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New regulations issued by Commissioner Jones set methodology for determining average contracted rate for medical services

News: 2018 Press Release

For Release: December 31, 2018
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New regulations issued by Commissioner Jones set methodology for determining average contracted rate for medical services

SACRAMENTO, Calif. — Under the leadership of Insurance Commissioner Dave Jones, the California Department of Insurance adopted new regulations to implement provisions of Assembly Bill 72 (Chapter 492, Statutes of 2016).  These regulations relate to the average contracted rate that a non-contracted medical professional will be paid when an insured seeks medical services at an in-network medical facility and is treated by an out-of-network provider. These average contracted rate regulations were approved by the Office of Administrative Law (OAL) and go into effect on January 1, 2019.

AB 72 protects consumers from surprise medical bills when they go to an in-network health facility and receive care from an out-of-network provider without specifically consenting to out-of-network care. The law also establishes a payment amount of 125 percent of the Medicare rate or the average contracted rate in that geographic region for that out-of-network medical service, whichever of the two is greater. These new regulations issued by the department provide the methodology for determining the “average contacted rate” for the medical service that insurers must use to reimburse non-contracting medical professionals. This will reduce disputes between insurers and medical providers about reimbursement rates for non-contracted medical care by providing a clear methodology for rate calculation for commonly billed services at in-network medical facilities.

Under these new regulations, the average contracted rate will be the average of the contracted commercial rates paid by a health insurer for the same or similar health care services in the baseline year (2015) in the geographic region in which the service was provided, with the rate then adjusted for inflation based on the date the medical service was provided.

“These regulations were carefully crafted to provide a fair way of calculating the average contracted rate for medical services in a given geographic region in those circumstances in which a patient inadvertently receives care from an out-of-network provider. Insurers are required to maintain an adequate provider network to ensure timely access to care for their policyholders and when patients are forced to go out-of-network at an in-network facility, the patient should not have to pay more for their care and the providers should be reimbursed fairly,” explained Commissioner Jones.

The consumer protection in AB 72 that prevents policyholders from surprise medical bills for non-emergency care went into effect on July 1, 2017, and ensures that when consumers seek medical care at a facility in their insurer’s network, but receive care from an out-of-network medical provider, they only have to pay their in-network cost sharing. The law also called for the Insurance Commissioner to set up an Independent Dispute Resolution (IDR) system that providers can use if they do not believe they have been paid fairly under the law. The IDR program was developed by the department for use by medical providers and insurers starting in September 1, 2017.


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Led by Insurance Commissioner Ricardo Lara, the California Department of Insurance is the consumer protection agency for the nation's largest insurance marketplace and safeguards all of the state’s consumers by fairly regulating the insurance industry. Under the Commissioner’s direction, the Department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversee insurer solvency to pay claims, set standards for agents and broker licensing, perform market conduct reviews of insurance companies, resolve consumer complaints, and investigate and prosecute insurance fraud. Consumers are urged to call 1-800-927-4357 with any questions or contact us at via webform or online chat. Non-media inquiries should be directed to the Consumer Hotline at 800-927-4357. Teletypewriter (TTY), please dial 800-482-4833.

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