BILL ANALYSIS                                                                                                                                                                                                    







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        |Hearing Date:July 6, 2009          |Bill No:AB                         |
        |                                   |648                                |
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                      SENATE COMMITTEE ON BUSINESS, PROFESSIONS 
                               AND ECONOMIC DEVELOPMENT
                         Senator Gloria Negrete McLeod, Chair

                         Bill No:        AB 648Author:Chesbro
                        As Amended:May 28, 2009  Fiscal:    Yes

        
        SUBJECT:   Rural hospitals: physician services.

        SUMMARY:  Establishes a demonstration project to permit rural  
        hospitals, as defined, whose service area includes a medically  
        underserved or federally designated shortage area and which meet  
        certain specified requirements, to directly employ physicians and  
        surgeons.  Provides that the total number of licensees employed shall  
        not exceed 10, unless the Medical Board of California (MBC) makes a  
        determination that additional physicians and surgeons is deemed  
        appropriate.  Requires documentation and statements regarding the  
        ability of physicians and surgeons to exercise his or her independent  
        medical judgment in providing care to patients.  Requires a report to  
        be completed by MBC regarding the project and submitted to the  
        Legislature by June 1, 2019.

         NOTE  :  This measure is before the Committee for reconsideration.   
        This measure failed passage in Committee by a vote of 4-4 on June  
        29, 2009.

        Existing law:

   1)Prohibits corporations and other artificial legal entities which are  
          not owned by physicians from having any professional rights,  
          privileges, or powers (known as the "prohibition against the  
          corporate practice of medicine.")  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 and surgeons on a salary 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.





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   2)Exempts medical or podiatry professional corporations organized and  
          practicing pursuant to the Moscone-Knox Professional  
          Corporations Act (Corporations Codes Sections 13400 et seq.) and  
          requires a majority of the owners or shareholders of the  
          corporation to be licensed physicians and surgeons or  
          podiatrists, respectively.

        3)Exempts the following clinics from the prohibition against the  
          corporate practice of medicine:

           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 and surgeons who  
             hold academic appointments on the faculty of the university  
             if the charges are approved by the physician and surgeon in  
             whose name the charges are made.

           b)   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  
             surgeons and charge for professional services.  Prohibits,  
             however, these clinics from interfering with, controlling, or  
             otherwise directing a physician's and surgeon's professional  
             judgment in a manner prohibited by the corporate practice of  
             medicine prohibition or any other provision of law.

           c)   A narcotic treatment program regulated by the Department  
             of Alcohol and Drug Programs to employ physicians and  
             surgeons and charge for professional services rendered by  
             those physicians and surgeons.  Prohibits the narcotic clinic  
             from interfering with, controlling, or otherwise directing a  
             physician's and surgeon's professional judgment in a manner  
             that is prohibited by the corporate practice of medicine  
             prohibition or any other provision of law.

        4)Finds and declares that a large number of communities are having  
          great difficulty recruiting and retaining physicians and  
          surgeons and that in order to provide the medically necessary  
          services in rural and medically underserved communities that  
          many district hospitals have no other alternative than to  
          directly employ physicians and surgeons in order to provide  
          economic security adequate for them to relocate and reside  
          within their communities.





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        5)Establishes a  pilot   project  that allows district hospitals that  
          are owned and operated by a health care district, as defined, to  
          employ physicians and surgeons and charge for professional  
          services rendered by those physicians and surgeons,  
          notwithstanding the general prohibition against the practice of  
          medicine by corporations or other artificial legal entities that  
          are not professional medical corporations controlled by licensed  
          physicians and surgeons. 

        6)Defines a qualified district hospital for purposes of the pilot  
          project as one governed pursuant to the Local Health Care  
          District Law; provides a percentage of care to Medicare,  
          Medi-Cal and uninsured patients, as specified, and is located in  
          a county with a total population of less than 750,000.

        7)Prohibits district hospitals under the pilot project from  
          interfering with, controlling, or otherwise directing a  
          physician's and surgeon's professional judgment in a manner that  
          is prohibited by the corporate practice of medicine prohibition  
          or any other provision of law.

        8)Allows qualified district hospitals under the pilot project to  
          provide for the direct employment of a total of 20 physicians  
          and surgeons and specifies that each qualified district hospital  
          may employ up to 2 physicians and surgeons.

        9)Requires MBC to report to the Legislature no later than October  
          8, 2008, on the effectiveness of the pilot project.

