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Effective January 1, 2025, California amended its long-standing Knox-Keene Health Care Service Plan Act to impose new guidelines and standards on the use of Artificial Intelligence (AI) in health care claims processing. The “Physicians Make Decisions Act,” signed by Governor Gavin Newsom in 2024, outlines new guidance for insurers, providers, and other health care entities on the use of AI in compliance with the act.
California Senate Bill 1120 requires that medical professionals, not algorithms, determine whether a treatment is medically necessary. AI tools cannot be used to deny, delay, or alter services that doctors deem are necessary. Standard coverage decisions are required within five business days, urgent care cases within 72 hours. Organizations that miss deadlines or fail to comply with the new legislation are subject to penalties.
The Current AI Health Care Landscape
According to The Mercury News, among California’s leading daily newspapers, about one-fourth of all health insurance claims in the Golden State were denied last year. Some may have been denied due to AI. However, legislation now prohibits health insurers from relying solely on AI to deny a claim based on medical necessity.
Many insurers have embraced AI as part of a strategy to improve efficiency, automating tasks related to customer service, marketing, claims, underwriting, fraud detection, risk selection, reporting, and forecasting.
The California Medical Association was a co-sponsor of the legislation, arguing that AI should only supplement a physician’s sound medical judgement, not replace it. Insurance companies can still use AI subject to the new requirements. The objective is to strike the right balance between implementing innovative technology, improving health care delivery, and safeguarding patient access to care.
California is not alone in wanting to stem the use of AI when it comes to health care. There are more than 15 pieces of legislation pending across the county affecting AI, claims, and prior authorization. Four separate bills have been introduced in Connecticut. A measure in Maryland would require health insurers to provide quarterly reports on the use of AI and how many times it was used to deny a claim.
The law firm Bryan Cave Leighton Paisner (BCLP) offers a state by state AI legislation snapshot on its website, if you want to read about specific proposed legislation.
