BILL ANALYSIS                                                                                                                                                                                                    

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

          BILL NO:       SB 1320
          AUTHOR:        Harman
          AMENDED:       March 28, 2012
          HEARING DATE:  April 25, 2012
          CONSULTANT:    Rubin

           SUBJECT  :  Retainer practices.
          SUMMARY  :  Defines a "retainer practice" as a person who is 
          licensed to practice medicine and contracts with patients to 
          provide primary care services, as defined, at least in part 
          based on a periodic fee and prohibits a retainer practice from 
          being subject to regulation as a health care service plan 
          (health plan) by the Department of Managed Health Care (DMHC) or 
          as a health insurer by the California Department of Insurance 

          Existing law:
          1.Requires the Medical Board of California (MBC) to issue 
            licenses to holders of physician certificates and holders of 
            doctor of podiatric medicine certificates who are engaged in 
            the professional practice.

          2.Provides for the licensing and regulation of health plans by 
            DMHC under the Knox-Keene Health Care Service Plan Act of 1975 
            (Knox-Keene Act) and provides for the regulation of health 
            insurers by CDI.

          3.Defines a health plan as either:
             a.   Any person who undertakes to arrange for the provision 
               of health care services to subscribers or enrollees, or to 
               pay for or to reimburse any part of the cost for those 
               services, in return for a prepaid or periodic charge paid 
               by or on behalf of the subscribers or enrollees or
             b.   Any person, whether located within or outside this 
               state, who solicits or contracts with a subscriber or 
               enrollee in this state to pay for or reimburse any part of 
               the cost of, or who undertakes to arrange or arranges for, 
               the provision of health care services that are to be 
               provided wholly or in part in a foreign country in return 
               for a prepaid or periodic charge paid by or on behalf of 
               the subscriber or enrollee.



          SB 1320 | Page 2

          4.Defines an insurer as the person who undertakes to indemnify 
            another by insurance and defines health insurance as an 
            individual or group disability insurance policy that provides 
            coverage for hospital, medical, or surgical benefits. 
          This bill:
          1.Declares the intent of the Legislature to define the term 
            "retainer practice" in a manner that ensures patient safety 
            and allows the model to operate efficiently and unencumbered 
            by unnecessary state government regulation.

          2.Declares that a retainer practice is not a health plan subject 
            to regulation by DMHC under the Knox-Keene Act, and that a 
            retainer practice is not a health insurer subject to 
            regulation by CDI.

          3.Defines a retainer practice as any person who is licensed to 
            practice medicine by MBC and contracts with patients to 
            provide primary care services, in whole or in part, based on a 
            periodic fee.

          4.Defines "primary care services" as medical services for which 
            no specialty is commonly required, and specifically excludes 
            acupuncture, chiropractic, dental, emergency, hospital, and 
            vision services

           FISCAL EFFECT  :  This bill has not been analyzed by a fiscal 
          COMMENTS  :  
           1.Author's statement.  According to the author, California needs 
            a multipronged approach to make health care services more 
            readily available and affordable to the many residents of the 
            state who lack adequate access to those services. Retainer 
            practices represent an innovative, affordable option that 
            could improve access to medical care as well as free up 
            emergency rooms for actual emergency care rather than for the 
            primary care needs of those without access to care. California 
            law lacks a definition for "retainer practice" which creates 
            some confusion with regard to their regulation. SB 1320 states 
            that retainer practices are not insurance companies or health 
            plans, and that they should not be regulated as such. SB 1320 
            also defines a retainer practice as any person licensed to 
            practice medicine by the MBC and contracts with patients to 
            provide primary care services, in whole or in part, based on a 
            periodic fee.


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          2.Background.  According to an August 2005 report by the United 
            States Government Accountability Office entitled "Concierge 
            care characteristics and considerations for Medicare" (GAO 
            report), concierge care, also called retainer-based medicine, 
            is an approach to medical practice in which physicians charge 
            their patients a membership fee in return for enhanced 
            services or amenities. The report was mandated by the Medicare 
            Prescription Drug Improvement and Modernization Act of 2003 
            and was borne out of federal concern for how the recent rise 
            of this approach might affect beneficiaries of Medicare, the 
            federal health insurance program for the aged and some 
            disabled individuals.

            An April 2008 article in the Journal of Health & Life Sciences 
            Law on "Concierge medicine: legal issues, ethical dilemmas, 
            and policy challenges" (JHLSL article) reports that the 
            concept of retainer practices evolved out of physician 
            frustration from the confluence of decreased physician 
            reimbursement, increased practice costs (including higher 
            malpractice premiums), and greater administrative burdens 
            imposed by both Medicare and private insurers. According to an 
            October 2010 report of the Medicare Payment Advisory 
            Commission (MedPAC report), retainer practices originated from 
            a Seattle-based practice in 1996 and have since grown rapidly. 
            The report adds that retainer-based medicine advocates 
            describe the change to this model of practice as having a 
            large impact on physician satisfaction and stress and that the 
            vast majority of physicians interviewed described wanting to 
            spend more time with patients as their primary motivation for 
            becoming a retainer-based physician.

