BILL ANALYSIS Senate Committee on Labor and Industrial Relations Richard Alarcon, Chair Date of Hearing: April 23, 2003 2003-2004 Regular Session Consultant: Liberty Reiter Sanchez Fiscal:No Urgency:No Bill No: SB 899 Author: Poochigian Amended: April 21, 2003 Subject: Workers' compensation: physician referral Purpose: To prohibit a physician from referring a person for outpatient surgery purposes if the physician or his or her immediate family has a financial interest with the person or in the entity that receives the referral. Analysis: Existing law: Prohibits a physician from referring a person for specified medical and medical-legal purposes if the physician or his or her immediate family, have a financial interest with the person or in the entity that receives the referral. Defines physician, for the purposes of workers' compensation to mean, physicians and surgeons, psychologists, acupuncturists, optometrists, dentists, podiatrists and chiropractic practitioners licensed by California state law. This Bill , prohibits physicians from referring patients to outpatient surgery centers when they or a family member have a financial interest in such referral and defines outpatient surgery to include (1) any procedure preformed on an outpatient basis in the operating rooms, ambulatory surgery rooms, endoscopy units, cardiac catherization laboratories, or other sections of a freestanding ambulatory surgery clinic; and, (2) the ambulatory surgery itself. Comments: Medical costs in California's workers' compensation system are estimated to be 50-100% higher than in group-health systems. Since the inception of outpatient surgical centers, there has been a shift from inpatient to outpatient admissions. Due to the fact that inpatient hospitals have a facility fee schedule and outpatient clinics do not, the outpatient model has moved from cost-containment to cost-driver. Many procedures that could, and some think should, be performed in a doctor's office are now preformed on an outpatient basis. Outpatient surgical costs are estimated to be 60% of total hospital costs in workers' compensation. For 2004, workers' compensation total incurred costs are estimated to be $3 billion and outpatient costs are estimated to be $1.8 billion. Outpatient facility costs are approximately 15% of total workers' compensation medical costs. 1. Proponents : The author contends that when the ban against self-referral was first implemented, it was estimated to save the workers' compensation system hundreds of millions of dollars a year. Unfortunately, the loophole in current law which enables physicians to self-refer to out-patient surgery centers, when combined with the dramatic increase in patient admissions on an out-patient basis, and a lack of any cost controls in the out-patient arena, is leading to over-utilization. The California Chamber of Commerce, the sponsors of this bill, assert that this is one of many steps necessary to rein in the high cost of workers' compensation insurance premiums. 2. Opponents : Hearing Date: April 23, 2003 SB 899 Consultant: Liberty Reiter Sanchez Page 2 Senate Committee on Labor and Industrial Relations The California Applicants' Attorneys Association opposes this bill because it "pursues an oversimplified and piecemeal approach that is restricted to the single area of physician self referrals to outpatient facilities," in place of ongoing comprehensive efforts to address the complex range of medical cost issues. 3. Related Legislation : SB 354 (Speier), currently pending before the Senate Labor and Industrial Relations Committee, contains a similar provision to this bill. Support: California Chamber of Commerce (Sponsor) Agricultural Council of California -Support in Concept CA Agricultural Aircraft Association -Support in Concept CA Assoc. of Nurseries & Garden Centers -Support in Concept CA Beer and Beverage Distributors -Support in Concept CA Citrus Mutual -Support in Concept Ca Cotton Ginners Association -Support in Concept CA Farm Bureau Federation -Support in Concept CA Fig Institute -Support in Concept CA Grocers Association -Support in Concept CA Lodging Industry Association -Support in Concept CA Plant Health Association -Support in Concept CA Restaurant Association -Support in Concept CA State Association of Counties -Support in Concept CA Women for Agriculture -Support in Concept California Apartment Association California Association for Health Services at Home California Association of Joint Powers Authorities California Association of Sheet Metal and Air Conditioning Contractors Natl Association California Manufacturers and Technology Association League of California Cities -Support in Concept Milk Producers Council -Support in Concept Nat'l Federation of Independent Business -Support in Hearing Date: April 23, 2003 SB 899 Consultant: Liberty Reiter Sanchez Page 3 Senate Committee on Labor and Industrial Relations Concept Murrieta Chamber of Commerce Tulare Chamber of Commerce Western Growers Association -Support in Concept Opposition: California Applicants' Attorneys Association * * * Hearing Date: April 23, 2003 SB 899 Consultant: Liberty Reiter Sanchez Page 4 Senate Committee on Labor and Industrial Relations