Abuse and misuse of the No Surprises Act’s independent dispute resolution (IDR) process is fueling the health care affordability crisis. One reason? The decision-makers at the center of the IDR process — known as IDR entities, or IDREs — benefit from misaligned incentives that have turned the system into a reliable profit machine for certain industries.
IDREs are selected through a process that allows the initiating party, almost always the provider, to name their preferred arbitrator, giving providers an immediate structural advantage. Once selected, IDREs collect mandatory fees between $425 and $1,150 per determination, creating a lucrative financial incentive to maximize case volume.
While IDREs must attest to having no conflicts of interest, the current rules leave significant gaps that private equity-backed entities have exploited. The result is a system that overwhelmingly favors providers and their outrageous charges, driving waste and abuse and leaving health plans and employers spending billions of dollars not going to patient care.
No Longer Neutral: Four Reasons IDRE Incentives Undermine the Patient Protections in the No Surprises Act
1. IDREs are paid per case, so more cases mean more revenue.
The IDR process was intended to be a last resort — a rarely used final step for mediating payment disputes only after good-faith negotiations between health plans and providers stalled. Instead, some private equity-backed providers, out-of-network specialists, and IDR middlemen have flooded IDR with ineligible claims — nearly 40% of which should have never gone through IDR in the first place. Yet, a sizable number of ineligible claims, such as Medicare, Medicaid, or state-based claims, continue through the process. IDREs ruled only 19% of cases as ineligible, meaning that more than half of the ineligible cases wrongly resulted in binding payment determinations. These payment determinations, which overwhelmingly favor providers, are regularly nearly 500% of in-network payment amounts, driving up costs for patients, consumers, and employers.
To address this, the incentives must change. The Centers for Medicare & Medicaid Services (CMS) should require that a portion of the IDRE fees be charged to the initiating party upon initiation of the dispute. If the dispute is reviewed and deemed eligible, the amount paid is applied to the fee owed, and if the dispute is deemed ineligible, the amount paid is forfeited.
2. To maximize case volume, IDREs are incentivized to process high volumes of claims, leading to ineligible and inflated claims routinely slipping through.
Because IDRE revenue grows as dispute volume grows, any time spent scrutinizing a claim leaves less time for advancing payment determinations. In practice, IDREs have little financial incentive to:
- Review whether a claim meets eligibility requirements;
- Dismiss ineligible claims before they reach a determination;
- Ask parties for additional information or flag obvious mistakes and abuses; or
- Explain their rationale or provide meaningful information to help parties understand determinations.
3. Providers initiate over 99% of all IDR disputes, giving IDREs a strong incentive to side with providers to sustain case volume.
Because providers are essentially the only entities initiating cases, IDREs have a material interest in keeping providers satisfied with the outcomes. The most reliable way to do that is to issue provider-favorable determinations. This abusive inflation loop creates a self-perpetuating cycle in which IDREs that side with providers thrive, and those that do not lose business.
4. Private equity’s ownership of several IDREs raises serious questions about independence and neutrality.
The conflicts of interest in the IDR system extend beyond misaligned fee incentives. Private equity firms have positioned themselves on both sides of the arbitration process, investing in providers that flood the system with disputes while also owning the entities that arbitrate those same disputes. Research by the Private Equity Stakeholder Project found that private equity firms back at least five of the 15 certified IDREs, and in at least one case the same firm owns both a provider that actively initiates IDR cases and an IDRE that arbitrates disputes.
Taken together, these misaligned incentives produce a system that is structurally tilted towards providers at every stage: claims that should never reach arbitration advance to costly determinations, eligibility challenges are routinely ignored or dismissed, and IDREs are incentivized to favor the parties that keep their caseloads full.
Fixing the system requires addressing its incentive structure directly. Congress and the administration should:
- Conduct rigorous oversight of bad actor IDREs and IDR middlemen that have turned arbitration into a business model;
- Decertify IDREs with demonstrated conflicts of interest or discriminatory patterns in their determinations; and
- Fix the federal portal to prevent ineligible claims from entering the system and prohibit parties from submitting payment offers until claim eligibility has been confirmed.
These targeted, common-sense reforms would restore the integrity of a process Congress intended as a tool of last resort, not a profit center. For more information on the No Surprises Act, visit: www.stopsurprisebillingnow.com.
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