BILL ANALYSIS SB 726 Page 1 Date of Hearing: June 30, 2009 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Mary Hayashi, Chair SB 726 (Ashburn) - As Amended: May 6, 2009 SENATE VOTE : 36-3 SUBJECT : District hospitals: employment of physicians and surgeons. SUMMARY : Revises an existing pilot project allowing qualified district hospitals, as specified, to directly employ physicians and extends the sunset date for the pilot project from January 1, 2011 to January 1, 2018. Specifically, this bill : 1)Removes the 20 physician and surgeon limit on the pilot project. 2)Deletes prior provisions of the pilot project relating to: a) The hospital's net losses; and, b) The percentage of care a hospital provides to Medicare, Medi-Cal, and uninsured patients. 3)States that a "qualified district hospital" is a hospital: a) That is operated by the district itself, and is located within a medically underserved population or medically underserved area, as specified, or is a small and rural hospital, as specified; b) Whose medical staff and elected trustees concur by an affirmative vote of each body that the physician and surgeon's employment is in the best interest of the communities served by the hospital, as specified; c) That enters into or renews a written employment contract with a physician and surgeon prior to December 31, 2017, for a term not greater than 10 years, as specified; d) That notifies the Medical Board of California (MBC) in writing that it plans to enter into a written contract with the licensee, and the MBC confirms that the licensee's SB 726 Page 2 employment is within the maximum number permitted; and, e) That employs no more than two physicians, unless the MBC authorizes the hospital to hire an additional three licensees, if both of the following requirements are met: i) The hospital makes a showing of clear need in the community following a public hearing duly noticed to all interested parties, including, but not limited to, those involved in the delivery of medical care; and, ii) The medical staff concurs by an affirmative vote that employment of the additional licensee or licensees is in the best interest of the communities served by the hospital. 4)A district hospital may employee an licensee if: a) The chief executive officer of the hospital has provided certification to the MBC and the medical staff that the hospital has been unsuccessful, using commercially reasonable efforts, as specified, in recruiting a core physician and surgeon for at least 12 consecutive months during the period beginning on July 1, 2008, and ending on July 1, 2009; or, b) A hospital may request permission from the MBC to hire a physician and surgeon in a specialized field other than family practice, internal medicine, general surgery, or obstetrics and gynecology if all of the following requirements are met: i) The hospital can demonstrate a pervasive inability to meet the needs of the health care district in that specialized field; ii) The chief medical officer of the hospital provides the certification described above regarding the hospital's efforts to recruit a physician and surgeon in the specialized field during the period of time specified; and, iii) The other applicable requirements of this bill are satisfied. SB 726 Page 3 5)Requires the MBC to provide a preliminary report to the Legislature no later than July 1, 2013, and a final report no later than July 1, 2016, evaluating the effectiveness of the pilot project in improving access to health care in rural and medically underserved areas and the project's impact on consumer protection as it relates to intrusions into the practice of medicine. 6)Repeals the provisions of this bill on January 1, 2018, unless a later enacted statute deletes or extends that date. EXISTING LAW : 1)Prohibits corporations and other artificial legal entities from having any professional rights, privileges, or powers (known as the "prohibition against the corporate practice of medicine (CPM)"), and further provides that the Division of Licensing of the MBC may, pursuant to regulations it has adopted, grant approval for the employment of physicians on a salaried basis by a licensed charitable institution, foundation, or clinic if no charge for professional services rendered to patients is made by that institution, foundation, or clinic. 2)Exempts medical or podiatry professional corporations organized and practicing pursuant to the Moscone-Knox Professional Corporations Act from the CPM prohibition, providing that a majority of the owners or shareholders of the corporation are licensed physicians or podiatrists, respectively. 3)Provides certain additional exceptions to the prohibition against CPM. 4)Authorizes until January 1, 2011, a pilot project to allow qualified district hospitals, as defined, to employ a physician, if the hospital does not interfere with, control, or otherwise direct the professional judgment of the physician. To qualify for the project, a district hospital must: be in a county with a population of 750,000 or less; have reported net losses in 2000-01; and, have at least 50% of combined patient days from Medicare, Medi-Cal and uninsured patients. 5)Permits the establishment of local health care districts to SB 726 Page 4 provide health care services and authorizes health care districts to establish, maintain, and operate, or provide assistance in the operation of, one or more health facilities or health services, including, but not limited to: outpatient programs, services, and facilities; retirement programs, services, and facilities; chemical dependency programs, services, and facilities; or other health care programs, services, facilities and activities at any location within or outside the district for the benefit of the district and the people served by the district. FISCAL EFFECT : Unknown COMMENTS : Purpose of this bill . According to the author's office, "Our [district] hospitals have asked repeatedly for the ability to recruit and hire physicians. Cost sharing advantages for insurance premiums, facilities, billing, and other perks, would provide incentives for doctors to locate in areas where they would not normally be inclined to practice medicine. The need for doctors in select areas of the state is a serious problem. Artificially increasing salaries in order to encourage doctors to serve in these regions is not a viable solution. However, allowing hospitals in these areas to