BILL NUMBER: SB 1907	CHAPTERED
	BILL TEXT

	CHAPTER  309
	FILED WITH SECRETARY OF STATE  AUGUST 28, 2002
	APPROVED BY GOVERNOR  AUGUST 28, 2002
	PASSED THE SENATE  AUGUST 14, 2002
	PASSED THE ASSEMBLY  AUGUST 12, 2002
	AMENDED IN ASSEMBLY  AUGUST 8, 2002
	AMENDED IN ASSEMBLY  JULY 3, 2002

INTRODUCED BY   Senator Murray

                        FEBRUARY 22, 2002

   An act to amend Section 650.02 of the Business and Professions
Code, and to amend Section 139.31 of the Labor Code, relating to
healing arts.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 1907, Murray.  Healing arts:  referrals.
   Existing law provides that it is a misdemeanor for a healing arts
licensee, including physicians and surgeons, psychologists,
acupuncturists, optometrists, dentists, podiatrists, and chiropractic
practitioners, to refer a person for certain health care services if
the licensee has a financial interest, as defined, with the person
or entity that receives the referral.  Existing law provides
specified exemptions from this prohibition.
   This bill would exempt from the prohibition a personal services
arrangement between a licensee or an immediate family member of a
licensee and the recipient of the referral if the arrangement meets
specified requirements and is set out in writing, the arrangement
specifies all services to be provided by the licensee, the term of
the arrangement is for at least one year, and the compensation to be
paid over the term of the arrangement is set in advance, does not
exceed fair market value, and is not determined in a manner that
takes into account the volume or value of any referrals or other
business generated between the parties.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 650.02 of the Business and Professions Code is
amended to read:
   650.02.  The prohibition of Section 650.01 shall not apply to or
restrict any of the following:
   (a) A licensee may refer a patient for a good or service otherwise
prohibited by subdivision (a) of Section 650.01 if the licensee's
regular practice is located where there is no alternative provider of
the service within either 25 miles or 40 minutes traveling time, via
the shortest route on a paved road.  If an alternative provider
commences furnishing the good or service for which a patient was
referred pursuant to this subdivision, the licensee shall cease
referrals under this subdivision within six months of the time at
which the licensee knew or should have known that the alternative
provider is furnishing the good or service.  A licensee who refers to
or seeks consultation from an organization in which the licensee has
a financial interest under this subdivision shall disclose this
interest to the patient or the patient's parents or legal guardian in
writing at the time of referral.
   (b) A licensee, when the licensee or his or her immediate family
has one or more of the following arrangements with another licensee,
a person, or an entity, is not prohibited from referring a patient to
the licensee, person, or entity because of the arrangement:
   (1) A loan between a licensee and the recipient of the referral,
if the loan has commercially reasonable terms, bears interest at the
prime rate or a higher rate that does not constitute usury, is
adequately secured, and the loan terms are not affected by either
party's referral of any person or the volume of services provided by
either party.
   (2) A lease of space or equipment between a licensee and the
recipient of the referral, if the lease is written, has commercially
reasonable terms, has a fixed periodic rent payment, has a term of
one year or more, and the lease payments are not affected by either
party's referral of any person or the volume of services provided by
either party.
   (3) Ownership of corporate investment securities, including
shares, bonds, or other debt instruments that may be purchased on
terms generally available to the public and that are traded on a
licensed securities exchange or NASDAQ, do not base profit
distributions or other transfers of value on the licensee's referral
of persons to the corporation, do not have a separate class or
accounting for any persons or for any licensees who may refer persons
to the corporation, and are in a corporation that had, at the end of
the corporation's most recent fiscal year, or on average during the
previous three fiscal years, stockholder equity exceeding
seventy-five million dollars ($75,000,000).
   (4) Ownership of shares in a regulated investment company as
defined in Section 851(a) of the federal Internal Revenue Code, if
the company had, at the end of the company's most recent fiscal year,
or on average during the previous three fiscal years, total assets
exceeding seventy-five million dollars ($75,000,000).
   (5) A one-time sale or transfer of a practice or property or other
financial interest between a licensee and the recipient of the
referral if the sale or transfer is for commercially reasonable terms
and the consideration is not affected by either party's referral of
any person or the volume of services provided by either party.
   (6) A personal services arrangement between a licensee or an
immediate family member of the licensee and the recipient of the
referral if the arrangement meets all of the following requirements:

