BILL ANALYSIS                                                                                                                                                                                                    Ó






                                 SENATE HEALTH
                               COMMITTEE ANALYSIS
                       Senator Ed Hernandez, O.D., Chair


          BILL NO:       SB 751                                      
          S
          AUTHOR:        Gaines                                      
          B
          AMENDED:       As Introduced                               
          HEARING DATE:  April 27, 2011                              
          7
          CONSULTANT:                                                
          5              
          Chan-Sawin                                                 
          1              
                                     SUBJECT
                                         
                    Health care coverage: provider contracts


                                     SUMMARY 

          Prohibits a contract by or on behalf of a licensed health 
          care facility, as defined, and a health care service plan 
          (health plan) or health insurer from containing a provision 
          that restricts the ability of the health plan or insurer to 
          furnish information to enrollees and insureds on the cost 
          range of procedures or quality of services performed by the 
          facility, as specified.  


                             CHANGES TO EXISTING LAW  

          Existing law:
          Provides for the licensure and regulation of health plans 
          and insurers by the Department of Managed Health Care 
          (DMHC) and the California Department of Insurance (CDI), 
          respectively. 

          Requires hospitals to make a written or electronic copy of 
          its charge description master (a list of prices for 
          services) available, either by posting an electronic copy 
          on the hospital's website, or by making a written or 
          electronic copy available at the hospital.   

                                                         Continued---



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          Requires hospitals to submit their average charges for 25 
          common outpatient procedures, as specified, annually to the 
          Office of Statewide Health Planning and Development 
          (OSHPD), who is required to publish this information on its 
          website.  Requires OSHPD to publish and update on its 
          website, a list of the 25 inpatient procedures most 
          commonly performed in California hospitals, along with each 
          hospital's average charges for those procedures.  

          Defines "licensed hospital" as an institution, place, 
          building, or agency that maintains and operates organized 
          facilities for one or more persons for the diagnosis, care, 
          and treatment of human illnesses to which persons may be 
          admitted for overnight stay, including any institution 
          classified under regulations issued by the State Department 
          of Public Health (DPH) as a general or specialized 
          hospital, as a maternity hospital, or as a tuberculosis 
          hospital, but does not include a sanitarium, rest home, a 
          nursing or convalescent home, a maternity home, or an 
          institution for treating alcoholics.
          
          This bill:
          Prohibits a contract issued, amended, renewed or delivered 
          on or after January 1, 2012, by or on behalf of a health 
          plan or insurer and a licensed hospital, or any other 
          licensed health care facility owned by a licensed hospital, 
          to provide inpatient hospital services or ambulatory care 
          services, from containing a provision that restricts the 
          ability of the plan or insurer to furnish information to 
          subscribers or enrollees concerning the cost range of 
          procedures or the quality of services performed by the 
          hospital or facility.

          Makes any contractual provision that is inconsistent with 
          this bill void and unenforceable.

          Defines "licensed hospital," consistent with existing law.

          Defines "licensed health care facility" as any institution 
          or health facility, other than long-term health care 
          facility as defined in existing law, licensed by DPH to 
          deliver or furnish health care services.

          Prohibits specified fines and penalties, established in 
          existing law, from applying to the provisions in this bill.




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                                  FISCAL IMPACT  

          This bill is keyed non-fiscal.  


                            BACKGROUND AND DISCUSSION  

          According to the author, existing law does not prohibit or 
          prevent health plans and insurers from furnishing 
          information on the cost of procedures.  However, 
          contractual agreements between health carriers and 
          providers can prevent this information from being released, 
          particularly when a large provider has market power.  The 
          author points to a March 2008 San Francisco Business Times 
          article that found that CalPERS and one of its contracting 
          plans were unable to replicate a 2004 cost study because 
          one health system insisted on contractual agreements that 
          precluded the release of cost and quality information.

          The author asserts that consumers are increasingly being 
          required to pay more attention to the cost of their care, 
          due to increasing deductibles and other cost sharing 
          arrangements.  Often, consumers do not have the tools 
          themselves to make informed decisions based on cost and 
          quality of care because hospitals have prevented price and 
          quality information from being disclosed.  Information and 
          tools are needed to help consumers make better, more 
          informed decisions on their care, particularly for those 
          consumers in a preferred provider organization (PPO) 
          product, where the consumer often pays 20 percent or more 
          of the costs of certain services.  The author also contends 
          that employers have also increased their interest in price 
          transparency, in an effort to improve health care outcomes 
          and slow the growth rate of health care expenditures.  

