BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                  AB 2389|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  AB 2389
          Author:   Gaines (R)
          Amended:  8/20/10 in Senate
          Vote:     21

           
           SENATE HEALTH COMMITTEE  :  5-1, 6/23/10
          AYES:  Alquist, Aanestad, Leno, Negrete McLeod, Pavley
          NOES:  Cedillo
          NO VOTE RECORDED:  Strickland, Cox, Romero

           ASSEMBLY FLOOR  :  61-0, 5/28/10 - See last page for vote


           SUBJECT  :    Health care coverage:  provider contracts

           SOURCE  :     Aetna


           DIGEST  :    This bill prohibits a contract by, or on behalf  
          of, a licensed health care facility, as defined, and a  
          health plan or insurer from containing a provision that  
          restricts the ability of the health plan or insurer to  
          furnish information to enrollees and insured on the cost  
          range of procedures or quality of services performed by the  
          facility, as specified, and provides an appeals process for  
          cost and quality of care data, as specified.

           Senate Floor Amendments  of 8/20/10 prohibit health facility  
          contracts, as specified, from containing a provision that  
          restricts the ability of the health plan or insurer to  
          furnish information to subscribers, enrollees or insureds  
          concerning cost range of procedures or quality of services  
                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          2

          performed by the facility, requires the health plan or  
          insurer to provide an appeals process for cost and quality  
          of care data, as specified.

           ANALYSIS  :    Existing law:

          1.Provides for the regulation of health plans and insurers  
            by the Department of Managed Health Care and the  
            California Department of Insurance, respectively.

          2.Requires hospitals to make a written or electronic copy  
            of its charge description master (a list of prices for  
            services) available, either by posting an electronic copy  
            on the hospital's website, or by making a written or  
            electronic copy available at the hospital.   

          3.Requires hospitals to submit their average charges for 25  
            common outpatient procedures, as specified, annually to  
            the Office of Statewide Health Planning and Development  
            who is required to publish this information on its  
            website.

          4.Requires the Office of Statewide Health Planning and  
            Development to publish and update on its website, a list  
            of the 25 inpatient procedures most commonly performed in  
            California hospitals, along with each hospital's average  
            charges for those procedures.  

          This bill:

          1. As a condition of prohibiting health facility contracts,  
             as specified, from containing a provision that restricts  
             the ability of the health plan or insurer to furnish  
             information to subscribers, enrollees or insureds  
             concerning cost range of procedures or quality of  
             services performed by the facility, requires the health  
             plan or insurer to provide an appeals process for cost  
             and quality of care data, as specified.

          2. Provides that, among other requirements, the cost  
             information is limited to certain elective,  
             uncomplicated procedures, the plan or insurer also  
             discloses the location of its facility cost ranges and  
             quality measurements and makes specified disclosures  

                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          3

             regarding those measurements and the cost information  
             provided, and the plan or insurer provides affected  
             facilities an opportunity to review the information  
             prior to furnishing it to subscribers, enrollees,  
             policyholders, or insureds, as specified.

          3. Clarifies the process by which a facility may review how  
             data is compiled, reviewed and proved to health plan  
             enrollees and providers.

          4. Specifies that, if a health plan includes the allocated  
             capitation payment for an episode of care in the cost  
             information provided to subscribers and enrollees, the  
             plan and the facility shall consult on an appropriate  
             and reasonable methodology for doing so.

          5. Requires a health plan or insurer, which provides  
             subscribers and enrollees with quality measurements of  
             facilities based on quality of care data developed and  
             compiled by the plan or insurer, to meet all of the  
             following requirements:

              A.    The information is based on consensus-based, or  
                nationally recognized evidence-based, clinical  
                recommendations or guidelines.  When available, a  
                plan shall use measures endorsed by the National  
                Quality Forum or other entities nationally recognized  
                for quality or performance review.

              B.    The plan or insurer must utilize appropriate risk  
                adjustment factors to account for different  
                characteristics of the population, as specified.

              C.    The data used for the cost profile or quality  
                rating must be updated at appropriate intervals, but  
                no less than annually.

              D.    The health plan or insurer must link quality  
                measurements and cost range of procedures for  
                comparison purposes, when appropriate.

          6. States that the plan provide all of the following to the  
             affected health care facility prior to furnishing the  
             information to enrollees or subscribers:

                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          4


              A.    A minimum 45 days written notice to review the  
                information.

              B.    The criteria used to develop and evaluate quality  
                measurements, and reasonable access to these  
                criteria, which must be sufficiently detailed and  
                reasonably understandable to allow the facility to  
                verify the data against its own records.

