AMENDED IN ASSEMBLY APRIL 9, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

98

Introduced by Assembly Member Patel

(Coauthor: Assembly Member Aguiar-Curry)

February 20, 2026

An act to add Section 1371.01 to the Health and Safety Code, and to add Section 10123.148 to the Insurance Code, relating to health care coverage.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: yes

LEGISLATIVE COUNSEL’S DIGEST

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care, and makes a willful violation of the act a crime. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law sets forth requirements by which a health care service plan or health insurer reimburses a provider for health care services.

This bill would prohibit a health care service plan or an insurer issuing group or individual policies of health insurance from using an automated process, system, or tool require a determination to downcode a claim, which is the unilateral alteration by a payer of the service or procedure code submitted on a claim resulting in a lower payment. payment, to include a documented review of the clinical information supporting the billed service. The bill would set forth requirements for and limitations of downcoding decisions, and, if a claim is downcoded, would require a plan or insurer to provide a billing provider with specified information and a clear and accessible process for disputing downcoded claims. The bill would prohibit a plan or insurer from using downcoding practices in a targeted or discriminatory manner against physicians or other health care providers who routinely treat patients with high acuity, complex, or chronic conditions, and would authorize the departments to take action against a plan or insurer that engages in a pattern or practice of discriminatory downcoding or that otherwise violates these provisions. Because a willful violation of these provisions by a health care service plan would be a crime, the bill would impose a state-mandated local program. The bill would require the departments to collect data on coding and claims adjustment practices, evaluate the information, and submit a report with specified information to the Legislature.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The people of the State of California do enact as follows:

SECTION 1.

The Legislature finds and declares all of the following:

(a) Downcoding of medical claims, when done without clear justification or transparency, undermines fair payment of health care providers and threatens the stability of physician practices.

(b) Improper downcoding may result in harm to patients by disincentivizing care for individuals with complex medical conditions.

(c) It is in the public interest to ensure that all coding adjustments are clinically supported, transparent, appealable, and free from discriminatory targeting.

SEC. 2.

Section 1371.01 is added to the Health and Safety Code, to read:

1371.01.

(a) A determination to downcode shall include a documented review of the clinical information supporting the billed service, which is relevant to determining the propriety of the billed code pursuant to applicable national coding guidelines. Current Procedural Terminology (CPT) and standards accepted by nationally recognized medical societies and organizations, federal regulatory bodies, and major credentialing organizations.

(b) A health care service plan shall not downcode a claim based solely on information reported on the claim form, including, but not limited to, the reported diagnosis or procedure codes.

(c) If a claim is downcoded, the health care service plan shall notify and provide the billing provider with an accurate and clear written explanation of the specific reasons for the action taken, to clearly indicate that the claim has been downcoded, and provide all of the following:

(1) The specific reason for the downcoding, including all of the following in sufficient detail to enable a billing provider to determine what additional documentation or claim corrections would be necessary for the claim to be reimbursed:

(A) Reference to the coding criteria used to justify the downcoding.

(B) The specific criterion deemed to be not met.

(C) A description of the specific deficiency at issue in the claim.

(2) The original and revised service codes and payment amounts.

(3) A notice of the provider dispute resolution mechanism described in subdivision (d).

(d) (1) If a claim is downcoded, the health care service plan shall provide the billing provider with a clear and accessible process for disputing downcoded claims, including all of the following:

(A) A written notice detailing how to initiate a provider dispute.

(B) Contact information for the individual managing the provider dispute.

(C) The timeline for submission of a provider dispute that is no less than 365 days from the plan’s or the plan’s capitated provider’s most recent action or, in the case of inaction, that is less than 365 days after the most recent time for contesting or denying claims has expired.

(D) The timeline, not to exceed 45 working days after receipt of a provider dispute or amended provider dispute, for adjudicating the provider dispute and issuing a written determination to the provider stating the pertinent facts and explaining the reasons for the determination.

(2) Billing providers shall have the right to appeal in batches of similar claims involving substantially similar downcoding issues, without restriction.

(3) A health care service plan shall resolve provider disputes for downcoded claims in accordance with any other applicable state or federal law.

(e) (1) A health care service plan shall not use downcoding practices in a targeted or discriminatory manner against physicians or other health care providers who routinely treat patients with high acuity, complex, or chronic conditions.

(2) A pattern or practice of discriminatory downcoding identified by the director shall be subject to enforcement actions, including fines, restitution, or suspension of licensure under this chapter.

