Key takeaways
- California law will impose new obligations on in-state and out-of-state health care service plans (HCSPs) and disability insurers that use automated decision-making tools to analyze medical necessity in utilization reviews affecting California enrollees
- Health care professionals – not automated decision-making tools – may deny, delay, or modify provision of health care based on medical necessity determinations
- Noncompliance may result in civil and criminal penalties
California became one of the first states to enact a law that specifically regulates the use of an “artificial intelligence, algorithm, or other software tool” (automated decision-making tool) by HCSPs and disability insurers to analyze medical necessity in their review or management of requests by health care providers related to the provision of health care services to health plan enrollees. The California law is in line with the federal Centers for Medicare and Medicaid Services (CMS) guidance published in February 2024, which clarified that Medicare Advantage organizations may use modern technology (including AI) to assist with coverage decisions as long as human professionals are involved in making determinations based on medical necessity. However, the new California law (SB 1120) goes further than the CMS guidance and is both prescriptive and vague. HCSPs and disability insurers may find the law, which takes effect on January 1, 2025, both flexible and frustrating.
New requirements when using automated decision-making tools
The new California law applies to HCSPs and disability insurers regulated by California’s Department of Insurance when they directly use or engage a subcontractor to use certain automated decision-making tools to analyze medical necessity as part of utilization review or management functions. Under the California Health and Safety Code, HCSPs include both in-state and out-of-state plans that solicit or contract with a subscriber or enrollee in California to pay or reimburse costs for health care services.