Daily News for October 15th, 2026

• Grocery Chain Manager Convicted in Fraud and Wage Theft Case
  on October 15, 2026 at 8:56 AM

  A federal jury in Sacramento has convicted the general manager of the Viva Supermarkets grocery chain of conspiracy, immigration document fraud, and obstructing two U.S. Department of Labor wage investigations, according to the U.S. Attorney’s Office for the Eastern District of California announcement on October 14, 2026. The verdict makes Karla Montoya, 45, of Sacramento, the only defendant in the long-running Viva case to be found guilty at trial; the chain’s owner and two other company officials have already pleaded guilty.
  
  According to the government, Montoya worked with Viva owner Shahriar “Sean” Loloee, a former Sacramento City Councilmember, to staff the chain’s Sacramento-area stores with workers who were not authorized to work in the United States. Prosecutors said she knowingly accepted counterfeit Permanent Resident cards and Social Security cards from numerous employees during hiring, used false immigration documents herself, and helped run off-the-books pay practices that denied workers overtime.
  
  The obstruction counts stem from two Wage and Hour Division investigations the Labor Department opened in 2020. Prosecutors said Montoya and Loloee hid employees who were likely to give investigators unfavorable information and interfered with investigators at the stores. Earlier charging documents alleged that the defendants made false statements to investigators, listened in on an employee interview to influence the testimony, told an employee to lie about her hire date, and had workers hide from investigators. The government says that obstruction caused the earlier investigation to substantially understate the back wages owed to workers. The releases do not say how many workers were involved or put a dollar figure on the unpaid wages.
  
  The jury returned its verdict after an 11-day trial before U.S. District Judge Troy L. Nunley, who set sentencing for January 7, 2027. According to the U.S. Attorney’s Office, Montoya faces a maximum of five years in prison on the conspiracy count, 10 years on each false immigration document count, and five years on the obstruction count, plus fines of up to $250,000 per count. The case was investigated by IRS Criminal Investigation and Homeland Security Investigations, with help from California’s Tax Recovery in the Underground Economy (TRUE) Task Force, a joint effort of state tax, labor, and justice agencies.
  
  The case dates to December 2023, when a federal grand jury indicted Loloee and Montoya on 25 counts, alleging a conspiracy stretching back to 2008. Loloee was then a sitting city councilmember. A 58-count superseding indictment in March 2024 added tax, money laundering, and COVID-19 relief charges and two new defendants: Viva controller Mirwais Shams and Ahmad “Shah” Shams, who worked in roles including human resources director. Prosecutors alleged the two altered employee time records tens of thousands of times, cutting the overtime workers were paid.
  
  Loloee pleaded guilty on April 23, 2026, to conspiracy to obstruct a Labor Department investigation, conspiracy to defraud the IRS, three counts of filing false tax returns, wire fraud, and money laundering. In his plea, he admitted that the company kept two sets of payroll books, one for the IRS and one labeled “Excess Payroll,” and paid workers partly in cash and in in-house “Green Checks” that could be cashed only at Viva stores, causing a tax loss of about $200,000. He also admitted giving Labor Department investigators an employee list with falsified, later hire dates in order to hide undocumented workers and reduce the back wages owed, and obtaining about $1.2 million in federal Restaurant Revitalization Fund money by understating his stores’ 2020 sales, then moving $949,900 of it to a trust account in a relative’s name. The Shams pleaded guilty on August 18, 2026, to filing false tax returns. Sentencing for all three is now set for November 19, 2026.
  
  The case illustrates how a civil wage-and-hour audit can become a federal criminal prosecution. Under federal law (8 U.S.C. § 1324a), employers must verify each new hire’s identity and work authorization on Form I-9, and they meet that duty if the documents presented reasonably appear genuine on their face. An employer that accepts documents in good faith is generally protected. What the government says it proved here is different: a manager who knew the documents were fake and accepted them anyway, then worked to keep federal investigators from talking to the affected workers. The case also shows that individual managers, not just owners, can face personal criminal exposure.

• Minimally Invasive Knee Procedure Eases Arthritis Pain for a Year
  on October 15, 2026 at 8:56 AM

  A minimally invasive procedure that temporarily blocks small blood vessels around the knee cut osteoarthritis pain roughly in half for most patients and kept it down for at least a year, according to a German study published in Radiology, the journal of the Radiological Society of North America (RSNA). The study, which tested a newer type of dissolving embolic particle, reported no moderate or severe complications across 239 procedures.
  
  The procedure, called genicular artery embolization (GAE), is performed by interventional radiologists. Working through a small catheter inserted at the groin, the physician finds the abnormal, overgrown blood vessels that develop in the lining of an arthritic knee and injects tiny particles to shut them down. Researchers believe those new vessels travel alongside pain-sensing nerves and fuel low-grade inflammation, so cutting off the blood supply may calm both. GAE does not repair cartilage or replace the joint; it targets pain.
  
  What the study tested is the embolic agent. The most commonly used material has been imipenem-cilastatin, an antibiotic that forms crystals when mixed with contrast dye. The authors note it is used off-label, is not always available, raises antibiotic-resistance concerns, and comes in uneven particle sizes. Permanent plastic microspheres are the main alternative, but because they never dissolve, they may raise the risk of particles lodging where they shouldn’t and of prolonged inflammation. The CharitÉ team instead used size-calibrated gelatin microspheres (Nexsphere-F, made by NextBiomedical) designed to dissolve within hours.
  
  The researchers enrolled 194 patients treated between July and November 2024. Their median age was 69, and 114 were women. All had knee pain that had persisted at least three months despite conservative care such as anti-inflammatory drugs, injections, and physical therapy, and each case was reviewed by a board of orthopedic surgeons and interventional radiologists. Most treated knees had moderate to severe arthritis on X-ray, and 80% of patients had had symptoms for more than two years. Forty-five patients had both knees treated.
  
  Every procedure was technically successful. Mild, self-limiting side effects occurred after 16 of the 239 procedures (6.7%). Fifteen involved temporary skin discoloration over the treated area that cleared within 24 hours, and one patient developed a superficial bruise-like collection of blood at the groin. The authors note that skin discoloration has been reported in about 16% of cases in a prior meta-analysis of GAE and in up to 65% of cases with permanent particles.
  