          While the majority of hospitals in California already allow 
          this information to be shared, the author argues that some 
          hospitals are turning to "gag clauses" in contracts with 
          health plans and insurers that preclude the plan or insurer 
          from sharing cost and quality information about hospitals 
          with their enrollees.  According to the author, this bill 
          is needed to ensure that health insurers are not restricted 
          in their ability to provide cost and quality information to 




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          their members. 

          Quality measurement and price transparency
          Price transparency encourages consumers and their 
          representatives to use price and quality information in 
          their health care decisions.  Governments, employers, and 
          insurers are increasingly interested in price transparency, 
          in an effort to improve outcomes and slow the rate of 
          health care expenditures.  The concept behind price 
          transparency is to make comparative information on the 
          prices charged by health care providers for specific 
          services publicly available.  The intent is to encourage 
          consumers, and others who make decisions on their behalf 
          (e.g., employers, health plans, referring practitioners), 
          to consider price alongside quality in deciding among 
          health care providers and services, and ultimately to 
          foster a more value-driven health care delivery system.

          According to a 2007 National Quality Forum report, price 
          transparency is not simply "pulling back the curtain" on 
          health care industry financial data, much of which might 
          not be useful for the typical consumer.  To make price 
          information "actionable," it needs to be not only accurate 
          and reliable, but also specifically tailored to the 
          perspectives and needs of a particular audience.

          The report points out that "relevant" information might be 
          different for each audience. Their different definitions of 
          "price" might include the following:

                 Retail prices - list prices for services that are 
               charged by providers to patients who are not covered 
               by insurance or otherwise eligible for discounts. 

                 Negotiated prices - the price a provider agrees to 
               charge patients covered by a specific health plan. In 
               general, health plans and insurers with greater 
               purchasing power have greater leverage to negotiate 
               discounts.

                 Patient out-of-pocket payments (i.e., coinsurance, 
               deductibles, and exclusions) - the share the patient 
               is responsible for paying.  This is the "price tag" of 
               most interest to patients and their families.
          




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          Health plans and insurers, under current law, are allowed 
          to establish economic profiles of providers and provider 
          groups.  Efforts are underway nationally and in California 
          to also establish quality rating systems of individual 
          providers and provider groups.
          
          Antitrust and cost inflation issues
          As noted in a February 2008 California HealthCare 
          Foundation (CHCF) report, there are two major issues 
          related to price transparency involving health care 
          providers: (1) fears regarding antitrust violations, and 
          (2) the possibility of inadvertently contributing to a rise 
          in prices.
          Providers may be concerned about exposure to federal 
          antitrust actions if they publicize negotiated prices.  
          However, in 1996, the Department of Justice and the Federal 
          Trade Commission established an antitrust "safety zone" for 
          these types of disclosures that has several conditions, 
          including a condition that pricing that is disclosed be at 
          least three months old.  

          Economists have found that, when a market is highly 
          concentrated and there is little competition, cost 
          transparency can lead to higher, not lower, prices.  
          However, the CHCF report notes that, if prices are bundled 
          based on episodes of care, the information is not only more 
          useful to the consumer, but less likely to lead to cost 
          inflation.
          
          Hospital quality rating initiatives
          Hospital-specific quality-related information is currently 
          available through both state and national organizations.  
          In April 2005, the Centers for Medicare and Medicaid 
          Services (CMS) launched "Hospital Compare," the first 
          government-sponsored hospital quality score card.  Health 
          Grades, a national health care ratings organization, 
          publishes risk-adjusted mortality and complication rates 
          for hospitals using Medicare data.  The Hospital Care 
          Quality Information from the Consumer Perspective, also 
          administered by CMS, provides a standardized survey 
          instrument and data collection methodology for measuring 
          patients' perspectives on hospital care.  

          In December 2002, the American Hospital Association, the 
          Federation of American Hospitals and the Association of 




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          American Medical Colleges launched the Hospital Quality 
          Alliance (HQA), a national, public-private collaboration to 
          encourage hospitals to voluntarily collect and report 
          hospital quality performance information.  The HQA effort 
          is intended to make important information about hospital 
          performance accessible to the public and to inform efforts 
          to improve quality.

