BILL ANALYSIS
AB 648
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, 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
(physicians). Specifically, this bill :
1)Establishes the Rural Hospital Physician and Surgeon Services
Demonstration Project (demonstration project), which permits a
rural hospital to employ one or more physicians, not to exceed
ten physicians 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 for medical services billed and
collected by the rural hospital, if the physician approves the
charges.
3)States that the total number of licensees employed by the
rural hospital at one time shall not exceed ten, unless the
employment of additional physicians is deemed appropriate by
the Medical Board of California (MBC) on a case-by-case basis.
4)Requires a rural hospital employing a physician to develop and
implement a written policy to ensure that each employed
physician exercises his or her independent medical judgment in
providing care to patients.
5)Requires each physician employed by a rural hospital to sign a
statement biennially indicating that the physician:
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; and,
c) Will report immediately to MBC any action or event that
the physician 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
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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 MBC within ten working days after the statement is signed.
7)Prohibits a rural hospital from interfering with, controlling,
or directing a physician's exercise of his or her independent
medical judgment in providing medical care to patients.
Requires, if MBC believes that a rural hospital has violated
this prohibition, MBC to refer the matter to the State
Department of Public Health (DPH), and requires DPH to
investigate the matter, as specified.
8)States that nothing in this bill exempts a rural hospital from
a reporting requirement or affects the authority of MBC to
take action against a physician's license.
9)Requires MBC to deliver a report to the Legislature regarding
the demonstration project no later than January 1, 2019, and
requires the report to 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 four or greater as designated by the
United States Department of Agriculture; or,
c) A rural general acute care hospital, as defined based on
existing hospital peer groupings.
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
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Licensing of MBC may, pursuant to regulations MBC 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)Provides certain additional exceptions to the prohibition
against CPM, including:
a) Clinics operated primarily for the purpose of medical
education by a public or private nonprofit university
medical school, to charge for professional services
rendered to teaching patients by licensed physicians who
hold academic appointments on the faculty of the
university, if the charges are approved by the physician in
whose name the charges are made;
a) Certain nonprofit clinics organized and operated
exclusively for scientific and charitable purposes, that
have been conducting research since before 1982, and that
meet other specified requirements, to employ physicians and
charge for professional services. Prohibits, however,
these clinics from interfering with, controlling, or
otherwise directing a physician's professional judgment in
a manner prohibited by the CPM prohibition or any other
provision of law;
b) A narcotic treatment program regulated by the Department
of Alcohol and Drug Programs to employ physicians and
charge for professional services rendered by those
physicians. Prohibits, however, the narcotic clinic from
interfering with, controlling, or otherwise directing a
physician's professional judgment in a manner that is
prohibited by the CPM prohibition or any other provision of
law;
c) Under the Knox-Keene Health Care Service Plan Act of
1975 (Knox-Keene), authorizes licensed health care service
plans to employ or contract with health care professionals,
including physicians, to deliver professional services, and
requires health plans to demonstrate that medical decisions
are rendered by qualified medical providers unhindered by
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fiscal and administrative management. Provides in
regulation that the organization of a health plan must
include separation of medical services from fiscal and
administrative management; and,
a) In the Medi-Cal program, permits hospitals that submit
claims for hospital inpatient psychiatric services under
contract with Medi-Cal managed care plans to receive
reimbursement on a per diem basis for an array of services,
including a mental health professional's daily visit fee.
4)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 : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author's office, this
bill is necessary due to an overall shortage of physicians, so
that many California hospitals face significant obstacles
attracting and retaining physicians. The author states that
the situation is especially difficult in California's rural
areas, and the physician shortage limits access to health care
for Californians in these communities. The author states that
this bill will improve access to health care in California's
rural communities by allowing rural hospitals to directly
employ physicians and bill for their professional services.
