BILL ANALYSIS
SB 726
Page 1
Date of Hearing: July 9, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, 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 administered by the
Medical Board of California (MBC) 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)Eliminates the 20 physician limit that applies to the existing
pilot project.
2)Revises the qualifications for hospitals that may participate
in the pilot project as follows:
a) Deletes the following qualifications hospitals must meet
for the existing pilot project:
i) Operates in a county of 750,000 or less
population;
ii) Reported net operating losses in fiscal year
2000-01; and,
iii) Has a patient base of at least 50% combined
Medi-Cal, Medicare, and uninsured patients.
b) Establishes the qualifications for a hospital to
participate in the revised pilot project so that a hospital
must:
i) Be operated by the health care district itself,
and not by another entity;
ii) Be located within a medically underserved
population (MUP) or medically underserved area (MUA),
as specified;
iii) The chief executive officer (CEO) of the hospital
provide certification to MBC and the medical staff that
the hospital has been unsuccessful, using commercially
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reasonable efforts, in recruiting a core physician, as
defined, for at least 12 consecutive months during the
period beginning July 1, 2008 and ending on July 1,
2009. Require the certification to specify the
commercially reasonable efforts, including but not
limited to, recruitment payments or other incentives,
that the hospital used to recruit a core physician and
to specify the reason for the lack of success, if
known;
iv) Defines a core physician for purposes of 2) b)
iii) above as a physician specializing in family
practice, internal medicine, general surgery, or
obstetrics and gynecology;
v) The hospital medical staff and elected trustees
concur by an affirmative vote of each body that the
physician's employment is in the best interest of the
communities served by the hospital, as specified;
vi) Enter into or renew a written employment contract
with a physician and surgeon prior to December 31,
2017, for a term not greater than 10 years, as
specified;
vii) Notify MBC in writing that it plans to enter into
a written contract with the licensee, and the MBC
confirms that the licensee's employment is within the
maximum number permitted; and,
viii) Employ no more than two physicians, unless the MBC
authorizes the hospital to hire up to three additional
physicians, if both of the following requirements are
met:
(1) 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,
(2) 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.
c) Authorizes a hospital to request permission from 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
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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.
3)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
MUAs and the project's impact on consumer protection as it
relates to intrusions into the practice of medicine.
4)Repeals the provisions of this bill on January 1, 2018, unless
a later enacted statute deletes or extends that date.
5)Makes legislative findings and declarations.
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 MBC may, pursuant to regulations MBC 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
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against CPM, including:
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 who
hold academic appointments on the faculty of the
university, if the charges are approved by the physician 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
charge for professional services. Prohibits, however,
these clinics from interfering with, controlling, or
otherwise directing a physician's professional judgment in
a manner prohibited by the CPM 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
charge for professional services rendered by those
physicians. Prohibits, however, the narcotic clinic from
interfering with, controlling, or otherwise directing a
physician's professional judgment in a manner that is
prohibited by the CPM prohibition or any other provision of
law;
d) Under the Knox-Keene Health Care Service Plan Act of
1975, authorizes licensed health care service plans to
employ or contract with health care professionals,
including physicians, to deliver professional services, and
requires health plans to demonstrate that medical decisions
are rendered by qualified medical providers unhindered by
fiscal and administrative management. Provides in
regulation that the organization of a health plan must
include separation of medical services from fiscal and
administrative management; and,
e) In the Medi-Cal program, permits hospitals that submit
claims for hospital inpatient psychiatric services under
contract with Medi-Cal managed care plans to receive
reimbursement on a per diem basis for an array of services,
including a mental health professional's daily visit fee.
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,
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or otherwise direct the professional judgment of the
physician. To qualify for the project, a district hospital
must: be in a county with 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.
