We settled this in 2009
In 2009 a captured pricing benchmark cost UnitedHealth a $350 million settlement and the database that produced it. Then Congress wrote a version of the same arrangement into federal law.
In 2009 I was a couple of years out of residency, just beginning to learn the administrative side of an operating room, and my call nights had a rhythm to them. Somewhere after midnight the room would come to life for a perforated bowel: a patient who had come through the emergency department hours earlier, or arrived by transfer from a smaller hospital that had neither the surgeon nor the team to open an abdomen at that hour. The patient had planned none of it. They were sick and frightened and getting sicker, and between the decision to operate and the incision there was no time, and no process, for anyone to ask whether their insurance contracted with our facility. We operated. The coverage question waited for daylight.
What I could not have told you then, standing at the head of that bed, is how the price of a night like that got decided. Neither the patient nor anyone else in the room had a hand in the number. And in that same season, though I was too deep in learning my own job to read it as a warning, the machinery that set such numbers was coming apart in public view in New York.
Seventeen years later, somewhere in the files of the federal arbitration system that now decides what out-of-network care is worth, there is a dispute in which an insurer reported, under a methodology federal rules currently permit, that the benchmark price for a high-acuity emergency visit was one cent. Behind a filing like that is a patient like mine: someone having one of the harder nights of their life, cared for by a team they never chose. And the filing has company: by a December analysis of the government’s own dispute files, more than sixty thousand disputes carried a reported benchmark under twenty dollars, and in over twenty thousand of those the number was zero. Whatever else those figures are, they are not the median price of anything.
A number like that reads as a clerical error until you learn its family history. I have needed the better part of two decades to appreciate how faithfully it repeats.
In February 2008, the attorney general of New York opened an investigation into how commercial insurers decided what out-of-network care was worth. At the center of it sat a database operated by Ingenix, a subsidiary of UnitedHealth Group, one of the country’s largest insurers. Most of the industry used that database to establish the “usual and customary” rate, the benchmark that determined how much of an out-of-network bill the insurer covered and how much landed on the patient. The investigation found what the ownership structure predicted: the rates ran low, through faulty data collection, poor pooling, and an absence of audits, and every dollar the benchmark understated was a dollar the insurer did not have to pay. The attorney general’s office was direct about the heart of it: a database presented to the public as independent was not independent at all.
The reckoning came in one January week in 2009. UnitedHealth first agreed with the attorney general to shut the Ingenix database down and put up $50 million toward an independent successor, FAIR Health, governed outside the industry it prices. Days later, it agreed to pay $350 million to settle the class action the database had spawned. The episode produced a lesson so obvious it keeps needing to be restated: whoever controls the benchmark controls the margin. A benchmark is not a neutral fact of nature. It is built by someone, from inputs someone chose, and when the builder profits from a lower number, the number finds its way lower.
Eleven years later, Congress had the chance to apply that lesson, and in one respect it did. The No Surprises Act, passed at the end of 2020, rightly protected patients from balance bills they never chose, and it needed a benchmark to make the rest of its machinery work. Lawmakers rejected the discredited “usual and customary” approach and chose something that sounds far harder to manipulate: the insurer’s own median contracted rate for the same service, in the same specialty, in the same market. That number, the qualifying payment amount, or QPA, now does two jobs. It generally sets what the patient owes in cost-sharing when out-of-network care arrives at an in-network facility, and it anchors the arbitration process, the one I wrote about in June, that decides what the clinician is ultimately paid. The diagnosis was right. The delegation is where it came apart. The statute handed the calculation of that median to the insurers themselves, with an opaque methodology and, as it turned out, very little checking of the math.
The construction rules do the quiet work. The median is anchored to rates in effect in January 2019 and carried forward by an inflation index, so rates negotiated in the seven years since do not reset the base. A plan needs only three contracted rates to form a valid median, which means a thin, carefully chosen panel can stand in for a market. Bonus and incentive dollars are stripped out before the median is taken. And the pool may include contracted rates for services the contracted clinician does not actually furnish. This last one, the ghost rate, does the heaviest lifting, and the arithmetic is worth seeing once in concrete form. If an insurer holds contracts with fifty primary care physicians whose panel agreements carry a fifteen-dollar placeholder line for anesthesia services, and contracts with ten anesthesia groups at negotiated rates around two hundred fifty dollars, the median across all sixty contracts lands on the placeholder. The fifteen dollars is a phantom: none of those fifty physicians administers anesthetics, and the line was not actually paid to anyone. It sets the benchmark anyway.
