BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 1274
AUTHOR: Wolk
AMENDED: April 9, 2012
HEARING DATE: April 18, 2012
CONSULTANT: Rubin
SUBJECT : Healing arts: hospitals: employment.
SUMMARY : Permits a hospital that is owned and operated by a
charitable organization and offers only pediatric subspecialty
care to begin billing health carriers for physician services
rendered, notwithstanding the prohibition in the "Corporate
Practice of Medicine" (CPM), if specified conditions are met.
Existing law:
1.Prohibits corporations and other artificial legal entities
from having professional rights, privileges or powers in
relation to the practice of medicine (CPM prohibition), and
prohibits hospitals and other entities from employing licensed
physicians and surgeons, and podiatrists (collectively
"licensees") to provide professional services.
2.Permits the Medical Board of California (MBC) to adopt
regulations granting the approval of the employment of
licensees on a salary basis by licensed charitable
institutions, foundations, or clinics, if no charge for
professional services rendered to patients is made by any such
organization.
3.Permits through regulations, without requiring prior approval
of MBC, any licensed charitable institution, foundation, or
clinic to employ physicians, with no limit on the number of
employed physicians, so long as such an organization does not
require a charge for professional medical services rendered to
patients.
4.Permits further exceptions to the employment prohibition for
certain teaching hospitals, nonprofit organizations engaged in
medical research, and narcotic treatment programs.
This bill: Permits a hospital that is owned and operated by a
licensed charitable organization, and that offers only pediatric
subspecialty care, to begin charging for services rendered to
Continued---
SB 1274 | Page 2
patients by physicians employed on a salary basis,
notwithstanding the prohibition in the CPM, if all of the
following conditions are met:
a. The hospital does not increase the number of salaried
licensees by more than five each year;
b. The hospital does not expand its scope of services
beyond pediatric subspecialty care;
c. The hospital accepts each patient needing its scope of
services regardless of his or her ability to pay, including
whether the patient has any form of health insurance;
d. The medical staff concur by an affirmative vote that the
physician and surgeon's employment is in the best interest
of the communities served by the hospital; and
e. The hospital does not interfere with, control, or
otherwise direct the physician's professional judgment in a
manner prohibited by CPM or other laws.
FISCAL EFFECT : This bill is keyed non-fiscal.
COMMENTS :
1.Author's statement. According to the author, Shriners
Hospital for Children (Shriners) serves more than 34,000
children in California annually, regardless of their family's
ability to pay. Due to the economic downturn and decline in
funding support, the hospital is struggling to serve all of
the children and their families that need the specialized
medical services Shriners offers. SB 1274 will allow Shriners
Hospital to recoup some of their costs by billing insurers for
the services rendered to patients with insurance coverage. The
author states that we need to ensure Shriners Hospital can
continue delivering specialty services to children and
families.
2.Corporate Practice of Medicine. In 2007, the California
Research Bureau (CRB) issued a report entitled "The Corporate
Practice of Medicine Doctrine" describing CPM, its evolution
and current status in California and other states, and
implications for California.
According to CRB, the involvement of corporations in medical
practice gained attention in the early part of the 20th
century, when mining companies needed to hire physicians to
provide care for employees in remote areas. Problems arose
when physicians' loyalties to their employers conflicted with
patients' medical needs. With the aid of state legislatures
and the courts, physicians seeking to promote and protect
their profession and autonomy succeeded in prohibiting the
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3
CPM. In many states, however, the CPM prohibition was not
explicitly codified in statutes. Instead, the application of
the doctrine developed over time through interpretations of
medical licensing statutes and other laws, and in courts as a
matter of public policy. The policy concerns cited were the
incongruity of a profit motive in medicine, division of
physician loyalty between employer and patient, and lay
control over physicians.
CRB states that by the 1950s, hospitals had come to depend
increasingly on physicians, thus raising the question of
hospital employment of physicians. The CPM prohibition was
applied to for-profit and nonprofit hospitals as corporate
entities, resulting in bans on hospital employment of
physicians, albeit unevenly, across the nation. CRB adds that
most states, including California, allow an exemption for
professional medical corporations to employ physicians, and
some no longer enforce the CPM doctrine at all. California
also allows physician employment by teaching hospitals,
certain community clinics, narcotic treatment programs, and
some nonprofit organizations. Yet in other respects,
California maintains the prohibition more rigorously than most
states and is one of only a few which still prohibits most
hospital employment of physicians.
3.Shiners Hospital for Children. According to their website,
Shriners is a system of 22 hospitals with a mission to provide
the highest care to children with neuromusculoskeletal
conditions, burn injuries and other special health care needs
within a compassionate, family-centered and collaborative
environment; provide for the education of physicians and other
health care professionals; and conduct research to discover
new knowledge that improves the quality of care and quantity
of life of children and families. Shiners states that this
mission is carried out without regard to the ability of a
patient or family to pay.
According to the author of this bill, the Shriners Endowment
Fund has fully supported the operations of the Shriners
hospitals since its inception, but has lost significant value
since the economic downturn in fiscal year 2008-09 that has
threatened the organization's ability to fulfill its mission.
