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SENATE BILL 2020
By Reeves
SB2020
010746
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AN ACT to amend Tennessee Code Annotated, Title 56,
Chapter 7, relative to health insurance practices.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 56-7-3702, is amended by adding
the following as a new subdivision:
( ) "Artificial intelligence" or "AI" means a machine-based system that can, for a
given set of human-defined objectives, make predictions, recommendations, or
decisions that influence real or virtual environments related to the processing and
payment of medical health insurance claims. For purposes of this part, an artificial
intelligence system uses machine and human-based inputs to:
(A) Perceive real and virtual environments;
(B) Abstract such perceptions into models through analysis in an
automated manner; and
(C) Use model inference to formulate options for information or action;
SECTION 2. Tennessee Code Annotated, Section 56-7-3703(a), is amended by adding
the following as a new subdivision:
(5) The National Provider Identifier of the healthcare professional who is
responsible for the downcoding decision, as well as the professional's credentials, board
certifications, and areas of specialty expertise and training.
SECTION 3. Tennessee Code Annotated, Section 56-7-3706, is amended by deleting
subsections (a) and (b) and substituting:
(a) If prior authorization is required for a healthcare service or a prescription drug
for the treatment of a chronic condition of an enrollee, then the prior authorization
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remains valid from the date the healthcare professional or provider receives the prior
authorization approval, unless the prescribing healthcare professional changes the
enrollee's prescription.
(b) If prior authorization is required for a prescription drug for the treatment of a
chronic condition of an enrollee, then the prior authorization remains valid from the date
the healthcare professional or provider receives the prior authorization approval, unless
the clinical criteria as specified in § 56-7-3707 dictates otherwise.
SECTION 4. Tennessee Code Annotated, Section 56-7-3710, is amended by deleting
the section and substituting:
56-7-3710. Prior authorization of certain services.
(a) A health carrier or utilization review organization shall not require prior
authorization for:
(1) A prescription drug labeled by the United States food and drug
administration for the treatment of opioid use disorder;
(2) A generic drug or multisource brand name drug rated as
therapeutically equivalent according to the FDA Orange Book, a biologic drug
rated as interchangeable according to the FDA Purple Book, or a biosimilar;
provided, however, that a health carrier or utilization review organization may
require prior authorization for the first prescription of such drug for a patient, but
shall not require prior authorization for any subsequent prescription for the same
drug for the same patient;
(3) Outpatient mental health treatment or outpatient substance use
disorder treatment;
(4) Antineoplastic cancer treatment that is consistent with guidelines of
the National Comprehensive Cancer Network; provided, however, that a health
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carrier or utilization review organization may require prior authorization for the
first prescription of such drug for a patient, but shall not require prior
authorization for any subsequent prescription for the same drug for the same
patient;
(5) Services that currently have a rating of A or B from the United States
Preventive Services Task Force, immunizations recommended by the
department of health in consultation with a statewide physician professional
organization that represents all medical specialties, or preventive services and
screenings provided to women as described in 45 CFR § 147.130;
(6) Pediatric hospice services provided by a licensed hospice provider;
(7) Treatment delivered through a neonatal abstinence program;
(8) All FDA-approved antiretroviral drugs prescribed for the treatment or
prevention of the human immunodeficiency virus or acquired immunodeficiency
syndrome; provided, however, that a health carrier or utilization review
organization may require prior authorization for the first prescription of such drug
for a patient, but shall not require prior authorization for any subsequent
prescription for the same drug for the same patient; or
(9) Gynecological surgeries and procedures.
(b) This section does not apply to behavioral health inpatient services.
(c) This section does not require a policy to cover any care, treatment, or
services for a health condition that the terms of coverage otherwise completely exclude
from the policy's covered benefits without regard for whether the care, treatment, or
service is medically necessary unless otherwise required by law.
(d) Pursuant to § 56-7-3714, if an enrollee transitions from one (1) health carrier
to another health carrier and has a valid prior authorization issued by the enrollee's
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former health carrier, then the new health carrier or utilization review organization shall
not require a prior authorization for a period of ninety (90) days following the effective
date of the new coverage. During such ninety-day period, the prescribing healthcare
professional may seek prior authorization from the new health carrier or utilization review
organization and coverage shall not be interrupted.