        10)Sunsets this  pilot project on January 1, 2011.

        11)Defines a general acute care hospital as a health facility  
          having a duly constituted governing body with overall  
          administrative and professional responsibility and an organized  
          medical staff that provides 24-hour inpatient care, including  
          the following basic services: medical, nursing, surgical,  
          anesthesia, laboratory, radiology, pharmacy, and dietary  
          services.

        12)Establishes under federal law criteria for the designation of  
          Medically Underserved Areas (MUAs) and Medically Underserved  
          Populations (MUPs).  MUAs and MUPs  identify areas or  
          populations with a shortage of health care services.   
          Documentation of medically underserved is based on four factors:  
          health care provider to population ratio; infant mortality rate;  





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          percentage of population below 100% of the federal poverty rate;  
          and percentage of population aged 65 or over.

        This bill:

        1)Makes findings and declarations that many hospitals in the state are  
          having great difficulty recruiting and retaining physicians and that  
          there is a shortage of physicians in communities across California,  
          particularly in rural areas, and this shortage limits access to  
          health care for Californians in these communities states that  
          allowing rural hospitals to directly employ physicians will allow  
          rural hospitals to provide economic security adequate for a  
          physician to relocate and reside in the communities service by the  
          rural hospitals and will help rural hospitals recruit physicians to  
          provide medically necessary services in these communities, it will  
          also provide physicians with the opportunity to focus on the  
          delivery of health services to patients without the burden of  
          administrative, financial, and operational concerns associated with  
          the establishment and maintenance of medical office, thereby giving  
          physicians a reasonable professional and personal lifestyle.

        2)Defines a "rural hospital" as : 

           a)   A general acute care hospital located in an area designated as  
             non-urban 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.

           c)   A rural general acute care hospital, as defined in Health and  
             Safety Code 1250(a).

        3)Establishes the Rural Hospital Physician and Surgeon Services  
          Demonstration Project, which permits a rural hospital whose service  
          area includes an MUA, an MUP, or that has been federally designated  
          as an HPSA, to employ one or more physicians and surgeon, not to  
          exceed 10 physicians and surgeons at one time, as specified, to  
          provide medical services.

        4)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 physicians and surgeon  
          approves the charges.







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        5)Permits a rural hospital to participate in the program if:

           a)   The rural hospital can document that it has been unsuccessful  
             in recruiting one or more primary care or specialty physicians  
             for at least 12 continuous months beginning July 1, 2008;  and,

           b)   The chief executive officer of the rural hospital certifies to  
             MBC that the inability to recruit primary care or specialty  
             physicians has negatively impacted patient care in the community  
             and that there is a critical unmet need in the community, based  
             on a number of factors, including, but not limited to, the number  
             of patients referred for care outside the community, the number  
             of patients who experienced delays in treatment, and the length  
             of the treatment delays.

        6)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 MBC on a  
          case-by-case basis.

        7)Requires a rural hospital employing a physician and surgeon pursuant  
          to this project tol 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.

        8)Requires each physician and surgeon employed by a rural hospital to  
          sign a statement biennially indicating that the physicians and  
          surgeons:

           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 this or her  
             patients.

           c)   Will report immediately to MBC any action or event 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.

        9)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 10 working days after the statement is signed.






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        10)Prohibits a rural hospital from interfering with, controlling, or  
          directing a physician's and surgeon's exercise of his or her  
          independent judgment in providing medical care to patients, and if  
          MBC believes that a rural hospital has violated this prohibition,  
          MBC shall refer the matter to the State Department of Public Health,  
          which shall investigate the matter, as specified.

        11)States that nothing shall exempt a rural hospital from a reporting  
          requirement or affect the authority of MBC to take action against a  
          physician's and surgeon's license.

        12)Requires MBC to 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 related to intrusions into the  
          practice of medicine.

        13)Sunsets the demonstration project on January 1, 2020.

        FISCAL EFFECT:  The Assembly Appropriations Committee analysis dated  
        May 20, 2009, indicates that there are no direct fiscal impacts to MBC  
        to continue the oversight of physicians in California, the  
        demonstration project, the Corporate Practice of Medicine prohibitions  
        and exceptions, and to complete the report to the Legislature at the  
        end of the 10-year period. 
        
