Blue Cross Blue Shield Bear the Brunt of Penalties for “Medical Necessity” Violations in 2025

The Department of Managed Health Care (DMHC) regulates health plans in California, working to ensure that health plan members have access to timely, affordable and high-quality health care. This job includes investigating complaints of wrongful claim denials and taking action against health insurers in the form of administrative penalties and other corrective actions designed to bring about change in the way certain insurance companies handle claims.

One of the most common ways insurance companies get it wrong is by denying claims on the basis that the service requested or performed was not “medically necessary.” Since health plans are required to cover medically necessary services, one of the standard plays in their playbook is to say a service wasn’t medically necessary, despite being ordered by the patient’s physician.

In 2025, the DMHC issued seven different enforcement actions against California health plans that included wrongful denials based on medical necessity. These actions totaled $1,165,000 in fines, with the brunt being borne by various Blue Cross or Blue Shield plans. If your claim or request for necessary care was wrongfully denied by Anthem or another insurer, reach out to Gianelli & Morris for help from a team of experienced and dedicated California insurance bad faith lawyers.

Blue Shield of California $200,000

Last fall, DMHC entered into a Letter of Agreement with California Physicians’ Service d.b.a. Blue Shield of California covering three separate enforcement matters for violations of the law governing health plans in California. Enforcement Matter Number 21-872 concerned an enrollee diagnosed with breast cancer who was advised by her specialist to undergo fertility preservation services prior to entering into aggressive chemotherapy treatment. The specialist requested prior authorization from Blue Shield but was told this was not necessary as infertility preservation due to cancer was “fully covered.” After undergoing the service and submitting the bill, Blue Shield denied the claim, stating that the fertility preservation services were specifically excluded from coverage. After a grievance filed with the plan was denied, the enrollee filed a complaint with the DMHC. Only then did Blue Shield reprocess the claim and pay for the services. Blue Shield did not provide any explanation for why it reprocessed the claim.

Enforcement Matter Number 22-278 involved a Blue Shield enrollee with Hodgkin’s Lymphoma who received fertility preservation services before starting chemo.  Here again, Blue Shield denied the services as not covered, leading to the enrollee filing a grievance. Blue Shield upheld its denial, citing the plan’s general exclusion of coverage for services related to assisted reproductive technology. That denial ignored the fact that fertility preservation in this instance is a “basic health care service” under California law, specifically section 1374.551 of the Health and Safety Code. After the enrollee filed a grievance with the DMHC, Blue Shield agreed to reprocess the claim at a “covered, in-network level of benefit.” This time Blue Shield admitted it had mishandled and wrongfully denied the request for services.

In yet a third case involving fertility preservation services prior to chemotherapy cancer treatment (Enforcement Matter 23-263), Blue Shield once again denied the service by saying it was not a covered benefit. Again the insurer cited its Evidence of Coverage as excluding coverage for assisted reproductive technology services. After DMHC got involved, Blue Shield reprocessed and paid the claims but, as with Enforcement Matter Number 21-872, without stating a basis for why it was reprocessing the claims.

Fertility preservation services are not cheap, and the claims in these cases amounted to $4,510, $13,296, and $12,545, respectively.

Anthem $350,000

In Enforcement Matter Number 24-891, the DMHC imposed a $350,000 penalty on Blue Cross of California, dba Anthem Blue Cross. This penalty came out of a routine survey in 2019 where Anthem “consistently failed to provide requested information in a timely manner,” interfering with the department’s ability to conduct the survey. Eventually the survey was concluded in 2020, citing 21 deficiencies, 13 of which remained uncorrected in a follow-up review issued late in 2023. The department determined that three of those issues consisted of minor technical issues but decided to prosecute Anthem based on the other ten. Several of these ten uncorrected deficiencies centered around failures in Anthem’s grievance process, such as failing to adequately consider and rectify grievances, and failure to include the nature of the grievance and the resolution in its logs.

Regarding medical necessity, Anthem was penalized because its “written responses to grievances involving the denial or modification of health care services based in whole or in part on medical necessity do not describe the criteria used and the clinical reasons for its decision.”

Blue Cross of CA Partnership Plan $500,000

Blue Cross of California Partnership Plan, Inc. is an independent licensee of the Blue Cross Association and a subsidiary of Anthem, Inc., providing Medi-Cal managed care services in California. Enforcement Matter Number 23-464 arose out of an investigation into the plan’s violations of California health care law following DMHC routine surveys and follow-ups. The 2017 survey found 17 deficiencies. Two years later, only one deficiency had been corrected, and by 2023, 11 of the 17 deficiencies remained unfixed. DMHC assessed a $500,000 administrative penalty against this Anthem subsidiary as a consequence.

Among the deficiencies noted, some of the standouts include:

• The Plan failed to include in the treatment denial letters a clear and concise explanation of the reasons for the Plan’s decision, a description of the criteria or guidelines used, and the clinical reasons for the decisions regarding medical necessity. This failure violates California Health & Safety Code section 1367.01(h)(4).
• The Plan failed to timely issue a written statement on the disposition or pending status of the enrollee’s expedited grievance within three days and failed to provide immediate notification to the complainant of the right to contact the Department regarding the grievance.
• The Plan failed to timely issue a written statement on the disposition or pending status of the enrollee’s expedited grievance within three days.
• The Plan failed to ensure all oral expressions of dissatisfaction are considered grievances, as required by HSC 1368, and therefore failed to ensure adequate consideration of an enrollee’s grievance and rectification where appropriate.

While Blue Cross and Blue Shield were the major miscreants in terms of the dollar size of penalties levied against the health plan, other insurers were called out as well. Cigna Dental Health of California, Inc. was fined $80,000 for, among other sins, failing to adequately consider a grievance, establish and maintain an approved grievance system, and provide reasons for denying service as not medically necessary as required by California Code of Regulations 1300.68(d)(4). Meanwhile, a smaller provider in Northern California, Western Health Advantage, was hit with $35,000 for various timely access and reporting violations.

Insurance Claim Denied? You Have Legal Rights and Options

If your insurance company, be it Anthem, Blue Cross, Blue Shield, Cigna or others, denied your claim based on a misguided determination that your treatment was not medically necessary, you can do more than file a grievance with the DMHC. Civil action against the insurer can help ensure that you are fully compensated for the harm caused by a wrongful denial, including punitive damages for bad faith insurance denials. Gianelli & Morris can help. We represent policyholders throughout California who were harmed by insurance bad faith practices. Contact our office in Los Angeles to discuss your situation and find out how we can help.