            The report described three models of retainer practice based 
            on the types of services that are provided, but noted that 
            even within the three main models there is a great deal of 
            variation in practice management, services offered, fees 
            charged, and acceptance of insurance. In the first model, "fee 
            for extra services," a patient pays an annual fee to be part 
            of a physician's patient panel, and the patient receives an 
            annual physical in exchange for this fee, but continues to pay 
            for office visits other than the physical. In the second 
            model, "fee for care," the patient pays a fee that covers all 
            primary care provided by the physician; patients do not pay 
            per-visit fees and physicians typically do not charge Medicare 
            or insurance. In the third, "hybrid" model, physicians 
            continue to see non-retainer patients, while charging a fee to 


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            some of their patients for increased services.

            According to the JHLSL article, the greatest policy concern 
            expressed against retainer practices is that as this form of 
            practice becomes more prevalent, it may create a multi-tiered 
            system of health care, with lower-income patients having 
            decreased access to primary and other types of care as the 
            result of fewer primary care physicians being available for 
            those who cannot afford to pay retainer fees. 

          3.Retainer practice characteristics. The GAO report surveyed 112 
            physicians in retainer practices in October 2004 and found 
            that the annual membership fee for a person to join a retainer 
            practice varied from $60 to $15,000, with the most frequently 
            reported fee being $1,500. For the MedPAC report, 28 
            physicians in retainer practices were interviewed and fees 
            ranged from $600 to $5,400, with most in the $1,500 to $2,000 
            range. In exchange for these fees, patients were part of 
            panels that were much smaller than non-retainer patient 
            panels. Retainer physicians responding to the GAO survey 
            reported having, on average, 490 patients, compared to an 
            average of 2,716 patients the year prior to starting their 
            retainer practice. The panels were even smaller for the 
            physicians interviewed for the MedPAC report, with averages of 
            250 patients compared to 2,265 patients prior to starting a 
            retainer practice. According to the reports, the extra time 
            physicians had to spend with patients as a result of having 
            smaller patient panels enabled them to offer services such as 
            same- or next-day appointments for nonurgent care, extended 
            office visits, 24-hour cell phone access, periodic preventive 
            care physical examinations, wellness and nutrition planning, 
            smoking cessation services, and more patient education. 
            According to the MedPAC report, because the field of retainer 
            medicine is so new, there have not been extensive studies to 
            compare patient outcomes between retainer care and standard 

          4.Retainer practices and Medicare.  Retainer practices have 
            prompted federal concerns about how the model might impact 
            Medicare. The GAO report was conducted with particular 
            attention to concerns that retainer fees may constitute 
            additional charges for services that Medicare already pays 
            physicians for and that retainer practices may affect Medicare 
            beneficiaries' access to physician services. The MedPAC report 
            discusses how retainer physicians who wish to see Medicare 
            patients have two basic options: either take the formal step 


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            of opting out of Medicare entirely, or maintain a relationship 
            with the program but take the steps necessary to stay within 
            the restrictions imposed by Medicare's billing. Those who do 
            not opt out of Medicare are subject to the program's billing 
            limits: participating physicians agree not to charge the 
            patient any amounts beyond the Medicare fee schedule amount, 
            while nonparticipating physicians must limit any extra billing 
            (balance bills) to no more than 9.25 percent of the Medicare 
            Fee Schedule amount received by participating physicians. Any 
            billing above this limiting charge can be prosecuted under the 
            False Claims Act. The question for retainer practices is 
            whether retainer fees are extra charges and in violation of 
            the balance billing rules. In response to questions on this 
            issue, the Health and Human Services Office of the Inspector 
            General (OIG) issued an "OIG Alert" to retainer physicians 
            about such fees in 2004,  stating that extra payments are 
            allowed only when services are not covered by Medicare, and 
            clarifying that services such as coordination of care with 
            other providers, comprehensive assessment and plan for optimum 
            health, or extra time spent on patient care could potentially 
            be considered covered as part of Medicare services; they are 
            not enough in and of themselves to justify charging a retainer 

          5.The Affordable Care Act. According to a February 24, 2011 
            article in CaliforniaHealthline, beginning in 2014, the 
            Patient Protection and Affordable Care Act (ACA) will allow 
            retainer practices to market their coverage alongside 
            traditional health plans in health insurance exchanges. The 
            ACA includes the model in its definition of a "qualified 
            health plan." Since the California Health Benefit Exchange 
            (Exchange) will be open to all qualified health plans, any 
            retainer practice that meets the requirements outlined by ACA 
            and subsequent regulations will qualify to be purchased 
            through the Exchange. Qualification could potentially be 
            accomplished by coordinating with a high-deductible health 
            plan that ensures coverage for emergency services and other 
            essential health benefits mandated by the ACA that are not 
            provided by retainer practices.

