Healthcare / False Claims Act · Anti-Kickback Statute · Manufacturer Practice Support · Scienter

Introduction

Manufacturers of physician-administered drugs have long supported the practices that administer them, with reimbursement hotlines, coding guides, nurse training, and advice on operating an infusion suite. Relators have argued that some of that support is really free business consulting, and that free consulting given in conjunction with prescriptions is illegal remuneration under the Anti-Kickback Statute (AKS). Manufacturers have responded that support tied to their own products is part of what providers purchase along with the infusion drugs. Courts have analyzed those claims using a “substantial independent value” test drawn from guidance of the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services: support that has value to the practice apart from the manufacturer’s product can be remuneration, while support whose value depends on the product generally is not.

In United States ex rel. Hart v. McKesson Corp., 602 F. Supp. 3d 575, 589–90 (S.D.N.Y. 2022), aff’d in relevant part, 96 F.4th 145 (2d Cir. 2024), allegations about a free “Margin Analyzer” survived dismissal under the “substantial independent value” test. On September 30, 2026, after nearly ten years of litigation, the U.S. District Court for the District of Massachusetts granted summary judgment for Janssen Biotech in a qui tam case the government declined to join, over Janssen’s programs supporting practices that infuse Remicade and Simponi ARIA in their own offices. The court made two rulings. First, the relator had not produced evidence that the services had value independent of Janssen’s drugs. Second, and in the alternative, she had not produced evidence that Janssen acted knowingly and willfully in violation of the AKS, and therefore of the False Claims Act (FCA).

Executive Summary

Janssen makes Remicade and Simponi ARIA, two infused biologics usually prescribed by rheumatologists and gastroenterologists. Through a team of Area Business Specialists (ABSs), it offered physician practices programming on setting up and operating in-office infusion suites, covering billing and coding, staffing, scheduling, specialty pharmacies, and suite efficiency. Julie Long, an ABS in central Pennsylvania from 2003 to early 2016, filed a qui tam action in 2016 alleging that the programming was free business consulting that amounted to AKS kickbacks and tainted the resulting claims under the FCA. The United States and the states declined to intervene. After discovery limited to her territory and to national or regional policies that applied to her work, Janssen moved for summary judgment on the whole case, and Long cross-moved on scienter.

The court granted Janssen’s motion and denied Long’s. It applied the substantial independent value framework, rejected Janssen’s First Amendment argument, and held that the evidence did not show remuneration. It then held that Long had not shown a knowing and willful violation. Because there was no triable AKS violation, the court did not reach Janssen’s FCA-specific arguments or its constitutional challenges to the qui tam provisions.

Background

The programs, and what the relator conceded

Janssen ran two field teams working with infusion centers. Immunology Specialists detailed the drugs’ clinical benefits at the sites where they were prescribed. ABSs worked at the “Site of Care,” where patients were infused. Janssen’s position was that in-office suites widen patient access and reduce “attrition” by patients who get a prescription but never complete their infusions. 2026 WL 2949353, at *2, *4. A multidisciplinary Promotional Review Committee, including in-house lawyers, approved all written programming. Janssen did not assert an advice-of-counsel defense and did not waive privilege over the lawyers’ communications, so the record showed that the committee approved the materials but not what the lawyers advised. Id. at *5 & n.3. Compliance policies told ABSs they were “not business advisors” and could not offer “consulting services that relate to the management of customers’ business practices.” Id. at *9.

Two features of the record shaped the case. First, Long expressly conceded, in a discovery dispute and again at summary judgment, that the approved slide decks and written materials were not unlawful remuneration. Her theory was that ABSs and outside consultants delivered unlawful “live” services that went beyond those materials. Id. at *2, *15–16. Second, she offered no affidavit of her own, no testimony from any other ABS, and no testimony from any physician or practice manager. The court found “no direct evidence at all of the content of any oral communication between any ABS and any physician practice.” Id. at *16.

The IOM

The court described the Infusion Optimization Modeler (IOM) as the “closest” Long came to establishing an AKS violation. Id. at *3. An ABS took a practice’s data on its Remicade patients, infusion chairs, and staff hours, ran it through a relatively simple program, and produced a printout showing which resource constrained the practice and how many more infusions per week it could deliver if that constraint were removed. Id. at *8–9, *23. In Long’s words, the practice then “had to take the bull by the horns” and make any changes itself. Id. at *23.

The procedural path

Long filed on October 28, 2016. Over the next eight years the court dismissed the state-law claims, trimmed the federal claims on limitations grounds, and denied a public-disclosure-bar motion. Id. at *10. Rather than order nationwide discovery, the court limited the first phase to Long’s territory and to national or regional policies that applied to her work, and allowed Janssen to test the case by summary judgment at the end of that phase. Id.

Legal Analysis

• The court applied the substantial independent value framework. The court reasoned that a literal reading of “remuneration” “would make virtually all pharmaceutical detailing or marketing a crime.” Id. at *11. It followed OIG Advisory Opinion No. 00-10 (Dec. 15, 2000) and the 2003 Compliance Program Guidance for Pharmaceutical Manufacturers, 68 Fed. Reg. 23,731, 23,735 (May 5, 2003), noting that “every court to have considered the issue” had done so. Id. at *12. It added that, after Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), OIG’s views get no deference. 2026 WL 2949353, at *12 n.9.
  • The relator’s challenge to the framework. Long argued that the framework should not apply at all. The court called the argument “perhaps not frivolous” but undeveloped, and declined “to blaze a new trail” given that the AKS is a felony statute whose terms are interpreted the same way in civil and criminal cases. Id. at *13.
  • The guideposts. Medical, clinical, and technical support, and billing and reimbursement advice for the product, are permissible. Business or management advice about the overall practice, or doing tasks that are part of a physician’s overhead, are not. Id. at *13–14. In between, “the landscape is unclear,” and the court said those cases turn on “the actual evidence,” not “conclusory labels.” Id. at *14.
• The First Amendment did not narrow “remuneration.” Janssen argued that treating truthful promotional speech as illegal remuneration would raise constitutional concerns, so the term should be read narrowly. Long responded that the First Amendment does not shield illegal inducements that happen to involve communication. The court rejected Janssen’s argument, reasoning that the AKS regulates conduct, and that “where valuable speech is offered as the quid in a quid pro quo arrangement, prohibiting such arrangements would clearly survive First Amendment scrutiny.” Id. at *14–15.
• The question was not whether the programs were valuable, but whether their value was independent of Janssen’s drugs. The court accepted that the programming had substantial value and that its ultimate purpose was to sell more Remicade and Simponi ARIA. Id. at *20. Under the framework, support lacks “independent” value if its value “would not exist if the products did not exist.” Id. Long’s arguments failed on that point.
  • Other drugs. Long argued the suites could be used for other infused drugs. The court found her evidence consisted, “in substance, of a single sentence by a single witness,” a Janssen Rule 30(b)(6) designee’s acknowledgment that the programs would interest physicians who wanted to infuse other products. Id. at *21.
  • Scale and price. Long pointed to the magnitude of the programs and to the roughly $3,000 per session Janssen paid the outside firm Xcenda to deliver them. The court held that size and cost show value and importance to Janssen, but not independence. Id. at *21–22 & n.23.
  • Tailoring. Customized advice is “relevant, but it is not controlling,” since a device representative assisting a surgeon gives tailored advice that still is not independent of the product. Id. at *22.
  • The IOM. The court assumed the IOM fell outside Long’s concession and treated it as an extension of the approved “Managing Biologics in the Physician Office” deck to a specific practice. Because it was used only with practices already infusing Janssen’s drugs, and the record held no evidence on other infusible products or their infusion times, the court held that “if Remicade and Simponi ARIA did not exist, the IOM would have no value.” Id. at *23–24 & n.25. It distinguished Hart, where the tool compared the profitability of competing drugs, employees reviewed “key areas of improvement” with practices quarterly, and another McKesson division sold the same tools. Id. at *24.
• Scienter was decided in the alternative. Having found no remuneration, the court could have ended its analysis. “Rather than stop at that point,” it also took up willfulness, which gives the ruling a second, independent basis. Id. at *24. Under United States v. Bay State Ambulance & Hospital Rental Service, Inc., 874 F.2d 20, 33 (1st Cir. 1989), and 42 U.S.C. § 1320a-7b(h), the relator must show knowledge that the conduct is unlawful and intent to violate the law, but not intent to violate the AKS specifically. 2026 WL 2949353, at *25.
  • A corporate scienter framework. Adapting United States v. Bank of New England, N.A., 821 F.2d 844, 855–56 (1st Cir. 1987), the court applied the collective knowledge doctrine to “knowingly,” so that the corporation’s knowledge includes everything its employees knew collectively. For “willfully,” it required evidence that an employee acting within the scope of employment intended to violate the law, or that the corporation was “flagrantly indifferent” to its legal obligations. 2026 WL 2949353, at *25–26. It noted that the D.C. Circuit has rejected collective knowledge for FCA scienter in United States v. Science Applications International Corp., 626 F.3d 1257, 1274 (D.C. Cir. 2010), that the First Circuit has not addressed the question, and that it was applying the doctrine to the AKS. 2026 WL 2949353, at *25 n.27.
  • Concealment. Long pointed to compliance edits, such as changing “Operational Efficiency” to “Access Support for our IV Therapies,” and a direction to talk about patient growth rather than vial growth. The court held that it would be unreasonable to read a compliance officer’s suggested changes as concealment, and that “all four instances involved cautions or reminders that ABSs should steer clear of business discussions.” Id. at *27–28.
  • Internal warnings. Compliance staff had flagged “potential risk[s]” and “compliance sensitivities,” including the risk that the programs could be seen as offsetting a practice’s start-up costs. The court held this showed “compliance officers who did their jobs,” and that treating it as willfulness would effectively punish Janssen “for having a compliance department at all.” Id. at *28–29.
  • Institutional history and policies. Prior settlements and a Corporate Integrity Agreement with OIG showed awareness of the AKS, which was not disputed. Id. at *29. Long’s syllogism—that the policies barred consulting, the programs were consulting, and so the violation was willful—failed because compliance personnel approved the programming and no witness believed it was unlawful consulting. Id. at *3, *29–30. Long herself testified that she did not believe at the time that she was providing a kickback. Id. at *31. A training slide saying there is “a lot of gray” in healthcare compliance was, in context, “perfectly accurate,” not an invitation to break the law. Id.
• Disclosure to the government carried limited weight. Janssen argued that it openly disclosed the programs to federal authorities and so could not have intended to conceal them. The court called that evidence relevant but “of limited value,” because the government may not appreciate a disclosure or have resources to follow up. Id. at *26 n.28.

Holding

Janssen’s motion for summary judgment was granted, and Long’s cross-motion on scienter was denied. The court held that, drawing all reasonable inferences in her favor, Long had not produced evidence that Janssen provided services with substantial independent value to induce purchases of Remicade or Simponi ARIA. Id. at *24. Independently, she produced “no evidence that any individual employee of Janssen had the necessary intent to violate the law,” and the evidence fell “well short” of showing corporate flagrant indifference. Id. at *31. The court rejected Janssen’s First Amendment argument. It did not reach Janssen’s FCA-specific arguments or its Appointments Clause and Take Care Clause challenges to the qui tam provisions. Id. at *11 n.8, *31. The court entered judgment on October 6, 2026. Judgment, Long, No. 1:16-cv-12182-FDS (D. Mass. Oct. 6, 2026), ECF No. 674.

What to Watch

• An appeal to the First Circuit. Because the court rested on two independent grounds, Long would need to overturn both. Judgment was entered on October 6, 2026, so a notice of appeal is due by November 5, 2026. See Fed. R. App. P. 4(a)(1)(A). As of October 18, 2026, none had been filed.
• Collective knowledge and AKS scienter. The court adapted the First Circuit’s corporate scienter standard from Bank of New England, a Currency Transaction Reporting Act case, to the AKS, and applied the collective knowledge doctrine to the AKS’s “knowingly” element. It did so even though the D.C. Circuit has held that collective knowledge is “an inappropriate basis for proof of scienter” under the FCA, reasoning that the AKS’s statutory language differs from the FCA’s. 2026 WL 2949353, at *25 n.27 (quoting Science Applications International Corp., 626 F.3d at 1274). The First Circuit has not addressed whether collective knowledge can establish FCA scienter, id., and the opinion cites no First Circuit decision applying the doctrine to the AKS, so an appeal would give the First Circuit the chance to decide whether the court’s approach is right.
• The middle of the independent-value spectrum. The court described the line between product support and practice management advice as “ill-defined” and “far from precise.” Id. at *3, *13. The court contrasted Hart and United States ex rel. Witkin v. Medtronic, Inc., No. 1:11-cv-10790-IT, 2024 WL 1892405, at *17 (D. Mass. Mar. 31, 2024), with United States ex rel. Forney v. Medtronic, Inc., No. 5:15-cv-06264-EGS, 2017 WL 2653568, at *1, *4 (E.D. Pa. June 19, 2017). 2026 WL 2949353, at *13. Because the independence test turned on whether the programs would have had value without Janssen’s drugs, evidence that the same tools served other infusible drugs was the missing piece here. The court noted that a 2013 IOM printout had lines for “other infusions” that neither party addressed. Id. at *8 n.6. That is the gap future relators are likely to try to fill.
• The constitutional challenge left unresolved. Janssen’s Article II challenge to the qui tam provisions was raised but not decided. It would remain available to Janssen if the judgment were reversed.

What This Means for Resolving FCA Disputes

A practice-support case turns on two evidentiary questions. Was the help part of the product or a freestanding benefit? And, on the knowledge and willfulness element, did anyone at the company understand that the help crossed the line into unlawful remuneration? Long shows how a manufacturer with documented compliance review can make the second question hard for a relator to answer. Compliance staff approved the programs, flagged risks, and saw their edits adopted, and the court read that record as diligence, not knowledge. A relator who cannot produce a witness saying the conduct was understood to be unlawful, or a document showing that warnings were ignored, faces a steep climb on scienter even where the remuneration question is close.

That changes how these cases are valued. Exposure in an AKS-predicated FCA case multiplies through trebling and per-claim penalties. But a scienter element that turns on specific evidence of intent discounts all of it, and the defendant’s own compliance record largely sets the amount of the discount. Relator’s counsel will want first-hand witnesses and documents showing that warnings went unheeded. Defense counsel will want to show how compliance review actually worked, which may mean deciding early whether privileged legal review becomes part of the story. Where the record is thin on both sides, an early discovery phase like the one the court used here gives the parties a shared view of the evidence before the full cost of nationwide discovery, and that tends to be when these cases are most resolvable.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Healthcare / False Claims Act · Medicaid Managed Care · Materiality · Government Knowledge

Introduction

In Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176, 194 (2016), the Supreme Court held that the materiality requirement of the False Claims Act (FCA) is “demanding,” and that the government’s own response to known violations is strong evidence of whether they matter. If the government “pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.” Id. at 195. The same is true if the government “regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position.” Id. Escobar did not define the government’s “actual knowledge,” and lower courts are still working out whether an agency knows of a violation when the information is in its files or in its own contractor’s reports, but the officials who decide whether to pay or recover never reviewed or understood it.

In United States ex rel. McCullough v. Anthem Insurance Companies, Inc., the U.S. District Court for the Southern District of Indiana recently faced this issue at the pleading stage. There, two former Indiana state officials alleged that four Medicaid managed care entities and six hospital systems were paid on improper claims that IBM’s algorithms had identified, even though the state had not tried to recover the overpayments. On August 20, 2026, the court denied both defense groups’ motions to dismiss the relators’ third amended complaint, after it had dismissed the second amended complaint for failure to plead materiality. On materiality, the court held that, “though it is a close call, materiality is satisfied.” The court also made two other rulings. It adhered to its earlier rulings on falsity, scienter, and causation, again held the Indiana FCA’s public disclosure bar inapplicable, and rejected the constitutional challenge to the qui tam provisions of the FCA.

Executive Summary

From 2011 to 2021, IBM Watson and its corporate predecessors served as the fraud and abuse detection contractor for Indiana’s Medicaid program. In 2016, after a Centers for Medicare & Medicaid Services (CMS) audit, Indiana Medicaid’s Program Integrity team directed IBM to expand its algorithms beyond fee-for-service claims to claims providers submitted to managed care entities (MCEs). The MCEs receive capitated payments from the state, set in part on the basis of the encounter data the MCEs report on the claims they paid. From 2017 to 2021, IBM’s analyses identified claims that, according to the relators, the MCEs paid and the hospitals submitted in violation of billing rules and Medicaid requirements. According to the relators, Indiana Medicaid then paused its efforts to recover the overpayments IBM had identified. 2026 WL 2448954, at *2–3.

John D. McCullough, a former Director of Program Integrity for Indiana Medicaid, and James R. Holden, a former Chief Deputy and General Counsel in the Office of the Indiana State Treasurer, brought a qui tam action under the federal and Indiana FCAs. Id. at *1. The defendants include both MCEs and hospital systems: the “MCE Defendants” (Anthem Insurance Companies, Inc., MDwise, Inc., CareSource Indiana, Inc., and Coordinated Care Corporation) and the “Hospital Defendants” (Indiana University Health, Inc., Health and Hospital Corporation of Marion County, Community Health Network, Inc., Ascension Health, Inc., Lutheran Health Network, Inc., and Parkview Health System, Inc.). Id.

The court had dismissed the second amended complaint for failure to plead materiality, reasoning that the relators’ own allegations showed that Indiana Medicaid knew of the violations and chose not to act; that complaint attributed the decision not to recoup to “improper political pressure.” Id. at *5. In the third amended complaint, the relators dropped that allegation and alleged instead that an understaffed Program Integrity team and a new director never fully reviewed or understood IBM’s reports. The court accepted those allegations as true, held that they removed the “very strong evidence” against materiality that actual knowledge would supply, and denied both motions. Id. at *8–10. The ruling is an unpublished district court order at the pleading stage. It does not decide whether any claim was false or what Indiana Medicaid actually knew. But it is illustrative of the way lower courts are applying Escobar to determine whether relators are adequately pleading materiality.

Background

The IBM reports and the Program Integrity team

According to the complaint, IBM’s algorithms helped Indiana Medicaid recover millions of dollars a year in fee-for-service overpayments between 2011 and 2016, including more than $8.9 million in 2016. The relators allege that IBM’s ongoing refinement of its algorithms ensured their accuracy, and that fewer than one percent of IBM-based recoupment demands were overturned on appeal from 2011 to 2020. Id. at *2. Adding MCE claims was expected to multiply the number of improper claims IBM found and the amount recovered. Id.

