Farzin Kabaei, MD, an orthopedic surgeon, did four joint replacements one week this spring. A Medicare case paid him $800 to $900. Two Blue Shield cases paid about $1,100 each. The fourth patient was covered by an insurer with which his practice is out of network. His bill for that surgery: $40,000.
“That $40,000 allows me to operate on Medicare patients,” Dr. Kabaei said. “If I didn’t have that lifeline, I couldn’t even keep the lights on in my building.”
He said the out-of-practice reimbursement, provided by the federal independent dispute resolution process, has become one of the last financial levers keeping independent physician practices alive as Medicare reimbursement declines and more physicians sell to private equity or health systems.
‘A dying breed’
Dr. Kabaei is a partner at Los Angeles-based Docs Health, a 15-surgeon independent orthopedic, spine and pain management group. The group owns an outpatient surgery center, is building a second one and is constructing its own inpatient hospital, expected to open in January. The expansion stands in contrast to most of his peers, he said, who have already sold to private equity or joined health systems.
“We’re kind of a dying breed,” he said. “Being in private practice is extremely difficult.”
Dr. Kabaei said Medicare reimbursement for joint replacement has fallen to a level of essentially “charity work” and said commercial PPO rates are not much better. With overhead running more than $50,000 a month, he said in-network rates alone do not cover the practice’s costs.
How the arbitration process works
The tool he leans on comes from the No Surprises Act, the 2020 law best known for banning surprise medical bills. It also created the federal independent dispute resolution process, which lets an out-of-network provider and insurer resolve payment disputes through binding arbitration instead of billing the patient.
“Our lifeline is IDR,” Dr. Kabaei said.
Each side submits a final offer, and an arbitrator must pick one in full. If the provider wins, the insurer — not the patient — pays.
“We forgo any fees to the patient,” Dr. Kabaei said. “We only charge what their in-network fees are. Then we take our chances with the arbitration.”
Dr. Kabaei’s reliance on arbitration comes at a pivotal moment for the process. Federal regulators in May finalized a rule overhauling how independent dispute resolution operates, allowing providers to batch up to 50 disputes together, requiring insurers to use standardized billing codes to clarify which claims qualify and reducing filing fees.
Not everyone sees the arbitration surge as worth preserving as is. Payer CEOs have argued the process has been exploited beyond its original intent, driving up costs systemwide. Insurers have also filed lawsuits against some physician practices, alleging they are using the system to achieve higher reimbursement.
Dr. Kabaei rejects that framing, arguing the arbitration income does not pad his margins.
“It’s not a money grab,” he said. “It’s to pay up for all the other surgeries we don’t get paid for at home.”
For his own practice, he is blunt about what the alternative would have looked like without the IDR process.
“We would have sold it to a private, just like everybody else,” he said.
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