  On a 0-to-10 pain scale, patients’ median score fell from 7 before treatment to 4 at six weeks and 3 at six and 12 months, a median drop of 4 points. At 12 months, 80% of patients who completed follow-up had improved by at least 2 points, the threshold the study used for a clinically meaningful change. Scores on the Knee Injury and Osteoarthritis Outcome Score (KOOS), a 0-to-100 measure, also rose across every domain. Median daily-activity scores climbed from 53 to 71.5, pain scores from 44 to 65, symptom scores from 51 to 68, sports and recreation from 15 to 36, and quality of life from 19 to 40. Depending on the domain, 55% to 69% of patients reached the meaningful-improvement threshold on KOOS at one year. (The paper’s abstract states the range as 55% to 80%, apparently folding in the pain-scale result; the full text reports 55% to 69% for KOOS alone.)
  
  In the RSNA release, Fleckenstein said many knee-arthritis patients face a real treatment gap once injections stop working and surgery is not an option, and he described GAE as a new option between injections and joint replacement. Those are the lead author’s characterizations; the study itself did not compare GAE with injections, surgery, or any other treatment.
  
  The authors flag several limitations. The study had no control or sham group, so it cannot separate the procedure’s effect from placebo response, regression to the mean, or natural ups and downs in symptoms. It was conducted at a single center, relied on patient-reported outcomes rather than imaging or objective function tests, and followed patients for only one year. Follow-up fell to 79% at 12 months, and patients who missed visits were excluded from that time point’s analysis rather than counted, which the authors say could overstate the benefit. They also caution that the meaningful-improvement thresholds have not been validated specifically for GAE and should be read as descriptive.
  
  That caution matters because the broader evidence is mixed. According to the ScienceDaily article, a sham-controlled trial published in European Radiology this year found no significant difference between GAE and a sham procedure, a European Journal of Radiology review pooling three sham-controlled trials found no significant advantage, and a June 2026 analysis of 45 studies rated the overall evidence as low or very low certainty. On the other side, the Society of Interventional Radiology issued a position statement in May 2026 supporting GAE for adults with symptomatic knee osteoarthritis who have not responded to conservative care and are not candidates for knee replacement or want to delay it, while calling for larger randomized trials.
  
  

• California Fair Chance Act Violation Requires Proof of Harm
  on October 14, 2026 at 10:19 AM

  John McInerney had a series of drug convictions in 2005 and 2007, including felony possession for sale, and served a two-year prison term after the 2007 conviction. In fall 2020, at age 65, he enrolled as a student at UCLA. In September 2021 he applied for an office assistant job in UCLA’s Graduate Student Resource Center, a student-facing clerical position that involved greeting visitors, answering inquiries, and staffing events. He received a conditional offer on October 5, 2021, and worked about 23.5 hours before he was taken off the schedule pending completion of his criminal background check.
  
  While the check was pending, McInerney sent a series of angry emails to UCLA staff objecting to the use of his old convictions. Among other things, he described an HR employee as a “witch hunter,” and said he would seek legal help or contact a state agency.
  
  UCLA received the background results on January 4, 2022. On January 5, HR sent him a pre-adverse action letter giving him five business days to respond with evidence of rehabilitation or mitigating circumstances, as California’s Fair Chance Act (Gov. Code, § 12952) requires. McInerney submitted no rehabilitation evidence. But on January 7, 2022—before the five-business-day window had closed—UCLA notified him that he was ineligible for the job. UCLA’s witnesses later testified that the main reasons were his failure to respond substantively to the letter and his unprofessional, alarming emails.
  
  McInerney sued the Regents, alleging a Fair Chance Act violation, retaliation under the Fair Employment and Housing Act (Gov. Code, § 12940, subd. (h)), and failure to prevent retaliation (§ 12940, subd. (k)). He later dismissed an age discrimination claim.
  
  The Los Angeles County Superior Court granted summary adjudication for UCLA on the retaliation and failure-to-prevent claims, finding no protected activity and no causal link. It also ruled that UCLA had performed the individualized assessment the Fair Chance Act requires, and had complied with the statute in every respect except one: it did not give McInerney the full five business days to respond. The court ruled that McInerney still had to show that this violation harmed him, meaning it cost him the job.
  
  That question went to a jury. By special verdict, the jury found that UCLA’s decision was not based solely on McInerney’s criminal history, and that his criminal history was not a substantial factor in the decision. UCLA did not prove that McInerney would have failed to submit rehabilitation evidence had he received the full five days. But the jury found that UCLA would have made the same decision even if he had submitted that evidence. Judgment was entered for the Regents, and McInerney appealed.
  
  In the published case of McInerney v. Regents of the University of California, No. B339467 (September 2026), the California Court of Appeal, Second Appellate District, Division Two, affirmed the judgment in favor of the Regents. The opinion was filed September 18, 2026, as unpublished. On October 13, 2026, the court ordered it certified for publication, with no change in the judgment, so it is now citable precedent.
  
  No damages without harm. The central holding is that an applicant who proves an employer violated a Fair Chance Act procedure must also prove that the violation caused him harm. The court applied the general rule that a plaintiff suing over a statutory violation must show injury, and noted that when the Legislature wants to allow recovery without proof of actual harm it says so expressly, as it did with statutory damages in Civil Code § 1786.50 for investigative consumer reports. The Fair Chance Act contains no such provision. The court rejected McInerney’s argument that he was entitled to at least nominal damages. It found Soria v. Univision Radio Los Angeles, Inc. (2016) 5 Cal.App.5th 570 inapposite because it did not address nominal damages or whether harm is required. It also found Uzuegbunam v. Preczewski (2021) 592 U.S. 279 inapplicable, because that case concerns federal Article III standing rather than the elements of a state statutory claim, and McInerney raised it for the first time in his reply brief. Because the jury found UCLA would have reached the same decision regardless, McInerney could not show the shortened response window cost him the job.
  
  The court agreed that UCLA performed the required individualized assessment. Testimony from UCLA’s HR staff, its written policy, and contemporaneous emails showed the assessment took place, and McInerney’s points about an incomplete form, blank checkboxes, and the timing of a job-description request did not create a triable issue. The court stressed that the statute mandates a process, not a particular hiring outcome, and declined to second-guess UCLA’s judgment about how his convictions related to the job. It also rejected his reliance on a seven-year rebuttable presumption in a former Civil Rights Council regulation (Cal. Code Regs., tit. 2, § 11017.1, former subd. (g)(2)), holding that the presumption applied only to disparate impact claims. The statute itself has no seven-year limit, and the court noted that the Legislature removed such a limit before enacting the law.
  
  The court held McInerney did not engage in protected activity. FEHA and the Fair Chance Act both permit employers to consider conviction history after a conditional offer, so objecting to UCLA’s reliance on a 14-year-old conviction was not opposing an unlawful practice, and no reasonable person could have believed it was. His emails did not complain that UCLA was violating the background-check procedures. Drawing on federal Title VII decisions, the court also held that his insulting, hostile emails went beyond the kind of reasonable opposition the law protects, and it found National Labor Relations Board authorities unpersuasive. UCLA had told him he was free to seek outside help, and there was no evidence his threats of legal action played a role. In any event, UCLA’s legitimate reasons—his failure to respond substantively and his unprofessional conduct—defeated any inference of causation from timing alone. Without an underlying retaliation violation, the failure-to-prevent claim also failed.
  

