Rep. Pallone Proposes Replacement of No Surprises Act Arbitration with QPA Payment Standard

U.S. House of Representatives Committee on Energy and Commerce Ranking Member Frank Pallone Jr. (D-N.J.) helped author the bipartisan No Surprises Act (NSA), which the U.S. Congress enacted in 2020. The law protects patients from surprise bills by removing them from payment disputes between providers and payers and establishing an arbitration process to resolve those disputes. In announcing the Lower Premiums, Faster Payments Act, Rep. Pallone called the NSA "an overwhelming success when it comes to protecting patients from surprise medical bills," but said "the arbitration process is clearly not working." He added that "[a] few bad actors – largely backed by private equity – are gaming the system, creating backlogs, delaying payments, and driving up premiums."

The announcement cites several data points in support of Rep. Pallone's concerns. According to the release, 10 provider groups accounted for approximately 67 percent of the 2.5 million disputes submitted in 2025. The 15 arbitration firms that handled disputes received $1.3 billion in fees that year – compared with $885 million from 2022 through 2024 – and awarded providers nearly $15 billion. The release also cites a Health Affairs analysis estimating that the arbitration process generated $22.4 billion in total costs over four years. In addition, it notes that the New York State Employee Plan identified arbitration awards as the primary driver of a 10 percent premium increase this year. Finally, the release argues that court decisions have weakened the standards for determining fair payment amounts, resulting in larger awards.

What the Bill Would Do

The bill would make parallel amendments to the Public Health Service Act, Internal Revenue Code and Employee Retirement Income Security Act (ERISA), affecting all health plans subject to the current federal NSA requirements. Its principal provisions are:

• End of IDR after 2027. Open negotiation and IDR would apply only to items and services furnished before January 1, 2028. For services furnished on or after that date, including air ambulance services, the qualifying payment amount (QPA) would become the out-of-network rate.
• 30-Day Payment Requirement. When the QPA serves as the out-of-network rate, plans and issuers would have to pay within 30 days after the provider or facility submits the bill.
• New QPA Formula. For 2028, the QPA would be based on the plan's or issuer's median contracted rate as of January 31, 2019, for the same or a similar service, specialty and region. The calculation would include the total payment, including cost sharing and the average expected value of incentive-based or retrospective payments, such as risk-sharing payments, bonuses and penalties. To exclude "ghost rates," the calculation would omit rates for providers that did not furnish the service during the 2019 plan year. The 2019 amount would be adjusted by Consumer Price Index for All Urban Consumers (CPI-U) through 2027 and annually thereafter. The release describes this approach as a payment system "based on the median in-network rate."
• New Plans and Limited Data. A plan first offered in 2028 or later that was not offered in 2019 would use a rate determined under a methodology established by the U.S. Departments of Health and Human Services, Labor and the Treasury (the Departments) for its first year. The plan would then adjust that rate annually by CPI-U. Special rules would apply when a plan first has sufficient information in 2028 or later.
• Expedited Rulemaking. The Departments would have 180 days after enactment to update the QPA methodology regulations and could proceed through an interim final rule.
• No Judicial Review. The bill states that there "shall be no judicial review of the methodology for determining the qualifying payment amount."
• Mandatory Audits. Beginning in 2028, the Departments would have to audit claims data from at least 25 plans and issuers each year and publicly report their findings.

How the Bill Fits into the Broader NSA Reform Debate

Congressional Oversight

Congressional scrutiny of independent dispute resolution (IDR) has intensified as lawmakers examine the volume, cost and outcomes of disputes filed under the NSA. Policymakers and stakeholders are considering whether the process is operating as Congress intended and which legislative changes could improve its efficiency, transparency and oversight.

Last month, Rep. Pallone sent oversight letters to six of the 17 certified IDR entities (IDREs) requesting information on dispute volumes and eligibility determinations, arbitrator training and oversight, the use of artificial intelligence (AI) and automation, appeals and quality-control procedures, top filers and their success rates, ownership structures, and potential financial relationships between IDREs and the parties appearing before them. Responses were due September 24, 2026. The bill's premise that a small number of organizations dominates IDR filings follows directly from this inquiry.

