SB 797 prohibits insurers, nonprofit health plans, HMOs, and managed care organizations from unilaterally reducing ("downcoding") the level of evaluation and management or other service codes submitted by a treating provider except after specific procedural safeguards. The bill defines downcoding, forbids reliance solely on diagnosis codes or automated tools without clinical review, and adds protections for emergency services and providers who treat complex patients.
The statute creates a notice-and-response process (30‑day intent notice; 90‑day provider response), requires final determinations be made by a clinically experienced, board‑certified physician in the same specialty, designates downcoding-driven nonpayment as a coverage decision subject to appeal, adds quarterly reporting to the Insurance Commissioner, and authorizes fines up to $10,000 per violation.
At a Glance
What It Does
The bill defines "downcode" and bars carriers and MCOs from using algorithms or other tools to reduce submitted service codes unless they first perform a clinical-documentation review and follow a specified notice, response, and physician-review process. It makes final downcoding decisions that result in nonpayment appealable as coverage decisions and attaches civil fines for violations.
Who It Affects
Fully regulated carriers, nonprofit health service plans, health maintenance organizations, and managed care organizations operating in Maryland; treating health care providers (individual clinicians, hospitals, and freestanding medical facilities); and the Maryland Insurance Commissioner, who receives new reporting data. Third‑party vendors and physician peer reviewers will be involved operationally.
Why It Matters
This changes how payers validate coding reductions by imposing transparency, clinical review, and appeal hooks that favor provider contestability. It limits reliance on automated tools without human clinical validation and creates reporting lines that give regulators data to monitor downcoding patterns.
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What This Bill Actually Does
SB 797 begins by putting a clear label on the practice it targets: "downcode" means a payer or any entity acting for a payer unilaterally changes a submitted service code to a lower evaluation-and-management level or other code that reduces payment. The bill covers individual clinicians, hospitals, and freestanding medical facilities acting as treating providers, and extends existing HMO rules to managed care organizations.
The statute bars specific practices. A payer cannot rely on software, algorithms, AI, or other automated tools to downcode a claim unless it has reviewed the clinical documentation in the way the law requires; it cannot make a downcoding decision solely because of the diagnosis code; it cannot substitute a final diagnosis for the presenting symptoms when evaluating emergency services; and it cannot target providers who frequently treat complex or chronic patients for downcoding.Procedurally, if a payer intends to downcode within 30 days of receiving a claim, it must notify the provider with three elements: the concrete reasons tied to coding guidance and clinical criteria; the original and revised codes with payment differences; and a statement that the provider can submit additional documentation within 90 days.
Carriers may request extra information only after confirming the information was not already supplied and must follow existing rules for information requests under the claims statute and related regulations.On the merits of a downcoding decision, the bill requires a final determination be signed off by a physician who is board‑certified (or eligible) in the same specialty as the service and has actual clinical experience with the procedure or treatment under review. If a final downcoding decision causes a claim or part of a claim to go unpaid, that result is a coverage decision and can be appealed under the statutory internal and external review procedures; providers may also file a complaint with the Insurance Commissioner without first exhausting internal appeals.
The bill also requires carriers to report quarterly counts of downcoding notices and downcoded claims by ZIP code and exposes violators to fines of up to $10,000 per violation in addition to other penalties.
The Five Things You Need to Know
The bill requires carriers to send a written notice within 30 days if they intend to downcode a claim and gives providers 90 days to submit additional clinical documentation.
A final decision to downcode must be made by a physician board‑certified (or eligible) in the same specialty and with direct clinical experience in the service under review.
Downcoding may not be based solely on the submitted diagnosis code, and emergency-service claims must be evaluated against presenting symptoms rather than the final diagnosis.
A payer that downcodes in violation of the statute can face a civil fine up to $10,000 per violation, on top of any other statutory penalties.
Carriers must include in their quarterly reports to the Insurance Commissioner both the number of notices of intent to downcode and the number of claims actually downcoded, aggregated by ZIP code.
Section-by-Section Breakdown
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What ‘‘downcode’’ and ‘‘health care provider’’ mean
The bill defines downcode to capture any unilateral alteration by a payer (or its agent) of an evaluation-and-management level or other service code that reduces payment. It specifies covered providers to include licensed individual clinicians who treated the member, hospitals, and freestanding medical facilities. The definition is broad enough to sweep in third‑party auditors and tech vendors acting for carriers, which matters for enforcement and vendor contracts.