              C.    An explanation of the facility's right to correct  
                errors and seek review of the data used to measure  
                the quality of services provided at the facility.

              D.    A reasonable, prompt, and transparent appeals  
                process.  Specifies that, if a facility makes an  
                appeal prior to the expiration of the 45-day time  
                period, the health plan or insurer shall make no  
                changes to its current information about the facility  
                until the appeal is completed.

          7. States that the plan also discloses the following its  
             subscribers or enrollees:

              A.    Where the facility's quality measurements can be  
                found.

              B.    A disclaimer that the facility's quality  
                measurement provided is only a guide to choosing a  
                facility, that enrollees or subscribers should confer  
                with their existing facility before making decisions,  
                and that these measures contain an element of error  
                and should not be the sole basis for selecting a  
                facility.

              C.    Information explaining the facility's quality  
                measurement process, including the basis upon which  
                quality is measured and any limitations of the data  
                used.

              D.    Reasonable details on the factors and criteria  
                used to measure quality, including whether severity  
                cost adjustments have been utilized.


                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          5

              E.    Information on how an enrollee or subscriber may  
                register a complaint or provide feedback about the  
                quality measurement system.

          8. Makes any contractual provision that is inconsistent  
             with this bill void and unenforceable.

          9. Defines "licensed hospital," consistent with existing  
             law, as an institution, place, building, or agency that  
             maintains and operates organized facilities for one or  
             more persons for the diagnosis, care, and treatment of  
             human illnesses to which persons may be admitted for  
             overnight stay, including any institution classified  
             under regulations issued by the State Department of  
             Health Services (now the Department of Public Health) as  
             a general or specialized hospital, as a maternity  
             hospital, or as a tuberculosis hospital, but does not  
             include a sanitarium, rest home, a nursing or  
             convalescent home, a maternity home, or an institution  
             for treating alcoholics.

          10.   Defines "licensed health care facility" as any  
             institution or health facility, other than long-term  
             health care facility as defined in existing law,  
             licensed by the Department of Public Health to deliver  
             or furnish health care services.

          11.   Defines "health care facility" as a licensed hospital  
             or any other licensed health care facility owned by a  
             licensed hospital.

          12.   Prohibits specified fines and penalties, established  
             in existing law, from applying to the provisions in this  
             bill.

           Background
           
          Price transparency encourages consumers and their  
          representatives to use price and quality information in  
          their health care decisions.  Governments, employers, and  
          insurers are increasingly interested in price transparency,  
          in an effort to improve outcomes and slow the rate of  
          health care expenditures.  The concept behind price  
          transparency is to make comparative information on the  

                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          6

          prices charged by health care providers for specific  
          services publicly available.  The intent is to encourage  
          consumers, and others who make decisions on their behalf  
          (e.g., employers, health plans, referring practitioners),  
          to consider price alongside quality in deciding among  
          health care providers and services, ultimately to foster a  
          more value-driven health care delivery system.

          According to a 2007 National Quality Forum report, price  
          transparency is not simply "pulling back the curtain" on  
          health care industry financial data, much of which might  
          not be useful for the typical consumer.  To make price  
          information "actionable," it needs to be not only accurate  
          and reliable, but also specifically tailored to the  
          perspectives and needs of a particular audience.

          The report points out that "relevant" information might be  
          different for each audience.  Their different definitions  
          of "price" might include the following:

             ?    Retail Prices - list prices for services that are  
               charged by providers to patients who are not covered  
               by insurance or otherwise eligible for discounts. 

             ?    Negotiated Prices - the price a provider agrees to  
               charge patients covered by a specific health plan. In  
               general, health plans and insurers with greater  
               purchasing power have greater leverage to negotiate  
               discounts.

             ?    Patient out-of-pocket payments (i.e., coinsurance,  
               deductibles, and exclusions) - the share the patient  
               is responsible for paying.  This is the "price tag" of  
               most interest to patients and their families.