FISCAL EFFECT : According to the Senate Appropriations
Committee analysis, this bill would have one time fiscal costs
for the pilot project expansion of up to $100,000 from MBC's
Contingent Fund by October 1, 2012 and an extension by October
1, 2016.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill is
necessary because California's rural areas, as well as its
inner-cities, continue to be underserved. The author points
to a 2001 survey conducted by the University of California,
San Francisco, which determined that the rural portions of the
state, including the Inland Empire and Sierra Nevada regions,
had at least 30% fewer physicians per capita than the rest of
the state. With little incentive for doctors to set up shop
in remote or impoverished areas, the author contends that
something needs to be done to halt the staggering lack of
access to health care in our rural and inner-city regions.
The author contends that 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. According to the
author, 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. The author states that it is time to look
beyond special interest and pursue the needs of Californians
by passing this reasonable legislation.
2)BACKGROUND . The CPM prohibition is also sometimes referred to
as the CPM doctrine, ban, or bar. According to a 1991 report
by the United States Department of Health and Human Services
Office of Inspector General (OIG) entitled "State Prohibitions
on Hospital Employment of Physicians," state laws prohibiting
hospitals and other non-medical corporations from employing
physicians derive from laws requiring that individuals must be
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licensed to practice medicine. In some states, including
California, judicial decisions dating back to the 1930's have
interpreted these laws to preclude hospitals, with some
exceptions, from employing physicians for the purpose of
practicing medicine. According to OIG, the rationale for the
prohibition on employment of physicians is based on the
potential for conflict between a physician's loyalty to the
patient and the financial interests of the corporation that
would employ the physician. OIG also reported that opponents
of the CPM bar contend that it is a vestige of an earlier era
and that in the current health care system hospitals need
authority to control all aspects of health care delivery and
personnel within their walls, including medical care.
According to OIG, only five states: California; Colorado;
Iowa; Ohio; and, Texas, clearly prohibit hospitals from
employing physicians and even in these states, as in
California, certain types of hospitals and providers are
exempt from the CPM bar. In practice, states with CPM bars,
including California, permit professional service or medical
corporations to practice medicine, but only if controlled by
physicians.
According to MBC, current California law 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 physicians.
California's CPM bar is the result of statute, judicial
decisions, and Attorney General (AG) opinions over several
decades. For example, the statute exempts from the CPM bar
the clinics of teaching hospitals and California courts
subsequently held that the CPM bar does not apply to state
university medical schools and hospitals, specifically
including hospitals operated by the University of California,
and that counties are generally exempt from the CPM bar. A
1975 AG opinion (58 Ops.Cal.Atty.Gen. 291) found that licensed
community clinics may lawfully employ physicians, including
those community clinics which are a subsidiary of a parent
hospital organization, if specific conditions are met. In
1996, the California Court of Appeals held that hospital
districts may not have physician employees.
3)MBC PILOT PROJECT . SB 376 (Chesbro) Chapter 411, Statutes of
2003, established a pilot project permitting district
hospitals meeting specific requirements to hire and employ up
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to two physicians each, for a total of twenty physicians
statewide, if the district hospital met the following
conditions:
a) Operates in a county of 750,000 or less population;
b) Reported net operating losses in fiscal year 2000-01;
and,
c) Has a patient base of at least 50% combined Medi-Cal,
Medicare, and uninsured patients.
SB 376 required MBC to administer and evaluate the project
prior to its sunset on January 1, 2011. In its 2008 report,
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 health care."
Among the findings reported by MBC were the results of
interviews with hospitals that did not participate in the
existing pilot project. According to MBC, reasons provided by
the hospitals included:
Hospital administration supported the pilot but the medical
staff did not approve a motion to hire a physician. Senior
physicians saw it as a threat and believed that new physicians
should "pay their dues;"
a) Most physicians want the security that comes with
employment, not just a contract;
b) One hospital wanted to offer employment opportunities to
physicians currently on contract instead of hiring a new
physician; however, so as not to show favoritism, they
decided not to hire anyone;
c) The pilot's three-year limitation for employment
contracts was a barrier; the hospital indicated that no one
would want to give up private practice with uncertainty
over job security;
d) One hospital is located in a county with a population
higher than the existing pilot's threshold; otherwise, the
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hospital would have tried to hire someone; and,
e) Past recruitment has been difficult; recruiting firms
indicate the greatest barrier is the lack of employment as
an option.
