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  








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               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.









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          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  








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            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  








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          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  








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          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  








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          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