BILL ANALYSIS                                                                                                                                                                                                    

                                 SENATE HEALTH
                               COMMITTEE ANALYSIS
                        Senator Elaine K. Alquist, Chair

          BILL NO:       AB 278                                       
          AUTHOR:        Monning                                      
          AMENDED:       June 21, 2010                               
          HEARING DATE:  June 30, 2010                                
              Health information exchange: demonstration projects


          Authorizes the California Office of Health Information  
          Integrity (CalOHII) to establish and administer  
          demonstration projects to evaluate potential solutions to  
          facilitate health information exchange (HIE), as specified.  
           Authorizes California-based health care entities, as  
          defined, to submit an application with CalOHII to be  
          approved as demonstration project participants, as defined.  
           Authorizes CalOHII to approve up to four demonstration  
          projects annually.  Requires any costs associated with the  
          support, assistance, and evaluation of approved  
          demonstration projects to be funded exclusively by federal  
          funds or other non-General Fund sources.  Repeals the  
          provisions of the bill on the date the Director of CalOHII  
          executes a declaration stating that the grant period for  
          the State Cooperative Grant Agreement for HIE has ended.

                             CHANGES TO EXISTING LAW  

          Existing federal law:
          Establishes the Health Information Technology for Economic  
          and Clinical Health Act (HITECH Act), within the federal  
          American Recovery and Reinvestment Act of 2009 (ARRA), to,  
          among other things, provide funding related to health  


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          information technology (HIT) and HIE, including funding to  
          states to establish HIE and to local communities to conduct  
          health information exchange demonstration projects. 
          Existing state law:
          Establishes CalOHII within the California Health and Human  
          Services Agency (Agency) to ensure enforcement of state law  
          mandating confidentiality of medical information, and to  
          impose administrative fines for the unauthorized use of  
          medical information.

          Authorizes the Agency, or one of the departments under its  
          jurisdiction, to apply for federal funds made available  
          through ARRA for health information technology and  

          Requires Agency or a state-designated entity to facilitate  
          and expand the use of electronic health information  
          according to nationally recognized standards and  
          specifications, and execute tasks related to accessing ARRA  
          funds while protecting the privacy and confidentiality of  
          medical records to the greatest extent possible. 

          This bill:
          Authorizes the Agency, through CalOHII, to establish and  
          administer demonstration projects, as defined, to evaluate  
          potential solutions to facilitate HIE that promote quality  
          of care, respect the privacy and security of personal  
          health information, and enhance the trust of the  

          Defines "demonstration project" as a project approved and  
          administered by CalOHII in accordance to this division and  
          the State Cooperative Grant Agreement for health  
          information exchange, or any other similar grant or grants.

          Defines "State Cooperative Agreement" as the grant  
          agreement between the federal government and the state, in  
          which the federal government awarded the state with grant  
          money pursuant to the HITECH Act in February 2010.

          Authorizes California-based health care entities, as  
          defined, to submit an application to CalOHII to be approved  
          as a demonstration project participant, as defined.


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          Defines "California-based health care entity" as a health  
          care entity based primarily in California.

          Defines "demonstration project participant" as a  
          California-based health care entity that is approved by  
          CalOHII to participate in a demonstration project.

          Requires CalOHII, upon receiving a demonstration project  
          application, to: 1) assist applicants in soliciting federal  
          funds for the demonstration project; and, 2) work with  
          applicants to define the scope of the demonstration  

          Authorizes the Director of CalOHII to approve demonstration  
          projects to test for, but not limited to, the following  
          areas:  1) patient consent and informing policies and  
          practices; 2) new technologies and applications that enable  
          the transmission of protected health information, as  
          specified; and, 3) implementation issues encountered by  
          small solo health care providers as a result of higher  
          privacy and security requirements.

          Requires that the selection of demonstration projects be  
          based on, but not limited to, the following criteria:  1)  
          areas critical to building consumer trust and confidence in  
          the HIE system; 2) projects that help support the exchange  
          of information critical to meeting the federal meaningful  
          use provisions, as defined; and, 3) areas recommended by  
          the California HIE consumer and industry stakeholder  
          advisory process.