The relators allege the Program Integrity team could not handle that volume. It had four staff members when McCullough became director in 2014. McCullough was told it needed at least a dozen more to pursue recoveries on the MCE findings, and he hired one before he was terminated in early 2017. Program Integrity staff repeatedly told IBM they could not fully review earlier reports, let alone new ones, and McCullough’s replacement had gaps in her understanding of IBM’s analysis. Id. As a result, the team curtailed its plans to recoup based on IBM’s findings. The relators allege that the state stopped because it lacked the staff to pursue the recoveries, not because it doubted that IBM’s findings were accurate. They also allege that the pause was not a change in the law or a formal policy decision, so the defendants could not have believed they had been released from their obligations to avoid, detect, or repay overpayments. Id. Those allegations are aimed at Escobar, under which the government’s continued payment of claims counts strongly against materiality when it pays with actual knowledge that the claims violate applicable rules. The relators’ account is that the state never made an informed decision that the violations did not matter. Medicaid fraud recoveries fell from $12.84 million in 2016 to $7.24 million in 2019. Indiana Medicaid has since reintroduced algorithms targeting the same type of billing violations and obtained recoveries comparable to those in 2016, an allegation that bears on whether the state treats these violations as material. Id.

The alleged violations

Under Indiana’s managed care model, the hospitals submit claims to the MCEs, whose provider agreements require compliance with Medicaid rules, and Indiana Medicaid providers certify compliance as a condition of payment. Id. at *3. IBM’s analyses allegedly found that the MCEs paid tens to hundreds of millions of dollars in claims that broke basic hospital billing rules (such as the rule against billing two separate inpatient stays when a patient is readmitted right away for the same condition), were plainly not payable (services after a patient’s death, duplicates), or violated Medicaid requirements for chiropractic, dental, and opioid treatment. Id. The relators allege the MCEs paid those claims rather than catching them “because they knew reporting higher expenditures in the encounter data they submitted to Indiana Medicaid would allow them to obtain higher capitated payments in subsequent years.” Id. (Encounter data are the records MCEs submit to the state of the claims they paid; the state uses these data in setting future capitation rates.) IBM’s analyses also allegedly found that the Hospital Defendants obtained millions of dollars in Medicaid funds by submitting claims that broke basic hospital billing rules, were plainly not payable, or violated Medicaid requirements for injections. Id.

The relators alleged that the defendants presented false claims and made false statements under 31 U.S.C. § 3729(a)(1)(A) and (B), and under the Indiana analogs, Ind. Code § 5-11-5.7-2(b)(1) and (2). Id. at *1. The relators did not plead a reverse false claims count under § 3729(a)(1)(G), which would have targeted the defendants’ failure to repay identified overpayments. The state’s failure to recoup therefore matters here only as evidence on materiality, not as a claim in its own right.

The prior dismissal

In the second amended complaint, the relators alleged that Indiana Medicaid curtailed recoupments because of “improper political pressure.” The court read that as a conscious choice to deemphasize correct payment and, under Escobar, as strong evidence that the violations were not material. It gave the relators a “final attempt” to plead materiality. Id. at *5.

Legal Analysis

The court first disposed of the arguments it had previously decided with regard to the second amended complaint, then took up the parties’ competing accounts of what Indiana Medicaid knew, and then decided materiality.

1. The elements the court had already decided

• The court adhered to its earlier rulings on the other elements. The Hospital Defendants argued that the complaint failed to plead falsity, scienter, materiality, and causation, and failed to satisfy Rule 9(b). The MCE Defendants made the same arguments and added the public disclosure bar and the constitutionality of qui tam. Id. at *4.
  • Other elements. Because the third amended complaint largely repeated the earlier allegations, the court did not disturb its prior rulings on falsity, scienter, and causation, noting that the defendants had preserved their objections. Id.
  • Public disclosure. The court again held the Indiana FCA’s public disclosure bar inapplicable, notwithstanding Seventh Circuit precedent that “the Government’s possession of the information exposing a fraud is alone sufficient to trigger the public-disclosure bar,” Cause of Action v. Chicago Transit Authority, 815 F.3d 267, 275 (7th Cir. 2016), because it remained persuaded that the Indiana Supreme Court would follow the majority of federal circuits. 2026 WL 2448954, at *5.
  • Constitutionality. Absent binding authority, the court agreed with the district courts in the Seventh Circuit and with the other circuits that have upheld the constitutionality of qui tam actions. Id.

2. The materiality issue

• Inconsistent pleading. The defendants argued that the new allegations do not align with the prior ones. They said the relators were backtracking on their earlier actual-knowledge allegations, and that the third amended complaint undermined the argument that the excessive claims were accepted unknowingly. The defendants noted that the third amended complaint alleges that Program Integrity staff typically reviewed IBM’s findings, that IBM sent more than 1,000 audit letters a year, and that millions were recouped annually. Id. at *6. The Hospital Defendants pointed to the relators’ own July 2020 report showing that IBM’s recoupments were among their highest in 2017, 2018, and 2019, and that Indiana Medicaid chose not to pursue 22 IBM findings, which they argued shows the state reviewed the reports and made choices not to pursue overpayments. Id. at *7. The MCE Defendants argued that the complaint alleges the state always found the violations material, changed its policy, and was too worried about the expense of administrative recoupment, which cannot all be true. Id. at *8.
• The relators responded that possessing a report is not knowing what is in it. Relying on United States ex rel. Streck v. Eli Lilly & Co., 152 F.4th 816 (7th Cir. 2025), and United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008), they argued that actual knowledge cannot be imputed to an agency whose officials fail to appreciate the significance of what they are given. 2026 WL 2448954, at *6. The MCE Defendants answered that Streck involved an undisclosed $600 million effect on pricing, while IBM’s reports identified the claims, why they were flagged, and their financial impact. Id. at *7.
• Each side read the state’s recoupment email as support. The relators relied on an email from the General Counsel of the Indiana Family and Social Services Administration (FSSA) stating that Indiana Medicaid would seek recoupment “if the claims identified in [this] qui tam action are confirmed to be claims that are not legally entitled to payment.” As noted above, Escobar treats repeated payment with actual knowledge as strong evidence against materiality only where the government “has signaled no change in position.” The relators argued that the email was such a signal: whatever the state knew before, it had now said it would recover payments on claims found to be improper. Id. at *7. The defendants read it the other way: the state would act only if a court told it to. Id. at *6. The MCE Defendants added that the statement was not news, because “presumably” Indiana Medicaid has always cared about recoupment. Id. at *8.
• The State of Indiana weighed in. In a Second Statement of Interest, the state urged a holistic approach to materiality under the Indiana FCA, arguing that “Medicaid is not an ordinary commercial arrangement” and that focusing exclusively on enforcement decisions made “with imperfect information and limited resources” undervalues the harm of false claims. Id. at *8.

3. The court’s materiality analysis

• An amended pleading supersedes the earlier admissions. The court held that, under Scott v. Chuhak & Tecson, P.C., 725 F.3d 772, 782–83 (7th Cir. 2013), “facts or admissions from an earlier complaint that are not included in a later complaint cannot be considered on a motion to dismiss.” The political-pressure allegation was gone, so the court’s earlier finding of “very strong evidence” against materiality no longer applied. 2026 WL 2448954, at *8.
• Without actual knowledge, the holistic factors favored materiality. The court held that “[a]bsent actual knowledge by Indiana Medicaid, the holistic view the Court is required to take leads to the conclusion that the alleged false claims were material.” Id. at *9. It relied on Seventh Circuit authority that noncompliance “resulting in large price differentials in how much the government owes” strongly supports materiality, on the requirement that the defendants certify their claims, and on the parallel to United States ex rel. Heath v. Wisconsin Bell, Inc., 92 F.4th 654 (7th Cir. 2024), where a misrepresentation going to a cost-control program’s purpose was material. Because the purpose of Medicaid managed care is to reduce costs, the court found it “reasonable for the Court to infer that if Indiana Medicaid had known of the actual violations, it would have sought recoupment.” 2026 WL 2448954, at *9. That inference is not a presumption in the relators’ favor. Relators must plead and prove materiality, but they do not have to prove that the government lacked actual knowledge; the government’s knowledge is evidence the defendants offer to show that the violations did not matter. Materiality asks whether a misrepresentation has “a natural tendency to influence, or be capable of influencing,” payment, 31 U.S.C. § 3729(b)(4), and looks to “the likely or actual behavior” of the government, Escobar, 579 U.S. at 193 (internal quotation marks omitted). Where, as alleged here, the government did not know of the violations, there is no actual behavior to examine, so the court asked what the government likely would have done had it known. The court also noted that a statement can be material “even if those who make the decision are negligent and fail to appreciate the statement’s significance.” 2026 WL 2448954, at *10 (quoting Streck, 152 F.4th at 848 (quoting Rogan, 517 F.3d at 452)).
• The state’s inaction counts, but it is not dispositive. The court agreed with the defendants that “Indiana Medicaid’s inaction is evidence of immateriality, but that fact alone is not dispositive,” and held that “the mere fact that Indiana Medicaid had the reports does not automatically indicate that they knew or appreciated the reports’ significance such that it defeats materiality.” Id. at *10.
• The question is whether the claims were material, not whether the reports were. The defendants pointed to the state’s assertions that the IBM reports may be doubtful or speculative. The court responded that “the issue is not whether the IBM reports themselves were material to the government’s payment decision but rather whether the allegedly false claims to the government were material to its payment decision.” Id.

Holding

Both motions to dismiss the third amended complaint were denied. The court adhered to its prior rulings on falsity, scienter, causation, public disclosure, and the constitutionality of qui tam. On materiality, it held that the third amended complaint’s allegations that Indiana Medicaid lacked actual knowledge, which it accepted as true at the pleading stage, together with the amounts alleged, the certification requirement, and the cost-control purpose of Medicaid managed care, sufficiently plead materiality under Escobar. 2026 WL 2448954, at *4–10.

What to Watch

• Discovery into what Indiana Medicaid knew. The materiality ruling rests on allegations that the Program Integrity team lacked actual knowledge of the falsity of the claims because it did not review or understand IBM’s reports. The defendants have already pointed to evidence that cuts the other way. The relators’ own July 2020 report shows that IBM-based recoupments in 2017, 2018, and 2019 were among the highest of the decade, the same period in which the relators say the state stopped reviewing IBM’s findings, and that Indiana Medicaid chose not to pursue 22 IBM findings during that period. The defendants argue that both facts show the state read the reports and decided which findings to act on. Discovery will test whose account holds.
• The FSSA’s position on recoupment. The FSSA General Counsel’s email ties recoupment to confirmation that the claims were not payable. If the state begins recouping while the case is pending, that would support the relators’ argument that it has “signaled [a] change in position” under Escobar. If it does not, the defendants will say its inaction speaks for itself.
• The defendants’ preserved arguments. The defendants preserved their objections on falsity, scienter, and causation for later stages, and the court has now twice rejected their public disclosure and qui tam challenges. The public disclosure question is whether the bar applies when the information behind a relator’s claims was in the government’s hands but was never disclosed to the public. Under Seventh Circuit precedent, the government’s possession of the information is enough to trigger the bar, Cause of Action, 815 F.3d at 275, but the Seventh Circuit has itself indicated that it needs to reconsider that rule, id. at 277. Because the bar at issue here is the Indiana FCA’s, the court predicted that the Indiana Supreme Court would follow the majority of federal circuits, which do not treat the government’s possession alone as a public disclosure. Whether the Seventh Circuit will revisit its rule remains open.

What This Means for Resolving FCA and Payor-Provider Disputes

In most FCA cases, evidence of government knowledge helps the defense. Here, a state contractor’s list of flagged claims became the relators’ evidence of falsity and the defendants’ evidence of immateriality at the same time. The court held that possession of that list is not enough at the pleading stage to establish that the government knew. That keeps the case open, but it also keeps the central fact question, what the state knew and why it did not recoup, unresolved until discovery. Parties tend to wait on a question like that, and the court’s description of materiality as “a close call” gives both sides a reason to.

The case also puts plans and hospitals on the same side of the caption with interests that do not fully line up. The relators’ theory against the MCEs depends on their paying claims that, under the same theory, the hospitals should not have submitted. The MCEs’ provider agreements require compliance with Medicaid rules, so a plan facing exposure for paying a claim may look to the provider that submitted it. The court did not address that allocation, but any global resolution will have to.

Finally, the FSSA has said Indiana Medicaid will seek recoupment if the claims are confirmed not to be payable. That gives the defendants a separate recoupment exposure, limited to the overpayments themselves, while the FCA case adds treble damages and per-claim penalties on top of that amount. An identified-overpayment list gives every party a shared starting figure, which tends to make these cases resolvable. Until the government-knowledge question is answered, though, the parties will value the gap between recoupment and treble damages very differently.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

False Claims Act · Qui Tam Settlement Approval · Relator Share · Alternate Remedy

Introduction

When the government intervenes in a False Claims Act (FCA) case and settles it, the relator gets 15 to 25 percent of the “proceeds.” The relator will be concerned with both what counts as the “proceeds” and whether the amount is big enough. The relator can object on both grounds: that the settlement is not “fair, adequate, and reasonable under all the circumstances,” 31 U.S.C. § 3730(c)(2)(B), and that a separate deal between the government and the defendant was an “alternate remedy” in which she should share, id. § 3730(c)(5).

In United States ex rel. Ling v. City of Los Angeles, the relator did both. While the FCA litigation was pending (it concerned whether the City of Los Angeles had misrepresented its compliance with accessible-housing requirements tied to funds from the U.S. Department of Housing and Urban Development (HUD)), the City agreed with HUD to spend at least $200 million on accessible housing. It later settled the FCA claims for $38,266,989. On September 24, 2026, the Ninth Circuit rejected the relator’s objections and affirmed the district court’s approval of the settlement. First, it held that the HUD agreement, which redressed a different wrong and expressly carved out the FCA claims, was not an alternate remedy because it didn’t take the place of the FCA case. Second, it held that the district court didn’t abuse its discretion in approving a settlement the government built on a benefit-of-the-bargain damages model. Five days later, a federal court in Chicago faced the same basic question under state law (when a government recovery outside the qui tam case entitles the relator to a share) and declined to decide it, leaving it to the state courts.

Executive Summary

Mei Ling and the Fair Housing Council of the San Fernando Valley (FHC) filed a qui tam action in February 2011 alleging that the City had repeatedly misrepresented that it complied with Section 504 of the Rehabilitation Act, the Fair Housing Act and Title II of the Americans with Disabilities Act, and had received federal housing funds based on those misrepresentations. The United States intervened in July 2017. HUD investigated the same accessibility deficiencies on its own track, and in August 2019 the City entered into a Voluntary Compliance Agreement (VCA) committing it to spend at least $200 million over ten years to remediate or build accessible housing. The VCA expressly excluded the FCA claims. The FCA case went on for five more years, and in June 2024 the government, FHC and the City settled it for $38,266,989.

Ling objected to the settlement. She argued that the VCA was an alternate remedy she was entitled to share in, and that the FCA settlement was too low as measured against the government’s earlier damages calculation of more than $500 million and a $100 million offer she said the City made in 2016. The district court approved the settlement after a fairness hearing.

The Ninth Circuit affirmed. It held that a separate agreement is an alternate remedy only if it takes the place of the FCA suit, and that the VCA didn’t, chiefly because it redressed a different wrong: the City’s underlying civil rights violations, not its alleged false certifications of compliance. On the FCA settlement amount, it held that the government’s damages methodology, the litigation risk the City’s summary judgment motion exposed, and the deference owed to the government under United States ex rel. Polansky v. Executive Health Resources, Inc., 599 U.S. 419 (2023), supported approval.

In United States ex rel. Novak v. Walgreens Boots Alliance, Inc., decided five days later, a relator who had sued Walgreens on behalf of the United States and 29 States sought a share of a separate multistate opioid settlement that, according to the States, resolved some of his state Medicaid claims. He argued that the States’ settlement was an alternate remedy or, alternatively, a settlement of his own action. The district court didn’t decide either question. Because the federal claims had settled, and because his share claims arise under each State’s own false claims statute on questions no State’s courts have answered, the court declined to exercise supplemental jurisdiction and left the claims to the courts of each of the settling States.

Background

Why the HUD agreement matters: two tracks, one set of deficiencies

Ling’s alternate-remedy argument depended on how the HUD agreement related to her FCA case. The two proceedings grew out of the same accessibility deficiencies, and for a time the City tried to resolve them together.

HUD opened its own investigation into the City’s compliance with federal accessibility requirements in 2011, the same year Ling filed suit, and issued a Letter of Findings of non-compliance in January 2012. Ling, 2026 WL 2871734, at *2. By 2016, the City was trying to resolve both matters in a single deal. In a September 2016 letter to the HUD Secretary, City officials wrote that “[t]o enter into a VCA, the City must also settle the related False Claims Act” action, and that they had thought the City was “on the verge of a settlement agreement, under which DOJ, through HUD, would allow $92 million of DOJ’s calculated actual damages for the FCA claims to be used to carry out the remediation of thousands of the City’s housing units.” Id. at *3. That global deal never happened.

By then DOJ was already litigating the FCA case; it had intervened in July 2017. Two months later, in September 2017, HUD referred its separate civil rights compliance matter to DOJ “for potential further enforcement.” Id. The City asked to restart settlement negotiations with HUD, and DOJ “deferred jurisdiction,” leaving the civil rights matter with HUD. Id. In July 2019, HUD told the City it intended to withhold approximately $80 million in federal housing funds, and the VCA followed the next month. The agreement the City actually signed was not a global settlement, unlike the 2016 proposal: it resolved only the City’s civil rights violations, committing the City to a program “with a value that averages a minimum of $20 million per year” for ten years, and specifically carved out the FCA litigation, stating that it “does not, and shall not be construed to, resolve any claims that have been or could be asserted in” the qui tam action. Id.

The FCA settlement

The government and the City conducted what the court called “voluminous fact discovery” through November 2023. The City moved for summary judgment on March 1, 2024, and made a settlement offer at a mediation four days later. Multiple levels of DOJ and City officials approved the written terms, and the parties signed in June 2024. The district court approved the settlement after a fairness hearing in August 2024 and, in October 2024, dismissed the claims, recognizing that Ling and FHC would “receive at least 15 percent but not more than 25 percent” of the proceeds. Id. Ling’s entitlement to a share of the $38.3 million was not in dispute. Id. at *2. The court resolved her challenges to the denial of an evidentiary hearing and limited discovery and to the denial of her motion to alter or amend the judgment, as well as her request for sanctions, in a memorandum disposition filed the same day. Id. at *2 n.1.

