Fifth Circuit Strikes Down Key Rule for Surprise Medical Billing, Siding With Providers

When a patient undergoes surgery at an in-network hospital, they rarely get to choose their anesthesiologist or assistant surgeon. For years, if that invisible specialist happened to be out-of-network, the patient would later receive a devastating 'surprise' medical bill for the balance. The No Surprises Act, passed by Congress in 2020, ended that predatory practice. It shielded the patient from the financial crossfire, forcing the doctor and the insurance company to fight over the bill in a private, high-stakes arbitration process instead. But while the patient was removed from the equation, the battle over who pays the difference—and how much—has only intensified.[6]

Now, the rules governing that invisible fight have just been upended. On August 11, 2026, the full 17-judge U.S. Court of Appeals for the Fifth Circuit struck down key components of the federal formula used to settle these billing disputes. The en banc ruling represents a seismic shift in the balance of power between healthcare providers and insurance companies, fundamentally altering the mechanics of a system that processes hundreds of thousands of disputed medical claims every year. By invalidating the government's calculation methods, the court has effectively dismantled the primary cost-containment mechanism that employer health plans have relied upon since the law took effect.[2]

The ruling sided heavily with the Texas Medical Association (TMA) and a coalition of air ambulance operators and healthcare providers. At the center of the dispute is a metric known as the 'qualifying payment amount,' or QPA. Under the framework established by the Departments of Health and Human Services, Labor, and Treasury, the QPA serves as the benchmark rate that independent arbitrators use to decide how much an insurer must pay an out-of-network doctor. Providers have long argued that the federal regulations were intentionally designed to artificially deflate the QPA, giving insurance companies an unfair advantage in negotiations and arbitration.[4][3]

Under the No Surprises Act, when an insurer and a provider cannot agree on a payment for an out-of-network service, they enter an independent dispute resolution (IDR) process. It operates as a baseball-style arbitration: both sides submit their best final offer, and a neutral arbiter must choose one of the two figures without modifying them. The statute instructs the arbiter to heavily weigh the QPA, which is defined as the median contracted rate for a specific medical service in a specific geographic region. Because the QPA anchors the entire arbitration process and heavily influences the arbiter's final decision, both sides have fought bitterly over the exact mathematical rules used to calculate that median figure. A lower QPA virtually guarantees a lower payout for the doctor.[6][3]

The Fifth Circuit majority agreed with the providers, focusing on two specific flaws in the government's methodology that they ruled violated the plain text of the No Surprises Act. The first major issue was the inclusion of 'ghost rates' in the median calculation. Ghost rates are contracted rates for medical services that a specific provider never actually performs. For example, an OB-GYN's master contract with an insurance company might include a default fee schedule for obstetrical services, even if that specific doctor only practices gynecology and does not deliver babies. Because the doctor never performs the service, they have absolutely no financial incentive to negotiate the rate during contract renewals, leaving the default price extremely low—sometimes as low as a single dollar.[3]

Federal guidance had explicitly allowed insurers to include these non-zero ghost rates when calculating the median QPA across a geographic region. The Fifth Circuit ruled that this practice systematically dragged down the benchmark. By flooding the data pool with artificially low rates for services that were never actually rendered, insurers were able to depress the median QPA, which in turn lowered the baseline for arbitration awards. The court held that this methodology conflicted with the law's intent to establish a fair and accurate reflection of real-world market rates. The judges concluded that the government's rules put a 'thumb on the scale' in favor of the insurance industry, violating the Administrative Procedure Act.[3][4]

The en banc decision marks the culmination of a relentless legal campaign by the Texas Medical Association. Over the past five years, the TMA has filed multiple lawsuits challenging various aspects of the No Surprises Act's implementation. A federal district court had previously invalidated the QPA provisions in 2023, but a three-judge Fifth Circuit panel reversed that decision in October 2024. The TMA successfully petitioned for an en banc rehearing, bringing the case before all 17 active judges, who ultimately vacated the panel's opinion and restored the district court's ruling.[4]

The second invalidated rule involved the treatment of bonus and incentive payments. Federal regulations had instructed insurers to categorically exclude risk-sharing arrangements, bonuses, penalties, and retrospective incentive payments from the QPA calculation. Providers argued that these payments form a substantial part of their real-world contracted compensation, and ignoring them further deflated the benchmark. The en banc court agreed, ruling that excluding these applicable payments directly conflicted with the statutory requirement that the QPA reflect the 'total maximum payment' for a given medical service. By stripping away the financial incentives that doctors actually earn, the government's formula was producing an artificially low snapshot of provider compensation.[5][3]

The ruling throws a critical cost-containment mechanism into uncertainty. Employer health plans and benefits brokers have relied heavily on the QPA formula to cap out-of-network costs since the law took effect in 2022. Without the ability to include ghost rates or exclude bonuses, the median QPA will inevitably rise. Higher QPAs mean that arbitrators are highly likely to award larger payouts to out-of-network providers, a dynamic that will particularly benefit private equity-backed physician staffing firms that intentionally remain out-of-network to maximize revenue. Insurance industry groups warn that the independent dispute resolution process has already become one of the most significant and underreported cost drivers in commercial health plans.[2]

The federal arbitration system is already operating under immense strain. As of early 2025, the system faced a massive backlog of over 600,000 unresolved disputes, far exceeding the government's initial projections. Despite the deflated QPA, providers have been highly successful in the IDR process, prevailing in more than 80 percent of resolved disputes. Furthermore, arbitrators have selected an amount above the QPA in 85 percent of all decisions. With the QPA now set to increase, the financial exposure for insurers will grow exponentially. Federal officials warned the court that vacating the rules could require insurers to undertake extensive, system-wide recalculations of their payment benchmarks, a logistical hurdle that could further delay the already sluggish arbitration portal.[6][3][7]

In its decision, the Fifth Circuit stated that federal agencies could temporarily permit the continued use of existing QPAs while new amounts are calculated, remanding the case to the district court for further proceedings. The Biden administration now faces a critical choice: rewrite the regulations to comply with the Fifth Circuit's interpretation, or appeal the en banc decision to the Supreme Court. The case also touches on a broader, hotly contested administrative law issue regarding whether the Administrative Procedure Act authorizes the universal vacatur of agency rules nationwide—an argument the government raised but the Fifth Circuit explicitly rejected.[3][4]

For consumers, the immediate, tangible protections of the No Surprises Act remain fully intact. The Fifth Circuit's ruling does not strike down the law itself, meaning patients will still be shielded from balance billing when they visit an emergency room or receive out-of-network care at an in-network facility. However, the hidden cost of healthcare is shifting. If insurers are forced to pay significantly higher rates to out-of-network providers through arbitration, those increased costs will not simply vanish. They are ultimately expected to be absorbed by employer health plans and passed down to consumers in the form of higher monthly premiums and deductibles.[5][2]