Health Care Arbitration: Unintended Consequences Of The No Surprises Act
A New York Times article dated April 22, 2026, authored by Sarah Kliff and Margot Sanger-Katz, includes the heading: “A $440,000 Breast Reduction: How Doctors Cashed In on a Consumer Protection Law.” The law is the so-called “No Surprises Act,” legislation that introduced baseball-style arbitration to disputes between insurers and out-of-network physicians.
The law was intended to take patients who had no choice but to go to an out-of-network physician out of the payment loop. If there was a disagreement as to the insurer’s amount of compensation to the physician, the provider could arbitrate in a framework of baseball arbitration, where the provider and the insurer each proposed the amount of an award to the arbitrator, and the arbitrator picked the most reasonable number, guided by a variety of factors, including the Qualified Payment Amount (QPA), the median contracted rate an insurer paid for a specific service, in a specific geographic area, as of January 31, 2019, adjusted annually for inflation.
Apparently the No Surprises Act has gone sideways, resulting in runaway costs. Because disputes between providers and insurance companies get resolved through baseball-style arbitration, the arbitrator is constrained to choose the most reasonable proposed award from the number proposed by the provider or the insurer. As the case law has evolved, however, arbitrators have not been constrained by the Qualified Payment Amount, and have often chosen the amount proposed by the provider, which may be much higher than the QPA. As a result, a mechanism that was supposed to be quick, efficient, and result in the most reasonable award has resulted in spiraling costs for the health care system. And presumably, as awards rise, so will the Qualified Payment Amount, which, however, currently serves as only one among other factors that the arbitrator can take into consideration. Because there is no provision for attorneys fees in the legislation, private equity has stepped in to provide litigation financing for the out-of-network providers.
Is there a solution?
One approach would be to simply do away with arbitration altogether, and impose fixed payment benchmarks adjusted for inflation.
Another approach would be to do away with baseball arbitration, allowing arbitrators to fashion awards that were not at extremes proposed by providers and insurance companies.
Another approach would be to make the Qualified Payment Amount the primary, if not determinative factor, for the arbitrator to consider what is reasonable.
Another approach would prohibit arbitrators from using past out-of-network rates, which, if inflated, can be used by providers to justify ever higher awards.
Another approach would be to weed out cases that are not appropriate for handling within the system of baseball-type arbitration — treatment cases that should have gone to in-network providers, or been handled by Medicare and Medicaid for the patients. Critics complain that many cases going to arbitration are actually ineligible and abusive claims, and there is a lack of oversight.
The No Surprises Act created a mechanism that was intended to take into account the interests of providers and insurers. No good deed goes unpunished. Any fix of the system will require congressional legislation. Any proposed change will trigger vigorous lobbying. Do not expect a fix anytime soon.
What do you think?
Arbitration/Jurisdiction: SCOTUS Holds That Fed Court Staying Arb Has Jurisdiction To Confirm Or Vacate Award
SCOTUS Resolved Circuit Split.
Adrian Jules sued his former employer, Chateau Marmont, in federal court in New York alleging employment discrimination under federal and state law. The district court stayed the case pending arbitration under FAA §3. Ruling against Jules, the arbitrator awarded sanctions to respondents. When respondents returned to federal court to confirm the award under FAA §9, Jules argued the court lacked jurisdiction because §9/§10 motions to confirm or deny an award presented no independent federal question and the parties were nondiverse with less than $75,000 at stake. The Supreme Court unanimously held a federal court previously staying claims under §3 retains jurisdiction to confirm or vacate the resulting arbitral award — no independent jurisdictional basis on the face of the §9/§10 motion is required. Jules v. Andre Balazs Properties, 25-83 (S.Ct. 5/14/26).
Comment. Previously, the Fourth Circuit had held that motions to confirm or vacate an award required an independent jurisdictional basis in federal court. In contrast, the Second, Third and Seventh Circuits held that a pre-existing federal case provided a jurisdictional basis to confirm or vacate an award, and thus an independent jurisdictional basis to confirm or vacate an award was only needed if the motion to do so was made as a freestanding action rather than in a pre-existing federal case. The resolution of the split in favor of the Second, Third, and Seventh Circuit should remove jurisdictional uncertainty when the motion to confirm or vacate an award is made in a pre-existing federal case. It will be possible to “look through” to the pre-existing federal jurisdiction in the pre-existing federal case to support federal jurisdiction for the motion to vacate or confirm the award..
After Cal Sup Ct Finds Provisions Unconscionable, Cal Ct Of Appeal Says Provisions Can’t Be Severed
Ramirez v. Charter Communications, Inc. (Ramirez III), (2025).