   (A) It is set out in writing and is signed by the parties.
   (B) It specifies all of the services to be provided by the
licensee or an immediate family member of the licensee.
   (C) The aggregate services contracted for do not exceed those that
are reasonable and necessary for the legitimate business purposes of
the arrangement.
   (D) A person who is referred by a licensee or an immediate family
member of the licensee is informed in writing of the personal
services arrangement that includes information on where a person may
go to file a complaint against the licensee or the immediate family
member of the licensee.
   (E) The term of the arrangement is for at least one year.
   (F) The compensation to be paid over the term of the arrangement
is set in advance, does not exceed fair market value, and is not
determined in a manner that takes into account the volume or value of
any referrals or other business generated between the parties.
   (G) The services to be performed under the arrangement do not
involve the counseling or promotion of a business arrangement or
other activity that violates any state or federal law.
   (c) (1) A licensee may refer a person to a health facility, as
defined in Section 1250 of the Health and Safety Code, or to any
facility owned or leased by a health facility, if the recipient of
the referral does not compensate the licensee for the patient
referral, and any equipment lease arrangement between the licensee
and the referral recipient complies with the requirements of
paragraph (2) of subdivision (b).
   (2) Nothing shall preclude this subdivision from applying to a
licensee solely because the licensee has an ownership or leasehold
interest in an entire health facility or an entity that owns or
leases an entire health facility.
   (3) A licensee may refer a person to a health facility for any
service classified as an emergency under subdivision (a) or (b) of
Section 1317.1 of the Health and Safety Code.
   (4) A licensee may refer a person to any organization that owns or
leases a health facility licensed pursuant to subdivision (a), (b),
or (f) of Section 1250 of the Health and Safety Code if the licensee
is not compensated for the patient referral, the licensee does not
receive any payment from the recipient of the referral that is based
or determined on the number or value of any patient referrals, and
any equipment lease arrangement between the licensee and the referral
recipient complies with the requirements of paragraph (2) of
subdivision (b).  For purposes of this paragraph, the ownership may
be through stock or membership, and may be represented by a parent
holding company that solely owns or controls both the health facility
organization and the affiliated organization.
   (d) A licensee may refer a person to a nonprofit corporation that
provides physician services pursuant to subdivision (l) of Section
1206 of the Health and Safety Code if the nonprofit corporation is
controlled through membership by one or more health facilities or
health facility systems and the amount of compensation or other
transfer of funds from the health facility or nonprofit corporation
to the licensee is fixed annually, except for adjustments caused by
physicians joining or leaving the groups during the year, and is not
based on the number of persons utilizing goods or services specified
in Section 650.01.
   (e) A licensee compensated or employed by a university may refer a
person for a physician service, to any facility owned or operated by
the university, or to another licensee employed by the university,
provided that the facility or university does not compensate the
referring licensee for the patient referral.  In the case of a
facility that is totally or partially owned by an entity other than
the university, but that is staffed by university physicians, those
physicians may not refer patients to the facility if the facility
compensates the referring physicians for those referrals.
   (f) The prohibition of Section 650.01 shall not apply to any
service for a specific patient that is performed within, or goods
that are supplied by, a licensee's office, or the office of a group
practice.  Further, the provisions of Section 650.01 shall not alter,
limit, or expand a licensee's ability to deliver, or to direct or
supervise the delivery of, in-office goods or services according to
the laws, rules, and regulations governing his or her scope of
practice.
   (g) The prohibition of Section 650.01 shall not apply to cardiac
rehabilitation services provided by a licensee or by a suitably
trained individual under the direct or general supervision of a
licensee, if the services are provided to patients meeting the
criteria for Medicare reimbursement for the services.
   (h) The prohibition of Section 650.01 shall not apply if a
licensee is in the office of a group practice and refers a person for
services or goods specified in Section 650.01 to a multispecialty
clinic, as defined in subdivision (l) of Section 1206 of the Health
and Safety Code.
   (i) The prohibition of Section 650.01 shall not apply to health
care services provided to an enrollee of a health care service plan
licensed pursuant to the Knox-Keene Health Care Service Plan Act of
1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code).
   (j) The prohibition of Section 650.01 shall not apply to a request
by a pathologist for clinical diagnostic laboratory tests and
pathological examination services, a request by a radiologist for
diagnostic radiology services, or a request by a radiation oncologist
for radiation therapy if those services are furnished by, or under
the supervision of, the pathologist, radiologist, or radiation
oncologist pursuant to a consultation requested by another physician.

