BILL ANALYSIS
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|Hearing Date:April 27, 2009 |Bill No:SB |
| |726 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: SB 726Author:Ashburn
As Amended: April 23, 2009 Fiscal: Yes
SUBJECT: Hospitals: employment of physicians and surgeons.
SUMMARY: Revises and recasts 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; authorizes a qualified hospital that meets specified
requirements to employ an unlimited number of physicians and
surgeons during the term of the pilot project, and charge for
professional services rendered by those physicians.
NOTE : Please see Author's Amendments Section.
Existing law:
1)Business and Professions Code Sections 2400, et seq., 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.") However, further provides
that the Division of Licensing of the Medical Board of
California (MBC) may, pursuant to regulations it has adopted,
grant approval for the employment of physicians 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.
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
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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, however, 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.
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,
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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 the MBC to report to the Legislature not later than
October 8, 2008, on the effectiveness of the pilot project.
10)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.
11)Establishes under federal law criteria for the designation of
Medically Underserved Areas (MUAs) and Medically Underserved
Populations (MUPs). MUAs and MUPs to identify areas or
populations with a shortage of health care services.
Documentation of medical underserved is based on four factors:
health care provider to population ratio; infant mortality rate;
percentage of population below 100% of the federal poverty rate;
and percentage of population aged 65 or over.
This bill:
1)Revises and recasts existing law establishing a pilot project
that permits a hospital that is owned and operated by a health
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care district, as defined, to employ physicians and surgeons.
2)Authorizes a pilot project that allows a qualified hospital that
meets specified requirements to employ an unlimited number of
physicians and surgeons, and charge for professional services
rendered by those physicians. Requires the total number of
licensees employed by the qualified hospital not to exceed five
at any time.
3)Defines a qualified hospital to meet both of the following:
a) Is a general acute care hospital, as defined.
b) Is located within a MUP, MUA, or health professions
shortage area, as designated by the federal government.
4)Deletes existing legal definition of district hospital as one
that is governed by the Local Health Care District Law, provides
a percentage of care to Medicare, Medi-Cal, and uninsured
patients, as specified, 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 to the Office of
Statewide Health Planning and Development.
5)Deletes existing legal provision limiting the number of
physicians and surgeons employed by qualified district hospitals
to 20.
6)Requires a licensee to enter into or renew a written employment
contract with the qualified hospital prior to December 31, 2011,
for a term not in excess of four years.
7)Requires the MBC to submit a report to the Legislature on
October 1, 2013 on the evaluation of the effectiveness of the
pilot project.
8)Sunsets the provisions of this bill to January 1, 2016.
9)Finds and declares that the Inland Empires, Central
Valley/Sierra Nevada, and South Valley/Sierra Nevada regions
have at least 30 percent fewer physicians than the Los Angeles
and San Francisco Bay area regions have.
10)Makes other substantive changes as described in Comment 9,
below.
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FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1)Purpose. According to the Author, California is one of the few
remaining states that does not allow hospitals to directly hire
permanent staff doctors. The Author points out that at a time
where increasing access to health care has been a top priority
of the state's leadership, the Legislature needs to revisit the
exclusion against the corporate practice of medicine. The
Author states that hospitals have asked repeatedly for the
ability to recruit and hire physicians directly. Further, the
Author states that there would be cost sharing advantages for
insurance premiums, facilities, billing, and other perks, that
would increase profits and provide incentives for doctors to
practice in areas where they would not normally be inclined to
practice medicine, but where the need is great. This bill,
according to the Author, will address the shortage of physicians
who practice in medically underserved areas.
2)Background.
a) Corporate Practice of Medicine (CPM) Ban. 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
HMOs, 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.
b) Health Care District Hospitals. Health care districts
operate roughly two-thirds of the public hospitals in
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California. The vast majority of facilities are located in
rural California. Most of these facilities are quite small,
and tend to serve a disproportionate percentage of uninsured
and Medi-Cal patients. In some cases, upwards of 50% of the
patients served by the health care districts and their health
facilities are insured by Medi-Cal. Health care districts
and their hospitals are formed, operated and governed by
Section 32000 of the Health and Safety Code.
c) Shortage of Qualified Physicians in Rural Areas.
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 with 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.
1)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 the 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, the 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, the 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 the MBC's inquires. The MBC stated that it
regrets the lack of participation in the project.
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According to the report, the 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. The MBC stated that due to the "limited extent"
of participation, it was unable to fully evaluate the project.
In the report, the 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. The 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.
1)Similar Legislation this Session. AB 646 (Swanson) deletes the
existing pilot project allowing district hospitals in rural
areas to employ physicians and surgeons, as specified, and would
authorize a hospital in a medically underserved area, an area
with unmet priority needs, which has a patient census of more
than 50 percent medically underserved populations, to employ
physicians and surgeons if specified requirements are met. AB
646 has passed out of the Assembly Business and Professions
Committee by a 6-4 vote and is now pending in Assembly Health.
