Independent Dispute Resolution in Medical Billing

Paul Francis
7 hours ago
11 min read

Commentary # 34 by Paul Francis

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Gov. Kathy Hochul announced an agreement in principle on the FY 27 Budget last Thursday, May 7, only to be contradicted by Assembly Speaker Carl Heastie a few hours later, who said that too many issues remained open to say that a “deal” had been reached. Things are moving again – and the Governor announced a large additional aid package for New York City just yesterday – but I expect it will still take more than a few days for the actual Budget bills to be released, without which it isn’t possible to see the full picture of the Budget.

While waiting for the final Budget to come to rest, I thought I would post a short Commentary on one of the niche issues in this year’s Budget, namely the Governor’s proposed changes to the State’s Independent Dispute Resolution (IDR) process in medical billing.

The State’s IDR law and a similar law at the federal level are interesting to me because they are emblematic of broader issues of public policy, including the law of unintended consequences, the tension between valid policy goals, the role of special interests, and the practical obstacles to reform that often lead to the stubborn persistence of the status quo.

Indications are that the State legislature will reject the IDR reform proposals for the second year in a row. Although the proposed changes to the IDR law would have a meaningful fiscal impact, the reform proposals could be considered the type of “policy” proposals that the legislature complains should not be included in the Budget process. In fairness to the Governor, the State Budget negotiations are the only scenario in which these types of reforms advanced by the Executive have even a chance of being adopted.

The original impetus for an IDR process in medical billing – first in New York and later at the federal level – was consumer protection, specifically protecting patients from “surprise bills” from out-of-network medical providers. There are few catalysts for legislative action stronger than stories about individuals who play by the rules only to be hurt financially by the practices of large, unpopular institutions and actors, such as insurance companies, hospitals, and wealthy doctors.

In 2012, New York’s Department of Financial Services (DFS) issued a report titled “An Unwelcome Surprise: How New Yorkers Are Getting Stuck with Unexpected Medical Bills from Out-of-Network Providers.” DFS said it regularly received complaints from patients (who in this Commentary I will refer to as “consumers”) who used an in-network hospital or physician but later received bills from out-of-network specialists who were involved in their care at some point, such as anesthesiologists, radiologists, pathologists, and emergency department physicians.

Prior to New York’s IDR law, which was adopted in 2014 and became effective in 2015, an insurance plan had significant discretion over the amount it would pay the out-of-network provider. If the provider thought it was entitled to more than the insurance plans offered, the law did not prohibit the provider from sending a surprise “balance bill” to the consumer. New York’s IDR law changed that construct. For most emergency services and post-emergency related inpatient services, the new IDR law removed the consumer from the payment fight, with the consumer generally only responsible for the same amount the consumer would pay under in-network cost-sharing arrangements.

With the consumer protected from “balance billing” (i.e., billing for the difference between the amount the plan agrees to pay and the amount charged), the IDR law established a construct under which the out-of-network provider would bill the consumer’s insurance plan for an amount it considered reasonable. If the provider and the insurer did not agree on that amount, either party could take the matter to an arbitrator within the IDR process. Significantly, the New York IDR law was extended to cover Medicaid. There was no consumer protection rationale for doing so, since Medicaid enrollees are not responsible for any medical bills, but provider advocates had sufficient negotiating leverage to require this provision as a means of “protecting” the interests of providers.

The New York IDR law established a so-called “baseball-style” dispute-resolution system, under which the provider and the insurance plan each submit proposed reimbursement amounts to an arbitrator, who is required to choose one of the two amounts based on the legal standards and benchmarks established under the law. Those standards and benchmarks thus became extremely important in the balance of power between providers and insurance plans.

People involved in the 2014 negotiations over the New York IDR law recall that the battle lines were drawn between two special interests: providers (especially the medical specialists represented by the Medical Society of the State of New York, but also supported by the major hospital associations), and insurance plans, who argued that allowing high out-of-network payments would increase insurance premiums. The providers argued that without recourse to relatively high out-of-network payments, fewer medical specialists would work in settings serving a high percentage of Medicaid patients. Legislators, who were more focused on consumer access to specialty care than on total costs in the commercial or Medicaid market, were swayed by the arguments of providers.

As a result, the standards and benchmarks under New York’s IDR law favor the interests of providers over the interests of payers. The standard in New York requires that the IDR arbitrator consider all relevant factors, including the experience of the provider and the complexity of the case. More significantly, the New York IDR law specifies that, in the case of physician services, the arbitrator must consider “the usual and customary cost of the service.” The law defines “usual and customary cost” as "the eightieth percentile of all charges for the particular health care service performed by a provider in the same or similar specialty and provided in the same geographical area….” (Emphasis added)

Defining “cost” in relation to “charges” puts a heavy thumb on the scale in favor of providers. “Charges” represent the sticker price of physician bills, which are usually heavily discounted by insurance plans for in-network physicians. The term “allowed amount” refers to the generally much lower amount physicians receive from insurance plans under their contracted in-network reimbursement rates.

