Amended in Senate April 23, 2013

Senate Bill No. 351

Introduced by Senator Hernandez

February 20, 2013

An act begin insert to add Chapter 3.5 (commencing with Section 127601) to Part 2 of Division 107 of the Health and Safety Code, end insert relating to health care coverage.

LEGISLATIVE COUNSEL’S DIGEST

SB 351, as amended, Hernandez. Health care coverage: begin delete emergency care. end delete begin insert hospital billing. end insert

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Existing law provides for the licensure and regulation of health facilities by the State Department of Public Health. Existing law requires hospitals to maintain a written policy regarding discount payments for financially qualified patients as well as a written charity care policy. Existing law requires a hospital to limit the expected payment for services it provides to certain low-income patients to the highest amount the hospital would expect to receive for providing services from a government-sponsored program of health benefits in which the hospital participates. Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care.

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This bill would, until January 1, 2019, require a diagnosis and billing outlier hospital, as defined, and a hospital that is part of a diagnosis and billing outlier health system, as defined, to notify the patient and all payers of that status and that the hospital’s total billed charges may be subject to adjustment as described below. The bill would make a failure to provide that notification a felony or a misdemeanor. By expanding the definition of a crime, this bill would impose a state-mandated local program.

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The bill would require the Office of Statewide Health Planning and Development, until January 1, 2019, to assign each hospital, as defined, a separate diagnosis and billing indicator rate for 4 specified disorders and to calculate a hospital’s diagnosis and billing indicator rate for each of those disorders, as specified. The bill would require the office to post specified information on its Internet Web site by January 15, 2014, including those diagnosis and billing indicator rates and a list of diagnosis and billing outlier hospitals.

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The bill would require the State Department of Public Health, by July 1, 2014, and until January 1, 2019, to contract with one or more independent medical review organizations, or the Department of Managed Health Care, to conduct reviews that a patient or payer could request within one year of receiving a bill from a diagnosis and billing outlier hospital or a hospital in a diagnosis and billing outlier health system, on and after January 15, 2014. The bill would require the review, among other things, to address the appropriateness of diagnostic codes, whether the billed services were actually provided to the patient, whether provided services were medically necessary or appropriate, and what adjustments, if any, should be made to the bills to decrease the total charges. The bill would require, upon receipt of the final report, the State Public Health Officer to immediately adopt the findings of the independent medical review organization, and promptly issue a written decision to the patient, other payers, and the hospital that would be binding on the hospital. The bill would require a hospital to adjust any charges necessary in accordance with the written decision within 30 days. The bill would subject a hospital that fails to provide the above-described adjusted bill or reimbursement of excess charges to a $100 civil penalty each day until it complies. The bill would authorize the State Department of Public Health to adopt regulations to implement these provisions.

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The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

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This bill would provide that no reimbursement is required by this act for a specified reason.

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Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacts various health care coverage market reforms that take effect January 1, 2014. Among other things, PPACA generally prohibits a group health plan and a health insurance issuer offering group or individual health insurance coverage from establishing lifetime limits or annual limits on the dollar value of benefits for any participant or beneficiary.

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Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law requires health insurers annually to submit to the Department of Insurance a summary explanation of any lifetime and annual maximums for health benefits offered pursuant to specified provisions of law.

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This bill would declare the intent of the Legislature to enact legislation that would establish limits on out-of-network hospital emergency care billing practices.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program:  begin delete no end delete begin insert yes end insert .

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert

begin insert Chapter 3.5 (commencing with Section 127601)
is added to Part 2 of Division 107 of the end insert begin insert Health and Safety Code end insert begin insert ,
to read: end insert

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Chapter   begin insert 3.5. end insert Diagnosis and Billing Outlier Hospital
Billing

 

begin insert 127601. end insert   

(a) It is the intent of the Legislature to encourage
responsible hospital service and billing practices by mandating
the right to an independent review of patients’ medical bills
submitted by hospitals or health systems that have unusually high
rates of certain medical diagnoses or other indications of suspect
billing practices.

(b) The Office of Statewide Health Planning and Development
shall make recommendations to the Legislature biennially,
beginning on September 1, 2016, regarding possible modifications
to Section 127603 that would further the legislative intent stated
in subdivision (a).

begin insert 127602. end insert   

For the purposes of this chapter, the following
definitions shall apply:

(a) “Acute care inpatient admission” means a formal admission
of a patient to the hospital, with the expectation of remaining
overnight or longer, for acute care, as defined in paragraph (1)
of subdivision (a) of Section 12501.1.

(b) “Bill” means a bill, statement, or other demand for payment
for medical services and care provided.

(c) “Department” means the State Department of Public Health.

(d) “Diagnosis and billing outlier hospital” means any hospital
that has a percentile ranking of 90 percent or higher for three or
more of its four diagnosis and billing indicator rates if each of
those three or more diagnosis and billing indicator rates is at least
150 percent of the statewide average for that diagnosis and billing
indicator rate.

