In December 2020, Congress passed the No Surprises Act (NSA) to shield patients from unexpected medical bills. Since taking effect in 2022, the law has been largely successful in protecting patients from high charges stemming from inadvertent out-of-network care. To resolve these out-of-network payment disputes, Congress established an independent dispute resolution (IDR) program in which arbitrators choose between competing payment offers. However, early data from 2023 showed that case volumes were higher than expected—and that arbitrators are selecting the higher payment offer in most cases—raising concerns that the process may be driving up overall healthcare costs rather than saving federal dollars as expected.
Last month, the Center for Medicare and Medicaid Services (CMS) released arbitration data from the final two quarters of 2024 under the No Surprises Act (NSA). These new findings confirm the troubling trajectory: Providers initiated 1.5 million billing disputes–more than 70 times the predicted annual caseload. Of those, 85 percent were decided in favor of the provider (the higher offer), driving up the median winning offer to over 4 times the median in-network rate of each insurer. Total program costs have now reached $1 billion and are rising faster than the disputes themselves. These escalating payouts risk worsening hospital market consolidation, enabling large and private equity–backed provider groups to boost revenue by pursuing arbitration.
Absent corrective action from policymakers, patients will ultimately bear the cost, through higher premiums and the administrative overhead of an increasingly exploited arbitration process.
Costs continue to climb more each quarter
Last month, CMS released arbitration data for the final six months of 2024, revealing a sharp surge in both dispute volume and the proportion of decisions favoring providers. In the first quarter of 2023, approximately 65,000 line-item payment determinations were resolved through the IDR process. By the fourth quarter of 2024, that number had ballooned to nearly 950,000. During the same period, the share of cases decided in favor of providers rose significantly—from roughly 68 percent to more than 86 percent (see Figure 1).
Figure 1. Providers are winning an increasingly higher proportion of disputes
To determine how out-of-network bills are resolved, the independent dispute resolution (IDR) process requires providers and health plans to each submit a single offer, with arbitrators selecting one or the other. To guide those decisions, Congress established a baseline qualifying payment amount (QPA) which is the median in-network rate that the insurance company in a given dispute pays for that service. But because arbitrators have consistently ruled more in favor of providers, the median winning offer is increasing each quarter and is now over 4 times the QPAs established by Congress (Figure 2). This escalation is largely driven by providers submitting increasingly high offers relative to the QPA—and prevailing. In contrast, insurer offers have remained closely aligned with QPA benchmarks.
Figure 2. High provider offers are driving up IDR awards far above median in-network rates
Why does this matter? The No Surprises Act was designed with two goals: (1) to shield patients from unexpected out-of-network bills, and 2) to establish a payment that is “fair to both providers and plans that also does not increase aggregate healthcare system costs.” While the law has largely succeeded in protecting patients from surprise billing, the arbitration process is failing on the second front. IDR routinely results in payment rates that exceed both historic in-network rates and even previous out-of-network charges. These inflated payments are likely to be passed on to employers and consumers through higher insurance premiums.
Administrative waste is getting worse
By the end of 2024, total costs imposed by the IDR process now surpass $1 billion (Figure 3). Most of those costs are driven by payments to arbitrating entities, with federal expenditures and administrative fees making up the rest. Compared to the first quarter of 2023, the wait time to resolve disputes has doubled from 61 days to 122 days alongside 3.5 times as many claims.
Figure 3. As disputes increase above expected levels, so do program and administrative costs
As the IDR program is used more frequently, its associated costs are rising even faster than the volume of disputes. Using the first quarter of 2023 as a baseline, we found that total program costs surged by over 1,120 percent, compared to an 888 percent increase in closed disputes over the same period. The widening gap highlights the administrative waste embedded in the arbitration process. The primary driver of rising costs is higher compensation paid to arbitrators. Ultimately, this dynamic disproportionately benefits arbitrators and providers—while shifting the financial burden onto patients and employers through higher insurance premiums and taxpayer-funded administrative expenses.
Beyond its immediate impact on costs and administration, the arbitration process also poses long-term risks to the healthcare market by further enabling profit-seeking behavior among providers.