          At the state level, OSHPD publishes risk-adjusted outcome 
          reports detailing each individual hospital's mortality 
          rates associated with treatment of acute myocardial 
          infarction and coronary artery bypass graft surgeries.  The 
          "Hospital Compare" project, a partnership involving the 
          CHCF, the University of California at San Francisco 
          Institute for Health Policy Studies, and the California 
          Hospitals Assessment and Reporting Taskforce, provides 
          ratings for clinical care, patient safety, and patient 
          experience for the 216 hospitals in California that have 
          chosen to participate in the project.  In addition, several 
          health plans and insurers provide comparative pricing and 
          quality information on hospitals, by geographic region.

          Hospital rating and federal health care reform 
          The recently enacted federal health care reform act, the 
          Patient Protection and Affordable Care Act (PPACA), 
          contains significant and sweeping changes that affect both 
          health care delivery and health insurance coverage in the 
          United States.  Among these changes are a number of 
          provisions relating to performance measurement and quality 
          improvement, including:

                 Identifying gaps in quality reporting and 
               developing missing quality measures;

                 Promoting standardization of quality measures, 
               including convening a multi-stakeholder process to 
               develop a list of quality measures for use in public 
               reporting or payment;

                 Providing grants for the collection and aggregation 
               of data on quality and resource use measures for 
               public reporting;

                 Developing a core set of quality measures and 
               requiring the reporting of those requirements for 




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               state Medicaid programs, including at the provider 
               level; 

                 Requiring public reporting of physician performance 
               for physicians, including outcomes, patient experience 
               and other important indicators; and,

                 Requiring public reporting of quality data by 
               Medicare hospitals.

          PPACA includes a number of provisions that are intended to 
          change consumer, purchaser and provider behavior in order 
          to improve efficiency and align incentives within the 
          health care system.  One such provision, which is aimed at 
          empowering purchasers with better data, is requiring each 
          hospital to make public a list of standard charges for 
          items and services provided by the hospital.

          The federal reform law also provides that certain Medicare 
          incentive payments will continue for physicians that report 
          standard quality data, and applies Medicare payment 
          penalties beginning in 2015 for providers that do not 
          report. In addition, the federal Department of Health and 
          Human Services will develop and update provider-level 
          outcome measures (at least ten measures for acute and 
          chronic conditions by 2012).

          Arguments in support
          Blue Shield states that people routinely receive quality 
          and cost data on a variety of goods and services they 
          purchase, yet that is not the case with something as 
          important as the health care someone receives.  Blue Shield 
          argues that SB 751 makes a modest step in the right 
          direction towards unlocking the mystery behind rising 
          hospital costs, which represents one of the biggest cost 
          drivers in the system.   

          The California Association of Health Plans (CAHP) concurs, 
          stating that there is a growing recognition at the state 
          and federal level that the only way to control health care 
          costs is to focus on the costs and quality of medical 
          services.  CAHP points out that rising hospital costs have 
          contributed to rising premiums, and that hospitals have 
          shortfalls in funding for services provided to the 
          uninsured and government programs.  However, that should 




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          not mean that insured patients should be barred from 
          receiving cost and quality information.  

          Service Employees International Union (SEIU) asserts that 
          SEIU members and California consumers are increasingly 
          being required to pay more for health care as costs 
          continue to increase.  SEIU states that as members are 
          forced to shoulder the burden of higher co-pays and 
          deductibles, it is critical that they be personally armed 
          with data and tools to make informed decisions about the 
          costs of the services they are receiving and the quality of 
          those services.  
          
          The California Retailers Association supports this bill and 
          states that when deciding which products and services to 
          buy, most consumers base their decisions on price and 
          quality.  Health care should be no different, and in fact, 
          transparency rises to an even more important level for 
          consumers making what can literally become life-changing 
          health care decisions.  

          Oppose unless amended
          The University of California (UC) states that, while UC 
          endorses the concept of transparency, it believes that the 
          bill as written will result in consumers receiving 
          misleading information that will not assist them in making 
          informed choices about their medical care.  UC argues that 
          a robust risk-adjustment methodology is necessary to enable 
          meaningful comparisons across hospitals and providers that 
          have a very different mix of services and roles in the 
          community.  For example, the cost and quality of complex 
          second and third hip replacements performed at an academic 
          medical center should not be compared to a simple 
          first-time hip replacement that is commonly performed in 
          community hospitals. Although UC contracts do not contain 
          confidentiality clauses, UC believes that quality and cost 
          information should be risk-adjusted or "normalized" to 
          ensure that consumers can make apples-to-apples comparisons 
          of services across hospitals.