SECTION 5. Tennessee Code Annotated, Section 56-7-3711, is amended by
designating the existing language as subsection (b), and inserting the following as a new
subsection (a):
(a) A health carrier shall not deny, delay, or modify care solely based on a
determination made by an artificial intelligence tool, algorithm, or other automated
software. An adverse determination of medical necessity must only be made by a
licensed physician competent to evaluate the specific clinical issues involved in the
healthcare services requested by the treating healthcare professional after reviewing the
treating healthcare professional's recommendation, the enrollee's medical or other
clinical history, and individual clinical circumstances.
SECTION 6. Tennessee Code Annotated, Section 56-7-3722, is amended by deleting
the section and substituting:
No later than January 1, 2027, the commissioner shall promulgate rules to
effectuate this part, including, but not limited to, rules to provide for such fees as the
commissioner determines are reasonably necessary to administer and enforce this part.
The rules must be promulgated in accordance with the Uniform Administrative
Procedures Act, codified in title 4, chapter 5.
SECTION 7. Tennessee Code Annotated, Title 56, Chapter 7, Part 37, is amended by
adding the following as new sections:
56-7-3723. Value-based contracts.
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(a) As used in this section, "value-based contract" means a payment
arrangement between a health carrier and a healthcare provider in which reimbursement
is determined, in whole or in part, by the provider's performance on measures of quality,
efficiency, patient outcomes, or cost of care, rather than solely on the volume or number
of services provided.
(b) A health carrier shall not require prior authorization for services that are
reimbursed through a value-based contract that:
(1) Ties payment for the provision of healthcare services to the quality of
health care provided;
(2) Rewards a healthcare professional for efficiency and effectiveness;
and
(3) Imposes a risk-sharing requirement on the healthcare provider for
healthcare services that do not meet the carrier's requirements for quality,
effectiveness, and efficiency.
(c) This section applies to enrollee benefit plans offered, sold, issued, or
renewed on or after the effective date of this act.
56-7-3724. Audits.
(a) Beginning January 1, 2027, the commissioner of commerce and insurance
shall conduct, at least once every three (3) years, an audit of each health carrier
licensed by the department to determine compliance with this part.
(b) The commissioner shall have, and a health carrier shall provide, convenient
and free access to all books, records, securities, documents, and files relating to the
health carrier's property, assets, business, and affairs. The officers, directors,
employees, and agents of the health carrier shall facilitate and aid in the audit to the
extent it is in their power to do so.
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(c) When conducting an audit, the commissioner may retain subject matter
experts, attorneys, appraisers, actuaries, certified public accountants, financial
examiners, or other specialists to assist in the audit.
(d) The commissioner shall make a verified report of the audit, which must
comprise facts and conclusions ascertained.
(e) Upon completion of the audit, the commissioner shall provide the health
carrier with a copy of the report and allow at least thirty (30) days for rebuttal.
(f) If the audit reveals violations, then the commissioner shall order corrective
action, including civil penalties.
(g) The commissioner shall report all audit findings to the clerk of the senate, the
clerk of the house of representatives, and the legislative librarian within ninety (90) days
of the completion of each audit.
(h) The costs of an audit are payable by a health carrier upon being the subject
of an audit pursuant to this section.
SECTION 8. Tennessee Code Annotated, Section 56-7-109(a)(6), is amended by
deleting the subdivision and substituting:
(6) "Submitted":
(A) Means that the provider either mails or otherwise sends a claim to the
health insurance entity, and is deemed to occur on the date the claim is mailed or
otherwise sent to the health insurance entity; and
(B) Includes the provider mailing or sending substantiating
documentation or information requested by the health insurance entity under
subdivision (b)(1)(A)(iii) or (b)(1)(B)(iii), and is deemed to occur on the date such
documentation or information is mailed or otherwise sent to the health insurance
entity.
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SECTION 9. Tennessee Code Annotated, Section 56-7-109(b)(1), is amended by
deleting the subdivision and substituting:
(1)
(A) No later than thirty (30) calendar days after the date that a health
insurance entity actually receives a claim submitted on paper from a provider, a
health insurance entity shall:
(i) If the claim is clean, pay the total covered amount of the claim;
(ii) Pay the portion of the claim that is clean and not in dispute,
and notify the provider in writing or via electronic means of all specific
reasons why the remaining portion of the claim will not be paid; or
(iii) Notify the provider in writing or via electronic means of all
specific reasons why the claim is not clean and will not be paid and what
substantiating documentation or information is required to adjudicate the
claim as clean.
