BILL NUMBER: AB 378 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Solorio
FEBRUARY 14, 2011
An act to amend Sections 139.3 and 139.31 of the Labor Code,
relating to workers' compensation.
LEGISLATIVE COUNSEL'S DIGEST
AB 378, as introduced, Solorio. Workers' compensation: pharmacy
products.
Existing law establishes a workers' compensation system,
administered by the Administrative Director of the Division of
Workers' Compensation, to compensate an employee for injuries
sustained in the course of employment.
Existing law provides that it is unlawful for a physician to refer
a person for specified medical goods or services whether for
treatment or medical-legal purposes if the physician or his or her
immediate family has a financial interest with the person or in the
entity that receives the referral, except in prescribed
circumstances. A violation of this provision is a misdemeanor.
This bill would add pharmacy goods, as defined, to the list of
medical goods or services for which it is unlawful for a physician to
refer a person under this provision, except in prescribed
circumstances. By creating a new crime, this bill would impose a
state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) In 2002, the Legislature passed Assembly Bill 749 (Chapter 6
of the Statutes of 2002), which directed an official medical fee
schedule for pharmaceuticals to be created to contain workers'
compensation costs and to ensure that injured workers had access to
appropriate treatment.
(b) Since the creation of the official medical fee schedule
governing pharmaceuticals, there has been a growing practice by some
prescribing physicians to utilize medications that are not covered by
the fee schedule, to dispense these medications directly to workers'
compensation patients, and to bill employers and insurers at highly
inflated rates. These practices unfairly enrich the physicians who
engage in these efforts, cost employers and insurers millions of
dollars, and prevent these wasted dollars from being used to enhance
benefits for injured workers.
(c) One of the ways that these physicians accomplished the goal of
billing at inflated rates was by repackaging common medications from
bulk supplies so that the packages did not have fee schedule codes,
and dispensing them in common amounts at prices far above the fee
schedule for the same products sold through pharmacies. This practice
continued until the Administrative Director of the Division of
Workers' Compensation adopted a regulation in 2007 that required any
repackaged medication to be reimbursed at the same fee schedule as
the same drug distributed through pharmacies and not reimbursed based
on arbitrary prices associated with unscheduled packages.
(d) Prior to the adoption of the physician dispensing regulation,
compounded medications, creams, copacks, and other medical foods
constituted a small percentage of the overall cost of prescription
medications. However, once the abusive repackaging practice was
outlawed, the practice of physicians prescribing or dispensing
compounded medications, creams, copacks, and medical foods expanded
rapidly.
(e) The percentage of California workers' compensation medication
dollars that are used toward compound drugs, copacks, and medical
foods has increased from 2.3 percent in 2006 to 12 percent in 2009.
This increase in compound drugs, copacks, and medical foods has
increased costs for insurers and led to rising premiums for
employers. For example, the State Compensation Insurance Fund reports
that what was rarely billed prior to 2007 rapidly escalated to over
$58 million in billings in a 16-month period. Another insurer
reported a 16-fold increase in less than a two year period.
(f) Compounded drugs are not evaluated for safety or efficacy by
the federal Food and Drug Administration (FDA). According to the FDA,
compound drugs carry significant health risks that can lead to
permanent injury or death.
(g) In order to alleviate California's employers and insurers from
this significant increase in costs, to enhance the efficiency of the
workers' compensation system, and to ensure that injured workers
receive safe, appropriate health care, the Legislature hereby
declares the need to remove the financial incentive for prescribing
costly and questionable compounded drugs, copacks, and medical foods
and to create a new process for the prescription of compound drugs,
copacks, and medical foods.
SEC. 2. Section 139.3 of the Labor Code is amended to read:
139.3. (a) Notwithstanding any other provision of
law, to the extent those services are paid pursuant to
Division 4 (commencing with Section 3200), it is unlawful for a
physician to refer a person for clinical laboratory, diagnostic
nuclear medicine, radiation oncology, physical therapy, physical
rehabilitation, psychometric testing, home infusion therapy,
outpatient surgery, or diagnostic imaging goods or
services , or pharmacy goods, whether for treatment or
medical-legal purposes , if the physician or his or her
immediate family , has a financial interest with
the person or in the entity that receives the referral.