• No FEHA Claim for City Retiree Health Benefits Minimum Age Rule
  on October 14, 2026 at 10:19 AM

  Michael Sargent worked as a City of Gardena police officer for about 20 years beginning in 2002. As president of the Gardena Police Officers’ Association, he came to know city manager Clint Osorio. Sargent alleged that after his March 2021 promotion to lieutenant, Osorio began asking him for improper favors, including running vehicle VIN numbers and helping speed up a concealed carry weapons license. Sargent declined.
  
  In November 2021, Sargent filed a workers’ compensation stress claim and was placed off work with an industrial injury. While on leave, he learned he would likely have permanent restrictions and would not return to duty. He told Osorio that he had Parkinson’s disease and that City Resolution No. 6475 would shut him out of “Tier 1” employer-paid retiree health coverage. That resolution, effective August 2020, gives paid retiree health benefits only to employees who are at least 50 years old and elect a service retirement with at least 15 years of service. Employees who retire on industrial disability without meeting those minimums may stay in the City’s group health plan, but at their own cost.
  
  Sargent alleged that he and Osorio reached a verbal agreement in early 2022 to amend the resolution or otherwise get him paid benefits, and he sent Osorio proposed amendments in January 2022. Around the same time, Osorio again raised the concealed carry license, and Sargent reported that to the police chief. In July 2022, Osorio texted Sargent that he was disappointed Sargent had told the chief, then blocked Sargent’s number and stopped pursuing the amendment. Sargent took an industrial disability retirement in October 2022, before turning 50, and received no Tier 1 benefits.
  
  Sargent sued the City and Osorio under the Fair Employment and Housing Act (Gov. Code, § 12940), alleging age and disability discrimination under both disparate treatment and disparate impact theories, disability harassment, retaliation, and failure to prevent discrimination. He claimed the resolution targeted officers aged 40 to 49 and disabled retirees, and that Osorio used his age and disability as leverage when he refused to do personal favors.
  
  The Los Angeles County Superior Court sustained the defendants’ demurrer to the third amended complaint without leave to amend. The court reasoned that the resolution actually favors older employees, that its plain language does not exclude disabled employees from Tier 1 benefits, and that none of Osorio’s alleged conduct was based on age or disability. It also found no facts showing protected activity or a causal link for the retaliation claim, and dismissed the failure-to-prevent claim because no underlying discrimination or harassment had been pleaded. Sargent appealed from the resulting judgment.
  
  In the unpublished case of Sargent v. City of Gardena, No. B347293 (October 2026), the California Court of Appeal, Second Appellate District, Division Seven, affirmed the judgment entered after the trial court sustained the defendants’ demurrer without leave to amend. The opinion, filed October 12, 2026, is not certified for publication, so under California Rules of Court, rule 8.1115 it generally may not be cited or relied on by courts or parties in other actions.
  
  Age discrimination. FEHA protects workers who have reached age 40 (Gov. Code, § 12926, subd. (b)). Sargent argued that this text plainly lets any worker over 40 sue when an employer favors workers 50 and older. The court disagreed, reading the statute in light of its purpose of protecting older workers from stereotyping, and noting that the California Supreme Court in Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317 framed age bias in terms of favoring significantly younger workers. Sargent cited no California authority recognizing the reverse claim. The panel found persuasive General Dynamics Land Systems, Inc. v. Cline (2004) 540 U.S. 581, where the U.S. Supreme Court rejected a nearly identical challenge to the elimination of retiree health benefits for everyone except workers 50 and over, holding that the federal Age Discrimination in Employment Act (see 29 U.S.C. § 631(a)) bars only discrimination preferring young to old. Because FEHA and the ADEA share the same objective, and because Sargent offered no reasoned textual or legislative-history argument for departing from Cline (or for following other states’ differently worded statutes), the court followed Cline. In a footnote, it observed that accepting Sargent’s theory would undermine traditional retirement plans with minimum-age requirements. His age-based disparate impact claim failed for the same reason, and he forfeited his disability-based disparate impact claim by never arguing it.
  
  Disability discrimination and the resolution. The court held the resolution does not treat employees differently because of disability. Eligibility for paid Tier 1 benefits turns on age and years of service; had Sargent been 50 with 15 years of service, he would have qualified even if he retired for disability-related reasons. The court agreed with the trial court’s reliance on Brown v. City of Los Angeles (9th Cir. 2008) 521 F.3d 1238, which held that separate service and disability pension programs need not provide identical benefits. Sargent never alleged that he received less than a similarly situated non-disabled employee who retired before 50. If anything, the resolution gives disability retirees under 50 something non-disabled early retirees do not get: the option of continued, self-paid group coverage.
  
  Disability discrimination based on Osorio’s conduct. The court accepted that Sargent adequately alleged a disability, given his stress-related condition and Parkinson’s diagnosis. But even assuming an adverse action and that he was qualified, he pleaded no facts suggesting discriminatory motive. Relying on Brown v. Los Angeles Unified School Dist. (2021) 60 Cal.App.5th 1092, the panel explained that Sargent’s own allegations attributed Osorio’s change of heart to Sargent’s refusal to do personal favors, not to bias against him as a disabled person. Osorio’s knowledge of the disability, standing alone, does not support an inference of discriminatory intent, and FEHA is not a remedy for harsh or unfair treatment as such.

• WCIRB Reports Combined Ratio Hits 127%, Highest in 20+ Years
  on October 13, 2026 at 9:22 AM

  California’s workers’ compensation insurers are on track for their worst underwriting year in more than two decades. The projected combined ratio for accident year 2025 now stands at 127%, meaning insurers are expected to pay out about $1.27 in losses and expenses for every premium dollar earned, according to the Workers’ Compensation Insurance Rating Bureau of California’s (WCIRB) Quarterly Experience Report, valued as of June 30, 2026, and released October 8, 2026.
  
  The WCIRB says the 2025 figure is the second straight year above 120% (accident year 2024 came in at 125%) and the fifth consecutive year above 110%. The bureau notes that the last multi-year stretch with combined ratios above 100% came before the Senate Bill 863 reforms of 2012. By comparison, the ratio bottomed out at 78% in accident year 2016.
  
