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Ever had a molecular test claim get denied in under a minute, long before any human could’ve possibly read the chart? This is common across many lab billing claims. Payors have heavily relied on algorithms to speed up utilization review, and labs running genetic panels, definitive drug testing, and MolDX-registered assays have experienced a huge impact on their revenue.
The Golden State pushed back. California AI disclosure mandate, or SB 1120, known as the Physicians Make Decisions Act, restricts how health plans can use artificial intelligence (AI) in utilization review. If your lab bills payors in California, this law is a helpful tool you can use to counter AI-driven claim denials.
Want to explore what it says, who it covers, and exactly how using California laboratory billing services can put it to work? Let’s break it down.
SB 1120, authored by Senator Josh Becker and signed by Governor Gavin Newsom on September 28, 2024, amends California Health and Safety Code § 1367.01 and Insurance Code § 10123.135. It took effect January 1, 2025, and it governs how health care service plans and disability insurers use artificial intelligence, algorithms, or other software tools during utilization review (UR) and utilization management (UM).
To put it simply, an algorithm can help a payor sort through requests. But it just can’t make the final call on medical necessity.
When a health plan or its delegated entity (think medical groups or independent practice associations handling UM on the plan’s behalf) uses AI to review prior authorization or medical necessity requests tied to laboratory services, SB 1120’s requirements come into play. That includes genetic testing, definitive drug testing, molecular diagnostics, and other high-cost lab work that payors love to flag for automated review.
Here’s the core mechanic, laid out simply in the table below:
| SB 1120 Requirement | What It Means for the Payor | Why It Matters for Lab Billing |
|---|---|---|
| Human physician review | A licensed physician or competent health care professional must make the final denial, delay, or modification decision | Batch-denied lab claims without documented physician review become appeal targets |
| Individual clinical history | AI can't rely only on population-level datasets to deny a claim | Payors can't reject a genetic test just because "most patients like this one don't need it" |
| Written policies and audits | Plans must keep documented AI policies and submit to regulatory audits | RCM teams can formally request these records during an appeal |
| No harm, no discrimination | AI tools can't directly or indirectly harm or discriminate against enrollees | Adds another compliance angle for appeal letters citing pattern denials |
Most lab billing teams get confused here. This is how that gets solved.
SB 1120 regulates:
SB 1120 doesn’t touch:
So no, this law doesn’t regulate or impose any restriction on your own systems. It regulates the payor side of claim reviews.
A related California law, AB 3030, sometimes gets lumped in with SB 1120. AB 3030 requires disclaimers when generative AI is used in patient clinical communications, things like AI-drafted diagnosis summaries or treatment explanations sent directly to patients.
According to the Medical Board of California, AB 3030 explicitly excludes administrative matters, such as appointment scheduling, billing, or other clerical or business matters.
It means that your lab’s billing correspondence and claims processing don’t fall within the scope of AB 3030.
Don’t just resubmit a claim with an appeal. Utilize legal laws (when applicable) in your appeal letter, so it puts the pressure on the payor and requires them to act accordingly.
“Under California Health & Safety Code § 1367.01 and Insurance Code § 10123.135 (SB 1120), any denial based on medical necessity must be executed by a licensed, competent physician who has evaluated this patient’s individual clinical history. Please provide the reviewing physician’s NPI, the clinical rationale, and documentation confirming individualized medical record review.”
So does any of this improve collections? Yes, and here’s how.
But you can achieve that only when you completely follow the law and understand how to utilize it, which might not be an easy task for a busy laboratory that collects a huge number of specimens throughout the day.
Now you might be wondering how to solve that. The solution is simple. And that’s to outsource your laboratory RCM services to a dedicated billing partner like TransLabs that masters all the regulations across The Golden State, knowing how and where to use them for submitting claims and appealing denials.