(g) (1) A violation of this section is enforceable by the department. Upon a final determination by the director that a health care service plan has violated this section, the director may do all of the following:

(A) Impose monetary penalties as permitted under this chapter.

(B) Order the health care service plan to reprocess improperly downcoded claims with interest pursuant to Section 1371 or 1371.35, as applicable.

(C) Order the health care service plan, for a period of three years from the date of the director’s determination, or for a shorter period prescribed by the director, to pay complete and accurate claims from the provider within a shorter period of time than that required by Section 1371 or 1371.35, as applicable.

(D) Make a claim for costs incurred by the department in an administrative or judicial action, including investigative expenses and the cost to monitor compliance by the plan.

(2) The enforcement remedies provided in this section are not exclusive and shall not limit or preclude the use of any available basis for enforcement or criminal, civil, or administrative remedy.

(h) For purposes of this section, “downcode” or “downcoding” means the unilateral alteration by a payer of the service or procedure code submitted on a claim resulting in a lower payment.

SEC. 3.

Section 10123.148 is added to the Insurance Code, to read:

10123.148.

(a) A determination to downcode shall include a documented review of the clinical information supporting the billed service, which is relevant to determining the propriety of the billed code pursuant to applicable national coding guidelines. Current Procedural Terminology (CPT) and standards accepted by nationally recognized medical societies and organizations, federal regulatory bodies, and major credentialing organizations.

(b) An insurer issuing group or individual policies of health insurance shall not downcode a claim based solely on information reported on the claim form, including, but not limited to, the reported diagnosis or procedure codes.

(c) If a claim is downcoded, the insurer shall notify and provide the billing provider with an accurate and clear written explanation of the specific reasons for the action taken, to clearly indicate that the claim has been downcoded, and provide all of the following:

(1) The specific reason for the downcoding, including all of the following in sufficient detail to enable a billing provider to determine what additional documentation or claim corrections would be necessary for the claim to be reimbursed:

(A) Reference to the coding criteria used to justify the downcoding.

(B) The specific criterion deemed to be not met.

(C) A description of the specific deficiency at issue in the claim.

(2) The original and revised service codes and payment amounts.

(3) A notice of the provider dispute resolution mechanism or appeal process described in subdivision (d).

(d) (1) If a claim is downcoded, the insurer shall provide the billing provider with a clear and accessible process for disputing downcoded claims, including all of the following:

(A) A written notice detailing how to initiate a provider dispute.

(B) Contact information for the individual managing the provider dispute.

(C) The timeline for submission of a provider dispute that is no less than 365 days from the insurer’s most recent action or, in the case of inaction, that is less than 365 days after the most recent time for contesting or denying claims has expired.

(D) The timeline, not to exceed 45 working days after receipt of a provider dispute or amended provider dispute, for adjudicating the provider dispute and issuing a written determination to the provider stating the pertinent facts and explaining the reasons for the determination.

(2) Billing providers shall have the right to appeal in batches of similar claims involving substantially similar downcoding issues, without restriction.

(3) An insurer shall resolve provider disputes or appeals for downcoded claims in accordance with any other applicable state or federal law.

(e) (1) An insurer issuing group or individual policies of health insurance shall not use downcoding practices in a targeted or discriminatory manner against physicians or other health care providers who routinely treat patients with high acuity, complex, or chronic conditions.

(2) A pattern or practice of discriminatory downcoding identified by the commissioner shall be subject to enforcement actions, including fines, restitution, or suspension of licensure or certificate of authority under this code.

(g) (1) A violation of this section is enforceable by the department. Upon a final determination by the commissioner that an insurer has violated this section, the commissioner may do all of the following:

(A) Impose monetary penalties as permitted under this code.

(B) Order the insurer to reprocess improperly downcoded claims with interest pursuant to Section 10123.13 or 10123.147, as applicable.

(C) Order the insurer, for a period of three years from the date of the commissioner’s determination, or for a shorter period prescribed by the commissioner, to pay complete and accurate claims from the provider within a shorter period of time than that required by Section 10123.13 or 10123.147, as applicable.

(D) Make a claim for costs incurred by the department in an administrative or judicial action, including investigative expenses and the cost to monitor compliance by the insurer.

(2) The enforcement remedies provided in this section are not exclusive and shall not limit or preclude the use of any available basis for enforcement or criminal, civil, or administrative remedy.

(h) For purposes of this section, “downcode” or “downcoding” means the unilateral alteration by a payer of the service or procedure code submitted on a claim resulting in a lower payment.

SEC. 4.

No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.