DMHC to require annual inflation increase to AB 72 default payment methodology

October 24, 2023

As a result of California Medical Association (CMA) advocacy, the California Department of Managed Health Care (DMHC) has finalized regulations that will add an annual inflation adjustment to the interim payment methodology required by California’s out-of-network billing and payment law (AB 72, 2016).

AB 72 applies to covered services provided to fully insured enrollees by out-of-network physicians providing non-emergent care at in-network facilities. It requires payors to reimburse at a “default reimbursement rate,” with an opportunity for physicians to challenge that rate through the Independent Dispute Resolution Process (IDRP).

Currently, DMHC requires payors to pay a default reimbursement rate that is based on the greater of the payor’s average contracted rate (ACR) or 125% of Medicare for the same or similar services in the geographic region in which the services were rendered. Under the current DMHC regulations, plans calculate their ACR using contracted rate data from two years prior to the service date. So the interim rate doesn’t reflect the actual contracted rates in effect at the time of service, or inflation costs, which have been at a record high for the past two years.

Under the newly amended AB 72 regulations, DMHC will soon require payors to include an inflation adjustment to their ACRs to ensure that rates more accurately reflect current contracted rates, as opposed to lagging two years behind. According to DMHC, this will immediately result in about a 6% increase in reimbursement, as inflation has increased an average of 3% annually, resulting in approximately $17 million/year in additional reimbursement to providers. The amended regulation was approved by the Office of Administrative Law on October 20, 2023, and is scheduled to become effective January 1, 2024. CMA has been working with the DMHC for the past two years advocating for this change.

Physicians with questions about California’s out-of-network billing and payment law can contact CMA's Center for Economic Services at (800) 786-4262 or economicservices@cmadocs.org.


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