Millions of Americans are reviewing their health coverage as open enrollment season begins, but some healthcare experts say a federal law designed to protect patients from surprise medical bills may be having an unintended side effect: contributing to higher healthcare costs.
The No Surprises Act, which took effect in 2022, was widely considered a win for consumers. It shields patients with private health insurance from receiving unexpected bills when they are treated by an out-of-network provider at an in-network hospital or facility.
For those without health insurance, the rule makes sure patients receive a good-faith estimate of how much care will cost before they receive it.
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“The No Surprises Act came from a wonderful place,” said Dr. Anahita Dua, a vascular surgeon and founder of Healthcare for Action. “It’s a great thing. It should not be repealed.”
But Dua and other experts argue that the law’s dispute resolution process has created new financial pressures throughout the healthcare system.
How the arbitration process works
When an insurer and an out-of-network healthcare provider disagree over how much should be paid for a service, either side can take the dispute to an independent arbitrator. The arbitrator reviews the competing payment offers and decides which amount should be paid.
“The consequence of this arrangement is that arbitrators, in many instances, ended up awarding very high prices, many multiples of what is typically paid for a service,” said Mark Pauly, a professor of healthcare management and economics at the University of Pennsylvania’s Wharton School.
One example cited by UnitedHealthcare involves a surgery in which an in-network neurosurgeon removed a tumor with assistance from an out-of-network assistant surgeon. According to the insurer, the neurosurgeon received about $4,500 for the procedure, while the assistant surgeon was initially paid about $900.
The assistant surgeon then challenged the payment through arbitration, seeking $55,000. The arbitrator ultimately awarded a payment that was reportedly 12 times higher than what the neurosurgeon received.
Pauly argues that the incentives built into the arbitration process were misguided.
“For one thing, there was no disincentive to a provider from naming a very high price. What do you have to lose?” he said. “The arbitrators often split the difference between the very high price and the low price, which still ended up being a very high price.”
Why consumers could feel the impact
Millions of payment disputes have entered the arbitration system since the law took effect. Each case also involves administrative costs, with arbitrators often earning hundreds or even thousands of dollars per dispute.
Dua said those costs don’t simply disappear.
“Ultimately, the insurance companies don’t care where the money comes from, whether it’s forced out of the patient’s pocket or it’s forced out of a hospital, or it comes from physician reimbursement,” Dua said. “They have a bill that they want paid.”
Experts who criticize the current system argue that higher reimbursement awards and growing administrative costs can ultimately feed into the overall cost of healthcare, including the premiums consumers pay for insurance coverage.
“It’s at the end of a long string of good intentions gone bad,” Pauly said.
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Beyond higher costs, Dua adds that payment disputes can also put patient care at risk if hospitals decide not to enlist out-of-network providers to fill certain gaps.
“A hospital may say, ‘We don’t have coverage for vascular surgery.’ Normally, we would get this out-of-network provider that would come in and cover for us on Tuesdays and Wednesdays. But we know that we’re not going to get reimbursed for it, so we’re just going to stay uncovered Tuesdays and Wednesdays,” she explained.
Calls for changes to the law
Some lawmakers are now pushing to revise the arbitration process.
Rep. Frank Pallone Jr., D-N.J., one of the law’s original authors, introduced the Lower Premiums, Faster Payments Act, which would replace the current arbitration system with a payment model tied to the median in-network rate.
“I’m pleased to say patients no longer receive these outrageous bills, but unfortunately the arbitration process is clearly not working,” Pallone said in a statement. “A few bad actors — largely backed by private equity — are gaming the system, creating backlogs, delaying payments, and driving up premiums.”
Supporters say the proposal could help reduce pressure on insurance premiums while speeding up payment disputes between insurers and healthcare providers.
For now, consumers may be protected from surprise medical bills; however, they are still facing rising healthcare costs from other directions.