Surprise Billing Arbitration: How to Keep Health Care Costs Down

The No Surprises Act establishes arbitration to settle payment disputes. Regulators must design the dispute resolution system well so it won't add costs to the system.

Health care

Law gavel

Blog Author: Alexander Sherman, Health Care Campaigns Associate

The No Surprises Act, which protects Americans from most surprise medical bills from out-of-network health providers, is a milestone victory for consumers after years of advocacy. However, with a few months to go until its implementation, the new law’s opponents are trying to weaken the new patient protections. 

One in five consumers who seek emergency care or surgery receive an out-of-network bill from a provider they didn’t choose or couldn’t avoid. Beginning in January 2022, because of the No Surprises Act, patients will neither be responsible for most surprise bills nor will they have to deal with any billing disputes. The insurance company and any out-of-network medical provider must negotiate how much the insurer owes. If after 30 days they can’t agree, either party can initiate arbitration. 

We’ve learned important lessons from states which already use arbitration to settle out-of-network payments. If designed poorly, an arbitration system can increase costs for everyone in two ways. First, if arbitration decisions award payments above the average in-network charges for a procedure, insurers will pay more and they’ll pass on those costs to patients in higher premiums. Second, if arbitration decisions aren’t predictable and providers believe they might win a big payment, providers will take more cases to arbitration. 

Arbitration isn’t cheap. For example, in Texas where arbiters set their own rates, the median fee is $1,000. Each new case going to arbitration introduces an additional cost to both providers and insurers, which — you guessed it — they also will likely pass off to consumers as higher insurance premiums. 

That’s why federal regulators need to carefully design the rules for arbitration under the No Surprises Act. One important guardrail established in the new law is requiring baseball-style arbitration, in which both parties submit their “best” price and the arbiter must choose one of the two offers — no middle ground. This requirement incentivizes both parties to submit reasonable prices to the arbiter. If the providers are too greedy or the health plans are too cheap, they will likely lose to the party with the fairer request. 

Another guardrail requires arbiters to start from the qualifying payment amount (QPA), defined as the median in-network rate for the same service in that geographic area. The QPA is the clearest benchmark for determining a reasonable price, because it reflects the price that other insurers and providers in that locale have negotiated in the past. 

The trickiest part of law, which could undermine the goal of cost savings, is that it allows an arbiter to consider other factors. If regulators don’t carefully define the rules around these factors, they could raise health care costs. For example, the law allows the arbiter to review the severity of the patient’s illness, even though there is no reason to bump up the price of a particular service or procedure simply because the patient is sicker.  

Americans have waited a long time for protection from surprise medical bills. The No Surprises Act should fix that, so long as we don’t allow insurance companies or medical providers to abuse the system. To that end, regulators need to minimize ways for arbitration to result in inflated prices which can be passed back onto patients. The best way to ensure that arbitration doesn’t unnecessarily raise costs is for regulators to instruct arbiters to prioritize the QPA, and use other factors only in extenuating circumstances. 

Photo Credit: Tingey Injury Law Firm on Unsplash


Patricia Kelmar

Senior Director, Health Care Campaigns, PIRG

Patricia directs the health care campaign work for U.S. PIRG and provides support to our state offices for state-based health initiatives. Her prior roles include senior policy advisor at NJ Health Care Quality Institute, associate state director at AARP New Jersey and consumer advocate at NJPIRG. She was appointed to the Ground Ambulance and Patient Billing Advisory Committee in 2022 and works with patient advocates across the U.S. Patricia enjoys walking along the Potomac River and sharing her love of books with friends and family around the world.