AB 648 (Chesbro) creates a demonstration project authorizing a
rural hospital, as defined, to directly employ up to ten
physicians, with a waiver from the Medical Board possible on a
case-by-case basis. The physician may provide medical services
at the rural hospital participating in the demonstration project
can charge for the medical services provided by a participating
physician so long as the physician approves the charges made in
his or her name. AB 648 also requires a rural hospital that
employs a physician and surgeon to develop and implement a
policy regarding the independent medical judgment of the
physician, and makes declarations on the shortage of physicians
in certain regions of California. AB 648 has passed out of the
Assembly Business and Professions Committee by a 9-0 vote and is
now pending in Assembly Health.
2)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
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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 would instead 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. Sunsets these provisions on January 1, 2011.
3)This Measure Increases the Number of Hospitals that Could Employ
Physicians and Surgeons. Existing law establishes a pilot
project allowing a district hospital to employ physicians and
surgeons if they meet the following requirements: a) they are
governed pursuant to the Local Health Care District Law; b)
provide a percentage of care to Medicare, Medi-Cal and uninsured
patients; c) are located in a county with a total population of
less than 750,000; and, d) have net losses from operations in
fiscal year 2000-2001, as specified. AB 646 (Swanson), which is
pending in the Assembly Business and Professions Committee,
would eliminate the pilot program and would allow a hospital in
a rural hospital district, as defined, to directly employ
physicians. Further AB 646 would allow an urban public or
non-profit hospital to directly employ physicians. AB 648
(Chesbro), which is also pending in the Assembly Business and
Professions Committee, would allow rural hospitals, as defined,
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to employ a physician at its hospital or other facility it
operates provided the hospital implements a policy to ensure the
physician is able to exercise medical judgment. The MBC would
be tasked with regulating hospitals operating under the
exception. Compared to AB 646 and
AB 648 , this measure revises and expands the pilot program and
authorizes hospitals in both rural and urban medically
underserved areas, as defined, to participate in the pilot
program and charges the MBC with reporting to the Legislature on
the program's effectiveness.
4)Policy Issues. As indicated, this bill allows any general
acute care hospital that is located in an MUA or MUP to employ
an unlimited number of physicians and surgeons during the term
of the pilot project, and charge for professional services
rendered by those physicians. However, the Legislature has
consistently indicated its intent that physicians, and not
corporations, be responsible for patient care decisions. It is
unclear if this bill strikes the right balance between a
physician's patient care responsibilities and responding to the
current physician shortage in rural and medically underserved
communities. Moreover, with the findings of the MBC that there
is insufficient information to properly analyze the effects of
the pilot project, it is not apparent if this bill will achieve
the goal of recruiting and retaining physicians in medically
underserved communities.
5)Arguments in Support. According to the Regional Council of
Rural Counties , rural communities have tremendous difficulty
recruiting and retaining physicians. They argue that the result
is a shortage of physicians in rural communities which threatens
public health, medical access, and the operational stability of
medical facilities. The Regional Council of Rural Counties
supports this bill to allow rural and other qualified medical
providers to directly employ physicians.
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. The CMA also states
that this bill will not lead to increased numbers of physicians
practicing in rural or underserved communities but will have the
opposite effect because it will give an "unfair advantage" to
hospitals. San Bernardino County Medical Society also opposes
this bill and states that it is critical that physicians remain
independent of corporate control in order to ensure patient
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health.
7)Recent Amendments. The Author recently amended this bill (April
23, 2009) to address concerns raised by the California Medical
Association . The amendments specify that the pilot program aims
to improve recruitment and retention of surgeons and physicians
in medically underserved areas. These amendments require that
the chief executive officer of a hospital provide certification
to the Medical Board that the hospital has been unsuccessful in
recruiting a "core physician" for at least 12 consecutive months
during the period beginning July 1, 2008 and ending July 1, 2009
in order to participate in the pilot program. These amendments
define a "core physician" as a physician specializing in family
practice, internal medicine, general surgery, orthopedic
surgery, or obstetrics and gynecology. The amendments require
the surgeon or physician enter into an employment contract with
the qualified hospital before December 31, 2017, for a term not
in excess of ten years. The amendments allow qualified
hospitals to employ up to 2 licensees at any given time, with
the possibility of waiver upon affirmative vote of the medical
staff and upon certification to the Medical Board that the
hospital has been unsuccessful in recruiting a "core physician"
for at least 12 consecutive months during the period beginning
July 1, 2008 and ending July 1, 2009 in order to participate in
the pilot program. The amendments require the Medical Board to
provide a preliminary report to the Legislature no later than
July 1, 2013 and a final report not later than July 1, 2016.
Lastly, the amendments would extend the pilot program until
January 1, 2018, at which point the pilot program would sunset.
NOTE : Double-referral to Health Committee second. Any amendments
approved by this Committee should be taken in Health Committee.
Support:
Regional Council of Rural Counties
Opposition:
California Medical Association
California Radiological Society
California Society of Pathologists
San Bernardino Medical Society
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Consultant: Michael Stanley