(B) If a health insurance entity provides notice under subdivision
(b)(1)(A)(iii) that a claim is not clean and identifies the substantiating
documentation or information required, and the provider submits the requested
substantiating documentation or information, then the thirty-calendar-day
compliance period under subdivision (b)(1)(A) runs from the date of such
submission by the provider.
(C) No later than twenty-one (21) calendar days after the date that a
health insurance entity actually receives a claim by electronic submission from a
provider, a health insurance entity shall:
(i) If the claim is clean, pay the total covered amount of the claim;
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(ii) Pay the portion of the claim that is clean and not in dispute
and notify the provider in writing or via electronic means of all specific
reasons why the remaining portion of the claim will not be paid; or
(iii) Notify the provider in writing or via electronic means of all
specific reasons why the claim is not clean and will not be paid and what
substantiating documentation or information is required to adjudicate the
claim as clean.
(D) If the health insurance entity provides notice under subdivision
(b)(1)(C)(iii) that a claim is not clean and identifies the substantiating
documentation or information required, and the provider submits the requested
substantiating documentation or information, then the twenty-one-calendar-day
compliance period under subdivision (b)(1)(C) runs from the date of such
submission by the provider.
(E) Within ten (10) business days after a provider's submission of the
substantiating documentation or information identified in subdivision (b)(1)(A)(iii)
or (b)(1)(C)(iii), a health insurance entity shall provide the provider written or
electronic acknowledgment that:
(i) The substantiating documentation or information has been
received;
(ii) The date of receipt; and
(iii) That the health insurance entity will complete its processing of
the claim in accordance with the applicable time period described in
subdivision (b)(1)(A) or (b)(1)(C), as measured from the date of the
provider's submission.
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SECTION 10. Tennessee Code Annotated, Section 56-7-109(c), is amended by adding
the following as a new subdivision:
(7)
(A) Beginning January 1, 2027, the commissioner of commerce and
insurance shall conduct audits at least once every three (3) years of carriers
licensed by the department to determine compliance with the prompt payment
standards of subsection (b).
(B) The commissioner shall have, and a carrier shall provide, convenient
and free access to all books, records, securities, documents, and files relating to
the entity's property, assets, business, and affairs. The officers, directors,
employees, and agents of the entity shall facilitate and aid in the audit to the
extent it is in their power to do so.
(C) When conducting an audit, the commissioner may retain subject
matter experts, attorneys, appraisers, actuaries, certified public accountants,
financial examiners, or other specialists to assist in the audit.
(D) The commissioner shall make a verified report of the audit, which
must comprise facts and conclusions ascertained.
(E) Upon completion of the audit, the commissioner shall provide the
health insurance entity with a copy of the report and allow at least thirty (30) days
for rebuttal.
(F) If the audit reveals violations, then the commissioner shall order
corrective action, including civil penalties.
(G) The commissioner shall report all audit findings to the chief clerk of
the senate, the chief clerk of the house of representatives, and the legislative
librarian within ninety (90) days of the completion of each audit.
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(H) No later than January 1, 2027, the commissioner shall promulgate
rules to effectuate this part, including, but not limited to, rules to provide for such
fees as the commissioner determines are reasonably necessary to administer
and enforce this part. The costs are payable by a health insurance carrier upon
being the subject of an audit pursuant to this section.
SECTION 11. Tennessee Code Annotated, Title 56, Chapter 7, Part 10, is amended by
adding the following as new sections:
56-7-1022. Credit card payments.
(a) When initiating or changing the type of payment to a healthcare provider
using electronic funds transfer payments, including virtual credit card payments, a health
insurance entity or its vendors shall:
(1) Notify the healthcare provider of any fees associated with a particular
payment method;
(2) Advise the healthcare provider of the available methods of payment;
and
(3) Provide clear instructions to the healthcare provider as to how to
select an alternative payment method.
(b) A health insurance entity or its vendor that initiates or changes the type of
payment to a healthcare provider for healthcare electronic funds transfer and remittance
advice transactions under 45 CFR § 162.1601 and 45 CFR § 162.1602, shall not charge
a fee solely to transmit the payment to the healthcare provider unless the healthcare
provider has consented to the fee.