        COMMENTS:
        
        1.Purpose.  The  California Hospital Association  is the Sponsor of this  
          measure.  According to the Sponsor, the supply of physicians in  
          California estimated from the MBC data is 17 percent lower than that  
          estimated from the American Medical Association (AMA) Physician  
          Masterfile data.  Of the active physicians in California, primary  
          care physicians represent 20 percent fewer than the national  
          standard estimated from AMA data.  The number of primary care  
          physicians practicing in California is at the bottom end of the  
          range of estimated needs and the supply of physicians is poorly  
          distributed within 42 counties, primarily in rural areas, falling  
          below the needed estimate.  In addition to the low supply of  
          physicians, the Author indicates that rural counties are also facing  
          the additional problem of an aging physician primary care workforce,  
          and significant difficulty recruiting and retaining younger  
          physicians.   This situation limits access to health care for  
          Californians in these rural communities.  





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        The Sponsor argues that California is currently only one of five  
          states in the nation which prohibits hospitals from directly  
          employing physicians.  The other states are Colorado, Iowa, Ohio and  
          Texas.  There is already an exception in California allowing  
          University of California and public hospitals to directly hire  
          physicians.

        The Sponsor further states that California's rural hospitals face  
          significant obstacles attracting and retaining physicians.  The  
          reasons are varied but often include the higher Medicare/Medi-Cal  
          payer mix in rural communities with the accompanying lower  
          reimbursements.  Rural areas tend to have higher proportions of  
          low-income, uninsured and older patients.  Hence, primary care  
          physicians and specialists cannot generate sufficient income to  
          sustain a rural practice.  The Sponsor contends that if rural  
          hospitals had the ability to directly hire physicians, they could  
          provide the economic incentive to attract and retain these  
          physicians resulting in increased access to quality health care  
          services for millions of rural residents.
         
      2.Background.  

           a)   Rural Hospitals and Rural Health Care in California.  The 69  
             state and federally designated rural hospitals in California  
             serve the health needs of 17% of California's residents who live  
             in rural areas.  There are 42 out of 58 counties with rural  
             hospitals and hospitals vary in size with a range of 4 to 186  
             beds with the majority of hospitals having less than 44 beds.   
             They not only provide health care, but often serve as the largest  
             employer in the region impacting both the health care industry  
             and the local economy.  The rural health care system in  
             California serves more than 800,000 patients in their emergency  
             rooms each year and provides almost 1 million acute and  
             skilled-nursing be days a year to rural communities.  Rural  
             hospitals are greatly dependent on Medicare and Medicaid  
             reimbursements due to their patient demographics.  Medicaid  
             reimbursements in California are the lowest in the United States  
             (25% less than the national average).  Therefore rural hospitals  
             are not able to afford operating costs as they are not reimbursed  
             properly for care given.  Additionally, the payer mix in rural  
             communities is suboptimal for the financial success of rural  
             hospitals.  The patient bases of rural hospitals tend to be  
             covered by Medi-Cal, Medicare or are uninsured.  They are missing  
             a high rate of private and employer based plans which would  
             normally make up for some of the losses with increases in  





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             Medi-Cal and uninsured patients.  Due to these challenges, 6  
             hospitals have closed in the past 4 years and 75% of remaining  
             hospitals have had to reduce the range of their services.

           In addition to the economic stress of inadequate reimbursement and  
             California's budget crisis, the state is also experiencing issues  
             related to physician workforce recruitment in rural areas.  While  
             the number of physicians per 100,000 population has increased,  
             there is a wide geographic and demographic distribution of  
             physicians.  Specifically, there is a maldistribution of both  
             specialists and primary care physicians in rural areas.   

           b)   Corporate Practice of Medicine (CPM) Ban.  The law regarding  
             the corporate practice of medicine 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 licensed physicians and surgeons.   
             California codifies this prohibition in Business and Professions  
             Code Sections 2400, et seq.  A study done by the  California  
             Research Bureau  (CRB) in October of 2007, indicates, however,  
             that although the CPM prohibition has an historical and legal  
             basis, most states today, including California, allow a number of  
             exemptions including those for health maintenance organizations,  
             professional medical corporations, teaching hospitals and certain  
             community clinics and non-profit organizations.  The CRB calls  
             into question the utility of the CPM doctrine and whether it  
             makes sense in light of the statutes and regulations that  
             directly address concerns raised by the doctrine regarding  
             employment of physicians and surgeons and because of today's  
             changing health care landscape.

