Stop Blaming Hospitals for a Problem They Didn’t Create
The No Surprises Act Is Not Driving Healthcare Costs—It Is Exposing How Far Reimbursement Has Fallen
A growing chorus of policymakers, insurers, and policy analysts have begun sounding alarms over the No Surprises Act (NSA) arbitration process. Their argument is straightforward: providers are winning too many disputes, arbitration awards are exceeding expectations, and healthcare spending may increase as a result.
They have the wrong villain.
Hospitals did not create the reimbursement crisis facing American healthcare. Physicians did not create it. Rural providers did not create it. Safety-net hospitals did not create it.
Health plans did.
For years, insurers have systematically leveraged their market power to suppress reimbursement, delay payments, deny medically necessary care, narrow networks, and shift administrative burdens onto providers. The No Surprises Act did not create these problems. It simply gave providers a mechanism to challenge them.
The real question is not why providers are winning arbitration.
The real question is why independent arbitrators repeatedly conclude that insurer payment offers are inadequate.
Recent federal data show that providers prevail in approximately 70% to 85% of NSA disputes, depending on the reporting period. In many cases, arbitrators determine that insurer offers are significantly below reasonable market rates. (Health System Tracker)
Critics portray these outcomes as evidence that arbitration is broken.
A more honest interpretation is that the reimbursement system was broken long before arbitration arrived.
Medicare Doesn’t Cover Costs—and Commercial Plans Have Followed Its Lead
One of the most dangerous myths in healthcare finance is the assumption that Medicare represents an adequate payment benchmark.
It does not.
According to the American Hospital Association’s analysis of MedPAC data, Medicare reimburses hospitals only about 82 cents for every dollar spent caring for Medicare beneficiaries. Even hospitals classified as “efficient” continue to experience negative Medicare margins. (American Hospital Association)
MedPAC projects aggregate hospital Medicare margins around negative 13 percent. (gnyha.org)
For decades, hospitals have depended on commercial reimbursement to offset those losses.
But commercial insurers increasingly use Medicare-based methodologies, proprietary benchmarks, and Qualifying Payment Amount calculations to push reimbursement ever closer to Medicare levels while simultaneously demanding greater administrative compliance from providers.
The result is predictable:
Hospitals are expected to provide 24/7 emergency coverage, trauma services, behavioral health programs, neonatal intensive care, labor and delivery services, and uncompensated care while being paid less than the cost of delivering those services.
No industry can survive under those economics indefinitely.
Healthcare is no exception.
Rural Hospitals Are Being Asked to Perform Miracles
No providers have suffered more from this imbalance than rural hospitals.
Rural facilities operate with lower patient volumes, higher fixed costs, workforce shortages, and older infrastructure. Their margins are significantly lower than those of urban counterparts, with many operating near break-even or worse. (KFF)
At the same time, many Medicare Advantage plans and commercial insurers impose prior authorization requirements, retrospective denials, documentation audits, payment delays, and reimbursement reductions that large health systems may be equipped to fight—but small community hospitals often cannot. (American Hospital Association)
The reality is uncomfortable:
- Large national insurers employ armies of actuaries, attorneys, payment-integrity vendors, AI-driven review tools, and denial-management specialists.
- Many rural hospitals have a single revenue cycle director trying to manage the entire operation.
- This is not a fair negotiation.
- It is a resource imbalance.
And insurers know it.
The Business Model Few People Want to Discuss
Many payer strategies depend on provider exhaustion.
- Requests are delayed.
- Claims are denied.
- Medical necessity is questioned.
- Additional records are requested.
- Appeals are prolonged.
Providers are forced to dedicate staff simply to recover money they were already owed.
Federal oversight agencies have repeatedly found that Medicare Advantage organizations denied or delayed care and payment for services that met Medicare coverage requirements. They also identified payment denials that should not have occurred under existing rules. (HHS Inspector General)
Every healthcare CFO in America knows this reality.
A claim denied today may eventually be paid. But if payment arrives eighteen months later after multiple appeals, the financial damage has already occurred.
- Cash flow matters.
- Labor costs are real.
- Supplies must be purchased.
- Clinicians must be paid.
Hospitals cannot operate on promises of future reimbursement.
Arbitration Is Not the Problem—It Is the Symptom
The policy establishment is increasingly focused on the fact that providers are prevailing in arbitration.
That focus misses the bigger story.
If independent arbitrators consistently reject payer offers, perhaps the issue is not that arbitration awards are too high.
Perhaps payer offers are too low.
The No Surprises Act introduced something healthcare desperately needed: accountability.
For the first time, insurers cannot simply declare what a service is worth and expect providers to accept it.
An independent third party evaluates the evidence.
And when that happens, providers win far more often than insurers would like. (Health System Tracker)
That should concern policymakers.
But not for the reason many assume.
It should raise questions about how reimbursement was being determined before independent review existed.
A Warning to Policymakers
There is a growing effort to weaken arbitration by elevating the Qualifying Payment Amount and reducing the role of independent review.
That would be a mistake.
The QPA is not a market rate.
It is an insurer-calculated rate.
Allowing insurers to establish the benchmark, define the methodology, and use it as the primary determinant of reimbursement effectively gives one side of the negotiation complete control over pricing.
- No functioning market works that way.
- Hospitals are already facing historic labor shortages, inflationary pressures, uncompensated care burdens, and Medicare reimbursement levels that remain below cost.
- Further weakening provider reimbursement will not reduce healthcare costs.
- It will reduce healthcare access.
- Rural hospitals will close.
- Safety-net systems will cut services.
- Emergency departments will consolidate.
- Behavioral health capacity will shrink.
Patients—not providers—will ultimately bear the consequences.
The Bottom Line
The No Surprises Act is not exposing a problem with providers.
It is exposing a reimbursement problem.
For years, hospitals have been asked to absorb losses, navigate administrative obstacles, and deliver increasingly complex care while receiving less compensation relative to the cost of providing it.
An independent process is now reviewing those payments.
And providers are winning.
The question policymakers should ask is not why providers are prevailing.
The question is why insurers were allowed to pay so little for so long.
Need Help Navigating the IDR Process?
IDR Dynamics helps hospitals, physician groups, and healthcare organizations identify eligible disputes, manage submissions, and maximize reimbursement opportunities under the No Surprises Act. Our team handles the complexity so your staff can stay focused on patient care.