(c) When transmitting healthcare electronic funds transfer and remittance advice
transactions under 45 CFR § 162.1601 and 45 CFR § 162.1602, a healthcare provider's
agent may charge reasonable fees for payments related to transaction management,
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data management, portal services, and other value-added services in addition to the
bank transmittal.
56-7-1023. Medical complexity considerations in reimbursement.
All health carrier contracts and reimbursement policies issued, amended,
renewed, or delivered on or after July 1, 2026, must take into account a patient's medical
complexity and co-morbidity, and reimburse healthcare providers for all medical
services, procedures, or devices provided to the patient.
56-7-1024. Reimbursement for medically necessary services provided during
authorized care.
(a) As used in this section, "health insurance entity" has the same meaning as
defined in § 56-7-109.
(b) A health insurance entity shall reimburse a healthcare provider for all
additional clinically appropriate services, procedures, or devices furnished to a covered
person during the course of a prior-authorized or medically indicated treatment.
(c) A health insurance entity shall not deny reimbursement solely because the
additional service, procedure, or device was separately subject to prior authorization, if
the service was:
(1) Clinically appropriate; and
(2) Performed contemporaneously with an authorized service for the
purpose of protecting the patient's health.
(d) The commissioner of commerce and insurance shall enforce this section.
(e) This section applies to all health insurance contracts issued, amended,
renewed, or delivered on or after July 1, 2026.
SECTION 12. Tennessee Code Annotated, Title 56, Chapter 7, is amended by adding
the following as a new part:
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56-7-3901. Legislative findings.
The general assembly finds and declares that:
(1) Downcoding of medical insurance claims, when done without clear
justification or transparency, undermines fair payment of healthcare providers
and threatens the stability of healthcare professional practices;
(2) Improper downcoding may result in harm to patients by
disincentivizing care for individuals with complex medical conditions;
(3) It is in the public interest to ensure that all coding adjustments are
clinically supported, transparent, appealable within a reasonable timeline, and
free from discriminatory targeting;
(4) Using artificial intelligence (AI) or algorithms to automatically
downcode claims negatively impacts patients by delaying or denying future care,
raises out-of-pocket costs for patients, increases administrative costs for medical
practices, and lacks transparency; and
(5) Health insurance entities use AI or other algorithms to downcode
claims systematically without any clinical review by a qualified healthcare
professional.
56-7-3902. Part definitions.
As used in this part:
(1) "Artificial intelligence" or "AI" means a machine-based system that
can, for a given set of human-defined objectives, make predictions,
recommendations, or decisions that influence real or virtual environments related
to the processing and payment of medical health insurance claims. For purposes
of this part, an artificial intelligence system uses machine and human-based
inputs to:
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(A) Perceive real and virtual environments;
(B) Abstract such perceptions into models through analysis in an
automated manner; and
(C) Use model inference to formulate options for information or
action;
(2) "Claim adjustment reason codes" or "CARC" means a system of
codes that explain the reasoning for a financial adjustment specific to a particular
claim or service referenced in the transmitted Accredited Standards Committee
X12 Standards for Electronic Data Interchange Technical Report Type 3
standard transaction adopted by the department of health and human services
under 45 CFR § 162.1602(d);
(3) "Downcoding" or "downcoded" means the adjustment of a claim
submitted to a health insurance entity to a less complex or lower cost procedure
code;
(4) "Health insurance entity" has the same meaning as defined in § 56-7-
109;
(5) "Healthcare professional" has the same meaning as defined in § 56-
61-102; and
(6) "Remittance advice remark codes" or "RARC" means a system of
codes that provide supplemental information about a financial adjustment
indicated by a CARC or information about remittance processing.
56-7-3903. Downcoding insurance claims prohibited.
A health insurance entity shall not downcode a claim submitted by a healthcare
professional unless:
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(1) The downcoding determination is made by a licensed physician or
healthcare professional with the same or a similar specialty and education as the
healthcare professional who submitted the initial claim;
(2) The reviewing healthcare professional has conducted a documented
clinical review of the medical record supporting the claim; and
(3) All of the notification requirements for downcoded claims as required
by § 56-7-3905 are met.
56-7-3904. Protections for patients with chronic conditions.
