BILL ANALYSIS Ó
AB 2024
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Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON HEALTH
Jim Wood, Chair
AB 2024
(Wood) - As Amended April 11, 2016
SUBJECT: Critical access hospitals: employment.
SUMMARY: Authorizes, until January 1, 2024, a federally
certified critical access hospital (CAH) to employ physicians
and charge for professional services, notwithstanding the
prohibition of the "Corporate Practice of Medicine" (CPM).
Specifies that the CAH must not interfere with, control or
otherwise direct the professional judgement of a physician, and
that on or before July 1, 2023, the Legislative Analyst will
provide a report to the Legislature containing data about the
impact of CAH's employing physicians.
EXISTING LAW:
1)Prohibits corporations and other artificial legal entities
from having any professional rights, privileges, or powers
(known as the "prohibition against CPM,") and further provides
that the Medical Board of California (MBC) may, pursuant to
regulations, grant approval for the employment of physicians
on a salaried basis by a licensed charitable institution,
foundation, or clinic if no charge for professional services
rendered to patients is made by that institution, foundation,
or clinic.
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2)Exempts medical or podiatry professional corporations
organized and practicing pursuant to the Moscone-Knox
Professional Corporations Act from the CPM prohibition,
providing that a majority of the owners or shareholders of the
corporation are licensed physicians or podiatrists,
respectively.
3)Provides additional exceptions to the prohibition against CPM,
including:
a) Clinics operated primarily for the purpose of medical
education by a public or private nonprofit university
medical school, to charge for professional services
rendered to teaching patients by licensed physicians who
hold academic appointments on the faculty of the
university, if the charges are approved by the physician in
whose name the charges are made;
b) Certain nonprofit clinics organized and operated
exclusively for scientific and charitable purposes, that
have been conducting research since before 1982, and that
meet other specified requirements, to employ physicians and
charge for professional services. Prohibits, however,
these clinics from interfering with, controlling, or
otherwise directing a physician's professional judgment in
a manner prohibited by the CPM prohibition or any other
provision of law;
c) A narcotic treatment program regulated by the Department
of Alcohol and Drug Programs to employ physicians and
charge for professional services rendered by those
physicians. Prohibits, however, the narcotic clinic from
interfering with, controlling, or otherwise directing a
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physician's professional judgment in a manner that is
prohibited by the CPM prohibition or any other provision of
law; and,
d) A hospital that is owned and operated by a licensed
charitable organization that offers only pediatric
subspecialty care, as specified.
4)Under the Knox-Keene Health Care Service Plan Act of 1975,
authorizes licensed health care service plans to employ or
contract with health care professionals, including physicians,
to deliver professional services, and requires health plans to
demonstrate that medical decisions are rendered by qualified
medical providers unhindered by fiscal and administrative
management. Provides in regulation that the organization of a
health plan must include separation of medical services from
fiscal and administrative management.
5)Permits, under the Medi-Cal program, hospitals that submit
claims for hospital inpatient psychiatric services under
contract with Medi-Cal managed care plans to receive
reimbursement on a per diem basis for an array of services,
including a mental health professional's daily visit fee.
6)Authorizes until January 1, 2011, a pilot project to allow
qualified district hospitals, as defined, to employ a
physician, if the hospital did not interfere with, control, or
otherwise direct the professional judgment of the physician.
To qualify for the project, a district hospital must have:
been in a county with population of 750,000 or less; have
reported net losses in 2000-01; and, have had at least 50% of
combined patient days from Medicare, Medi-Cal, and uninsured
patients.
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FISCAL EFFECT: None.
COMMENTS:
1)PURPOSE OF THIS BILL. The author states that as a health care
provider he is sympathetic to the concerns about interference
with the clinical judgment of any health care provider but,
unfortunately, the CPM ban no longer provides the protections
it was originally intended to provide. The author notes the
number of exceptions allowed, combined with the growth of
medical groups, independent practice associations and medical
foundations, all represent the larger medical community's
response to pressures within the delivery system to reduce
costs, improve patient outcomes and increase access. The
author continues, to maintain that the CPM ban protects a
physician's professional judgment and autonomy is naïve and
does not take into consideration the variety of pressures that
are inherent in our health care delivery system regardless of
practice structure. The author states, protecting a
clinician's professional judgment is critical and something
that we should fight to preserve but the CPM doctrine may no
longer be the best way to assure this protection and other
alternatives should be explored: the private practice of
medicine is a valuable component in our communities and should
be preserved but preserving it to the exclusion of other modes
of practice seems shortsighted. If younger physicians are
comfortable in an employment setting, we should not limit that
option, because in limiting practice options, we may also be
inadvertently limiting access in our rural communities just
due to the basic economics of what is required to maintain a
private practice. The author concludes, it may not work for
all of them but at this point, if it helps just a couple of
hospitals remain open he believes that qualifies as a success
story.