  The report repeatedly points to cumulative trauma (CT) claims as a principal driver of the deterioration. Citing its June 2026 study, Emerging Patterns of Cumulative Trauma Claims, the WCIRB says CT claims grew from roughly 18% of indemnity claims in 2022 to more than 25%, with the increase concentrated in litigated claims, claims filed after termination, and claims showing little early medical treatment. Indemnity claim frequency rose 7.6% and 8.3% in the two accident-year periods following 2022, slowed to 0.7%, and then climbed another 3.6% in the first half of 2026. Excluding CT claims, the bureau describes recent frequency changes as more modest.
  
  The projected loss and allocated loss adjustment expense (ALAE) ratio for accident year 2025 is 95%, essentially flat with 94% for 2024 but well above the 53% low recorded in 2016. The WCIRB attributes the climb mainly to higher average medical costs, higher ALAE, and rising claim frequency, particularly among CT claims.
  
  Average ALAE per indemnity claim (excluding medical cost containment program costs) jumped 11% to $13,860 for accident year 2025, the fourth straight annual increase, based on data valued as of December 31, 2025. The bureau links the growth partly to CT claims, which are frequently litigated, and to a growing number of injured workers outside Los Angeles being represented by Los Angeles-based law firms.
  
  Medical-legal costs are rising even faster. Indexed to 2014, average medical-legal costs per claim reached 170 in service year 2025, up from 121 in 2022, driven by both greater utilization and higher average payments per service, especially for medical record review. The WCIRB says CT claims use more medical-legal services, including psychological and psychiatric evaluations, and that the increases have been sharper in Southern California. Overall medical paid per claim rose 5% in the most recent service year, following a 10% gain the year before, with average paid per transaction up 4% and transactions per claim up 1%.
  
  Other severity measures were flatter. Projected total loss and ALAE severity for 2025 is $81,460, nearly identical to 2024 and more than 30% above 2016. Indemnity severity slipped slightly to $30,611 but remains 29% above 2016, a rise the bureau ties largely to wage inflation. Medical severity per indemnity claim fell 3% to $34,560. The WCIRB cautions that these recent figures may understate eventual costs: CT claims tend to develop slowly, and roughly a quarter show no medical payments at 18 months.
  
  Only 32% of open indemnity claims closed within the following year for the period ending June 30, 2026, down from a peak of 38% in 2019. The bureau says the decline since 2023 likely reflects more CT claims, heavier use of medical-legal services, and increased litigation, all of which can drag out the claims process.
  
  On the revenue side, statewide written premium has held at roughly $15.7 billion to $15.9 billion annually since 2022. Premium written in the first half of 2026 totaled $8.6 billion, 5% ahead of the same period in 2025, which the WCIRB says points to growth for the full year. The industry average charged rate fell for more than a decade to a low of $1.63 per $100 of payroll in 2025; the preliminary estimate for the first half of 2026 is $1.64, suggesting the long decline may be ending. The report notes that the Insurance Commissioner approved average advisory pure premium rate increases of 8.7% effective September 1, 2025, and 6.6% effective September 1, 2026.
  
  Finally, the WCIRB’s projected ultimate losses remain below what insurers have reported, but the gap has narrowed sharply, from about $16 billion in evaluation years 2017 and 2018 to roughly $2 billion for 2025. The bureau stresses that this comparison does not, by itself, indicate whether insurer reserves are adequate.
  
  The WCIRB flags several limitations. The figures reflect insured employers only and may not represent the experience of self-insured employers. Results are statewide aggregates; individual insurers can differ significantly. Many figures are projections based on data as of June 30, 2026 (some exhibits use December 31, 2025, or June 7, 2026, data), and some rely on partial-period or preliminary data that may change as information matures. COVID-19 claims are included in some exhibits and excluded from others to preserve comparability with pre-pandemic years.
  

• Healthcare AI Pays Off in Claims and Billing, Not Yet at the Bedside
  on October 13, 2026 at 9:22 AM

  Healthcare organizations say artificial intelligence is paying for itself fastest in the back office — billing, claims processing and other administrative work — while AI at the bedside is still struggling to earn clinicians’ trust, according to The 2026 Healthcare AI ROI Scorecard, published September 30, 2026, by venture capital firm Bessemer Venture Partners. The report is based on a survey, conducted with Bain & Company, of 226 executives at health insurers (payers), healthcare providers and pharmaceutical companies, covering 65 AI use cases. It follows Bessemer’s 2025 Healthcare AI Adoption Index, which surveyed more than 400 executives using a similar framework.
  
  The headline finding is speed. Respondents had budgeted for AI investments to pay back in roughly 24 months, but report realizing returns in about 12, at an average of 3.5 times cost, with results beating expectations in roughly 40 percent of use cases. Fifty-four percent reported material return on investment inside the first year. Ranked by reported return, provider revenue cycle work led at 4.0 times cost, followed by payer claims and pharmaceutical preclinical discovery at 3.4 times, payer provider-network functions at 3.3 times, member engagement at 3.2 times, provider front-office work at 3.1 times, provider clinical uses at 2.9 times, pharmaceutical commercial uses at 2.6 times and clinical drug development at 2.3 times.
  
  The gap between administrative and clinical AI shows up most clearly in how much work organizations have handed over to autonomous systems. Two-thirds of provider revenue cycle respondents now run semi- or fully autonomous AI agents, as do 62 percent of payers in member engagement, compared with just 4 percent in provider clinical work. The fastest-growing use cases were all administrative: payer contracting management rose from 19 percent to 37 percent adoption, provider credentialing and enrollment from 35 percent to 56 percent, provider contracting from 40 percent to 60 percent and prior authorization from 32 percent to 46 percent. Still, the share of use cases in full production barely moved over the year, and for payers it held flat at 6 percent.
  
  The survey also points to workforce effects. Half of the organizations surveyed said they have already reduced headcount as a direct result of AI or plan to within six months, with cuts averaging 8 to 13 percent of the affected functions. Among payers reporting reductions, 71 percent named claims processing and 68 percent named member services; among providers, 73 percent named revenue cycle and medical billing. Bessemer estimates, as a rough calculation of its own, that this implies about $100 billion in labor-spend disruption across roughly $1 trillion in annual healthcare administrative spending. The authors also argue that healthcare is short of workers in many of these same functions, citing an American Medical Association estimate of a roughly 30 percent medical coder shortage, and suggest that nurses now staffing prior authorization and utilization review could be redeployed to care management rather than simply eliminated.
  