pool resources and save money, thereby enabling them to attract doctors is a realistic solution. It is time to look beyond special interests and pursue the needs of Californians by passing this reasonable legislation." Background . CPM is typically referred to in the context of a prohibition, banning hospitals from employing physicians. CPM evolved in the early 20th century when mining companies had to hire physicians directly to provide care for their employees in remote areas. However, problems arose when physicians' loyalty to the mining companies conflicted with patients' needs. Eventually, physicians, courts, and legislatures prohibited CPM in an effort to preserve physicians' autonomy and improve patient care. California's 75 HCDs are voter-created local government entities governed by publicly elected boards of trustees. HCDs currently operate 46 of California's 72 public hospitals, providing health care services to over 2 million Californians annually. HCDs are subject to California's CPM prohibition. This bill would enable SB 726 Page 5 46 HCD hospitals and approximately 130 other public, independent community nonprofit hospitals and clinics to hire physicians directly. Advocates argue that physician recruitment is essential to the continued existence of HCDs. According to a 2007 California Medical Association report, the average age of physicians in rural and underserved urban communities is approaching 60, with many of those planning to retire in the next two years. Co-sponsors of this bill, the Association of California Healthcare Districts reports, "In their struggle to recruit and keep physicians, rural and underserved urban communities in California must compete with large physician groups, Kaiser, the state Department of Corrections, rural hospitals in almost every other state in the nation as well as other entities that may directly employ physicians." Proponents of this bill argue that exempting HCDs from the CPM ban will enable them to attract physicians by absorbing all of the overhead and administrative duties of establishing a medical practice, and providing a stable, competitive salary. Opponents argue that the bar on CPM is an important public policy provision to ensure physician independence and the ability to practice in the patient's best interests. Some argue that the difficulty in recruiting physicians in some parts of California is more likely the result of declining reimbursement than physicians' employment status. This decline in reimbursement is driven by the increased market dominance of large health care plans and insurers, which would in no way be affected by this bill. SB 326 (Chesbro) Chapter 411, Statutes of 2003, established a pilot project permitting district hospitals meeting specific requirements to hire and employ up to two physicians each, for a total of 20 physicians statewide, if the district hospital met the following conditions: operates in a county of 750,000 or less population; reported net operating losses in fiscal year 2000-01; and, has a patient base of at least 50% combined Medi-Cal, Medicare, and uninsured patients. SB 326 required the MBC to administer and evaluate the project SB 726 Page 6 prior to its sunset on January 1, 2011. In its 2008 report, the MBC stated that it was "challenged in evaluating the program and preparing this report because the low number of participants did not afford us sufficient information to prepare a valid analysis of the pilot. ?[W]hile the Board supports the ban on the corporate practice of medicine, it also believes there may be justification to extend the pilot so that a better evaluation can be made. "However, until there is sufficient data to perform a full analysis of an expanded pilot, the Board contends that the statutes governing the corporate practice of medicine should not be amended as a solution to solve the problem of access to healthcare." Related legislation . AB 648 (Chesbro) of 2009 would establish a pilot project to permit certain rural hospitals to directly employ physicians and surgeons, as specified. This bill is pending in the Senate Business, Professions and Economic Development Committee. AB 646 (Swanson) of 2009 would permit HCDs to directly employ physicians and surgeons, as specified. This bill is pending in the Senate Business, Professions and Economic Development Committee. Prior legislation . AB 1944 (Swanson) of 2008 would allow health care districts to employ a physician and surgeon. This bill was held in the Senate Health Committee. SB 1294 (Ducheny) of 2008 would have expanded the pilot project enabling HCDs to directly employ physicians. This bill failed passage in the Assembly Appropriations Committee. SB 1640 (Ashburn) of 2008 would have expanded the pilot project to enable general acute care hospitals to directly employ physicians. This bill failed passage in the Assembly Business and Professions Committee. Double referred . This bill is double-referred to the Assembly Health Committee. Arguments in support . The California Commission on Aging (CCoA) writes, "Over the past several years the CCoA has examined older adults' access to health services in both rural and urban SB 726 Page 7 settings. Chief among barriers to access in rural communities is the shortage of physicians, primarily due to the number of uninsured residents and the high cost of setting up a private medical practice. By providing a greater opportunity to evaluate the effectiveness of hospital employment of physicians, this bill will help to move California toward a more balanced approach to providing care to underserved communities throughout the state." Arguments in opposition . The Central Valley Health Network "fully recognizes the challenges brought about by the current physician shortage, as our member health centers are directly impacted by the lack of qualified physicians in the Central Valley and Inland Empire. However, efforts such as loan payment and scholarship programs; new medical schools; expanding residency program slots, and creating residency programs in underserved areas would provide a more prudent solution than eliminating patient protections." REGISTERED SUPPORT / OPPOSITION : Support California Commission on Aging Opposition Central Valley Health Network California Primary Care Association Darin M. Camarena Health Centers, Inc. National Health Services, Inc. Analysis Prepared by : Sarah Huchel / B. & P. / (916) 319-3301