The Biden Administration will soon release new rules around a federal arbitration process, also known as independent dispute resolution (IDR). Several states that have implemented IDR processes have seen how frequently they can be abused and misused by out-of-network providers and private equity firms to drive up their reimbursement, leading to higher health care costs that only stand to increase moving forward.

Lessons from New Jersey, New York, and Texas

Time and time again we have seen that when network-based reimbursements are not the guiding principle in IDR decisions, payments awarded to out-of-network providers skyrocket.

Data from New Jersey, New York, and Texas shows how easy it is for IDR to be abused by out-of-network providers at the patients’ expense:

  • In New Jersey, the median award from arbitrators was 5.7 times the median in-network price and often much higher. In the state’s arbitration disputes, providers prevailed 64% of the time and the total amount awarded to providers was over 6 times as much as the amount awarded to employers and health plans.
  • In New York, studies have found that the state’s arbitration process is substantially increasing what New Yorkers pay for health care. Regardless of who the arbitrator sides with, the awards are still significantly closer to the 80thpercentile of billed charges amount than they are to network rates.
  • The Texas law is also resulting in arbitration payouts that are substantially higher than what average network rates would be, with the average arbitration award coming out to be 4.7 times higher than the average original plan payment.

Abuse of IDR Is Bad and Getting Worse

Unsurprisingly, out-of-network providers have quickly figured out that IDR is a guaranteed path to bigger payouts.

  • In Texas, the Texas Department of Insurance received 44,910 requests for arbitration in 2020. In just the first 6 months of 2021, there have already been 50,023 arbitration requests.
  • New Jersey received 5,715 arbitration requests in 2020, almost double the number of requests in 2019.

By contrast, we have seen IDR used far less often in states where arbitration decisions are more tightly associated with in-network rates. Washington state received just 66 requests for arbitration in their first year of operation, and California has consistently seen low levels of IDR. Since 2018, there have only been 114 total applications submitted in the state.

The evidence is clear. If policymakers want the No Surprises Act to truly succeed in protecting patients from surprise medical bills and higher costs, they have to prevent the IDR process from becoming the standard for determining payment for out-of-network services.

To view the impact of arbitration in key states, click here. To learn more about how the Biden Administration can protect patients from abuse of arbitration, click here.