Limits on automated tools, diagnosis‑only basis, emergency claims, and provider targeting
Carriers cannot use AI, algorithms, or other automated systems to downcode without performing the clinical documentation review the statute requires. The bill disallows downcoding based solely on diagnosis codes and forbids using the final diagnosis to justify downgrading emergency visits — evaluators must assess the presenting symptoms against the prudent‑layperson standard. It also bars practices that single out clinicians who treat high‑complexity caseloads, a protection aimed at specialty clinics and safety‑net providers.
30‑day notice, specific content, and 90‑day response window
Within 30 days of claim receipt a carrier that intends to downcode must notify the provider and explain the clinical and coding rationale, show original and proposed codes with payment differences, and inform the provider of the 90‑day submission window for additional documentation. Carriers may ask for more information only after confirming it wasn't already provided, and must conform to cross‑referenced claims‑information rules and related regulations, constraining repetitive or fishing requests.
Physician reviewer standard and treatment of nonpayment as a coverage decision
The statute requires final determinations be made by a physician board‑certified (or eligible) in the same specialty and with actual clinical experience relevant to the service under review — not an administrative coder or generic peer reviewer. If downcoding results in nonpayment of all or part of a claim, that outcome is treated as a coverage decision and is subject to the State’s appeal procedures; providers may also file a complaint directly with the Commissioner when the final decision is a downcoding nonpayment.
Fines and quarterly reporting obligations
Violations trigger fines up to $10,000 per incident in addition to existing penalties under the claims statute. Carriers must add two metrics to the Commissioner’s quarterly reports by ZIP code: the number of intent‑to‑downcode notices sent and the number of claims actually downcoded. Those reporting fields create a public‑interest data stream regulators can use to identify outlier payers or provider panels.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Treating clinicians and specialty practices — The notice-and-review process and the physician‑review requirement reduce the risk of automated or administratively driven payment reductions and give providers a structured opportunity to preserve legitimate coding and payment.
- Patients using emergency services — The statutory rule requiring symptom‑based evaluation for emergency claims protects patients from post‑hoc downcoding tied to a different final diagnosis.
- Providers serving complex or chronic populations — The explicit ban on targeting providers who treat higher‑acuity caseloads shields safety‑net and specialty clinics from disproportionate revenue loss.
- Maryland Insurance Commissioner and regulator staff — New reporting fields and the ability to accept provider complaints about downcoding furnish regulators with data and direct complaint authority to detect patterns and enforce compliance.
Who Bears the Cost
- Insurers, nonprofit plans, HMOs, and MCOs — Carriers will incur higher operational costs to document intent notices, maintain appeal workflows, run physician peer reviews in relevant specialties, and expand reporting systems. These costs may lead carriers to change network rates or administrative fees.
- Third‑party AI and coding vendors — Vendors that provided automated downcoding will need to redesign products or implement mandatory clinical‑review gates, which could reduce the automation value proposition.
- Physician reviewers — The requirement for specialty board‑certified clinicians with clinical experience creates a new market for reviewer time and compensation; carriers will pay for these reviews.
- Maryland Insurance Administration — The Commissioner will absorb additional oversight workload to process complaints and analyze expanded quarterly reports, potentially requiring staff or technical resources.
Key Issues
The Core Tension
The bill balances two legitimate goals that pull in opposite directions: protecting treating providers and patients from opaque, automated payment reductions versus preserving carriers’ ability to control inappropriate billing and manage program costs efficiently. Strengthening provider rights and requiring clinical sign‑offs increases administrative and reviewer costs and can slow payments; loosening safeguards speeds claim adjudication but risks incorrect denials and revenue loss for clinicians.
The bill protects providers and patients from unilateral, automated reductions, but it leaves several operational questions unresolved. The statute requires a "review of clinical documentation as required under this section" but does not define the standard of review, acceptable reviewer workload, or maximum time for a carrier to issue its final decision after receiving a provider’s supplemental documentation.
Absent clearer process timelines, carriers may still create backlogs or shift claims into protracted dispute tracks.
The restriction on using algorithms without a clinical review closes a clear abuse vector, yet permits hybrid workflows: carriers can still use AI to flag claims for review so long as a qualifying physician makes the final decision. That raises monitoring challenges — regulators will need to parse whether a technology merely assisted a human reviewer or effectively made the decision.
Reporting by ZIP code improves transparency about volume but omits finer details (provider identifiers, specialty, claim dollar amounts, or clinical categories) that would accelerate detection of targeting or systemic issues. Finally, fines up to $10,000 per violation create a penalty, but enforcement discretion, aggregation rules, and appeals over what counts as a single "violation" could limit deterrence if not clarified in regulation.
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