The 2020 federal No Surprises Act also emerged from an effort to protect patients from “surprise billing” by out-of-network providers. That law does not include Medicaid or Medicare cases. And compared to New York, the federal No Surprises Act is more heavily weighted to the interests of insurance plans, defining the key benchmark for payment, in most cases, as the insurance plan’s median contracted rate for the service with in-network providers in the geographic area. As a kind of “belt and suspenders” reinforcing the congressional intent, arbitrators are not permitted to rely on billed charges, usual-and-customary charge data, or Medicare and Medicaid rates.

Notwithstanding the more plan-friendly standards under federal law, experience has shown that both the federal and New York IDR laws quickly became susceptible to abuse in the form of gaming the system to increase compensation in ways that were not foreseen when these laws were enacted. For reasons that are not entirely clear, arbitrators generally tend to favor providers in these cases. Providers argued that part of the problem is that insurance plans are lowballing their arbitration proposals. In the absence of a comprehensive empirical analysis of the data on the hundreds of thousands of IDR disputes, it’s difficult to render a definitive judgment. Nevertheless, there is strong anecdotal evidence that, at least in a significant number of cases, the awards to providers seem excessive.

On April 22, 2026, the New York Times published an exposé describing the unintended consequences of the No Surprises Act. A significant number of physicians appear to be building their business model around gaming the No Surprises Act to receive much higher compensation than would be paid to an in-network physician. The story also describes how a cottage industry has sprung up to assist physicians in winning awards through the Act’s IDR arbitration process, which often are multiples of commercially negotiated reimbursement rates.

The Times story states:

“Doctors have flooded the arbitration system with millions of claims. Most are winning, often collecting fees hundreds of times higher than what they could negotiate with insurers directly or what they could have earned from patients before the law passed….When the law passed, government officials estimated that about 17,000 cases would go to arbitration a year. Instead, doctors brought 1.2 million such cases in the first half of last year, and won around 88 percent of them.”

The Times story featured the case of Dr. Norman Rowe, a plastic surgeon whose business model is to intentionally remain out-of-network with insurance plans so he can bring cases to IDR arbitration. The business model is working for him, as he is winning awards such as $440,000 for a breast reduction surgery, even though, as the New York Times notes, he advertises on his website that these procedures usually “cost between $15,000 and $25,000.” Not surprisingly, “Dr. Rowe did not respond to multiple requests for comment from The Times.”

The cost of the abuses of the federal No Surprises Act is more than small potatoes. An analysis by Health Affairs found that the IDR process resulted in at least $5 billion in additional costs between 2022 and 2024 – and the rate of IDR cases is accelerating rapidly as more providers figure out that they can receive higher reimbursement amounts by remaining out-of-network and utilizing the IDR process.

This opportunity has given rise to a new cottage industry of firms that specialize in helping doctors game the IDR system to receive extraordinary payouts by insurance plans. A story in the healthcare publication STAT profiled the firm HaloMD, noting that:

“[T]heir story is emblematic of an American health care system that’s rife with profit-seekers who critics say repeatedly test the lines of legality. Each effort by lawmakers to rein in the excesses is met with retooled tactics.”

You might think that these stories of abuse would motivate a Congress that is highly focused on “fraud, waste, and abuse” in healthcare. But you would be wrong. The Times story noted that the No Surprises Act’s “unexpected results are rarely discussed. Instead, many legislators who worked on the law emphasize the success of consumer protections.” Legislators seem oblivious to the larger system costs of the law. Given the inherent suspicion of insurance companies (which, admittedly, is well-earned), legislators seem unconcerned that widespread gaming of the system makes the current IDR process an inefficient way to protect consumers.

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In New York, most of the recent attention on what the Hochul administration argues is an unintended consequence and a gaming of the system involves medical specialists using the IDR process in Medicaid cases. The number of Medicaid claims submitted for IDR has increased from 778 in 2021 to 14,116 in 2024, a 1,700% increase over three years, which indicates that this is a rapidly growing phenomenon. According to the New York Health Plan Association (HPA), in 2024, IDR payouts to providers totaled $116.5 million, compared to $3.2 million that Medicaid would have reimbursed for the same services without the IDR process. Negotiated commercial reimbursement rates are often 2-3 times higher (if not more) than Medicaid rates – and this variance is further exaggerated by a process that uses as a benchmark the 80^th percentile of usual and customary charges.

HPA has publicized certain payouts to suggest the extent to which the New York IDR process produces at least some extraordinary payouts – especially compared to what would be paid under typical Medicaid rates. In one egregious case, a back surgeon received $514,169 for a single surgery – 183 times the allowable Medicaid rate. The HPA cites similar examples in the commercial market, but most of the legislative focus in opposition to changing New York’s IDR laws has been on the Medicaid market.

