One of the bigger barriers to health care providers’ ability to challenge managed care organization (MCO) behaviors is contract terms that force all disputes to arbitration. MCOs insist upon arbitration dispute resolution provisions to prevent disputes from being litigated in local courts. Usually, such arbitration is required to be with the American Arbitration Association (AAA).
A federal judge in Arizona recently ruled that the AAA may be a monopoly in violation of federal antitrust laws, at least in consumer transactions. On March 31, 2026, in a federal court case styled Stephens vs. American Arbitration Association Incorporated (D. Ariz. No. 2:25CV01650), Judge John Tuchi denied the AAA’s motion to dismiss a complaint alleging that the AAA operated as an illegal monopoly. The decision allows the merits of the case to proceed to discovery and to be heard by a jury.
The class action representative plaintiffs in Stephens are residents of Arizona, West Virginia, Washington, and North Carolina who allege that they entered into arbitration agreements with third parties in which the sole choice of forum for dispute resolution with those third parties was the AAA. Plaintiffs further allege that, as a result of its business practices, the AAA has “obtained over 90% of the consumer arbitration market,” leaving consumers little to no choice of dispute resolution forum.
In finding that the plaintiffs had a “claim to relief that is plausible on its face,” Judge Tuchi found that over 90% of consumer arbitrations were filed with the AAA, demonstrating monopoly power, and that the AAA’s influence on the use of exclusivity clauses in contracts was sufficient to demonstrate anticompetitive conduct.
The case will now proceed to the discovery phase, where the plaintiffs will have a chance to detail their allegations that include:
- Consumers lost arbitration claims 73% of the time nationally over a 7-year period and 89% of the time in West Virginia over that same period; and in West Virginia, consumers were awarded a total of $5,915 in final hearings, whereas businesses were awarded $60,840 in final hearings of consumer-filed arbitration claims.
- The AAA uses its very favorable outcome rates and cut-rate pricing to attract businesses to utilize the AAA in their consumer contracts and insist on exclusivity clauses.
- AAA rules are tilted to the benefit of the businesses.
- At least partially as a result of its cut-rate pricing, arbitrators are paid capped and low fees that discourage experienced and quality legal professionals from handling cases and discourages those who do handle cases from spending much time on them, especially on a matter with any complexity.
Again, this case has very consumer-driven facts, arguments, and state law elements. However, there are certainly elements of such facts and arguments that carry over to the commercial use of AAA, especially in the context of MCO contracting. Generally, arbitration works against health care providers in MCO disputes because (a) it is often as expensive as local court litigation; (b) arbitration decisions are often contractually determined to be final and not appealable to courts; (c) the quality of arbitrators’ efforts to understand and equitably judge the dispute can be inconsistent and unsatisfactory; (d) the fact that there is a dispute being arbitrated and the outcome of the arbitration are usually governed by confidentiality clauses that prevent others from learning anything about them; (e) MCOs are able to include more favorable arbitrators as judges or panelists based on having more experience with them; and (f) nearly all elements of local impact and considerations are lost. If the allegations in the Stephens case are proven to be true, some of those circumstances may also apply in hospital-MCO contexts, thereby extending the above list of barriers for health care providers.
This case, and the use of arbitration generally, bears continued monitoring and consideration in all contracting situations.