          Catholic Healthcare West (CHW) states that hospitals 
          support providing meaningful, accurate and reliable 
          information to consumers.  However, without appropriate 
          standards on how that information is provided, insurance 
          companies could potentially provide patients with 




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          information that is wrong or misleading.  Although most 
          insurance companies already choose to provide bundled cost 
          information for an episode of care, as recommended in the 
          aforementioned 2008 CHCF report, SB 751 does not make this 
          best practice mandatory, thereby allowing an insurance 
          company the option to selectively post disaggregated 
          information that may be misleading.  CHW argues that 
          insurers should be required to provide consumers with data 
          that provides an accurate comparison and tells the whole 
          story.  

          The California Hospital Association (CHA) concurs with 
          CHW's assertions, and points out that many hospitals report 
          that health plans frequently post false information on 
          their websites regarding hospital costs and quality.  If 
          hospitals are to be prohibited from addressing this common 
          problem contractually, insurers should be required to use a 
          scientifically valid and unbiased methodology that applies 
          to all hospitals, instead of allowing this to be negotiated 
          on a contract-by-contract basis.  CHA argues that consumers 
          and hospitals should not be placed in the position of 
          having to trust that the insurance company's rating 
          methodology is accurate and unbiased, and that providers 
          who are being rated should be given an opportunity to 
          review and make corrections to inaccurate data prior to the 
          distribution of ratings.  Furthermore, CHA states that 
          presentation of hospital costs should properly address 
          capitation and that exclusion of capitation rates in price 
          information can materially skew the results.

          Prior legislation
          AB 2389 (Gaines) of 2010 was similar in intent to SB 751, 
          but would have also provided a review and appeals process 
          for quality of care data, as specified.  Would have 
          specified that data to be disclosed must meet certain 
          requirements, such as nationally recognized evidence- or 
          consensus-based clinical recommendations or guidelines, and 
          must be risk adjusted.  Would have also limited disclosure 
          of cost information to certain elective, uncomplicated 
          procedures.  Failed concurrence on the Assembly Floor.
          
          SB 196 (Corbett) of 2009, as introduced, would have 
          prohibited a contract between a health care provider and a 
          health plan from containing a provision that restricts the 
          ability of the health plan to furnish information on the 




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          cost of procedures or health care quality information to 
          plan enrollees.  Substantively amended to another subject 
          area before the first policy hearing.

          AB 2533 (Fuentes) of 2009 would have required plans and 
          insurers to annually submit their policies and procedures 
          regarding economic profiling and quality ratings of 
          physicians, providers (including hospitals), medical 
          groups, or individual practice associations to DMHC and 
          CDI, respectively.  Died on the Senate inactive file.
          
          SB 1300 (Corbett) of 2008 was substantively similar to SB 
          196 (Corbett) of 2009.  Failed passage on the Senate Floor.
          
          ABX1 1 (Nunez) of 2007 would have established a committee 
          to develop a plan to improve and expand public reporting of 
          health care safety, quality, and cost information, as 
          specified.  ABX1 1 would additionally have required OSHPD, 
          beginning January 1, 2010, to publish risk-adjusted outcome 
          reports for percutaneous coronary interventions (for 
          example, angioplasty and stents) conducted in hospitals, 
          and to compare risk-adjusted outcomes by hospital and 
          physician.  Vetoed by the Governor. 

          AB 8 (Nunez) of 2007 would have established a commission to 
          develop a plan similar to ABX1 1 (Nunez) of 2007.  It would 
          have required its commission to publicly report certain 
          patient safety and quality indicators, and associated 
          infection rates, for each acute care hospital licensed in 
          California.  Failed passage in the Senate Health Committee.

          AB 2967 (Lieber) of 2007 would have established a Health 
          Care Cost and Quality Transparency Committee, to develop 
          and recommend to the Secretary of the Health and Human 
          Services Agency, a health care cost and quality 
          transparency plan, and would have made the Secretary 
          responsible for the timely implementation of the 
          transparency plan.  Failed passage in the Senate 
          Appropriations Committee.

          AB 1296 (Torrico), Chapter 698, Statutes of 2007, requires 
          a health plan or contractor offering health benefits to 
          CalPERS members and annuitants to disclose to CalPERS the 
          cost, utilization, actual claim payments, and contract 
          allowance amounts for services rendered by participating 




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          hospitals to each member and annuitant.  Requires this 
          information to be deemed confidential information.

