Anthem Blue Cross of California is bringing its controversial out-of-network penalty policy to California on June 1, a move that has already drawn legislative backlash in the insurer’s home state of Indiana.
Under the policy, participating hospitals and facilities in California must ensure that physicians providing services in inpatient or outpatient, facility-based settings are in-network with Anthem. When out-of-network providers are involved in patient care, Anthem will reduce facility claim payments by 10% of the allowed amount. Continued use of out-of-network providers could result in network termination.
The policy will apply to members enrolled in self-funded plans, including administrative services only arrangements.
Elevance first implemented the policy at the start of the year across Colorado, Connecticut, Georgia, Kentucky, Maine, Missouri, Nevada, New Hampshire, Ohio, Wisconsin and Indiana for its Anthem Blue Cross Blue Shield commercial plans.
In March, Indiana enacted a law banning insurers from penalizing hospitals for using out-of-network providers. Indianapolis-based Elevance controls roughly 68% of the state’s commercial insurance market, according to the Indiana Hospital Association.
In February, IHA President Scott Tittle said patients are already protected from surprise medical bills under the No Surprises Act, arguing the policy would not produce savings for patients and would instead benefit Elevance at the expense of providers and access to care.
The California Medical Association had previously joined a national federation letter urging Elevance CEO Gail Boudreaux to rescind the policy when it was first announced in the other states.
The federation letter argued that Anthem is seeking to circumvent the independent dispute resolution process established under the No Surprises Act. The groups wrote that by penalizing hospitals for out-of-network physician involvement, Anthem is shifting financial pressure onto facilities, which may in turn pressure physicians to join Anthem’s network, potentially under unfavorable contract terms.
Elevance has defended the policy as a response to what it characterizes as widespread misuse of the IDR process. In a December letter to the American Hospital Association, the company described the move as measured and appropriate, noting it does not apply to emergency care, situations where no in-network alternative exists, or rural, critical access and safety-net facilities.
Those same exemptions carry over to the California policy. Anthem’s California implementation also includes exceptions for cases in which the insurer grants prior approval for use of a nonparticipating provider, and hospitals will not be allowed to pass on any penalties to patients through balance billing.
According to CMS, four groups (HaloMD, Team Health, SCP Health and Radiology Partners) account for the largest share of IDR disputes. Providers have been winning approximately 85% of IDR cases, with median payment determinations reaching 459% of the qualifying payment amount in 2024. The federal government originally projected roughly 17,000 annual disputes, but more than 3.3 million were filed between mid-2022 and May 2025, generating at least $5 billion in administrative costs over that period.
Elevance previously shared the following statement with Becker’s:
“The No Surprises Act’s independent dispute arbitration (IDR) process is creating an affordability crisis due to a loophole allowing out-of-network care providers to initiate IDR for claims that are performed at in-network facilities. When the IDR process is abused, costs rise across the system – and that impacts everyone.
Elective procedures that were never meant to qualify for arbitration – like breast reductions – are now generating average IDR payments of $90,000 per case across Anthem’s markets. On average, Medicare would pay approximately $1,100 for this same service and a self-insured employer would pay about $2,400 to an in-network provider.
This surge is powered by private-equity groups and third-party billing companies that encourage out-of-network billing to secure massive arbitration windfalls. Federal agencies expected 17,000 disputes per year; instead, the system is now processing millions. None of this is sustainable, and none of it reflects what Congress intended.
We need our hospital facilities to be part of the solution, since these cases only qualify for IDR when they occur at an in-network facility. Our policy does not apply to emergency services, situations with no in-network alternative, or rural, critical access, and safety-net facilities. This policy is addressing IDR waste and abuse, protecting employer and member affordability, and restoring the NSA to its original purpose. Members will continue to have access to high-quality care, including out-of-network coverage when clinically necessary.”
