BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 351
AUTHOR: Hernandez
AMENDED: April 23, 2013
HEARING DATE: May 1, 2013
CONSULTANT: Marchand
SUBJECT : Health care coverage: hospital billing.
SUMMARY : Establishes a method by which hospitals are identified
as "diagnosis and billing outlier hospitals," establishes an
independent medical review (IMR) system under which patients and
payers could submit bills from outlier hospitals to independent
review, and prohibits hospital systems with three or more
outlier hospitals from acquiring a new hospital.
Existing law:
1.Licenses and regulates general acute care hospitals by the
Department of Public Health (DPH).
2.Establishes the Office of Statewide Health Planning and
Development (OSHPD), consolidates the collection of data from
hospitals with OSHPD, and requires OSHPD to review this data
on an ongoing basis.
3.Requires hospitals to make certain reports to OSHPD, including
a Hospital Discharge Abstract Data Record that includes
specified information for each patient admitted to a hospital,
including type of admission, principal diagnosis and whether
the condition was present at admission, other diagnoses and
whether the conditions were present at admission, procedures
performed, and expected source of payment.
4.Requires the Department of Managed Health Care (DMHC) to
establish an IMR system under which a health plan enrollee may
seek an external IMR whenever health care services have been
denied, modified, or delayed by a health plan and the enrollee
has previously filed a grievance that remains unresolved after
30 days. Requires the determination of an IMR organization to
be binding on the health plan.
5.Requires medical professionals selected by an IMR organization
to review medical treatment decisions to meet certain minimum
requirements, including that he or she be a clinician
Continued---
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knowledgeable in the treatment of the patient's medical
condition, knowledgeable about the proposed treatment, and
familiar with guidelines and protocols in the area of
treatment under review.
This bill:
1.States 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.
2.Defines various terms for purposes of this bill, including the
following:
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;
b. "Diagnosis and billing outlier hospital"
(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;
c. "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 by a
shared corporate parent;
d. "Hospital" means a licensed general acute care
hospital, with the exception of the following two
categories, which are exempted from the definition of
hospital for purposes of this bill: (1) hospitals 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; or (2)
hospitals 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;
e. "Payer" means any person or entity, including
the patient, legally required or responsible to make
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payment with respect to a health care item or service;
and,
f. "ICD-9-CM" means the International
Classification of Diseases, 9th Revision, Clinical
Modification, published by the United States
Department of Health and Human Services.
3.Requires OSHPD to assign each hospital, as defined, a separate
diagnosis and billing indicator rate for each of the following
disorders:
a. Kwashiorkor or other forms of severe
malnutrition, classified as ICD-9-CM code 260, 261, or
262;
b. Acute heart failure, classified as ICD-9-CM
code 428,21, 428.23, 428.31, 428.33, 428.41, or
428.43;
c. Encephalopathy, classified as ICD-9-CM code
348.30, 348.31, 348.39, or 349.82; and,
d. Autonomic nerve disorder, classified as
ICD-9-CM code 337.9.
4.Requires OSHPD to calculate a hospital's diagnosis and billing
indicator rate for each of the four specified disorders 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 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. If a hospital has less than 10 acute care inpatient
admissions for a particular disorder, prohibits a diagnosis
and billing indicator rate from being calculated for that
disorder.
5.Requires OSHPD to calculate the statewide average of a
diagnosis and billing indicator rate, as specified.
6.Requires OSHPD to publish the following information on its
website regarding all hospital's diagnosis and billing
indicator rates by no later than January 15, 2014:
a. Each hospital's diagnosis and billing
indicator rates for each of the four disorders
specified in this bill;
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b. A list of each hospital's percentile ranking
for each diagnosis and billing indicator rate, and
specifies the manner in which OSHPD makes the
percentile ranking calculation; and,
c. A list of outlier hospitals, as defined.
7.Deems any health system that, during the 2011 calendar year,
included three or more outlier hospitals as an outlier health
system.