          AB 1045 (Frommer), Chapter 532, Statutes of 2005, requires 
          each hospital to submit to OSHPD its average charges for 25 
          common outpatient procedures, and requires OSHPD to post 
          the information on its website.  Also requires OSHPD to 
          publish, and update online, a list of the 25 most commonly 
          performed inpatient procedures in California hospitals, 
          along with each hospital's average charges for those 
                                                                             procedures.  Requires hospitals, upon request, to provide a 
          person without health coverage a written estimate of the 
          amount the hospital will charge for services, procedures, 
          and supplies that are expected to be provided to the person 
          by the hospital, as specified.
          AB 1627 (Frommer), Chapter 582, Statutes of 2003, requires 
          hospitals to make available to the public their charge 
          description masters and to file them with OSHPD.  Also 
          requires hospitals to compile and make available lists of 
          charges for commonly performed procedures, and authorizes 
          OSHPD to compile a list of the 10 most common Medicare 
          diagnosis-related groups, a system to group similar 
          hospital cases, and the average charges.  

          
                                     COMMENTS
           
        1.Effect of the bill.  The bill does not provide a framework 
          for how cost and quality ratings, and their associated 
          methodologies, should be established within a geographic 
          area under one health insurance product.  As such, each 
          health plan and insurer may establish their own 
          methodologies and ratings system, which may be subject to 
          negotiations on a hospital-by-hospital, 
          contract-by-contract basis.  Depending on the market and 
          the hospital's ability to negotiate more favorable 
          contracts, it is possible that a plan or insurer may, even 
          within the same geographic area, have two or more different 
          methodologies and rating systems for the hospitals it 
          contracts with.  The author may wish to consider amendments 
          to establish a framework to ensure that information 
          provided to consumers is accurate and uses a consistent 
          methodology.

        2.Should hospitals and facilities be allowed to review data 




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          and make appeals?  The bill is silent on whether hospitals 
          and hospital-owned facilities may make corrections related 
          to the claims data used to determine cost or quality rating 
          (claims data is often used to determine both cost ranges 
          for procedures, and quality measurement of providers and 
          facilities).  Plans and insurers argue that such details 
          should be left to contract negotiations with providers.  
          However, it is conceivable that some hospitals may not be 
          able to negotiate provisions to address this in their 
          contract.

        3.Should cost information provided to enrollees and insureds 
          be risk adjusted for acuity?  Some hospitals, such as 
          academic teaching hospitals, see a larger number of higher 
          acuity cases, compared to other facilities.  Cost data 
          provided that is not normalized to account for such 
          differences in severity and complexity of cases, in order 
          to achieve "apples-to-apples" comparisons, may be 
          misleading to consumers.  

        4.Should cost information be bundled based on episodes of 
          care?  There are numerous charges associated with each 
          hospital visit, and economists have found that, when a 
          market is highly concentrated and there is little 
          competition, cost transparency can lead to higher, not 
          lower, prices.  Hospitals argue that it may be more useful 
          to the consumer to have information provided based on an 
          episode of care.  According to a 2008 CHCF report, this is 
          less likely to lead to cost inflation.  While plans and 
          insurers do not disagree that a bundled amount is helpful, 
          they also point out that consumers should have the right to 
          request and view an itemized breakdown of the services 
          under a bundled amount.

        5.Hospitals could file grievances with DMHC and CDI 
          concerning plan and insurer practices.  Existing law allows 
          hospitals and other providers to file grievances with DMHC 
          and CDI regarding health plan and health insurer practices. 
           This process would be available to hospitals if they 
          believe plans and insurers are not complying with the 
          provisions of this bill.  

        6.Multiple overlapping definitions of facilities and entities 
          covered by the bill.  The definitions specified in the bill 
          are unclear and overlap with other definitions in existing 




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          law.  The author may wish to strike existing definitions 
          and replace with the following clarifying amendment:   
          
               For the purposes of this section, "licensed hospital" 
               has the same meaning as defined in Section 1250 (a), 
               (b) and (f) of the Health and Safety Code.  

          7.Suggested technical amendments:

                (a)     On page 2, line 13, replace "contractural" 
                  with "contractual"

                (b)     On page 2, line 35, replace "contractural" 
                  with "contractual"


                                    POSITIONS  

          Support:  Aetna, Inc.
                    America's Health Insurance Plans
                    Association of California Life and Health 
               Insurance Companies
                    Blue Shield of California 
                    California Association of Health Plans
                    California Association of Health Underwriters
                    California Association of Joint Powers 
                    Authorities
                    California Retailers Association
                    California School Employees Association
                    Service Employees International Union
          
          Oppose:   California Healthcare West (unless amended) 
                    California Hospital Association (unless amended)
                    University of California (unless amended)


                                   -- END --