By Elena Pak, Credentialing Department, WCH
Anthem Blue Cross and Blue Shield — a subsidiary of Elevance Health — introduced a sweeping new administrative policy effective January 1, 2026, that penalizes in-network hospitals and outpatient facilities when out-of-network (OON) providers deliver care to Anthem commercial members. The penalty is 10% of the allowed amount of the entire facility claim, not just the OON provider’s portion. Facilities also face potential termination from Anthem networks for repeat violations. The policy, which started in 11 states and has since expanded to California for self-insured employer plans, has triggered fierce opposition from hospital associations, physician groups, and bipartisan lawmakers — yet Elevance has refused to rescind it. Iowa has since become the first state to pass legislation directly prohibiting such penalties.
Key Takeaways
- A 10% administrative penalty applies to the full facility claim when any OON provider is involved in a non-emergency care episode at an in-network facility.
- Launched in 11 states on January 1, 2026 (CO, CT, GA, IN, KY, ME, MO, NV, NH, OH, WI); now expanding to California for self-insured employer plans.
- Elevance’s stated rationale: providers are exploiting the No Surprises Act (NSA) Independent Dispute Resolution (IDR) process, with IDR case volume up over 40% in 2025.
- Providers prevailing in a majority of IDR cases — roughly three-quarters or more per CMS data — with median awards reported at approximately 3.7x the qualifying payment amount.
- The AHA, Federation of American Hospitals, American Medical Association, 80+ specialty societies, and a bipartisan group of Congress members have all demanded the policy be rescinded or investigated.
- Legal risk is real: healthcare attorneys note the penalty may violate existing contract terms and state law, and facilities may have grounds to object.
- Iowa passed “Patients First” legislation in March 2026 — unanimously in the Senate, 94–1 in the House — explicitly banning insurer penalties on hospitals for using OON providers. It is the first state to do so.
- Facilities cannot pass the penalty cost to patients.
What Happened
Origins: The IDR Abuse Argument
Anthem announced its “Facility Administrative Policy: Use of a Nonparticipating Care Provider” in October 2025, with an effective date of January 1, 2026. The policy’s stated target is a pattern Elevance describes as systematic gaming of the NSA’s IDR mechanism.
The NSA, enacted in 2020, was designed to protect patients from surprise medical bills by creating a structured dispute resolution process when in-network facilities use OON providers. Under this model, OON providers can initiate IDR to contest payer rates. What Elevance claims to have observed is something different: non-emergent, planned procedures — spinal surgeries, plastic surgeries, neuromonitoring services — increasingly staffed by OON providers, particularly those backed by private equity or third-party billing companies, specifically to generate IDR claims at dramatically inflated rates.
Elevance’s data makes the financial stakes concrete. Elevance cited what it described as representative cases, including IDR awards for breast reduction procedures it said averaged $90,000 per case — compared with roughly $1,100 under Medicare. Critics have noted that payers tend to highlight outlier examples; the underlying distribution of IDR awards is broader. IDR case volume across Anthem markets increased more than 40% in 2025 compared with late 2024. Providers prevail in a majority of IDR cases that reach arbitration — CMS data and independent analyses suggest roughly three-quarters or more — with median final payments reported at approximately 3.7 times the qualifying payment amount across multiple analyses of arbitration outcomes.
Scope and Structure of the Penalty
The mechanics of the policy are more sweeping than many providers initially understood. Attorneys at Davis Wright Tremaine analyzed the policy language and concluded that the 10% penalty may apply to the entirety of the facility’s allowed amount for the care episode — not just to the specific services the OON clinician performed. In a high-cost inpatient case, that could represent a substantial reduction across all reimbursement.
Exemptions exist but are narrowly drawn: emergency care, services for which Anthem has pre-approved OON use, rural hospitals, critical access hospitals, and safety-net facilities are excluded. The policy applies to both inpatient and outpatient settings. Critically, facilities are prohibited from recouping the penalty from patients through balance billing.