(e) “Health system” means a group of three or more hospitals
in this state that are owned, operated, or substantially controlled
by the same person or persons or other legal entity or entities,
including, but not limited to, by a shared corporate parent.

(f) “Hospital” means a hospital licensed under subdivision (a)
of Section 1250, provided that “hospital” shall not include either
of the following:

(1) A hospital that had fewer than 250 acute care inpatient
admissions of patients who were 65 years of age or older at the
time of admission, during the 2011 calendar year.

(2) A hospital at which the average length of an acute care
inpatient admission of a patient who was 65 years of age or older
at the time of admission was 10 days or greater, during the 2011
calendar year.

(g) “ICD-9-CM” means the International Classification of
Diseases, 9th Revision, Clinical Modification, published by the
United States Department of Health and Human Services.

(h) “Office” means the Office of Statewide Health Planning
and Development.

(i) “Payer” means any person or entity, including the patient,
legally required or responsible to make payment with respect to
a health care item or service, or any portion thereof.

begin insert 127603. end insert   

(a) Each hospital subject to this chapter shall be
assigned a separate diagnosis and billing indicator rate for each
of the following four disorders:

(1) Kwashiorkor or other forms of severe malnutrition, classified
as ICD-9-CM code 260, 261, or 262.

(2) Acute heart failure, classified as ICD-9-CM code 428.21,
428.23, 428.31, 428.33, 428.41, or 428.43.

(3) Encephalopathy, classified as ICD-9-CM code 348.30,
348.31, 348.39, or 349.82.

(4) Autonomic nerve disorder, classified as ICD-9-CM code
337.9.

(b) The office shall calculate a hospital’s diagnosis and billing
indicator rate for each of the four disorders identified in
paragraphs (1) to (4), inclusive, of subdivision (a) by dividing the
number of all acute care inpatient admissions during the 2011
calendar year of patients who were 65 years of age or older at the
time of admission and who were diagnosed with any one or more
of the ICD-9-CM codes reflecting the disorder in question, by the
total number of acute care inpatient admissions during the 2011
calendar year of patients who were 65 years of age or older at the
time of admission. A hospital diagnosis and billing indicator rate
shall not be calculated for a disorder identified in paragraphs (1)
to (4), inclusive, of subdivision (a) if a hospital has less than 10
acute care inpatient admissions for that disorder.

(c) The office shall publish on its Internet Web site the following
information regarding all hospitals’ diagnosis and billing indicator
rates by no later than January 15, 2014:

(1) Each hospital’s diagnosis and billing indicator rates for
each of the four disorders identified in paragraphs (1) to (4),
inclusive, of subdivision (a).

(2) A list of each hospital’s percentile ranking for each diagnosis
and billing indicator rate. A hospital’s percentile ranking for a
diagnosis and billing indicator rate shall be calculated by dividing
the number of hospitals subject to this chapter that have diagnosis
and billing indicator rates for the disorder in question that are
lower than the diagnosis and billing indicator rate of the hospital
being ranked, by the total number of hospitals subject to this
chapter.

(3) A list of diagnosis and billing outlier hospitals.

(d) The statewide average of a diagnosis and billing indicator
rate shall be calculated for each of the disorders identified in
paragraphs (1) to (4), inclusive, of subdivision (a) by dividing the
number of all acute care inpatient admissions at all hospitals in
the state during the 2011 calendar year of patients who were 65
years of age or older at the time of admission and who were
diagnosed with any one or more of the ICD-9-CM codes reflecting
the disorder in question, by the total number of acute care inpatient
admissions at all hospitals in the state during the 2011 calendar
year of patients who were 65 years of age at the time of admission.

begin insert 127604. end insert   

(a) Any health system that, during the 2011 calendar
year, included three or more diagnosis and billing outlier hospitals
shall be deemed a diagnosis and billing outlier health system.

(b) (1) No person or entity listed in paragraph (2) shall be
permitted to purchase or operate a hospital in California that is
not already owned, operated, or substantially controlled by that
person or entity, and shall not be permitted to receive any license
for such a hospital pursuant to Chapter 2 (commencing with
Section 1250) of Division 2.

(2) This subdivision applies to any diagnosis and billing outlier
hospital, diagnosis and billing outlier health system, hospital that
is part of a diagnosis and billing outlier health system, or person
or persons or other legal entity or entities that own, operate, or
substantially control any diagnosis and billing outlier hospital or
any hospital that is part of a diagnosis and billing outlier health
system.

(c) Every diagnosis and billing outlier hospital and every
hospital in a diagnosis and billing outlier health system shall notify
the patient and all payers at the time it submits a bill for any
provided services and care of the following:

(1) The hospital is a diagnosis and billing outlier hospital or is
part of a diagnosis and billing outlier health system.

(2) Its total billed charges may be subject to adjustment pursuant
to Section 127605.