The U.S. Senate Committee on Health, Education, Labor, and Pensions (HELP) has also convened stakeholder roundtables with employers, physicians, insurers, labor representatives and certified IDREs. Although the discussions did not produce a consensus proposal, they focused on screening out ineligible claims, reducing the backlog of pending disputes with IDREs, accelerating payments owed by payers, increasing transparency and audits, and reconsidering the respective roles of the QPA and IDRE arbitrators. The committee later held a bipartisan, member-level roundtable with HELP Committee Chair Bill Cassidy (R-La.) and Sens. Roger Marshall (R-Kan.), Josh Hawley (R-Mo.) and Maggie Hassan (D-N.H.). Members showed particular interest in screening ineligible disputes before they reach arbitration and enforcing timely payment of IDR awards. Sen. Cassidy may seek to introduce and vet legislation before the end of his tenure in Congress. Because any NSA changes will require bipartisan support in the Senate, these discussions may provide a better indication of what could ultimately advance as legislation rather than Rep. Pallone's proposal alone. Rep. Pallone's bill addresses several of the same concerns but goes further by eliminating IDR for future services.

Other lawmakers have focused on enforcing IDR awards rather than replacing the process. The bipartisan No Surprises Act Enforcement Act (H.R. 4710/S. 2420), introduced in July 2025 by Rep. Greg Murphy (R-N.C.), with Sen. Marshall leading the Senate companion, would penalize plans and issuers that fail to pay within 30 days after an IDRE issues a payment determination – a long-standing provider concern. A late or missed payment would trigger an additional penalty equal to three times the difference between the plan's initial payment and the out-of-network rate determined through IDR, plus interest. The bill would also authorize civil penalties of up to $10,000 for each violation of certain NSA balance-billing requirements, replacing the current penalty of $100 per day. In addition, it would require the Departments to report to Congress on plan and issuer audits and enforcement actions. Reports indicate that the House Committee on Ways and Means is also developing an NSA package that could include this measure and provisions to reduce ineligible dispute filings. Rep. Murphy's bill illustrates the central divide in the debate: Rep. Pallone would end IDR for future services and set payment at the QPA, while Rep. Murphy would retain arbitration and strengthen enforcement of its awards.

Stakeholder Proposals

Employers, plan sponsors, consumer advocates, policy groups and other stakeholders have proposed reforms that address similar concerns but vary in scope. They note that dispute volume has far exceeded expectations and that a small number of high-volume filers accounts for most disputes, contributing to backlogs and payment delays. They also point to the large number of disputes ultimately found ineligible, which consume IDRE capacity and increase administrative costs. Payers and employers contend that awards have increasingly exceeded the QPA, particularly after court decisions weakened regulatory guidance on how arbitrators should weigh it. They argue that these awards and related fees are passed on to plan sponsors and consumers through higher premiums. Additional concerns include the consistency and quality of IDRE decisions, arbitrator training, the use of automation, lack of a meaningful appeals process and potential financial relationships between IDREs and the parties appearing before them.

These proposals differ on the future of arbitration. Some would retain IDR, make the QPA the primary benchmark and create a limited appeals process. Others would narrow IDR by service type. Still others, including Rep. Pallone's bill, would replace arbitration with a defined payment benchmark on the theory that a predictable standard would better control costs and discourage excessive filings. Despite these differences, the proposals share several priorities: stronger prompt-payment requirements, better screening of ineligible or abusive disputes, greater transparency about arbitration outcomes, standardized arbitrator training and closer oversight of IDREs.

