BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 351 (Hernandez) - Health care coverage: hospital billing.
Amended: April 23, 2013 Policy Vote: Health 7-2
Urgency: No Mandate: Yes
Hearing Date: May 13, 2013 Consultant: Brendan McCarthy
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 351 would establish an independent medical
review process under which patients and payers could submit
bills from certain "outlier" hospitals for review. The bill
would also prohibit hospital systems that own three or more
outlier hospitals from acquiring a new hospital.
Fiscal Impact:
Potential ongoing costs in the low millions per year for
the Department of Public Health to adopt regulations and to
process applications for independent medical review
(Licensing and Certification Fund). See below.
Potential ongoing costs in the tens of millions per year
for independent medical review of hospital bills, offset by
fees paid by hospitals (Licensing and Certification Fund).
See below.
Background: Under current law, hospitals are licensed and
regulated by the Department of Public Health. Also under current
law, the Office of Statewide Health Planning and Development
collects and analyses information relating to hospital
activities in the state.
Proposed Law: SB 351 would establish an independent medical
review process under which patients and payers could submit
bills from certain "outlier" hospitals for review.
The bill would require the Office of Statewide Health Planning
and Development to analyze hospital admission and billing data
with respect to four specified diagnoses. The Office would be
required to post information on its website and to identify
hospitals that are statistical outliers for the rates of
diagnosis and billing for the specified conditions.
SB 351 (Hernandez)
Page 1
Hospitals or hospitals in an outlier hospital system, as
defined, would be required to notify patients and payers (such
as third party insurance) of that fact upon billing for
services.
The bill authorizes any patient or payer who receives a bill
from an outlier hospital to challenge that bill through an
independent medical review process, to be overseen by the
Department of Public Health.
The bill provides that patients and payers do not have to pay
any bill from an outlier hospital while that bill is under an
independent medical review.
The bill provides that any outlier hospital that does not notify
a patient or payer of its outlier status and the opportunity for
independent medical review of a bill may be subject to
misdemeanor or felony penalties, including fines and/or
imprisonment.
The bill would also prohibit hospital systems that own three or
more outlier hospitals from acquiring a new hospital.
The bill includes a January 1, 2019 sunset date.
Related Legislation: SB 359 (Hernandez, 2012) would have
authorized health plans to reduce payments for certain emergency
services to certain hospitals, based on the rate at which a
hospital treated out-of-network patients. That bill was vetoed
by Governor Brown.
Staff Comments: Based on information from the Office of
Statewide Health Planning and Development, there are twelve
hospitals in the state that would likely be designated as
outlier hospitals under the bill. In 2011, those hospitals had
about 115,000 discharges. Assuming that 10 percent of
individuals request an independent medical review of their bill
and that 25 percent of third party payers request an independent
medical review of the bill total costs for independent medical
reviews and Department administration would be about $25 million
per year.
There are indications that the hospitals that would be
SB 351 (Hernandez)
Page 2
designated as outliers under the bill often do not negotiate
contract rates with health plans and health insurers. Health
plans and health insurers that do not have a contract in place
with an outlier hospital are likely to request an independent
review of any bill from such a hospital, since the costs of such
a review must be paid by the hospital and the bill does not have
to be paid until the review has been completed. Therefore, the
actual rate of requests for review by insurers and health plans
could be considerably higher than is assumed in this analysis.
The bill authorizes felony penalties for non-compliance by
hospitals. In theory, this could result in increased
incarceration costs to the state. The bill does not specify who
would actually be liable for incarceration for a violation by a
hospital. This analysis assumes that any penalties levied
against a hospital would consist of fines, rather than
incarceration.
The only costs to a local agency under the bill relate to crimes
and infractions. Under the California Constitution, such costs
are not reimbursable by the state.