The size of the resulting gap comes from the payers’ own filings. As I wrote in June, a December study matched the QPAs insurers reported to the federal government against the median in-network rates the same insurers published in their own federally required transparency files, for the same service in the same market. The reported benchmark averaged one-third of the insurers’ own contracted rates, and sat below the insurer’s own published median in roughly two-thirds of disputes. The study’s authors are a provider-aligned coalition, and the transparency files are famously messy, so I hold the decimal points loosely. The direction is harder to dismiss, and the mechanism that was supposed to substitute for the subpoena this time has barely been used: since the system went live in 2022, the federal government has completed a single QPA audit.
Between the two eras sits a middle chapter suggesting the lesson stayed commercially alive while the vocabulary changed. Beginning around 2010, many payers routed out-of-network pricing through MultiPlan, a third party whose output carried the appearance of independence. Consolidated antitrust litigation now alleges the platform facilitated coordinated underpayment, nineteen billion dollars in 2020 alone by the plaintiffs’ estimate, with trial evidence they say shows payers could adjust the output. Those are allegations, disputed and unresolved, and I hold them at that weight. The pattern they describe, though, is the Ingenix pattern with better branding.
The courts have been circling the current version for four years. Twice the agencies tried to make the QPA the default answer, first as a presumption and then as a required starting point, and twice the courts struck the rule down, the Fifth Circuit writing that it placed a thumb on the scale in favor of the insurer-determined number. The live question, whether ghost rates and the incentive-payment exclusion are lawful at all, sits today before the full Fifth Circuit, which vacated a panel ruling that had upheld the methodology and has not yet issued its own. While it deliberates, the 2021 calculation rules remain in force under an enforcement grace period that runs through October 1 of this year. The benchmark anchoring a dispute volume that now runs into the millions is, at this moment, a number the courts have not finished deciding anyone was allowed to build that way.
The strongest objections deserve their full weight. Insurers point out that providers win the large majority of arbitrations, at multiples of the QPA, and read that as proof the process is being gamed. I’d argue the arithmetic points the other way: a benchmark that neutral arbitrators overrule most times they examine it is failing at its one job, and the disputes are only the visible edge, because the far larger volume of claims that do not reach arbitration is priced by the same number with no arbitrator watching. It is also true that some of the dispute volume comes from staffing firms, some private-equity backed and some in my own specialty’s neighborhood, that treated out-of-network billing as a strategy, and that conduct is part of what produced this law. The provider side of this fight does not arrive with clean hands.
I should be careful on two further counts. A three-judge federal panel did read the statute to permit the methodology, ghost rates included, before the full court set that opinion aside, so the legal question is genuinely contested rather than settled. And the empirical picture is less uniform than the headline numbers suggest: a Congressional Research Service analysis of emergency services found the median QPA above the median in-network rate in six states and below it in eight, with methods that differ enough from the December study to keep the debate honest. Based upon what we know at the moment, the fairest statement is that the benchmark runs low in most places it has been checked, and that it has barely been checked. The design critique survives even the most charitable reading, because it does not depend on any particular gap in any particular state. The party with a direct financial interest in a lower number holds the pen that writes it. In 2009 we called that arrangement a scandal. In the current version it is a compliance methodology.
I lead an anesthesia company, and anesthesia sits with emergency medicine and radiology among the specialties most exposed to this number, so I am not a neutral party to it, and I have tried to write this in a way that does not need me to be. This is not only a specialist’s fight: the same benchmark helps set what any patient owes on an out-of-network bill, which is why it belonged to the public long before it belonged to a docket. The comparison that matters is not between what providers want and what insurers pay. It is between what the insurer reports the benchmark to be and what the insurer’s own fee schedules say the market is. In 2009 it took an attorney general with subpoena power to put those two numbers side by side. Today they sit in public files, a download apart, for any clinician or executive willing to run the comparison for their own specialty and their own market. Seventeen years ago that comparison shut a database down, and the lesson was supposed to be that a benchmark cannot belong to the party it prices for. Sometime soon, the full Fifth Circuit will tell us whether that lesson holds as law, and whether the next penny in the files is an error or a price. Tonight, in some hospital, an operating room is coming to life for another patient, and the coverage question is again waiting for daylight. We have settled this before. The only question is whether we meant it.