          Defines "meaningful use" to mean the term as defined in the  
          HITECH Act, and in regulations promulgated under the HITECH  

          Requires CalOHII to engage with stakeholders to evaluate  
          issues identified by the demonstration projects, comment  
          upon proposed regulations, and discuss HIE solutions.
          Authorizes CalOHII to administer up to four demonstration  
          projects a year.

          Requires CalOHII to work collaboratively with approved  
          demonstration project participants to identify a set of  
          common data elements that will be used to collect, analyze,  
          and measure performance.


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          Authorizes the Director of CalOHII to adopt regulations to  
          ensure all approved HIE service participants, as defined,  
          and demonstration project participants follow rules, and  
          work within parameters, that are consistent for the  
          exchange of information.

          Defines "health information exchange service participants"  
          as a California-based health care entity that has  
          voluntarily agreed to use the HIE services developed in  
          accordance with this bill.

          Exempts adoption of, and changes to, such regulations from  
          provisions in existing law related to procedures for public  
          participation, the review of proposed regulations by the  
          Office of Administrative Law (OAL), and filing and  
          publication requirements that specify an effective date  
          that is 30 days after the date of filing with the Secretary  
          of State.

          Requires the Director of CalOHII to file any regulation  
          adopted pursuant to this bill with OAL, for filing with the  
          Secretary of State and publication in the California Code  
          of Regulations.  Requires such filings to cite the  
          appropriate section of this bill and any other applicable  
          state or federal laws.

          Requires CalOHII, prior to adopting a regulation or  
          changing an existing regulation pursuant to this bill, to  
          adopt the standards requiring CalOHII to: 1) post the  
          proposed regulation on its website at least 45 days prior  
          to adoption; 2) accept public comments for at least 30 days  
          after the proposed regulation has been posted online; and,  
          3) hold a hearing prior to adoption of the regulation if a  
          member of the public requests a public hearing during the  
          30-day review period.

          Specifies that any regulation adopted shall become  
          effective on the date it is filed with the Secretary of  
          State unless the director prescribes a later date in the  
          regulation, or in a written instrument filed with the  

          Requires regulations adopted to expire upon repeal of the  
          authorizing statute.


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          Requires CalOHII to receive reports from demonstration  
          project participants on the outcome of the demonstration  
          project no later than 60 days after the end of the project.  

          Requires CalOHII to review the results of the demonstration  
          projects and report to the Legislature no later than six  
          months after the end of the project.

          Specifies that demonstration projects carried out utilizing  
          federal grant funds may be subject to federal auditing  

          Requires costs associated with the support, assistance and  
          evaluation of approved demonstration projects to be funded  
          exclusively by federal funds or other non-General Fund  
          Repeals the provisions of the bill on the date the Director  
          of CalOHII executes a declaration stating that the grant  
          period for the State Cooperative Grant Agreement for HIE  
          has ended.

          Makes various legislative findings and declarations.

                                  FISCAL IMPACT  

          This bill has not been analyzed by a fiscal committee.

                            BACKGROUND AND DISCUSSION  

          According to the author, current state privacy laws, while  
          extensive, are problematic when it comes to electronic HIE.  
           For example, current state law does not specifically  
          address widespread HIE, which results in ambiguity of some  
          state rules in an electronic environment.  Additionally,  
          the current health privacy framework is built upon an  
          interaction of state and federal requirements, and it is  
          not easily determined which requirements apply.  Last of  
          all, no agency or office at the state level is authorized  
          to establish requirements, or interpret California medical  
          privacy law, when it is applied to health information  
          exchanged electronically.

          The author points out that the imminent implementation of  


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          widespread HIE systems has raised many new issues among  
          stakeholders with strong and often opposing viewpoints.   
          While these issues generate strong and often opposing  
          viewpoints, there is growing consensus on two points:  1)  
          electronic HIE is such a new area that it raises new  
          privacy issues on which there is very little empirical  
          information that can alter the debate; and, 2)  
          demonstration projects can provide valuable new insights  
          into these complex issues and can help lead to resolution  
          on issues.

          According to the author, providing explicit legislative  
          authority for the demonstration projects will allow the  
          Director of CalOHII to issue specific and standardized  
          requirements to participants in approved demonstration  
          projects.  This authority will ensure a uniform application  
          of the laws, thus providing health care entities that  
          participate in the approved demonstrations guidance to  
          minimize the risk of practices that may be inconsistent  
          with state medical privacy law.  Additionally, this  
          authority will help CalOHII harmonize state and federal law  
          wherever possible to support the demonstration.  

