BILL ANALYSIS                                                                                                                                                                                                    



                                                                SB 726
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        SENATE THIRD READING
        SB 726 (Ashburn)
        As Amended August 20, 2009
        Majority vote 

         SENATE VOTE  :   36-3

         BUSINESS & PROFESSIONS    10-0  HEALTH              14-1        
         
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        |Ayes:|Hayashi, Emmerson,        |Ayes:|Jones, Ammiano, Block,    |
        |     |Conway, Eng,              |     |Carter, Conway, De Leon,  |
        |     |Hernandez, Nava, Niello,  |     |Gaines, Hall, Hernandez,  |
        |     |Ruskin,                   |     |Bonnie Lowenthal,         |
        |     |Smyth, Monning            |     |Nava, V. Manuel Perez,    |
        |     |                          |     |Salas,                    |
        |     |                          |     |Audra Strickland          |
        |     |                          |     |                          |
        |-----+--------------------------+-----+--------------------------|
        |     |                          |Nays:|Adams                     |
        |     |                          |     |                          |
         ----------------------------------------------------------------- 
         APPROPRIATIONS      15-1                                         
         
         ----------------------------------------------------------------- 
        |Ayes:|De Leon, Ammiano,         |     |                          |
        |     |Charles Calderon, Coto,   |     |                          |
        |     |Davis,                    |     |                          |
        |     |Fuentes, Hall, Miller,    |     |                          |
        |     |Nielsen,                  |     |                          |
        |     |John A. Perez, Skinner,   |     |                          |
        |     |Solorio, Audra            |     |                          |
        |     |Strickland, Torlakson,    |     |                          |
        |     |Hill                      |     |                          |
        |     |                          |     |                          |
        |     |                          |     |                          |
        |-----+--------------------------+-----+--------------------------|
        |Nays:|Harkey                    |     |                          |
        |     |                          |     |                          |
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         SUMMARY  :  Revises an existing pilot project allowing qualified  
        health care districts and qualified rural hospitals, as specified,  
        to directly employ physicians and extends the sunset date for the  
        pilot project from January 1, 2011, to January 1, 2018.   








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        Specifically,  this bill  :   

        1)States that, notwithstanding the bar on the corporate practice of  
          medicine (CPM), a qualified health care district or a qualified  
          rural hospital may employ a licensee, as specified, and may charge  
          for professional services rendered by the licensee if the  
          physician and surgeon approves the charges.  However, the district  
          or hospital shall not interfere with, control, or otherwise  
          influence or direct the physician and surgeon's professional  
          judgment in any manner prohibited by law.

        2)Removes the 20 physician and surgeon limit on the pilot project.

        3)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. 

        4)States that a "qualified health care district" (District) is a  
          health care district organized and governed pursuant to the Local  
          Health Care District Law.  A District shall be eligible to employ  
          physicians and surgeons, as specified, if all of the following  
          requirements are met: 

           a)   The District health care facility at which the physician and  
             surgeon will provide services meets both of the following  
             requirements: 

             i)     Is operated by the district itself, and not by another  
               entity; and,

             ii)    Is located within a medically underserved population or  
               medically underserved area, as specified, or within a  
               federally designated Health Professional Shortage Area;

           b)   The chief executive officer (CEO) of the District has  
             provided certification to the Medical Board of California (MBC)  
             that the district has been unsuccessful, using commercially  
             reasonable efforts, in recruiting a physician and surgeon to  
             provide services at the facility for at least 12 continuous  
             months beginning on or after July 1, 2008; 