Provider groups generally acknowledge IDR's operational problems but attribute much of the dysfunction to payer practices, particularly low initial payments, inaccurate QPAs, and insurers' failure to pay arbitration awards in their favor or payment only after substantial delays. They cite federal data showing that insurers frequently default in IDR, submit nominal offers, or propose amounts at or below the QPA. In their view, these practices, together with narrow provider networks and unreasonably low offers for in-network contracted rates, leave physicians little practical alternative to IDR. They also cite recent court decisions, including Texas Medical Association et al. v. U.S. Department of Health and Human Services et al. (TMA III), as evidence that the QPA is unreliable and challenge cost estimates that treat it as the benchmark for fair payment. Although they support addressing true outlier awards, they urge Congress to preserve IDR, strengthen enforcement of insurer payment obligations, and improve the accuracy and transparency of QPAs.

Notably, the Paragon Health Institute issued a report recommending that Congress scale back, rather than eliminate, federal arbitration. Its recommendations include removing most elective services from IDR when patients receive meaningful advance notice and provide informed consent, limiting IDR for emergency services, and strengthening oversight of IDREs. The report also calls for stronger prompt-payment requirements, greater transparency and standardized arbitrator training. This framework offers lawmakers a middle path between Rep. Pallone's benchmark approach and proposals that would preserve IDR largely as it currently operates.

Regulatory and Operational Developments

While Congress debates legislation, the Departments continue to adjust IDR operations:

• IDR Operations Final Rule implementation. The Departments' IDR Operations Final Rule,¹ published on June 4, 2026, and effective August 3, 2026, addresses processes separate from the QPA regulations at issue in TMA III and focuses on how disputes are filed and processed. (For a detailed analysis about the Final Rule, see Holland & Knight's previous alert, "Federal IDR Process Overhaul Finalized: What Stakeholders Need to Know," June 8, 2026.) Among other changes, the rule lowers the administrative fee from $115 to $15 per party per dispute and raises the batching limit from 25 line items to 50, effective November 1, 2026. It also requires standardized claim-adjustment and remittance codes to help providers identify claims that are eligible for IDR. The Departments estimate that these changes could reduce ineligible disputes by 50 percent to 75 percent. The Centers for Medicare & Medicaid Services (CMS) continues to implement the rule and has released an implementation timeline. Many process changes will be introduced through the federal IDR Gateway, a centralized platform for initiating, managing and tracking disputes. The Gateway will include new workflows for intake, eligibility review and case management. Organizations that participate in IDR are encouraged to register now, while additional guidance remains pending.
• Additional Capacity. The Departments certified Physio Solutions LLC (d/b/a Medlitix) as an IDRE, increasing the number of certified entities from 16 to 17.
• IDRE Audits. CMS has confirmed a new audit program for certified IDREs. The audits will assess compliance with statutory and regulatory requirements and review IDRE processes, operational policies and decision-making practices. CMS also recently met with IDREs to discuss potential regulatory and operational solutions to current IDR challenges.

Though the Departments have authority to revise the QPA methodology, improve IDR operations and strengthen oversight and enforcement, their ability to fundamentally restructure the arbitration system is limited by the statutory framework established under the NSA. Eliminating arbitration, establishing a mandatory payment benchmark or substantially narrowing the categories of services eligible for IDR would generally require congressional action. Accordingly, expect the Departments to focus on administrative improvements while Congress considers more consequential structural reforms, likely in 2027.

TMA III and the QPA

On August 11, 2026, the en banc U.S. Court of Appeals for the Fifth Circuit's TMA III decision invalidated two key provisions of the original QPA regulations issued in the July 2021 interim final rule. First, the court held that plans may not include non-negotiated "ghost rates" – default fee-schedule rates for services a provider does not actually furnish, sometimes as low as zero dollars – because the statute limits the QPA to rates for services "provided by a provider" and "furnished" in the geographic region. Second, the court held that plans may not categorically exclude bonus, incentive, risk-sharing and other retrospective payments because the statute defines each contracted rate as the "total maximum payment" for a service. The court concluded that these rules "artificially deflate[d]" QPAs and had "upended the NSA's dispute-resolution process." Because excluding ghost rates and including incentive payments would both tend to raise the median rate, the revised methodology could produce higher QPAs. That change could affect initial payments, patient cost sharing and IDR payment determinations because the QPA is a factor IDREs must consider under the law.

