In response to a crescendo of complaints nationwide about surprise medical bills from out-of-network doctors, Congress passed the No Surprises Act (NSA) in 2020 in a rare bipartisan effort. The Act had two primary goals: to protect patients from unexpected medical bills when treated by out-of-network physicians at in-network hospitals, and to establish a new arbitration system allowing doctors and insurance companies to resolve payment disputes outside the court system through a binding Independent Dispute Resolution (IDR) process.

It is generally recognized that the first goal has been successful, and patients are now largely protected from surprise billing. The second feature of the law — the IDR arbitration system — however, is widely viewed as having gone off the rails in unanticipated ways that are dramatically increasing health care costs.

Greatly Inflated Fees

In an article published in April, The New York Times reported that “Doctors have flooded the arbitration system with millions of claims. Most are winning, often collecting fees hundreds of times higher than what they could negotiate with insurers directly or what they could have earned from patients before the law passed.”

This economic anomaly was the focus of a May 26 panel convened by the University of Pennsylvania’s Leonard Davis Institute of Health Economics (LDI) and the Tradeoffs podcast, moderated by Dan Gorenstein, Executive Editor of Tradeoffs. The panelists were Rachel M. Werner, MD, PhD, Executive Director of LDI; Zack Cooper, PhD, Director of Health Policy at the Tobin Center for Economic Policy and the Health Care Affordability Lab at Yale University; Lindsey Murtagh, JD, MPH, Senior Fellow in Health Services, Policy, and Practice at the Brown University School of Public Health and former official at the Centers for Medicare & Medicaid Services (CMS), where she helped develop federal policies related to private insurance, including the No Surprises Act; and Benjamin Chartock, PhD, Assistant Professor of Economics at Bentley University.

UPDATE: The day after this seminar occurred, the Centers for Medicare & Medicaid Services (CMS) announced that the federal government was changing the No Surprises Act rule to address weaknesses and controversial practices within the Independent Dispute Resolution process.

In a day-after interview, Murtagh explained that, “The new rule adopts important process changes that should better position disputing parties, arbitrators, and the agencies to determine which claims belong in the system and which don’t. It finalizes proposals that were published in 2023 when the primary concern with the arbitration system was its backlog—a backlog that was largely attributable to challenges in determining whether disputes were eligible for the federal arbitration system. At that time, the challenges we see today around volume, lopsided win rates, and high award amounts were not yet evident. As a result, the new rule really doesn’t do much to address these issues.”

According to the panelists, the central breakdown in the current rules of the IDR system began when Congress rejected a straightforward benchmark-payment system in favor of “baseball-style arbitration,” in which insurers and providers each submit a payment offer and the arbitrator must choose one. The theory was that both sides would moderate their demands to avoid losing, resulting in payments close to normal market rates.

Instead, the panelists said, the arbitration process has become flooded with disputes and heavily tilted toward providers. Researchers cited during the seminar found that providers are winning more than 80% of arbitration cases and often receiving payments far above ordinary negotiated commercial rates. In her opening remarks, Werner highlighted examples in which providers received payments averaging 2.7 times median in-network rates, including one diagnostic test reimbursed at $330,000 compared with a typical payment of about $2,600 for the same test.

Millions of Arbitration Disputes

Chartock argued that the arbitration system’s incentive structure itself may be contributing to the explosion in cases. Arbitrators are paid per case, with fees ranging from several hundred dollars to nearly $9,000 per dispute. Because millions of disputes are now flowing through the system, Chartock suggested the structure may unintentionally encourage arbitrators to maintain an environment attractive to high-volume filers.

The panelists stopped short of alleging outright corruption, but several suggested that the current incentives are deeply misaligned. Chartock described arbitration awards as far outside normal market behavior, saying median arbitration payments exceed all but 1.5% of negotiated commercial prices found in insurer transparency data.

Cooper added that certain provider organizations appear to be systematically exploiting the process by sending enormous volumes of claims into arbitration rather than settling disputes conventionally. He pointed to private-equity-backed physician staffing firms that historically built business models around remaining out-of-network.

One of the seminar’s most striking themes was the extent to which litigation has reshaped the law. Murtagh, who helped write the original CMS regulations implementing the No Surprises Act, argued that the arbitration process Congress intended has effectively never been allowed to operate as designed because providers immediately challenged the rules in federal court.

Court Case Rulings

Federal agencies originally attempted to anchor arbitration decisions around the “Qualifying Payment Amount” (QPA), essentially the median in-network payment rate within a market. Regulators believed arbitrators should generally select offers closest to that benchmark unless compelling evidence justified a deviation. But federal courts — particularly a Texas court repeatedly cited during the seminar — struck down key portions of those rules.

According to Murtagh, the lawsuits transformed the IDR process into “an extremely provider-friendly environment.” The litigation not only weakened the federal government’s ability to guide arbitrators, but also created uncertainty around the benchmark methodology itself. The result, she suggested, is that regulators now feel constrained from aggressively steering arbitration decisions toward median market rates.

Another major problem identified during the seminar was operational chaos. Murtagh described how the law was implemented under extreme time pressure during the COVID-19 pandemic and a presidential transition, with agencies given only months to create a functioning national regulatory structure. She argued that many of the current difficulties stem not only from policy flaws, but from the reality that insurers and out-of-network providers historically lacked systems for communicating and exchanging the data now required under the law.

The panelists also described what they see as troubling structural conflicts of interest within the arbitration ecosystem itself. Cooper said some parent investment firms simultaneously own physician staffing companies and arbitration entities, creating situations in which the same corporate structure has financial interests on both sides of the process. While he did not accuse arbitrators of misconduct, he said such arrangements undermine confidence in the fairness of the system.

Despite the criticism, none of the panelists argued that the law should be repealed. Instead, they outlined a series of possible reforms.

Reining in Arbiters

The discussion focused heavily on strengthening oversight of arbitrators. Cooper advocated auditing arbitrators, tracking decision patterns, grading performance, and conditioning future contracts on whether rulings align with the law’s goals. Chartock pointed to Washington state’s arbitration system as a possible model because it publishes extensive data and appears to produce far fewer disputes and more restrained payment awards.

Others proposed restoring stronger federal authority. Murtagh argued that Congress may need to explicitly reaffirm agencies’ power to guide arbitrators and re-anchor decisions around benchmark payment rates. She suggested Congress could either restore the original QPA-centered approach or adopt a more direct benchmark-payment system similar to the one lawmakers initially considered before provider opposition forced compromise.

The discussion also highlighted a broader lesson about modern policymaking. Cooper argued that Congress often treats legislation as a one-time accomplishment rather than an ongoing process requiring continual maintenance and adjustment. He warned that the hyperpartisan political environment discourages lawmakers from revisiting legislation even when evidence reveals operational failures or unintended consequences.

Direct Price Regulation?

At a deeper level, the seminar reflected a growing tension in U.S. health policy between market-oriented solutions and direct price regulation. Cooper, an economist generally skeptical of price controls, acknowledged that the No Surprises Act experience may push policymakers toward more aggressive government regulation if arbitration-based market mechanisms continue producing inflated payments.

The panel ultimately portrayed the No Surprises Act not as a failed law, but as an incomplete and distorted one — a bipartisan reform whose consumer protections succeeded, but whose payment-dispute machinery became overwhelmed by litigation, weak oversight, financial incentives, and administrative complexity that Congress never fully anticipated.

Hoag Levins is the editor of digital publications at Penn LDI. You can see the original post on their website.