BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1548
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          Date of Hearing:   March 27, 2012

              ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER 
                                     PROTECTION
                                 Mary Hayashi, Chair
                    AB 1548 (Carter) - As Amended:  March 22, 2012
           
          SUBJECT  :   Practice of medicine: cosmetic surgery: employment of 
          physicians and surgeons.

           SUMMARY  :   Makes it unlawful for a business organization to 
          violate the prohibition against the corporate practice of 
          medicine (CPM), if that organization is in the business of 
          outpatient elective cosmetic medical procedures or treatments.  
          Specifically,  this bill  :  

          1)Provides that a business organization that offers to provide, 
            or provides, outpatient elective cosmetic medical procedures 
            or treatments, that is owned or operated in violation of the 
            CPM, and that contracts with, or otherwise employs, a 
            physician and surgeon to facilitate its offers to provide, or 
            the provision of, outpatient elective cosmetic medical 
            procedures or treatments that may be provided only by the 
            holder of a valid physician's and surgeon's certificate is 
            guilty of knowingly making or causing to be made a false or 
            fraudulent claim for payment of a health care benefit.  States 
            that this provision is declaratory of existing law.

          2)Defines "outpatient elective cosmetic medical procedures or 
            treatments" to mean medical procedures or treatments that are 
            performed to alter or reshape normal structures of the body 
            solely in order to improve appearance. 

          3)Provides that nothing in this bill shall be construed to alter 
            or apply to arrangements currently authorized by law, as 
            specified. 

          4)States legislative findings and declarations.

           EXISTING LAW  

          1)Requires, under the Medical Practice Act (MPA), any person who 
            practices medicine to hold a valid certificate to practice 
            medicine.  Establishes the Medical Board of California (MBC) 
            to license and certify physicians and surgeons.








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          2)Prohibits corporations and other artificial legal entities 
            from having any medical professional rights, privileges, or 
            powers (known as the prohibition against the CPM).  However, 
            existing law further provides that the MBC may, pursuant to 
            regulations it has adopted, grant approval for the employment 
            of physicians and surgeons on a salary 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.  Provides other certain 
            exceptions to the prohibition against the CPM.

          3)Makes it unprofessional conduct for any licensee to violate, 
            or attempt to violate, assist in, or abet the violation of, or 
            to conspire to violate the prohibition against the CPM.  
            Requires the MBC to take action against any licensee who is 
            charged with unprofessional conduct.  Specifies the types of 
            actions that constitute unprofessional conduct.

          4)Makes it unlawful to knowingly make or cause to be made any 
            false or fraudulent claim for payment of a health care 
            benefit.  Specifies that any person who violates this 
            provision is guilty of a public offense and provides for the 
            following penalties:

             a)   When the claim or amount at issue exceeds $950, the 
               offense is punishable by imprisonment in the state prison 
               for two, three, or five years, or by a fine not to exceed 
               $50,000 or double the amount of the fraud, whichever is 
               greater, or by both that imprisonment and fine, or by 
               imprisonment in a county jail not to exceed one year, by a 
               fine of not more than $10,000, or by both that imprisonment 
               and fine; or,

             b)   When the claim or amount at issue is $950 or less, the 
               offense is punishable by imprisonment in a county jail not 
               to exceed six months, or by a fine of not more than $1,000 
               or by both, unless the aggregate amount of the claims or 
               amount at issue exceeds $950 in any 12-consecutive-month 
               period, in which case the claims or amounts may be charged 
               as in item a), above. 

          5)Defines cosmetic surgery for purposes of health insurance and 
            health plan coverage as any surgery that is performed to alter 
            or reshape normal structures of the body in order to improve 








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            the patient's appearance.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           Purpose of this bill  .  According to the author, "Several large, 
          corporate laser and medi-spa chains operate in flagrant 
          violation of the law because current penalties are minor in 
          costs compared to business profits.  Alternative patient 
          treatment sites, often called "medi-spas" have become a major 
          and often misleading presence in the medical cosmetic skin care 
          field.  Medical spas are marketing vehicles for medical 
          procedures.  The use of the term "medi-spa" is for advertising 
          purposes to make the procedures seem more appealing.  In 
          reality, however, it is the practice of medicine."

           Background  .  The CPM is typically referred to in the context of 
          a prohibition, banning hospitals from employing physicians.  The 
          CPM evolved in the early 20th century when mining companies 
          hired 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 the 
          CPM in an effort to preserve physicians' autonomy and improve 
          patient care.  The Attorney General's (AG's) office states, "In 
          a professional corporation, it is not always possible to divide 
          the 'business' side of the corporation from the part which 
          renders professional services; the subject is treated as a 
          whole."

          Existing state law generally mirrors the principles described 
          above against CPM, with specific exceptions.  The policy is 
          intended to prevent persons who are not medical professionals 
          from interfering with or influencing the physician's 
          professional judgment. 

