TRANSPARENCY IN DOWNCODING ACT

Illinois General Assembly - Full Text of HB4735

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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.
LRB104 19666 BAB 33115 b

A BILL FOR

HB4735
LRB104 19666 BAB 33115 b
1

AN ACT concerning regulation.

2

Be it enacted by the People of the State of Illinois,
3
represented in the General Assembly:

4

Section 1.
Short title.
This Act may be cited as the
5
Transparency in Downcoding Act.

6

Section 2.
Findings.
The General Assembly finds that:
7

(1) Downcoding of medical claims, when done without
8

clear justification or transparency, undermines fair
9

payment of health care providers and threatens the
10

stability of physician practices.
11

(2) Improper downcoding may result in harm to patients
12

by disincentivizing care for individuals with complex
13

medical conditions.
14

(3) It is in the public interest to ensure that all
15

coding adjustments are clinically supported, transparent,
16

appealable, and free from discriminatory targeting.

17

Section 5.
Definitions.
As used in this Act:
18

"CARC" means Claim Adjustment Reason Codes, which provide
19
the reason for a financial adjustment specific to a particular
20
claim or service referenced in the transmitted Accredited
21
Standards Committee (ASC) X12 835 standard transaction adopted
22
by the United States Department of Health and Human Services

HB4735
- 2 -
LRB104 19666 BAB 33115 b
1
under 45 CFR 162.1602.
2

"Downcoding" means the unilateral alteration by a health
3
insurance issuer of the level of evaluation and management
4
service code or other service code submitted on a claim,
5
resulting in a lower payment.
6

"Health insurance issuer" has the meaning given to that
7
term in Section 5 of the Illinois Health Insurance Portability
8
and Accountability Act.
9

"RARC" means Remittance Advice Remark Codes, which provide
10
supplemental information about a financial adjustment
11
indicated by a CARC or information about remittance
12
processing.

13

Section 10.
Applicability; scope.
14

(a) This Act applies to the following if they are issued,
15
amended, delivered, or renewed on or after the effective date
16
of this Act:
17

(1) a policy or contract for health insurance coverage
18

as defined in the Illinois Health Insurance Portability
19

and Accountability Act;
20

(2) State, employee, unit of local government, or
21

school district health plans; and
22

(3) policies issued or delivered in this State to the
23

Department of Healthcare and Family Services and providing
24

coverage to persons who are enrolled under the Medical
25

Assistance Article of the Illinois Public Aid Code or

HB4735
- 3 -
LRB104 19666 BAB 33115 b
1

under the Children's Health Insurance Program Act.
2

This Act does not apply to employee or employer
3
self-insured health benefit plans under the federal Employee
4
Retirement Income Security Act of 1974 and health care
5
provided pursuant to the Workers' Compensation Act or the
6
Workers' Occupational Diseases Act.
7

(b) This Act does not diminish a health care plan's duties
8
and responsibilities under other federal or State law or the
9
rules adopted thereunder.
10

(c) This Act is not intended to alter or impede the
11
provisions of any consent decree or judicial order to which
12
the State or any of its agencies is a party.

13

Section 15.
Prohibition of automatic downcoding.
14

(a) A health insurance issuer shall not use an automated
15
process, system, or tool to downcode a claim. For the purposes
16
of this Section, use of an automated tool includes, but is not
17
limited to, the use of artificial intelligence.
18

(b) Downcoding decisions shall be made by a physician
19
licensed to practice medicine in all its branches in any
20
United States jurisdiction and of the same or similar
21
specialty as a physician who typically manages the medical
22
condition or disease. The physician who makes the downcoding
23
decision shall perform a documented review of the clinical
24
information supporting the billed service.

HB4735
- 4 -
LRB104 19666 BAB 33115 b
1

Section 20.
Prohibition on diagnosis-based downcoding.
A
2
health insurance issuer shall not downcode a claim based
3
solely on the reported diagnosis codes.

4

Section 25.
Notification requirements for downcoded
5
claims.
When a claim is downcoded, the health insurance issuer
6
shall notify the physician using the appropriate CARC and RARC
7
to clearly indicate that the claim has been downcoded and
8
provide:
9

(1) the specific reason for the downcoding, including
10

reference to the clinical criteria used to justify the
11

downcoding;
12

(2) the original and revised service codes and payment
13

amounts;
14

(3) the National Provider Identifier of the physician
15

who is responsible for the downcoding decision and the
16

physician's credentials, board certifications, and areas
17

of specialty expertise and training; and
18

(4) a notice of the right to appeal as described in
19

Section 30.

20

Section 30.
Appeal process for downcoded claims.
21

(a) A health insurance issuer shall provide physicians
22
with a clear and accessible process for appealing downcoded
23
claims, including a written or electronic notice detailing how
24
to initiate an appeal, contact information for the physician

HB4735
- 5 -
LRB104 19666 BAB 33115 b
1
managing the appeal, reasonable timelines for submission of an
2
appeal that are no less than 180 days, and timelines for
3
adjudication of the appeal consistent with applicable State
4
law or regulations governing utilization review.
5

(b) Physicians shall have the right to appeal in batches
6
of similar claims involving substantially similar downcoding
7
issues, without restriction.
8

(c) A health insurance issuer must ensure that all appeals
9
are reviewed by a physician. The physician must:
10

(1) be licensed to practice medicine in all its
11

branches in any United States jurisdiction;
12

(2) be of the same or similar specialty as a physician
13

who typically manages the medical condition or disease;
14

(3) be knowledgeable of, and have experience
15

providing, the health care services under appeal;
16

(4) not have been directly involved in making the
17

decision to downcode the claim; and
18

(5) perform a documented review of the clinical
19

information supporting the billed service, including, but
20

not limited to, a review of all pertinent medical records
21

provided to the health insurance issuer and any medical
22

literature provided to the health insurance issuer by the
23

appealing physician.

24

Section 35.
Protections for patients with chronic
25
conditions.

HB4735
- 6 -
LRB104 19666 BAB 33115 b
1

(a) A health insurance issuer shall not use downcoding
2
practices in a targeted or discriminatory manner against
3
physicians who routinely treat patients with complex or
4
chronic conditions.
5

(b) Any pattern or practice of discriminatory downcoding
6
identified by the Director of Insurance or another regulatory
7
authority shall be subject to enforcement actions, including
8
fines, restitution, or suspension of the health insurance
9
issuer's license in this State.

10

Section 40.
Enforcement and penalties.
Violations of this
11
Act shall be enforceable by the Department of Insurance and
12
may include, but are not limited to:
13

(1) monetary penalties of up to $50,000 per violation;
14

and
15

(2) orders to reprocess improperly downcoded claims
16

with interest.

17

Section 97.
Severability.
The provisions of this Act are
18
severable under Section 1.31 of the Statute on Statutes.

19

Section 99.
Effective date.
This Act takes effect upon
20
becoming law.

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