The Hochul administration’s Budget proposal sought to make two fundamental changes to the 2015 IDR law: first, the changes would exclude Medicaid cases from the IDR process, thus limiting out-of-network providers to receiving reimbursement at Medicaid fee-for-service rates; second, the Budget proposal would shift the standard for determining compensation from multi-factor and charge-based criteria to criteria based on contracted allowed amounts for the relevant service.

Specifically, the proposed changes would have shifted the primary payment benchmark from the 80^th percentile of usual and customary charges to the 50^th percentile of usual and customary allowed amounts. In addition, the Budget proposal would have established a ceiling equal to the 80th percentile of allowed amounts. Even if an arbitrator sided with the provider, the plan generally would not have to pay more than that cap.

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Gov. Hochul’s IDR Budget proposal is one of many issues in recent years that pit the powerful special interests of providers against the special interests of insurance plans. Both sides, including the insurance plans’ allies in organized labor, view these issues as a zero-sum game.

For insurance plans – and those who focus on the efficiency and financial sustainability of the healthcare system – it seems obvious that there have been unintended consequences from IDR statutes. A system that was primarily intended to protect consumers has become a backdoor way for providers – especially specialist physician practices – to obtain higher reimbursement for services than they could obtain as in-network providers for commercial insurance plans and (in New York) Medicaid managed care plans.

What has tipped the balance in favor of providers in a way that blocks reform in New York has been the position of legislators representing communities with large numbers of Medicaid patients who often struggle to access medical specialist services.

The legislative Budget hearings for the Department of Health are not always riveting, but this year the hearings included an exchange among Assemblywoman Michaelle Solages, Health Commissioner Jim McDonald, and Medicaid Director Amir Bassiri that really encapsulated the essence of the debate. Assemblywoman Solages began by asking whether the Department agreed that black and brown communities were entitled to receive specialist care. “Absolutely,” Commissioner McDonald responded immediately.

Solages’s line of questioning homed in on the fundamental problem in New York’s healthcare delivery system that Medicaid enrollees often have less access to expensive specialist care because Medicaid reimbursement rates are so much lower than commercial rates, so specialists have little incentive to participate in Medicaid plan networks. These lower rates are both a function of federal policy that imposes an upper payment limit on Medicaid rates and the fact that the State can barely afford its current Medicaid program, even with reimbursement rates well below commercial reimbursement rates.

Assemblywoman Solages said that, “Weakening [IDR] is going to create a lack of efficiencies and it’s also going to limit Black and Brown communities from having access to specialists.”

Amir Bassiri pointed out the fundamental problem, which is that specialists “are getting commercial reimbursement by taking a Medicaid dispute to the IDR.” This virtually assures that the physician will receive more than the Medicaid rate because the IDR process is benchmarked to commercial rates and results in egregious price gouging in at least some cases. Inevitably, if physicians can earn more by using the IDR process than they would receive if they were in-network, it will discourage them from joining the networks of Medicaid managed care plans.

But these arguments were to no avail. For the second straight year, the legislature seems poised to reject the IDR reform proposals in the Executive Budget.

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The controversy about the IDR process in New York highlights the obstacles to reforming a system whose unintended consequences nevertheless benefit some interests. When critics decry the “waste, fraud, and abuse” in healthcare generally and Medicaid in particular, they may be thinking mostly about intentional fraud. However, as I argued in a Commentary earlier this year on Medicaid fraud, waste, and abuse, the cost of “abuse” probably dwarfs the amount of intentional fraud in both the commercial and Medicaid markets.

I define “abuse” as conduct that results in the receipt of payments by gaming the system, typically within the boundaries of legal practices. I think it’s hard to look at the strategies of providers to remain out-of-network for their financial gain and not regard it as “gaming the system.” But if the net effect of gaming the system advances some other valid goal – such as increasing access of Medicaid patients to specialty care – it is very hard to change once established.

As for whether what are essentially policy issues, such as the IDR reform, should be advanced in the Budget or separately as a Governor’s program bill, the Executive is probably damned either way. The flipside of the Governor putting almost all policy legislation in the Budget is that the remaining period of time after the enactment of the Budget has come to be seen as being reserved for legislative priorities. At the same time, the dynamic of the Budget process makes it very difficult for niche proposals like IDR reform to be enacted.

Gov. Hochul has chosen to pursue a strategy of accepting a late budget rather than capitulating on her top priorities. But that inevitably leads to later and later budgets, with the attendant criticism that a late budget reflects governmental dysfunction. Once the major issues are resolved, the Executive has little appetite to keep the Budget open in an effort to win over the legislature on its lesser priorities, such as IDR reform.

IDR reform has now joined numerous other lesser Executive priorities, such as scope of practice reform in healthcare or civil service reform, which most technocrats agree would advance the general public interest. I think the only way these types of incremental reforms that are in the general public interest but gore the ox of one or more special interests is to increase the transparency of the underlying facts in order to build the case over time for reform. It is a truism that sunlight is the best disinfectant in government policy, but in my view, it is the only way that small but meaningful reforms, such as those to the IDR law, will happen.