The California Hospital Association on May 4 sued Elevance, the nation’s fifth-largest health insurer, to block implementation of a policy it calls unfair and illegal.

The policy, slated to take effect in California on June 1, imposes penalties on hospitals in the Anthem Blue Cross and Blue Shield network that refer Anthem patients to care providers that are out of network.

Elevance is the parent company of Anthem Blue Cross and Blue Shield, which it operates in 14 states. Wellpoint and Carelon are also Elevance companies.

Hospitals that continue the practice are subject to an administrative penalty equal to 10 percent of the allowed amount for the hospitals’ claims involving non-network providers. 

Hospitals that persist could face the termination of their contracts with Anthem. 

Hospital and medical associations have criticized the policy and asked for its repeal. 

Elevance said the penalties are necessary to crack down on a minority of providers who abuse a legal loophole to force insurers to pay several times the market rate for certain elective procedures.

Strong Reactions

Anthem presented the policy, which was announced Oct. 1, 2025, as an effort to keep costs lower for patients.

Reactions were mostly negative. 

More than 90 medical associations signed a Nov. 17 letter urging Elevance to rescind the policy immediately, saying it would harm both independent medical providers and patients.

The American Hospital Association wrote to Elevance on Dec. 17, noting that the federal No Surprises Act already protects patients from getting blindsided by out-of-network bills.

The group added that the policy was “deeply flawed,” would limit patient choice, and was unworkable for hospitals.

The Federation of American Hospitals wrote the next day, saying the policy could disrupt patient care and was more about solving Anthem’s problems with federal law than protecting patients.

The policy took effect Jan. 1 in 11 of the 14 states served by Anthem plans.

One week later, Elevance CEO Gail Boudreaux and four other insurance executives appeared before Congress to testify about health care affordability. 

Rep. Erin Houchin (R-Ind.) questioned Boudreaux about the policy’s impact on rural hospitals.

On March 3, Indiana enacted a law prohibiting health insurers from charging medical providers an administrative fee or penalty related to care involving an out-of-network provider.

The California Hospital Association lawsuit seeks an injunction to prevent the Elevance policy from being implemented.

Elevance Defends Action

Elevance, in responses to Congress and the media, has defended the policy as necessary to stop certain medical providers from abusive billing practices. 

The No Surprises Act, which went into effect in 2022, was designed to protect patients against surprise bills when they receive care from an out-of-network provider.

Among other things, the law prevents hospitals from “balance billing” charges provided by out-of-network providers delivered at in-network hospitals.

For example, when a patient receives treatment at a hospital in their insurance network, part of the treatment may be given by an independent provider who is not part of the network—like a surgeon or anesthesiologist.

In those cases, it’s up to the provider and the insurer to agree on a price. If they can’t, the law provides an independent dispute resolution process to settle the dispute.

However, the independent arbitrators can’t help negotiate the price. They must either force the provider to accept the insurer’s offer, or force the insurer to pay whatever the provider has asked for.

Elevance contends that some providers in a few specialties are gaming the system by charging unreasonable prices, then forcing the cases to arbitration, where they almost always win.

In a written response to Houchin’s questions, Elevance offered the example of spinal fusion, which it said has become one of the most expensive procedures due to arbitration.

“Medicare pays approximately $1,500 for a spinal fusion. In-network commercial rates cluster around $1,900. Anthem’s payment offers are approximately $2,000. By contrast, the median provider reimbursement request in arbitration is approximately $100,000 per case—nearly 40 times the in-network market rate,” the company stated.

“These cases aren’t surprise situations, they’re planned surgeries, such as plastic surgery, in markets where we already have robust in-network options,” Elevance said in a statement emailed to The Epoch Times.

Out-of-network providers who engage in this practice are driving up costs for patients and employers, according to Elevance. 

“That out-of-network billing is not fair, and our policy creates an incentive for hospitals to stop it,” the statement concluded.

Elevance reported 45.2 million plan members in 2025 with revenue of $197.6 billion.

The lawsuit brought by the California Hospital Association against Blue Cross of California is pending in Los Angeles County Superior Court.