          The author believes that these demonstration projects will  
          supply the state with the tools to identify successful and  
          problematic rules, gaps in state law, and inform state  
          policymakers of potential viable solutions to enabling safe  
          and secure exchange of personal health information.   
          According to the author, the future policy recommendations  
          informed by these demonstration projects will be critical  
          to the successful implementation of HIE in California.
          Health information exchange
          Realizing the benefits of HIT requires a pervasive  
          underlying infrastructure that supports the use of  
          patient-focused electronic health information.  This  
          requires wide-scale systemic, state and nationwide  
          infrastructure that incorporates protections for patient  
          privacy and confidentiality.  The building blocks for this  
          infrastructure include electronic medical records (EMRs)  
          used by providers to manage patient information, personal  
          health records (PHRs) for individual access of their own  
          records, and health information exchange (HIE) to  
          facilitate the electronic exchange of EMRs and PHRs.  


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          HIE is the capability to electronically move health  
          information among disparate health care information systems  
          while maintaining the meaning of the information being  
          exchanged.  In many instances, HIE is used to describe both  
          the process of exchanging health information  
          electronically, and the entity overseeing and governing the  
          exchange.  The goal of HIE is to facilitate access to, and  
          retrieval of, clinical data to provide safer, more timely,  
          efficient, effective, equitable, patient-centered care.  
          HIE Readiness and Extent of HIE Adoption in California
          According to Agency's HIE strategic plan, health care  
          services are delivered to Californians through 400  
          hospitals, over 60,000 active physicians, 100 federally  
          qualified health centers and 263 rural health clinics.   
          Nationally, it is estimated that only 7.6 percent of  
          non-federal hospitals and 13 percent of ambulatory  
          providers have implemented "basic" EMRs that include  
          certain clinical documentation, but not clinical decision  
          support.  California providers rank above the national  
          estimate with 20 percent of medical groups and 13 percent  
          of physician groups estimated to be using EMRs.  Similarly,  
          among individual physicians, California physicians reported  
          greater use of EMRs than the national average, with 37  
          percent of physicians reporting EMR use in comparison to 28  
          percent nationally.  This uptake may, in part, be explained  
          by the presence of large medical practices (10 or more  
          physicians) in California, as 57 percent of physicians in  
          large practices report using EMRs, compared to 25 percent  
          of physicians in small/medium practices and 13 percent of  
          solo practitioners.  However, two-thirds of physicians work  
          in small and solo practices. Virtually all Kaiser  
          Permanente physicians now use EMRs.

          California's health care safety-net facilities and  
          providers in underserved communities generally face  
          significant fiscal and resource challenges, and these  
          challenges impact their ability to implement EMRs. While  
          less than a third of community clinics report they are  
          actively pursuing EMRs, the majority of community clinics  
          have some form of health IT in place, most commonly in the  
          form of diabetes and immunization registries.

          California's current HIE efforts fall broadly into two  
          categories: 1) large health systems, affiliated providers  


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          and ancillary services implementing integrated EMRs, and,  
          2) community-driven efforts that aim to ensure ubiquitous  
          availability of data within a region or across the state.  
          Community HIE Efforts 
          California's HIE activity is characterized by a wide range  
          of local initiatives that have remained largely  
          independent. There are over 20 self-characterized HIEs  
          throughout the state with informal jurisdictions largely  
          based on a regional or geographic boundary. The efforts are  
          predominantly overseen by Boards of Directors comprised of  
          local stakeholders, health care leaders, and  
          representatives of organizations who are, or plan to be,  
          participating in the HIE.  Community HIE efforts have  
          historically been driven and motivated by the perceived  
          health care needs of their local communities. These efforts  
          are often closely linked with the predominant provider  
          organizations in the community who pay special attention to  
          the community's unique health needs (e.g. diabetes,  
          behavioral health, etc.).  While community HIE efforts  
          often share a common mission to improve health care in  
          their communities through HIE and health IT, the efforts do  
          not all share a common technical approach and are in  
          various stages of technical development.  