           In 2008,  Meritt, Hawkins & Associates  (MHA) put out a report  
             entitled, 2008 Review of Physician and CRNA Recruiting  
             Incentives, and indicated that physician recruiting today is  
             characterized by a strong demand for physicians in most  
             specialties, coupled with a limited supply, "The nation continues  
             to face a physician shortage," and that a recruiting pattern that  
             has become apparent over the last three years is an increasing  
             number of hospitals that are employing physicians.  The new trend  
             toward hospital employment of physicians, according to MHA, is  
             different from the 1990's when physicians approached hospitals  
             about employment opportunities rather than the reverse.  Many  
             physicians, specialists in particular, are seeking hospital  
             employment to relieve them of the stress of high malpractice  
             rates, the struggle for reimbursement, administrative duties and  





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             the general risks and hassles of private practice.  Hospital  
             employment is viewed favorably by many physicians today and, in  
             their experience, hospitals offering employed positions may enjoy  
             an advantage over those that do not.  MHA further states that  
             laws pertaining to physician recruitment can create scenarios  
             where it is more practical for hospitals to employ physicians  
             than to assist them in establishing independent practices.    
             Employing physicians also represents one way that hospitals can  
             address the issue of physician/hospital competition that may  
             arise when physicians open their own specialty hospitals or  
             surgery centers. 

           c)   Shortage of Qualified Physicians in California.  According to  
             a June 2009 report by the  California HealthCare Foundation   
             entitled, Fewer and More Specialized:  A New Assessment of  
             Physician Supply in California, the overall supply of physicians  
             in the state is lower than previous estimates; actually 17  
             percent lower than estimated by the American Medical Association.  
              The number of primary care physicians actively practicing in  
             California is also at or below the estimated needs.  There are  
             only approximately 59 primary care physicians in active patient  
             care per 100,000 population, when the needed estimate is at least  
             80.  Only 16 of California's 58 counties are close to the needed  
             estimate of primary care physicians.  However, it was found that  
             there is an abundance of specialists practicing in the state,  
             with 115 per 100,000 population, but again only half the counties  
             are above the estimated need for specialists. Finally, rural  
             counties suffer from low physician practice rates, and from a  
             diminishing supply of primary care physicians, and future erosion  
             of the supply of physicians to these disadvantaged communities is  
             texpected.  One of the primary steps recommended for policymakers  
             to take is to increase the number of primary care physicians  
             needed in this state, especially in communities of need, and to  
             provide greater financial incentives, especially in underserved  
             areas. 

           A report prepared by the  National Health Foundation for the  
             California Hospital Association  titled, Physician Workforce  
             Shortage Issues in California Rural Hospitals, found that:  
           (1) Rural hospitals do not have sufficient physician coverage;  
             specifically specialists and primary care physicians; (2) Rural  
             location and the lack of spousal job opportunities deter  
             physicians from practicing in rural areas; (3) Access to health  
             care in the community is diminished due to the lack of adequate  
             physician coverage; (4) In California, reimbursement from  
             Medi-Cal is not adequate to cover patient care and the payer mix  





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             and population size in rural communities cannot support a  
             specialists' practice; (5) Competition in the form of large  
             medical groups and urban opportunities divert physicians from  
             rural areas; (6) Rural hospitals use creative approaches to  
             recruit and retain physicians.  
           (7) The inability for rural hospitals to employ physicians serves  
             as a barrier and roadblock that deters physicians from practicing  
             in rural areas. 

           A January 2007 report by the  Advisory Council on Future Growth in  
             the Health Professions  , from the Office of Health Affairs of the  
             University of California, titled, A Compelling Case for Growth,  
             indicated that organization including the American Medical  
             Association, Council on Graduate Medical Education, Association  
             of American Medical Colleges, American College of Physicians, and  
             the U.S. Bureau of Health Professions have predicted an impending  
             shortage of U.S. physicians.  In California, two studies issued  
             in 2004 project statewide shortages and severe unmet regional  
             needs within a decade.  One of these studies projects a statewide  
             shortage of nearly 17,000 doctors (15.9 percent) by 2015.   

