Managed Care Outlook 2024

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Following the increased use of generative artificial intelligence (AI), the federal government’s current and proposed regulatory and legislative efforts are likely to more directly impact the health care industry, including managed care organizations (MCOs), which are increasingly using AI to transform and improve various processes that benefit their members and health care providers. This article highlights trends and key developments, as well as their potential impact on MCOs going forward.

CMS rules for MA plans

On April 12, 2023, the Centers for Medicare & Medicaid Services (CMS) published a final rule governing what Medicare Advantage organizations (MAOs) must consider when making medical necessity determinations. Specifically, it requires MAOs to make medical necessity determinations based on factors including the enrollee’s medical history, physician recommendations, and clinical notes. Although the rule does not directly regulate MAOs’ use of AI, CMS advised that compliance requires MAOs to make medical necessity determinations “based on the circumstances of the specific individual…as opposed to using an algorithm or software that doesn't account for an individual's circumstances.” Thus, to continue using AI in medical necessity decision-making processes, MAOs must understand “the external clinical evidence [the AI] relie[s] upon” and “how the evidence supports the coverage criteria applied” by the AI. Particularly, MAOs must reassess the various machine learning and software tools they employ to ensure such programs are using only the factors listed in the final rule to make medical necessity determinations.

Executive order on safe AI

On October 30, 2023, the White House issued a Fact Sheet and Executive Order (EO) on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence. The EO is one of the White House’s first steps in providing high-level direction to federal agencies, including but not limited to the Department of Health and Human Services (HHS), regarding the responsible use and development of AI by its stakeholders. While the EO touches on many industries, it has the potential to directly affect health care based on its directives to HHS in particular.

Among other tasks, the EO directs HHS to advance several directives over the next year. Within 90 days, HHS must establish an AI task force or, by January 28, 2024 and within one year of its creation, develop a strategic plan that includes policies and frameworks – possibly including regulatory action as appropriate – on the responsible deployment and use of AI and AI-enabled technologies in the health and human services sector. The EO also asks HHS to evaluate the quality of oversight of AI tools and medical devices, as well as develop AI assurance policies to evaluate performance. HHS, along with other agencies, must also consider appropriate actions that prompt compliance with federal nondiscrimination laws.

Congressional efforts

After the release of the EO, Congress has also moved forward with several legislative efforts that have the potential to affect health care. For example, on November 8, 2023, the U.S. Subcommittee on Primary Health and Retirement held a hearing on the various policy considerations for artificial intelligence in health care. At the hearing, leading health care executives testified that Congress needs to build on the EO by providing HHS with the authority and resources to enact AI governance initiatives. Additionally, the House Energy and Commerce Subcommittee on Health held a hearing on November 29, 2023, addressing similar issues, exploring how hospitals, pharmacies, and others in the health care sector are using AI and what Congress should consider as AI continues to change. Though these efforts reflect significant progress by Congress over the past year to support and regulate AI, to date, none have become law.

Key takeaways
  • Federal legislation and rules warn health plans against relying excessively on AI in decisions about care
  • State-level actions are also expected to scrutinize MCOs’ usage of AI and automated claims-processing tools
  • Increased scrutiny from government sources is likely to spur litigation over MCOs use of AI
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