BILL ANALYSIS Ó SB 751 Page 1 Date of Hearing: June 13, 2011 ASSEMBLY COMMITTEE ON HEALTH William W. Monning, Chair SB 751 (Gaines and Ed Hernández) - As Amended: May 11, 2011 SENATE VOTE : 39-0 SUBJECT : Health care coverage: provider contracts. SUMMARY : Prohibits contracts between health care service plans and health insurers (carriers) and a licensed hospital or health care facility owned by a licensed hospital from containing any provision that restricts the ability of the carrier from furnishing information to subscribers, enrollees, policyholders, or insureds (members) concerning cost range of procedures or the quality of services. Provides hospitals a reasonable opportunity to validate data on an annual basis, requires risk adjustment factors for quality data, and excludes costs of procedures to patients in capitated arrangements. Specifically, this bill : 1) Prohibits a contract issued, amended, renewed, or delivered on or after January 1, 2012, by or on behalf of a carrier and a licensed hospital or any other licensed health care facility owned by a licensed hospital to provide inpatient hospital or ambulatory care services to members from containing any provision that restricts the ability of the carrier to furnish information to members concerning the cost range of procedures at the hospital or facility or the quality of services performed by the hospital or facility. 2) Makes any contractual provision inconsistent with this bill void and unenforceable. 3) Requires a carrier, at a minimum, on an annual basis, to provide the hospital or facility a reasonable opportunity to review and validate data provided to members. 4) Requires data developed and compiled by the carrier on the quality of services performed by a hospital or facility to utilize appropriate risk adjustment factors to account for different characteristics of the population, such as case mix, severity of patient's condition, comorbidities, outlier episodes, and other factors to account for differences in the SB 751 Page 2 use of health care resources among hospitals and facilities. 5) Prohibits the cost range of a procedure from including procedures for enrollees covered by capitated payments in a contract between a health care service plan (health plan) and a licensed hospital or a licensed health care facility owned by a licensed hospital. 6) Exempts a violation of this bill from existing penalties, as specified. EXISTING LAW : 1)Licenses and regulates health facilities through the Department of Public Health, and licenses and regulates health care professionals, typically through licensing boards in the Department of Consumer Affairs. 2)Regulates health plans under the Knox-Keene Health Care Service Plan Act of 1975 through the Department of Managed Health Care (DMHC) and regulates health insurers under the Insurance Code through the California Department of Insurance (CDI). 3)Establishes the Office of the Patient Advocate (OPA) within DMHC, and requires the OPA to prepare and make available a quality of care report card that includes a rating of health plans. 4)Requires hospitals to make a written or electronic copy of its charge description master (CDM-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. 5)Requires hospitals to submit their average charges for 25 common outpatient procedures, as specified, annually to Office of Statewide Health Planning and Development (OSHPD). Requires OSHPD to publish this information on its Website along with a list of the 25 inpatient procedures most commonly performed in California hospitals, and each hospital's average charges for those procedures. 6)Requires OSHPD to publish risk-adjusted outcome reports for medical, surgical, and obstetric conditions or procedures, as SB 751 Page 3 specified. 7)Requires hospitals, upon request, to provide to a person who has no health coverage, a written estimate of the amount the hospital will charge for the health care services, procedures, and supplies that are reasonably expected to be provided to the person by the hospital, as well as information about its financial assistance and charity care policies, as specified. FISCAL EFFECT : None COMMENTS : 1)PURPOSE OF THIS BILL . The authors have introduced this bill to prohibit a carrier contract with a provider for hospital services from containing a provision that would block the dissemination and disclosure of cost and quality data to members of the health plan or insurer, but not to the general public. The authors state that contractual agreements between carriers and providers can prevent this information from being released, particularly when a large provider has market power. The authors believe this bill is needed to ensure that carriers are not restricted in their ability to provide cost and quality information to their members because some hospitals are turning to "gag clauses" in contracts with carriers that preclude carriers from sharing cost and quality information about hospitals with members of the plan. The authors state that a majority of hospitals in this state already allow this information to be shared. 