Official Washington, and more surprisingly Donald Trump’s administration, is doing something that you almost never see: admitting policy failure. In late 2020, Trump signed the No Surprises Act, which was intended to prevent the intolerable situation of patients getting unexpected and enormous bills for medical treatment undertaken by “out-of-network” providers. Routine practices where patients didn’t have a choice like anesthesia or radiology services could suddenly trigger bills equal to an American’s median income, if not higher.
The No Surprises Act set up a process whereby insurance companies and providers would negotiate over these out-of-network charges, and patients wouldn’t take the hit. It’s succeeded in that respect: People aren’t getting surprise bills. But it’s failed on virtually every other score, merely shifting an overly bureaucratic, wildly extractive, and unendingly wasteful nightmare to another venue. Patients are paying for this, just in overall premiums instead of unlucky one-off bills. Practically everyone else involved in the process is churning out profits, including an entirely new group of middlemen capitalizing on the dispute resolution process.
The situation has been mirrored in U.S. health care so often that yet another layer of extractive bureaucratic waste is, well, no surprise. A confounding administrative system is deemed broken, and a new administrative system replicates the problem in a slightly different way. The solution is well known enough that every industrialized country has adopted it in some form—universal public insurance—but it’s zealously opposed by the very industries benefiting from a fragmented status quo.
WHILE POLICYMAKERS WERE ADAMANT that sticking patients with huge bills was politically untenable, powerful industries fought viciously over the solution. On one side was a concentrated collection of insurance companies seeking lower payouts; on the other were private equity–owned staffing companies that own doctor’s practices and wanted to maximize profits.
Eileen Appelbaum, a private equity expert with the Center for Economic Policy and Research, wrote for the Prospect when the No Surprises Act was being debated that while the arbitration process to resolve claims proposed in the bill, known as the independent dispute resolution (IDR) process, was supposed to consider the in-network rate for various services, that was not mandated as a benchmark. This, Appelbaum said, would lead to more subjective judgments and “higher costs and premiums.”
Empirically speaking, that’s what happened. The government estimated that fewer than 20,000 disputes would be heard each year. But last year, there were 2.2 million, with payouts more than tripling relative to 2024, according to data from the Centers for Medicare & Medicaid Services reported by The Wall Street Journal. Providers are winning around 85 percent of the IDR cases, and some seemingly outrageous payouts, like $440,000 for a breast reduction and nearly $200,000 for a physician assistant on a scoliosis operation, have been recorded. The data caused a CMS spokesperson to claim that the system is being “gamed.”
Last year, there were 2.2 million disputes, with payouts more than tripling relative to 2024.
Some of that gaming may have come from CMS itself. Inside the data were 25 awards of over $10 million for individual procedures that cost in-network between $100 and $2,000; nine of those awards were over $200 million. This handful of awards accounts for $2.7 billion of the $15 billion in CMS-documented awards, which seems totally implausible. CMS did not respond to a request for comment about potential errors in the data.
UPDATE: CMS responded after press time that the disputing parties and IDR entities entered that data, and that any errors that are visible have been corrected by those parties and will be reflected in the next release.
But even putting the outliers aside, there’s been a substantial jump in disputes filed and awards given. The government should have known that arbitration would be widely used; their estimate was based on a state-based No Surprises Act in New York, which actually used a real benchmark and was thus shunned by providers. The year before the federal arbitration system went into effect, the state-based, no-benchmark arbitration law in Texas yielded 49,000 requests; extrapolating that out nationally, you get something much closer to what we’re seeing today.
The runaway awards directly contradict the other benefit that the No Surprises Act was supposed to provide: lowering overall health care costs. Everybody involved in the system intends to do the exact opposite, in fact.
FIRST, YOU HAVE THE PROVIDER GROUPS. Private equity–owned staffing firms that spent heavily to influence the makeup of the IDR process are filing a large majority of the cases. Emergency department disputes make up over half of the volume, and radiology and anesthesia make up another 30 percent. Private equity–backed TeamHealth, SCP Health, and Radiology Partners are responsible for the lion’s share of these cases.
Those specialties are getting awards of between 250 and 400 percent of the qualifying payment amount (QPA), which is supposed to approximate the in-network rate, according to data from the Niskanen Center. But other claims are getting substantially higher payouts. Neurology is winning 2,500 percent of QPA, and surgery, in particular plastic surgery, is winning around 1,500 percent.
“Because these are more elective than the emergency department or anesthesia, it begs the question of whether providers are going out of network on purpose,” said Lawson Mansell, senior health policy analyst at Niskanen. That’s something the No Surprises Act in theory was intended to prevent: If arbitration was going to limit payouts, then there shouldn’t be incentives to go out of network. But these providers may have more leverage than before the law, if they can stick insurers with the bill and win large awards. Why is that the case?
One answer can be found in the new industries of sorts that have been built out of the IDR process. First you have the arbitrators, who made $1.3 billion last year. This isn’t that unreasonable considering the 2.2 million cases. But it does mean that, given the flat fees, only more cases leads to more money, and one way to invite those cases is to accept higher awards. This is evident in the results. Niskanen’s data shows that the median offer providers make has increased to 500 percent of QPA, and the median award that arbitrators offer has gone up in concert.