          6.American Medical Association (AMA) opinion.  In December 2003, 
            AMA adopted Opinion 8.055 on retainer practices for the AMA 
            Code of Medical Ethics. According to the Opinion, retainer 
            contracts are consistent with pluralism in the delivery and 
            financing health care but raise ethical concerns that warrant 
            careful attention, particularly if retainer practices become 


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            so widespread as to threaten access to care. AMA advocates 
            that particular attention be paid to:
             a.   Honesty, transparency, and lack of coercion in the 
               contracted agreement;
             b.   Not promising more or better diagnostic or therapeutic 
               services when promoting a retainer practice;
             c.   Facilitating the transfer of nonparticipating patients 
               when transitioning to a retainer practice, in accord with 
               medicine's ethical mandate to provide for continuity of 
             d.   Honest billing for reimbursement under a retainer 
               contract and observance of relevant laws, rules, and 
               contracts; and
             e.   The professional obligation to provide care to those in 
               need, regardless of the ability to pay.

          1.Prevalence of retainer practices. The 2005 GAO report 
            identified 146 physicians with retainer practices nationwide, 
            including 26 in California, the most in any state. The 2010 
            MedPAC report found 756 retainer-based physicians nationwide 
            and 157 in California, while noting that this should be 
            considered a lower limit and that most experts estimated the 
            number of retainer-based physicians in the country to be 
            between 1,000 and 2,500. Some estimates are considerably 
            higher; for example, a March 23 2012, article in The Wall 
            Street Journal quotes the American Academy of Private 
            Physicians, a trade group, as estimating that 4,400 physicians 
            now run retainer-based practices, with about 1,000 changing 
            their practice within the last year. According to the MedPAC 
            report, four metropolitan statistical areas (MSAs) in 
            California ranked in the top 20 in the country for most 
            retainer practices: Los Angeles (1), San Francisco (13), San 
            Diego (15), and Riverside-San Bernardino (20). The highest 
            ratios of retainer physicians to population in California are 
            found in Santa Barbara and Ventura, ranking them as the MSAs 
            with 5th and 13th highest ratios in the country.
          2.Other states.  Washington and Oregon have recently enacted 
            laws addressing retainer practices. Washington's law, enacted 
            in 2007, includes a number of consumer protection measures and 
            requires retainer practices to provide a disclaimer indicating 
            that retainer agreements do not constitute comprehensive 
            health coverage and to submit annual statements to the office 
            of insurance. A December 2009 report to the Legislature 
            indicated that from 2007 to 09, overall patient participation 
            nearly doubled to 8,093 patients, which represents less than 
            one-tenth of one percent of the total population, the number 


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            of providers increased from 21.5 to 29, monthly fees grew from 
            $85 to $135, and the Insurance Consumer Hotline received no 
            complaints regarding any of the state's 10 retainer practices.
            Oregon's retainer practice law was signed in 2011 and contains 
            many measures similar to those in the Washington law, 
            including prohibitions on a retainer practice being controlled 
            by a health carrier, patient discrimination, double billing, 
            and false advertising. Retainer practices must provide a 
            written disclaimer to prospective patients, and be certified 
            by the Department of Consumer and Business Services.
          3.Policy questions and concerns. 
             a.   Need for the bill.  The author states that California 
               law lacks a definition for "retainer practice," which 
               creates some confusion with regard to their regulation. 
               However, it is unclear where this confusion lies - with 
               consumers, physicians, retainer practices, plans and 
               insurers, or regulators? What problems are being caused by 
               the lack of a definition? The term "retainer practice" is 
               intended to be defined in a manner that ensures patient 
               safety and remains unencumbered by unnecessary state 
               government regulation, raising the question: what is 
               necessary for state government to regulate in order to 
               ensure patient safety?
             b.   Consumer protection.  Currently, DMHC and CDI protect 
               consumers of health plans and health insurance by 
               regulating against various occurrences. This bill prohibits 
               regulation as a health plan or insurer, leaving open 
               questions about who patients should turn to if they 
               encounter fraud or abuse; an inability or unwillingness of 
               the provider to provide contracted services in a timely 
               fashion; frequent or large increases in retainer fees; 
               financial insolvency of the provider; false advertising in 
               the terms of an agreement or the conduct of a direct 
               practice business; or discrimination based on health 
               status, race, religion, national origin, disability, 
               economic status, education, or sexual orientation. Should 
               patients that contract with retainer practices be afforded 
               protection or recourse from these possible events beyond 
               currently available mechanisms such as MBC, medical 
               malpractice law, and small claims courts, particularly if 
               retainer practices will be in the Exchange with health 
               plans and insurers?

          1.Oppose.  Health Access California (HAC) writes that retainer 


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            practices give consumers a false sense of security that their 
            health care needs will be covered when in fact, as defined by 
            this bill, these practices will have no regulation and provide 
            no assurance that contracted physicians must provide or cover 
            a comprehensive range of necessary care. HAC states that 
            California provides regulation of health plans and insurance 
            products to protect health care consumers from the physical, 
            emotional, and financial trauma that can ensue from inadequate 
            health coverage and that this bill would circumvent all of 
            these protections and put consumers in danger.

          Support:  None received.

          Oppose:   Health Access California

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