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.

California’s 2026 legislative session produced two enacted workers’ compensation measures that claims administrators, employers and practitioners will carry into 2027: a budget trailer bill that rewrites eligibility for the Subsequent Injuries Benefits Trust Fund (SIBTF) and makes the current reconsideration deadline permanent, and a short bill that keeps prepaid card indemnity payments available indefinitely. Several other closely watched proposals, including a permanent disability rate increase, did not reach the governor. The governor’s deadline to act on bills passed this year was September 30.

This report was compiled from the chaptered bill digests, the governor’s signing announcements and legislative tracking by the Commission on Health and Safety and Workers’ Compensation (CHSWC). The California Workers’ Compensation Institute has issued its own summary of the 2026 session as a Bulletin, which is available to CWCI members and subscribers through its Bulletins page.

The centerpiece is Senate Bill 171, a labor budget trailer bill approved by Governor Gavin Newsom on July 13, 2026 and chaptered as Chapter 83, Statutes of 2026. As a budget measure it took effect immediately. The Legislative Counsel’s digest explains that case law had treated a prior condition as “labor disabling” if it could have supported an award had it been industrial, without requiring any showing of lost earnings. SB 171 replaces that approach with a statutory definition: the impairment must have caused a loss of earnings, interfered with the employee’s work in their occupation, or otherwise had a demonstrable impact on the ability to work.

The bill also changes how the preexisting disability is proved. Its existence at the time of the later industrial injury must be shown by substantial evidence drawn from medical records, testimony and other evidence that already existed before that injury. In determining whether the subsequent injury meets the statutory threshold, the bill excludes any adjustment for future earning capacity or the corresponding adjustment factor. It sets a filing deadline for SIBTF claims of five years from the date of the subsequent injury or six months from the resolution of permanent disability in the underlying claim, whichever is later.

How the new rules apply to the existing backlog was the most contested question. The digest states that claims filed on or before July 1, 2020, and claims that had reached a specified procedural status on or before June 1, 2026, are exempt from the changes, and that those provisions become inoperative on July 1, 2031 and are repealed on January 1, 2032.

SB 171 makes administrative changes to the fund as well. The Director of Industrial Relations, as trustee of the SIBTF, replaces the State Compensation Insurance Fund as the entity that pays awards, and State Fund’s authority to reimburse itself for related costs is deleted. A Senate Republican Caucus summary of the enacted budget reports 13 million dollars and 57 positions to work down backlogged SIBTF claims. That is in line with the 12.7 million dollars and 57 positions the administration requested in January, a request that CHSWC’s June legislative update said would grow to 36.5 million dollars and 177 positions by fiscal year 2030-31.

The reforms respond to rapid growth in the program. A July 2025 report by the Legislative Analyst’s Office found a backlog of more than 25,000 claims and estimated lifetime benefit costs of 2 billion to 3 billion dollars for each annual cohort of claims, costs that are funded through assessments on employers.

The second major workers’ compensation provision in SB 171 concerns petitions for reconsideration under Labor Code § 5909. Since 2024, a petition has been deemed denied unless the Workers’ Compensation Appeals Board acts within 60 days of the date the trial judge transmits the case to the Board. That rule was scheduled to expire on July 1, 2026, when the clock would again have started on the date the petition was filed. SB 171 removes the sunset, so the transmission-based deadline is now permanent.

Two further provisions affect payers directly. Workers’ compensation surcharges and assessments must now be paid by electronic funds transfer, and the bill imposes a 10 percent penalty on late or unpaid amounts and on payments not made electronically, with the penalties deposited in the Workers’ Compensation Administration Revolving Fund. The bill also removes the Administrative Director of the Division of Workers’ Compensation from a statutory salary schedule.