The same alternate-remedy question under state law: Novak

Novak asked the same question as Ling (when does a government recovery outside the qui tam case entitle the relator to a share?), but the court ultimately left it to the state courts. A pharmacist sued Walgreens on behalf of the United States and 29 States over controlled-substance prescriptions billed to Medicare and Medicaid. While his complaint was under seal, Walgreens signed a separate opioid agreement with 46 States requiring it to pay more than $4.7 billion over fifteen years for abatement and treatment programs, none of it allocated to the States’ Medicaid programs. Novak, 2026 WL 2920869, at *1. In December 2023, the States intervened to dismiss his state Medicaid claims, telling the court that the multistate agreement “resolved certain of the claims that Relator brings in this case.” Id. at *2. With Novak’s agreement, they postponed the question of whether he was entitled to a share “pursuant to the alternate remedy provisions of each state’s respective false claims act, or other applicable law.” Id. at *2, *6. The United States later settled for $300 million, split evenly between $150 million in Controlled Substances Act penalties, in which relators do not share, and $150 million in FCA damages, of which the relator received 17.25 percent. Id. at *2; Settlement Agreement ¶¶ 1.D, 2, Novak, No. 18 C 5452 (N.D. Ill. Apr. 18, 2025), ECF No. 69.

Novak then sought a share of the multistate settlement from 28 States. He argued that the States had in substance settled his action; the States answered that the multistate agreement resolved consumer-protection and public-nuisance claims he could not have brought, in proceedings to which he was not a party. Novak, 2026 WL 2920869, at *7. Several also argued that it was not an alternate remedy: that settlements funding prospective opioid abatement are not the type of claim a false claims statute reaches, that Novak contributed nothing to a deal signed while his complaint was still sealed, and, for some States, that their statutes have no alternate-remedy provision or a narrower one than the federal statute. Id. at *8–10. Novak replied that the agreement released his claims and conditioned payment on their dismissal. Id. at *8. The court did not decide who was right. It held that whether a State “proceeds with” a relator’s action when it settles related claims outside the action, and whether such a settlement is an alternate remedy, are questions of each State’s statute that no State’s courts have answered, that the federal decisions point in different directions, and that the answers may differ from State to State. Id. at *7–8. With the federal claims gone, it declined supplemental jurisdiction and left those questions to the States’ courts. It rejected Novak’s argument that the States’ agreement to defer the question committed them to the federal forum: “An agreement to defer a question,” the court wrote, “is not an agreement on its answer, and it is not an agreement to the forum.” Id. at *6.

Legal Analysis

The Ninth Circuit decided two questions in response to the relator’s challenge to the settlement: whether the VCA was an alternate remedy in which Ling could share, and whether the $38.3 million the government accepted for the FCA claims was fair, adequate and reasonable.

1. Was the VCA an alternate remedy?

• To share in another proceeding, the relator must show that the alternate remedy took the place of the FCA remedy. Section 3730(c)(5) lets the government “pursue its claim through any alternate remedy,” and gives the relator “the same rights in such proceeding as such person would have had if the action had continued.” The court read that language, as the Fourth and Fifth Circuits have, to assume the other proceeding replaces the qui tam action. Ling, 2026 WL 2871734, at *4 (citing United States ex rel. LaCorte v. Wagner, 185 F.3d 188, 191–92 (4th Cir. 1999), and United States ex rel. Babalola v. Sharma, 746 F.3d 157, 161–62 (5th Cir. 2014)). A relator therefore shares in an outside recovery only if it substitutes for the FCA remedy. The court added that this can happen even while the FCA suit is still pending, that the question “involves a fact-intensive evaluation,” and that “collusion or bad faith” can bear on it. Id. at *5.
• The key point: the VCA and the FCA settlement redressed different wrongs. “Significantly,” the court said, “the purposes of the VCA and FCA settlement were different.” Id. at *6. The VCA addressed the City’s “failure to comply with accessible housing requirements.” The FCA settlement resolved allegations that the City “falsely certified that it had complied with those obligations.” Id. Because the “claim” in § 3730(c)(5) is the false claim, the court followed United States ex rel. Kennedy v. Novo A/S, 5 F.4th 47 (D.C. Cir. 2021), in treating the VCA as resolving “a different legal claim altogether.” Ling, 2026 WL 2871734, at *6 (quoting Kennedy, 5 F.4th at 56).
• For the same reason, the VCA’s nonmonetary value wasn’t enough. The court agreed that an alternate remedy can carry nonmonetary value under United States ex rel. Barajas v. United States, 258 F.3d 1004, 1013 (9th Cir. 2001). Ling, 2026 WL 2871734, at *6. But the VCA “redresses the City’s present violations and prevents future violations,” while the FCA settlement “redresses the City’s past fraud.” Id. at *7. The court rejected Ling’s argument that the government couldn’t recover FCA damages for a loss the VCA made good, because the City’s remedial work did “not nullify the Government’s losses due to misrepresentations, unjust enrichment, and payment by mistake.” Id.
• The court distinguished Barajas. In Barajas, an Air Force agreement with Northrop was held to be an alternate remedy. The Ling court identified two differences. Id. at *5–6.
  • Preclusion. Claim preclusion barred the Barajas relator’s second suit, and the government got its relief through the Air Force agreement instead. Here nothing in the VCA stopped the case, which went forward to “a $38 million settlement.” Id. at *5.
  • Carve-out versus credit. The Barajas agreement let Northrop use it in “any civil proceeding” to “obtain appropriate credit” for what it paid. The VCA carved the FCA claims out. Id. at *6.
• The record showed no collusion. The FCA litigation continued for five years after the VCA. The court reasoned that colluding parties would have settled “shortly after entering the VCA and for much less,” and that “[t]he active participation of an experienced mediator during the settlement process further undermines any allegation of collusion.” Id.

2. Was the $38.3 million settlement fair, adequate and reasonable?

Having held that Ling had no claim to a share of the VCA, the court turned to her second objection: that the amount the government accepted for the FCA claims was too low.

• Review was for abuse of discretion. Because § 3730(c)(2)(B)’s “fair, adequate, and reasonable” test mirrors Federal Rule of Civil Procedure 23(e)(2), the court applied the class-action standard of review, as the Seventh Circuit did in United States ex rel. Robinson v. HealthNet Inc., 124 F.4th 511, 519 (7th Cir. 2024). The parties agreed on that standard. Ling, 2026 WL 2871734, at *4 & n.3.
• Deference to the government frames the review. Because “the injury [relators] assert is exclusively to the Government,” the government is afforded deference when it settles a qui tam case. Id. at *7 (quoting Polansky, 599 U.S. at 425).
• The settlement amount was measured against the government’s method, not the offer history. Ling’s 2016 benchmark was a $100 million offer she said the City made that year. The parties disputed whether that offer was ever made, and the court found the evidence of it “limited.” The court called the question “irrelevant” because the government explained how the settlement amount was derived at the fairness hearing. Id. at *8.
  • Benefit of the bargain. The government compared the value of the City’s existing affordable housing with the value of the affordable and accessible housing the City would have built had it complied. Because most of the defects concerned mobility, it focused on the requirement that at least five percent of multifamily housing be accessible for mobility impairment. That produced $26,800,000 in damages plus “a multiplier sum of $11,466,989,” which together equal the settlement. The government “reserv[ed] its right to reconsider the calculation of damages.” Id.
  • Public policy. The City “repeatedly told the United States that each dollar it paid in settlement is a dollar that it must find in its budget.” The court held the government could weigh that, because its interests “are not confined to maximizing recovery against the defendant.” Id. (quoting United States v. Everglades College, Inc., 855 F.3d 1279, 1288 (11th Cir. 2017), abrogated on other grounds by United States v. Republic of Honduras, 75 F.4th 1288 (11th Cir. 2023)).
• The litigation risk analysis had evolved since 2016. Ling argued that the government’s position had improved since 2016, when it defeated the City’s motion to dismiss. The Ninth Circuit pointed to the arguments in the City’s March 2024 summary judgment motion, which the case settled before the court decided: that its certifications were not material to HUD and that the government could not prove scienter or causation. It also cited the district court’s assessment, in approving the settlement, that even if the government’s claims survived summary judgment, “the Government faces an onerous task to establish the FCA claims at trial.” Id. at *8. Those arguments, the court said, were not “known at the time the City made its [alleged] $100 million offer in 2016,” because the City didn’t move for summary judgment until 2024. Id. The district court also found that the number was reached “after extensive investigation and negotiation over the course of nine years and two mediations.” Id. With that, and the principle that “the very essence of a settlement is compromise, a yielding of absolutes and an abandoning of highest hopes,” Officers for Justice v. Civil Service Commission of the City and County of San Francisco, 688 F.2d 615, 624 (9th Cir. 1982), the court found no abuse of discretion. Ling, 2026 WL 2871734, at *8.

Holding

Affirmed. Under these circumstances, the HUD VCA did not take the place of the FCA suit or the FCA settlement and was not an alternate remedy under 31 U.S.C. § 3730(c)(5). The district court did not abuse its discretion in approving the $38,266,989 settlement as fair, adequate and reasonable under § 3730(c)(2)(B). In Novak, the district court declined supplemental jurisdiction under 28 U.S.C. § 1367(c)(1) and (c)(3) and dismissed the relator’s share claims without prejudice to their assertion in the courts of the respective States, without deciding whether the multistate agreement was an alternate remedy or a settlement of his action.

What to Watch

• Further review in Ling. Absent a rehearing petition, a petition for certiorari would be due 90 days after judgment, on or about December 23, 2026.
• When a parallel agreement could count as an alternate remedy. Ling lost on facts the court listed: the VCA addressed a different wrong, carved out the FCA claims, gave the City no credit against FCA liability, and was followed by five more years of FCA litigation. But the court also said a parallel agreement can take the place of the FCA remedy even while the qui tam case is still pending, and that collusion or bad faith bears on the question. A relator facing a parallel agreement that releases or credits the FCA claims, or that is followed quickly by a small FCA settlement, would have a stronger argument. Expect relators’ counsel to focus on those features.
• The fairness-hearing record. Because approval is reviewed for abuse of discretion, the government’s explanation of its damages method at the fairness hearing is likely to carry most of the weight on appeal.
• State-court share litigation after Novak. The share claims now go to state courts, under statutes that, the court noted, differ on whether they have an alternate-remedy provision at all. The first decisions will show whether federal cases like Kennedy carry over.

What This Means for Resolving False Claims Act Disputes

Ling shows how an FCA settlement number gets built and defended. The government didn’t defend $38.3 million by pointing to the history of offers. It defended it with a damages theory it could explain at a hearing (single damages plus a stated multiplier), a reservation of other methodologies, the cost of a larger number to a public defendant, and litigation risk that surfaced only in the City’s summary judgment motion. The earlier offers, the district court found, “were made in an entirely different context.” For relator’s counsel, that means an objection built on a superseded damages estimate or an old offer runs into deference to the government; the methodology itself is the better target. For defense counsel, the City’s summary judgment motion and its budget argument (a variant of the ability-to-pay argument defendants often raise) both ended up in the record that sustained the number. For the government, the lesson is to put the method, not just the figure, on the record.

The alternate-remedy holding speaks to parallel administrative resolutions. A compliance agreement that redresses the underlying regulatory violation rather than the false claim, carves out the FCA claims and gives no credit against FCA exposure stays separate from the relator’s recovery. The five-year gap between the two resolutions reinforced the point. Novak shows what happens when the relator’s share in a parallel resolution is left for later: the agreement to defer didn’t keep the question in federal court. Resolving the relator’s share at the same time as the number gives everyone a shared reference point. Leaving it open sends it to another forum, or in Novak, to many of them.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Healthcare / Payor-Provider Disputes · No Surprises Act · Independent Dispute Resolution (IDR) · Vacatur

Introduction

Beginning in 2024, several large insurers sued providers and entities that assist in filing independent dispute resolution (IDR) cases on providers’ behalf under the federal No Surprises Act (NSA), alleging they flooded the process with ineligible disputes and collected awards to which they were never entitled. The insurers framed their cases in several ways: civil RICO, ERISA, state fraud and unfair-competition law, along with requested remedies to vacate the awards outright. Between April and July 2026, district courts in California, Florida, Texas and Georgia dismissed all four suits discussed here, and the insurers appealed to the Fifth, Ninth and Eleventh Circuits. The bottom line, explored in more detail below: the loser in an NSA case can’t sue to vacate the award except on the narrow grounds the NSA borrows from the Federal Arbitration Act (FAA).

Executive Summary

The NSA was intended to address the practice by out-of-network providers of balance billing their patients for the difference between their billed charges and amounts paid by the patient’s health insurer. The NSA established the IDR process, in which independent arbitrators resolve disputes between the provider and the health insurance payor, eliminating the provider’s right to balance bill the patient except for previously agreed co-pays and deductibles. The NSA requires the insurer to provide a “qualifying payment amount,” or QPA, which is essentially a median calculation of the insurer’s negotiated rates for the services at issue. After a period of negotiation, the provider and the insurer each make an offer (the insurer’s typically at or near the QPA, the provider’s typically some multiple of it), and the IDR arbitrator must choose, “baseball-style,” one of the two numbers to award.

In each of the three years for which the federal government has published full-year data, IDR entities have chosen the provider’s offer in most disputes: 81% of the time in 2023, 85% in 2024 and 85% to 88% in 2025, according to the Centers for Medicare & Medicaid Services (CMS). In light of these numbers, and other alleged practices by providers and the entities that represent them in IDR proceedings, several insurance companies have gone to court, challenging a system they argue is not working as Congress intended.

The defendants in three of the four cases addressed here are HaloMD, a Texas-based company that files IDR disputes on behalf of out-of-network providers, together with, in various combinations, its president Alla LaRoque, Scott LaRoque and his company MPOWERHealth, and physician groups that use HaloMD’s services. According to CMS, HaloMD, TeamHealth and SCP Health together accounted for about 44% of IDR disputes initiated in the first half of 2025. CMS, Supplemental Background on Federal Independent Dispute Resolution Public Use Files (January 1, 2025 – June 30, 2025). Anthem affiliates in California and Georgia and Blue Cross Blue Shield of Texas alleged that HaloMD and its clients filed disputes that were never eligible for IDR (hundreds in the California case, thousands in Georgia and more than 42,000 in Texas), covering claims already resolved, services the patient’s plan didn’t cover and similar defects, and attested to eligibility anyway. In the fourth case, Aetna alleged that Radiology Partners, a private-equity-backed aggregator of radiology practices, ran other Florida practices’ claims through the tax identification number of one acquired practice, Mori, Bean and Brooks. Aetna ended that practice’s network contract over the routing, and Radiology Partners kept it up afterward, filing tens of thousands of IDR disputes that misidentified who had performed the services.

Each district court dismissed the insurers’ claims. Across the four decisions, the courts barred the insurers’ claims on various bases, including: 1) the NSA bars judicial review of IDR determinations beyond the FAA’s vacatur grounds; 2) whether a dispute is eligible for IDR is for the IDR entity to decide; 3) fraud an insurer knew about, or had the chance to raise, during the IDR process cannot support vacatur afterward; and 4) RICO, ERISA, state-law and declaratory-judgment claims seeking the same relief are attempts to get around those limits. Not every court reached every point. The vacatur claims (in California, Florida and Georgia) failed on the merits; the other claims failed for lack of jurisdiction or, in Florida, on preemption. Three of the four dismissals were with prejudice; in the California case, the court dismissed the federal claims without leave to amend and declined to exercise supplemental jurisdiction over the state-law claims, dismissing them without prejudice. All four insurers have appealed to their respective circuits. None of the appeals has yet been argued.

Background

Providers Prevail in the Majority of IDR Proceedings

The outcomes of the IDR process have run heavily one way. In the second half of 2025, providers, facilities and air ambulance providers were the prevailing party in about 85% of payment determinations, down from 88% in the first half of the year, and the prevailing offer exceeded the QPA in about 87% of determinations. CMS, Supplemental Background on Federal Independent Dispute Resolution Public Use Files (July 1, 2025 – December 31, 2025). Researchers at Georgetown University’s Center on Health Insurance Reforms, analyzing CMS data, put the provider share at 81% in 2023 and 85% in 2024. Jack Hoadley, Kennah Watts, Katie Keith & Ellie DeGarmo, The No Surprises Act IDR Process: An Early Look at 2025 Data, Health Affairs Forefront (Mar. 2026). A “win” means the IDR entity chose the provider’s offer, not that the provider received any particular amount, and a small number of high-volume filers account for much of the volume. That record is the backdrop for the suits discussed here. The insurers read it as evidence that the process is being gamed; providers read it as evidence that plans’ QPAs are routinely understated.

Why providers prevail so often is itself disputed. Researchers at the Brookings Institution offered several possible explanations: providers may take their strongest claims to IDR and settle the rest; IDR entities may give weight to the higher out-of-network amounts plans paid before the NSA, which the median awards resembled more closely than in-network rates; plans’ QPAs may understate actual in-network rates; and after courts set aside the agencies’ rules directing IDR entities to give the QPA special weight, IDR entities had little substantive guidance. Matthew Fiedler & Loren Adler, A First Look at Outcomes Under the No Surprises Act Arbitration Process, Brookings Institution (Mar. 27, 2024). Others look at the IDR entities themselves. Researchers at Georgetown University’s Center on Health Insurance Reforms found that provider win rates ranged from 19% to 99% depending on the IDR entity, and raised concerns about fee incentives and the absence of written reasons. Kennah Watts & Jack Hoadley, No Surprises Act Arbitrators Vary Significantly In Their Decision Making Patterns, Health Affairs Forefront (June 24, 2025). Paragon Health Institute, a market-oriented health policy group, reported that IDR entities handling more disputes tend to favor providers more often, and noted that “[a]rbitrators are not paid until they award disputes.” Jackson Hammond & Katherine Hall, Fixing the No Surprises Act: Scaling Back and Reforming the Federal Arbitration System, Paragon Health Institute (Sept. 14, 2026). Provider groups read the record differently. In an analysis sent to Congress, the American College of Emergency Physicians, the American College of Radiology and the American Society of Anesthesiologists said that insurers lost about a quarter of 2025 line items by default and offered $1 or less on 8.2%, and argued that “the QPA is unreliable, fundamentally flawed, and used by insurers to game the system.” Insurers Are Undermining the No Surprises Act, Then Claiming IDR Process Is Broken, New Analysis Sent to Congress Explains, ACEP Now (Oct. 1, 2026).