(b) For purposes of this section and Section 139.31, the following
shall apply:
(1) "Diagnostic imaging" includes, but is not limited to, all
X-ray, computed axial tomography magnetic resonance imaging, nuclear
medicine, positron emission tomography, mammography, and ultrasound
goods and services.
(2) "Immediate family" includes the spouse and children of the
physician, the parents of the physician, and the spouses of the
children of the physician.
(3) "Physician" means a physician as defined in Section 3209.3.
(4) A "financial interest" includes, but is not limited to, any
type of ownership, interest, debt, loan, lease, compensation,
remuneration, discount, rebate, refund, dividend, distribution,
subsidy, or other form of direct or indirect payment, whether in
money or otherwise, between a licensee and a person or entity to whom
the physician refers a person for a good or service specified in
subdivision (a). A financial interest also exists if there is an
indirect relationship between a physician and the referral recipient,
including, but not limited to, an arrangement whereby a physician
has an ownership interest in any entity that leases property to the
referral recipient. Any financial interest transferred by a physician
to, or otherwise established in, any person or entity for the
purpose of avoiding the prohibition of this section shall be deemed a
financial interest of the physician.
(5) A "physician's office" is either of the following:
(A) An office of a physician in solo practice.
(B) An office in which the services or goods are personally
provided by the physician or by employees in that office, or
personally by independent contractors in that office, in accordance
with other provisions of law. Employees and independent contractors
shall be licensed or certified when that licensure or certification
is required by law.
(6) The "office of a group practice" is an office or offices in
which two or more physicians are legally organized as a partnership,
professional corporation, or not-for-profit corporation licensed
according to subdivision (a) of Section 1204 of the Health and Safety
Code for which all of the following are applicable:
(A) Each physician who is a member of the group provides
substantially the full range of services that the physician routinely
provides, including medical care, consultation, diagnosis, or
treatment, through the joint use of shared office space, facilities,
equipment, and personnel.
(B) Substantially all of the services of the physicians who are
members of the group are provided through the group and are billed in
the name of the group and amounts so received are treated as
receipts of the group, and except that in the case of multispecialty
clinics, as defined in subdivision ( l ) of Section 1206
of the Health and Safety Code, physician services are billed in the
name of the multispecialty clinic and amounts so received are treated
as receipts of the multispecialty clinic.
(C) The overhead expenses of, and the income from, the practice
are distributed in accordance with methods previously determined by
members of the group.
(7) Outpatient surgery includes both of the following:
(A) Any procedure performed on an outpatient basis in the
operating rooms, ambulatory surgery rooms, endoscopy units, cardiac
catheterization laboratories, or other sections of a freestanding
ambulatory surgery clinic, whether or not licensed under paragraph
(1) of subdivision (b) of Section 1204 of the Health and Safety Code.
(B) The ambulatory surgery itself.
(8) "Pharmacy goods" means any dangerous drug or dangerous device
as defined by Section 4022 of the Business and Professions Code, and
any medical food as defined by Section 109971 of the Health and
Safety Code.
(c) (1) It is unlawful for a licensee to enter into an arrangement
or scheme, such as a cross-referral arrangement, that the licensee
knows, or should know, has a principal purpose of ensuring referrals
by the licensee to a particular entity that, if the licensee directly
made referrals to that entity, would be in violation of this
section.
(2) It shall be unlawful for a physician to offer, deliver,
receive, or accept any rebate, refund, commission, preference,
patronage dividend, discount, or other consideration, whether in the
form of money or otherwise, as compensation or inducement for a
referred evaluation or consultation.
(d) No claim for payment shall be presented by an entity to any
individual, third-party payor, or other entity for any goods or
services furnished pursuant to a referral prohibited under this
section.
(e) A physician who refers to or seeks consultation from an
organization in which the physician has a financial interest shall
disclose this interest to the patient or if the patient is a minor,
to the patient's parents or legal guardian in writing at the time of
the referral.
(f) No insurer, self-insurer, or other payor shall pay a charge or
lien for any goods or services resulting from a referral in
violation of this section.