  For the claims side of the business, the report highlights how much AI is being aimed at the same disputes from both directions. Providers ranked denial and appeals management as their top pain point (78 percent) and prior authorization second (61 percent), while payers placed appeals management in their top three (42 percent). Bessemer characterizes the result as “AI-to-AI combat” on mirrored workflows, and argues the larger savings would come from eliminating duplicative processes altogether through aligned incentives and faster payment — something it says AI alone cannot deliver. For scale, it points to a 2021 JAMA Viewpoint, Administrative Simplification and the Potential for Saving a Quarter-Trillion Dollars in Health Care, which estimated roughly $265 billion in potential annual administrative savings (Bessemer cites the figure as $260 billion).
  
  Clinical AI faces steeper obstacles. Only 46 percent of respondents said they trust AI-generated tools to support clinical decision-making, and 77 percent said clinicians override AI suggestions more than half the time. Fifty-eight percent said the treating clinician bears primary accountability for AI-influenced decisions, half cited medico-legal exposure as the main barrier to scaling beyond proof of concept, and 36 percent of providers have delayed or canceled a clinical AI deployment over regulatory and compliance uncertainty. Payment is another hurdle: about 48 percent of payers said they are unwilling to reimburse fully autonomous AI care, versus about 5 percent who object to AI-assisted care in which a clinician reviews and confirms the output. Roughly 44 percent of payers expressed willingness to create payment pathways in narrower areas such as primary and preventive care, diagnostic support and medication management. Bessemer frames the stakes against workforce shortages, citing the Association of American Medical Colleges’ projection in The Complexities of Physician Supply and Demand: Projections From 2021 to 2036 of a shortfall of up to 86,000 physicians by 2036, including 20,200 to 40,400 in primary care.
  
  Buyers are also changing how they purchase AI. Forty-two percent have completed or are running a vendor consolidation, 72 percent now have an AI governance committee, and respondents named regulatory and compliance uncertainty as the top reason deployments are delayed or canceled. More than half of next year’s incremental AI spending is earmarked for scaling proven use cases (35 percent) and integrating them into existing workflows (20 percent). Internal development has faded: 61 percent of organizations said half or fewer of their internally built AI tools are still maintained and in use.
  
  For insurers, claims administrators and employers, the findings suggest that AI-driven automation of claims processing, prior authorization and utilization review is moving from pilots into routine operations, with real staffing consequences, while the unresolved questions around clinical AI — who is liable when a clinician follows or overrides an AI recommendation, and whether payers will pay for AI-delivered care — remain open. The survey covers group health payers, providers and pharmaceutical companies; it does not address workers’ compensation or property-casualty claims specifically.
  
  Several caveats apply. The return figures are self-reported by respondents and reflect deployments that Bessemer says are roughly two years old; the firm presents them as a floor rather than a ceiling, but they have not been independently audited. The published article does not detail how respondents were selected or the survey’s margin of error. Bessemer is a venture investor in healthcare AI companies, and the report names portfolio companies, including Abridge and SmarterDx, among the market’s winners; the firm’s own disclaimer notes that companies discussed may be current or former portfolio companies. Characterizations of trends and opportunities in the report reflect Bessemer’s analysis and investment perspective rather than independent findings.

• No Medi-Cal Clawback of Unused Managed Care Payments From Estates
  on October 12, 2026 at 12:18 PM

  This is a published opinion of the California Court of Appeal, that concerns Medi-Cal estate recovery, the program families and elder law attorneys often call the Medi-Cal “clawback,” under which the state files a claim against a deceased member’s estate to recover what Medi-Cal paid for the member’s care. The case addresses one slice of that clawback: for members in managed care, the Department had been claiming the full monthly payments it sent to the health plan, even when the plan spent far less on the member’s actual care. The dispute that was litigated as a class action.
  
  Medi-Cal clawback is an issue for workers' compensation and personal injury attorneys who settle large cases for clients who concurrently receive means tested social benefits such as Medi-Cal. One strategy is the use of a Special Needs Trust funded by an annuity purchased by the settlement proceeds. The following case adds to the legal precedent that may have some relevance to strategies to protect a litigant's estate from inappropriate clawbacks by social services consistent with law applicable to such cases.
  
  Medi-Cal is California’s Medicaid program, administered by the Department of Health Care Services. When certain Medi-Cal members die, state law requires the Department to seek reimbursement from their estates. Welfare and Institutions Code § 14009.5 sets the recovery amount as the payments for the health care services the member received. Under managed care, however, the Department does not pay for each service. It pays the member’s health plan a fixed monthly “capitation” amount, whether or not the member uses any services.
  
  Theodosia Phillip received Medi-Cal benefits while living in a nursing facility from 2010 until her death in 2015. The Department paid her managed care plan, CenCal Health, $261,957.40 in capitation over that period. The plan, in turn, paid about $106,672.71 for the services she actually received. After her death, the Department sought $407,774.41 from her estate: the full capitation amount, plus $5,852.30 in Medicare Part B premiums and $139,964.71 in interest.
  
  The estate’s trustee disputed the claim, and the Department sued. Theodosia’s beneficiaries, Hardie and Jennifer Phillip, cross-complained on behalf of a certified class of Medi-Cal members’ estates from which the Department had sought to recover capitation in excess of the services received. The class included members who died both before and after January 1, 2017. They asserted quasi-contract and declaratory relief claims and petitioned for a writ of mandate.
  
  The trial court ruled that recovering this “excess capitation” violated both state and federal law, and that its ruling applied retroactively. It entered judgment for the Department only for the capitation reflecting what the plan actually paid for Theodosia’s care, plus prejudgment interest. It also issued a declaratory judgment for the class and a writ of mandate directing the Department to reform its estate recovery practices, stop collecting excess capitation, and reprocess certain class members’ claims. The Department appealed.
  
  In the published case of Phillip v. Baass, No. B341853 (October 2026) the Court of Appeal affirmed the judgment and awarded the Phillips their costs on appeal. Michelle Baass is named as the Department’s Director. The court held that the Department may recover only the portion of capitation that corresponds to services the member actually received.
  
  The court began with the plain language of Welfare and Institutions Code § 14009.5, considering both its pre-2017 version and the version that applies to members who died on or after January 1, 2017. “Health care services” are defined by reference to specific enumerated benefits, and capitation is not among them. Applying the last antecedent rule, the court read the word “received” as modifying “services,” not “payments.” Recovery is therefore tied to services actually received, not to everything the Department paid out. The 2016 amendments, effective for deaths on or after January 1, 2017, narrowed recovery further, to services that federal law requires states to recover.
  
  The court found support in Pottgieser v. Kizer (9th Cir. 1990) 906 F.2d 1319. There, the Ninth Circuit held that California could not collect from a decedent’s estate the Medicare Part B premiums the state had paid on her behalf, because the “medical assistance” subject to recovery covers the cost of services, not premiums. The court rejected the Department’s reliance on In re Estate of Ecklund (Minn. 2025) 20 N.W.3d 351, in which the Minnesota Supreme Court allowed recovery of capitation. In that case, Minnesota sought only the portion of capitation tied to long-term care services, not the whole payment, and the decision did not address California law.
  