The NSA Provides Limited Review for the Results of the IDR Process

The NSA makes an IDR entity’s payment determination “binding upon the parties involved, in the absence of a fraudulent claim or evidence of misrepresentation of facts presented to the IDR entity involved regarding such claim,” and provides that it “shall not be subject to judicial review, except in a case described in any of paragraphs (1) through (4) of section 10(a) of title 9.” 42 U.S.C. § 300gg-111(c)(5)(E)(i); 29 U.S.C. § 1185e(c)(5)(E)(i). Those are the FAA’s grounds for vacating an arbitration award: corruption, fraud or undue means; evident partiality or corruption in the arbitrator; specified misconduct; and an arbitrator exceeding its powers. 9 U.S.C. § 10(a)(1)–(4).

The Eleventh Circuit has held that this cross-reference imports the FAA’s existing case law. REACH Air Medical Services LLC v. Kaiser Foundation Health Plan Inc., 160 F.4th 1110, 2025 WL 3222820, at *4 (11th Cir. Nov. 19, 2025). Under that FAA case law, a party seeking to vacate an award for fraud must prove it by clear and convincing evidence, show that it couldn’t have been discovered with due diligence before or during the arbitration, and show that it related materially to an issue in the arbitration. Id. at *6. REACH came from the provider side: an air-ambulance company challenged an award Kaiser won, alleging Kaiser had given the IDR entity a lower QPA than it had given the provider, and the Eleventh Circuit affirmed dismissal. The Florida court applied REACH directly, and the California court applied the same test from Ninth Circuit precedent.

Contested Eligibility Decisions

Not every out-of-network claim qualifies for IDR. Before an IDR entity picks between the parties’ offers, federal regulations require it to determine that the dispute is eligible. 45 C.F.R. § 149.510(c)(1)(v). The insurers’ core theory is that this screening has failed at scale and that high-volume filers have taken advantage of it. In the Texas case, the defendants answered with the government’s own figures: in 2024, non-initiating parties objected to eligibility in 44% of disputes, but only 19% were found ineligible. Blue Cross Blue Shield of Texas, slip op. at 5. The providers’ answer on the law, which the courts have so far accepted, is that the eligibility decision is part of the IDR entity’s determination, and therefore inside the NSA’s limit on judicial review. As the California court put it, “An IDRE’s payment determination necessarily includes a determination of eligibility.” Anthem, 2026 WL 982629, at *9.

Providers’ Avenues for Review Are Also Limited

Two circuits have addressed the reverse posture: a provider holding an unpaid award. East Coast Advanced Plastic Surgery, LLC v. Cigna Health & Life Insurance Co., No. 25-2204, ___ F.4th ___ (2d Cir. Sept. 17, 2026) (ECAPS); Guardian Flight, L.L.C. v. Health Care Service Corp., 140 F.4th 271 (5th Cir. 2025), cert. denied, No. 25-441 (U.S. Jan. 12, 2026). Both courts held that the NSA creates no private right of action to enforce an award, and that enforcement is left to the Department of Labor, the Department of the Treasury, the Department of Health and Human Services and state insurance regulators. The Fifth Circuit went further and held that the NSA’s limit on judicial review bars suits to confirm IDR awards; the Second Circuit left that question open. The Supreme Court denied review in Guardian Flight in January 2026. We discussed ECAPS in an earlier Case Spotlight.

The District Court Decisions

• Anthem Blue Cross Life & Health Insurance Co. v. HaloMD LLC, 2026 WL 982629 (C.D. Cal. Apr. 9, 2026). Anthem asserted RICO, a claim to vacate under the NSA, an ERISA claim under 29 U.S.C. § 1132(a)(3), declaratory relief and California law. The district court dismissed the vacatur claim because Anthem knew of the alleged false eligibility attestations and objected to them during the IDR process, so the fraud was not undiscoverable; adopting one group of defendants’ phrase, the court said that “Anthem has pleaded itself out of court.” Id. at *8. The court also held that the fee structure Congress built into the IDR process is not “undue means,” and that because IDR entities are authorized to decide eligibility, the claim that they exceeded their powers collapsed into the fraud claim. Id. It dismissed the RICO, ERISA and declaratory claims for lack of subject-matter jurisdiction: “These theories are all end runs around the NSA’s limits on judicial review.” Id. at *10. It declined supplemental jurisdiction over the state-law claims, dismissing them without prejudice, and denied leave to amend. Id. at *10–11.
• Aetna Health Inc. v. Radiology Partners, Inc. (M.D. Fla. Apr. 16, 2026). Aetna sought to vacate the awards and recover arbitration fees and overpayments. In one example the court described, an IDR entity awarded $752.00 on a claim whose in-network rate was $78.89. Id., slip op. at 7. The district court found that Aetna had pleaded fraud with the particularity Rule 9(b) requires. But applying REACH, it held that the fraud was discoverable with due diligence before the IDR proceedings, because Aetna had terminated the practice’s network contract over the same conduct. The court called it “a close call,” but held that Aetna’s admission that it ended the contract over that conduct was “fatal to Aetna’s position,” and that neither the volume of claims nor the defendants’ efforts to conceal the scheme could “excuse Aetna’s failure to raise the issue in the IDR disputes.” Id. at 8–9. It also declined to screen disputes that hadn’t yet been filed, noting that Aetna can challenge them before the IDR entity. It treated the remaining claims as an attempt to “end-around the NSA and FAA strictures,” held them preempted, and dismissed with prejudice. Id. at 9–10.
• Blue Cross Blue Shield of Texas v. HaloMD, LLC (E.D. Tex. May 22, 2026). Blue Cross Blue Shield of Texas alleged that HaloMD, Alla LaRoque and Scott LaRoque used more than 42,000 ineligible IDR disputes, under both the federal process and Texas’s own arbitration process, to obtain tens of millions of dollars in awards. The district court held that the NSA’s bar on review of payment determinations extends to eligibility decisions and that the suit was an impermissible collateral attack on the awards, observing that the plaintiff “is attempting to relitigate issues previously decided by the IDR entities.” Id., slip op. at 11. It reached the same result for the disputes under Texas’s own arbitration statute, and dismissed every claim with prejudice for lack of subject-matter jurisdiction. Id. at 14–18.
• Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. v. HaloMD, Inc. (N.D. Ga. July 10, 2026). The Georgia plan alleged that HaloMD and two Georgia physician groups that are HaloMD clients submitted thousands of ineligible disputes, and asserted RICO, ERISA and Georgia-law claims along with a claim to vacate the awards. The district court held that it lacked jurisdiction over every claim except vacatur, because each would require it to re-examine eligibility and payment decisions the IDR entities had already made. It dismissed the vacatur claim on the merits: the fraud allegations didn’t meet Rule 9(b), in part because the plan had the opportunity to object before the IDR entities; nothing alleged rose to “undue means”; and IDR entities that decide eligibility don’t exceed their powers. It also found no personal jurisdiction over HaloMD. Responding to the plan’s point that providers prevail in 85% of payment determinations, the court wrote that it was “highly improbable” to infer a conspiracy of providers and IDR entities from those numbers, and “highly plausible to infer that the Plaintiff engages in a consistent practice of submitting lowball offers to out-of-network providers in an effort to maximize its profits.” Id., slip op. at 62. It dismissed the case with prejudice.

Legal Analysis

• Eligibility belongs to the IDR entity. The California, Georgia and Texas courts each treated the eligibility decision as part of the IDR determination rather than a separate question a court can revisit. (The Florida court didn’t need to reach it.) That reading matters because nearly every insurer theory, whatever its label, depends on showing that particular disputes should never have reached IDR. The California court noted the consequence of the contrary view: “nearly every eligibility determination disputed by an IDR participant would be subject to review.” Anthem, 2026 WL 982629, at *8.
• Fraud known during the IDR process cannot support vacatur afterward. The FAA’s fraud ground requires fraud that could not have been discovered through due diligence. In the California, Florida and Georgia cases, the insurers’ own allegations showed that they knew of the conduct before or during the IDR proceedings. In California, they objected to it, and in Georgia they had the chance to. The Florida court’s message was that an insurer with evidence of ineligibility or misrepresentation must raise it in the IDR dispute, not hold it for later litigation.
• Relabeling the claim does not change the analysis. RICO, ERISA, declaratory-judgment and state-law claims all sought to recover or nullify IDR awards. The courts treated them as attempts to obtain the judicial review the NSA does not allow. California, Georgia and Texas framed the result as a lack of jurisdiction, with Georgia and Texas calling the claims collateral attacks on the awards; Florida framed it as preemption of claims resting on the same facts. California didn’t reach the state-law claims, dismissing them without prejudice.
• The insurers’ position on appeal. The insurers argue that the courts have read the judicial-review limit to cover conduct outside the arbitration itself, leaving no forum for what they describe as systematic abuse of the process. Elevance said after the Georgia ruling that the decision “misinterprets the No Surprises Act and improperly limits judicial review.” Health plan and employer groups — America’s Health Insurance Plans; the American Benefits Council, the ERISA Industry Committee and the Business Group on Health; and the California Association of Health Plans and the Association of California Life & Health Insurance Companies — have filed amicus briefs supporting Anthem in the Ninth Circuit. The providers respond that Congress chose a closed, arbitration-based process with limited review, and that the FAA’s vacatur grounds and agency oversight are the remedies it provided.

What to Watch

• The Eleventh Circuit, twice. Aetna v. Radiology Partners, No. 26-11607, will be fully briefed when Aetna files its reply, due October 14, 2026, and Blue Cross Blue Shield of Georgia v. HaloMD, No. 26-12777, is at an earlier stage: the Georgia plan’s opening brief is due October 15, 2026. Both will be decided against the court’s own REACH decision, which supplied the vacatur standard the Florida court applied.
• The Ninth Circuit, without an NSA precedent. Anthem v. HaloMD, No. 26-2355, comes to a court that hasn’t yet ruled on IDR review, with health plan and employer amici already filed, although the district court found the vacatur claim controlled by the Ninth Circuit’s existing FAA case law. Anthem filed its opening brief on August 5, 2026, the defendants filed their answering briefs on October 5, and Anthem’s optional reply is due November 27, 2026. It is the most likely source of a different answer.
• The Fifth Circuit, against Guardian Flight. Blue Cross Blue Shield of Texas v. HaloMD, No. 26-40316, will be decided by the court that held the NSA’s limit on judicial review bars suits to confirm IDR awards. How that court applies the same limit to an insurer seeking to undo awards will be worth watching.
• Timing. No argument dates have been set in any of the four appeals. Decisions before spring 2027 would be unusual. A circuit split on insurer challenges would raise a question about the IDR process that the Supreme Court has so far declined to take up from the provider side.

What This Means for Resolving Payor-Provider Disputes

If the circuits affirm, the IDR award becomes close to final in both directions: hard for the losing insurer to undo and, after ECAPS and Guardian Flight, hard for the winning provider to collect through a lawsuit. The courts’ emphasis on raising eligibility and misrepresentation objections inside the IDR proceeding also moves the real contest earlier, into the dispute itself, where each side’s record is made.

For parties with disputes running in both directions — unpaid awards on one side, claimed overpayments and ineligible filings on the other — litigation offers neither side a clean path. That tends to push the numbers toward negotiation, often across a portfolio of claims rather than one dispute at a time. The awards themselves still matter there: each one is a neutral’s answer to what a set of services was worth, and a large body of them gives both sides a shared reference point for resolving the rest.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Healthcare / Payor-Provider Disputes · ERISA Preemption · Out-of-Network Reimbursement

Updated October 18, 2026, to reflect post-decision filings. See the dated update under What to Watch.

Introduction

Out-of-network providers face a structural problem. ERISA lets participants and beneficiaries sue for benefits, but not providers, so a provider without an effective assignment of benefits from the patient must look to state law. Plans answer that ERISA § 514(a), which preempts state laws that “relate to” an employee benefit plan, closes that door. Two circuits, seven weeks apart, have now taken up that answer from opposite ends of the claims process. On June 24, 2026, in Ahn v. Cigna Health & Life Insurance Co., the Third Circuit held that ERISA preempts a physician’s defamation claim over what Cigna told its members, in explanation of benefits (EOB) forms, about why his claims were denied. On August 11, 2026, in Healthcare Ally Management of California, LLC v. WSP USA, Inc., the Ninth Circuit held that ERISA does not preempt a surgery center’s negligent misrepresentation claim over what the plan’s administrator told it on a verification call before the surgery, while affirming dismissal of a companion promissory estoppel claim. The Ninth Circuit didn’t cite Ahn, and the two cases involve different conduct at different points in the claims process. Read together, however, they suggest a line drawn through the life of a claim: what a plan says to a provider before the service, and what it says to its members afterward. Or they could mean different approaches to the same preemption by different circuits. Read on for more.

Factual Background and Litigation Proceedings

The Ahn Litigation

Dr. Jeffrey M. Ahn is an otolaryngologist licensed in New Jersey and New York who does not participate in Cigna’s provider network. He alleged that Cigna denied his claims about 50 times and that many of the EOBs it sent explained the denials on the ground that Cigna didn’t pay for services by unlicensed providers, effectively telling his patients he wasn’t licensed to practice medicine. Dr. Ahn filed suit in 2019 in New Jersey state court for defamation, defamation per se, and tortious interference. The case was removed to federal court. The district court first deferred the preemption question because it couldn’t tell from the complaint which EOBs related to ERISA plans. After discovery, Cigna showed that the plans were governed by ERISA, Dr. Ahn offered no contrary evidence, and he didn’t challenge that finding on appeal. Ahn, 2026 WL 1813215, at *1 & n.1. Discovery also showed that after Dr. Ahn appealed the denials, Cigna allowed them in whole or in part, or denied them for a reason unrelated to his licensure. Id. at *1.

Federal jurisdiction rested on diversity, so preemption arose only as Cigna’s § 514(a) defense. Id. at *2 n.2. The District Court for the District of New Jersey granted Cigna summary judgment on ERISA preemption grounds. The Third Circuit affirmed, holding that communicating benefits determinations to members is a central matter of plan administration, and, independently, that state defamation law can’t regulate EOB content without undermining uniform plan administration.

The Healthcare Ally Management Litigation

In Healthcare Ally Management, La Peer Surgery Center, an out-of-network provider, sought coverage verification from Aetna, which administered WSP USA’s employee health plan, before surgery on an Aetna member. According to the complaint, Aetna said the plan would pay at the usual, customary, and reasonable (UCR) rate and not on the Medicare Fee Schedule. Aetna ultimately paid at the Medicare rate, which came to five percent of La Peer’s bill. La Peer’s successor, Healthcare Ally Management of California (HAMOC), sued, and the Central District of California dismissed its state-law claims as preempted. The Ninth Circuit reversed on the negligent misrepresentation claim and affirmed dismissal of the promissory estoppel claim under its 2024 decision in Bristol SL Holdings, Inc. v. Cigna Health & Life Insurance Co., 103 F.4th 597 (9th Cir. 2024).

The Ninth Circuit described the verification call as a standard feature of out-of-network practice: a provider without a contract calls the administrator “to confirm that the patient is eligible for coverage, to ascertain that the particular procedure is covered, and to learn the likely reimbursement rate.” Healthcare Ally Management, 2026 WL 2319896, at *2. Aetna allegedly said that “payment would not be based on the Medicare Fee Schedule,” and neither defendant mentioned any limiting plan term or gave La Peer a copy of the plan. Id. The complaint doesn’t say whether the plan explained why it paid the Medicare rate. Id. at *3.

The patient assigned reimbursement rights to La Peer, which assigned them to HAMOC, but the district court held that HAMOC lacked derivative standing to bring an ERISA benefits claim, and HAMOC didn’t appeal that ruling. Id. at *2 n.3, *3 & n.6, *5 n.8. After removal, HAMOC had dropped its contract and Unfair Competition Law claims, leaving negligent misrepresentation and promissory estoppel.