4)PHYSICIAN SHORTAGE . The University of California's Final
Report of the Advisory Council on Future Growth in the Health
Professions indicates that California will face a shortage of
nearly 17,000 doctors by 2015. The January 2007 California
Medical Association (CMA) informational brochure, "Doctors in
California," states that, the average age of physicians in
rural and underserved urban communities is approaching 60,
with many of these physicians planning to retire within the
next two years.
5)RELATED LEGISLATION . AB 648 (Chesbro) of 2009 establishes a
pilot project to permit certain rural hospitals to directly
employ physicians and surgeons, as specified. AB 648 failed
passage in the Senate Business, Professions and Economic
Development Committee on June 29, 2009 by a vote of 4-4, and
was granted reconsideration was granted and it is scheduled to
be heard on July 13, 2009.
AB 646 (Swanson) of 2009 permits health care districts to
directly employ physicians and surgeons, as specified. AB 646
failed passage in the Senate Business, Professions and
Economic Development Committee on June 29, 2009 by a vote of
5-3. Reconsideration was granted.
6)PRIOR LEGISLATION .
a) AB 1944 (Swanson) of 2008 would have allowed health care
districts to employ a physician and surgeon. AB 1944 was
held in the Senate Health Committee.
a) SB 1294 (Ducheny) of 2008 would have expanded the pilot
project enabling HCDs to directly employ physicians. SB
1294 failed passage in the Assembly Appropriations
Committee.
b) SB 1640 (Ashburn) of 2008 would have expanded the pilot
project to enable general acute care hospitals to directly
employ physicians. SB 1640 failed passage in the Assembly
Business and Professions Committee.
7)DOUBLE REFERRED . This bill was double referred and passed the
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Assembly Committee on Business and Professions with a vote of
10-0 on July 7, 2009.
8)SUPPORT . CMA writes that it supports a strong bar against the
corporate practice of medicine as a very important patient
protection, because patients need to know that their
physicians are unequivocally on the patient's side, not with
the organization running the hospital or institution.
According to CMA, this bill contains enough protections in the
parameters of this bill to warrant participation in a revised
pilot program. Hi-Desert Medical Center supports this bill
and states that because most other states permit hospital
employment of physicians, hospitals outside California are
able to offer a secure, stable income with medical, dental and
retirement benefits sought by rural physicians. Hi-Desert
argues that, as a result, California hospitals are at a
distinct disadvantage in recruiting physicians to rural
communities. Hi-Desert also maintains that the lack of
physicians available in rural areas forces patients to drive
long distances for care and results in costly and dangerous
delays in care. Finally, Hi-Desert points out that other
public safety net hospitals, including county hospitals and
teaching hospitals such as UC hospitals, can hire physicians,
while district hospitals, also public safety net hospitals,
are precluded from hiring physicians.
9)OPPOSE UNLESS AMENDED . The California Hospital Association
(CHA) requests amendments that would:
a) Expand the pilot to include hiring more than two
physicians, both primary care and specialty, not only
limited to "core" physicians. According to CHA, rural and
underserved communities are in critical need of both
primary and specialty care physicians and surgeons and
experience considerable difficulty in attracting and
retaining specialists;
b) Permit the pilot to include both qualified health care
districts and state and federally designated rural
hospitals;
c) Delete the requirement for the hospital CEO to certify
that the hospital has been unsuccessful in recruiting a
physician or surgeon for the 12-month period beginning July
1, 2008 and ending July 1, 2009; and,
d) Eliminate the requirement for medical staff approval of
the hospital's hiring of a physician under the pilot
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project. CHA points out that MBC did identify at least one
instance where the medical staff of a hospital wishing to
participate in the existing pilot project objected to the
hospital's participation, precluding the hospital from
hiring a physician.