  Even if the statute were ambiguous, the court said, the legislative history does not mention excess capitation, and the amendments over time narrowed recovery rather than expanding it.
  
  The court then invalidated the Department’s regulation. California Code of Regulations, title 22, § 50961 provides that the Department’s estate claim includes “payments to managed care plans.” Because that language enlarges the scope of the statute, the regulation is void under Government Code § 11342.2, which bars regulations that conflict with or expand the statutes they implement.
  
  Federal law did not change the result. The federal estate recovery statute, 42 U.S.C. § 1396p(b), requires recovery only for specified categories, chiefly nursing facility services, home and community-based services, and related hospital and prescription drug services. Excess capitation is not among them, and federal law does not require states to recover it. The court gave no weight to the federal State Medicaid Manual, describing it as informal guidance without the force of law that cannot override the statute. The Department also could not rely on the Manual or its regulation to sidestep California’s Administrative Procedure Act.
  
  Finally, the court rejected the Department’s policy arguments, including its warning of serious consequences if excess capitation could not be recovered. If the Legislature wanted that money recovered, the court said, it would have said so; the Department’s concerns belong with the Legislature, not the courts.
  

• EEOC Seeks End to 2012 Criminal Records Employer Guidance
  on October 12, 2026 at 12:18 PM

  The U.S. Equal Employment Opportunity Commission (EEOC) has taken the first formal step toward withdrawing its 2012 guidance on how employers may use arrest and conviction records in hiring and other employment decisions. On October 6, 2026, the White House Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) logged receipt of a draft final rule from the EEOC titled “Rescission of Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act,” according to Littler Mendelson, Ogletree Deakins in The National Law Review, and Bloomberg Law.
  
  The text of the draft has not been released. Under the federal regulatory review process, OIRA publicly lists a rule’s title, agency, stage, and date of receipt when it begins review, but the document itself generally does not become public until the agency publishes it in the Federal Register. What is known comes from that listing and from practitioner commentary.
  
  First, the action is a complete rescission. The title indicates the EEOC intends to withdraw the 2012 guidance, not revise it. Ogletree’s attorneys wrote that, based on past practice, it is very possible the agency will rescind the guidance without issuing any replacement.
  
  Second, it is styled as a final rule, not a proposed rule. That means no public comment period is expected. Littler’s attorneys noted that if OIRA clears the draft, the EEOC is expected to publish it and repeal the guidance effective on publication, though the timing is unclear.
  
  Third, nothing about the rescission changes the underlying statute. Title VII of the Civil Rights Act of 1964, and the case law interpreting it, remain in place. The guidance was the EEOC’s interpretation of that law, not law itself.
  
  The 2012 Enforcement Guidance, adopted under the Obama administration, consolidated and updated EEOC policy statements dating to 1987 and 1990. It explained that an employer’s use of criminal history can violate Title VII in two ways. The first is disparate treatment: treating applicants differently because of race or national origin, for example by excusing a record for one applicant but not another. The second is disparate impact: applying a neutral screen that disproportionately excludes protected groups and is not justified by the job. The guidance relied on national data showing higher arrest and incarceration rates for Black and Hispanic individuals to support the view that criminal record screens can have a disparate impact.
  
  To defend a screen against a disparate impact claim, an employer must show it is job related and consistent with business necessity. The guidance said the most common way to do that was a targeted screen considering the three “Green factors”: the nature and gravity of the offense, the time elapsed since the offense or completion of sentence, and the nature of the job. It encouraged employers to follow up with an individualized assessment giving the applicant a chance to explain. The guidance also took the position that an arrest alone does not show that criminal conduct occurred, and it discouraged blanket exclusions of anyone with a record. It recognized that federal laws requiring the exclusion of people with certain convictions are a defense to a Title VII claim.
  
  The guidance drew criticism from the start. Texas sued in 2013, arguing it had the right to refuse to hire convicted felons for state jobs. On August 6, 2019, the Fifth Circuit ruled in Texas v. EEOC that the guidance was a substantive rule the EEOC lacked authority to issue. The court barred the EEOC and the Attorney General from treating it as binding against Texas. Business groups argued more broadly that the guidance discouraged legitimate safety screening and exposed employers to liability for following state no-hire laws.
  
  Supporters of the guidance saw it as an important tool for people re-entering the workforce after involvement with the criminal justice system. They argued that blanket exclusions shut a large share of the population out of work and fall hardest on Black and Hispanic workers, and that individualized review lets employers manage real risks without screening out people whose records have nothing to do with the job.
  
  The current effort to withdraw the guidance is part of a broader federal retreat from disparate impact enforcement. As described by Quarles & Brady, President Trump signed Executive Order 14281, “Restoring Equality of Opportunity and Meritocracy,” on April 23, 2025. It directed federal agencies to deprioritize enforcement of disparate impact liability, specifically naming Title VII. EEOC leadership reportedly directed staff to close nearly all pending charges based solely on disparate impact by September 30, 2025. On June 9, 2026, the Department of Justice issued a formal opinion concluding that the EEOC’s existing interpretations of disparate impact liability are unconstitutional and that selection tools such as background checks should be treated as presumptively job related. The EEOC, chaired by Andrea Lucas, voted on June 30, 2026, to rescind its affirmative action guidelines.
  
  Critics of that shift have pushed back. An EEOC administrative judge told HR Dive that the presidential directive was illegal, and the publication noted that a federal judge dismissed a 2025 lawsuit challenging the EEOC’s nonenforcement of disparate impact claims.
  
  Practitioners across the commentary agree on several points. Disparate impact liability remains part of Title VII. The Supreme Court recognized it in Griggs v. Duke Power Co. (1971), and Congress wrote it into the statute in the Civil Rights Act of 1991. The EEOC can decline to pursue such claims, but applicants can still file charges, obtain right-to-sue notices, and bring private lawsuits, including class actions.
  
  The Green factors come from case law, not the guidance. Courts have applied the Eighth Circuit’s framework for decades, and the Third Circuit in El v. SEPTA (2007) required employers to show that a criminal record policy accurately separates applicants who pose an unacceptable risk from those who do not. Quarles & Brady expects courts to keep weighing offense severity, recency, and job relevance, while noting that employers will likely cite the Justice Department’s opinion and that some courts may find it persuasive.
  
  Disparate treatment claims are unaffected. The EEOC is expected to continue investigating uneven application of background check policies across racial or national origin groups. Arrest-only exclusions and blanket bans remain the riskiest practices, because an arrest is not proof of misconduct and courts have long been skeptical of across-the-board exclusions.
  
  The federal Fair Credit Reporting Act’s notice and adverse action requirements, and the growing body of state and local “ban the box” and fair chance laws, are not affected by the rescission. That is especially significant in California. The California Fair Chance Act generally bars employers with five or more employees from asking about conviction history before a conditional job offer. It also requires an individualized assessment, and specific written notices, before an offer is withdrawn based on a conviction. The California Civil Rights Department continues to enforce the law actively, as reflected in its June 2026 settlement with the City of Signal Hill over a rescinded job offer. Ogletree’s attorneys noted that several state agencies have signaled they are prepared to fill the gap left by federal disparate impact enforcement.
  
  There is no set deadline for OIRA to finish its review. Once the rule is published, the 2012 guidance is expected to be withdrawn immediately. Employers that built their screening programs around the guidance are generally being advised not to dismantle them, because the same practices remain the best defense under Title VII case law and are required by many state and local laws.

• From "Job Killers" to "Cost Drivers" - CalChamber's Legislative Reports
  on October 8, 2026 at 7:22 AM

  The California Chamber of Commerce reported on October 7, 2026 that its 2026 Affordability Agenda produced strong results for business. Of 31 bills it labeled "Cost Drivers" this year, only one was signed into law. The year-end report is the second under a framework that has taken the place of the chamber's best-known advocacy tool, the annual "Job Killer" list, which CalChamber last published as a standalone list in 2024.
  
  For more than 25 years, the Job Killer label was CalChamber's way of marking the legislation it considered most damaging to employment and economic growth in California. The list began in 1997 with 57 bills, according to a May 2024 Capitol Weekly analysis, which counted 844 bills tagged through 2023, of which 64 became law. CalChamber has described the record as more than 93 percent of tagged bills halted. The final list, for 2024, contained 18 bills. In its October 2024 wrap-up, CalChamber reported that only one of them reached the governor: SB 399, which restricts mandatory employer meetings on political and religious matters. It was signed.
  
  The same Capitol Weekly analysis noted that the list had shrunk to its smallest size in more than two decades and questioned how much it still mattered. An unnamed longtime Capitol lobbyist told the publication the label counts mainly when a bill needs Republican votes, which is rarely the case under a Democratic supermajority. California Business Roundtable President Rob Lapsley, a former chamber political director, defended the list as a way to focus on bills with the broadest impact on employers. Then-Senator Steve Glazer, whose digital advertising tax bill carried the tag, said it made the chamber's advocacy "a lot less effective" on narrowly drafted measures.
  
  The shift came in April 2025, when CalChamber announced its first Affordability Agenda. The new framework sorts legislation into two groups: Cost Drivers, which CalChamber says raise costs for businesses and consumers, and Cost Cutters, which it says lower them. The initial 2025 release identified 10 Cost Drivers and three Cost Cutters. CalChamber said the Job Killer list had served it well, but that a focus on jobs alone was no longer enough. President and CEO Jennifer Barrera said that "California businesses and consumers alike are focused on the affordability of everyday life," and pointed to the 2024 election as showing that affordability was a leading concern for voters.
  
  The timing tracked a broader change in Sacramento. After Democrats lost legislative seats and voters rejected several progressive ballot measures in November 2024, Assembly Speaker Robert Rivas urged lawmakers to frame their bills around affordability, CalMatters reported in February 2025. A CalChamber executive vice president welcomed the focus in that report and called for bills that reduce costs and regulation for businesses and customers.
  
  CalChamber has not formally announced the end of the Job Killer list. Its Job Killer page still links to lists from 2021 through 2024 alongside the current Affordability Agenda, and CalChamber describes the agenda as building on the Job Killer lists while also weighing regulatory burdens and incentives for economic growth. In practice, the Affordability Agenda has been its headline bill-tracking tool for the past two sessions. CalChamber said in March 2026 that all but one of its 2025 Cost Drivers failed to move forward.
  
  The 2026 agenda launched in March with nine Cost Drivers and two Cost Cutters, and grew over the session to 31 Cost Drivers and six Cost Cutters. Barrera said at the launch that no bill should come up for a vote this year "without taking stock of its impact." The Cost Drivers ranged across air quality, antitrust, climate liability, energy, health care, privacy, taxation and employment. Bills restricting artificial intelligence and automated decision systems in the workplace made up the largest group of employment measures.
  
  According to CalChamber's year-end report, only two Cost Drivers reached Governor Gavin Newsom. He signed AB 2646 by Assemblymember Maggy Krell, which sets an industry-specific minimum wage of 19.75 dollars an hour for H-2A agricultural workers and comparable domestic workers in the same county. CalChamber says the law will raise farm labor costs and, eventually, food prices. He vetoed AB 2575 by Assemblymember Liz Ortega, which would have imposed disclosure and liability rules on the use of AI in health care facilities. Two Cost Cutters also reached the governor. He signed AB 1693 by Assemblymember Rick Zbur, which streamlines permitting for retail tenant improvements by letting licensed architects or engineers certify code compliance and setting deadlines for local action. He vetoed AB 2124 by Assemblymember Blanca Pacheco, which would have required independent review of the effect of energy legislation on utility ratepayers, citing existing analytical resources and the lack of budget funding.
  
  The headline tally does not capture every bill the chamber fought. During the session CalChamber removed the Cost Driver tag from several bills after amendments while continuing to oppose some of them and urging vetoes. Three of those were signed on September 30 as part of a package of workplace AI and surveillance laws, according to KQED and the governor's office. SB 947 by Senator Jerry McNerney bars employers from relying solely on an automated system to discipline or fire workers. SB 951 by Senator Eloise GÓmez Reyes requires notice when technology displaces workers in a layoff, relocation or termination. AB 1331 by Assemblymember Mark GonzÁlez Elhawary restricts certain workplace surveillance. California Federation of Labor Unions President Lorena Gonzalez praised the package as putting "guardrails on AI at work." KQED reported that CalChamber did not respond to a request for comment. Other Cost Drivers died before reaching the governor, including AB 2564 on litigation exposure for discount offers and AB 1018 on impact assessments for automated decision systems.
  
  For the workers' compensation community, the 2026 list included one claims measure. CalChamber tagged SB 632 by Senator Jesse ArreguÍn, which would have created presumptions of industrial injury for hospital employees providing direct patient care, and the bill did not advance. The year's significant comp changes, including the Subsequent Injuries Benefits Trust Fund reforms in SB 171, came instead through the state budget process and were not part of the agenda.
  