   (k) This section shall not apply to referrals for services that
are described in and covered by Sections 139.3 and 139.31 of the
Labor Code.
   (l) This section shall become operative on January 1, 1995.
  SEC. 2.  Section 139.31 of the Labor Code is amended to read:
   139.31.  The prohibition of Section 139.3 shall not apply to or
restrict any of the following:
   (a) A physician may refer a patient for a good or service
otherwise prohibited by subdivision (a) of Section 139.3 if the
physician's regular practice is where there is no alternative
provider of the service within either 25 miles or 40 minutes
traveling time, via the shortest route on a paved road.  A physician
who refers to, or seeks consultation from, an organization in which
the physician has a financial interest under this subdivision shall
disclose this interest to the patient or the patient's parents or
legal guardian in writing at the time of referral.
   (b) A physician who has one or more of the following arrangements
with another physician, a person, or an entity, is not prohibited
from referring a patient to the physician, person, or entity because
of the arrangement:
   (1) A loan between a physician and the recipient of the referral,
if the loan has commercially reasonable terms, bears interest at the
prime rate or a higher rate that does not constitute usury, is
adequately secured, and the loan terms are not affected by either
party's referral of any person or the volume of services provided by
either party.
   (2) A lease of space or equipment between a physician and the
recipient of the referral, if the lease is written, has commercially
reasonable terms, has a fixed periodic rent payment, has a term of
one year or more, and the lease payments are not affected by either
party's referral of any person or the volume of services provided by
either party.
   (3) A physician's ownership of corporate investment securities,
including shares, bonds, or other debt instruments that were
purchased on terms that are available to the general public through a
licensed securities exchange or NASDAQ, do not base profit
distributions or other transfers of value on the physician's referral
of persons to the corporation, do not have a separate class or
accounting for any persons or for any physicians who may refer
persons to the corporation, and are in a corporation that had, at the
end of the corporation's most recent fiscal year, total gross assets
exceeding one hundred million dollars ($100,000,000).
   (4) A personal services arrangement between a physician or an
immediate family member of the physician and the recipient of the
referral if the arrangement meets all of the following requirements:

