California hospitals sue Elevance over out-of-network penalty

The California Hospital Association has taken legal action against a recent policy from Elevance Health that penalizes provider organizations for using out-of-network physicians for non-emergency care.

CHA announced on Tuesday that it filed a lawsuit against Elevance's parent company, Anthem Blue Cross, to block the policy enacted on Jan. 1 in over 11 states. The policy established a penalty of 10% of the allowed claim amount, with the option to escalate to network termination.

California is not one of the states affected by the policy, but provider facilities in Anthem's network will be by June 1, according to a March announcement. Elevance also plans to expand the policy to New York on July 1.

CHA's legal counsel Daron Tooch called the policy a "flagrant attempt to increase [Anthem's] profits at a time when millions of Californians are projected to lose their health care coverage."

The number of uninsured residents is expected to nearly double by 2030, to about 4 million people, according to the California Legislative Analyst's Office. Most of the increase will be due to Medicaid eligibility changes under President Trump's July 2025 federal spending law, also known as the One Big Beautiful Bill Act, the nonpartisan policy advisor reported.

Anthem stated in the March announcement that the penalty policy aims to "support patient care and to help reduce out‑of‑pocket expenses for our members" by directing patients to care providers participating in Anthem networks.

However, the payer holds in-network facilities accountable for guiding these patients, saying their "role in guiding members to in-network care providers is vital in ensuring members receive high-quality, cost-effective, and coordinated care."

But CHA argues in its lawsuit that it is Anthem's responsibility to ensure that physicians are contracted with the payer, especially given that California law prohibits hospitals from requiring physicians to be part of any payer's network.

The policy attempts to "force hospitals to solve a problem Anthem created," said CHA President and CEO Carmela Coyle in a statement.

"It's illegal, ignores the agreements Anthem has with its enrollees, and will lead to further financial stress for California hospitals and the communities they care for during an extremely unstable period in health care," she stated.

The American Hospital Association previously urged Elevance Health to rescind the policy, citing the harm it would have on patients, including limiting their choice of providers and misleading them about where they can access care.

AHA said Elevance should work directly with out-of-network providers to address its concerns or use the No Surprises Act's independent dispute resolution process.

"The core objectives of the NSA were to protect patients and to incentivize network participation," AHA said at the time. "Anthem undermines this landmark legislation by introducing new patient harms and targeting the very hospitals that have worked in good faith to participate in the plan's network."

Elevance has defended the policy, saying it actually protects patients from surprise medical costs when planned care is delivered by a nonparticipating provider at an in-network facility.

"These cases aren’t surprise situations; they’re planned surgeries, such as plastic surgery, in markets where we already have robust in-network options," a spokesperson from Anthem told RevCycle Management. "Unfortunately, some out-of-network providers undermine the protections and goals of the No Surprises Act and charge working families and their employers tens of thousands of dollars more than what Medicare and in-network providers are paid for the same in-hospital medical care. That out-of-network billing is not fair, and our policy creates an incentive for hospitals to stop it."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.