appellate level, the TMA is 1-1 after the Fifth Circuit upheld the second of two lower-court decisions about the IDR criteria before this week overturning the ruling on the QPA methodology.

Arguably the most important case is still pending at the Fifth Circuit. Providers think the IDR process could be rendered obsolete if judges do not overturn a district court’s 2024 decision that IDR awards are unenforceable, meaning insurers could not be legally compelled to make the arbitrated payments. The plaintiffs in that case are two air ambulance companies.

Not a win for transparency

In this week’s ruling, providers also lost their argument that insurers should have to disclose additional information about the QPA calculation, such as the number of contracted rates and the number of times each rate was paid.

Regulatory provisions that sought to limit the administrative burden on insurers were backed by both the district and appeals courts. Required disclosures still include whether the QPA was determined based on underlying fee-schedule rates or via another methodology, among other information. 

The opacity in the QPA calculation process has been a source of frustration for providers. In an online summit earlier this year, a policy leader with the American Hospital Association (AHA) cited feedback from one hospital that an insurer’s QPA was half the amount the hospital would expect based on in-network reimbursement rates.

“There’s no reasonable conclusion for this very low QPA, yet we have no way to challenge how the payer is calculating the QPA,” Molly Smith, group vice president for public policy with the AHA, said in April during the National Health Care Transparency and No Surprises Act Summit. “Even the IDR [arbitrators] have no way of knowing if a QPA is calculated appropriately. This points back to very significant gaps in information that policymakers really need to have in order to make this a workable process.”

She also said the findings from mandatory government audits of QPAs should be completed more efficiently and made public in a timely manner. One of the few audits released to date found significant issues with the QPA calculation by an Aetna health plan with respect to air ambulance services.

Staying on schedule

An aspect of the new ruling that helps providers is the court’s decision affirming a 30-day deadline for insurers to send either payment or a notice of payment denial for out-of-network services.

The regulations had said the 30-day clock started only after the insurer received a clean claim from the provider. However, the district court said such an interpretation was off the mark, in part because it might allow insurers to push back the deadline indefinitely, and the appeals court agreed. Thus, the clock is required to begin when the provider transmits the bill.

Just as insurers and providers both could find things to like in the ruling, the appeals court’s decision also can be seen as encouraging for federal departments in a year when the Supreme Court’s decision overturning the Chevron doctrine raised questions about the authority of regulatory agencies to fill gaps in statutory language. The three-judge Fifth Circuit panel, consisting of two appointees by George W. Bush and one by Joe Biden, cited the Supreme Court’s statement that “[a statute’s] meaning may well be that the agency is authorized to exercise a degree of discretion.”

In several aspects of the new ruling, the Fifth Circuit suggested the No Surprises Act conveyed such authority. For example, the act conferred broad license to establish the QPA methodology through rulemaking.

The question then became whether the methodology deviated from the legislation’s definition of a QPA. Whereas the district court said parts of the methodology conflicted with the statutory definition, the appeals court felt otherwise.