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2)BACKGROUND.
a) CPM. The prohibition against CPM has historically
prevented a corporation from practicing medicine, which
includes the employment of physicians. California's ban
on CPM was well established by 1928, but the clearest
policy rationale was not established until 1932. That
year, the state Supreme Court heard the case of Painless
Parker. Born Edgar Randolph Parker, he was a licensed
dentist and consummate marketer who had legally changed his
first name to "Painless." His dental corporation hired
dentists and opened practices across the United States and
Canada. In considering Parker's commercial dental
enterprise, the court argued that "the underlying theory
upon which the whole system of dental is framed is that the
state's licensee shall possess consciousness, learning,
skill and good moral character, all of which are individual
characteristics, and none of which is an attribute of an
artificial entity." Over 65 years later, another court put
it even more clearly: "The rationale behind the doctrine
is that a corporation cannot be licensed to practice
medicine because only a human being can sustain the
education, training, and character-screening which are
prerequisites to receiving a professional license."
b) California Research Bureau (CRB) reports. In 2007, the
CRB published a report examining the status of the ban on
the CPM, and it argued that exemptions had created a
doctrine whose "power and meaning are now inconsistent."
The CRB also raised the idea that the many exemptions to
the ban may "signal a change in public opinion." The CRB
report notes that although the CPM doctrine is generally
not believed to be extremely detrimental, its present
utility seems limited, as the evolution and erosion of the
CPM prohibition over many decades has resulted in a
doctrine that is far removed from its origin and lacks
coherence and relevance in today's health care landscape.
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Because the policy concerns that the CPM prohibition was
meant to address are still important and have been raised
in other contexts, California's statutes and regulations
now address these concerns more directly. The existence of
these more focused safeguards, and the ability to enact
others if needed, raise the question of whether maintaining
the CPM doctrine still makes sense.
As a result of these findings, the 2007 CRB report provided
several policy options for the legislature to consider.
These focused on clarifying which organizations were exempt
and also on increasing the number of exemptions. The
report also included an option to eliminate the ban
entirely, provided some employment safeguards were in
place.
On April 12, 2016 the CRB released a new report, "The
Corporate Practice of Medicine in a Changing Healthcare
Environment," which reviews the current status of the ban
in California and key policy issues associated with it, one
of them being the effect of the ban on rural areas.
As the 2016 CRB report notes, attempting to address the rural
healthcare gap, Senate Bill 376 (Chesbro) Chapter 411,
Statutes of 2003, established a pilot project to allow
qualified hospital districts to directly employ physicians.
The pilot allowed each hospital district to hire two
physicians, for a total of 20 physicians throughout the
state. To qualify for the pilot project, a hospital
district was required to have:
i) Been in a county with population of 750,000 or less;
ii) Reported net losses in 2000-01; and,
iii) Had at least 50% of combined patient days from
Medicare, Medi-Cal, and uninsured patients.
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SB 376 was sponsored by the Association of California
Healthcare Districts, which argued that authorizing the
employment of physicians could improve the ability of
district hospitals to attract the physicians required to
meet the needs of the communities and ensure the continued
survival of district hospitals. Proponents hoped direct
employment would provide the kind of economic security that
might encourage physicians to choose a rural community,
just as the State of California is able to offer when it
directly hires physicians and staffs its rural prisons.
During the pilot project, five participating hospital
districts recruited and hired six physicians, whose
employment contract periods ran three to four years. The
MBC sent letters to participating physicians, participating
administrators, and also administrators in nonparticipating
hospital districts to get their views on the project. All
six participating physicians were positive about the
employment experience. Responding administrators
acknowledged it would have been more difficult to recruit
the physicians without the employment opportunity, and
expressed support of the project. Responding
nonparticipating administrators also generally supported
the project as a means of recruiting physicians into rural
areas. The MBC, in its assessment, stated there was not
enough evidence to draw conclusions about the effectiveness
of the program, but believed there might be justification
to extend the pilot so a comprehensive analysis could be
made. The MBC also noted that, "[f]rom the responses
received to the Board's queries about the pilot, there
seems to be a universal belief that many physicians
hesitate settling in California, especially rural areas of
the state, because of the disincentive created by the laws
governing the corporate practice of medicine - most
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physicians in California work as contractors, not
employees. Hospital administrators view the prohibition of
the corporate practice of medicine as complicating their
ability to ensure adequate staffing." Though legislators
initiated a number of bills to continue the pilot project
or allow hospital districts to employ physicians, none
became law and the pilot expired on January 1, 2011.
