Illinois Bulletin on Inappropriate Claims Denials Based on Location

Springfield Of fice 320 W. Washington Str eet Springfield, Illinois 62767 (217) 782 - 4515 Chicago Offi ce 1 15 S. LaS al le St ree t, 13 th Flo or Chicago, Illinois 60603 (312) 814 - 242 0 Illinois Departme nt of Insurance JB PRITZKER Governor ANN GILLESPI E Direc tor TO: All C ompani es Writi ng Accid ent and Health Insu rance an d Heal th Main ten ance Organizat ion H ealth C are P lans FROM: Ann Gillesp ie, Dire ctor DATE: July 8, 2025 RE: Company Bulletin 2025-12 – Inappropriate Claims Denials and Exclusions Based on Location, Site of Care, or Setting The Illi nois Departmen t o f Insuran ce has b ecome aware t hat ce rtain “ut ili zati on review ” prog rams are being u sed to d etermin e whet her se rvices are “me dical ly necess ary” b ased on lo cation, site o f care, or setting in a manner that may be contrary to law. This may have resulted in denials for otherwise covered benefit s and app ears to operat e as ad mini strati ve den ials i n practi ce. Determi nation s for “medi cally n ecessar y” serv ices shall be based up on “g eneral ly accep ted st andard s of care” as defined in 215 ILCS 134/10 or “generally accepted standards of mental, emotional, nervous, or substance use disorder or condition care” as defined at 215 ILCS 5/370c(h). While the Healthcare External Review A ct re cog nizes t hat adve rse det ermi nation s can incl ude d enials based on “heal th care setting,” this does not mean that a ll denials based on health care setting are under the category of medical necessity. A determination whether a service is medically necessary does not include determinations made “primarily for the economic benefit of the health care plan, purchaser, or utilization review organization, or for the convenience of the patient, treating physician, or other health care provider.” 215 ILCS 134/10 (definition of “medically necessary”). See also 215 ILCS 5/370c(h). Therefo re, if an issu er det ermines that a he alth care set ting, site o f care, o r lo cation i s not medical ly necessary, and if the issuer’s grounds for that determination are not based on genera lly accepted standards of care but instead are primarily for the issuer, purchaser, or URO’s economic benefit or for the convenience of the patient, treating physician, or other health care provider, then the issuer’s denial cannot validly be a medical necessity determination. Concern h as ari sen r ecentl y in situations when the sam e outpatient health c are se rvice is avai lable fr om a hospital and a freestanding clinic, and both the particula r hospital and the particu lar freestanding clinic have all the necessary faciliti es and licensed, trained health ca re professionals to render the outpatient service, but the issuer d eems the outpatient ser vice n ot med ically necess ary at the hos pital becaus e it can be obtained at the freestanding clinic. T he Depa rtm ent is not aware of any generall y acc epted s tand ard of care i n the pra ctice o f med icine un der whi ch, based on facility t ype alone and not taking into account economi c benefi t or con veni ence, a hospital forfeits its status as a clinically appropr iate site or becomes somehow less clinic ally appr opriate than the fr eest anding cl inic s pecifical ly because th e fr eestand ing clinic is a n availab le, proximate option for the outpatient service.

Springfield Of fice 320 W. Washington Str eet Springfield, Illinois 62767 (217) 782 - 4515 Chicago Offi ce 1 15 S. LaS al le St ree t, 1 3 th Flo or Chicago, Illinois 60603 (312) 814 - 242 0 The Depa rtment may obj ect to policy forms t hat purport to disti nguish the medical nec essit y of heal th care settings in this manne r and will disapprove the policy f orm if the issuer is unable to substantia te that, without regard for economic benefit or convenience, this distinction is based on “ generall y accepted standa rds o f car e” or “gen erall y accept ed s tandards of mental, emotional, nervous, or substance use disorder or condition care ” as defin ed in st atut e. Li kewise, t he Dep artm ent ’s consumer complaint unit may ask an issuer to substant iate its utilization revie w criteria’s ba sis in gene rally accepte d standards of care when relevant to a consumer ’s case, and the market conduct unit may review an issuer or URO’s compliance wi th relevant statutes during any market conduct action. The Dep artment will evaluate each issuer’s substantiation on its own merits under the statute. This authority applies regardless of whether the issuer offers an HMO, PPO, or traditional indemnity plan. As of January 1, 2026, the Health care Pr otect ion Act (P.A. 103-650) will limit utilization re view programs to three typ es of s ources o f utilization review criter ia for medical and s urgical servi ces: 1) an unaffiliated, nonprofit professional association for the relevant clinical specialty; 2) a third - pa rty entity th at develops tr eatment crite ria that: (i) are up dated annually; (ii) are n ot paid for clinic al care decision outcomes; (iii) do not off er dif ferent treatme nt criteria for the same health car e servi ce unl ess otherwi se req uired by Stat e or feder al law; and (i v) are consi stent w ith current g ener ally acc epte d stan dards of c are; or 3) the Depart ment o f He althcare and Fam ily S ervices if t he criteri a are consis tent wi th curren t generall y acc epted st and ards of c are. 1 215 ILCS 134/87(b). Health insurance issuers and utilization review organizations will be prohibited from using u tilization re view c riteria fro m a non - permitted sou rce to deter mine m edical n ecessi ty on ce this provision takes effect. 2 By standar dizing utiliza tion rev iew criteria across health insuranc e issuers and UROs in this manner, the new law will substantially inhibit a health insurance issuer from using, or from requiring or permitting a URO to use, custom utiliza tion revie w criteria for medical a nd surgical services. An issuer or URO ’s utilization rev iew criter ia would only validly be unique in the Illinois market if the issuer or U RO were unique in its choice among the statutorily permitted sources. The Department will not approve policy forms to be offered on or after January 1, 2026 if they provide for medical necessity determinations contrary to these statutorily permitted sources, including policy provisions that unjustifiably restrict coverage based on the purported medical nece ssity of the setting or geographic location or proximity of a site of care. The Department may object to policy forms that appear to d eterm ine med ical necess ity bas ed on cu stom utilization review c riteria, and will disappr ove the policy f orm if the issuer is una ble to substa ntiate tha t it is using a sta tutorily per mitted sourc e. Likewise, the Depar tment’s consume r compla int unit may ask an issue r to substantia te its utiliza tion review criteria’s ba sis in statutorily permitted s ources when relevant to a consumer ’s case, and the market conduct unit may review an issuer or URO’s compliance with relevant statutes during any market co nduct action. The Department w ill evaluate e ach issuer ’s substantiation o n its own mer its under t he statut e. This aut hority applies regardless of whether the issuer offers an HMO, PPO, or traditiona l indemnity pla n. Nothing in this bulletin should be construed to prohibit an issuer or URO from dete rmining med ical nece ssity of a health care setting ba sed on utiliza tion rev iew criteria from a statutorily pe rmitted sou rce. 1 Specific to Medicaid. 2 Mental health and substance use disorder coverage is al ready subject to restrictions on permitted sources of utilization review cri teria und er 215 ILC S 5/370c (h) - (n).

