BILL ANALYSIS AB 648 Page 1 Date of Hearing: April 21, 2009 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Mary Hayashi, Chair AB 648 (Chesbro) - As Amended: April 15, 2009 SUBJECT : Rural hospitals: physician services. SUMMARY : Establishes a pilot project to permit certain rural hospitals to directly employ physicians and surgeons. Specifically, this bill : 1)Establishes the Rural Hospital Physician and Surgeon Services Demonstration Project, which permits a rural hospital to employ one or more physicians and surgeons, not to exceed 10 physicians and surgeons at one time, as specified, to provide medical services. 2)Permits the rural hospital to retain all or part of the income generated by the physician and surgeon for medical services billed and collected by the rural hospital, if the physician and surgeon approves the charges. 3)States that the total number of licensees employed by the rural hospital at one time shall not exceed 10, unless the employment of additional physicians and surgeons is deemed appropriate by the Medical Board of California (MBC) on a case-by-case basis. 4)Requires a rural hospital employing a physician and surgeon pursuant to develop and implement a written policy to ensure that each employed physician and surgeon exercises his or her independent medical judgment in providing care to patients. 5)Requires each physician and surgeon employed by a rural hospital to sign a statement biennially indicating that the physician and surgeon: a) Voluntarily desires to be employed by the hospital; b) Will exercise independent medical judgment in all matters relating to the provision of medical care to his or her patients; c) Will report immediately to the MBC any action or event AB 648 Page 2 that the physician and surgeon reasonably and in good faith believes constitutes a compromise of his or her independent medical judgment in providing care to patients in a rural hospital or other health care facility owned or operated by the rural hospital. 6)Requires a rural hospital to retain the signed statement for at least three years and submit a copy of the signed statement to the MBC within 10 working days after the statement is signed. 7)Prohibits a rural hospital from interfering with, controlling, or directing a physician's and surgeon's exercise of his or her independent medical judgment in providing medical care to patients. If the MBC believes that a rural hospital has violated this prohibition, the MBC shall refer the matter to the State Department of Public Health, which shall investigate the matter, as specified. 8)States that nothing in this chapter shall exempt a rural hospital from a reporting requirement or affect the authority of the board to take action against a physician's and surgeon's license. 9)Requires the MBC to deliver a report to the Legislature regarding the demonstration project no later than January 1, 2019. The report shall include an evaluation of the effectiveness of the demonstration project in improving access to health care in rural and medically underserved areas and the demonstration project's impact on consumer protection as it relates to intrusions into the practice of medicine. 10)Sunsets the project on January 1, 2020. 11)Makes Legislative findings and declarations. 12)Defines a "rural hospital" as: a) A general acute care hospital located in an area designated as nonurban by the United States Census Bureau; b) A general acute care hospital located in a rural-urban commuting area code of 4 or greater as designated by the United States Department of Agriculture; or AB 648 Page 3 c) A rural general acute care hospital, as defined in Health and Safety Code 1250(a). EXISTING LAW : 1)Prohibits corporations and other artificial legal entities from having any professional rights, privileges, or powers (known as the "prohibition against the corporate practice of medicine (CPM)"), and further provides that the Division of Licensing of the Medical Board of California (MBC) may, pursuant to regulations it has adopted, grant approval for the employment of physicians on a salaried basis by a licensed charitable institution, foundation, or clinic if no charge for professional services rendered to patients is made by that institution, foundation, or clinic. 2)Exempts medical or podiatry professional corporations organized and practicing pursuant to the Moscone-Knox Professional Corporations Act from the CPM prohibition, providing that a majority of the owners or shareholders of the corporation are licensed physicians or podiatrists, respectively. 