(g) A violation of subdivision (a) shall be a misdemeanor. The
appropriate licensing board shall review the facts and circumstances
of any conviction pursuant to subdivision (a) and take appropriate
disciplinary action if the licensee has committed unprofessional
conduct. Violations of this section may also be subject to civil
penalties of up to five thousand dollars ($5,000) for each offense,
which may be enforced by the Insurance Commissioner, Attorney
General, or a district attorney. A violation of subdivision (c), (d),
(e), or (f) is a public offense and is punishable upon conviction by
a fine not exceeding fifteen thousand dollars ($15,000) for each
violation and appropriate disciplinary action, including revocation
of professional licensure, by the Medical Board of California or
other appropriate governmental agency.
SEC. 3. Section 139.31 of the Labor Code is amended to read:
139.31. The prohibition of Section 139.3 shall not apply to or
restrict any of the following:
(a) A physician may refer a patient for a good or service
otherwise prohibited by subdivision (a) of Section 139.3 if the
physician's regular practice is where there is no alternative
provider of the service within either 25 miles or 40 minutes
traveling time, via the shortest route on a paved road. A physician
who refers to, or seeks consultation from, an organization in which
the physician has a financial interest under this subdivision shall
disclose this interest to the patient or the patient's parents or
legal guardian in writing at the time of referral.
(b) A physician who has one or more of the following arrangements
with another physician, a person, or an entity, is not prohibited
from referring a patient to the physician, person, or entity because
of the arrangement:
(1) A loan between a physician and the recipient of the referral,
if the loan has commercially reasonable terms, bears interest at the
prime rate or a higher rate that does not constitute usury, is
adequately secured, and the loan terms are not affected by either
party's referral of any person or the volume of services provided by
either party.
(2) A lease of space or equipment between a physician and the
recipient of the referral, if the lease is written, has commercially
reasonable terms, has a fixed periodic rent payment, has a term of
one year or more, and the lease payments are not affected by either
party's referral of any person or the volume of services provided by
either party.
(3) A physician's ownership of corporate investment securities,
including shares, bonds, or other debt instruments that were
purchased on terms that are available to the general public through a
licensed securities exchange or NASDAQ, do not base profit
distributions or other transfers of value on the physician's referral
of persons to the corporation, do not have a separate class or
accounting for any persons or for any physicians who may refer
persons to the corporation, and are in a corporation that had, at the
end of the corporation's most recent fiscal year, total gross assets
exceeding one hundred million dollars ($100,000,000).
(4) A personal services arrangement between a physician or an
immediate family member of the physician and the recipient of the
referral if the arrangement meets all of the following requirements:
(A) It is set out in writing and is signed by the parties.
(B) It specifies all of the services to be provided by the
physician or an immediate family member of the physician.
(C) The aggregate services contracted for do not exceed those that
are reasonable and necessary for the legitimate business purposes of
the arrangement.
(D) A written notice disclosing the existence of the personal
services arrangement and including information on where a person may
go to file a complaint against the licensee or the immediate family
member of the licensee, is provided to the following persons at the
time any services pursuant to the arrangement are first provided:
(i) An injured worker who is referred by a licensee or an
immediate family member of the licensee.
(ii) The injured worker's employer, if self-insured.
(iii) The injured worker's employer's insurer, if insured.
(iv) If the injured worker is known by the licensee or the
recipient of the referral to be represented, the injured worker's
attorney.
(E) The term of the arrangement is for at least one year.
(F) The compensation to be paid over the term of the arrangement
is set in advance, does not exceed fair market value, and is not
determined in a manner that takes into account the volume or value of
any referrals or other business generated between the parties,
except that if the services provided pursuant to the arrangement
include medical services provided under Division 4, compensation paid
for the services shall be subject to the official medical fee
schedule promulgated pursuant to Section 5307.1 or subject to any
contract authorized by Section 5307.11.
(G) The services to be performed under the arrangement do not
involve the counseling or promotion of a business arrangement or
other activity that violates any state or federal law.