  The "Cost Driver" and "Cost Cutter" labels and the descriptions of each bill's effects are CalChamber's own advocacy positions. Supporters of the bills generally regard them as worker, consumer or public health protections, and the chamber's tallies count only bills that still carried its tags at the end of the session. Readers should consult CalChamber's Affordability Agenda bill list and the individual bills for complete details and final status.

• Blue Cross Says AI Coding Added $942 Million to Hospital Bills
  on October 8, 2026 at 7:22 AM

  Workers' compensation carriers and self-insured employers pay hospital bills under fee schedules built on the same diagnosis codes that group health insurers use, so a dispute now playing out between the nation's largest insurer federation and the hospital industry deserves close attention from claims and bill review professionals. On September 24, 2026, the Blue Cross Blue Shield Association (BCBSA) released a claims analysis concluding that hospitals' growing use of artificial intelligence to document and code inpatient stays has made patients look sicker on paper without any matching change in the care they received. As Fierce Healthcare reported, the association put the price of that shift at an estimated $942 million in added costs to Blue plans over 2024 and 2025, measured against a 2023 baseline.
  
  To follow the argument, it helps to understand how a hospital stay is priced. Most inpatient admissions are paid as a single lump sum determined by a diagnosis-related group, or DRG. Each DRG family typically comes in tiers. The same operation pays one amount for an uncomplicated patient, more if the record lists a "complication or comorbidity," and more still if it lists a "major" one. A single secondary diagnosis, such as anemia from blood loss, a low sodium level, or malnutrition, can move a stay up a tier and add thousands of dollars to the payment even though the surgery itself is unchanged.
  
  That is where the new software comes in. AI revenue cycle tools scan physician notes, laboratory results and other chart entries for conditions that qualify as secondary diagnoses, and ambient "scribe" products listen to patient encounters and draft the clinical note. Hospitals say these tools capture conditions that busy clinicians always treated but did not always write down. Insurers say they are finding billable diagnoses that made no difference to the patient's care.
  
  BCBSA's analysis, a short white paper covering claims from the first quarter of 2023 through the end of 2025, found that the share of inpatient cases billed to Blue plans as medically complex rose from 37 percent to 40 percent. About 70 percent of the increase came from more than 55,000 additional cases in which a secondary diagnosis pushed the claim into a higher-paying DRG. Those cases accounted for $653 million of the total, or roughly $11,000 per case. The paper used major bowel surgery as its example: claims in the highest severity tier climbed to 22.7 percent while uncomplicated cases fell from 36.6 percent to 32.8 percent.
  
  The association's central evidence is what it calls a disconnect between coding and treatment. Hospitals in the top quarter for growth in complex coding showed similar or lower rates of intensive care use, transfusion, reoperation and length of stay than their peers. For acute blood loss anemia, which BCBSA describes as a common "bump" code, the hospitals that diagnosed it most often actually transfused those patients less often, 16.9 percent compared with 19.3 percent elsewhere. Luke Chalker, the association's senior vice president of product and data science, told reporters the data showed "no change in corresponding care for a more complex patient." The September paper follows a March 2026 BCBSA and Blue Health Intelligence study that attributed about one-fifth of a 9 percent rise in per-member inpatient costs to coding intensity.
  
  Hospitals reject the conclusion. In an October 5 response, the American Hospital Association said patients today are older and more clinically complex and that AI tools help providers record their conditions accurately. "The question is whether the patient's medical record supports those diagnoses," two AHA policy executives wrote, noting that BCBSA reviewed claims rather than charts and did not identify which claims actually involved AI. The AHA made similar points in an August fact sheet, and in a statement to CNBC it criticized insurers for raising coding concerns while relying on their own automated downcoding and denial systems.
  
  The study's limits are real, and BCBSA concedes the main one. It relied on claims data, not medical records, so it cannot show that any particular diagnosis was unsupported. The link to AI rests on timing and on survey figures showing that most hospital systems now use AI somewhere in the revenue cycle, not on claims traced to specific software. The white paper is not peer reviewed, it names no hospitals, and it arrived during a period of difficult contract negotiations between plans and hospital systems. Independent researchers had nonetheless raised the same concern before the insurers did. A January 2026 viewpoint in JAMA Health Forum warned that ambient scribes marketed for their ability to capture more and more severe diagnoses could drive spending upward, and an April report from the Peterson Health Technology Institute described a payer-provider AI "arms race" that raises billing intensity without fixing underlying inefficiency.
  
  For workers' compensation payers the relevance is direct, even though the study examined commercial health claims and its examples were bowel surgery and, earlier, maternity care. California's Official Medical Fee Schedule prices inpatient hospital stays using Medicare's DRG system with a multiplier, as do the fee schedules of many other states. The DRG families that dominate comp inpatient spending, including spinal fusion, major joint replacement and fracture repair, are tiered by complications and comorbidities in the same way. Acute blood loss anemia, the code BCBSA singled out, is one of the diagnoses most frequently recorded after orthopedic surgery. A hospital that deploys AI coding software applies it to every payer's claims, not just those of Blue plans.
  
  That raises several practical points. First, bill review programs that validate only the fee schedule calculation will not catch severity drift, because a correctly priced DRG can still rest on a secondary diagnosis the record does not support. Clinical validation, which compares the coded diagnoses against the treatment actually delivered, is the test BCBSA applied in aggregate and the one payers can apply claim by claim. Second, any objection must still be made within the deadlines and explanation-of-review requirements of Labor Code § 4603.2, and unresolved payment disputes proceed through second review and independent bill review. Third, the issue cuts both ways. Applicants' attorneys and providers will point out that more complete documentation of comorbidities is legitimate and may bear on apportionment, causation and future medical needs, while defense counsel may question whether a newly charted secondary condition was ever clinically significant.
  
  Payers should also expect scrutiny of their own automation. According to an Orthopedics This Week commentary, Indiana now bars health plans from using an automated tool as the sole basis for downcoding a claim without reviewing the medical record, and lawmakers in California and several other states introduced downcoding bills this year. Those measures are aimed at health plans, but they signal where regulators are heading.
  
  BCBSA says further analyses are coming, including outpatient care and additional DRGs, and orthopedic and spine procedures are obvious candidates. The broader cost pressure is not in dispute. CNBC reported that benefits consultant Marsh projects employer health costs per employee will rise 8.2 percent in 2027. Whether AI-assisted coding represents accurate documentation finally catching up with reality or technology-enabled upcoding is a question the claims data alone cannot answer. For comp payers, the prudent step is to find out whether their bill review vendor tracks DRG severity mix over time and tests secondary diagnoses against the treatment record.

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