   (A) It is set out in writing and is signed by the parties.
   (B) It specifies all of the services to be provided by the
physician or an immediate family member of the physician.
   (C) The aggregate services contracted for do not exceed those that
are reasonable and necessary for the legitimate business purposes of
the arrangement.
   (D) A written notice disclosing the existence of the personal
services arrangement and including information on where a person may
go to file a complaint against the licensee or the immediate family
member of the licensee, is provided to the following persons at the
time any services pursuant to the arrangement are first provided:
   (i) An injured worker who is referred by a licensee or an
immediate family member of the licensee.
   (ii) The injured worker's employer, if self-insured.
   (iii) The injured worker's employer's insurer, if insured.
   (iv) If the injured worker is known by the licensee or the
recipient of the referral to be represented, the injured worker's
attorney.
   (E) The term of the arrangement is for at least one year.
   (F) The compensation to be paid over the term of the arrangement
is set in advance, does not exceed fair market value, and is not
determined in a manner that takes into account the volume or value of
any referrals or other business generated between the parties,
except that if the services provided pursuant to the arrangement
include medical services provided under Division 4, compensation paid
for the services shall be subject to the official medical fee
schedule promulgated pursuant to Section 5307.1 or subject to any
contract authorized by Section 5307.11.
   (G) The services to be performed under the arrangement do not
involve the counseling or promotion of a business arrangement or
other activity that violates any state or federal law.
   (c) (1) A physician may refer a person to a health facility as
defined in Section 1250 of the Health and Safety Code, or to any
facility owned or leased by a health facility, if the recipient of
the referral does not compensate the physician for the patient
referral, and any equipment lease arrangement between the physician
and the referral recipient complies with the requirements of
paragraph (2) of subdivision (b).
   (2) Nothing shall preclude this subdivision from applying to a
physician solely because the physician has an ownership or leasehold
interest in an entire health facility or an entity that owns or
leases an entire health facility.
   (3) A physician may refer a person to a health facility for any
service classified as an emergency under subdivision (a) or (b) of
Section 1317.1 of the Health and Safety Code.  For nonemergency
outpatient diagnostic imaging services performed with equipment for
which, when new, has a commercial retail price of four hundred
thousand dollars ($400,000) or more, the referring physician shall
obtain a service preauthorization from the insurer, or self-insured
employer.  Any oral authorization shall be memorialized in writing
within five business days.
   (d) A physician compensated or employed by a university may refer
a person to any facility owned or operated by the university, or for
a physician service, to another physician employed by the university,
provided that the facility or university does not compensate the
referring physician for the patient referral.  For nonemergency
diagnostic imaging services performed with equipment that, when new,
has a commercial retail price of four hundred thousand dollars
($400,000) or more, the referring physician shall obtain a service
preauthorization from the insurer or self-insured employer.  An oral
authorization shall be memorialized in writing within five business
days.  In the case of a facility which is totally or partially owned
by an entity other than the university, but which is staffed by
university physicians, those physicians may not refer patients to the
facility if the facility compensates the referring physician for
those referrals.
   (e) The prohibition of Section 139.3 shall not apply to any
service for a specific patient that is performed within, or goods
that are supplied by, a physician's office, or the office of a group
practice.  Further, the provisions of Section 139.3 shall not alter,
limit, or expand a physician's ability to deliver, or to direct or
supervise the delivery of, in-office goods or services according to
the laws, rules, and regulations governing his or her scope of
practice.  With respect to diagnostic imaging services performed with
equipment that, when new, had a commercial retail price of four
hundred thousand dollars ($400,000) or more, or for physical therapy
services, or for psychometric testing that exceeds the routine
screening battery protocols, with a time limit of two to five hours,
established by the Industrial Medical Council, the referring
physician obtains a service preauthorization from the insurer or
self-insured employer.  Any oral authorization shall be memorialized
in writing within five business days.
   (f) The prohibition of Section 139.3 shall not apply where the
physician is in a group practice as defined in Section 139.3 and
refers a person for services specified in Section 139.3 to a
multispecialty clinic, as defined in subdivision (l) of Section 1206
of the Health and Safety Code.  For diagnostic imaging services
performed with equipment that, when new, had a commercial retail
price of four hundred thousand dollars ($400,000) or more, or
physical therapy services, or psychometric testing that exceeds the
routine screening battery protocols, with a time limit of two to five
hours, established by the Industrial Medical Council, performed at
the multispecialty facility, the referring physician shall obtain a
service preauthorization from the insurer or self-insured employer.
Any oral authorization shall be memorialized in writing within five
business days.
   (g) The requirement for preauthorization in Sections (c), (e), and
(f) shall not apply to a patient for whom the physician or group
accepts payment on a capitated risk basis.
   (h) The prohibition of Section 139.3 shall not apply to any
facility when used to provide health care services to an enrollee of
a health care service plan licensed pursuant to the Knox-Keene Health
Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section
1340) of Division 2 of the Health and Safety Code).