2)PRICE AND QUALITY TRANSPARENCY . With increasing emphasis on controlling the growth of health care costs and trends shifting more of the cost of health care to health insurance members, many are turning to quality, and in particular price, transparency efforts to inform individual decision-making and rein in spending. A 2011 article published in the New England Journal of Medicine (NEJM) on price transparency refers to the wide variation in medical prices within the United States. According to the NEJM article, publishing price information could narrow the range and lower the level of prices, by permitting consumers to engage cost-conscience shopping and stimulate price competition on the supply side, forcing high-priced providers to lower their prices to remain competitive. The NEJM article authors add that patients are SB 751 Page 4 also concerned about quality but that comparative quality information is not always available, so price is used as a proxy. According to this NEJM article, successful price-transparency initiatives should provide episode level costs (including all related doctor's visits, tests, facility charges, etc), meaningful information about quality must also be provided, and most fundamentally, consumers must be engaged in considering price information in their decisions to use medical care. The National Quality Forum (NQF), a national nonprofit organization dedicated to improving the quality of health care through building consensus around health care performance measurement and public reporting, has monitored and engaged in several state and national level transparency efforts. According to a 2007 NQF report, private sector reporting initiatives have focused on providing information to support new benefit designs - such as high deductible health plans and health savings accounts - that encourage consumers to consider price when choosing providers or selecting services. The NQF report describes two commercial health plan efforts: Aetna's DOCFind and United Healthcare's "Estimate Your Treatment Costs." The Aetna site provides estimate expenditures for certain conditions based on episodes of care according to level of severity provided by in-network providers within designated zip codes and explains that costs may be higher if out-of-network providers are used or lower if outpatient (versus hospital) settings are used. The United site allows individuals to obtain their out-of-pocket expenses and track deductible account balances. NQF predicts that more health plans will develop web sites that personalize price-shopping information for health insurance subscribers like the Aetna and United sites. Both of these sites are intended only for members, not the public. According to NQF, this information, when combined with provider-specific quality-of-care measures, helps patients choose providers wisely. NQF suggests making the information "actionable" it needs to be accurate, reliable, and tailored. Price information should include the negotiated price and patient out-of-pocket payments (co-insurance, deductibles, and exclusions). NQF makes a distinction between unit price (price of visit, procedure, or test) and total price for episode of care (total price, including pre- and post-operative care). NQF raises the issue that price information based on unit of services may SB 751 Page 5 not yield the intended benefits of reducing costs as much as information of an episode of care. 3)SUPPORT . Proponents argue that this bill is needed to prevent contractual agreements between health carriers and providers, in particular hospitals with dominate market power, that interferes with the dissemination and disclosure of cost and quality data to health insurance members. Many proponents suggest that transparency of price and quality information about health care providers will allow health insurance members to make informed decisions about their health care. Proponents point out that the data will not be made public. 4)OPPOSITION UNLESS AMENDED . a) The California Hospital Association (CHA) believes that patients deserve to have meaningful, accurate and reliable information regarding the cost and quality of hospital care to make informed choices but that some insurance companies provide patients with information that is wrong and misleading. CHA thinks the issues with providing information to consumers are more appropriately and effectively resolved in negotiations between the parties. CHA would like this bill to be amended to ensure that the information is meaningful and bundled into an episode of care, accurate, reliable and addresses the differences in hospitals that treat the sickest and neediest patients. CHA states that the amendments taken in the Senate were meant to address this issue, and do so for quality but not cost. CHA also has issues with amendments taken in the Senate to exclude costs of procedures provided under capitated arrangements. Finally, CHA requests a scientifically valid and unbiased methodology that will allow for adequate opportunity for review, validation and testing of the data integrity, data quality, and methodology. b) The University of California (UC) does not have contracts that contain confidentiality provisions that bar member access to pricing data, but is concerned that information regarding relative value of services is accurate and meaningful in order to enable consumers to make informed choices. UC requests an amendment that would apply risk adjustment to cost information. UC proposes the following amendments to Health and Safety Code 1367.49 (d) SB 751 Page 6 and Insurance Code 10133.64 (d): If the information proposed to be furnished to enrollees and subscribers on the cost and/ or quality of services performed by a hospital or facility is data that the plan has developed and compiled, the plan shall utilize appropriate risk adjustment factors to account for different characteristics of the population, such as case mix, severity of patient's condition, comorbidities, outlier episodes, and other factors or establish a homogeneous cohort of patients and procedures included in each comparison group to ensure that the type, level and severity of procedures and patients being compared are substantially comparable across hospitals and facilities. 