8.Prohibits any person or entity that owns, operates, or
substantially controls any hospital that is part of an outlier
health system from purchasing or operating a hospital in
California that is not already owned, operated or
substantially controlled by that person or entity, or from
receiving any license for such a hospital.
9.Requires every outlier hospital and every hospital in an
outlier health system to notify the patient and all payers at
the time it submits a bill for any provided services and care
of that the hospital is an outlier hospital or is part of an
outlier health system, and its total billed charges may be
subject to adjustment pursuant to the provisions of this bill.
10.Permits any patient or payer who receives a bill from an
outlier hospital or a hospital in an outlier system for
services and care provided at that hospital to apply to DPH
for an IMR of the hospital's bill. Prohibits the patient or
payer from paying any application or processing fees of any
kind.
11.Specifies that a patient or payer who notifies a hospital
that the patient or payer has applied to DPH for an IMR of the
hospital's bills has no obligation to make any payments for
any charges on any of the hospital's bills covered by the
application for IMR until no earlier than 30 days after the
patient receives the decision regarding the IMR from DPH.
12.Requires DPH, by July 1, 2014, to contract with one or more
IMR organizations to conduct reviews for purposes of this
bill. Requires the IMR organizations to satisfy the existing
law requirements for organizations with which DMHC contracts
to provide IMR for enrollees of health plans for denials of
health care services. Permits DPH to contract with DMHC to
administer the IMR process.
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13.Requires DPH, within 45 days of receiving an IMR application
from a patient or payer, to assign an IMR organization.
Requires the reasonable cost of each IMR and the associated
reasonable costs to DPH for administering the IMR system to be
borne by the hospital whose bill is subject to the IMR
pursuant to an assessment fee system established by DPH.
14.Requires an IMR organization assigned to review an
application for IMR under this bill to do the following:
a. Review the bills and request any medical
records from the hospital that would aid its review.
Requires hospitals, upon receipt of such a request and
any necessary patient authorization to promptly
provide all the patient's relevant medical records;
b. 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, peer-reviewed
evidence, nationally recognized professional
standards, expert opinion, or generally accepted
standards of medical practice;
c. Prepare a draft report setting forth its
findings, and submit copies of the report to the
patient and all other payers and the hospital that
submitted the bills, and provide the patient, other
payers, and the hospitals 30 days to submit comments
and evidence;
d. Consider any comments and evidence submitted,
and make any appropriate modifications to its draft
report; and,
e. Deliver to the patient, all other payers, the
hospitals, and DPH a final report within 30 days of
receiving any comments or evidence.
15.Requires the draft and final reports prepared by the IMR
organization to 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.
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16.Requires the State Public Health Officer, on receipt of the
final report, to immediately adopt the findings of the IMR
organization, and to promptly issue a written decision to the
patient, other payers, and the hospital that is required to be
binding on the hospital.
17.Requires a hospital, within 30 days of receiving a decision
that identifies adjustments that would decrease the total
billed charges, to adjust those charges in accordance with the
decision and send a revised bill to the patient and other
payers. Requires a hospital, if a patient or other payer has
already paid for billed charges that should not have been
billed, to provide appropriate reimbursement within 30 days of
receipt of the decision.
18.Specifies that a hospital that does not comply with the
requirement to adjust billed charges in accordance with a
decision, or does not provide appropriate reimbursement, is
subjects to a civil penalty of $100 for each day the hospital
does not send a revised bill or provide appropriate
reimbursement.
19.Specifies that a hospital that fails to notify a patient or
payer of its outlier status and that its billed charges may be
subject to adjustment is punishable as either a misdemeanor
with up to one year in jail and/or a fine of up to $10,000, or
as a felony with up to five years in prison and/or a fine of
up to $50,000. Permits the fine, if a hospital's bill is
found to have excess charges, to be the greater of the excess
charges or $50,000.
20.Requires OSHPD to make recommendations to the Legislature
biennially, beginning on September 1, 2016, regarding possible
modifications to the provisions of this bill specifying the
disorders subject to the diagnosis and billing indicator rate,
and the method of calculating this rate.