           In January 2007, the  California Medical Association  (CMA) also  
             stated in a fact sheet that in the next two decades California's  
             population is projected to increase by 10 million people.  By  
             2030 the number of seniors will double, and 1 in 6 Californians  
             will be over 65 years old.  As people age, their demand for  
             physician services increases.  This increasing need for doctors,  
             an aging physicians workforce, changing physician practice  
             patterns, and inadequate medical education capacity suggest that  
             California and the nation will see significant doctor shortages  
             in the near future.  Also, CMA indicated that most California  
             counties have so few physicians that they are classified as HPSAs  
             and that roughly two-thirds of HPSAs are in rural areas, and the  
             remaining third are in very urban areas.
           According to an October 2006 report by the U.S. Department of  
             Health and Human Services, entitled, Physician Supply and Demand:  
              Projections to 2020, was estimated that approximately 7,000  
             additional primary care physicians are currently needed in  
             underserved areas to federally-designated shortage areas, and  
             that there will likely be little change in market pressure to  
             improve the undersupply of primary care physicians in rural and  
             other underserved communities.  It is estimated that between 2005  
             and 2020, demand for primary and non-primary care physicians will  
             grow faster than supply, as well as for individual physician  
             specialities.  






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           According to a 2001 report by the  Center for Health Professions   
             entitled The Practice of Medicine in California: A Profile of the  
             Physician Workforce, Californians face substantially unequal  
             access to physicians, depending on geography.  The report points  
             out that the ratio of total physicians to population ranged from  
             a high of 238 physicians per 100,000 population in the Bay Area  
             to a low of 120 physicians per 100,000 population in the South  
             Valley/Sierra. Regions within the state's largest metropolitan  
             areas (Bay Area and Los Angeles) have the most robust supplies of  
             physicians, with physicians even more likely than the general  
             population to choose these urban areas. Three regions composed of  
             a mix of rural areas and small- to medium- sized metropolitan  
             areas (Central Valley/Sierra, Inland Empire and South  
             Valley/Sierra) have the lowest amount of physicians.
           
           d)   MBC Report to the Legislature on the Effectiveness of the  
             Pilot Project.   SB 376  (Chesbro) Chapter 411, Statutes of 2003,  
             which established the pilot project allowing hospitals that are  
             owned and operated by a health care district to employ 20  
             physicians and surgeons and charge for professional services  
             rendered by those physicians, required  MBC to report to the  
             Legislature no later than October 1, 2008 on the evaluation of  
             the effectiveness of the pilot project in improving access to  
             health care in rural and MUAs and the project's impact on  
             consumer protection as it relates to intrusions into the practice  
             of medicine.  In the report, MBC estimated that a total of 20  
             physician participants were needed to conduct a valid analysis of  
             the project.  Only six physicians were hired by eligible  
             hospitals.  Further, MBC had difficulty gathering information  
             from the participants on the success of the plan.  Only three of  
             the five participating hospitals and five of the six  
             participating doctors responded to MBC's inquires.  MBC stated  
             that it regrets the lack of participation in the project.

           According to the report, MBC held discussions with numerous  
             interested parties, even beyond those participating in the  
             project and found widespread concern over the lack of physicians  
             in rural areas.  MBC stated that due to the "limited extent" of  
             participation, it was unable to fully evaluate the project.  In  
             the report, MBC stated that it does not support the complete  
             removal of the limitations on the corporate practice of medicine,  
             but concluded that there may be justification to continue the  
             project.  MBC stated that it might be appropriate to expand the  
             pilot project to allow more hospitals to participate; but until  
             more information is available it does not recommend amending the  
             statues that govern the corporate practice of medicine.





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           e)   Prior Legislation.    SB 1640  (Ashburn, 2008) which is  
             substantially similar to the provisions of this bill, would have  
             revised existing law establishing a pilot project that permits a  
             hospital that is owned and operated by a health care district, as  
             defined, to employ physicians and surgeons; authorized a  
             qualified hospital that meets specified requirements to employ an  
             unlimited number of physicians and surgeons, and allowed the  
             qualified hospital to charge for professional services rendered  
             by those physicians.  
           SB 1640 failed passage in this Committee.

            SB 1294  (Ducheny, 2008) would have extended a pilot project that  
             permits a hospital that is owned and operated by a health care  
             district, as defined, to employ physicians and surgeons and  
             charge for professional services rendered by those physicians.   
             Changes the definition of a qualified district hospital, and  
             revises the pilot project to allow an unlimited number of  
             physicians and surgeons to be employed by all of the district  
             hospitals and for an individual district hospital to employ up to  
             five licensees at a time.  SB 1294 failed passage in the Assembly  
             Appropriations Committee.

            AB 1944  (Swanson, 2008) would have deleted the pilot project for  
             the current hospital districts and instead would authorize a  
             health care district, as defined, to employ a physician and  
             surgeon if specified requirements are met and the district does  
             not interfere with, control, or otherwise direct the professional  
             judgment of the physician and surgeon.  AB 1944 failed passage in  
             the Senate Health Committee.