          Health plans and insurers, under current law, are allowed  
          to establish economic profiles of providers and provider  
          groups.  Efforts are underway nationally and in California  
          to also establish quality rating systems of individual  
          providers and provider groups.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No


                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          7

           SUPPORT  :   (Verified  8/26/10)

          Aetna (source) 
          100 Black Men of Los Angeles, Inc.
          America's Health Insurance Plans
          California Association of Health Underwriters
          California Grocers Association
          California Retailers Association
          Safeway

           OPPOSITION  :    (Verified  8/26/10)

          Blue Shield
          California Hospital Association
          Sharp HealthCare

           ARGUMENTS IN SUPPORT  :    Aetna states that the cost of  
          health care continues to grow at a rate faster than both  
          general inflation and wages, making health insurance  
          increasingly difficult for individuals to afford and for  
          employers to offer in the workplace.  According to Aetna,  
          the development and disclosure of health care quality and  
          cost measurements gives consumers the health care  
          information they need to seek out hospitals and other  
          health care providers with a proven track record for high  
          quality care and efficiency.  According to the America's  
          Health Insurance Plans, this bill presents a valuable  
          opportunity for California consumers to gain a greater  
          understanding of the quality and costs of health care,  
          while also creating a transparent, fair and systematic  
          standard for tracking health care quality data.  The  
          California Association of Health Plans concurs, stating  
          that price and quality are two important factors that  
          patients should consider when purchasing health care  
          coverage and choosing where to receive health care  
          services.  The California Association of Health  
          Underwriters also writes that this is an important measure  
          to support increasing transparency for health care costs.

          The California Retailers Association and Safeway state  
          that, if this bill is not passed, consumers and employers  
          risk losing access both to cost information and to provider  
          performance measurements, at a time when cost efficiency  
          and quality improvement are of paramount importance to  

                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          8

          improving the health care system.  The California Grocers  
          Association concurs and further points out that it is  
          important to ensure that consumers have all information  
          available to make informed purchasing decisions regarding  
          their health care.

           ARGUMENTS IN OPPOSITION  :    The California Hospital  
          Association (CHA) opposes this bill on the basis that the  
          bill allows public displays of confidential contract  
          information, without any protections to ensure that  
          information is meaningful, accurate and reliable.   
          Moreover, CHA believes that cost and quality information  
          should be required to be linked so that the information is  
          useful and "actionable" for consumers.  CHA believes that  
          public disclosure of confidential information related to  
          negotiated contract rates could hurt competition, raising  
          issues of antitrust.  CHA also asserts that hospitals  
          report that health plans frequently post false information  
          on their website regarding hospital costs and quality.  If  
          hospitals are prohibited from addressing this common  
          problem contractually, insurers should be required to  
          provide hospitals the opportunity to validate both cost and  
          quality information with an appeals process to make  
          corrections and settle disputes over the data.  

          Sharp HealthCare writes in opposition, stating that  
          insurers should not be allowed to misrepresent that a  
          hospital is "high cost" when costs are higher because that  
          hospital treats the sickest and neediest patients.  Some  
          hospitals, such as academic teaching hospitals, may see a  
          larger number of higher acuity cases, compared to other  
          facilities.   Insurers should normalize cost data to  
          account for such differences in severity and complexity of  
          cases in order to achieve "apples-to-apples" comparisons.   
          Sharp HealthCare also points out that the bill, as  
          currently written, could exclude services reimbursed via  
          hospital capitation from its analysis.  Such exclusion of  
          services misrepresents the overall and true cost to the  
          payer, by eliminating many of the lower cost cases, and  
          overstating the hospital's overall level of reimbursement.  
           

           ASSEMBLY FLOOR  :  
          AYES:  Adams, Ammiano, Anderson, Arambula, Beall, Block,  

                                                           CONTINUED





                                                               AB 2389
                                                                Page  
          9

            Blumenfield, Bradford, Brownley, Buchanan, Charles  
            Calderon, Conway, Cook, Coto, DeVore, Eng, Evans, Feuer,  
            Fletcher, Fong, Fuentes, Fuller, Gaines, Galgiani,  
            Garrick, Gilmore, Hagman, Harkey, Hayashi, Hernandez,  
            Hill, Huber, Huffman, Jones, Knight, Lieu, Logue, Bonnie  
            Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande,  
            Niello, Nielsen, Norby, V. Manuel Perez, Portantino,  
            Ruskin, Saldana, Skinner, Solorio, Swanson, Torlakson,  
            Torres, Torrico, Tran, Villines, Yamada, John A. Perez
          NO VOTE RECORDED:  Bass, Bill Berryhill, Tom Berryhill,  
            Blakeslee, Caballero, Carter, Chesbro, Davis, De La  
            Torre, De Leon, Emmerson, Furutani, Hall, Jeffries,  
            Salas, Silva, Smyth, Audra Strickland


          CTW:nl  8/26/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****

























                                                           CONTINUED