HB4735 104TH GENERAL ASSEMBLY

LRB104 19666 BAB 33115 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
HB4735

Introduced , by Rep. Sharon Chung

SYNOPSIS AS INTRODUCED:

New Act

Creates the Transparency in Downcoding Act. Provides that the Act applies to certain policies of health insurance amended, delivered, issued, or renewed on or after the effective date of the Act, except for employee or employer self-insured health benefit plans under the federal Employee Retirement Income Security Act of 1974 and health care provided pursuant to the Workers' Compensation Act or the Workers' Occupational Diseases Act. Prohibits a health insurance issuer from using an automated process, system, or tool to downcode a claim; from downcoding a claim based solely on the reported diagnosis codes; and from using downcoding practices in a targeted or discriminatory manner against physicians who routinely treat patients with complex or chronic conditions. Requires downcoding decisions to be made by a physician licensed to practice medicine in all its branches in any United States jurisdiction and of the same or similar specialty as a physician who typically manages the medical condition or disease. Sets forth provisions concerning notification requirements for downcoded claims; the appeal process for downcoded claims; enforcement by the Department of Insurance; and penalties. Provides that any pattern or practice of discriminatory downcoding identified by the Director of Insurance or another regulatory authority shall be subject to enforcement actions, including fines, restitution, or suspension of the health insurance issuer's license in this State. Effective immediately.

A BILL FOR

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Transparency in Downcoding Act.

Section 2. Findings. The General Assembly finds that:

(1) 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.

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

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

Section 5. Definitions. As used in this Act:

"CARC" means Claim Adjustment Reason Codes, which provide the reason for a financial adjustment specific to a particular claim or service referenced in the transmitted Accredited Standards Committee (ASC) X12 835 standard transaction adopted by the United States Department of Health and Human Services under 45 CFR 162.1602.

"Downcoding" means the unilateral alteration by a health insurance issuer of the level of evaluation and management service code or other service code submitted on a claim, resulting in a lower payment.

"Health insurance issuer" has the meaning given to that term in Section 5 of the Illinois Health Insurance Portability and Accountability Act.

"RARC" means Remittance Advice Remark Codes, which provide supplemental information about a financial adjustment indicated by a CARC or information about remittance processing.

Section 10. Applicability; scope.

(a) This Act applies to the following if they are issued, amended, delivered, or renewed on or after the effective date of this Act:

(1) a policy or contract for health insurance coverage as defined in the Illinois Health Insurance Portability and Accountability Act;

(2) State, employee, unit of local government, or school district health plans; and

(3) policies issued or delivered in this State to the Department of Healthcare and Family Services and providing coverage to persons who are enrolled under the Medical Assistance Article of the Illinois Public Aid Code or under the Children's Health Insurance Program Act.

This Act does not apply to employee or employer self-insured health benefit plans under the federal Employee Retirement Income Security Act of 1974 and health care provided pursuant to the Workers' Compensation Act or the Workers' Occupational Diseases Act.

(b) This Act does not diminish a health care plan's duties and responsibilities under other federal or State law or the rules adopted thereunder.

(c) This Act is not intended to alter or impede the provisions of any consent decree or judicial order to which the State or any of its agencies is a party.

Section 15. Prohibition of automatic downcoding.

(a) A health insurance issuer shall not use an automated process, system, or tool to downcode a claim. For the purposes of this Section, use of an automated tool includes, but is not limited to, the use of artificial intelligence.

(b) Downcoding decisions shall be made by a physician licensed to practice medicine in all its branches in any United States jurisdiction and of the same or similar specialty as a physician who typically manages the medical condition or disease. The physician who makes the downcoding decision shall perform a documented review of the clinical information supporting the billed service.

Section 20. Prohibition on diagnosis-based downcoding. A health insurance issuer shall not downcode a claim based solely on the reported diagnosis codes.

Section 25. Notification requirements for downcoded claims. When a claim is downcoded, the health insurance issuer shall notify the physician using the appropriate CARC and RARC to clearly indicate that the claim has been downcoded and provide:

(1) the specific reason for the downcoding, including reference to the clinical criteria used to justify the downcoding;

(2) the original and revised service codes and payment amounts;

(3) the National Provider Identifier of the physician who is responsible for the downcoding decision and the physician's credentials, board certifications, and areas of specialty expertise and training; and

(4) a notice of the right to appeal as described in Section 30.

Section 30. Appeal process for downcoded claims.

(a) A health insurance issuer shall provide physicians with a clear and accessible process for appealing downcoded claims, including a written or electronic notice detailing how to initiate an appeal, contact information for the physician managing the appeal, reasonable timelines for submission of an appeal that are no less than 180 days, and timelines for adjudication of the appeal consistent with applicable State law or regulations governing utilization review.

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

(c) A health insurance issuer must ensure that all appeals are reviewed by a physician. The physician must:

(1) be licensed to practice medicine in all its branches in any United States jurisdiction;

(2) be of the same or similar specialty as a physician who typically manages the medical condition or disease;

(3) be knowledgeable of, and have experience providing, the health care services under appeal;

(4) not have been directly involved in making the decision to downcode the claim; and

(5) perform a documented review of the clinical information supporting the billed service, including, but not limited to, a review of all pertinent medical records provided to the health insurance issuer and any medical literature provided to the health insurance issuer by the appealing physician.

Section 35. Protections for patients with chronic conditions.

(a) A health insurance issuer shall not use downcoding practices in a targeted or discriminatory manner against physicians who routinely treat patients with complex or chronic conditions.

(b) Any pattern or practice of discriminatory downcoding identified by the Director of Insurance or another regulatory authority shall be subject to enforcement actions, including fines, restitution, or suspension of the health insurance issuer's license in this State.

Section 40. Enforcement and penalties. Violations of this Act shall be enforceable by the Department of Insurance and may include, but are not limited to:

(1) monetary penalties of up to $50,000 per violation; and

(2) orders to reprocess improperly downcoded claims with interest.

Section 97. Severability. The provisions of this Act are severable under Section 1.31 of the Statute on Statutes.

Section 99. Effective date. This Act takes effect upon becoming law.