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  








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               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









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             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  








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          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  








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          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  








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          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