AI Frontier Institute

TRANSPARENCY IN DOWNCODING ACT

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Illinois HB4735, the Transparency in Downcoding Act (Section 1), prohibits health insurance issuers from using automated processes, systems, or tools—including artificial intelligence—to downcode medical claims (Section 15). Downcoding decisions must be made by a licensed physician of the same or similar specialty as the treating physician, who must perform a documented review of the clinical information (Section 15). Issuers are also barred from downcoding claims based solely on reported diagnosis codes (Section 20) and from targeting physicians who routinely treat patients with complex or chronic conditions in a discriminatory manner (Section 35). When a claim is downcoded, issuers must provide detailed notification using CARC and RARC codes, including the clinical rationale, original and revised codes and payment amounts, the reviewing physician's credentials, and notice of appeal rights (Section 25). Physicians have at least 180 days to appeal, may appeal in batches of similar claims, and appeals must be reviewed by a qualified physician not involved in the original downcoding decision (Section 30). The Department of Insurance may enforce violations with monetary penalties of up to $50,000 per violation and orders to reprocess improperly downcoded claims with interest (Section 40). Discriminatory downcoding patterns may result in fines, restitution, or license suspension (Section 35). The Act applies to most health insurance policies issued, amended, delivered, or renewed on or after its effective date, but excludes ERISA self-insured plans and workers' compensation coverage (Section 10).

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