BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 726| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 726 Author: Ashburn (R) Amended: 5/6/09 Vote: 21 SENATE BUS., PROF. & ECON. DEVEL. COMMITTEE : 6-2, 4/27/09 AYES: Negrete McLeod, Corbett, Correa, Florez, Oropeza, Yee NOES: Aanestad, Walters NO VOTE RECORDED: Wyland, Romero SENATE HEALTH COMMITTEE : 10-0, 4/29/09 AYES: Alquist, Strickland, Cedillo, Cox, DeSaulnier, Leno, Maldonado, Negrete McLeod, Pavley, Wolk NO VOTE RECORDED: Aanestad SENATE APPROPRIATIONS COMMITTEE : 11-1, 5/26/09 AYES: Kehoe, Cox, Corbett, Denham, DeSaulnier, Hancock, Leno, Oropeza, Runner, Wolk, Yee NOES: Walters NO VOTE RECORDED: Wyland SUBJECT : Hospitals: employment of physicians and surgeons SOURCE : Author DIGEST : This bill modifies an existing pilot project under which a hospital that is owned and operated by a health care district may directly employ physicians. This CONTINUED SB 726 Page 2 bill allows any hospital located in a medically underserved area that has been unsuccessful in recruiting a core physician, as defined, to participate in the pilot project, eliminates the existing cap on the number of physicians that may be employed in total under the pilot project and allows an individual qualified hospital to expand the number it employs, as specified, requires the Medical Board of California (MBC) to provide reports to the Legislature on its evaluation of the revised pilot project, and extends the sunset date for the pilot project from January 1, 2011 to January 1, 2018. ANALYSIS : Existing law prohibits corporations and other artificial legal entities from having professional rights, privileges, or powers in relation to the practice of medicine. Under the Corporate Practice of Medicine (CPM) doctrine, the state prohibits hospitals and other entities from employing physicians to provide professional services. Existing law establishes exemptions from the CPM restriction for: 1. 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. 2. Clinics operated primarily for the purpose of medical education by a public or private nonprofit university medical school. 3. Narcotic treatment programs operated under, and regulated by, the State Department of Alcohol and Drug Programs. 4. Medical or podiatry professional corporations organized and practicing pursuant to the Moscone-Knox Professional Corporations Act, that require a majority of shareholders of the corporation to be licensed physicians, surgeons, or podiatrists. Existing law establishes, until 2011, a pilot program that establishes an exemption from the CPM prohibition for qualified district hospitals, enabling them to directly CONTINUED SB 726 Page 3 employ physicians and surgeons, if they meet several requirements. To be eligible to participate in the pilot project, the district hospital must provide at least 50 percent of its patient days to Medicare, Medi-Cal, and uninsured patients, must be located in a county with a total population of less than 750,000 persons, and must have reported net losses from operations in fiscal year 2000-01, as specified. Existing law limits the total number of physicians that may be employed under the pilot project to 20 statewide, and limits the total number that may be employed at any given hospital to two. In addition, under the pilot an employment contract may not exceed four years. Existing law requires the Medical Board of California (MBC) to report to the Legislature no later than October 1, 2008, on the effectiveness of the pilot project. Existing state law defines rural hospitals as those that fall within certain peer groupings, based on their characteristics and size. This bill: 1. Modifies the pilot project under which qualified district hospitals may employ a limited number of physicians as follows: A. Defines a qualified hospital as any hospital located within an area that is designated as a medically underserved area or population, or is a small and rural hospital as defined, is operated by the district itself and not another entity, whose chief executive officer of the hospital has provided certification, as specified, to the MBC and medical staff that the hospital has been unsuccessful, using commercially reasonable efforts, in recruiting a core physician and surgeon for 12 consecutive months during the period of July 1, 2008 to July 1, 2009. B. Defines a "core physician-surgeon" as a physician and surgeon specializing in family CONTINUED SB 726 Page 4 practice, internal medicine, general surgery, or obstetrics and gynecology. C. Eliminates the 20 physician cap on the total number of physicians that may be employed under the pilot project, and allows an individual hospital to employ no more than three additional licensees if the hospital makes a showing of clear-need following a public hearing duly noticed to all interested parties, and upon an affirmative vote of the medical staff and elected trustees of the hospital. D. Allows a hospital to request permission from MBC to hire and physician and surgeon in a specialized field other than those listed if certain requirements are met, including the hospital can demonstrate a pervasive inability to meet the needs of the health care district in that specialized field. E. Extends the date by which a physician must enter into an employment contract with a qualified hospital under the pilot project from December 31, 2006 to December 31, 2017, and extends the maximum time period for a contract from four to ten years. 2. Requires the MBC to provide a preliminary report to the Legislature that evaluates the revised pilot project by July 1, 2013, and a final report by July 1, 2016. 3. Extends the overall sunset date for the pilot project from January 1, 2011 to January 1, 2018. 