Arbitration incentives are undermining market competition
In the final six months of 2024, healthcare providers and facilities initiated over 99 percent of federal IDR disputes. Most of these disputes were brought by large practice management companies, with just the top 10 parties initiating 71 percent of all disputes and the top 3 initiating 43 percent of disputes. Private equity (PE)-backed provider groups now dominate the IDR process, comprising many of the top initiators of arbitration claims. Despite their initial opposition to the No Surprises Act, they have increasingly embraced the arbitration system as provider win rates and median award amounts continue to climb. Because arbitrators consistently side with providers offering rates several times higher than insurers’ median in-network payments, the current IDR framework creates strong incentives to flood the system with disputes. PE-backed provider groups, in particular, are well-positioned to exploit this dynamic: they are highly motivated to generate quick revenue to meet debt obligations and have the financial capacity to absorb arbitration fees. As a result, dispute volumes have vastly exceeded predictions.
In a cyclical pattern, as large firms profit from the IDR process, major provider groups are likely to continue consolidating the healthcare market. Two-thirds of hospitals are now a part of a larger health system. While consolidation is often justified as a way to improve care coordination and reduce operating costs, it also strengthens hospitals’ market power. As providers consolidate, they gain leverage in negotiations over insurers, allowing them to receive higher rates for services. This same dynamic is now playing out in arbitration: large providers are prevailing in the vast majority of IDR cases, driving up final payment amounts. Higher negotiated prices for insurers translates to higher premiums for patients and increased costs for employers.
Rather than correcting market imbalances, the current IDR process under the No Surprises Act is reinforcing them. Private equity-backed providers are using the system to extract higher-than-median payments from health plans, and as a result, may further accelerate hospital consolidation.
Solution: Benchmark the rates
Emerging evidence continues to show that the arbitration process is driving up costs and administrative waste—burdens that will ultimately be passed on to patients through higher premiums. To address these challenges, policymakers should revisit one of the original proposals debated during the 2019 No Surprises Act negotiations: eliminating arbitration in favor of rate benchmarking. This would help bring costs down towards median in-network rates and remove any need for administrative spending or federal bureaucracy.
In 2019, both the Senate HELP and House Energy & Commerce committees initially proposed that insurers pay the out-of-network provider their median in-network rate for that service (the QPA). Returning to a benchmark-based approach would restore the original intent of the No Surprises Act: establishing a fair, market-based payment standard for out-of-network care that reduces costs for patients. Policymakers could also establish an alternative benchmarking model that ties payments to a percentage of the Medicare rate for a given service, aligned closely with the QPA. Because Medicare rates are standardized and updated annually, linking the benchmark to Medicare would allow for administrative simplicity and better year-to-year predictability in payment.
While benchmarking is the best path forward, there are other statutory reforms that would improve the existing structure. We have previously recommended two potential changes in lieu of the more cost-effective and simple rate benchmark. First, Congress can amend the No Surprises Act to make the QPA the primary factor in arbitrators’ decisions—bringing final payments closer to the median in-network rate. A 2021 HHS rule to do this was struck down by a district judge who said it conflicted with the No Surprises Act. A statutory change would eliminate that legal vulnerability.
Second, Congress can prohibit arbitrators from considering any previous in-network or out-of-network rates insurers previously paid for that service in their decision. According to a recent CMS report, “providers often benchmarked their offers to past [out-of-network] OON payment amounts with the disputing plan… and past in-network rates with the disputing plan or with a different plan or issuer in the same state.” This practice likely contributes to arbitrators favoring higher provider offers. Removing past payment and rate history from consideration would push arbitrators to make decisions closer to current fair market rates.
What’s next
As lawmakers continue to search for ways to reduce waste in healthcare spending, they should look no further than the arbitration process under the No Surprises Act. Despite its original intent to curb excessive costs, the current system is driving up spending for patients, insurers, and the federal government—through both inflated final payment awards and ballooning administrative expenses. Costs continue to rise each quarter, with no signs of stabilization. Congress should act now to correct course by implementing benchmarked payment rates and eliminating unnecessary waste.