In the spring of 2022, Dr. Sarah Chen, an emergency physician in Austin, did something she’d never done before. She stopped checking whether her ER was in-network for the patients rolling through her doors. It didn’t matter anymore. Congress had passed the No Surprises Act, and the law said patients couldn’t be billed for out-of-network emergency care beyond what they’d pay in-network. The insurance company and the doctor would sort out the rest.
Three years later, Chen’s group is still waiting on payment for hundreds of those encounters. Not denied, exactly. Stuck. Floating in a federal arbitration system so overwhelmed that the backlog once topped 14 million disputes, according to data from the Centers for Medicare & Medicaid Services. The law that was supposed to simplify medical billing created the largest payment dispute mechanism in American healthcare history — and denial patterns have mutated in ways nobody in Washington anticipated.
The arbitration explosion nobody modeled
When the No Surprises Act took effect in January 2022, federal officials estimated the independent dispute resolution process would handle roughly 17,000 cases per year. The actual number for 2023 alone exceeded 670,000, per CMS figures reported in 2024. By some industry estimates, total filings since inception have surpassed 14 million when counting both federal and state-level processes.
The mismatch wasn’t a rounding error. It was a fundamental misreading of incentives. The law’s architects assumed providers and insurers would negotiate in good faith, using arbitration only as a backstop. Instead, both sides weaponized it. Large provider groups — particularly private-equity-backed staffing firms like TeamHealth and Envision Healthcare — flooded the system with disputes, often winning payment amounts well above the median in-network rate. Insurers responded by tightening their initial payment offers and, critically, by reclassifying more claims as subject to denial rather than negotiation.
The result is a perverse new denial pattern. Rather than paying a lowball amount and inviting arbitration, some insurers now deny claims outright on coding or medical-necessity grounds, forcing providers into the standard appeals process instead of the No Surprises Act’s IDR lane. It’s slower, cheaper for the insurer, and harder for providers to fight at scale.
Denials migrated, they didn’t disappear
The American Hospital Association has tracked a steady rise in initial claim denial rates since 2022, with some member hospitals reporting denial rates above 15% on commercial claims — roughly double the pre-pandemic baseline. The Medical Group Management Association’s surveys tell a similar story: prior authorization denials, in particular, have surged, with some specialties seeing denial rates climb 20% or more year over year.
Here’s the uncomfortable dynamic. The No Surprises Act removed one category of patient financial pain — the surprise bill — but it didn’t remove the underlying cost. That cost is now being contested in two parallel wars: the IDR arbitration backlog on one front, and traditional claims denials on the other. Providers squeezed in arbitration push harder on the claims they can still control. Insurers squeezed by arbitration awards push harder on medical-necessity reviews.
The Government Accountability Office flagged this exact risk in a 2023 report, noting that the IDR process lacked the administrative capacity to handle even a fraction of actual volume. CMS has since expanded its contractor base and streamlined some procedures, but the structural problem remains: the system was designed for thousands of disputes and received millions.
The specialties caught in the middle
Emergency medicine, anesthesiology, radiology, and pathology — the hospital-based specialties most affected by surprise billing — have seen the strangest pattern shifts. These are the doctors patients don’t choose. Under the old system, they billed out-of-network and patients got stuck. Under the new system, they’re supposed to be paid fairly through negotiation or arbitration.
Instead, many have watched their commercial payment rates erode. A 2024 analysis by the health research firm Avalere found that median IDR awards for emergency services, while above insurers’ initial offers, still came in below historical out-of-network billed charges by wide margins. For provider groups that built their business models on those charges — particularly the private-equity-backed staffing companies — the math no longer works. Envision Healthcare filed for bankruptcy in 2023, citing among other pressures the revenue impact of the No Surprises Act.
Meanwhile, insurers have gotten creative. Industry consultants describe a growing practice of “downcoding” — reclassifying emergency visits to lower-complexity codes that pay less, then daring providers to dispute it. Each downcoded claim is technically a partial denial. In aggregate, across millions of claims, it represents one of the largest silent payment cuts in recent healthcare history.
What the data says about 2026
Three trends are now clear enough to name.
First, the IDR backlog is slowly clearing but the economics have permanently shifted. CMS reported meaningful reductions in pending cases through 2025 as new contractors came online and batching rules allowed similar disputes to be resolved together. But the precedent set by early arbitration awards — generally favoring providers over insurers’ initial offers — has pushed insurers to simply offer less upfront, widening the gap that makes arbitration necessary.
Second, prior authorization has become the new denial frontier. With surprise billing off the table, insurers have invested heavily in AI-driven prior auth systems. The American Medical Association’s annual prior authorization survey consistently finds that more than 90% of physicians report care delays from prior auth, and a growing share report outright abandonments — patients who give up on recommended care. Each abandoned treatment is a claim that never gets filed, which is the cheapest denial of all.
Third, state laws are fragmenting the picture further. More than 30 states had their own surprise billing protections before the federal law, and the interaction between state and federal IDR processes remains messy. Providers operating across state lines face different rules, different timelines, and different payment benchmarks depending on where the patient was treated.
The counterargument worth hearing
Defenders of the law point out, correctly, that it did what it promised: surprise bills for emergency and ancillary out-of-network care have effectively disappeared. The Kaiser Family Foundation estimated that millions of surprise bills were prevented in the law’s first two years. Patients are unambiguously better off.
The question is whether the cost of that win — a sclerotic dispute system, shifting denial patterns, and financial stress on the very physician groups that staff emergency rooms — was necessary, or whether a simpler mechanism (say, a binding benchmark rate with no arbitration) would have worked better. Several health economists, including those at the Brookings Institution’s USC-Brookings Schaeffer Initiative, argued from the start that baseball-style arbitration would be gamed by whichever side had more resources to flood the zone. They were right.
What this means for the denial business
For hospitals, physician groups, and the revenue-cycle companies that serve them, the lesson of the No Surprises Act era is that denial patterns are not static. They migrate. Close one door — surprise billing — and the pressure finds another — prior auth, downcoding, medical-necessity reviews.
The organizations thriving in this environment share one trait: they’ve stopped treating denials as a billing problem and started treating them as a data problem. The groups winning IDR arbitrations are the ones with the best comparative payment data. The hospitals holding denial rates flat are the ones using predictive analytics to flag at-risk claims before submission. In a system this complex, the advantage goes to whoever sees the pattern first.
The No Surprises Act didn’t end the fight over who pays for healthcare. It just moved it to a battlefield with worse maps.
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"An industry built on friction has no incentive to end the friction. It has every incentive to manage it — profitably, indefinitely."