The American Federation of State, County and Municipal
Employees (AFSCME) is opposed unless this bill is amended to
remove the following provisions: the limitation on two
physicians per hospital in the pilot project, the requirement
that a hospital have been involved in recruiting efforts for
12 months beginning July 1, 2008, the restriction that
hospitals can only hire core physicians as defined in this
bill, and the requirement that the hospital medical staff
approve the hiring of each physician. AFSCME also requests
that this bill allow health care districts to hire physicians
for all types of facilities operated by the district not just
hospitals operated by the district.
The Association of Health Care Districts (ACHD), in addition
to issues addressed by CHA and AFSCME, requests an amendment
that would apply this bill to health care districts, and all
of the facilities they operate, not just hospitals. According
to ACHD, limited to district hospitals, this bill would
exclude all other districts that currently operate stand-alone
rural health clinics, community health clinics and other
essential health public health programs.
10)OPPOSITION . The Central Valley Health Network (CVHN), a
consortium of non profit, federally qualified health centers
(FQHCs) in 21 counties, is opposed to this bill. CVHN is
concerned that if district hospitals are given the authority
to directly hire and bill for physician services under the
pilot project, it will create an environment where FQHC
clinics will no longer be able to compete in regards to the
recruitment and retention of qualified physicians. CVHN
expresses the concern that this bill could have a detrimental
impact on the clinics' ability to continue to provide
linguistically and culturally sensitive care to the Central
Valley and Inland Empire's underserved and uninsured
populations.
11)PRIOR COMMITTEE ACTION . Assembly Health Committee previously
heard two
other bills this year, AB 646 (Swanson), relating to health care
districts, and AB 648 (Chesbro), relating to rural hospitals,
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both of which were aimed at revising the existing MBC pilot
project. Amendments taken in Assembly Health Committee
narrowed the two prior bills. The Committee may wish to
consider the extent to which this bill should be consistent
with previous committee actions. The committee's prior
actions by issue area were:
a) Eligible hospitals . Include in the revised pilot
project health care districts in federally designated MUAs
or MUPs (AB 646), and rural hospitals in MUAs, MUPs or in
federally designated Health Professional Shortage Areas (AB
648). This bill is limited to district hospitals in MUAs
or MUPs;
b) Medical staff . Remove or exclude language allowing
hospital medical staffs to prevent eligible hospitals from
hiring physicians in the pilot project. This bill requires
medical staff approval for a hospital to participate in the
pilot project or hire additional physicians;
c) Timeframe for recruitment efforts . Require eligible
entities to certify recruitment efforts for any 12-month
period beginning July 1, 2008. This bill limits the pilot
project to district hospitals that certify specified
recruitment efforts during one specific time period that
precedes the effective date of this bill, July 1, 2008 to
July 1, 2009;
d) Number of physicians . AB 646 allows for five physicians
to be hired per health care district, with an additional
five upon approval by MBC. AB 648 permits rural hospitals
to hire up to 10, unless more physicians are deemed
appropriate by MBC. This bill allows for up to two
physicians with an additional three physicians upon
approval by MBC, as specified;
e) Types of physicians . Permit eligible hospitals to hire
physicians or surgeons regardless of specialty. This bill
limits district hospitals to hiring core physicians (family
practice, internal medicine, general surgery or obstetrics
and gynecology) unless the hospital demonstrates
unsuccessful recruitment during the same time period as in
c) above;
f) Sunset . Extend the sunset for the pilot project until
June 1, 2018. This bill has the same sunset timeframe.
REGISTERED SUPPORT / OPPOSITION :
Support
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California Commission on Aging (prior version)
California Medical Association
Hi-Desert Medical Center
Oppose unless amended
Association of Health Care Districts
California Hospital Association
Opposition
Central Valley Health Network
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097