HF2635: Utilization Review & Certificate of Need

Establishes new standards and restrictions for health insurers and utilization review organizations, including limitations on the use of artificial intelligence in medical necessity decisions, deadlines and appeal processes for audits, and insurer actions against providers. It creates new requirements for electronic prior authorization submission (beginning 7/1/2027), strengthens peer-review standards for denials, and exempts specific cancer screenings and emergency care from prior authorization in both private insurance and Medicaid. The bill also significantly revises the certificate of need process, increasing expenditure thresholds, removing some services from CON requirements, and adjusting related procedures, notifications, and fee structures.  Multiple effective dates.

Key Points & Impacts

• Defines and limits the use of artificial intelligence by utilization review organizations (UROs) in initial prior authorization reviews, prohibiting sole reliance on AI for medical necessity denials or downgrades.

• Mandates tight timelines for URO audits (15 days to notify, 45 days to complete, 30 days for provider appeals, 30 days for appeal determinations), with penalties for violations including mandatory payment with interest.

• Prohibits health carriers from penalizing providers for out-of-network referrals, interfering with provider staffing/referral decisions, or imposing/amending agreements without negotiation.

• Requires all prior authorization requests to be submitted electronically through federally compliant systems by July 1, 2027, for both private plans and Medicaid/managed care.

• Establishes peer review standards: only clinical peers or qualified physician reviewers (with specialty and expertise) may deny or downgrade prior authorization requests; detailed written explanations and attestation of reviewer qualifications are required.

• Exempts from prior authorization: (a) cancer screenings recommended by clinical guidelines (category 2A or lower), and (b) diagnosis/treatment of life-threatening emergency medical conditions that arise during inpatient care, across both private insurance and Medicaid/Hawki programs.

• Substantially raises the financial thresholds for what constitutes a new/changed institutional health service under the certificate of need (CON) law (from ~$1.5M to $4M, escalating in future years), and removes numerous services and certain expenditures from CON requirements, including open heart surgery, organ transplants, radiation therapy, and cardiac catheterization.

• Modifies CON application, notification, and review procedures: new refund structure for withdrawn applications, switch to electronic notifications, alters comment/hearing processes, and limits extension deferrals to 30 days (unless mutually agreed).

Signed by Governor May 13, 2026. Takes effect July 1, 2026.