5)OPPOSITION . Sharp HealthCare believes this bill would result in an inability to enter into capitated payment agreements with insurers. Sharp indicates that capitation is excluded from this bill but if insurers display capitated cost information it is not clear how it will be treated in the disclosure. Sharp thinks this bill should be amended to ensure that consumers have relevant information and that providers in capitated products are fairly presented in any disclosure. Sharp also believes consumers should be given meaningful cost information. 6)PREVIOUS LEGISLATION . a) AB 2389 (Gaines) of 2009 would have prohibited a contract between a health facility and a carrier from containing a provision that restricts the ability of the carrier to furnish information on the cost of procedures or health care quality information to carrier enrollees. AB 2389 died in the Assembly on Concurrence. b) SB 1300 (Corbett) of 2008 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 cost of procedures or health care quality information to plan enrollees. SB 1300 died on the Senate Floor. c) 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 SB 751 Page 7 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. AB 2967 died in the Senate Appropriations Committee on the inactive file. d) AB 1296 (Torrico), Chapter 698, Statutes of 2007, requires a health plan or contractor offering health benefits to California Public Employees' Retirement System (CalPERS) members and annuitants to disclose to CalPERS the cost, utilization, actual claim payments, and contract allowance amounts for health care services rendered by participating hospitals to each member and annuitant. Requires this information to be deemed confidential information. 7)QUESTIONS AND DISCUSSION . There are many public policy issues raised by this bill but the primary questions are: a) Should contracts between carriers and hospitals be permitted to contain confidentiality agreements that prevent the disclosure of cost and quality information to subscribers, enrollees, policyholders, or insureds? It is unclear if these types of confidentiality or "gag" clauses are common. Many industry stakeholders say most hospitals do not contain them. A 2008 San Francisco Business Times article provided by the author, indicates that Sutter Health system established confidential contract terms in Northern California contracts after CalPERS and Blue Shield of California conducted a cost study that resulted in the expulsion of 24 hospitals, including 13 operated by Sutter, from the Blue Shield HMO used by CalPERS members. According to the article, excluding those higher-cost facilities resulted in an estimated $122 million in savings over three years. Sutter indicated that it has always had those terms in its contract and that it has been an industry standard for years. b) If these confidentiality agreements should be prohibited should this bill include parameters on the cost and quality information that carriers can make available to their members? It has been documented in national and state research SB 751 Page 8 publications, including peer reviewed journals, that in order to allow patients to make informed choices data must be accurate, linked to quality measures, and incorporate the full range of costs the patients are likely to encounter. This bill has been amended to give hospitals an opportunity to review and validate data provided to members. Additionally, the bill requires quality information to utilize appropriate risk factors to account for different characteristics of the population, such as case mix and comorbidities. Should this bill also be amended to link national or state quality measures, if available, to cost information provided by the carrier and include in the cost information a reasonable estimate of the financial liability a patient may be expected to pay for all treatment and services associated with the procedure? REGISTERED SUPPORT / OPPOSITION : Support Aetna, Inc. America's Health Insurance Plans Blue Shield of California California Association of Health Underwriters California Association of Health Plans California Association of Joint Powers Authorities California Professional Firefighters California Public Employees' Retirement System California Retailers Association California School Employees Association, AFL-CIO Pacific Business Group on Health Service Employees International Union Opposition Sharp HealthCare Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097 SB 751 Page 9