(c) (1) A physician may refer a person to a health facility as
defined in Section 1250 of the Health and Safety Code, to any
facility owned or leased by a health facility, or to an outpatient
surgical center, if the recipient of the referral does not compensate
the physician for the patient referral, and any equipment lease
arrangement between the physician and the referral recipient complies
with the requirements of paragraph (2) of subdivision (b).
(2) Nothing shall preclude this subdivision from applying to a
physician solely because the physician has an ownership or leasehold
interest in an entire health facility or an entity that owns or
leases an entire health facility.
(3) A physician may refer a person to a health facility for any
service classified as an emergency under subdivision (a) or (b) of
Section 1317.1 of the Health and Safety Code. For nonemergency
outpatient diagnostic imaging services performed with equipment for
which, when new, has a commercial retail price of four hundred
thousand dollars ($400,000) or more, the referring physician shall
obtain a service preauthorization from the insurer, or self-insured
employer. Any oral authorization shall be memorialized in writing
within five business days.
(d) A physician compensated or employed by a university may refer
a person to any facility owned or operated by the university, or for
a physician service, to another physician employed by the university,
provided that the facility or university does not compensate the
referring physician for the patient referral. For nonemergency
diagnostic imaging services performed with equipment that, when new,
has a commercial retail price of four hundred thousand dollars
($400,000) or more, the referring physician shall obtain a service
preauthorization from the insurer or self-insured employer. An oral
authorization shall be memorialized in writing within five business
days. In the case of a facility which is totally or partially owned
by an entity other than the university, but which is staffed by
university physicians, those physicians may not refer patients to the
facility if the facility compensates the referring physician for
those referrals.
(e) The prohibition of Section 139.3 shall not apply to any
service for a specific patient that is performed within, or goods
that are supplied by for use within , a
physician's office, or the office of a group practice. Further, the
provisions of Section 139.3 shall not alter, limit, or expand a
physician's ability to deliver, or to direct or supervise the
delivery of, in-office goods or services according to the laws,
rules, and regulations governing his or her scope of practice. With
respect to diagnostic imaging services performed with equipment that,
when new, had a commercial retail price of four hundred thousand
dollars ($400,000) or more, or for physical
therapy services, for pharmacy goods furnished for
use outside the physician's office for which the referring physician'
s office or group practice charges more than the documented paid cost
net of any rebates or refunds or discounts plus the lesser of 20
percent of the documented paid cost or one hundred dollars ($100),
or for psychometric testing that exceeds the routine screening
battery protocols, with a time limit of two to five hours,
established by the administrative director, the referring physician
obtains shall obtain a service
preauthorization from the insurer or self-insured employer. Any oral
authorization shall be memorialized in writing within five business
days.
(f) The prohibition of Section 139.3 shall not apply where the
physician is in a group practice as defined in Section 139.3 and
refers a person for services specified in Section 139.3 to a
multispecialty clinic, as defined in subdivision ( l ) of
Section 1206 of the Health and Safety Code. For diagnostic imaging
services performed with equipment that, when new, had a commercial
retail price of four hundred thousand dollars ($400,000) or more,
or physical therapy services, or
for pharmacy goods furnished for use outside the
physician's office for which the referring physician's
office or group practice charges more than the documented paid cost
net of any rebates or refunds or discounts plus the lesser of 20
percent of the documented paid cost or one hundred dollars ($100),
psychometric testing that exceeds the routine screening battery
protocols, with a time limit of two to five hours, established by
the administrative director, performed at the multispecialty
facility, the referring physician shall obtain a service
preauthorization from the insurer or self-insured employer. Any oral
authorization shall be memorialized in writing within five business
days.
(g) The requirement for preauthorization in Sections (c), (e), and
(f) shall not apply to a patient for whom the physician or group
accepts payment on a capitated risk basis.
(h) The prohibition of Section 139.3 shall not apply to any
facility when used to provide health care services to an enrollee of
a health care service plan licensed pursuant to the Knox-Keene Health
Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section
1340) of Division 2 of the Health and Safety Code).
(i) The prohibition of Section 139.3 shall not apply to an
outpatient surgical center, as defined in paragraph (7) of
subdivision (b) of Section 139.3, where the referring physician
obtains a service preauthorization from the insurer or self-insured
employer after disclosure of the financial relationship.
SEC. 4. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.