Legal Analysis

• For the Third Circuit, the EOB is the plan’s statutory duty, so a defamation claim over its contents targets plan administration. ERISA § 503 requires plans to give written notice to any participant or beneficiary whose claim is denied, “setting forth the specific reasons for such denial.” 29 U.S.C. § 1133(1). Cigna discharges that duty with the EOB, so the court held that its statements about the reasons for a denial are “inseparable from Cigna’s duty to provide a written explanation of claim denials under ERISA.” Ahn, 2026 WL 1813215, at *3. Relying on Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 148 (2001), the court held that communicating claim decisions to members is a “central matter of plan administration.” Id.
  • The Fifth Circuit’s support. The court relied on Mayeaux v. Louisiana Health Service & Indemnity Co., 376 F.3d 420 (5th Cir. 2004), which affirmed dismissal of a physician’s tort claims challenging an insurer’s “handling, review, and disposition of a request for coverage.” Ahn, 2026 WL 1813215, at *3 (quoting Mayeaux, 376 F.3d at 432). Such claims, Mayeaux said, “would undoubtedly jeopardize the relationships among the traditional ERISA entities, of which the treating physician is not one.” Id. (quoting Mayeaux, 376 F.3d at 433).
  • The physician’s argument. Dr. Ahn argued that calling a physician unlicensed has nothing to do with fiduciary standards. The court said that was the wrong question: “the relevant inquiry is not whether defaming providers is central to an administrator’s fiduciary duties. It is not. The right question to ask is whether communicating benefits determinations to subscribers and beneficiaries is a central matter of plan administration. It is.” Ahn, 2026 WL 1813215, at *4.
• The Third Circuit’s second, independent ground is uniformity. Because ERISA already gives participants and beneficiaries a way to challenge benefits decisions, the court said, “there is no need to subject explanation of benefits forms to state tort claims like defamation.” Id. at *4. Otherwise, administrators wording a denial would have to account for the common law of every state where members live or get care. The court held that “allowing state defamation laws to regulate the content of EOBs would undermine uniformity in plan administration.” Id.
• The Third Circuit turned aside the physician’s authorities without retreating from them. Dr. Ahn argued that a claim that neither seeks plan benefits nor requires more than a cursory look at the plan isn’t preempted, relying on the Third Circuit’s decision in Plastic Surgery Center, P.A. v. Aetna Life Insurance Co., 967 F.3d 218 (3d Cir. 2020). The court responded that “Plastic Surgery applied the same standards we apply today.” Ahn, 2026 WL 1813215, at *4. It also noted that Dr. Ahn had no assignment, and that an assignment would bear only on an ERISA § 502(a) claim, “a claim that Dr. Ahn concedes he has not asserted here.” Id.
• For the Ninth Circuit, the provider-administrator relationship isn’t one ERISA regulates. Under the Ninth Circuit’s “relationship test” for “connection with” preemption, “the pertinent question is not whether an ERISA-regulated relationship exists but whether the claim itself bears upon that relationship. It does not.” Healthcare Ally Management, 2026 WL 2319896, at *7. Because § 502(a) gives providers no cause of action, the court read the provider-administrator relationship as one Congress didn’t mean to regulate. Id. The court relied on Depot, Inc. v. Caring for Montanans, Inc., 915 F.3d 643 (9th Cir. 2019). Id.
• The claim isn’t one a patient could assign. On “reference to” preemption, the court asked whether the claim is one “that a participant, beneficiary, or their assignee could have asserted as a § 502(a) benefits claim or is otherwise dependent on an ERISA-covered plan.” Id. at *8. It followed its own decisions in Meadows v. Employers Health Insurance, 47 F.3d 1006 (9th Cir. 1995), and Cedars-Sinai Medical Center v. National League of Postmasters of the United States, 497 F.3d 972 (9th Cir. 2007), and the Fifth Circuit’s decision in Access Mediquip L.L.C. v. UnitedHealthcare Insurance Co., 662 F.3d 376 (5th Cir. 2011), vacated, 678 F.3d 940 (5th Cir.), reinstated on reh’g, 698 F.3d 229 (5th Cir. 2012) (en banc). The patient got the covered surgery, so the claim doesn’t turn on any denial of benefits. “Because the injury alleged is not rooted in a plan term,” the claim is nonderivative, and HAMOC sues as an “independent entity claiming damages.” Healthcare Ally Management, 2026 WL 2319896, at *12 (quoting Meadows, 47 F.3d at 1008).
  • Consulting the plan isn’t enough. The parties may look to the plan on whether Aetna had reasonable grounds for its statement, but consulting a plan, or using it to calculate damages, doesn’t require preemption, and damages could be measured by the value of the services. Id. at *13.
  • Existence or extent of coverage. The court declined to distinguish between misstatements about whether there is coverage and misstatements about how much: “A misrepresentation regarding the existence of coverage causes the same financial injury to a provider as a misrepresentation about the extent of coverage.” Id. It described its conclusion as “in line with those of several other circuits,” citing decisions of the Fifth, Eighth and Eleventh Circuits. Id. at *14.
• The Ninth Circuit’s view of congressional purpose. Nothing in ERISA, the court said, suggests Congress meant a provider’s state-law remedy to disappear only when the patient’s coverage is employer-sponsored. Id. at *14. Where a plan bars assignments, preemption would mean “providers would simply be stuck with the bill, regardless of what the plan administrator told them.” Id. at *15.
• The plans’ position, and why promissory estoppel came out differently. WSP and Aetna’s principal argument was that Bristol controls. Id. at *15. There, a treatment facility claimed that Cigna’s verification calls created oral contracts, but Cigna had denied the claims under a plan term permitting denial for fee-forgiveness, and the court held the contract and promissory estoppel claims preempted. The panel agreed that Bristol controls the promissory estoppel claim, because the causes of action “are therefore analogous in all legally meaningful respects.” Id. at *16. But it held that Bristol had expressly left negligent misrepresentation open, and that the contract theory there was “an attempt to supplant the terms of an ERISA plan with a new, legally enforceable agreement.” Id. at *15, *17. Timing mattered too: Cigna didn’t know of the fee-forgiveness when it first made its statements, while HAMOC alleges that Aetna knew when it took the call that it wouldn’t pay the UCR rate. Id. at *17.
• Tension or reconciliation. The two opinions don’t address each other, and they are arguably reconcilable on their facts. Ahn involved statements to beneficiaries that ERISA requires; Healthcare Ally Management emphasized that the claim before it “concerns only representations made by the plan administrator about the content of a plan and would not change the benefits due to the beneficiary.” Id. at *18. Each side will still find language to use. Plans can point to Ahn’s uniformity reasoning, and to Mayeaux’s description of the provider as outside the “traditional ERISA entities,” as reasons to resist state-law liability for what administrators say about coverage. Providers can point to Healthcare Ally Management’s reading of that same outsider status as a reason state law must remain available to them. Both courts drew on the Fifth Circuit, Ahn on Mayeaux and Healthcare Ally Management on Access Mediquip, and both cited the Third Circuit’s Plastic Surgery Center decision.

Holding

Ahn: Affirmed. ERISA § 514(a) preempts a provider’s state-law defamation per se claim based on allegedly false statements in EOB forms sent to beneficiaries, on two independent grounds: it governs a central matter of plan administration, and it interferes with nationally uniform plan administration.

Healthcare Ally Management: Affirmed in part, reversed in part and remanded. ERISA § 514(a) does not preempt an out-of-network provider’s California negligent misrepresentation claim based on coverage and rate representations a plan administrator made on a verification call before services were rendered, under either the “connection with” or the “reference to” test. ERISA preempts the provider’s promissory estoppel claim under Bristol.

What to Watch

• The merits on remand in Healthcare Ally Management. The court noted that “it is far from obvious that HAMOC’s claim can succeed on the merits.” Healthcare Ally Management, 2026 WL 2319896, at *17 n.13. HAMOC wasn’t the provider, and it will have to prove what was asked and said on the call, what La Peer knew about how Aetna applied the UCR and Medicare rates, and whether Aetna and WSP intended to induce reliance. Id.
• Further review. Absent a rehearing petition, a petition for certiorari in Healthcare Ally Management would be due November 9, 2026.
• Update (October 18, 2026). After obtaining an extension, WSP and Aetna petitioned for panel rehearing and rehearing en banc on September 23, 2026. The Ninth Circuit denied the petition on October 16, 2026, and no judge requested a vote on rehearing en banc. Order, Healthcare Ally Management, No. 24-3479 (9th Cir. Oct. 16, 2026), Dkt. No. 54. A petition for certiorari is now due January 14, 2027, 90 days after the denial. See Sup. Ct. R. 13.3.
• The ground between the call and the EOB. Ahn addressed statements to beneficiaries in EOBs; Healthcare Ally Management addressed statements to a provider before treatment. Neither addressed a plan’s post-service statements to the provider itself, or an EOB that repeats a pre-service misstatement.
• Verification-call claims in the Third Circuit. Bristol, as quoted in Healthcare Ally Management, listed Plastic Surgery Center among decisions permitting providers’ misrepresentation-of-coverage claims to proceed. Healthcare Ally Management, 2026 WL 2319896, at *16. Ahn said Plastic Surgery Center applied the same standards it did, and didn’t address pre-service representations.

What This Means for Resolving Payor-Provider Disputes

Preemption is usually the first fight in an out-of-network payment case. These decisions sort it by timing and audience. In the Third Circuit, a tort claim challenging what the plan told its members about a benefits decision is preempted, giving plans a firm answer to providers who recast a denial as defamation or a similar tort. In the Ninth Circuit, a negligent misrepresentation claim that rests on what the administrator told the provider before the service survives preemption at the pleading stage, while a promissory estoppel claim on the same facts doesn’t.

That moves the dispute from a legal question to a factual one, and the factual one is narrow: what was said on the call, what the administrator knew when it said it, and what the provider’s services were worth. Verification calls usually leave records on both sides. A provider with a well-documented call, or a plan that can show its statement matched what it knew at the time, has a clearer view of its exposure than either had while the case turned on a preemption motion. And the Ninth Circuit’s own caution about the merits gives both sides a reason to value the claim realistically. Disputes that turn on a shared record, rather than an open legal question, tend to resolve. Other circuits may view these issues differently, creating uncertainty in the legal landscape and making resolution more difficult.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Healthcare / Payor-Provider Disputes · No Surprises Act · Qualifying Payment Amount (QPA) · Administrative Procedure Act

Updated October 18, 2026, to reflect post-decision filings. See the dated update under What to Watch.

Introduction

The No Surprises Act (NSA) sends out-of-network payment disputes to “baseball” arbitration, and the courts have spent 2026 defining what that process produces. This one is about where the numbers start. Every independent dispute resolution (IDR) case begins with the qualifying payment amount (QPA), which the health plan calculates, and providers have argued that the federal rules for calculating it push QPAs below the market rates Congress meant them to reflect. On August 11, 2026, the en banc Fifth Circuit decided three of those challenges. First, it held that insurers may not include non-negotiated “ghost rates” for services a provider doesn’t provide. Second, it held that insurers may not exclude bonus and incentive payments, which may or may not be tied to the provision of specific items and services. Third, it held that insurers may exclude one-off, single-case agreements, which are common in air ambulance billing. The court also approved vacatur as the remedy, despite six judges’ view that the case should be remanded without vacatur.

Executive Summary

The plaintiffs are the Texas Medical Association, Tyler Regional Hospital and a physician, along with a second group the court calls “the air ambulance plaintiffs.” They sued the U.S. Department of Health and Human Services (HHS), the U.S. Department of Labor (DOL), the U.S. Department of the Treasury (Treasury) and the Office of Personnel Management (OPM) under the Administrative Procedure Act (APA), challenging the July 2021 interim-final rule in which the agencies set the QPA methodology, along with the FAQs the agencies issued in August 2022, as contrary to the NSA and arbitrary and capricious. The U.S. District Court for the Eastern District of Texas ruled for the plaintiffs and vacated the agencies’ actions. A Fifth Circuit panel reversed, and the full court granted rehearing, which vacated the panel opinion.

The en banc court affirmed in part, reversed in part and remanded. A majority held that, under the plain language of the NSA, the QPA: 1) must not include ghost rates; 2) must include bonus and incentive payments, which may or may not be tied to the provision of specific items and services; and 3) does not include single-case agreements. It held that the district court appropriately vacated the agencies’ actions. Three judges wrote separately: Judge Ho in a concurrence questioning universal vacatur, Judge Oldham in a partial concurrence that would have decided the case on APA notice-and-comment grounds, and Judge Haynes, joined by five judges, in a partial dissent on the first two issues and the remedy.

Background

What the QPA does in IDR

The NSA defines the QPA as “the median of the contracted rates recognized by” a plan “as the total maximum payment . . . for the same or a similar item or service that is provided by a provider in the same or similar specialty and provided in the geographic region in which the item or service is furnished.” 42 U.S.C. § 300gg-111(a)(3)(E)(i)(I). The statute builds it from the plan’s contracted rates as of January 31, 2019, for the same or a similar service, by providers in the same or similar specialty in the same geographic region, and takes the median, adjusted for inflation in later years. Id. § 300gg-111(a)(3)(E)(i). The court’s translation: “The QPA is the median of the total maximum rates in an insurer’s contract for an item or service that a provider provides and furnishes, sorted by specialty and geographic region.” Texas Medical Association, 2026 WL 2322331, at *1.

The QPA thus is a stand-in for what the plan would have paid an in-network provider. It does two jobs. First, in most cases it sets the patient’s cost-sharing, which keeps the patient out of the payment fight and prevents balance billing. Second, it is the starting point in IDR. As Judge Oldham’s opinion summarizes, the patient’s cost-sharing is calculated as a portion of the QPA, and the provider and insurer negotiate the rest. Id. at *10 (Oldham, J., concurring in part). When negotiation fails, the dispute goes to IDR, where each side submits an offer and the IDR entity picks one. The per curiam described the QPA’s role this way: “Congress intended the QPA to serve as a focal point of provider-insurer negotiations.” Id. at *3 (citing 42 U.S.C. § 300gg-111(c)(5)(C)(i)(I)).

That’s why the calculation matters to both sides. A plan’s offer is often built from the QPA, and a provider’s offer has to justify departing from it. Inputs that pull the median down, such as low non-negotiated rates, move the starting point toward the plan. Inputs that push it up, such as bonus payments tied to a service, move it toward the provider. Each of the three rules challenged here changed which rates go into the median.

Offers and outcomes in IDR

The QPA is the one figure the IDR entity is always required to consider, alongside other information the parties submit, such as the provider’s training and experience, the complexity of the case and the parties’ contracting history. 42 U.S.C. § 300gg-111(c)(5)(C). The plan calculates its QPA itself and discloses it with its initial payment or denial. A plan’s offer typically sits at or near its QPA, and providers argue for more. The Centers for Medicare & Medicaid Services (CMS) has reported that plans “often benchmarked their offers to the QPA,” while providers pointed to past out-of-network payments and in-network rates. CMS, Supplemental Background on Federal Independent Dispute Resolution Public Use Files (July 1, 2025 – December 31, 2025).

What a plan reports as its QPA can matter as much as how the QPA is calculated. In REACH Air Medical Services LLC v. Kaiser Foundation Health Plan Inc., Kaiser paid an air ambulance provider $24,813.48 and told it that amount was its QPA. In IDR, Kaiser offered the same $24,813.48 but told the IDR entity its QPA was $17,304.29. According to the provider, the lower figure made Kaiser’s offer look well above the QPA. The Eleventh Circuit held that those allegations were not pleaded with enough particularity and did not decide whether they were true. 160 F.4th 1110, 2025 WL 3222820, at *2, *7 (11th Cir. Nov. 19, 2025).

The outcomes of the IDR process have run heavily one way. In the second half of 2025, providers, facilities and air ambulance providers were the prevailing party in about 85% of payment determinations, down from 88% in the first half of the year, and the prevailing offer exceeded the QPA in about 87% of determinations. CMS, Supplemental Background, supra. Researchers at Georgetown University’s Center on Health Insurance Reforms, analyzing CMS data, put the provider share at 81% in 2023 and 85% in 2024. Jack Hoadley, Kennah Watts, Katie Keith & Ellie DeGarmo, The No Surprises Act IDR Process: An Early Look at 2025 Data, Health Affairs Forefront (Mar. 2026). A “win” means the IDR entity chose the provider’s offer, not that the provider received any particular amount, and a small number of high-volume filers account for much of the volume. Insurers read that record as evidence that the process is being gamed; providers read it as evidence that plans’ QPAs are routinely understated.

The rules and the record

The interim-final rule, issued without notice and comment by the agencies in July 2021, instructed insurers to treat “each contracted rate for a given item or service” as a “single data point when calculating a median contracted rate . . . regardless of the number of claims paid at that contracted rate.” Id. at *1 (quoting 86 Fed. Reg. 36,872, 36,889 (July 13, 2021)). Insurers often offer providers a form fee schedule covering every service, and providers negotiate only the rates for services they plan to bill. The rest, the “ghost rates,” can be very low, in some cases $0. Id. at *2. In FAQ 14 of the August 2022 FAQs, the agencies instructed insurers that they “should not include $0 amounts in calculating median contracted rates,” but left non-$0 ghost rates in. Id.

The July 2021 rule also excluded bonus and incentive payments, 45 C.F.R. § 149.140(b)(2)(iv), and single-case agreements from the QPA calculation. Id. at *4, *6.

The per curiam pointed to the IDR numbers as evidence of the effect: arbitrations exceeded the agencies’ expectations by a factor of 84, providers prevailed in over 80% of them, and arbitrators selected a rate above the QPA in 85%. Id. at *3.

On single-case agreements, the original panel had rejected the plaintiffs’ challenge to their exclusion. Texas Medical Association, 120 F.4th at 506. The plaintiffs did not ask the full court to rehear that ruling in their joint en banc petition, but the air ambulance plaintiffs raised it again in their supplemental en banc brief. Texas Medical Association, 2026 WL 2322331, at *6.

Legal Analysis

• Ghost rates are not rates for services “provided by a provider.” The majority held that by requiring “each contracted rate” regardless of claims paid, the July rule swept in rates for services that were neither “provided by a provider” nor “furnished,” as the statute requires. Id. at *2. It called $0 rates “the clearest example,” noting that “it is undisputed that no provider ever agreed to provide any item or service for $0.” Id. And it read FAQ 14 as underscoring the problem rather than fixing it: if a $0 rate must come out because the provider obviously didn’t agree to it, the same is true of a below-market $1 rate. “Either the provider contracted for the rate, or he did not.” Id. at *3.
• The agencies’ textual and practical defenses didn’t carry. The agencies argued that the “same or similar specialty” limit already screens out ghost rates; the court answered that providers within a specialty often don’t offer overlapping services. Id. at *3. To the agencies’ arguments that providers need only make a service “available,” or might provide it in the future, the court answered that even on those readings the rules still include rates for services the agencies themselves described as ones providers are “not equipped to furnish.” Id. at *4. The agencies also asked what time period would determine whether a provider “provides” a service. The court called that “a fair question,” but one the agencies could have answered through notice and comment rather than an interim-final rule. Id.
• “Total maximum payment” includes bonus and incentive payments. Relying on dictionary definitions of “total” and “maximum,” the majority read the phrase to mean “the whole, entire payment and the sum of all payments from the insurer to the provider for the given item or service.” Id. at *4. The agencies argued that these payments are “rarely tied to specific contracted rates” and are usually paid “as an annual lump sum.” The court responded that some are tied to services, and that the rulemaking provision, which says the agencies “shall take into account payments that . . . are not on a fee-for-service basis,” 42 U.S.C. § 300gg-111(a)(2)(B), means they “cannot ignore or exclude them.” Id. at *5. On infeasibility, the court again said the agencies could have built a record through notice and comment. Id.
• Single-case agreements are not “contracted rates” recognized “under” a plan. Here the majority sided with the agencies. A “rate,” it reasoned, “connotes a per-unit price for multiple units,” which doesn’t naturally fit one-off agreements. Id. at *6. Even if it did, those agreements aren’t rates “recognized” “under” the plan, because they arise in emergencies “when insurers pay out-of-network providers at exceedingly high rates apart from any generally applicable health plan.” Id. The court added that a statute keyed to rates in effect on January 31, 2019 is “difficult to square with single-use agreements.” Id. It rejected the air ambulance plaintiffs’ counterarguments, including that the agencies treat single-case agreements as a “contractual relationship” elsewhere, 45 C.F.R. § 149.30. Id. at *7. On arbitrary-and-capricious review, it observed that because “the air ambulance business model is built on avoiding in-network contracts, we cannot say it was arbitrary or capricious to exclude them from a scheme built on in-network contracts.” Id. The plaintiffs also argued that including unpaid rates while excluding single-case agreements was internally inconsistent. The court agreed, and resolved the inconsistency by vacating the ghost-rate provisions. Id. at *7 n.4.
• Vacatur, not remand. Following circuit precedent that vacatur of unlawful agency action is the APA’s default remedy, the en banc court held that the district court appropriately vacated the agencies’ actions. Id. at *8 (citing Cargill v. Garland, 57 F.4th 447, 472 (5th Cir. 2023) (en banc), aff’d, 602 U.S. 406 (2024)). The agencies and insurers warned that recalculating QPAs would take time and that patients could lose balance-billing protection while that process unfolds. The court answered that “[t]he APA . . . does not embrace a too-big-to-vacate principle,” and pointed to the district court’s observation that the agencies “can exercise their enforcement discretion to allow insurers to continue using their existing QPAs until new QPAs are calculated consistent with the Act,” as they had been doing during the appeal. Id.
• Judge Ho: concurring, with reservations about universal vacatur. The government asked the court to revisit whether universal vacatur of an agency rule is lawful under the APA. Judge Ho laid out the arguments against it, drawing on Trump v. CASA, Inc., 606 U.S. 831 (2025), but concurred because circuit precedent goes the other way and there “is not presently interest [sic] to revisit that precedent.” Id. at *8–9 (Ho, J., concurring).
• Judge Oldham: concurring in part, on procedural grounds. Judge Oldham would have held FAQ 14 invalid because an agency “cannot fix a substantive error in a formal legislative rule through an informal FAQ document.” Id. at *12 (Oldham, J., concurring in part). On his view, the July rule’s inclusion of $0 ghost rates was contrary to law, FAQ 14 amended a legislative rule without notice and comment and was “a legal nullity,” and the court should remand with instructions to follow notice-and-comment procedure without reaching the other substantive challenges. Id. at *12–14, *18.
• Judge Haynes: concurring in part and dissenting in part. Judge Haynes, whose opinion refers in a footnote to “my panel opinion,” was joined by Judges Stewart, Graves, Higginson, Douglas and Ramirez. She agreed on single-case agreements and would have remanded rather than vacated. Id. at *18 & n.1 (Haynes, J., concurring in part and dissenting in part). On ghost rates, she read “provided” to mean “available” and viewed the $0 exclusion as essentially extinguishing the likelihood of rates for services a provider would never provide. Id. at *18–19. On bonuses, she read § 300gg-111(a)(2)(B) as authority for the agencies to decide how to treat those payments, and noted that some incentive adjustments, such as penalties, decrease payment. Id. at *19–20.

