Binding Arbitration: A Non-Starter that Won’t Resolve Surprise Billing

By at 12 August, 2019, 9:05 pm

What they are saying…

Updated November 20, 2019

The last thing a patient needs after getting hit by a surprise medical bill is to endure a complex federally-established “arbitration” process to settle the dispute.  The idea is being advocated by some – largely hospitals and specialty physicians – to include an arbitration scheme in legislation moving through Congress to address the shady practice of surprise billing.  The business community is largely opposed to binding arbitration, and leading free-market health experts feel the same way.

Here’s why, and what they are saying about arbitration as a “solution” to surprise billing:

Encourages the rapid growth of costs

“Specifically, we are concerned about proposals for open-ended arbitration, which have been floated as a solution to the problem. If arbitration appears innocuous, it is to a large extent because it is not transparent. Experience suggests that arbitration would be cumbersome to deploy, and highly favorable to those health care providers who charge high prices today. If Congress were to endorse arbitration, it could potentially open the door to a system quite unintended – establishing an inflationary dynamic that accommodates and encourages the rapid growth of costs.”

Health Care Policy Experts Oppose Open-Ended Arbitration as a Solution to Surprise Billing, Joint Statement, June 25, 2019.


Binding Arbitration Will Cost Taxpayers $6.2 Billion and Employers Providing Coverage $21 Billion

“The independent analysis by CAHC Chief Economist and Congressional Budget Office (CBO) alumnus Jeff Lemieux found that binding arbitration would place an additional $6.2 billion in added costs to the federal budget, and $21 billion in total costs on employers and private payers.  Because employers and insurers pass these added costs onto consumers in the form of increased premiums or cost sharing, patients will end up paying more as a result of binding arbitration versus a pure benchmark model. Experience from the New York arbitration process confirms this will increase private payer costs both as a result of the higher payment rates and greater administrative costs.”

New CAHC Estimate: Binding Arbitration Costs Taxpayers Additional $6.2 Billion, Employer Provided Coverage $21 Billion Over Ten Years, CAHC, November 13, 2019.


Patients don’t have agents like professional baseball players

“Politicians call this [arbitration] a ‘baseball-style’ approach to addressing surprise bills, but those impacted by this policy are not professional baseball players negotiating multimillion-dollar contracts. They are patients caught in a crossfire between health systems and lawyers – and they deserve our best effort to right this wrong…The White House has already signaled its opposition to binding arbitration and the Senate HELP Committee has passed strong, bipartisan legislation that mirrors the Energy and Commerce Committee’s original, commonsense benchmark approach to resolving disputed claims.”

Coalition for Affordable Health Coverage President Joel White, Statement on the addition of binding arbitration amendment to House surprise billing legislation, July 17, 2019.


Binding Arbitration is Making Health Care “Substantially More Expensive”

“According to an analysis of newly released data from New York’s Department of Financial Services, the New York model [‘independent dispute resolution’] is making health care substantially more expensive in the state. In fact, arbiters are typically deciding on dollar amounts above the 80th percentile of typical costs.”

To End Surprise Medical Bills, New York Tried Arbitration. Costs Went Up., NPR, November 5, 2019. Read the USC-Brookings Schaeffer on Health Policy Report here.


Not “simple and easy,” as being billed by proponents

“Policymakers should not be fooled. Arbitration is neither ‘light touch’ nor a solution to the true problem at hand. Instead of solving the fundamental issue, it kicks the can down the road to an arbitrator who faces the same challenges of any rate setter…. arbitration is just rate-setting in another guise — and the arbitrator faces the same challenges of any rate setter. Even the most knowledgeable rate setter would find it difficult to come up with a ‘missing price’ that closely approximates the true market price. And, whether rates are set too high or too low, rate setting can introduce large market distortions and unintended consequences.”

Arbitration Not the Answer to Fix Surprise Medical Billing, Real Clear Policy Op-ed by David Hyman, professor of law at Georgetown University and adjunct scholar at the Cato Institute, and Benedic Ippolito, a research fellow at the American Enterprise Institute, February 12, 2019.


A complex and murky process

“Arbitration is a highly inappropriate and misguided fix to surprise billing…The last thing health care consumers need is a complex, obscure and drawn-out process when it comes to resolving a surprise bill. Moreover, we need to lower costs and bring market forces to bear on the cruel practice of surprise billing, not make matters worse.

“The few players in the health care system who are engaged in the business model of surprise billing are allowed to operate without the benefit of competition. There is no financial accountability to patients or payers. The practice is not subject to the usual market forces of transparency and competition because it proliferates primarily in areas where consumers and insurers have little visibility and even less choice – in the emergency room and an on the operating table.”

Small Business & Entrepreneurship Council Letter to House Energy and Commerce Committee, July 10, 2019.


A step in the wrong direction that adds more costs

“Binding arbitration is an inefficient and ineffective approach to addressing surprise billing and should not be included as a legislative solution. As the committee seeks to bring greater transparency to health care prices, a costly, complex and opaque arbitration process is a step in the wrong direction…this approach is time and resource-consuming and would lead to rates much closer to unreasonably high provider charges such as those cited above that are not bound by market discipline.”

The National Business Group on Health, Statement for the Record, House Ways and Means Health Subcommittee Hearing on “Protecting Patients from Surprise Medical Bills,” May 21, 2019.


Undermines the key goals of lowering costs and protecting patients

“We applaud you for seeking a solution to surprise medical billing in your draft legislation, the ‘Lower Health Care Costs Act.’ Reflecting the goal of employers to protect patients from surprise medical bills without undermining network participation or resulting in higher health care costs for all consumers, we urge you to reject independent dispute resolution (Option 2) as a means of resolving surprise medical billing.”

Employer Community Coalition Letter to Chairman Lamar Alexander (R-TN) and Patty Murray (D-WA), Senate Committee on Health, Education and Labor on “Solutions to Surprise Billing,” June 5, 2019.

SBE Council has joined employer groups in support of a benchmark rate that is determined based on the average of local in-network market-based rates. We believe this is a fair and simple solution that addresses the few players who are exploiting what are effectively loopholes in the way doctors and hospitals bill for services.


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