(a) A health insurance entity shall not use downcoding practices in a targeted or
discriminatory manner against healthcare professionals who routinely treat patients with
complex or chronic conditions.
(b) A pattern or practice of discriminatory downcoding identified by the
commissioner of commerce and insurance or other regulatory authority is subject to
enforcement actions that may include fines, restitution, or suspension of the health
insurance entity's license in this state.
56-7-3905. Notification requirements for downcoded claims.
A health insurance entity may downcode a claim submitted by a healthcare
professional only after reviewing the relevant medical records and notifying the
healthcare professional with a remittance advice, which must include:
(1) The appropriate CARC or RARC codes;
(2) The specific reason for the downcoding, including reference to the
clinical criteria used to justify the downcoding;
(3) The contracted amount of the original claim;
(4) The reimbursement or payment on the claim as revised by the health
insurance entity;
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(5) The national provider identifier of the healthcare professional who is
responsible for the downcoding decision, as well as the credentials, board
certifications, and areas of specialty expertise and training; and
(6) Notice of the right to appeal as described in § 56-7-3906.
56-7-3906. Appeal process for downcoded claims.
(a)
(1) If a health insurance entity downcodes a claim submitted by a
healthcare professional, then the health insurance entity shall provide the
healthcare professional with the following:
(A) An electronic or paper notice describing the right to appeal the
parts of the claim that were downcoded and clearly describe the appeal
process;
(B) Instructions on how to file the appeal; and
(C) Contact information, including the name, email address, and
phone number for the individual or department managing the appeal.
(2) The health insurance entity shall render a decision on the appeal no
later than thirty (30) days from the date the healthcare professional files the
appeal. If the health insurance entity determines that the claim should not have
been downcoded, then the health insurance entity shall pay the healthcare
professional within fifteen (15) calendar days of such determination.
(3) If the health insurance entity or the health insurance entity's designee
fails to make a determination on the appeal within the thirty-day period described
in subdivision (a)(2), then the claim is deemed approved and payable as it was
originally submitted by the healthcare professional.
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(4) Healthcare professionals may appeal in batches of similar claims
involving substantially similar downcoding issues, without restriction.
(b) If a healthcare professional reasonably believes that a health insurance entity
has engaged in arbitrary or capricious downcoding or has otherwise violated this part or
another state law relative to claim adjudication, then the healthcare professional may
elect not to use the appeal process described in subsection (a) and instead seek
injunctive, declaratory, or other appropriate relief in the chancery or circuit court of the
county in which the individual resides or practices. The filing of such an action does not
preclude the healthcare professional from simultaneously seeking other remedies
available under law.
56-7-3907. Enforcement of part.
(a) The commissioner of commerce and insurance shall enforce this part.
(b) The commissioner may assess a civil penalty of up to ten thousand dollars
($10,000) for each violation of this part.
(c) Upon finding of a violation of this part, the commissioner shall require the
violating health insurance entity to pay the healthcare professional a twenty-five percent
(25%) penalty on the amount of any unpaid downcoded claims. The health insurance
entity shall pay the penalty amount to the healthcare professional within fifteen (15) days
of receiving notice of the violation and penalty from the commissioner.
(d) This section must be construed liberally in favor of the healthcare
professional to ensure prompt and full payment for medical services rendered, and a
health insurance entity shall not evade, delay, or otherwise avoid liability under this
section through internal procedures, policy language, or administrative practices.
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(e) Any contract provision, policy, or administrative practice that purports to
waive, limit, or circumvent the protections of this part is void and unenforceable as
against public policy.
SECTION 13. If any provision of this act or its application to any person or circumstance
is held invalid, then the invalidity does not affect other provisions or applications of the act that
can be given effect without the invalid provision or application, and to that end, the provisions of
this act are severable.
SECTION 14. The headings in this act are for reference purposes only and do not
constitute a part of the law enacted by this act. However, the Tennessee Code Commission is
requested to include the headings in any compilation or publication containing this act.
SECTION 15. For the purpose of promulgating rules, this act takes effect upon
becoming a law, the public welfare requiring it. For all other purposes:
(1) Section 12 takes effect July 1, 2026, the public welfare requiring it; and
(2) The remainder of this act takes effect January 1, 2027, the public welfare
requiring it.