The other enacted measure is Assembly Bill 1683, an Assembly Insurance Committee bill that the governor signed on July 6, 2026. Existing law allowed employers to deposit disability indemnity payments into prepaid card accounts only until January 1, 2027. AB 1683 extends that authorization indefinitely. CHSWC noted that the bill tracks the recommendation in its own report on prepaid card programs, approved in February. Because the bill is not an urgency measure, it takes effect January 1, 2027, the same day the prior authorization would have lapsed.

Several bills that drew attention during the session were not enacted. Senate Bill 555 would have raised the weekly earnings range used to compute permanent partial disability indemnity from the current 240 to 435 dollars to a range of 363 to 658 dollars for injuries on or after January 1, 2027. Its first Assembly committee hearing, set for June 24, was canceled at the author’s request and the bill did not advance. Assembly Bill 1576, a separate SIBTF reform vehicle, and Assembly Bill 1048, which would have required explanations of review to identify the contract behind a discounted payment and required physicians to sign requests for authorization, were both held in committee on August 13. CHSWC’s update lists two more as having missed legislative deadlines: Assembly Bill 2098, on leave for medical treatment during work hours, and Senate Bill 632, which would have created injury presumptions for hospital employees providing direct patient care.

The permanent disability question is likely to return. Business Insurance reported in July that the chief lobbyist for the California Coalition on Workers’ Compensation told the group’s conference that employers are preparing for negotiations in 2027 over permanent disability benefits, and will seek offsetting savings in areas such as cumulative trauma claims and medical-legal costs.

A divided California Court of Appeal has held, in an opinion certified for publication, that an employee can waive the right to avoid arbitration under the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA), 9 U.S.C. §§ 401–402. The majority found waiver where the employee knew of a sex-based harassment claim, held it back for tactical reasons while opposing arbitration on other grounds, and raised it only after the trial court had sent the case to arbitration. One justice dissented.

In this case DoorDash hired Andrew Chin in 2020. He took nine weeks of parental bonding leave in early 2023 and alleges that the company then retaliated against him: it denied him the same or a comparable position on his return, interfered with three further weeks of leave, and terminated him at the end of 2023. He also alleged that a superior repeatedly asked when he would take the rest of his leave. In February 2024 he sued in Los Angeles County Superior Court for violation of the California Family Rights Act, whistleblower retaliation, wrongful termination and unfair competition. The complaint contained no harassment claim.

DoorDash moved to compel arbitration under an agreement covering any dispute arising from Chin’s employment. Chin’s written opposition argued only that no valid agreement existed. It did not mention sexual harassment, an amended complaint, or the EFAA. At the May 28, 2024 hearing, after a tentative ruling against him, his counsel said that if arbitration were ordered Chin would ask for leave to add a sexual harassment claim to avoid arbitration under federal law. The court ordered the whole action to arbitration, stayed the suit, and declined to allow an amendment at that time. Chin’s writ petition was denied. In it he stated that he had left the harassment claim out of his complaint “for strategic purposes.”

Chin filed an arbitration demand in August 2024 and amended it in December 2024 to add a sex-based harassment claim under the Fair Employment and Housing Act (FEHA). He alleged that DoorDash encouraged women to take full parental leave while discouraging men through intimidation, ridicule and insults. The only specific incident alleged was the superior’s repeated questioning already described in the 2024 complaint. He then asked the arbitrator to return the matter to court under the EFAA, missed a ten-day window the arbitrator gave him to petition the superior court, and in April 2025 filed a second lawsuit pleading the harassment claim and seeking a declaration that the arbitration agreement was invalid as to both suits.

Three motions were heard in July 2025: Chin’s motion to consolidate the two suits, his motion to invalidate the arbitration agreement under the EFAA, and DoorDash’s motion to compel arbitration of the second suit. Judge Jon R. Takasugi said he was “not happy with the way this has gone” but believed the law required a ruling for Chin. He found that Chin had plausibly pleaded a sex-based harassment claim and had not waived the EFAA by asserting that claim in arbitration. He granted both of Chin’s motions, denied DoorDash’s, and so undid the earlier order compelling arbitration. The court did not address DoorDash’s argument that Chin’s conduct before that earlier order amounted to waiver. DoorDash appealed.