          Efforts in integrated health systems and in organized  
          provider groups
          Several of California's integrated health systems currently  
          exchange data between and among their affiliated physicians  
          and hospitals. Many of these systems have multiple  
          locations and facilities spread across Northern and  
          Southern California, with some systems extending into  
          neighboring states.  While many of these systems offer a  
          suite of HIT applications and modalities to their  
          hospital-based clinicians, health systems vary in their  
          provision of HIT outside of the hospital walls.  Over the  
          past decade, these health systems have made significant  
          investments in their HIT infrastructure and staff.  While  
          technical approaches and vendors vary among health systems,  
          all of the health systems follow national standards and  
          many participate in technical workgroups at the state and  
          national levels.  Today health systems vary in their  
          interactions with and participation in community HIE  
          efforts, ranging from no involvement to participation in  
          collaborative activities.  Health systems largely operate  


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          as closed networks and their information will largely  
          remain proprietary and locked within those networks unless  
          addressed through statewide collaboration.

          Of California's approximately 400 IPAs and medical groups,  
          as many as 70 have begun to implement an EMR infrastructure  
          and adoption program.  With few exceptions, EMR adoption  
          has been incremental with only a portion of an IPA or  
          medical group's affiliated physicians fully operational on  
          a system.

          The Health Information Technology for Economic and Clinical  
          Health Act 
          On February 17, 2009, President Barack Obama signed the  
          federal economic stimulus bill, ARRA, which includes more  
          than $36 billion for HIT and HIE over the next several  
          years.  The majority of these funds ($34 billion) are  
          incentive payments that will go to Medicaid and Medicare  
          providers who are able to demonstrate "meaningful use" of  
          HIT.  California is expected to receive more than $3  
          billion in provider incentive payments.  In addition, ARRA  
          provides $2 billion in discretionary funding for HIT  
          promotion, including $564 million in planning and  
          implementation grants of which California was awarded,  
          beginning in fiscal year 2009-2010, to establish statewide  

          Under this grant, the state is required to coordinate, plan  
          and implement an HIT and HIE program that enables health  
          care providers to be able to share electronic health  
          records, when appropriate, in order to improve treatment  
          and health care outcomes.   In addition to this grant  
          funding, the federal government expects to make incentive  
          payments to health care providers who convert to electronic  
          records and demonstrate they can use the electronic record  
          in a meaningful manner.  California expects to begin  
          capturing between $2 and $3 billion dollars in provider  
          incentive funds beginning in 2011.  This infrastructure is  
          a critical piece necessary for California's health care  
          providers to be able to capture the full amount of  
          incentive payments over the next four years.
          In addition to the State HIE Cooperative Grants, HITECH  
          also provides for the following grants:


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                 Beacon Community Cooperative Grants to local  
               communities to build and strengthen their HIT  
               infrastructure and exchange capabilities, including  
               strong privacy and security measures for data  
               exchange, so they can demonstrate the vision of the  
               future where hospitals, clinicians and patients are  
               meaningful users of health IT.  The goal of these  
               grants is to develop models for communities to achieve  
               measurable improvements in health care quality,  
               safety, efficiency, and population health.  A total of  
               $220 million in federal funding is available, with  
               each community chosen expected to receive $10-20  

                 HIT Technology and Infrastructure Research Grants  
               to researchers focused on solving current and expected  
               future challenges that represent barriers to adoption  
               and meaningful use of HIT, through the proliferation  
               of new methods and advanced technologies.  These  
               projects focus on areas where "breakthrough" advances  
               are needed.  A total of $60 million is available.
          Privacy and security in the context of HIE
          Both federal and state law currently regulates medical and  
          health privacy and security. The electronic health  
          information capabilities raise new consumer privacy and  
          provider liability concerns that existing laws were never  
          originally created to address.  Failure to effectively  
          address these critical concerns could lead to poor consumer  
          and vendor participation into newly created systems, costly  
          legal conflicts, and a regression back to inefficient and  
          costly paper based information systems.  In order for the  
          state to develop a privacy and security framework that can  
          effectively support the transition to electronic health  
          information exchange the state must identify and address  
          necessary changes in state privacy and security laws.  