            SB 376  (Chesbro, Chapter 411, Statutes of 2003) established a pilot  
             project that permits a hospital that is owned and operated by a  
             health care district, as defined, to employ 20 physicians and  
             surgeons and charge for professional services rendered by those  
             physicians.  This bill sunsets these provisions on January 1,  
             2011.
           
        3.Similar Legislation this Session.    SB 726  (Ashburn) revises and  
          expands the current pilot project to authorize the direct employment  
          by qualified district hospitals, as defined, of an unlimited number  
          of physicians and surgeons under the pilot project, and authorizes  
          such hospital to employ up to 5 licensees at a time if certain  
          requirements are met.  It also revises the definition of a qualified  
          hospital to mean a hospital that, among other things, is operated by  
          the health care district itself and is either a small and rural  





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          hospital, as defined, or is located within a MUA, as specified.  SB  
          726 would further revise the pilot project to authorize a qualified  
          district hospital to directly employ a physician and surgeon  
          specializing in family practice, internal medicine, general surgery,  
          or obstetrics and gynecology, and would authorize the hospital to  
          request permission from MBC to employ a physician and surgeon  
          specializing in a different field if certain requirements are met.   
          This measure would limit the term of a contract to 10 years and  
          extend the pilot project until January 1, 2018.  This measure passed  
          out of this Committee by a vote of 6 to 2, and is now in the  
          Assembly and has been referred to Assembly Business and Professions  
          Committee and the Assembly Health Committee.     

         AB 646  (Swanson) revises and expands the existing pilot project to  
          allow for health care districts, as defined, whose service area  
          includes a medically underserved or federally designated shortage  
          area and which meet certain specified requirements, to employ up to  
          5 physicians and surgeons within  each  district and to provide  
          employment contracts of up to 
        10 years, and to allow employment contracts to be renewed or extended  
          to December 31, 2020.  Requires a study to be completed regarding  
          the program and submitted to the Legislature by June 1, 2018.  This  
          measure is scheduled to be heard on June 29, 2009, in this  
          Committee. 

        4.Important Differences Between AB 646 (Swanson), AB 648 (Chesbro) and  

        SB 726 (Ashburn) and the Current Pilot Project.
        
           a)   All measures expand the number of hospitals that may  
             participate.  The current pilot project is very restrictive in  
             the number of hospitals that can participate in the program.  It  
             specifies that a "qualified district hospital" was one which is a  
             district hospital organized and governed pursuant to the Local  
             Health Care District Law, provides a percentage of care to  
             Medicare, Medi-Cal and uninsured patients that exceeds 50 percent  
             of patient days, is located in a county with a total population  
             of less than 750,000, and has net losses from operations in  
             fiscal year 2000-01, as reported by OSHPD.   AB 646  will allow  
             health care district hospitals that serve in an MUA or an MUP, or  
             in a federally designated HPSA to recruit primary or specialty  
             care physicians to employ at their facility; however, the chief  
             executive officer of the health care district must show to MBC  
             that they have tried to actively recruit a doctor for a 12-month  
             period and have been unable to do so and that the employment of  
             the physician would meet an unmet need in the community based  





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             upon a number of factors.  It is unclear how many hospitals could  
             participate, but health care district hospitals and their clinics  
             in both urban and rural settings that meet the requirements would  
             qualify.   AB 648  will allow a rural hospital that also serves  
             similar areas as in AB 646 to recruit primary or specialty care  
             physicians, and like AB 646 the chief executive officer of the  
             rural hospital would certify to MBC that they have tried to  
             actively recruit a doctor for a 12-month period and have been  
             unable to do so and that the employment of the physician would  
             meet an unmet need in the community based upon a number of  
             factors.   SB 726  would allow a district hospital organized and  
             governed pursuant to the Local Health Care District Law that is  
             located within an MUP or MUA, so designated by the federal  
             government, or is a small or rural hospital to recruit primary or  
             specialty care physicians, and like AB 646 and AB 648, the chief  
             executive officer of the  hospital would certify to MBC that they  
             have tried to actively recruit a doctor for a 12-month period and  
             have been unable to do so and that the employment of the  
             physician would meet an unmet need in the community based upon a  
             number of factors.  A major restriction for SB 726 is that the  
             hospital is limited to recruiting a "core physician" which is  
             defined as one specializing in family practice, internal  
             medicine, general surgery, or obstetrics and gynecology.  The  
             hospital may request permission from MBC to hire a physician in a  
             another field of practice but only demonstrating that recruiting  
             efforts have failed and the hospital can show they have a  
             pervasive need for a physician in that specialty.