In the published case of Chin v. DoorDash, Inc., No. B348844 (October 2026), the Second Appellate District, Division Eight, reversed all three orders and remanded with instructions to grant DoorDash’s motion to compel arbitration. Justice Scherb wrote the majority opinion, joined by Justice Viramontes. Acting Presiding Justice Wiley dissented and would have affirmed. DoorDash was awarded its costs on appeal.

The majority started from the statutory text. The EFAA does not void arbitration agreements automatically. It applies at the election of the person alleging harassment, and nothing in it displaces the ordinary rule that statutory rights can be waived. Chin did not argue otherwise. Reviewing an undisputed record de novo, the court assumed that waiver had to be shown by clear and convincing evidence.

Waiver is the intentional relinquishment of a known right, and the majority explained that it can be implied from deliberate, tactical litigation conduct as well as from express words. It relied on California authority that grounds for resisting arbitration must be raised in court before the arbitration goes forward, citing Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 and Cummings v. Future Nissan (2005) 128 Cal.App.4th 321. A party who knows of such a ground and keeps it in reserve loses it.

Applying those principles, the majority found waiver on four points. Chin knew of the harassment claim in 2024, since the one specific incident he later relied on was already in his first complaint. He withheld it by his own account for strategic reasons, and conceded at oral argument that the fair inference was a plan to defeat the agreement entirely before turning to the EFAA. He opposed arbitration vigorously without invoking the statute, and his reference to “federal law” at the hearing came too late and explained nothing. He then waited almost a year to file the second suit. The majority also noted the cost of sending the parties back and forth between court and arbitration.

The majority treated the Ninth Circuit’s recent decision in Ding v. Structure Therapeutics, Inc. (9th Cir., Aug. 19, 2026, No. 25-1532) as supporting its result. Ding confirmed that EFAA rights may be waived under ordinary principles, but found no waiver where the plaintiff discovered her harassment claim during arbitration and invoked the statute as soon as she faced a motion to compel. The majority distinguished Quilala v. Securitas Security Services USA, Inc. (2025) 117 Cal.App.5th 75, where the complaint already pleaded harassment and the trial court raised the EFAA itself.

Chin’s remaining arguments were rejected. He could not avoid waiver by pointing out that no harassment claim had been pleaded before arbitration began, because withholding the claim was the deliberate choice that produced the waiver. His contention that trial counsel believed an amendment was barred once the motion to compel was filed had no support in the record. The court also declined to read the EFAA as a right to move between forums at will. Because the EFAA applies to an entire case, the waiver reached both the claims Chin pleaded and the one he withheld. The majority did not decide whether his allegations stated a harassment claim sufficient to trigger the statute.

In dissent, Justice Wiley agreed that the delay and expense were regrettable and said he would be sympathetic to sanctions requiring plaintiff’s counsel to reimburse the fees wasted. But he concluded that Chin never purposely gave up a court forum, since escaping arbitration was his aim throughout. In his words, “It looks more like a blunder,” and a miscalculation is not a waiver.

Melissa Washington began teaching first grade at the Alta Loma School District’s Stork Elementary on August 2, 2019. She was told in her interview that she was filling a new position created by a last-minute jump in enrollment, and the principal later testified to the same thing. When she arrived to sign her contract, however, it classified her as a temporary employee who could be terminated at any time. The human resources director told her that was just part of the process and that she would be reclassified as probationary later.

That did not happen. In each of the next two years, the principal told her that, because of uncertainty created by the COVID-19 pandemic, all returning temporary teachers would again receive only temporary contracts, with no exceptions. He apologized, and she was told she might even receive tenure the following year. Washington signed temporary contracts for the 2020–2021 and 2021–2022 school years. In March 2022, the District told her it would not offer her, or any of its temporary teachers, a contract for 2022–2023, citing lost pandemic-related funding and low enrollment. She applied for temporary positions the District advertised for the next year but was not hired.