The geographic rollout began in 11 states. By March 2026, Elevance had moved to expand the policy into California — applying the 10% penalty to self-insured employer plans in that market as well, signaling a clear intention to broaden coverage nationally over time.
The Opposition and Elevance’s Response
The reaction from the provider community was immediate and broad-based. The American Hospital Association, in a December 17 letter to Elevance CEO Gail Boudreaux, called the policy “deeply flawed” and argued it penalizes hospitals for the behavior of independent physicians they do not employ, control, or schedule. The Federation of American Hospitals said the policy “conflicts with the spirit” of Anthem’s existing contracts and may in some cases violate their terms outright.
A coalition of over 80 specialty physician organizations and state medical associations — including the American Medical Association — argued that the policy effectively uses hospitals as instruments to coerce physicians into accepting Anthem contracts they might otherwise decline. A bipartisan group of physician-lawmakers separately petitioned HHS, Treasury, and the Department of Labor to investigate the policy’s legality, describing it as anti-competitive.
Elevance’s position has been firm. The company defended the policy as “a measured and appropriate step,” promised to evaluate hospital performance holistically rather than penalizing isolated incidents, and reiterated that the target is persistent patterns of OON use in markets with adequate in-network capacity.
Iowa Acts: The First State Legislative Response
The most significant development at the state level came in early March 2026, when Iowa became the first state to pass legislation directly prohibiting the type of penalty Elevance introduced. The Iowa “Patients First” bill cleared the House on March 3 by a vote of 94–1 and the Senate on March 4 by a vote of 44–0 — a degree of bipartisan consensus rare in any legislative chamber.
The legislation explicitly prohibits insurers from financially penalizing hospitals for affiliating with, referring to, or collaborating with out-of-network providers. It also bans “take-it-or-leave-it” contracting practices, eliminates prior authorization requirements for cancer screenings and emergent inpatient conditions, and sets new standards for peer-to-peer clinical reviews. Iowa Hospital Association President Chris Mitchell described the bill as “a major step forward for Iowa patients,” saying it allows hospitals to “focus resources where they belong — on patient care, not paperwork.”
A critical limitation: the law applies only to fully-insured commercial plans regulated by the state. Self-funded employer plans — which represent the majority of commercially insured lives in most markets, and which are governed by federal ERISA law — are explicitly excluded. This means Elevance’s policy can still apply to the largest share of its Iowa book of business even after the bill is signed into law.
Iowa’s action nonetheless matters beyond its own borders. It establishes a legislative template that other states can adopt, signals to federal regulators and Congress that states are willing to act where federal oversight has not, and creates a reputational cost for payers who continue or expand similar policies.
What Providers Should Do With This
1. Conduct an Immediate OON Exposure Audit
The first operational priority is understanding your actual exposure. Facilities need to identify which providers delivering care to Anthem commercial members are currently out of network, map how frequently they appear in care episodes, and quantify the dollar value at risk. Focus particularly on specialties most cited by Elevance: anesthesiology, spine surgery, plastic surgery, and neuromonitoring.
2. Accelerate Credentialing and Network Enrollment
Credentialing lags are a specific, measurable source of vulnerability. When a new provider begins delivering care before their credentialing is finalized, they are technically OON during that period. For high-turnover settings such as urgent care centers, this gap can be frequent and cumulative. Facilities should work with Anthem to implement interim participation arrangements and streamline provisional credentialing pathways.
3. Review Your Contract for Legal Leverage
Healthcare attorneys have flagged that the penalty structure may conflict with existing contractual rights or state law protections. Facilities should engage legal counsel to review current Anthem contracts for clauses that govern payment methodology and administrative fee authority. Facilities operating under contracts that explicitly define reimbursement terms may have standing to formally object to the penalty before accepting reduced payments.
4. Engage Staffing Vendors and Independent Physician Groups Directly
If your facility uses contracted physician staffing companies — particularly private equity-backed groups in high-cost specialties — you now have direct financial exposure tied to their network status. Renegotiate staffing agreements to include network participation requirements, build penalties for OON status into vendor contracts, and establish monitoring mechanisms.