           b)   All measures expand the number of physicians and surgeons able  
             to participate.  The current pilot project limits each hospital  
             to no more than 2 participating physicians and no more than 20  
             physicians for all participating hospitals.  MBC was critical of  
             this limitation in trying to evaluate the success of this  
             program.   AB 646  only limits the number of physicians who may be  
             employed by each hospital to 5, but it also allows MBC to provide  
             up to 5 additional primary or specialty care physicians and  
             surgeons (a total of 10) once MBC approves certification by the  
             hospital of the need for additional physicians and surgeons.   AB  
             648  provides that the total number of physicians and surgeons  
             employed by the rural hospital at one time shall not exceed 10,  
             unless the employment of additional physicians and surgeons is  
             deemed appropriate by MBC on a case-by-case basis.  
            SB 726  provides that the total number of physicians and surgeons  
             employed by the hospital shall not exceed 2 at any time, but that  
             MBC may authorize the hospital to hire no more that 3 additional  
             physicians and surgeons (for a total of 5) if certain specified  





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             requirements of the hospital makes a showing of clear need and  
             there is concurrence of the medical staff of the hospital.

           c)   Increases length of employment contract for physicians and  
             surgeons.  The current pilot project restricts the period of the  
             employment contract with the physician and surgeon  for a term  
             not to exceed 4 years.   AB 646  provides that employment contracts  
             shall be for a period of not more than 10 years, but may be  
             renewed or extended until December 31, 2020.   AB 648  provides for  
             no limitation on the period of the employment contract with the  
             physician and surgeon.   SB 726  provides similar to AB 646 that  
             the term of the contract shall not be in excess of 10 years.

        5.Arguments in Support.  The  California Association of Rural Health  
          Clinics  (CARHC) is in support of this measure and indicates that  
          nearly half of California's rural health clinics (RHCs) are owned  
          and operated by rural hospitals, and many rural hospitals operate  
          RHCs.  RHCs serve mostly low-income patients, although in some cases  
          they are the only primary care provider in the community.  The CARHC  
          argues that having to make contracts with physicians and being  
          unable to offer them benefits like health insurance and retirement  
          puts hospital-based RHCs at a distinct disadvantage when it comes to  
          recruiting and retaining doctors.  According to the CARHC, most  
          physicians nowadays are looking for a situation that mimics a  
          position with Kaiser or some other HMO; clearly defined hours,  
          benefits, minimal after-hours calls. The CARHC states that it is  
          especially hard for rural facilities to compete in this situation;  
          not only does the doctor need to work as an independent contractor  
          but our communities don't always have everything that they want for  
          their families (cultural events, shopping, appropriate work for  
          physicians' partners, etc.).  The CARHC believes that creating a  
          pilot project to test the workability of allowing rural hospitals to  
          employ physicians will be a great first step in resolving the issues  
          that have prevented this from happening in our state so far.

        The  Regional Council of Rural Counties  (RCRC) is also in support of  
          this measure and indicates that rural communities throughout  
          California have had tremendous difficulty recruiting and retaining  
          physicians, threatening the public health, medical access and the  
          operational stability of these facilities.  Given the dominant mix  
          of Medi-Cal and uninsured patients, the establishment of independent  
          physician and surgeon practices in these rural areas is fiscally  
          problematic.  The RCRC argues that the wiser choice is to allow our  
          rural hospitals to hire physicians and surgeons directly, providing  
          an attractive alternative to the creation of a private practice in a  
          sparsely populated region.  The RCRC states that the enactment of  





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          this measure would be an excellent recruitment and retention tool  
          for rural hospitals, and it would further enhance the health of our  
          communities and strengthen the viability of these critical  
          facilities.