Holding

Affirmed in part, reversed in part and remanded for further proceedings consistent with the opinion, with the agency rules vacated. The court held that the July 2021 rule, as modified by FAQ 14, unlawfully requires insurers to include non-negotiated ghost rates in the QPA, and that the rule’s exclusion of bonus and incentive payments, 45 C.F.R. § 149.140(b)(2)(iv), conflicts with the statute’s “total maximum payment” language. It held that the exclusion of single-case agreements from “contracted rates” is consistent with 42 U.S.C. § 300gg-111(a)(3)(E)(i)(I) and is not arbitrary or capricious. It held that the district court appropriately vacated the agencies’ actions. Per the opinion’s opening footnote, nine judges joined the per curiam in full; Judge Southwick concurred in Parts I (ghost rates) and III (single-case agreements); and Judge Oldham concurred in part. Id. at *1 n.*.

What to Watch

• Further review. The government’s deadline to petition for certiorari is November 9, 2026, 90 days from the August 11, 2026 judgment, unless the deadline is extended.
• Update (October 18, 2026). The government filed its petition for certiorari on October 14, 2026, ahead of the deadline. Department of Health and Human Services v. Texas Medical Association, No. 26-491 (U.S. filed Oct. 14, 2026). The petition does not ask the Supreme Court to review the en banc court’s holdings on ghost rates, bonus and incentive payments, or single-case agreements. It presents only the remedy question: “[w]hether the Administrative Procedure Act . . . authorizes courts, in Section 706(2), to enter universal vacatur of agency rules that courts have held unlawful and, if so, in what circumstances.” That is the issue on which Judge Haynes, joined by five other judges, would have remanded rather than vacated. The government relies on Trump v. CASA, Inc., 606 U.S. 831 (2025), and acknowledges that there is no circuit split. The response is due November 13, 2026. The Fifth Circuit’s mandate issued October 2, 2026.
• New QPAs and the interim period. The court contemplated a period in which insurers recalculate QPAs, and the agencies use enforcement discretion to let existing QPAs stand in the meantime. The “fair question” the court left open is how to tell whether a provider “provides” a service and over what time period. This question will have to be answered—presumably by the agencies after a notice-and-comment period—before ghost rates can be screened out.
• Bonus and incentive payments in practice. The majority held that these payments must be included in the QPA “for the relevant item or service.” The agencies’ infeasibility objection, and Judge Haynes’s point that some adjustments are penalties that decrease payment, preview the questions that will arise in applying that holding.

What This Means for Resolving Payor-Provider Disputes

IDR is final-offer, or “baseball,” arbitration in which the reference point does much of the work. The QPA is that reference point. When it moves, both offers move with it: the plan’s number is anchored to it, and the provider’s argument is measured against it. The en banc court has moved two inputs in the providers’ direction and left a third, single-case agreements, where it was, so disputes over air ambulance services will continue to be built without those rates.

The near-term effect on resolution of these disputes runs in two directions. Until QPAs are recalculated, the parties are negotiating against a number the Fifth Circuit has held was calculated unlawfully, which gives providers an argument for discounting it and plans an argument that it remains the operative figure. That kind of disagreement over the starting point tends to keep claims in IDR. Once new QPAs are in place, though, a QPA that both sides regard as properly calculated is a more useful shared reference point than one either side treats as skewed. With continued litigation over the contours of the IDR process from both providers and payors, the number the process starts from carries more weight, and settling how it’s calculated may do more to narrow the range of outcomes—and promote more settlements in advance of IDR—than any later fight over an award.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Healthcare / Payor-Provider Disputes · No Surprises Act · Independent Dispute Resolution (IDR)

Updated October 18, 2026, to reflect post-decision filings. See the dated update under What to Watch.

Introduction

The No Surprises Act (NSA) was designed to replace balance billing of patients and payment fights between payors and out-of-network providers with a streamlined arbitration process. When a provider and a health plan can’t agree on what an out-of-network service is worth, each submits an offer, and a certified independent dispute resolution (IDR) entity picks one of the numbers — it’s “baseball” arbitration. The statute provides that the result is “binding” and must be paid within 30 days, but does not say what happens when the plan doesn’t pay. Providers holding unpaid awards have argued that a binding award must be enforceable in court; health plans have argued that Congress left enforcement to regulators. District courts are divided, including within the Second Circuit, and in 2025 the Fifth Circuit adopted the plans’ reading in Guardian Flight, L.L.C. v. Health Care Service Corp., 140 F.4th 271 (5th Cir. 2025). On September 17, 2026, the Second Circuit agreed. In East Coast Advanced Plastic Surgery, LLC v. Cigna Health & Life Insurance Co., the court held that the NSA does not create an implied private right of action to enforce IDR awards, and that the Declaratory Judgment Act cannot supply one. It expressly left open another question the Fifth Circuit had answered: whether the NSA’s limit on judicial review bars suits to confirm IDR awards altogether.

Executive Summary

East Coast Advanced Plastic Surgery (ECAPS) performs breast reconstruction surgery for patients who have undergone mastectomies. It has no network contract with Cigna, but it does have a contract with MultiPlan, which sells network access to plan administrators including Cigna, under which Cigna was to pay a “Contract Rate” of 85% of ECAPS’s billed charges. According to the complaint, Cigna paid far less in the “overwhelming majority” of cases. ECAPS took the claims through the NSA’s IDR process and won awards exceeding $3 million. Cigna paid none of them. Cigna, for its part, alleges that ECAPS billed fraudulently and that Cigna overpaid it by $8.5 million, and it sued ECAPS under ERISA, the Declaratory Judgment Act and Connecticut law. ECAPS then sued Cigna, seeking a declaration that Cigna violated the NSA by failing to pay the award amounts.

The district court dismissed ECAPS’s complaint, holding that the NSA contains no express or implied private right of action to enforce IDR awards and that the Declaratory Judgment Act is not an independent source of one. The Second Circuit affirmed.

Background

The IDR process

Under the NSA, an out-of-network provider bills the patient’s plan rather than the patient, and the plan must make an initial payment or send a notice of denial within 30 days. A provider that disagrees can open negotiations and, if those fail, initiate the IDR process. Each side submits an offer, and the certified IDR entity selects one of them. The determination “shall be binding upon the parties involved” and “shall not be subject to judicial review, except in a case described in any of paragraphs (1) through (4) of section 10(a) of title 9” — the Federal Arbitration Act’s grounds for vacating an arbitration award. 29 U.S.C. § 1185e(c)(5)(E)(i)(I)–(II). Payment is due within 30 days of the determination. Id. § 1185e(c)(6).

Three codifications, three agencies

Congress conferred jurisdiction over the NSA on three different federal agencies: the Department of Labor (DOL), as the administrator of ERISA § 716, 29 U.S.C. § 1185e; the Department of the Treasury (Treasury), through the Internal Revenue Service (IRS), as the administrator of I.R.C. § 9816; and the Centers for Medicare & Medicaid Services (CMS) of the Department of Health and Human Services (HHS), which administers Public Health Service Act § 2799A-1, 42 U.S.C. § 300gg-111. Each codification reads the same, and the agencies execute them concurrently, including joint issuance of the IDR regulations and sharing responsibility for certifying IDR entities and setting the methodology for awards. CMS runs the federal IDR portal on behalf of all three agencies.

The NSA defines the jurisdiction of each agency by the type of coverage involved, so that each agency reaches a different set of plans and parties:

• Private employer-sponsored group health plans, whether self-funded or insured, are covered by both the ERISA and Internal Revenue Code versions. DOL and Treasury share enforcement over them.
• Church plans, which fall outside ERISA, answer only to the Code, and so to Treasury.
• Non-federal governmental plans, such as those sponsored by state and local governments, fall under the Public Health Service Act and HHS.
• Health insurance issuers are also governed by the Public Health Service Act, whether they sell group or individual coverage. Here the states are the primary enforcers, and CMS steps in only where a state lacks the authority or doesn’t substantially enforce.
• Providers, facilities and air ambulance providers have their balance-billing obligations under the Public Health Service Act alone, enforced by the states and CMS.

The categories overlap in predictable ways. When an employer buys insurance, the insurer answers to the state or CMS, and the employer’s plan answers to DOL and Treasury.

This overlapping structure became the center of the ECAPS case. Each of the three statutes Congress amended comes with its own enforcement machinery. ERISA authorizes DOL to sue. The Code imposes an excise tax on the plan sponsor. The Public Health Service Act lets HHS impose civil money penalties and leaves the states to police insurers. The question was whether Congress, having spread enforcement across all of those mechanisms, also meant to let a provider holding an unpaid award go to court on its own.

The divided lower courts

Before ECAPS, district courts had gone both ways, including two in the District of Connecticut. Compare Guardian Flight LLC v. Aetna Life Ins. Co., 789 F. Supp. 3d 214, 229 (D. Conn. 2025) (finding an implied right of action), with Axis Neuromonitoring, LLC v. Aetna Inc., 824 F. Supp. 3d 217, 224 (D. Conn. 2026) (finding none, “as have most courts to consider the issue”).

Legal Analysis

• The starting presumption runs against the provider. The court framed the question of a private right of action through Alexander v. Sandoval, 532 U.S. 275, 286–87 (2001), and two 2026 Supreme Court decisions applying the same approach, FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., 608 U.S. 608, 613 (2026), and Cisco Systems, Inc. v. Doe I, 146 S. Ct. 1882, 1890 (2026). Where a statute has no express private right of action, courts begin with the presumption that Congress did not intend one, and the text and structure must show “a clear manifestation” of intent to create both a private right and a private remedy. Lopez v. Jet Blue Airways, 662 F.3d 593, 596 (2d Cir. 2011).
• “Shall pay” is rights-creating language, but it isn’t enough. The court accepted that the NSA’s payment provisions are the kind of rights-creating language that can imply a cause of action, citing its own decision in Murphy Medical Associates, LLC v. Yale University, 120 F.4th 1107, 1112 (2d Cir. 2024). But under Gonzaga University v. Doe, 536 U.S. 273, 284 (2002), a plaintiff must also show an intent to create a private remedy, and that is where ECAPS’s argument failed.
• Congress imported the FAA’s vacatur provision, not its confirmation provision. The NSA incorporates FAA § 10, which lets a court vacate an award, but not FAA § 9, which lets a party confirm one. Congress has incorporated § 9 elsewhere — the Administrative Dispute Resolution Act makes awards enforceable “pursuant to sections 9 through 13 of title 9,” 5 U.S.C. § 580(c) — and the court read the omission here as deliberate, as the Fifth Circuit had. See Guardian Flight, 140 F.4th at 276–77. ECAPS argued that Congress didn’t need § 9 because it applies to arbitration under an agreement rather than a statute. The court pointed out that § 10 applies to agreement-based arbitration too, and Congress incorporated it anyway.
• The enforcement scheme is administrative, and it interlocks. This is where the overlapping administrative structure set up by Congress becomes key. DOL can sue to enjoin violations by private employer-sponsored plans, 29 U.S.C. § 1132(a)(5). Treasury can impose an excise tax on a non-governmental plan that fails to meet the requirements, which include timely payment of IDR awards. I.R.C. § 4980D(a). HHS can impose civil money penalties on state and local governmental plans, 42 U.S.C. § 300gg-22(b)(2)(A). And states can enforce the requirements against health insurance issuers, id. § 300gg-22(a)(1). Under Sandoval, 532 U.S. at 290, the express provision of one method of enforcement suggests Congress meant to preclude others.
• How vigorously the agencies enforce is beside the point. ECAPS made four related arguments, and the court rejected each.
  • No enforcement power in the NSA. ECAPS argued that the NSA itself confers no enforcement power on DOL or Treasury. The court answered that Congress didn’t need to grant any. The NSA was written into ERISA and the Internal Revenue Code, and both already authorize agency enforcement: DOL’s power to sue dates to ERISA’s enactment in 1974, and Treasury’s excise tax was added to the Code in 1996. Once the NSA’s requirements became part of those statutes, the existing enforcement tools applied to them.
  • Minimal enforcement by DOL. ECAPS argued that DOL’s enforcement of IDR awards has been minimal. The court held that the relevant question is whether Congress authorized agency enforcement, not how actively the agency uses it.
  • Treasury can waive the tax. ECAPS pointed out that Treasury may waive the tax when a late payment isn’t due to willful neglect. The court said that an agency’s discretion to waive enforcement is no evidence that Congress intended a private right of action.
  • The tax falls on the employer. For most plans, the tax falls on the employer rather than on the plan that failed to pay. The court noted that ECAPS cited no authority requiring enforcement power to run against the noncomplying entity itself.
• “Binding” does not say who enforces. The court held that ECAPS’s reliance on the provision making the IDR entity’s choice between the two offers “binding upon the parties involved,” 29 U.S.C. § 1185e(c)(5)(E)(i)(I), begged the question, because the provision says nothing about who may enforce the determination. Cases enforcing “binding” awards under arbitration agreements did not address a statutory process subject to administrative enforcement.
• Vacatur still has work to do without private enforcement. ECAPS argued that incorporating the grounds for vacatur under FAA § 10 would be pointless if no one could be compelled to pay. The court disagreed: a plan facing an unfavorable award may prefer to seek vacatur rather than ignore the award and risk administrative action, and a provider that believes the process was tainted and produced too low an award can seek vacatur as well. Quoting Guardian Flight, the court observed that Congress “may have judged it better to have an administrative enforcement mechanism handle most award disputes instead of throwing open the floodgates of litigation.” 140 F.4th at 277.
• The Tucker Act and § 1983 analogies did not carry over. ECAPS relied on Maine Community Health Options v. United States, 590 U.S. 296 (2020), where the Supreme Court held that the Affordable Care Act’s command that the HHS Secretary “shall pay” insurers under the risk-corridors program let those insurers sue the government for the payments Congress later declined to fund. The Court observed there that “shall pay” language “often reflects congressional intent to create both a right and a remedy under the Tucker Act.” Id. at 324. But that holding arose under the Tucker Act, which waives the federal government’s sovereign immunity for money claims but requires a plaintiff to identify a separate statute that “can fairly be interpreted as mandating compensation by the Federal Government.” Id. at 322–23. Maine Community answered that money-mandating question. ECAPS presented a different one: whether Congress implied a private right of action against a private health plan, with no sovereign immunity and no Tucker Act claim involved. The court also rejected ECAPS’s reliance on 42 U.S.C. § 1983. In § 1983 cases, the statute itself supplies the remedy, so a plaintiff needn’t show that Congress intended one, but ECAPS’s claim rested on an implied right of action, where the plaintiff carries that burden.
• No end-run through the Declaratory Judgment Act. Because the Declaratory Judgment Act does not create an independent cause of action, and ECAPS had no substantive claim of right under the NSA, its declaratory claim fell with its implied-right claim.

Holding

Affirmed. The NSA does not create an implied private right of action for a provider to enforce payment awards obtained through the IDR process, and the Declaratory Judgment Act does not supply an independent cause of action. The court assumed, without deciding, that the NSA’s judicial-review provision, 29 U.S.C. § 1185e(c)(5)(E)(i)(II), does not itself bar ECAPS’s suit.

What to Watch

• The question the court reserved. Cigna argued that the NSA’s limit on “judicial review” bars any suit to confirm or enforce an IDR award, and the Fifth Circuit adopted that reading in Guardian Flight. The Second Circuit did not decide it. The difference matters only at the margins today, since neither circuit allows a private enforcement suit, but it would matter if a provider framed a claim some other way.
• Further review. Two circuits now agree, and the court cited no circuit decision going the other way, which makes this an unlikely candidate for Supreme Court review unless a split develops. Absent a rehearing petition, a petition for certiorari would be due 90 days after judgment, on or about December 16, 2026.
• Update (October 18, 2026). ECAPS petitioned for panel rehearing and rehearing en banc on October 1, 2026, and the petition is pending. Pet. for Reh’g, East Coast Advanced Plastic Surgery, No. 25-2204 (2d Cir. Oct. 1, 2026), Dkt. No. 82. The Emergency Department Practice Management Association and EMS Alliance filed an amicus brief supporting rehearing on October 13, 2026. If the court denies the petition, a petition for certiorari would be due 90 days after the denial. See Sup. Ct. R. 13.3.
• Agency enforcement. With private suits foreclosed in two circuits, whether an unpaid IDR award gets paid now depends on DOL, Treasury, HHS and state insurance regulators. ECAPS’s argument that DOL enforcement has been minimal did not move the court, but it identifies the pressure point providers are likely to press next.
• Claims the decision does not reach. The opinion addresses a claim to enforce the NSA itself. It does not address whether a provider can pursue other claims arising from the same services — for example, claims under a separate network agreement like the MultiPlan contract described in the complaint. Cigna’s related action against ECAPS, alleging $8.5 million in overpayments, was not before the court on this appeal.