Springfield Of fice 320 W. Washington Str eet Springfield, Illinois 62767 (217) 782 - 4515 Chicago Offi ce 1 15 S. LaS al le St ree t, 1 3 th Flo or Chicago, Illinois 60603 (312) 814 - 242 0 Additionally, issu ers are rem inded that, i f the insured is covered by a PPO plan, the insured may choose to receiv e a he alth car e ser vice at either an in -network facility or an out-of- network facility w ith the understanding that the cost-sharing or coinsurance will be lower if they remain in-network. E ven if an individual covered by a PPO plan has an available in-network provider for the services they are seeking, the insured retains the right to choose an out-of-network provider. Also, when an insured wishes to use the services of a preferred provider, the PPO plan must allow the insured to use the qualified preferred provider of the insured’s own choice, subject to potential differences in cost-sharing if the PPO network has more than one tier. No PPO issuer should hinder or attempt to prevent such an insured from receiving care from the qualified provider or facility of their choosing. See 215 ILCS 5/357.10, 5/367(3), and 5/370i. The Department also encourages issuers to educate members on the cost difference between differ ent sites of service and the impa ct it may have on the member’s cost - sharing. The Code s tates: Anything in this code to the contrary notwithstanding, any group accident and health policy may provide that all or any portion of any indemnities provided by any such policy on account of hospital, nursing, medical or surgical services, may, at the insurer's option, be paid directly to the hospital or person rendering such services; but the p olicy may n ot requ ire that th e servi ce be rendered by a p articu lar ho spita l or pers on. Payment so made shall discharge the insurer's obligation with respec t to the amo unt of insurance so paid. Nothing in this subsection (3) shall prohibit an insurer from providing incentives for insureds to utilize the services of a particular hospital or person. 215 ILCS 5/367(3) (emph asis ad ded). S ee also 21 5 ILCS 5/357.10 (applicable to individual policies). 3 “‘Person’ includes an individual, aggregation of individuals, corporation, association and partnership.” 215 ILCS 5/2(l). Limiting an insured to specifi c providers within a provider network, to preferred providers generally, or to in -network or out- of -network providers within a geographic area are form s of requiring services to be rendered by particular hospitals or persons and are therefore prohibited in a PPO product. Insureds who have a PPO policy must not be subjected to a closed network in which there are no insurance benefits outside the PP O network or outsi de the PPO network’s geographic area. Non - network indemnity products are subject to 215 ILCS 5/357.10 and 5/367(3), as well, and therefore cannot limit insureds to providers within a geographic area. P olicy fo rms for a PP O or indemnity product containing such exclusions or limitations are in direct violation of Illinois Insurance Code for including “provisions which encourage misrepresentation or are unjust, unfair, inequitable, ambiguous, misleading, inconsistent, deceptive, contrary to la w or to the public policy of this State, or contains exceptions and conditions that unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the policy.” See 215 I LCS 143(1). I ssu ers offering a PPO policy are required to provide indemnity benefits outside the issuer’s preferred provider network, subject to higher cost sharing as explained in 215 ILCS 5/356z.3. To the extent that a Point-of-Service Plan is an indemnity product layered on top of an HMO product, the indemnity coverage for a Point-of-Service Plan cannot contain restrictions that the I llinois Insurance Code prohibits for out-of-network coverage under a PPO. 3 Secti on 357.10 des cribes the policy language as “at the opti on of the c ompany,” but onl y in the sense that Secti on 357.10 does not re quire i nsu rers to re imburs e provi ders direct ly. If t he i ssuer does reim burse provi ders di rectly - w hether v olunta ril y or when re quire d by other law s - then the l anguage in Section 357.10 la ngua ge is manda tory, t hough the Dir ector may approve s lightl y dif ferent p hras ing that is no le ss fa vorable to the ins ure d or benefi ciar y. See 215 ILCS 5/357.1.