In 2009, USA Today reported that, according to Shriners
officials, the Shriners Endowment Fund had fallen to $5
billion from $8 billion in less than a year because of the
sputtering stock market and a charitable-giving slump that
SB 1274 | Page 4
hurt philanthropies nationwide.
Two Shiners facilities are located in California, in Los
Angeles and Sacramento. According to the author of this bill,
the CPM exemption in this bill has been crafted in cooperation
with the California Medical Association to apply exclusively
to these two Shriners hospitals, the only pediatric
subspecialty care hospitals in California that employ their
own physicians. The author maintains that the bill is intended
to mainly affect the Sacramento hospital, since the Los
Angeles hospital serves fewer people over a much smaller
geographic range and is transitioning to an outpatient model.
The Shriners facility in Sacramento, according to its 2012
fact sheet, specializes in orthopedics, burns, specialized
plastic surgery, spinal cord injuries, and cleft lips and
palates, and receives 21,000 patient visits annually.
4.Prior legislation. SB 726 (Ashburn) of 2009 would have
revised and expanded an existing pilot project which
authorized a qualified health care district to directly employ
a limited number of physicians, as specified, and instead
allowed for qualified health care districts and rural
hospitals that meet certain requirements to employ up to two
physicians and surgeons within each district or rural hospital
and to hire three additional physicians and surgeons if they
can show a clear need in the community to the MBC. SB 726
failed passage in the Senate Business, Professions and
Economic Development Committee.
AB 646 (Swanson) of 2009 would have expanded and extended an
existing pilot program to allow health care districts to
employ a specified number of physicians and charge for their
professional services subject to specified conditions,
including that the service area of the district include an
underserved area. AB 646 failed passage in the Senate
Business, Professions and Economic Development Committee.
AB 648 (Chesbro) of 2009 would have established a
demonstration project to permit rural hospitals, as defined,
whose service areas include a medically underserved or
federally designated shortage area and which meet certain
specified requirements, to directly employ physicians. AB 648
failed passage in the Senate Business, Professions and
Economic Development Committee.
SB 1640 (Ashburn) of 2008 would have revised and recast
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existing law establishing a pilot project that permits a
hospital that is owned and operated by a health care district
to employ physicians and would have authorized a qualified
hospital that meets specified requirements to employ an
unlimited number of physicians and charge for professional
services rendered by those physicians. SB 1640 failed passage
in the Senate Business, Professions and Economic Development
Committee.
SB 1294 (Ducheny) of 2008 would have revised and extended a
pilot project administered by the MBC that allows specified
hospitals owned and operated by local health care districts to
employ physicians and charge for professional services
rendered by those medical professionals. SB 1294 failed
passage in the Senate Appropriations Committee.
AB 1944 (Swanson) of 2008 would have authorized health care
district hospitals to directly hire and employ physicians,
eliminated a pilot program that established standards and
qualifications for health care district hospitals to employ
physicians, and eliminated limitations on the total number of
participating physicians, in individual district hospitals,
and statewide. SB 1944 failed passage in the Senate Health
Committee.
SB 376 (Chesbro), Chapter 411, Statutes of 2003, authorizes a
hospital owned and operated by a health care district meeting
specified criteria to employ a physician, and to charge for
professional services rendered by the physician, if the
physician approves the charges.
5.Support. This bill is sponsored by Shriners to create a
narrow exemption to California's CPM prohibition that would
only apply to Shiners and that will ensure that Shriners will
continue to serve as many children as possible with highly
specialized medical care needs regardless of the ability of a
patient or family to pay for those services. Shriners states
that it is seeking this exemption because its Endowment Fund,
which has supported all pediatric services provided by
Shriners since 1923, experienced a very significant decrease
in value in the fiscal year 2008-09 economic downturn. While
it has continued to serve children and their families through
deficit spending, Shriners states that this is an
unsustainable model, and this bill will allow Shriners to
recoup some of its costs from third party payors.
SB 1274 | Page 6
6.Technical Amendments.
a. Third party payors. The use of the term "health
insurance" excludes Knox-Keene licensed health care
service plans. To include both health insurers and health
care service plans, the author has agreed to strike out on
Page 3, Line 8: "health insurance" and insert: "health
care coverage".
b. Professional services rendered. This bill refers in one
instance to "professional services rendered" and in
another to "services rendered." To provide clarity and
consistency, the author has agreed to strike out on Page
2, Line 39: "services rendered" and insert: "professional
services rendered".
c. Licensees. This bill amends Section 2401 of the
Business and Professions Code, which refers throughout to
physicians and surgeons and podiatrists, as "licensees."
However, it also contains one reference to "physicians and
surgeons or podiatrists" and two references to "physician
and surgeon". To provide consistency and to include
podiatrists in addition to physicians and surgeons in this
bill, the committee staff recommend to:
Ï strike out on Page 3, Line 2: physicians and surgeons
or podiatrists and insert: licensees;
Ï strike out on Page 3, Line 10: physician and surgeons
and insert: licensees; and
Ï strike out on Page 3, Line 13: physician and surgeons
and insert: "licensee's".
SUPPORT AND OPPOSITION :
Support: Shriners Hospital for Children (sponsor)
Oppose: None received.
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