A US Appeals Court Invalidates a Formula Meant to Prevent Unexpected Medical Expenses

A formula used by the government, insurance companies, and healthcare providers to protect customers from astronomically expensive “surprise” medical bills was overturned by a federal appeals court on Tuesday.

The majority of the 17-judge 5th U.S. Circuit Court of Appeals in New Orleans promised in an unsigned ruling that the decision would not produce “all-out chaos,” since the government may let insurers to continue using the current formula while a successor is developed.

The No Surprises Act, a 2020 law that mandates insurers and healthcare providers to negotiate payment rates themselves rather than burden consumers with exorbitant bills for out-of-network services, particularly in emergency situations, was at issue in this case.

The method used to determine the “qualifying payment amount” (QPA), a median rate for providing particular in-network services in particular regions, was contested by providers such as the Texas Medical Association and air ambulance operators, who claimed the calculations favored insurers at their expense.

The majority on Tuesday agreed with the providers that it was inappropriate for the QPA to exclude bonus and incentive payments and include “ghost rates,” or rates for services they never rendered.

It also concurred with the government in letting insurers deduct one-off agreements for services such as air ambulances from “contracted rates” used to compute the QPA.

The majority disregarded insurers’ and the government’s warnings that removing the formula might leave patients responsible for exorbitant medical costs.

“Indeed, ‌the ⁠agencies have been exercising enforcement discretion while their appeal from the district court has been pending, so they are more than capable of preventing immediate chaos,” the majority replied.

A district court verdict in favor of the healthcare providers that was later overturned by a three-judge panel of the Fifth Circuit was partially restored by Tuesday’s ruling.

It happened three weeks after the U.S. Centers for Medicare and Medicaid Services notified the New York Times that physicians were “gaming” the system to get higher rates. According to the Times, CMS reported that awards to physicians made during the arbitration procedure of the No Surprises Act more than tripled to $14.9 billion in 2025 from $4.1 billion in 2024.

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