We previously posted on September 28, 2024, about the California Supreme Court’s Ramirez v. Charter Communications 2024 decision addressing unconscionability and severability in employment arbitration agreements, in which the California Supreme Court agreed that various provisions in an arbitration agreement were unconscionable, but remanded to determine whether the provisions could be severed.
On remand, the Second District Court of Appeal held that the multiple unconscionable provisions in Charter’s arbitration agreement so permeated the contract that they could not be severed, and the agreement was therefore unenforceable in its entirety. 108 Cal.App.5th 1297 (Cal. App. 2d Dist.).
Unconscionable But Severable
Vacatur, Standard of Review: Federal Courts Have Extremely Limited Authority To Vacate Arb Awards
The Ninth Circuit affirmed the district court’s confirmation of an employment arbitration award in favor of an employee on FLSA and Arizona state law claims, holding that federal courts have extremely limited authority to vacate arbitration awards and that a claimed factual error by the arbitrator does not warrant vacatur unless it was so critical, obvious, and intentional as to amount to a manifest disregard of the law — a standard the employer failed to meet here.VIP Mortgage Incorporated v. Gates, No. 24-7624 (9th Cir. Dec. 22, 2025).
COMMENT: Why bother to publish this opinion? After all, we all know an arbitrator’s award can’t be vacated for a factual error. And here the factual error would have been dispositive of an attorney’s fees issue because the parties stipulated earlier that counterclaims would be dismissed, with parties bearing own fees and costs regarding litigating the counterclaims. But the arbitrator forgot the stipulation, and did not disallow for fees on the counterclaims in an award. By publishing, the court clarified that to invoke the “legally dispositive facts” exception allowing for a vacatur, mere forgetfulness or inadvertence by an arbitrator, even as to a documented stipulation, is not enough.
Arbitrator's Forgetfulness Was Not Enough To Overturn Result
Pending Cases Before SCOTUS Raise Arbitration Issues
Oral Argument Has Already Been Heard In The Following Two Supreme Court Cases.
FAA and Jurisdiction. Jules v. Andre Balazs Properties, No. 25-83 (cert. granted Dec. 5, 2025) — whether a federal court that initially had jurisdiction over a case and stayed it pending arbitration retains jurisdiction to confirm or vacate the resulting award under FAA §§9–10 even without an independent jurisdictional basis.
Transportation Workers and Jurisdiction. Flowers Foods, Inc. v. Brock, No. 24-935 (cert. granted Oct. 20, 2025) — whether “last-mile” delivery drivers whose routes are entirely intrastate, but who deliver goods that traveled in interstate commerce, qualify as transportation workers exempt from the FAA under Section 1.
We’ll update you when we learn about an opinion.
Fees Allowed For Successful Petition To Appoint New Arbitrator In Existing Arbitration
Appointment of the Arbitrator Was a Final Judgment Here.
The procedural facts in Barbanell v. Lodge, D084193 (4th Dist. Div. 1 pub. 1/8/26) are unusual. The parties had reached an earlier settlement agreement concerning a long-running water rights dispute. The agreement had a heirarchical settlement procedure — negotiate, mediate, then arbitrate.
Barbanell initiated an arbitration. Lodge moved successfully to have the arbitrator withdraw, leaving the arbitration unresolved. Lodge also filed a lawsuit asserting arbitration claims in the lawsuit.
Barbanell then separately petitioned the court to appoint a new arbitrator in the existing arbitration. Barbanell prevailed, and was awarded attorney fees.
In the appeal, Lodge argued “the Barbanell entities could not have been prevailing parties in the underlying action because the parties had claims pending in a separate lawsuit in the superior court and in arbitration at the time of the award.” In effect, this was an argument that the Superior Court lacked jurisdiction to award attorneys fees until the claims were finally adjudicated.
Lodge was arguing that the Superior Court retained twilight jurisdiction, because a Superior Court action was pending and the matter was also being arbitrated; therefore, attorney fees could not be decided until the matter was complete and the court could decide who was the prevailing party on a contract claim.
Not so on the facts. The petition to appoint a new arbitrator was required as party of the settlement agreement, was a limited “action on the contract”, was fully adjudicated, resulted in a final judgment, and therefore allowed for attorney fees.
COMMENT: “Twilight jurisdiction” is a California-specific doctrine of limited judicial authority over litigation that has been sent to arbitration. The phrase traces to Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790 (1992), where the court described what happens to a civil action once the parties are compelled to arbitrate: “the action at law sits in the twilight zone of abatement with the trial court retaining merely vestigial jurisdiction over matters submitted to arbitration.” The phrase was then adopted and applied by Titan/Value Equities Group, Inc. v. Superior Court, 29 Cal.App.4th 482 (1994).