5. Build Anthem Relationship Infrastructure
Elevance’s stated enforcement approach is holistic, not mechanical. Facilities that demonstrate good-faith compliance efforts and maintain open dialogue with their Anthem contract representative will be better positioned. Document credentialing timelines, staffing changes, and remediation efforts — both for the relationship and for potential legal or contractual objections.
6. Monitor the Expansion and Prepare for Broader Application
California’s addition to the policy in March 2026 confirms this is a national strategy, not a regional experiment. Facilities in states currently excluded should treat the current period as preparation time, not safe harbor. Watch for policy updates from Elevance, track the legislative investigation, and monitor whether other major commercial payers begin developing analogous approaches. Iowa’s legislation offers a model worth bringing to state hospital associations in other markets — though providers should note that its ERISA carve-out limits its practical reach for self-funded plans.
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Elevance’s OON penalty policy is a significant restructuring of financial risk in the commercial insurance relationship. Hospitals and outpatient facilities are now financially responsible not just for their own billing practices but for the network status of every provider involved in a member’s care — including those they do not employ. Iowa’s near-unanimous legislative response demonstrates that the policy has crossed a line that state lawmakers are willing to act on — but the ERISA gap means federal action remains the only complete remedy. Whether or not the policy survives legal or regulatory challenge, the enforcement is live. Providers who move quickly to audit exposure, close credentialing gaps, and renegotiate vendor arrangements will be in a far stronger position than those waiting for the policy to be rescinded.
Sources
Fierce Healthcare — Medical orgs press Anthem to pull back out-of-network care policy (Nov. 2025): https://www.fiercehealthcare.com/payers/anthem-may-penalize-facilities-use-out-network-providers-heres-why
HFMA — Elevance Health rebuffs providers’ calls to cancel a contentious out-of-network payment policy (Dec. 2025): https://www.hfma.org/payment-reimbursement-and-managed-care/elevance-health-rebuffs-providers-calls-to-cancel-a-contentious-out-of-network-payment-policy/
American Hospital Association — Letter urging Elevance to rescind Anthem’s Nonparticipating Provider Policy (Dec. 2025): https://www.aha.org/lettercomment/2025-12-17-aha-urges-elevance-health-rescind-anthems-nonparticipating-provider-policy
Becker’s Payer Issues — Hospital groups call on Elevance to rescind ‘punitive’ 10% penalty (Dec. 2025): https://www.beckerspayer.com/policy-updates/hospital-groups-call-on-elevance-to-rescind-punitive-10-hospital-penalty-for-using-out-of-network-providers/
Becker’s Payer Issues — Lawmakers call for investigation of Elevance’s new hospital penalty (Dec. 2025): https://www.beckerspayer.com/policy-updates/lawmakers-call-for-investigation-of-elevances-new-hospital-penalty-for-using-out-of-network-providers/
TechTarget RevCycle — Providers prepare to fight Anthem’s new out-of-network policy (Jan. 2026): https://www.techtarget.com/revcyclemanagement/news/366634378/Providers-prepare-to-fight-Anthems-new-out-of-network-policy
Experity — Nov Industry Notes: Elevance to Penalize Facilities For Out-of-network Providers (Nov. 2025): https://www.experityhealth.com/blog/nov-industry-notes-elevance-to-penalize-facilities-for-out-of-network-providers/
Benefits Pro — Anthem to penalize California hospitals for out-of-network doctors (March 2026): https://www.benefitspro.com/2026/03/05/anthem-to-penalize-california-hospitals-for-out-of-network-doctors/
Becker’s Payer Issues — Iowa bill would require insurers to honor out-of-network primary care referrals (March 2026): https://www.beckerspayer.com/policy-updates/iowa-bill-would-require-insurers-to-honor-out-of-network-primary-care-referrals/
Midwest Medical Edition — Iowa Legislature passes Patients First Insurance Reform Legislation (March 2026): https://www.midwestmedicaledition.com/articles/iowa-legislature-passes-patients-first-insurance-reform
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