          The California Office of Health Information Integrity
          CalOHII, also known as the California Office of HIPAA  
          Implementation (CalOHI), oversees a number of vital state  
          functions related to medical information privacy.  Among  
          its duties, CalOHI is responsible for overseeing the  
          federal HIT infrastructure grants, including the federal  
          HIE grant, and serves as the primary resource for state  
          entities on health information privacy and the  


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          implementation of federal HIPAA regulations.  

          CalOHII is also responsible for working with a wide  
          spectrum of health care stakeholders including  
          representatives from the health care industry, consumers,  
          and privacy and security advocates to develop new privacy  
          and security standards to enable the adoption and  
          application of health information exchange in California.  

          In addition, CalOHII is working on a number of HIT issues  
          on behalf of the state, including the expansion of  
                                        broadband throughout California, the implementation of  
          telehealth, and support to the Health Information  
          Technology Financing study.

          Arguments in support
          The California Office of Health Information Integrity  
          writes in support, stating that AB 278 would test policies  
          and rules, and better inform the state and health care  
          stakeholders while they attempt to define HIE  
          infrastructure over the next several years.  By allowing  
          for various HIE demonstration projects, it would be  
          possible to determine how best to protect privacy in  
          accordance with state and federal laws, while enabling  
          electronic health information exchange.  
          Related bills
          SB 337 (Alquist), Chapter 180, Statutes of 2009, among  
          other things, authorizes the Agency to apply for federal  
          health information technology and health information  
          exchange grants.  

          Prior legislation
          AB 211 (Jones) Chapter 602, Statutes of 2008, establishes  
          OHII to ensure the enforcement of state confidentiality of  
          medical information, to impose administrative fines for the  
          unauthorized use of medical information upon referral from  
          DPH, and require providers of health care to establish and  
          implement appropriate administrative, technical, and  
          physical safeguards to protect the privacy of patient's  
          medical information.

          SB 320 (Alquist) of 2007 would have required the California  
          Office of HIPAA Implementation, in consultation with the  
          others, to develop a plan for implementation of the  
          California Health Care Information Infrastructure Program  


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          no later than March 1, 2009, that would seek to provide the  
          opportunity for every resident of the state to have an  
          electronic health record. Vetoed by the Governor.

          SB 1338 (Alquist) of 2006 would have required the Agency,  
          in conjunction with certain other state departments, to  
          develop a strategic plan to foster the adoption of HIT.  
          This plan would have included, among other provisions, HIT  
          standards and identified incentives to promote the use of  
          electronic health records (EMRs) and personal health  
          records. Held in the Assembly Appropriations Committee.
          SB 1672 (Maldonado) of 2006 would have required the  
          California Health Facilities Financing Authority to  
          establish a low-interest loan program to provide financing  
          for the purchase of health care information technology  
          systems to participating health care institutions,  
          providers, and provider organizations, as specified. Held  
          in the Senate Appropriations Committee.
          AB 1672 (Nation, Richman) of 2005, in an early version,  
          would have established deadlines for various health care  
          entities to adopt EMRs, provided enhanced Medi-Cal  
          reimbursement for EMR adoption, and provided state funding  
          to promote HIT development. These provisions were amended  
          out of the bill. 

                                  PRIOR ACTIONS

           No longer applicable.

          1. Health information exchange is a new, complex, and  
          rapidly evolving area.  The use of electronic systems to  
          manage and share health information is a new phenomenon in  
          the health care industry, even though the technology itself  
          is not new.  Due to the sensitive nature of personal health  
          information and the portable nature of electronic records,  
          new concerns regarding privacy and security have emerged  
          that were not applicable with paper records.  The ability  
          to test new models and technologies may provide state  
          policymakers the necessary information to make informed  
          choices regarding the necessary changes to current state  
          laws related to medical privacy.


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          2. Suggested technical amendments:

                 (a)     On page 3, line 33, before the period,  

                  , including issues related to access to, and  
                  storage of, individual health information.
                (b)     On page  4  ,  after "parameters" and before the  
                  comma, insert  :

                   as defined by the office  
                (c)     On page 5, delete line 32 and replace with:

                  (1) Policies and practices related to patient  
                  consent, informing, and notification.
                (d)     On page 5, line 38, after "Implementation  
                  issues" insert:

                  , if any,
          Support:  California Office of Health Information Integrity  

          Oppose:  None received

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