The No Surprises Act: Protecting Patients but Driving Up Costs

The No Surprises Act: Protecting Patients but Driving Up Costs

Congress enacted the No Surprises Act (NSA) in December 2020 to safeguard patients from unexpected medical bills. Since the law’s implementation, patients have largely been shielded from surprise charges. However, the process designed to settle payment disputes—known as the NSA IDR process (Independent Dispute Resolution)—has unintentionally led to rising healthcare costs, largely due to a significant number of arbitration decisions favoring providers.

Aims and Early Impact of the NSA

The primary goal of the federal NSA IDR process is to eliminate patient liability for surprise medical bills, especially in emergencies when patients have no control over provider choice. Today, patients pay only in-network cost-sharing amounts, even when treated by out-of-network providers. This patient protection mechanism has proven effective. Stakeholder surveys and early evidence suggest that the law is delivering on this core promise.

However, the law also sought to control overall costs and set a fair payment process for out-of-network services. To do this, it removed patients from the middle of payment disputes and created a federal IDR process, modeled on a final-offer arbitration system. If negotiations between insurers and providers fail, an arbitrator chooses one of the two submitted offers.

The Qualified Payment Amount (QPA)—the median in-network rate for a service—was intended to serve as a benchmark. While Congress expected this to guide arbitrators, it did not make QPA usage mandatory. The Biden administration later tried to establish QPA as a primary consideration through federal guidance, but that rule was overturned by a Texas court. As a result, arbitrators can now weigh other factors equally, diluting QPA’s influence. A revised rule aiming for more consistency is currently under review in the 5th Circuit Court as of February 2024.

Who Benefits from the IDR System?

The federal NSA IDR process has become a financial boon for providers. In the first half of 2023, providers prevailed in 77% of arbitration cases, according to CMS data. In the second quarter alone, winning providers received payments equating to 322% of the QPA—more than three times the in-network rate. Conversely, insurers typically receive only the QPA when they win.

The IDR collections data also reveals that providers are routinely submitting significantly higher-than-average offers and winning. For instance, the median winning offer for surgical procedures in Q2 2023 was 567% of the QPA. A large portion of the arbitration cases—about two-thirds—are being initiated by private equity-backed provider groups, which have both the financial resources and incentives to pursue arbitration in high volumes.

These groups often cite financial stress under the NSA, but the IDR collections data indicates that many are using the arbitration system to command inflated payments from insurers. This dynamic puts insurers in a bind, especially since many arbitrated services, like emergency care, involve providers patients didn’t choose and insurers can’t easily remove from their networks.

Premium Impacts and Budget Projections

Employers and patients are now bearing the costs of this system. As insurers lose arbitration cases and pay elevated out-of-network rates, they are forced to either raise premiums or absorb higher losses. This reality conflicts with early projections from the Congressional Budget Office (CBO), which assumed that the QPA would be central to decisions. Under that assumption, the CBO projected a 1% drop in premiums and $17 billion in federal savings over a decade. However, in scenarios where arbitrators favor providers—as the data now shows—the NSA could increase the federal deficit by as much as $50 billion over the same time period.

Importantly, the experience in New York—a state that implemented its own state NSA IDR process in 2014—offered a preview of these challenges. There, arbitrators ruled in favor of providers in 87% of disputes, awarding payments significantly above market norms. One reason for these elevated awards was guidance that based payments on the 80th percentile of billed charges—a flawed benchmark that, like under the federal system, led to unsustainable cost growth.

Administrative Costs and Backlogs

The volume of disputes submitted to the NSA IDR process has surpassed all expectations. By mid-2023, the Departments of Health and Human Services, Labor, and the Treasury reported a case volume 13 times higher than forecasted, resulting in a backlog of roughly 300,000 cases. The financial toll is steep. In the first half of 2023, CMS collected $16.2 million in IDR collections from administrative fees but spent $58.9 million managing the process.

To address this, the Biden administration proposed changes in October 2023 to streamline the federal IDR process and slightly reduce fees. Furthermore, President Biden’s 2025 budget allocates an additional $500 million over five years to help manage the NSA’s implementation. However, a more efficient process that continues to favor providers could lead to even more cases being filed.

Until a predictable equilibrium is reached between insurers and providers—where arbitration becomes less necessary—the number of disputes and associated costs will likely continue to grow. Brookings Institution experts suggest that only when parties understand how decisions will be made (e.g., by consistently applying the QPA) will they have an incentive to avoid arbitration. If arbitration continues to favor providers, the going rate for out-of-network care will climb even further above the QPA, effectively resetting the market standard.

A Trusted Partner in the NSA IDR Process

No Surprise Bill, a leading advisory and support partner for navigating the NSA IDR Process, helps medical practices and provider groups manage both the State NSA IDR Process and the Federal NSA IDR process with greater efficiency. Their team of experts helps reduce administrative burdens, streamline dispute resolution, and retain more revenue. With extensive experience across regulatory frameworks, they offer a reliable solution for practices aiming to maximize fairness while remaining compliant with evolving legislation.

Policy Recommendations and Path Forward

The Biden administration has proposed expanding NSA protections to include ground ambulance services, currently exempt from the law. This potential expansion offers lawmakers a chance to address long-standing issues in the NSA IDR process.

Several targeted reforms could improve outcomes:

  • Reinforce QPA as the decisive factor: Congress should revise the NSA statute to require arbitrators to prioritize the QPA when determining payments. This would eliminate legal ambiguity and realign the process with cost-containment goals.
  • Limit consideration of previously contracted rates: Providers should not be allowed to cite past high-value contracts to justify arbitration offers. This tactic skews arbitration results in favor of large provider networks and undermines fairness.

While keeping arbitration may be politically expedient, the most efficient option is to replace it with benchmark pricing based on the QPA. According to CBO analysis, using a benchmark model would yield greater savings and reduce administrative overhead. However, in the current political climate, reforming the federal NSA IDR process is more achievable than eliminating it altogether.

The No Surprises Act has been a success in protecting patients from unforeseen medical bills. However, its arbitration mechanism has contributed to higher healthcare spending. Without clear guidance or reform, providers will continue to use the NSA IDR process—both state and federal—to obtain inflated payments. As Congress considers expanding the law’s scope, it must also confront these systemic flaws. Only then can we preserve the law’s original intent while protecting employers, taxpayers, and patients from its unintended consequences.