(d) A hospital that fails to notify a patient or payer in
accordance with the requirements of subdivision (c) shall be
punished by imprisonment pursuant to subdivision (h) of Section
1170 of the Penal Code for two, three, or five years, or by a fine
not exceeding fifty thousand dollars ($50,000) or, if the bill is
found to have excess charges, the amount of the excess charges
or fifty thousand dollars ($50,000), whichever is greater, or by
both that imprisonment and fine, or by imprisonment in a county
jail not to exceed one year, or by a fine of not more than ten
thousand dollars ($10,000), or by both that imprisonment and fine.

begin insert 127605. end insert   

(a) By July 1, 2014, the department shall contract
with one or more independent medical review organizations in the
state to conduct reviews for the purposes of this section. The
independent medical review organizations shall satisfy the
requirements set forth in Section 1374.32 for organizations with
which the Department of Managed Health Care may contract. The
department director may contract with the Department of Managed
Health Care to administer the independent medical review process.

(b) Any patient or payer who receives a bill from a diagnosis
and billing outlier hospital or a hospital in a diagnosis and billing
outlier health system for services and care provided at that hospital
may, on or after January 15, 2014, and within one year of receiving
the bill, apply to the department for an independent medical review
of the hospital’s bill and any other bills for service and care for
the same patient submitted by the hospital or any other hospital
in the same diagnosis and billing outlier health system. Within 45
days of receiving an application, or by August 15, 2014, whichever
is later, the department shall assign an independent medical review
organization. The patient or payer shall pay no application or
processing fees of any kind.

(c) A patient or payer who notifies a hospital that the patient
or payer has applied to the department for an independent medical
review of the hospital’s bills shall have no obligation to make any
payments for any charges on any of the hospital’s bills covered
by the application until no earlier than 30 days after the patient
or payer receives the decision of the department director pursuant
to subdivision (f).

(d) An independent medical review organization assigned by
the department to review an application made pursuant to
subdivision (b) shall do the following:

(1) Review the bills and request any medical records from the
hospital that would aid its review. Upon receipt of such a request
and any necessary patient authorization, the hospital shall
promptly provide to the independent medical review organization
all the patient’s medical records in the possession of the hospital,
its agents, or its contracting providers relevant to the patient’s
medical condition, the services being provided to the patient for
the condition, and the services and care on the bill under review.

(2) Determine whether each charge was for a service that was
actually provided to the patient and whether each service was
medically necessary or appropriate based on the specific medical
needs of the patient or the patient’s instructions, and any of the
following:

(A) Peer-reviewed scientific and medical evidence regarding
the effectiveness of the service.

(B) Nationally recognized professional standards.

(C) Expert opinion.

(D) Generally accepted standards of medical practice.

(3) Prepare a draft report setting forth its findings.

(4) Submit copies of the draft report to the patient and all other
payers and the hospital or hospitals that submitted the bills, and
provide the patient, other payers, and the hospitals 30 days to
submit comments, arguments, and evidence.

(5) Consider any comments, arguments, and evidence submitted
pursuant to paragraph (4) and make any appropriate modifications
to its draft report.

(6) Deliver to the patient, all other payers, the hospitals, and
the department a final report within 30 days of receiving any
comments, arguments, or evidence submitted pursuant to
paragraph (4).

(e) The draft and final reports prepared by the independent
medical review organization shall include specific findings
regarding the appropriateness of the hospital’s use of diagnostic
codes, whether services indicated on the bills were actually
provided to the patient, whether the services provided were
medically necessary or appropriate, and whether and what
adjustments should be made to the bills that would decrease the
total billed charges on the bills.

(f) Upon receipt of the final report, the State Public Health
Officer shall immediately adopt the findings of the independent
medical review organization, and shall promptly issue a written
decision to the patient, other payers, and the hospital that shall
be binding on the hospital.

(g) Within 30 days of receiving a decision pursuant to
subdivision (f) that identifies adjustments that would decrease the
total billed charges on the hospital’s bills, a hospital shall adjust
those charges in accordance with the decision and send a revised
bill to the patient and other payers. If a patient or other payer has
already paid for billed charges that, in accordance with the
decision, should not have been billed, the hospital shall provide
appropriate reimbursement within 30 days of receipt of the
decision.

(h) A hospital that does not comply with subdivision (g) shall
not seek or accept any payments for any charges that the
department director has determined should be adjusted, and shall
be subject to a civil penalty to be assessed by the department of
one hundred dollars ($100) for each day the hospital does not send
any revised bill or provide appropriate reimbursement, as required
by subdivision (g).

(i) The reasonable cost of each independent review and the
associated reasonable costs to the department of administering
the independent medical review system established by this section
shall be borne by the hospital whose bill is subject to the review
pursuant to an assessment fee system established by the department
director.

begin insert 127606. end insert   

The department may adopt regulations to implement
this chapter.

begin insert 127607. end insert   

This chapter shall remain in effect only until January
1, 2019, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2019, deletes or extends
that date.

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begin insert SEC. 2. end insert   

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No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

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begin insert SEC. 3. end insert   

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The provisions of this act are severable. If any
provision of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.

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SECTION 1.  

It is the intent of the Legislature to enact
legislation to establish limits on out-of-network hospital emergency
care billing practices.

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