In February 2023, Washington petitioned for a writ of mandate ordering the District to reinstate her as a permanent employee with an August 2, 2019 seniority date and to compensate her for lost pay and benefits. She argued she should have been classified as probationary for her first two years, which would have made her permanent by operation of law in her third.

The District defended the temporary classification on a single theory. It said Washington had been hired to fill in for two permanent teachers who shared one full-time position under a voluntary job-sharing arrangement, and that the job share was a grant of leave under Education Code § 44920. That section allows a district to hire a temporary teacher for up to a year when a certificated employee has been granted leave for a semester or year or is experiencing long-term illness.

The trial court found that Washington was not in fact hired to fill a vacancy created by the job share; she was hired because of increased enrollment. It nonetheless denied the petition. It agreed with the District that one of the job-sharing teachers was effectively on leave at any given time. Relying on District spreadsheets, it also found that the number of temporary teachers did not exceed the number of teachers on leave, counting job shares as leave. The court added that if it reached the issue, the District’s laches defense would be persuasive, because Washington waited until after her third year to sue.

In the published case of Washington v. Alta Loma School District, No. D088028 (October 2026). The Court of Appeal reversed and remanded with directions. The trial court must issue a writ of mandate ordering the District to reinstate Washington as a permanent employee with a seniority date of August 2, 2019. It must also hold further proceedings to determine her lost compensation. Washington recovers her costs on appeal.

The Court of Appeal began with the Education Code’s classification scheme. Certificated teachers fall into four categories: permanent, probationary, substitute, or temporary. Unless the Code specifically requires another classification, a teacher must be classified as probationary. That rule appears in Education Code § 44915 and was applied in Stockton Teachers Assn. CTA/NEA v. Stockton Unified School Dist. (2012) 204 Cal.App.4th 446. Under Balen v. Peralta Junior College Dist. (1974) 11 Cal.3d 821, the temporary and substitute classifications carry no statutory due process protections, so they must be strictly construed. Districts have no discretion to deviate from the statutory scheme.

Applying that strict construction, the court held for the first time that leave in § 44920 means a leave of absence, and that a voluntary job-sharing arrangement is not one. Because § 44920 does not define leave, the court read it together with related sections of the Education Code. Leaves of absence are addressed at length in the Code’s article on resignations, dismissals and leaves of absence. That article covers medical, parental, workers’ compensation, study, bereavement, and other leaves, but not job sharing. Reduced workloads instead fall under the separate employment article, where Education Code § 44922 lets districts allow teachers to reduce their workload from full-time to part-time.

The court found that the plain meaning of leave of absence points the same way. It implies a temporary absence with an intention to return to the same position. The District’s own collective bargaining agreement treats leaves of absence as holding the teacher’s place. Job-sharing teachers, by contrast, have no right to return to their prior position; they are restored to full-time work only if a position becomes available and no probationary or permanent teacher would be laid off. The court also rejected the District’s reliance on American Federation of Teachers v. Board of Education (1977) 77 Cal.App.3d 100. That case dealt with a teacher reassigned to a categorically funded program, not a job share. The Legislature later addressed that situation separately. And the American Federation court did not apply the strict construction Balen requires.

Because job shares do not count as leave, the trial court’s spreadsheet comparison also failed, since it treated job-share vacancies as leave. The appellate court therefore did not need to decide whether Washington was actually hired as the job-share placeholder.

The consequences followed directly from the Code. Washington defaulted to probationary status for her first two school years. The District never notified her by March 15 of her second year that she would not be reelected; instead, it rehired her. Under Education Code § 44929.21(b), she therefore became a permanent employee at the start of her third year. A permanent teacher can be dismissed only on statutory grounds and after an opportunity for a hearing, and the District followed none of those procedures. It thus had a clear, ministerial duty to reelect her for 2022–2023, which supports mandate relief and lost compensation under Code of Civil Procedure § 1095.