What This Means for Resolving Payor-Provider Disputes

Arbitration finality means an award is hard to undo. Under the NSA as these two circuits read it, an IDR award is both hard to undo and unenforceable by the winner in court. The award still binds the parties, but its practical weight now depends on the regulatory risk the losing party runs by not paying, rather than on the threat of a judgment.

That changes what an unpaid award is worth at the negotiating table rather than whether it is worth anything. An IDR determination remains a neutral’s answer to what a set of services was worth, which gives both sides a shared reference point. Where, as here, a provider’s unpaid awards sit alongside a plan’s overpayment and fraud claims against the same provider, the disputes tend to travel together, and the two numbers tend to be resolved together rather than one at a time.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Courts enforce arbitration agreements and review awards narrowly. It is, therefore, notoriously difficult to overturn an unfavorable arbitration award – the grounds are narrow by statute, and courts are loath to expand the grounds by judicial fiat. This past summer brought five decisions in under two months that turned away five different theories: functus officio, manifest disregard, public policy, plain untimeliness, and arbitrator legal error. One decision does open a door, though not for the party that lost. The Third Circuit held that an arbitration panel may revisit its own award to clarify a genuine ambiguity, and that, where the parties’ chosen arbitration rules let the panel interpret the limits of its own powers, a reviewing court should defer to the clarification – once again, an example of judicial reticence to interfere in the arbitration process.

Executive Summary

Between July and August 2026, the Second, Third and Eighth Circuits, the Southern District of New York, and a California Court of Appeal each declined to disturb an arbitration award, on five distinct grounds. In Prospect Capital Management L.P. v. Stratera Holdings, LLC, 185 F.4th 429 (3d Cir. 2026), the Third Circuit held that a panel’s revised award clarifying an ambiguous fee ruling fell within the ambiguity exception to functus officio, and — because the parties’ AAA rules delegated that question to the panel — deferred to it as at least a rational clarification. In Acorda Therapeutics, Inc. v. Alkermes PLC, No. 25-1896, 2026 WL 2042719 (2d Cir. July 15, 2026) (summary order), the Second Circuit refused to add $65 million to a $16.5 million restitution award in the licensee’s favor, holding the tribunal had not manifestly disregarded patent law because Supreme Court precedent in the patent area does not require restitution of royalties a licensee knowingly paid. In Compeer Financial, ACA v. Corporate America Lending, Inc., 180 F.4th 1119 (8th Cir. 2026), the Eighth Circuit declined to decide whether a public-policy exception survives the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) that the Federal Arbitration Act provides the exclusive ground for vacatur, because the panel had rested on independent alternative grounds that made any violation harmless. In Triad Health LLC d/b/a MediraRx v. Novus Health, Inc., No. 26-CV-1957 (JPO), 2026 WL 2532306 (S.D.N.Y. Aug. 27, 2026), the Southern District of New York confirmed a AAA award in a 340B third-party-administrator dispute, deferring to the arbitrator’s finding that the challenger had waived its jurisdictional objection by not raising it in time, and rejecting an evident-partiality challenge both because no objection was made by the AAA’s deadline and because the disclosed relationship was remote and insubstantial. And in Saberin v. Alation, Inc., 122 Cal.App.5th 165 (2026), a California Court of Appeal held that an arbitrator’s legal error that forecloses a hearing on the merits of an employee’s unwaivable FEHA claim is subject to judicial review — and then affirmed the denial of vacatur anyway, deferring to the arbitrator’s factual findings.

Taken together: the substantive doors remain narrow, the procedural ones close on a clock, and even the one merits door that is genuinely open leaves the arbitrator’s factual findings in place.

Background: The Legal Landscape After Hall Street

The Federal Arbitration Act permits vacatur only on narrow grounds — corruption, fraud or undue means; evident partiality or corruption in the arbitrators; misconduct or misbehavior that prejudiced a party’s rights; and arbitrators exceeding their powers, or so imperfectly executing them that no mutual, final and definite award was made. 9 U.S.C. § 10(a). Section 11 permits modification or correction for evident material miscalculations or misdescriptions, awards on matters not submitted (unless the matter does not affect the merits of the decision on what was submitted), and imperfections of form not affecting the merits. Id. § 11. Some courts have added two judicial glosses: manifest disregard of the law, and a public-policy exception. Both have been in doubt since the Supreme Court decided Hall Street in 2008.

Hall Street arose from a lease dispute in which the parties, partway through federal litigation, agreed to arbitrate one issue and wrote their own standard of review into the agreement: the court would vacate or modify any award whose findings of fact were not supported by substantial evidence or whose conclusions of law were erroneous. 552 U.S. at 579. The Supreme Court held that the FAA would not enforce that bargain. Sections 10 and 11, it held, “provide the FAA’s exclusive grounds for expedited vacatur and modification,” id. at 584, and Section 9’s command that a court “must grant” confirmation unless the award is vacated, modified or corrected under those sections leaves no room for more: “There is nothing malleable about ‘must grant.’” Id. at 587. Parties can agree to arbitrate, and they can shape how the arbitration is run, but under the FAA they cannot contract for a court to review the result based on anything other than what the FAA provides, including expanded appellate review.

That holding put both judicial glosses in doubt. Manifest disregard traces to a phrase in Wilko v. Swan, 346 U.S. 427, 436–37 (1953), overruled on other grounds by Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989), and Hall Street declined to say what the phrase meant: perhaps a new ground for review, perhaps a reference to the Section 10 grounds collectively, or perhaps “shorthand for § 10(a)(3) or § 10(a)(4).” 552 U.S. at 585. Two years later, the Court expressly left the question open. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 672 n.3 (2010). The circuits have answered it differently. The Second Circuit treats manifest disregard as a “judicial gloss” on Section 10, T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 340 (2d Cir. 2010); the Ninth folds it into Section 10(a)(4), Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277, 1290 (9th Cir. 2009); and the Fifth and Eleventh hold that the statutory grounds are exclusive, Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349, 355 (5th Cir. 2009); Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1324 (11th Cir. 2010). The Fourth Circuit, expressly declining to follow the Fifth and Eleventh, holds that manifest disregard survives — as an independent ground or as a judicial gloss on Section 10 — without deciding which. Wachovia Securities, LLC v. Brand, 671 F.3d 472, 483 (4th Cir. 2012). The public-policy exception has a different pedigree — W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 766 (1983), a labor-arbitration case — but after Hall Street it faces the same objection: it is not in Section 10. Hall Street did leave one door ajar. The FAA, the Court said, “is not the only way into court for parties wanting review of arbitration awards,” and state statutory or common law may supply review of a different scope. 552 U.S. at 590.

California runs a parallel regime under its own arbitration statute. Code of Civil Procedure section 1286.2 supplies its own vacatur grounds, including that the arbitrator exceeded their powers. Under Moncharsh v. Heily & Blase, 3 Cal.4th 1, 11 (1992), an arbitrator’s decision generally cannot be reviewed for errors of fact or law, but Moncharsh reserved “limited and exceptional circumstances.” Id. at 32. Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010), identified one: a clear legal error that prevented an employee subject to mandatory arbitration from obtaining a hearing on the merits of his FEHA claim, which the court held could be vacated under section 1286.2(a)(4). Id. at 669–670, 679–680. Pearson expressly declined to decide whether all legal errors in that setting are reviewable, and it noted that several federal circuits reach comparable errors through manifest disregard as part of Section 10(a)(4). Id. at 677 n.3, 679.

Separately, as a default rule, functus officio prevents arbitrators from redetermining the merits of an issue they have finally decided. Parties may contract around the rule. Its traditional exceptions permit correction of facial clerical or arithmetic errors, resolution of issues that were submitted but not decided, and clarification of genuine ambiguity. Prospect Capital, 185 F.4th at 434–437 & n.1.

That is the toolkit these five cases used over the summer. They show how little of it helps the losing party in arbitration.

Legal Analysis of the Summer 2026 Cases

The arbitral panel has more authority over its own award than a court does. In Prospect Capital, a panel found that Prospect had breached a fee agreement by excluding one category of shares from a calculation, but the award did not make clear how that ruling applied to the other disputed categories. When the parties raised the point, the panel issued a revised award confirming it applied to all of them. Prospect argued that the arbitral panel no longer had jurisdiction and thus functus officio barred the revision. The Third Circuit disagreed. An ambiguity arises where an award “fails to address a contingency that later arises or when the award is susceptible to more than one interpretation” (citation omitted), and this award was. Prospect Capital, 185 F.4th at 438. The court then deferred, concluding the revised award “was at least a rational clarification of its earlier award.” Id. at 440. It tied that deference to the parties’ adoption of the AAA rules, which let the arbitrators interpret and apply the rules governing their own powers — including the rule barring them from redetermining the merits of a decided claim. Id. at 434–435, 440. Two threshold rulings travel with it: an interim award resolving liability but reserving remedy is final as to liability for functus officio purposes, and the doctrine itself remains good law in the Third Circuit.

The court’s power to modify an arbitration award is limited. In Acorda, the fight was over money Acorda had already paid. Acorda licensed a patent from Alkermes and, as its contracts required, kept paying royalties after the patent expired in 2018. About two years later it demanded arbitration and began paying under protest. A tribunal of three retired judges agreed that the clauses requiring post-expiration royalties were unenforceable and ordered Alkermes to refund the roughly $16.5 million Acorda had paid under protest. But it refused to order a refund of the larger sums Acorda had paid earlier without protest, applying New York’s voluntary-payment doctrine, which bars recovery of payments made with full knowledge of the facts. Acorda, 2026 WL 2042719, at *1. Acorda then asked the district court to vacate or modify the award so that it would recover another $65 million, arguing that the tribunal had manifestly disregarded federal patent law. Manifest disregard is not one of the FAA’s statutory grounds, and the Second Circuit treats it as a judicial gloss on the vacatur grounds in Section 10, and a “severely limited” one at that: the challenger must identify “well-defined” and “explicit” law that the arbitrators ignored, and the award stands so long as there is “a barely colorable justification for the outcome reached by the arbitrators.” Acorda, 2026 WL 2042719, at *1–2. (The district court had noted that, since Hall Street, the Second Circuit has recognized manifest disregard only as a ground for vacatur, not modification; the Second Circuit found it unnecessary to decide that question. Id. at *1 n.1.) Acorda could not point to any explicit law requiring full restitution. The cases it relied on, Brulotte v. Thys Co., 379 U.S. 29 (1964), and Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015), bar royalties for post-expiration use of the patented invention; neither establishes that a licensee who knowingly paid the challenged royalties is entitled to complete restitution. Acorda had conceded as much during the arbitration: “neither Brulotte nor Kimble addressed damages.” Id. at *2. With no explicit federal rule requiring full restitution, the tribunal’s use of New York law to measure Acorda’s state-law restitution claim had at least a colorable justification. Id. at *3. The court assumed, without deciding, that a public-policy challenge remains available, and rejected it for the same reason. Id. at *1 n.2, *2–3.

The public-policy question survived by not being reached. In Compeer, the losing party argued the award enforced a contract that violated the Farm Credit Act and therefore public policy. The Eighth Circuit observed that the circuits divide over whether judge-made grounds for vacatur survive Hall Street — as noted above, the Ninth Circuit treats manifest disregard as part of § 10(a)(4), while the Fifth and Eleventh Circuits hold the statutory grounds exclusive — and expressly declined to decide whether the public-policy exception survives. Compeer, 180 F.4th at 1128–29. It did not have to. The panel had granted alternative claims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment, so even if part of the award offended public policy, the result rested on independent grounds, and any error was harmless. Id. at 1129.

That reasoning is worth more than the holding. An award resting on alternative independent grounds is materially harder to unwind, because a challenger attacking the substance of the award has to defeat every route to the same result rather than the most vulnerable one — though a defect that taints the whole award, such as partiality, is a different matter.

Objections not raised in time during the arbitration are hard to revive. In Triad Health, a 340B third-party administrator, MediraRx, moved to vacate a AAA award holding that the covered entity had properly terminated their administration agreement. It raised three grounds, and none succeeded. First, it argued that the award reached into related pharmacy contracts that carried their own forum-selection clauses. The court disagreed: the award resolved only rights under the administration agreement and, as the arbitrator had found, left the pharmacy contracts to be decided on their own merits in their own forums. Triad Health, 2026 WL 2532306, at *5–6. Second, MediraRx argued that the arbitrator had usurped a court’s role in deciding whether those later contracts limited the arbitration clause. The arbitrator had found that MediraRx waived that objection by not raising it in time under AAA Commercial Rule 7(c), and the court deferred to that finding, explaining that its own view of whether waiver occurred was “irrelevant.” Id. at *7–8. An objection to arbitrability “must be made on a timely basis, or it is waived.” Id. at *7 n.4 (quoting ConnTech Dev. Co. v. Univ. of Conn. Educ. Props., Inc., 102 F.3d 677, 685 (2d Cir. 1996)). Third, MediraRx challenged the arbitrator’s mid-case disclosure of an old connection with its own counsel’s firm. It had never objected by the AAA’s deadline, and in any event the relationship was disclosed, remote and insubstantial, and the claimed bias speculative. Id. at *4–5. The court confirmed the award and declined to award fees, finding that the record did not show the petition was brought in bad faith. Id. at *8.

California review is available, but the arbitrator’s findings still control. Saberin turns on geography. Pejman Saberin, an engineer, worked for Alation, Inc., a data-software company headquartered in California. But he lived in Utah and worked remotely from there, and his direct supervisor worked remotely from Washington state. In October 2023, he was arrested in Florida while returning from a vacation. The two executives who decided to terminate him — one who worked from Utah, the other who ordinarily worked from his home in California — were both in Illinois when they made the decision, with “input” from a human-resources employee who worked in California. The criminal case was later dismissed. Saberin, 122 Cal.App.5th at 170–171, 179–180.

Saberin claimed that Alation violated two California statutes that bar employers from considering an arrest that did not lead to a conviction: Government Code section 12952, part of FEHA, and Labor Code section 432.7. The claims went to arbitration under his employment agreements, one of which called for arbitration “pursuant to California law.” Alation argued that neither statute reaches an employee who lives and works outside California, and the arbitrator agreed. Because Saberin could identify no Utah, federal, or other non-California law under which to proceed, the parties stipulated to an award in Alation’s favor so that he could challenge the ruling promptly. He then petitioned to vacate under Code of Civil Procedure section 1286.2(a)(4), arguing that the arbitrator had exceeded his powers. Id. at 170–172.

The Court of Appeal first held that the ruling was reviewable. Under Pearson, an arbitrator’s legal error that deprives an employee of a hearing on the merits of an unwaivable FEHA claim is subject to judicial review, and the arbitrator’s ruling here had done exactly that. Id. at 173–174. (The court assumed, without deciding, that the same was true of the Labor Code claim. Id. at 173 n.2.) Nor had Saberin waived review. Nothing in Moncharsh suggests a party gives up a section 1286.2(a)(4) challenge “by simply agreeing to arbitrate a dispute,” and Saberin had pressed his California-law arguments before the arbitrator; he did not also have to predict that an adverse ruling would exceed the arbitrator’s powers. Id. at 174–175.

Reviewing the question de novo, the court then held that Saberin could not invoke either statute. Id. at 175. The fact that he had chosen a California forum and California law did not change the answer. The court accepted that California law governed, whether through the choice-of-law clause in his employment agreement or the rule that a forum applies its own law. But California law includes the presumption that its statutes are meant to apply only within the state, so a clause selecting California law brings that presumption with it. Id. at 175–176. The question was therefore not which state’s law applied, but whether the Legislature meant these two California statutes to reach a worker like Saberin, who resided outside of California. Following Ward v. United Airlines, Inc., 9 Cal.5th 732 (2020), which requires a statute-by-statute inquiry into geographic reach, the court concluded that, for a worker outside California, each statute applies only if the unlawful conduct — here, the decision to terminate him because of the arrest — has a sufficient connection to California. Saberin, 122 Cal.App.5th at 176–179. There was none. Saberin, his supervisor, and the arrest all occurred outside the state, and the termination decision was made in Illinois. The decisionmaker’s usual California home did not change that, since nothing suggested he had been sent out of state to avoid California law. As for the HR employee’s input, the arbitrator had called it a “tenuous” thread; the court read that as an implied factual finding that the input was not substantive, and deferred to it. Id. at 179–181.

The sequence is the lesson. Saberin won the argument about whether a court could review the ruling and lost the case anyway: a door to review is not a remedy. Because the court affirmed, it never had to decide what the remedy would have been — Saberin had argued that the arbitration agreement should be set aside and the case returned to court, and the court expressly left that open. Id. at 181 n.6. Note also what survived de novo review: the arbitrator’s factual findings still drew deference. Even in this narrow posture, the reviewing court works from the record the arbitrator built.

Holdings

Prospect Capital: affirmed. The ambiguity exception to functus officio permitted the panel’s revised award, and the clarification was entitled to deference given the parties’ adoption of AAA rules delegating that question to the panel. Precedential.

Acorda: affirmed. No manifest disregard; public-policy challenge rejected, assuming without deciding that such a challenge remains available; the district court correctly confirmed without modifying. Summary order, non-precedential but citable under Second Circuit Local Rule 32.1.1.

Compeer: affirmed, including appointment of a receiver. Whether a public-policy exception survives Hall Street left open; any violation harmless given independent alternative grounds. Precedential.

Triad Health: petition and motion to vacate denied; cross-petition to confirm granted; fees denied. Slip copy.

Saberin: affirmed. An arbitrator’s legal error that deprives an employee of a hearing on the merits of an unwaivable FEHA claim is reviewable under Code Civ. Proc. § 1286.2(a)(4) (assumed, without deciding, for the Labor Code claim), and the challenge is not waived by having agreed to arbitrate; on de novo review, neither statute reached this out-of-state employee, and the award stood. Certified for publication.

Arbitration Awards Remain Difficult to Overturn

For a party weighing a challenge, the arithmetic has not improved. The statutory grounds remain narrow, the judicial glosses remain contested, and procedural objections are held to strict time periods. Where California’s arbitration review rules apply, the statutory-rights exception can permit review of a ruling that forecloses a merits hearing — but Saberin shows that obtaining review is not the same as obtaining vacatur.

For a neutral drafting an award, Prospect Capital is the useful decision, and it cuts both ways. A panel may clarify a genuine ambiguity and, where the parties’ chosen rules leave that call to the panel, a court will defer — but the cleanest form of that protection is an award that was never ambiguous. Say how the ruling applies to every category before anyone has to ask. Compeer is a quiet argument for reaching alternative grounds where the record supports them, since an award with two independent legs is far harder to knock over.