          In an attempt to circumvent this legal prohibition, some 
          individuals have created business and management schemes that 
          violate the spirit of the law by providing management services, 
          franchises, or participating in other models that result in the 
          potential for unlicensed persons or entities to influence or 
          make medical decisions in violation of the law.  

          Physicians who are employees of non-physician owned spas are in 








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          violation of the CPM prohibition and may be disciplined for 
          unprofessional conduct.

           Medical practice models  .  The MBC has published guidance on the 
          CPM for physicians on its website, which states that the 
          following business or management decisions should be made by a 
          licensed physician and surgeon:
            
          1)Selection, hiring, and firing (as it relates to clinical 
            competency or proficiency) of physicians, allied health staff 
            and medical assistants; 

          2)Setting the parameters under which the physician will enter 
            into contractual relationships with third-party payers;

          3)Decisions regarding coding and billing procedures for patient 
            care services; and, 

          4)Approving of the selection of medical equipment and medical 
            supplies for the medical practice. 

          While a physician may consult with unlicensed persons in making 
          the "business" or "management" decisions described above, the 
          physician must retain the ultimate responsibility for, or 
          approval of, these decisions.

          The following types of medical practice ownership and operating 
          structures are prohibited:

          1)Non-physicians owning or operating a business that offers 
            patient evaluation, diagnosis, care and/or treatment; 

          2)Physician(s) operating a medical practice as a limited 
            liability company, a limited liability partnership, or a 
            general corporation; 

          3)Management service organizations arranging for, advertising, 
            or providing medical services rather than only providing 
            administrative staff and services for a physician's medical 
            practice (non-physician exercising controls over a physician's 
            medical practice, even where physicians own and operate the 
            business); and, 

          4)A physician acting as "medical director" when the physician 
            does not own the practice.  For example, a business offering 








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            spa treatments that include medical procedures such as Botox 
            injections, laser hair removal, and medical microdermabrasion, 
            that contracts with or hires a physician as its "medical 
            director."

          This bill would enhance the penalty for "medi-spa" corporations 
          violating the ban on the CPM to a public offense, punishable by 
          imprisonment for six months to five years, or by a fine of up to 
          $50,000 or double the amount of the fraud, whichever is greater, 
          or by both the imprisonment and fine.  Current law states that a 
          violation of the MPA is punishable as a misdemeanor and/or a 
          fine of up to $1,200 and imprisonment for up to 180 days. 

           Previous legislation  .  AB 2566 (Carter) of 2010 was identical to 
          this bill.  The bill was vetoed by the Governor, who stated, 
          "Existing law already addresses the issues highlighted by the 
          sponsors and author.  The real problem is that the sponsors want 
          enforcement of this issue moved up on the prioritization of 
          enforcement issues pending with the MBC.  California currently 
          ranks 41st in the county for taking serious disciplinary action 
          against doctors and this bill attempts to move those serious 
          disciplinary actions behind businesses that operate "medi-spas" 
          providing skin peels, dermabrasion and laser hair removal.  Good 
          doctors are the backbone of our health delivery system.  I 
          believe the members of the Board want to protect patients.  I 
          just don't agree that the Board's time is better spent on 
          medi-spa enforcement when other physicians should be more 
          quickly investigated and prohibited from practicing medicine 
          when they have caused serious patient harm or death."

          AB 252 (Carter) of 2009 authorizes the revocation of a license 
          of a physician and surgeon who provides elective cosmetic 
          medical procedures or treatments in violation of the prohibition 
          against CPM.  This bill was vetoed by the Governor, who stated, 
          "This bill is duplicative of existing law and unnecessary.  MBC 
          already has significant legal authority to take action against 
          physicians that violate the MPA."

          AB 2398 (Nakanishi) of 2008 contains provisions identical to 
          this bill.  The bill also authorizes the revocation of the 
          license of a physician and surgeon who practices medicine with a 
          business organization that provides outpatient elective cosmetic 
          medical procedures or treatments, knowing that the practice is 
          owned or operated in violation of the prohibition against CPM.  
          This bill was held on the Senate floor.








                                                                  AB 1548
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           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          American Society for Dermatologic Surgery Association (sponsor)
          California Society of Dermatology and Dermatologic Surgery 
          (sponsor)
          American Academy of Dermatology Association
          American Academy of Facial Plastic and Reconstructive Surgery
          American Academy of Otolaryngology-Head and Neck Surgery
          American Medical Association
          American Society of Ophthalmic Plastic and Reconstructive 
          Surgery, Inc.
          California Society of Plastic Surgeons
          Medical Board of California

           Opposition 
           
          None on file.
           
          Analysis Prepared by  :    Angela Mapp / B.,P. & C.P. / (916) 
          319-3301