21.Permits DPH to adopt regulations to implement the provisions
of this bill.
22.Sunsets the provisions of this bill on January 1, 2019.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
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1.Author's statement. According to the author, patients entrust
their lives to the care of medical providers, expecting to be
treated appropriately and billed fairly. California's
world-class hospitals and healthcare professionals are
overwhelming meeting those expectations every day. However,
"one bad apple spoils the bunch," and a new, deeply troubling
model has begun to emerge among a small number of California
hospitals. Last year, the Center for Investigative Report's
California Watch project won the Polk Award for medical
reporting for its series highlighting shocking hospital
billing by a hospital chain, Prime Healthcare. The
extraordinary rates of serious conditions Prime has billed for
- including Kwashiorkor and other forms of severe
malnutrition, acute heart failure, and encephalopathy, serve
to undermine the trust patients have in their hospital care.
This bill would give patients and their families, as well as
third-party payers, the ability to obtain an independent
review in cases in which a very small minority of hospitals
are pursuing extremely aggressive billing practices. Under
this bill, OSHPD would publish a list of hospitals that meet
criteria consistent with the widely-publicized patterns
identified in the California Watch articles. Hospitals that
have outlier rates of serious conditions like severe
malnutrition, acute heart failure and encephalopathy would be
identified as diagnosis and billing outlier hospitals.
Patients of these outlier hospitals would be empowered to
obtain independent medical review of their hospital care and
subsequent hospital bills, in much the same manner that
patients can currently obtain independent review of denials or
treatment modifications by their health plans. The findings of
the review would be binding on these hospitals. This bill
would also prohibit hospital systems that have three or more
hospitals that meet the definition of an outlier from
acquiring any new hospitals.
2.Joint hearing on hospital reimbursement. The Senate and
Assembly Health Committees held a joint hearing in Los Angeles
on February 24, 2012, on hospital reimbursement mechanisms.
At this hearing, a number of witnesses expressed concern with
the Prime hospital chain. The Committees heard testimony that
the Prime chain of hospitals operate largely without insurance
contracts, and seek to bill full charges whenever a patient
receives treatment at one of their facilities. Several
witnesses described Prime as pursuing a strategy of maximizing
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the treatments, and the billing for those treatments, provided
to patients before they are deemed stabilized and then
discharged or transferred.
3.California Watch series on Prime Healthcare. Beginning in
October of 2010, the Center for Investigative Reporting's
California Watch began publishing a series of articles on
Prime Healthcare Services (Prime), which operates 14
hospitals, primarily in Southern California. The first
article focused on unusually high rates of patients diagnosed
with septicemia, an infection of the blood, which has a high
reimbursement rate from Medicare compared to other infections.
Subsequent articles raised questions about high rates of a
rare malnutrition disorder known as Kwashiorkor among Prime's
Medicare patients, again raising concern of possible Medicare
fraud.
The author states that according to a November 2011 article,
California Watch examined three years' worth of state Medicare
billing data, which showed that Chino Valley Medical Center,
owned by Prime Healthcare Services, had the highest rate in
the state of acute heart failure cases, and that other
hospitals owned by Prime also stood out. The combined rate of
acute heart failure among Medicare patients for 13 Prime
hospitals was 12.9 percent, more than double the state rate of
5.1 percent, and of the 10 hospitals with the highest rates in
California, eight were owned by Prime. Additionally, the
article stated that Prime reports far more acute heart failure
among older patients than California hospitals that are
nationally known for specializing in cardiac care.
The author also points to a February 2010 California Watch
article that reported that two Prime hospitals reported
outsized rates of Kwashiorkor, a form of severe malnutrition
associated with famine-stricken children. In 2009, Desert
Valley Hospital in San Bernardino County reported the
condition at 39 times the statewide rate, and Shasta Regional
Medical Center in Redding reported it at 70 times the
statewide average.