3)Authorizes until January 1, 2011, a pilot project to allow qualified district hospitals, as defined, to employ a physician, if the hospital does not interfere with, control, or otherwise direct the professional judgment of the physician. To qualify for the project, a district hospital must: be in a county with population of 750,000 or less; have reported net losses in 2000-01; and, have at least 50% of combined patient days from Medicare, Medi-Cal and uninsured patients. FISCAL EFFECT : Unknown COMMENTS : Purpose of this bill . According to the author's office, "Due to an overall shortage of physicians, many California hospitals face significant obstacles attracting and retaining physicians. This situation is especially difficult in California's rural areas and this shortage limits access to health care for Californians in these communities. AB 646 improves access to health care in California's rural communities through legislation allowing rural hospitals to directly employ AB 648 Page 4 physicians and bill for their professional services." Background . The corporate practice of medicine (CPM) is typically referred to in the context of a prohibition, banning hospitals from employing physicians. CPM evolved in the early 20th century when mining companies had to hire physicians directly to provide care for their employees in remote areas. However, problems arose when physicians' loyalty to the mining companies conflicted with patients' needs. Eventually, physicians, courts, and legislatures prohibited CPM in an effort to preserve physicians' autonomy and improve patient care. There are 66 rural hospitals in California as defined by AB 648. The sponsors of this bill indicate that rural hospitals have a particularly difficult time attracting physicians, especially primary care practitioners, and would benefit from the ability to hire them directly as employees. There are varied reasons for the dearth of qualified individuals, but often the problem is that rural communities have a higher Medicare/Medicaid payer mix, and the resulting lower reimbursement rates make it difficult for physicians to maintain a practice. SB 326 (Chesbro) Chapter 411, Statutes of 2003, established a pilot project permitting district hospitals meeting specific requirements to hire and employ up to two physicians each, for a total of 20 physicians statewide, if the district hospital met the following conditions: operates in a county of 750,000 or less population; reported net operating losses in fiscal year 2000-01; and, has a patient base of at least 50% combined Medi-Cal, Medicare, and uninsured patients. SB 326 required the Medical Board of California to administer and evaluate the project prior to its sunset on January 1, 2011. In its 2008 report, the MBC stated that it was "challenged in evaluating the program and preparing this report because the low number of participants did not afford us sufficient information to prepare a valid analysis of the pilot. ?[W]hile the Board supports the ban on the corporate practice of medicine, it also believes there may be justification to extend the pilot so that a better evaluation can be made. "However, until there is sufficient data to perform a full AB 648 Page 5 analysis of an expanded pilot, the Board contends that the statutes governing the corporate practice of medicine should not be amended as a solution to solve the problem of access to healthcare." This bill proposes a new pilot for rural hospitals that would include a greater number of participating facilities and physicians, for a greater length of time, which should enable the MBC to do a more thorough analysis of the direct employment of physicians. Arguments in support . According to the sponsors, the California Hospital Association, "AB 648 would allow physicians who are willing to live and work in rural areas to focus on providing their patients with timely, quality medical care without the overwhelming burden of administrative, financial, and operational concerns associated with maintaining a medical practice." Arguments in opposition . The California Radiological Society writes, "We believe that the bar on the corporate practice of medicine and the ability of hospitals to employ physicians is an important public policy provision to ensure physician independence and the ability to practice in the patient's best interests. The difficulty in recruiting physicians in California is more likely result of declining reimbursement than whether the physician is an employee or independent contractor or member of a contracted group." Related legislation . AB 646 (Swanson) of 2009 would permit health care districts and certain public hospitals, independent community nonprofit hospitals, and clinics, as specified, to directly employ physicians and surgeons.. This bill is pending in the Assembly Business and Professions Committee. Prior legislation . AB 1944 (Swanson) of 2008 was a similar bill that would allow health care districts to employ a physician and surgeon. This bill died in Senate Health Committee. SB 1294 (Ducheny) of 2008 would have expanded the pilot project enabling HCDs to directly employ physicians. This bill failed passage in the Assembly Appropriations Committee. SB 1640 (Ashburn) of 2008 would have expanded the pilot project to enable general acute care hospitals to directly employ AB 648 Page 6 physicians. This bill failed passage in the Assembly Business and Professions Committee. Double referred . This bill is double-referred to the Assembly Health Committee. REGISTERED SUPPORT / OPPOSITION : Support California Hospital Association (sponsor) Fairchild Medical Center Kindred Hospital Mammoth Hospital Mercy Medical Center Redding Mountain Communities Healthcare District Mountains Community Hospital Regional Council of Rural Counties St. Elizabeth Community Hospital Sutter Amador Hospital Victor Valley Community Hospital One individual Opposition California Radiological Society One individual Analysis Prepared by : Sarah Huchel / B. & P. / (916) 319-3301