What to Watch

First, whether the Eighth Circuit returns to the public-policy question it reserved in Compeer; it now sits beside an acknowledged split without having chosen a side. Second, how far Prospect Capital reaches — it is precedential, and the line between a permissible clarification and an impermissible second look will be tested by the next party that dislikes what a panel clarified. Third, the timeliness holding in Triad Health is not new law, but it is a recurring and avoidable reason a challenge fails and the one most within a party’s own control. Fourth, for arbitration practitioners, the part of Saberin that matters most is its reviewability holding, which sits alongside a statute-specific extraterritoriality holding that decided the case — expect it to be cited by employees seeking review of adverse FEHA arbitration rulings, and expect employers to press the narrow reading that Pearson reaches only a ruling that forecloses a merits hearing altogether.

Cases cited in this blog: Acorda Therapeutics, Inc. v. Alkermes PLC, No. 25-1896, 2026 WL 2042719 (2d Cir. July 15, 2026) (summary order) | Brulotte v. Thys Co., 379 U.S. 29 (1964) | Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) | Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277 (9th Cir. 2009) | Compeer Financial, ACA v. Corporate America Lending, Inc., 180 F.4th 1119 (8th Cir. 2026) | ConnTech Dev. Co. v. Univ. of Conn. Educ. Props., Inc., 102 F.3d 677 (2d Cir. 1996) | Frazier v. CitiFinancial Corp., 604 F.3d 1313 (11th Cir. 2010) | Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) | Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015) | Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992) | Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010) | Prospect Capital Management L.P. v. Stratera Holdings, LLC, 185 F.4th 429 (3d Cir. 2026) | Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989) | Saberin v. Alation, Inc., 122 Cal.App.5th 165 (2026) | Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010) | T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010) | Triad Health LLC d/b/a MediraRx v. Novus Health, Inc., No. 26-CV-1957 (JPO), 2026 WL 2532306 (S.D.N.Y. Aug. 27, 2026) | W.R. Grace & Co. v. Local Union 759, 461 U.S. 757 (1983) | Wachovia Securities, LLC v. Brand, 671 F.3d 472 (4th Cir. 2012) | Ward v. United Airlines, Inc., 9 Cal.5th 732 (2020) | Wilko v. Swan, 346 U.S. 427 (1953), overruled on other grounds by Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989)

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Healthcare / Anti-Kickback Statute · Beneficiary Inducement Statute · HHS-OIG Advisory Opinions

Introduction

Patient-support programs test the outer edge of the Anti-Kickback Statute, with those offering such seemingly beneficial services to patients arguing that, as a criminal bribery statute, the terms “remuneration” and “induce” must be read narrowly to mean corrupt payments and quid-pro-quo dealing, not ordinary financial help that happens to make a treatment easier to choose. The Second Circuit rejected that reading in Pfizer, Inc. v. U.S. Department of Health & Human Services, 42 F.4th 67 (2d Cir. 2022), cert. denied, 143 S. Ct. 626 (2023), and the Fourth Circuit rejected it in Pharmaceutical Coalition for Patient Access v. United States, 126 F.4th 947 (4th Cir. 2025). On September 4, 2026, the D.C. Circuit made it three, in a case about an advisory opinion issued by the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services concerning a gene therapy for sickle cell disease and a program offering patients up to $70,000 toward fertility services that chemotherapy may cost them. In addition to joining its sister circuits in giving “remuneration” and “induce” their ordinary meanings, the court made two other rulings under the Administrative Procedure Act. First, it held that OIG acted arbitrarily and capriciously by brushing past a statutory exception with the observation that it “lack[ed] data.” Second, it held that OIG had no authority to issue regulations allowing it to determine when the 60-day statutory deadline for issuing advisory opinions began and could be tolled.

Executive Summary

Vertex makes Casgevy, a gene therapy for sickle cell disease and transfusion-dependent beta-thalassemia. The treatment requires intensive chemotherapy that can impair fertility, so Vertex created a Fertility Support Program offering patients up to $70,000 toward fertility services. It opened the program to privately insured patients and, in June 2023, asked OIG for an advisory opinion on whether extending it to federally insured patients would violate the Anti-Kickback Statute or the Beneficiary Inducement Statute. OIG didn’t issue its opinion for more than a year, and only did so three days after Vertex sued to compel it, concluding that the program would violate both statutes. The district court sided with OIG on every issue. The D.C. Circuit affirmed in part, reversed in part, and remanded. On the AKS, it held that “induce” and “remuneration” carry their ordinary meanings — to influence or prevail upon a person, and valuable compensation in any form — rather than a narrower sense drawn from criminal solicitation and facilitation, joining the Second Circuit in Pfizer and the Fourth Circuit in Pharmaceutical Coalition for Patient Access. On that reading, the program is remuneration to induce the purchase of Casgevy. But the court set aside OIG’s conclusion that the program would also violate the Beneficiary Inducement Statute, holding that the agency failed to engage with the evidence that the statutory Promotes Access to Care Exception applied. And it held that OIG’s regulations — which start the 60-day advisory-opinion clock at “formal acceptance” rather than receipt, and toll it while the agency seeks more information — are contrary to law.

Background

The two statutes

The AKS criminalizes knowingly and willfully offering or paying “any remuneration (including any kickback, bribe, or rebate) … to any person to induce such person … to purchase” an item or service reimbursable under a federal healthcare program. 42 U.S.C. § 1320a-7b(b)(2)(B). Violations are felonies, and the statute carries an extensive set of safe harbors, with authority in the Secretary to create more. The BIS is the civil counterpart, reaching remuneration offered to a beneficiary that the offeror “knows or should know is likely to influence” the beneficiary’s choice of provider, practitioner or supplier. Id. § 1320a-7a(a)(5). Among the BIS’s own exceptions is one for remuneration that “promotes access to care and poses a low risk of harm to patients and Federal health care programs.” Id. § 1320a-7a(i)(6)(F). Parties may ask OIG for an advisory opinion on whether proposed conduct would violate either statute; the opinion binds both the agency and the requester.

The program and the request

Because older patients often cannot tolerate the chemotherapy regimen, Casgevy is best taken young — by patients with their childbearing years ahead of them, who may then need fertility treatments costing tens of thousands of dollars. That is the concern the Fertility Support Program was designed to address, and Vertex withheld it from federally insured patients until OIG ruled.

Vertex requested the advisory opinion on June 13, 2023. OIG formally accepted it on June 26, requested more information, and tolled the deadline until Vertex responded on October 10. OIG said at a November teleconference that it could not issue a favorable opinion, then did not publish. Vertex asked repeatedly over the following months. On July 15, 2024, Vertex sued to compel issuance. Three days later — more than a year after the request and nine months after the supplemental information — OIG issued the opinion, concluding the program would provide prohibited remuneration under both statutes and that the Promotes Access to Care Exception did not apply because the agency “lack[ed] data.” The district court granted summary judgment for OIG on every issue and held the challenge to the timing regulations nonjusticiable once the opinion had issued.

Legal Analysis

• “Induce” means to influence, not to solicit a crime. Statutes sometimes use “induce” in a specialized criminal-law sense carrying common-law solicitation and facilitation. The court held the AKS does not, and the distinguishing feature is what is being induced. In United States v. Hansen, 143 S. Ct. 1932 (2023), the induced act — illegal immigration — was itself a crime. Under the AKS, the act induced is a beneficiary’s selection of medical services, which is lawful. With no unlawful act at the end of the chain, the presumption that Congress imported the common-law sense weakens considerably.
• The safe harbors are what settle it. The AKS’s safe harbors cover prosaic transactions — a hospital paying its physicians, a health center waiving coinsurance for a patient who qualifies for subsidized services, a pharmacy waiving a co-pay for a patient in good-faith financial need. If “induce” meant criminal solicitation, none of those would ever have needed excepting, and the safe harbors would be largely surplus. The court quoted the Fourth Circuit’s formulation that the narrow reading would “create vast superfluity in the statute.” Pharm. Coal. for Patient Access, 126 F.4th at 958.
• “Remuneration” is not confined to corrupt payments. Vertex argued that the parenthetical — “(including any kickback, bribe, or rebate)” — colors the term under noscitur a sociis (the canon that a word is known by the company it keeps). The court answered on the list’s own contents: a kickback and a bribe carry corrupt connotations, but a rebate is simply a discount or refund. A list that is not uniformly corrupt cannot narrow the general term to corruption. The court also noted the repeated “any” and the illustrative “including,” both signals of breadth.
• Lenity and vagueness got no traction. Neither the rule of lenity nor constitutional avoidance has a role, the court held, where text, context and structure resolve the question. On vagueness, the possibility of close cases does not make a statute vague, and the AKS’s knowing-and-willful scienter requirement alleviates the concern — a point on which the court noted the First, Ninth and Eleventh Circuits have come out the same way.
• The BIS ruling is an administrative-law ruling. The court held that OIG never explained why the Fertility Support Program does not qualify under the statutory exception promoting access to care. Vertex had submitted studies that infertility risk leads sickle cell patients to forgo potentially lifesaving treatment, evidence that many patients cannot afford fertility services, CMS guidance describing lack of access to fertility preservation as a significant access barrier for gene therapy candidates, and program controls limiting eligibility to patients already prescribed the therapy. OIG’s entire response was that it lacked data to determine that the program improves access. It did not say what data, why it could not obtain it, or why Vertex’s showing fell short. The district court’s view that the agency’s “path may reasonably be discerned” did not survive.
• A statutory deadline is a deadline. Congress specified, as part of the required contents of the advisory-opinion regulations, that the Secretary “shall be required to issue” an advisory opinion “not later than 60 days after the request is received.” 42 U.S.C. § 1320a-7d(b)(5)(B)(i). OIG’s regulations started the clock at formal acceptance — up to ten business days after receipt — and tolled it while the agency sought additional information or outside expert advice. Neither provision is authorized by the statute. Drawing on its en banc decision in Allegheny Defense Project v. FERC, 964 F.3d 1 (D.C. Cir. 2020), the court held that OIG has no “unwritten and unilateral power to indefinitely evade” the deadline, that an agency’s practical need for more time does not license tolling, and that a general grant of procedural authority cannot displace specific statutory text. That the statute attaches no consequence to missing the deadline does not imply permission to regulate around it.
• Mootness did not shield the regulations. Issuing the opinion mooted the claim that it was being unlawfully withheld, but not the challenge to the underlying policy. Vertex, which has sought advisory opinions before and credibly represents that it will again, is a repeat player likely to be subject to the same practice — enough for standing, and the purely legal question was ripe.

Holding

Affirmed in part, reversed in part, and remanded. The court held that OIG correctly concluded that the Fertility Support Program would provide remuneration to induce the purchase of Casgevy within the meaning of the AKS. OIG’s determination that the program would violate the BIS was arbitrary and capricious and is set aside. The advisory-opinion timing provisions are contrary to law: the rules starting the 60-day clock at formal acceptance rather than receipt, 42 C.F.R. §§ 1008.41(b), 1008.43(c)(1), and the tolling provisions, which the court set aside, id. §§ 1008.39(a) (second sentence), 1008.41(e), 1008.43(c).

What to Watch

• What the court expressly left open. There are three. The court did not decide how much influence is required to constitute inducement — it did not need to, given the size and design of this program. It did not decide whether “induce” in the AKS is identical in meaning to “influence” in the BIS. And it did not reach OIG’s alternative theory that the program provides prohibited remuneration to physicians and treatment centers through the opportunity to earn treatment-related fees.
• The remand at OIG. The agency must reconsider the Promotes Access to Care Exception and explain its conclusion. The court also noted that OIG may take a different view on remand of whether to grant prospective immunity under the AKS, a question Vertex did not press on appeal. A reasoned denial remains available; a conclusory one does not.
• Whether the AKS question goes further. Three circuits now read “remuneration” and “induce” broadly and none has held otherwise, which makes this an unlikely vehicle for Supreme Court review and a diminishing argument at the district-court level. Watch for a rehearing or certiorari petition on the ordinary timeline; none had been reported as of this writing.
• Advisory opinions as a usable tool. If the 60-day clock runs from receipt and cannot be tolled, the advisory opinion process becomes something a company can plan around rather than an open-ended wait — Vertex’s own took more than a year. OIG’s response to the compressed deadline it now faces will be interesting to watch.
• Program design in the meantime. Patient-support programs tied to a specific product or service remain exposed under the AKS regardless of the benevolence of their purpose. The defensible space has moved to the exceptions and safe harbors, and to the scienter element — which OIG, following its usual practice, did not formally analyze in the advisory opinion at all.

What This Means for Resolving Disputes Involving the AKS

For parties trying to resolve a dispute involving the meaning and scope of the AKS — disputes that most often arise in False Claims Act litigation — the useful observation is that the range of outcomes on the AKS question has narrowed considerably, and narrowing is what makes matters resolvable. A defendant arguing that “remuneration” reaches only corrupt transactions is now arguing against three circuits and none in the other direction. That argument has gone from a plausible dispositive defense to a discount.

The contested space has shifted to ground that is inherently more negotiable. Whether an activity alleged to violate the AKS is in fact legitimate is a highly factual question, not a clean question of statutory construction. Whether conduct was knowing and willful is a fact question too. Disputes that turn on evidentiary judgments of that kind are the ones where a neutral can be useful, because both sides can see the range and neither can be confident of the ends of it. Disputes that turn on a pure question of law, by contrast, tend to be litigated to a decision — which is what the last several years of AKS scope litigation produced, and what this decision brings closer to a close.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.

Introduction

Arbitral institutions are competing on efficiency — the ICC’s revised Rules took effect June 1, 2026 with a highly expedited track and codified early determination, and the AAA amended its Commercial Rules in 2022 to make arbitrators weigh the cost of a dispositive motion before allowing one. None of that reaches the decisions that actually drive cost. Those belong to counsel, and most of them are made in the first sixty days. What follows is my top ten list of what counsel can do to make arbitration truly efficient and cost effective for their clients.

The List

1. Draft the clause so it can run itself. If you are drafting the arbitration clause as transactional counsel, or one in a post-dispute agreement to arbitrate, sweat the details – but don’t handcuff the arbitrator and litigation counsel down the road. Name the forum and the rules, and set the seat, governing law, selection method, and form of award. Be careful about discovery – don’t incorporate statutory or procedural rules wholesale, but it might be wise to leave the shape of discovery to the preliminary hearing once the contours of the dispute are known. Watch the recurring defects: conditions precedent so strict a party forfeits the right to arbitrate by missing a step, and a three-arbitrator panel in a contract whose disputes will cost less than the panel.
2. Treat the preliminary hearing as the most important hour in the case. It is not a scheduling call. It is where the schedule, discovery scope, form of testimony, expert treatment, motion protocol and award type are either resolved or scheduled to be resolved. Meet and confer in earnest beforehand and arrive with positions on these critical issues in addition to a calendar. The difference between a conference where counsel have actually spoken and one where they have not is not subtle.
3. Build a schedule that will hold — and book the extra hearing days now. The goal is not the earliest dates; it is dates that survive. Finding additional hearing days later means finding them across three calendars plus the arbitrator’s (or a panel’s, even more complicated), which is how an arbitration starts looking more like litigation. Ask the arbitrator to require good cause for any modification, and put status calls on the calendar while slippage is still correctable.
4. Help the arbitrator get disclosure right. Failure to disclose a prior or ongoing relationship is the most common route to vacatur under the Federal Arbitration Act, and an arbitrator can only run conflicts against names actually supplied. Give the full list — counsel, parties and their ownership, witnesses, experts — and supplement as the case develops. States such as California have specific requirements regarding disclosure, including permitting peremptory disqualification within fifteen days of disclosures, and solicitation-disclosure requirements in consumer matters. The party best served by clean disclosure is the one that prevails.
5. Right-size discovery to the case, not to the rules you are used to. Parties trade the jury and meaningful appellate review for speed and cost. Counsel who then run federal-court discovery have given up the benefits and kept the costs. Focus on what you actually have to present and prove to a sophisticated arbitrator, not a lay jury. Address third-party discovery early, because an arbitrator’s subpoena power is more constrained than that of a court, and disputes over third-party discovery need to be resolved early.
6. Decide the form of testimony before you pick your witnesses and experts. Whether written statements will stand in for direct testimony, and whether opposing experts will be heard concurrently, changes how you prepare for the hearing and can change which expert you retain. Deferring these questions to the eve of the hearing forfeits the savings entirely.
7. Handle procedural disputes with a letter and a phone call. The most efficient protocol in wide use is a three-page letter followed by a call within a day or two. An informal discovery conference with the arbitrator frequently resolves the dispute by the act of being scheduled — parties who have to explain a disagreement out loud tend to settle it first.
8. Reserve dispositive motions for pure questions of law. Provider rules set a deliberately high bar: permission first, plus a showing the motion is likely to succeed and to narrow the case. The reason is Section 10 of the FAA, which permits vacatur where an arbitrator refused to hear evidence “pertinent and material to the controversy.” A dispositive ruling that passes over a genuine factual dispute is the award most exposed on review. Move only where there are no disputed facts at all — not merely none that are material — or make the same argument at the hearing, on a developed record, at a fraction of the risk.
9. Try the case to the arbitrator, not to a jury. Having a third witness read a contract section into the record is a habit imported from jury trials, and it is among the largest recoverable time losses in a hearing. Say you are turning to Section 3 and move on. Enter into as many stipulations as the parties may agree to. Use written direct for minor and records witnesses — but not for a party, and not for a witness who has to teach something like a damages model, and always take some live direct so the witness is settled before cross.
10. Carve out the issue that decides the case, and choose the award form before you need it. A great many disputes turn on one question — whether a contract was formed, whether particular conduct was a breach. Resolving it first gives both sides a shared reference point, and the interim ruling often does more to resolve the matter than the rest of the hearing would have. Mind the difference between an interim award and a partial final award, because a final award starts the clock on confirmation and vacatur. On the award itself: decide at the preliminary hearing whether you want standard, reasoned, or findings and conclusions, note that provider rules impose deadlines for requesting a reasoned award, and remember that if there is any prospect of seeking vacatur, a reasoned award is the one to have.

The Common Thread

Every item on this list is a decision counsel can make, most of them early, and nearly all of them are forfeited by default rather than lost on the merits. Arbitration’s advantage is that it is the parties’ process — almost every procedural feature is negotiable at a point when negotiating it still matters. Counsel who treat the rules as a fixed track have paid for an option they never exercise.

John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post discusses arbitration practice for general informational purposes and is not legal advice.