4.Prior legislation. SB 359 (Hernandez) of 2012 would have
authorized health care service plans to adjust payment to
specified hospitals for prestabilization emergency services
and care when a hospital exceeds an out-of-network emergency
utilization rate of 50 percent or greater. SB 359 was vetoed
by the Governor. The Governor's veto message stated the
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following:
"I share the goals of this legislation to reign in
excessive hospital charges for out-of-network emergency
care. I am not convinced, however, that the rate-setting
formula in this bill has it right.
To be sure, there is considerable complexity in determining
what hospitals charge. Nevertheless, I am troubled by
hospitals that have dramatically higher chargers than
others and billing practices that bear no apparent
relationship to the costs of services.
Extraordinary hospital billings are harmful to the health
care system as a whole, including patients. If found to be
as widespread and as excessive as some claim, such
practices will invite an appropriate regulatory response."
5.Support. This bill is sponsored by the California State
Council of the Service Employees International Union (SEIU),
which states that this bill would provide recourse to an
independent, second opinion for patients who may have been
improperly treated or billed by a small number of hospitals
that have demonstrated a disturbing pattern of aggressive
behavior. Among these outlier hospitals are facilities
operated by Prime Healthcare, whose behavior was recently
exposed by California Watch in its award-winning series,
Decoding Prime.
SEIU states that the investigative journalists at California
Watch analyzed millions of California hospital billing records
and found the Prime Healthcare was billing Medicare seniors
for serious conditions like severe malnutrition, acute heart
failure and encephalopathy at extremely high rates. For
example, Prime billed more than 1,000 Redding-area Medicare
seniors for Kwashiorkor, a rare form of severe malnutrition
typically found among starving children in famine-stricken
developing countries. According to SEIU, aggressive behavior
damages the trust that patients and families place in
hospitals and drives up the cost of healthcare for patients,
employers and the public. SEIU notes that while state and
federal regulators may be investigating companies like Prime
for potential Medicare fraud, many patients have other types
of insurance or no insurance at all. This bill would
encourage responsible hospital service and billing practices
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by mandating the right to an independent medical review of
patients' medical bills submitted by hospitals or health
systems that have unusually high rates of certain medical
diagnoses, indicating suspect billing practices.
6.Opposition. The California Hospital Association (CHA) opposes
this bill, stating that it relies on arbitrary and
non-evidence based statistical thresholds to determine
appropriateness of medical care. According to CHA, the
"outlier" list created by this bill is based on the faulty
premise that when a certain number of patients at a particular
hospital are diagnosed with one of the specified ICD-9-CM
classifications, the hospital is assumed to be providing
medically unnecessary care. CHA states that there is no
scientific evidence to support this premise, and no causal
link has been established to indicate that frequency of any
particular diagnosis in a given population indicates
inappropriate care. CHA goes on to state that this bill's
misplaced reliance on statistical averages for a particular
diagnosis ignores the fundamental fact that physicians, not
hospitals, determine diagnoses and issue medical orders. In
addition, federal and state medical necessity and quality
assurance programs govern care provided in hospitals and
private review programs augment the Medicare and Medi-Cal
programs. CHA states that if physicians in a given community
are abusing medical necessity and making inappropriate
diagnoses, existing mechanisms exist to take corrective
action, and beyond these remedies, any person could file a
complaint with the federal or state government and a special
investigation would be conducted to determine whether any
violations have been committed. According to CHA, health plans
would be permitted to withhold reimbursement for any diagnosis
that is submitted to the review organization, not just the
ICD-9-CM classifications established by the bill, and that
health plans would be authorized to submit an unlimited number
of claims for review since the hospital is required to pay for
the review and payment to the hospital can be withheld pending
the review. Finally, CHA states that this bill establishes
criminal penalties, which are an excessive and unnecessary
remedy, especially given the lack of due process and absence
of scientific basis.
SUPPORT AND OPPOSITION :
Support: Service Employees International Union (sponsor)
Oppose: California Hospital Association
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