2)BACKGROUND . The CPM prohibition is also sometimes referred to
as the CPM doctrine, ban, or bar. According to a 1991 report
by the United States Department of Health and Human Services
Office of Inspector General (OIG) entitled "State Prohibitions
on Hospital Employment of Physicians," state laws prohibiting
hospitals and other non-medical corporations from employing
physicians derive from laws requiring that individuals must be
licensed to practice medicine. In some states, including
California, judicial decisions dating back to the 1930's have
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interpreted these laws to preclude hospitals, with some
exceptions, from employing physicians for the purpose of
practicing medicine. According to OIG, the rationale for the
prohibition on employment of physicians is based on the
potential for conflict between a physician's loyalty to the
patient and the financial interests of the corporation that
would employ the physician. OIG also reported that opponents
of the CPM bar contend that it is a vestige of an earlier era
and that in the current health care system hospitals need
authority to control all aspects of health care delivery and
personnel within their walls, including medical care.
According to OIG, only five states: California; Colorado;
Iowa; Ohio; and, Texas, clearly prohibit hospitals from
employing physicians and even in these states, as in
California, certain types of hospitals and providers are
exempt from the bar. In practice, states with CPM bars,
including California, permit professional service or medical
corporations to practice medicine, but only if controlled by
physicians.
According to MBC, current California law generally prohibits
corporations or other entities that are not controlled by
physicians from practicing medicine, to ensure that lay
persons are not controlling or influencing the professional
judgment and practice of medicine by physicians. California's
CPM bar is the result of statute, judicial decisions, and
Attorney General (AG) opinions over several decades. For
example, the statute exempts from the CPM bar the clinics of
teaching hospitals and California, and courts subsequently
held that the CPM bar does not apply to state university
medical schools and hospitals, specifically including
hospitals operated by the University of California, and that
counties are generally exempt from the CPM bar. A 1975 AG
opinion (58 Ops.Cal.Atty.Gen. 291) found that licensed
community clinics may lawfully employ physicians, including
those community clinics which are a subsidiary of a parent
hospital organization, if specific conditions are met. In
1996, the California Court of Appeals held that hospital
districts may not have physician employees.
3)CALIFORNIA RESEARCH BUREAU REPORT . According to an October
2007 California Research Bureau (CRB) report, "The Corporate
Practice of Medicine Doctrine," the CPM bar 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'
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loyalty to the mining companies conflicted with patients'
needs. Eventually, physicians, courts, and legislatures
prohibited CPM in an effort to preserve physician autonomy and
improve patient care. The CRB report states that, over the
years, various state and federal statutes have substantially
weakened the CPM bar. One example cited by CRB is the
exemption from the CPM bar for health maintenance
organizations (HMOs) in the 1973 federal HMO Act. California
subsequently provided the same type of exemption under
Knox-Keene, the state licensing law governing HMOs and other
similar health plans. The CRB report further states,
"Corporate managed organizations now dominate the health care
environment, and even physicians who are not employed by them
are likely to provide services for them." CRB noted that
California prohibits hospital employment of physicians, but
provides for several notable exemptions in addition to HMOs,
including teaching hospitals, certain community clinics,
narcotic treatment programs, and some non-profit organizations
to employ physicians. CRB suggested that the exemptions to
CPM have effectively circumvented the CPM doctrine. According
to CRB, the American Medical Association (AMA), historically
the driving force behind the CPM prohibition, no longer views
physician employment as a violation of medical ethics and has
removed the doctrine from its ethical code. CRB found no
research examining the effects of the CPM bar on health care
quality or costs. CRB concluded that: "The evolution and
erosion of the CPM prohibition over many decades has resulted
in a doctrine that is far removed from its origin and lacks
coherence and relevance in today's health care landscape."
4)MBC PILOT PROJECT . 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 twenty physicians
statewide, if the district hospital met the following
conditions:
a) Operates in a county of 750,000 or less population;
b) Reported net operating losses in fiscal year 2000-01;
and,
c)Has a patient base of at least 50% combined Medi-Cal,
Medicare, and uninsured patients.
SB 326 required the Medical Board of California (MBC) to
administer and evaluate the project prior to its sunset on
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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 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 health care."