4. Modifies the current exception to the corporate practice of medicine law to include the pilot project, as revised by the bill. Background Health Care District Hospital Pilot Project . The district hospital pilot project was established to address the problem of recruiting and retaining physicians in rural and underserved communities. The premise behind the pilot CONTINUED SB 726 Page 5 project was that many district hospitals lack viable alternatives to attract physicians to their staff, and that direct employment may offer a better incentive to encourage physicians to relocate to or remain in rural and underserved areas. While it was expected that the maximum allowed number of 20 physicians would end up being employed under the pilot project, according to the MBCs report to the Legislature in October 2008, due to a number of constraints, only six physicians have been employed (by five qualifying hospitals) under the pilot. Of the six, only one represented a physician who came from outside of the area of the hospital; the remaining five were in practice in the areas served by the hospital prior to their employment. In the report, the MBC notes that due to the limited participation in the pilot, and the limited responses from hospitals that elected and decided not to participate in the pilot, it is difficult to draw conclusions regarding the effectiveness of the pilot. However, the MBC states that it believes there may be justification to extend the pilot so that a better evaluation of direct employment of physicians can be made, and recommends broadening the pilot to include more hospitals, while maintaining limits on the number of physicians employed under the pilot and while maintaining the general prohibition on the corporate practice of medicine. Health Care Districts . Health care districts operate roughly two-thirds of the public hospitals in California. The vast majority of facilities are located in rural parts of California. Most of these facilities are quite small, and tend to serve a disproportionate percentage of uninsured and Medi-Cal patients. In many cases, 50 percent or more of the patients served by the health care districts and their health facilities are insured by Medi-Cal and Medicare. Medically underserved areas and populations and health professions shortage areas . Several types of medically underserved areas are designated by the federal Health Resources and Services Administration, including the four types that are targeted by this bill: (1) a primary care health professional shortage area generally must have a CONTINUED SB 726 Page 6 population to physician ratio 3,500 to 1 or greater (an area with a ratio of 3,000 to 1 that has "unusually high need" may also qualify) and have a lack of access to health care in surrounding areas because of excessive distance, over-utilization, or access barriers; (2) a mental health professional shortage area must have a population to mental health professional ratio of 6,000 to 1 or greater and a population to psychiatrist ratio of 20,000 to 1 or greater, or a 9,000 to 1 ratio for mental health professionals solely, or a 30,000 to 1 ratio for psychiatrists solely; (3) a dental health professional shortage area must have a population to dentist ratio of 5,000 to 1, or have a ratio of 4,000 to 1 and be an area of "unusually high need" and have a lack of access to dental care in surrounding areas because of distance, overutilization, or access barriers; and (4) medically underserved areas and populations must meet an index that takes into account four criteria of medical need: (1) percentage of population below 100 percent of the federal poverty level (FPL); (2) percentage of population age 65 and over; (3) infant mortality rate; and 4) primary care physicians per 1,000 population. Health care providers providing services in health professional shortage areas qualify for student loan repayment programs and placement through the National Health Service Corps, and in some cases enhanced Medicare reimbursement. Prior legislation SB 1294 (Ducheny), of 2007 , which died in the Assembly Appropriations Committee revised the pilot project to allow the employment of more than 20 physicians and surgeons, at the discretion of the MBC, and allowed the total number of physicians employed by a qualified district hospital to exceed two, if deemed appropriate by the MBC on a case-by-case basis, revised the definition of a qualified hospital to a district hospital that is located in a medically underserved area that had net losses in the most recent fiscal year, extended the pilot project until January 1, 2017 and made other conforming changes. SB 1640 (Ashburn), of 2007 , would have revised the district hospital pilot project to allow general acute care CONTINUED SB 726 Page 7 hospitals that meet specified requirements to directly employ up to five physicians each and collectively to employ an unlimited number of physicians statewide. Would have extended the pilot project until January 1, 2016, and required MBC to report to the Legislature no later than October 1, 2013, on the evaluation of the effectiveness of the pilot project. Failed passage in the Senate Business, Professions, and Economic Development Committee. AB 1944 (Swanson), of 2007 , would have eliminated the district hospital pilot project and instead authorized such hospitals to directly employ physicians to primarily treat Medi-Cal patients without limits, if specified requirements are met. Failed passage in the Senate Health Committee. SB 376 (Chesbro), Chapter 411, Statutes of 2003 ,establishes a pilot project in which qualified healthcare district hospitals may employ physicians, and charge for professional services rendered by the physician. Limits the number of physicians employed by all qualified district hospitals in the state to 20, and also limits each district hospital to two employed physicians or surgeons. Sunsets the pilot project in 2011, and requires submitting report to the Legislature by October 2008 on the effectiveness of the pilot project. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund Pilot project expansion Up to $100 one time by 10/1/12 and Special* and extension by 10/1/16 *Contingent Fund of the Medical Board of California SUPPORT : (Verified 5/27/09) CONTINUED SB 726 Page 8 Regional Council of Rural Counties OPPOSITION : (Verified 5/27/09) Children's Specialty Care Coalition California Radiological Society California Society of Pathologists San Bernardino County Medical Society ARGUMENTS IN SUPPORT : According to the author's office, California is one of a small number of states that do not allow hospitals to directly hire permanent staff doctors. The author's office points out that at a time when 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's office states that small and rural hospitals have asked repeatedly for authority to recruit and hire physicians directly. According to the author's office, this bill will address the shortage of physicians who practice in medically underserved areas. Specifically, the author's office states that there will be advantages for physicians who enter into employment contracts under the bill, including lower overhead costs and employment benefits that attract doctors to areas where they are not normally be inclined to practice, but where the need is great. JJA:do 5/27/09 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED