BILL ANALYSIS �
AB 1952
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Date of Hearing: April 8, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 1952 (Pan) - As Amended: April 2, 2014
SUBJECT : Nonprofit hospitals: charity care.
SUMMARY : Requires nonprofit hospitals to annually provide
charity care amounting to 5% of the hospital's net patient
revenue. Specifically, this bill :
1)Prohibits a hospital from changing its fiscal year unless the
hospital changes ownership or its corporate structure as a
result of a sale or merger.
2)Requires the determination of the amount of charity care
provided by a hospital to be based on the most recently
completed fiscal year.
3)Provides that if a hospital reasonably determines, at any
time, that providing charity care in a given fiscal year would
result in the hospital having an annual operating margin of
less than 1% the hospital may petition the Department of
Public Health (DPH) to be excused in whole or in part from
complying in the current, or a future fiscal year. Allows the
Director of DPH to excuse a hospital from complying if the
Director concurs with the hospital's conclusion that providing
the required level of charity care would result in the
hospital having an operating margin of less than 1% in the
fiscal year at issue.
4)Provides that nonprofit hospitals that are part of an
"integrated nonprofit health system," as defined, are not
subject to the provisions of this bill.
5)Requires the Office of Statewide Health Planning and
Development (OSHPD), by January 1, 2016, to report to the
Legislature regarding the unique accounting difficulties in
calculating charity care for integrated nonprofit health
systems and to issue recommendations for how to do so.
Requires OSHPD to consult with stakeholders, including but not
limited to, integrated nonprofit health systems, a trade union
that represents nurses and other employees employed by such
systems, an academic center located in a university in
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California specializing in health care financing, and
representatives of the uninsured and under-insured, including
representatives of the undocumented community.
6)Clarifies that nothing in this bill invalidates an ordinance,
or prohibits the adoption of an ordinance by a city, county,
or city and county, unless simultaneous compliance is
impossible.
7)Specifies that the requirements of this bill are to be
enforced by DPH.
8)Allows the Director of DPH to assess unspecified penalties on
a hospital that does not provide the minimum amount of charity
care required.
9)Requires penalties for a second and each subsequent fiscal
year of violation within a five year period to be at least
twice the hospital's total shortfall in charity care for that
fiscal year, but not to exceed an unspecified percentage of
the hospital's net patient revenue.
10)Defines "charity care" as the unreimbursed cost to a hospital
of all of the following:
a) Providing, funding, or financially supporting the
following community benefits, when they are demonstrated to
reduce community health care costs:
i) Vaccination programs;
ii) Chronic illness prevention programs and services;
iii) Nursing and caregiver training;
iv) Home-based health care programs for needy
individuals;
v) Exercise and/or nutrition programs for needy
individuals; and,
vi) Community-based mental health outreach and
assessment programs for needy individuals.
b) Providing, funding, or otherwise financially supporting
health care services or items on an inpatient or outpatient
basis to needy patients;
c) Providing, funding, or otherwise financially supporting
health care services or items provided to needy patients
through other outpatient clinics, hospitals, or health care
organizations; and,
d) Any unreimbursed difference between the reimbursement a
hospital receives from the Medi-Cal program for providing a
health care service or item pursuant to the Medi-Cal
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program, and the reimbursement the hospital would have
received from the Medicare program for providing the
identical health care service or item had it been eligible
for reimbursement from the Medicare program.
11)Clarifies that charity care does not include the cost to a
nonprofit hospital of paying any taxes or other governmental
assessments, uncollected fees, or accounts written off as bad
debt.
12)Provides that the cost to a hospital shall be calculated by
applying the cost to charge ratios, according to the
hospital's most recently filed Medicare cost report, to billed
charges.
13)Defines "integrated nonprofit health system" as a nonprofit
hospital and an affiliated health care service plan that are
owned, operated, or substantially controlled by the same
person or persons, other legal entity or entities, including,
but not limited to, a shared corporate parent.
14)Defines "affiliated health care service plan" as a plan
licensed under the Knox-Keene Health Care Service Plan Act of
1975, that in a nonprofit hospital's most recently concluded
fiscal year was the primary payer for 5% or more of all annual
inpatient discharges, excluding inpatient discharges when the
primary payer was Medicare, Medi-Cal, or a county indigent
program, or when the care was provided as unreimbursed charity
care.
15)Defines "needy patient" and "needy individual" as a patient
who is a self-pay patient, a patient with high medical costs,
and a patient who has a family income that does not exceed
350% of the federal poverty level (FPL), and clarifies that if
a nonprofit hospital chooses to grant eligibility for its
discount payment policy or charity care policies to patients
with incomes over 350% FPL, those patients shall also be
deemed needy individuals and needy patients.
16)Specifies that "net patient revenue" shall be calculated in
accordance with generally accepted accounting principles for
hospitals, and shall be consistent with information provided
by a nonprofit hospital in a compliant hospital annual
disclosure report filed with OSHPD.
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17)Defines "nonprofit hospital" as a health facility having a
duly constituted governing body with overall administrative
and professional responsibility and an organized medical staff
that provides 24-hour inpatient care, including the following
basic services: medical, nursing, surgical, anesthesia,
laboratory, radiology, pharmacy, and dietary services, that is
owned or operated or substantially controlled by one or more
nonprofit corporations or associations. Clarifies that
nonprofit hospital does not include children's hospitals or
public hospitals.
18)Specifies that a hospital's operating margin shall be
calculated in accordance with generally accepted accounting
principles for hospitals, and shall be based on a nonprofit
hospital's operating earnings.
19)Clarifies that unreimbursed costs do not include payer
discounts or contractual adjustments in reimbursements to
third-party payers or costs for which the nonprofit hospital
receives any partial payment for the related service,
including, but not limited to, third-party insurance payments,
Medicare payments, payments from TRICARE or the Civilian
Health and Medical Program of the Uniformed Services, state
reimbursements for education, payments from pharmaceutical
companies to pursue research, grant funds for research, and
disproportionate share payments.
20)Establishes the Nonprofit Hospital Charity Care Penalty Fund
(Fund) within the General Fund and specifies that revenues
derived from penalties assessed on nonprofit hospitals who
fail to provide the required amount of charity shall be
deposited into the Fund. Makes all moneys in the Fund
available for appropriation by the Legislature for the support
of the Medi-Cal program and indigent care and safety net
programs.
21)Clarifies that existing funding for the Medi-Cal program and
indigent care and safety net programs means the total amount
spent from appropriations by the Legislature for those
programs in the fiscal year in which the provision of this
bill are enacted, or in any subsequent fiscal year, whichever
is greater, and does not include any amount appropriated by
the Legislature from the Nonprofit Hospital Charity Care
Penalty Fund.
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22)Requires nonprofit hospitals to file an annual report with
DPH stating the amount of charity care provided, to make these
reports publicly available by posting the report on an
Internet Website. Specifies that any confidential
patient-specific data included in the reports be removed
before public disclosure.
23)Requires DPH to adopt any necessary regulations to govern the
reporting and collection of data and to ensure the
confidentiality of patient-specific data.
24)Requires DPH to inform the Attorney General (AG) of any
nonprofit hospital that DPH reasonably suspects may have
failed to provide the required amount of charity care.
25)Requires DPH to enter into an interagency agreement with
OSHPD relating to the reporting and collection of data.
26)Clarifies that the provisions of this bill do not prohibit
DPH from requiring nonprofit hospitals to provide additional
information regarding their charitable activities, or preclude
DPH from entering into interagency agreements with other
agencies and departments regarding the reporting, collection,
and analysis of data relating to charity care.
27)Requires DPH to assess reasonable fees on nonprofit hospitals
to cover the costs of administering and enforcing the
provisions of this bill and allows the AG to assess reasonable
fees on nonprofit hospitals to cover the cost of administering
and enforcing the provisions of this bill.
28)Allows DPH, OSHPD, and the AG to adopt regulations necessary
to implement the provision of this bill.
EXISTING LAW :
1)Establishes DPH and OSHPD, and requires each organization that
operates, conducts, or maintains a health facility to make and
file with OSHPD certain specified reports, including a
Hospital Discharge Abstract Data Record that currently
includes 19 elements of data per admission that are required
to be included.
2)Requires, under California's hospital community benefits law,
licensed health facilities, as specified, and freestanding
ambulatory surgery clinics to be charged a fee established by
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OSHPD to support health data and planning purposes and any
other health related-programs administered by OSHPD.
3)Requires each not-for-profit licensed general acute care
hospital, acute psychiatric hospital, or special hospital that
is owned by a corporation that has been determined to be
exempt from taxation under the Internal Revenue Code to
complete a community needs assessment evaluating the health
needs of the community serviced by the hospital that includes,
but is not limited to, a process for consulting with community
groups and local government officials in the identification
and prioritization of community needs that the hospital can
address directly, in collaboration with others.
4)Requires the entities in 3) above to submit annually its
community benefits plan to OSHPD not later than 150 days after
the hospital's fiscal year ends. Exempts from the community
benefits law hospitals serving children that do not receive
direct payment and small and rural hospitals.
5)Requires under California's fair pricing policies, hospitals,
as a condition of licensure, to maintain a policy regarding
discount payments for financially qualified patients, as well
as a charity care policy.
6)Provides that uninsured patients or patients with inadequate
insurance with family income at or below 350% FPL are eligible
to apply for hospital's charity care or discount payment
policies.
7)Requires any extended payment plans offered by a hospital to
assist patients to be interest free. This applies to patients
eligible under the hospital's charity care policy, discount
payment policy, or any other policy adopted by the hospital
for assisting low-income patients with no insurance or high
medical costs in settling outstanding past due hospital bills.
8)Permits the hospital extended payment plan to be declared no
longer operative after the patient's failure to make all
consecutive payments due during a 90-day period. Requires a
reasonable attempt to be made to contact the patient by phone
and in writing that the extended payment plan may become
inoperative.
9)Establishes emergency physician fair pricing policies for
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uninsured or patients with high medical costs who are at or
below 350% FPL.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill aims
to ensure that taxpayers' subsidies of nonprofit hospitals
result in some minimum amount of charity care provided to
their communities. Nonprofit California hospitals are exempt
from having to pay California taxes. In return, nonprofit
hospitals are supposed to donate significant resources to care
for the poor and uninsured who cannot afford to pay their
bills and that this bill will accomplish that goal by
requiring nonprofit hospitals to provide charity care
calculated as 5% of net patient revenues and granting DPH the
authority to fine non-compliant hospitals.
2)BACKGROUND . A report prepared by the Senate Office of
Research (SOR) for an August 15, 2012, hearing of the Senate
Select Committee on Charity Care and Nonprofit Hospitals
indicates 247 of California's 387 private hospitals may be
eligible for certain tax exemptions due to their nonprofit
status in exchange for providing various community benefits,
such as charity care. However, these community benefits are
not uniformly defined or measured. This ambiguity makes it
challenging to hold hospitals accountable for the special tax
benefits they receive and determine if they are providing
meaningful community benefits. Furthermore, some studies show
many investor-owned hospitals and public hospitals provide
charity care and other community benefits similar to or
greater than their nonprofit counter parts.
The California State Auditor (Auditor) has conducted two
audits on the topic of tax exemption and nonprofit hospitals:
one in December of 2007 and another in August of 2012. The
2007 report found that inconsistent data obscured the economic
value of the benefit to communities and made recommendations
to the Franchise Tax Board, which have largely been
implemented, to more closely monitor tax exempt status. The
audit recommended to the Legislature the adoption of statutory
requirements that prescribe a mandatory format and methodology
for tax-exempt nonprofit hospitals to follow when presenting
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community benefits in their plans, and an amendment in law to
require income and property tax exemptions for nonprofit
hospitals to be based upon nonprofit hospitals providing a
certain level of community benefits. Neither of those
recommendations has been adopted.
The 2012 audit found that state agencies cannot use the
community benefits plans to justify the tax-exempt status of
nonprofit hospitals, because neither federal nor state law
requires nonprofit hospitals to deliver a specific amount of
community benefits to qualify for tax exemptions and hospitals
use different methods to calculate and report the cost of
uncompensated health care services. There are also
differences in the income levels used when nonprofit hospitals
determine whether patients qualify for charity care, so a
family who qualifies at one hospital may not qualify at
another. Additionally, the impact on prices when there were
changes in ownership or operation of nonprofit hospitals could
not be determined but the amount of uncompensated care
generally did not change. The Auditor recommended again that
the Legislature consider amending state law to include
requirements about the amounts of community benefits if it
intends to tie the hospitals' tax exempt status to the amount
of community benefits provided; define a methodology in state
law for calculating community benefits each hospital delivers
or direct OSHPD to develop regulations that define such a
methodology; and, allow OSHPD to assess penalties to hospitals
that do not submit required community benefits plans.
3)SUPPORT . SEIU-UHW, the sponsor of the bill writes in support
that public hospitals paid for by taxpayers cannot bear all of
the costs of caring for the uninsured. Seven million
Californians are uninsured and up to 4 million are estimated
to remain uninsured by 2019 due to barriers such as lack of
affordable coverage and immigration status. They further
argue that requiring non-profit hospitals to spend an amount
equivalent to 5% of their net patient revenue is the right
thing to do for taxpayers and our less prosperous neighbors.
The California Labor Federation also supports the bill stating
that the Patient Protection and Affordable Care Act (ACA) will
not eliminate the need for charity care; the need may grow as
federal and state funding for public hospitals decreases. An
estimated 3 to 4 million Californians will remain uninsured
after the implementation of the ACA, and many will seek care
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at public and private hospitals. Taxpayers give non-profit
hospitals a subsidy with the expectation of health care for
the poor and uninsured and this bill is a good step toward
holding nonprofit hospitals accountable for public subsidies
and increasing charity care.
Health Access California (HAC) has a support if amended
position on this bill, seeking an amendment that would define
charity care in a manner that is consistent with federal law
on Medicare and Medicaid but also protects consumers from
collection agencies. HAC would also support amendments to
assure that consumers are made aware of the availability of
charity care, and to include hospitals operated by integrated
health systems.
4)OPPOSITION . The California Hospital Association opposes this
bill, writing that it imposes a one-size-fits-all charity care
mandate across all diverse communities in California.
Hospitals need the flexibility to design charity care and
broader community benefit programs that meet the unique needs
and the populations they serve. They further argue that
hospitals provide $13 billion annually in unreimbursed care,
including charity care, to meet the needs of local
communities.
The California Chamber of Commerce is also opposed to this
bill, stating that businesses are becoming increasingly aware
that improving the health of their communities is good for
everyone and that by requiring hospitals to spend more on
charity care, one category within the much larger category of
community benefit spending, this bill would result in less
funding for other community-based organizations and jeopardize
community-based prevention efforts.
The Alliance of Catholic Health Care opposes this bill stating
that California's charity care statutes have been in place
since 2006, and there is no evidence that they are not
working. The opposition further argues that nonprofit
hospitals meet with their communities, assess unmet needs, and
then work with stakeholders to find ways to address them.
5)RELATED LEGISLATION . AB 503 (Wieckowski and Bonta) would
require private nonprofit hospitals and nonprofit
multispecialty clinics to provide community benefits to the
public by allocating available community benefit moneys to
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charity health care, as defined, and community building
activities. AB 503 is currently pending in the Senate Health
Committee.
6)PREVIOUS LEGISLATION .
a) AB 975 (Wieckowski and Bonta) of 2013 would have revised
California's nonprofit community benefits requirements to
include multispecialty clinics, narrowed the activities
that constitute community benefits, created a definition of
charity care, and required OSHPD to develop a standardized
methodology for calculating community benefits and to issue
civil penalties for noncompliance with filing requirements.
AB 975 failed passage on the Assembly Floor.
b) AB 1503 (Lieu), Chapter 445, Statutes of 2010, requires
emergency physicians who provide emergency medical services
in a hospital to provide discounts to uninsured patients,
establishes limits on the expected payment for emergency
medical services as specified, limits debt-collection
activities, and requires hospitals to include a written
description of the hospital discount policy.
c) SB 2942 (Kuehl) of 2008 would have implemented the
Auditor's 2007 recommendation for a standardized format and
methodology to be used when presenting community benefit
information, among other requirements. SB 2942 was held in
the Senate Appropriations Committee.
d) SB 350 (Runner), Chapter 347, Statutes of 2007, requires
the submission of hospital charity care and
discount-payment policies to OSHPD.
e) AB 774 (Chan), Chapter 755, Statutes of 2006,
establishes Hospital Fair Pricing Policies, which requires
every hospital to offer reduced rates to uninsured and
underinsured patients who may have low or moderate income,
and to provide policies that clearly state the
qualifications for free care and discounted payments.
f) AB 1045 (Frommer), Chapter 532, Statutes of 2005,
revises the Payers' Bill of Rights to require hospitals to
provide information about their financial assistance and
charity care policies, as well as contact information for a
hospital employee or office to obtain additional
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information.
g) SB 610 (Machado) of 2005 would have clarified existing
law regarding hospitals entitled to claim the welfare
exemption for property tax purposes by indicating a
hospital organization is deemed to be organized or operated
for profit if operating revenues exceed operating expenses
by more than 10%. Governor Schwarzenegger vetoed SB 610.
h) SB 24 (Ortiz) of 2005 would have established charity
care and reduced payment policies and requirements as a
condition for hospitals to maintain their tax-exempt
status. SB 24 was held on the Senate Appropriations
Suspense file.
i) AB 232 (Chan) of 2004 was substantially similar AB 774
and would have required each hospital to develop a self-pay
policy specifying how the hospital determines prices to be
paid by self-pay patients, as defined, and limits these
prices for patients below specified income levels. AB 232
would also have established limits on billing and
collection activities of hospitals and their agents. AB
232 died on the Senate Floor.
j) AB 1627 (Frommer), Chapter 582, Statutes of 2003,
establishes the Payers' Bill of Rights, which generally
requires certain hospitals to provide written or electronic
copies of their chargemaster, as specified.
aa) SB 697 (Torres), Chapter 812, Statutes of 1994, requires
nonprofit hospitals to conduct community needs assessments
and develop community benefit plans and submit those plans
to OSHPD.
7)POLICY COMMENTS . According to the Legislative Analyst's
Office there is currently no uniform definition of charity
care in state or federal statute, and charity care is often
included under broader classifications of community benefits
provided by hospitals. Should this bill pass this Committee
the author may want to consider amending the bill to more
clearly define what constitutes a community benefit, and how a
non-profit hospital can demonstrate that a community benefit
reduces community health care costs.
REGISTERED SUPPORT / OPPOSITION :
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Support
SEIU-UHW (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Labor Federation
California Primary Care Association
California State Council of the Service Employees International
Union
Congress of California Seniors
Maternal and Child Health Access
United Food & Commercial Workers Union, Western States Council
Numerous individuals
Opposition
Adventist Health
Alliance of Catholic Health Care
California Chamber of Commerce
California Hospital Association
Loma Linda University Medical Center
Mammoth Hospital
Paradise Valley Hospital
Providence Health & Services Southern California
San Joaquin Community Hospital
Sharp HealthCare
St. Helena Region, Adventist Health
Stanford Hospitals & Clinics
White Memorial Medical Center
Analysis Prepared by : Lara Flynn / HEALTH / (916) 319-2097