The ruling addresses only the original QPA methodology and does not affect the separate 2026 IDR Operations Final Rule, which continues to phase in. The Departments are reviewing the decision and are expected to issue updated guidance. Stakeholders generally anticipate that the Departments will extend the current period of enforcement discretion for QPA calculations while developing revised regulations consistent with the court's interpretation of the statute. U.S. Supreme Court review also remains possible.

Rep. Pallone's bill can be viewed in part as a response to this litigation. It would establish a new QPA formula designed to address the total maximum payment and "ghost-rate" issues raised in the case, direct the Departments to issue updated rules within 180 days and bar judicial review of the QPA methodology.

Outlook

Early reactions to the bill have split along familiar lines. Consumer advocates, employer and payer-aligned groups, and health cost policy organizations have largely welcomed it, saying that a defined benchmark would curb inflated arbitration awards, provide more predictable payments and ease premium pressure. Physician organizations have strongly opposed it, arguing that it would remove an independent check on low insurer payments and give insurers greater control over out-of-network rates. They also call the bill premature while the IDR Operations Final Rule and the response to TMA III are still being implemented, and they favor targeted fixes instead, such as enforcing payment of awards. Some independent analysts have also questioned relying on insurer-calculated median rates, noting that the methodology lacks transparency.

The bill's near-term prospects appear to be limited. Rep. Pallone is the ranking member of the minority party on the committee, and stakeholders that rely on IDR would likely oppose eliminating the process.

Nevertheless, Pallone's proposal signals growing congressional interest in reconsidering the fundamental structure of the NSA's arbitration system. In the near term, bipartisan agreement seems most achievable on screening ineligible claims, enforcing timely payment of arbitration awards and strengthening oversight of IDREs. More consequential changes, including replacing arbitration with a benchmark payment rate or limiting the services eligible for IDR, are likely to face significant resistance and more likely to be considered in 2027.

The Fifth Circuit's recent ruling also complicates the debate. Even as policymakers consider greater reliance on the QPA as a payment benchmark, the methodology underlying that calculation remains unsettled. Although the Departments are expected to revise the methodology, a corrected QPA alone will not resolve concerns about dispute volume, payment enforcement or arbitration outcomes, and it may be difficult to adopt the QPA as a mandatory payment benchmark until questions about its calculation are resolved.

A narrower IDR measure could potentially move as part of a year-end health package pushed through by Congress: Government funding expires December 11, 2026, and several health programs expire December 31, creating a possible legislative vehicle.

Key Takeaways for Stakeholders

• Providers, facilities and air ambulance providers should prepare for continued scrutiny of IDR volume and outcomes, particularly among high-volume filers and private equity-backed groups. They should also compare the bill's 2019-based median rate, including incentive payments, with the awards they currently receive through IDR. Finally, as initiating parties in the IDRE process, they must closely monitor operational and technical changes now being announced and made for potential downstream impacts, such as the ability to batch or bundle disputes in the federal IDR Gateway or prepare materials for submission. The guidance from the Departments for such changes has been limited, even though many refinements are set to go live on November 1.
• Health plans, issuers, employers and third-party administrators should monitor post-TMA III guidance and any enforcement discretion governing QPA calculations. They should also evaluate how proposed prompt payment requirements and expanded plans and issuer audits could affect claims operations. They must also register for the federal IDR Gateway and identify plan registration numbers as well as third-party administrator relationships.
• IDREs should prepare for increased congressional and CMS oversight, including audits and closer scrutiny of ownership structures, the use of AI and potential financial relationships with parties appearing before them.

Holland & Knight continues to monitor NSA legislative, regulatory and litigation developments. For more information, please contact the authors or your Holland & Knight relationship attorney.

Notes

¹ 91 Fed. Reg. 33900 (June 4, 2026).

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