California Restricts Health Plan Use of Artificial Intelligence for Utilization Reviews

On September 28, 2024, Gov. Newson signed SB 1120, also known as the “Physicians Make Decisions Act,” into law. The new law requires that California health and disability insurers using artificial intelligence (AI), algorithms, or other similar software for utilization reviews or other utilization management functions may not supplant healthcare provider decision making for those functions. 

While California insurers may still use these tools to supplement these functions, the new law mandates that all ultimate medical necessity determinations under their plans must be made by a licensed physician or other licensed healthcare professional competent to evaluate the specific clinical issues involved in the healthcare services requested by the provider. 

The new law also regulates the use of these tools in other ways, including: 

• Prohibiting the AI, algorithm, or other software tool from basing its analysis solely on a group dataset. 
• Requiring the use of individual medical and other clinical history, individual clinical circumstances as presented by the requesting provider, and other relevant clinical information as contained in the medical or other clinical record. 
• Requiring the AI, algorithm, or other software tool to be fairly and equitably applied, including but not limited to accordance with federal HHS rules. 
• Requiring the AI, algorithm, or other software tool to be open to inspection for audit or compliance reviews. 
• Requiring disclosures pertaining to the use and oversight of the AI, algorithm, or other software tool to be contained in written policies and procedures. 
• Requiring the AI, algorithm, or other software tool’s performance, use, and outcomes to be periodically reviewed and revised to maximize accuracy and reliability. 
• Prohibiting patient data from being used beyond its intended and stated purpose. 

While this bulletin is directed toward insurers, employers should be aware of its contents.

California Legislative Information, SB No. 1120