5)PHYSICIAN SHORTAGE . The University of California's Final
Report of the Advisory Council on Future Growth in the Health
Professions indicates that California will face a shortage of
nearly 17,000 doctors by 2015. The January 2007 California
Medical Association (CMA) informational brochure, "Doctors in
California," states that, the average age of physicians in
rural and underserved urban communities is approaching 60,
with many of these physicians planning to retire within the
next two years.
6)SUPPORT . According to the sponsors of this bill, the
California Hospital Association (CHA), this bill 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. CHA reports that rural
hospitals face significant obstacles attracting and retaining
physicians, in part because the higher Medicare and Medi-Cal
payer mix leads to lower reimbursement for physicians. In
addition, CHA states that rural communities have higher
numbers of low-income, uninsured, and older patients making it
very difficult for physicians to generate sufficient income to
sustain a successful rural practice. CHA contends that, if
hospitals had the ability to directly hire physicians they
would be able to provide the economic incentives to attract
and retain physicians and to increase access to quality care
for rural residents.
7)OPPOSITION . The California Radiological Society (CRS) writes
in opposition that the bar on CPM and the ability of hospitals
to employ physicians is an important public policy provision
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to ensure physician independence and the ability to practice
in the patient's best interests. CRS states that the
difficulty in recruiting physicians in California is more
likely the result of declining reimbursement than whether the
physician is an employee or independent contractor or member
of a contracted group. CMA writes in opposition to this bill
that the bar against CPM has been in place in California since
1938 and has been protected by the courts and the legislature
since. CMA contends that the bar provides a fundamental
protection for patients by ensuring the physicians' sole
interest is what is best for the patient. CMA argues that
when hospitals are allowed to directly employ and charge for
physician services, quality of care suffers due to the fact
that hospitals derive income from patient beds being filled.
CMA further argues that hospital employment of physicians
eliminates competition for outpatient services and instead
forces all care to be delivered through the hospital.
According to CMA, as hospitals gain market share in small
communities, physicians not employed will likely be forced out
of business. CMA argues that this results in increased costs,
as the hospital is able to negotiate higher rates from third
party payers for both physician and hospital services.
8)RELATED LEGISLATION .
a) 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. AB 646 is
pending in the Assembly Health Committee.
b) SB 726 (Ashburn) of 2009, pending in the Senate, would
revise and extend the MBC pilot project that allows
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.
9)PRIOR LEGISLATION .
a) AB 1944 (Swanson) of 2008 was similar to this bill and
would have allowed health care districts to employ a
physician and surgeon. AB 1944 died in Senate Health
Committee.
b) SB 1294 (Ducheny) of 2008 would have expanded the pilot
project enabling health care districts to directly employ
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physicians. SB 1294 failed passage in the Assembly
Appropriations Committee.
c) SB 1640 (Ashburn) of 2008 would have expanded the pilot
project to enable general acute care hospitals to directly
employ physicians. SB 1640 failed passage in the Assembly
Business and Professions Committee.
DOUBLE REFERRAL . This bill is double-referred; it was heard in
Assembly Business and Professions Committee on April 21, 2009
and was passed on a vote of 9-0.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hospital Association (sponsor)
Adventist Health
Amador County Commission on Aging
Banner Lassen Medical Center
Barton HealthCare System
California Commission on Aging
Catalina Island Medical Center
Coalinga Regional Medical Center
County of Amador Board of Supervisors
County of Fresno Board of Supervisors
Enloe Medical Center
Fairchild Medical Center
Kindred Hospital
Mammoth Hospital
Marshall Medical Center
Mee Memorial Hospital
Memorial Hospital Los Banos
Mendocino County District Hospital
Mercy Medical Center Mt. Shasta
Mercy Medical Center Redding
Mercy San Juan Medical Center
Mountain Communities Healthcare District
Mountains Community Hospital
Regional Council of Rural Counties
St. Elizabeth Community Hospital
Sutter Amador Hospital
Victor Valley Community Hospital
Seven Presidents and/or CEOs of Hospitals
One individual
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Opposition
California Medical Association
California Radiological Society
One individual
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097