        6.Arguments in Opposition.  The  California Medical Association  (CMA)  
          opposes this bill and states that the prohibition on the corporate  
          practice of medicine is vital to ensuring physician independence and  
          protecting patient health.  They argue that if hospitals are allowed  
          to directly employ and charge for physician services, quality of  
          care suffers due to the fact that hospitals derive income from more  
          tests being performed and patient beds being filled.  CMA agrees  
          that access to physician services is essential and that, in some  
          areas, there are physician shortages.  However, violating the  
          corporate bard is not the answer to solve the question of access.   
          CMA has been very supportive of measures to deal with physician  
          supply problems, including advocating for increased slots for  
          medical training in California and supporting the development of a  
          medical school at UC Merced.  In fact, CMA has worked extensively to  
          establish stable funding for the Steve Thompson Loan Repayment  
          Program to place physicians in underserved communities.  CMA states  
          that this measure would result in reduced access and increased  
          costs.  Hospital employment of physicians eliminates competition and  
          patient choice by forcing all care to be delivered through the  
          hospital.  As hospitals gain market share in small communities,  
          physicians not employed will likely be forced out of business.  This  
          results in increased costs and reduces the ability of patients to  
          choose where they wish to receive health care.  

        The  Central Valley Health Network  , a non-profit membership  
          organization comprised of 124 federally qualified health centers, is  
          opposed to this measure and asserts that once health care districts  
          are given the authority to directly hire and bill for physician  
          services, it will create an environment where federally qualified  
          health centers, which provide linguistically and culturally  
          sensitive care, will no longer be able to compete, in regards to the  
          recruitment and retention of qualified physicians.  "Thus the impact  
          of this bill could have a detrimental effect on the ability of  
          federally qualified health centers to meet the growing health care  
          demands of their patients, which consists of the Central Valley and  
          Inland Empire's underserved and uninsured populations."

        The  California Primary Care Association  (CPCA) has an "oppose unless  
          amended" position on this measure.  CPCA is concerned over the  
          possible impact of this bill could have on California's clinic  
          safety-net and believes this bill could severely limit rural  





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          Community Clinics and Health Centers (CCHCs) ability to recruit and  
          hire physicians, largely because they cannot offer as competitive a  
          salary and benefits package as hospitals and their affiliates.   
          Currently CCHCs are exempt from the Corporate Practice of Medicine  
          Act, which mitigates the economic disadvantage by allowing the CCHC  
          to bear the administrative burden involved with billing and  
          liability on behalf of the physician.  Currently, physicians  
          contracting with hospitals manage the administrative elements of  
          their own.  If this bill passes, argues CPCA, it would disrupt a  
          level playing field thereby making it nearly impossible for CCHCs to  
          recruit and retain physicians.  CPCA indicates that they have  
          provided amendments to the Author which address their concerns.

         7.Policy Issue  :  Should the Medical Board be involved in making  
          determinations about the unmet medical needs of communities or the  
          need for primary or specialty physicians and surgeons in these  
          areas?  MBC is primarily a licensing agency and an  enforcement  
          agency with the primary mission to protect consumers and patients  
          and to take necessary licensing actions against physicians and  
          surgeons for violation(s) of the Medical Practices Act.  The role of  
          making determinations about the unmet medical needs of communities  
          in California and to what extent additional physicians and surgeons  
          are needed in these communities would seem more appropriate for an  
          agency such as OSHPD.  The Committee may want to give serious  
          consideration to directing the Authors of AB 646 (Swanson), AB 648  
          (Chesbro) and SB 726 (Ashburn) to contact the Healthcare Workforce  
          Policy Commission under OSHPD to determine whether this would be a  
          more appropriate agency and governing body to make such  
          determinations.

         8.Author's Amendments  :  The Author has agreed to take the following  
          amendments in Senate Health Committee:

           a)   To prohibit a rural hospital from hiring a physician employed  
             by a clinic

           b)   To add whistle blower protection for physicians who file a  
             complaint about a hospital interfering with their independent  
             medical judgment.
         

        NOTE  :  Double-referral to Senate Health Committee (second).
        

        SUPPORT AND OPPOSITION:
        
   




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         Support:  

        California Hospital Association (Sponsor)
        California Association of Rural Health Clinics
        California Commission on Aging
        California Healthcare West
        Coalinga Regional Medical Center
        Colusa Regional Medical Center
        Mayers Memorial Hospital District
        Mercy Medical Center Mt. Shasta
        Mercy Medical Center Redding
        Regional Council of Rural Counties
        St. Elizabeth Community Hospital
        Sutter Coast Hospital
         
        Oppose Unless Amended:  

        California Primary Care Association  

        Opposition:  

        California Medical Association
        Central Valley Health Network
        Darin M. Camarena Health Centers
        Los Angeles County Medical Association
        California Radiological Society
        California Society of Pathologists
        National Health Services, Inc.



        Consultant:Bill Gage