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           c)   The District CEO certifies to MBC that the hiring of a  
             physician and surgeon will not supplant physicians and surgeons  
             with current privileges or contracts with the facility;

           d)   The District enters into or renews a written employment  
             contract with the physician and surgeon prior to December 31,  
             2017, for a term not to exceed 10 years.  The contract shall  
             provide for mandatory dispute resolution under the auspices of  
             MBC for disputes directly relating to the physician and  
             surgeon's clinical practice;  

           e)   The total number of physicians and surgeons employed by the  
             District does not exceed two at any time.  However, MBC shall  
             authorize the District to hire up to three additional  
             physicians and surgeons if the District 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; 

           f)   The District notifies MBC in writing that the district plans  
             to enter into a written contract with the physician and  
             surgeon, and MBC has confirmed that the physician and surgeon's  
             employment is within the maximum number permitted by this  
             section. MBC shall provide written confirmation to the District  
             within five working days of receipt of the written notification  
             to MBC; and,

           g)   The District CEO certifies to MBC that the District did not  
             actively recruit a physician and surgeon who, at the time, were  
             employed by a federally qualified health center, a rural health  
             center, or other community clinic not affiliated with the  
             District.  

        5)Defines a "qualified rural hospital" (QRH) as any of the  
          following:

           a)   A general acute care hospital located in an area designated  
             as nonurban by the United States Census Bureau;

           b)   A general acute care hospital located in a rural-urban  
             commuting area code of four or greater as designated by the  
             United States Department of Agriculture;

           c)   A small and rural hospital, as defined in the Health and  








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             Safety Code; or,

           d)   A rural hospital located within a medically underserved  
             population or medically underserved area, so designated by the  
             federal government, or within a federally designated Health  
             Professional Shortage Area.

        6)Requires a QRH to meet all of the following requirements to be  
          eligible to employ physicians and surgeons:

           a)   The QRH CEO has provided certification to MBC that the QRH  
             has been unsuccessful, using commercially reasonable efforts,  
             in recruiting a physician and surgeon for at least 12  
             continuous months beginning on or after July 1, 2008; 

           b)   The QRH CEO certifies to MBC that the hiring of a physician  
             and surgeon shall not supplant physicians and surgeons with  
             current privileges or contracts with the QRH; 

           c)   The hospital enters into or renews a written employment  
             contract with the physician and surgeon prior to December 31,  
             2017, for a term not in excess of 10 years. The contract shall  
             provide for mandatory dispute resolution under the auspices of  
             the board for disputes directly relating to the physician and  
             surgeon's clinical practice;

           d)   The total number of physicians and surgeons employed by the  
             QRH does not exceed two at any time.  However, MBC shall  
             authorize the hospital to hire up to three additional  
             physicians and surgeons if the QRH 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;

           e)   The QRH notifies MBC in writing that the QRH plans to enter  
             into a written contract with the physician and surgeon, and the  
             MBC has confirmed that the physician's and surgeon's employment  
             is within the maximum number permitted by this section.  MBC  
             shall provide written confirmation to the QRH within five  
             working days of receipt of the written notification to the MBC;  
             and,

           f)   The QRH CEO certifies to the MBC that the QRH did not  
             actively recruit a physician and surgeon who, at the time, were  








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             employed by a federally qualified health center, a rural health  
             center, or other community clinic not affiliated with the QRH.

        7)Requires 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.  MBC shall  
          include in the report an analysis of the impact of the pilot  
          project on the ability of nonprofit community clinics and health  
          centers located in close proximity to participating health care  
          district facilities and participating rural hospitals to recruit  
          and retain physicians and surgeons. 

        8)States that nothing in this bill shall exempt a District or QRH  
          from any reporting requirements or affect MBC's authority to take  
          action against a physician and surgeon's license.

        9)Sunsets the pilot on January 1, 2018, and as of that date is  
          repealed, unless a later enacted statute enacted before January 1,  
          2018, deletes or extends that date.

        10)Makes legislative findings and declarations.

         FISCAL EFFECT  :  According to the Assembly Appropriations Committee,  
        absorbable workload to the MBC to continue oversight of physicians  
        practicing in California and to complete the impact report by 2016. 

         COMMENTS :  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 46  
        HCD hospitals and approximately 130 other public, independent  








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        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: 

        1)Operates in a county of 750,000 or less population;

        2)Reported net operating losses in fiscal year 2000-01; and,

        3)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 prior  
        to its sunset on January 1, 2011.  In its 2008 report, the MBC  








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        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."


         Analysis Prepared by  :    Sarah Huchel / B. & P. / (916) 319-3301 


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