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--- STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 2 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. STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 3 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 4 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. STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 5 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 6 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 7 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 8 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 9 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 10 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 11 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 12 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 STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page 13 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 --