insurance; claims processing; downcoded claims

HB2407 - 572R - I Ver

REFERENCE TITLE:
insurance; claims processing; downcoded claims

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 2407

Introduced by

Representative
Willoughby

AN
ACT

Amending title 20, chapter 5, article 1,
arizona revised statutes, by adding section 20-1139; relating to medical
insurance.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 20, chapter 5, article 1,
Arizona Revised Statutes, is amended by adding section 20-1139, to read:

START_STATUTE
20-1139.

Health insurer; health care professionals; claims processing;
downcoding claims; prohibition; appeals process; civil penalty; definitions

A. A health
insurer may not use an automatic process, system or tool to make a final
decision to downcode a claim.

B. A health care professional who is
licensed in this state and who is of the same specialty as the treating health
care professional shall perform a documented review of the clinical
documentation that supports the billed service.

C. A health insurer may not downcode
a claim based solely on the reported diagnosis code.

D. If a claim is downcoded, the
health insurer shall notify the treating health care professional by using the
appropriate claims adjustment reason codes and remittance advice remark codes
to clearly indicate that the claim has been downcoded and shall provide:

1. The specific reason for the
downcoding, including reference to the clinical criteria that were used to
justify the decision to downcode.

2. The original and revised service
codes and payment amounts.

3. The national provider identifier
of the licensed health care professional who is responsible for the downcoding
decision, including the licensed health care professional's credentials, board
certifications and areas of specialty, expertise and training.

4. A notice of the right to appeal as
described in subsection E of this section.

E. A health insurer shall provide a
clear and accessible process for appealing downcoded claims in a written or
electronic notice that details all of the following:

1. How to initiate an appeal.

2. The name and contact information
for the individual who is managing the appeal.

3. Reasonable timelines of not less
than one hundred eighty days after the decision to downcode for submitting an
appeal.

4. Timelines for adjudicating an
appeal that are consistent with state law, rules or a utilization review
process.

F. A Health care Provider may appeal
similar claims that involve substantially similar downcoding issues in batches
without restriction.

G. A health insurer may not use
downcoding practices in a targeted or discriminatory manner against a health
care provider who routinely treats patients with complex or chronic conditions.

H. If the director or another
regulatory authority determines that a health insurer has engaged in a pattern
or practice of discriminatory downcoding, the health insurer may be subject to
enforcement actions, including fines, restitution or suspension of the health
insurer's license in this state.

I. The department shall enforce this
section by doing both of the following:

1. Imposing a civil penalty of not
more than $100 per violation.

2. Ordering the improperly downcoded
claims to be reprocessed with interest.

J. For the purposes of this section:

1. "claims adjustment reason
codes" means the codes that provide a reason for a financial adjustment
that is specific to a particular claim or service and that are referenced in
health care electronic funds transfers and remittance advice transaction
standards that are adopted pursuant to 45 Code of Federal Regulations section
162.1602.

2. "Downcode
" or
"downcoding" means the
unilateral alteration by a health insurer of the level of evaluation and
management service code or other service code that was submitted on a claim and
that resulted in a lower payment.

3. "Health insurer" means
any of the following entities:

(
a
) An
insurance company that is authorized to provide health insurance in this state
pursuant to this title.

(
b
) A health
care services organization as defined in section 20-1051.

(
c
) Any other
entity that provides health insurance, health benefits or health care services
and that contracts or offers to contract for reimbursement of health-related
services.

(
d
) A third-party
administrator or other payor who is responsible for adjudicating claims.

4. "Remittance advice remark
codes" means the codes that provide supplemental information about a
financial adjustment that is indicated by a claims adjustment reason code or
information about remittance processing.
END_STATUTE