Providers use as documentation in IDR cases the highest price they ever got for a particular service from an insurance company or an out-of-network bill. Any high payment can serve as a precedent to make that the new standard. By contrast, providers have alleged that the QPA is flawed, which appears to have swayed arbitrators to a degree, if a recent paper from their trade group saying that they view QPA “more cautiously” is any indication. Mansell noted that arbitrators are supposed to be banned from considering “usual and customary charges,” which can include past out-of-network payments. Yet there’s evidence that this consideration is becoming more commonplace.
Incidentally, at least five of the certified IDR arbitrators are backed by private equity firms in their own right.
Providers and their private equity owners are being helped along by new middlemen that consult on No Surprises Act IDRs, and take a piece of the awards. Stat News reported on HaloMD, started by a Texas couple, which boasts that it earns over $1 billion per year from commissions on IDRs and filed nearly 20 percent of all IDR cases last year, according to Niskanen data. HaloMD is winning between eight and nine times the QPA on average in their cases. Other consultants include Callagy Recovery Corporation, which says it recovers $1.6 billion per year for clients, with a thirteen-fold increase over the insurance company offer.
Consultants have grown skilled over time in using any pretext to demand higher charges. And since arbitrators don’t have to benchmark directly to the QPA in a binding fashion, the drift of higher awards continues, which draws more claims into the process.
“There are three kinds of private companies making money,” Mansell explained, referring to the arbitrators, the HaloMD-style consultants, and the private equity–backed staffing groups. “They’re all motivated by a combination of high awards and high volume. They’re all fighting to maintain the status quo.”
INSURERS ARE SUPPOSED TO BE A BULWARK against this drift, but some very strange things are happening on that side of the equation. While 85 percent of IDR arbitrations are won by providers, a closer look finds about one million cases where insurers lost by default in the disputes, and another 380,000 cases where the insurer’s offer was $1 or less. Insurance companies, in other words, are not operating in good faith, and seem to be failing to even compete in many of these arbitrations. Why?
Wendell Potter, a former insurance company executive and now a frequent critic, argues that insurers are fighting in the courts rather than through arbitration, through a coordinated series of lawsuits that allege fraud in IDR dispute filings, simply because more have been filed than the government estimated. If they can win those lawsuits, insurers can knock out disputes en masse rather than fighting case by case.
Litigation can take years, and the cases haven’t hindered skyrocketing IDR claims. (Early returns show that courts are rejecting the insurance industry’s arguments, for the simple reason that the No Surprises Act bars judicial action on these types of billing disputes.) Insurers focusing efforts outside IDR and trying to destroy the entire process has meant that, in the short term, awards and volume soar higher. In fact, expanding awards and higher costs serve to buttress the insurance industry’s point that the IDR system is out of control.
The surprise billing process has mutated into an arbitration process that gouges every patient, albeit more modestly.
Of course, talking about this in terms of “insurers” and “providers” misses the emerging trend of those two separate business lines coming under the same parent company. Insurance giant UnitedHealth is the largest employer of doctors in the country. “The insurance companies either own or have affiliate relationships with 90,000 doctor practices,” said Appelbaum in an interview. “They pay the doctors that they own or are affiliated with way above what doctors would get paid for services they provide.” This helps insurers get around an Affordable Care Act regulation called the “medical loss ratio,” which requires insurance companies to pay out a large portion of premiums in claims. But if their own doctors are getting disproportionate amounts on those claims, “it’s money moving from one pocket to the other pocket,” Appelbaum said.
Providers also claim that insurers are delaying or not paying IDR awards to providers. A trade association for emergency medicine groups said in a report that nearly 60 percent of awards were not paid within the 30-day time frame required by the No Surprises Act. Delay is a powerful tool for an insurance industry that routinely invests premiums and can earn money every day they don’t have to pay it out. And while large private equity firms have no problem waiting for their money, the smaller physician groups are likely to suffer, and they may see no choice but to sell their practices into the waiting arms of private equity.
If you manage to find a good guy in all of this, let me know.
WHAT YOU HAVE, IN THE FINAL ANALYSIS, is a surprise billing process that was terrible for unsuspecting patients that has mutated into an arbitration process that gouges every patient, albeit more modestly, since higher costs in the system translate into higher premiums, as observers have conceded.
The recent data dumps and the Trump administration admitting changes need to be made has offered an opportunity, but so far the only real thing the administration has done is reduce the filing fees for providers because it had enough money to run the program. (It now costs $15 to file an IDR case, plus the arbitrator fee, which only the loser pays.) Mansell reports that conversations on Capitol Hill are growing much louder. The obvious reform is to add a real price benchmark, whether an in-network rate or some multiple of it, that’s capped. Only Congress can make that happen; the Biden administration tried to give more teeth to the benchmark and got sued by private equity-backed doctor groups. So lawmakers would have to step up. “It’s basically a mystery why anybody lets this way of dealing with things go on,” Appelbaum said.
But the history of health care reform shows, as with surprise billing, that patchwork solutions typically lead to more innovative middlemen opportunities and ever more complex Band-Aids. “It’s the health care story,” said Mansell. “We saw a problem and tried to create a solution and instead created a tapestry of connected programs and incentives that are difficult to untangle.”
Last month, a study from Yale University found that a Medicare for All system would save 114,000 lives and over $1 trillion in national health expenditures per year. The sorry aftermath of the No Surprises Act shows how: Leaving private-sector participants to tangle over billing just generates waste and excess profits. Well over half of the savings from the Yale study come from billing issues.
Health care is a problem where we already have the solution. Those benefiting from the status quo are too busy fighting for their piece of the pie to acknowledge it.