The CRB's 2016 report notes that limited data makes it more
difficult to assess how the CPM ban affects California's
doctors because the state does not collect the specific
numbers of doctors that are employed directly by nonprofit
clinics, teaching hospitals, state governments, and some
county governments and pediatric hospitals. The CRB could
not find data for some county governments or pediatric
hospitals and could not find any reliable data for
professional medical corporations or medical foundations.
CRB concludes that without a full understanding of how many
physicians in the state are employed through an exemption,
it is difficult to know whether the exemptions are, as the
original CRB report argued, so broad as to dilute the
meaning of the ban.
The CRB's 2007 report notes that the Legislature has
clearly and repeatedly stated its intent that physicians,
and not corporations, be responsible for patient care
decisions. However, the report also argued that the
fragmented manner in which California had extended the ban
resulted in a doctrine whose "power and meaning are now
inconsistent." It also considered the idea that the many
exemptions to the ban may have signaled a change in public
opinion.
c) Other states. As noted in the most recent CRB report,
there is considerable variation in how states approach the
ban with regard to the employment of physicians. Nearly
all states allow for some type of employment of physicians
by certain specified government, nonprofit or corporate
entities. The one similarity across all states is that
each allows physician employment by professional
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corporations or similar entities as long as physicians own
the corporation. However, unlike California:
i) Twenty-eight states (55%) allow hospitals to employ
physicians;
ii) Thirty states (59%) allow physicians to operate a
medical practice as a limited liability company; and,
iii) Nine states (17%) allow physicians to operate a
medical practice as a limited liability partnership.
Three of the five states noted in the CRBs original report
as maintaining the most robust laws and enforcement,
California, Colorado, and Iowa, continue to do so. In the
other two states, Ohio and Texas, state legislatures have
made changes to the ban: Ohio's corporate practice of
medicine ban now "appears to be all but extinct," and Texas
modified its ban in 2011 to allow direct employment.
d) Physician shortage. The Council on Graduate Medical
Education (CGME) estimates that the number of primary care
physicians actively practicing in California is far below
the state's need. In 2008, there were 69,460 actively
practicing primary care physicians in California, of which
only 35% reported they actually practiced primary care.
This equates to 63 active primary care physicians per
100,000 persons. However, according to the CGME, up to 80
primary care physicians are needed per 100,000 persons in
order to adequately meet the needs of the population. When
the same metric is applied regionally, only 16 of
California's 58 counties fall within the needed supply
range for primary care physicians. In other words, less
than one third of Californians live in a community where
they have access to adequate health care services.
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In the 2015 Merritt Hawkins Survey of Final-Year Medical
Residents, participants identified geographic location,
personal time and lifestyle as their most important
considerations when evaluating a medical practice
opportunity. The great majority of residents (92%) would
prefer employment with a salary in their first practice
rather than an independent practice income guarantee or
loan, and 93% would prefer to practice in communities of
50,000 people or more. Only 3% would prefer to practice in
communities of 25,000 or less.
e) CAHs. This bill authorizes CAHs to employ physicians
and surgeons. The CAH program was created by Congress in
1997 in response to numerous rural hospitals closing across
the nation in the 1980s and 1990s. It is a designation
provided by the Centers for Medicare and Medicaid Services
to ensure that individuals in isolated areas have access to
health care services. The Medicare Rural Hospital
Flexibility Program helps to reduce CAHs financial burdens
through a cost-based Medicare reimbursement for services
rendered. The primary eligibility requirements for CAHs
are as follows:
i) A CAH must have 25 or fewer acute care inpatient
beds;
ii) It must be located more than 35 miles from another
hospital (or 15 miles across secondary roads to account
for difficult terrain such as mountains, rivers or snow);
iii) It must maintain an annual average length of stay of
96 hours or less for acute care patients; and,
iv) It must provide 24/7 emergency care services.
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3)SUPPORT. Health Access California (HAC) supports this bill
and states California is one of a handful of states that has
law banning CPM. HAC notes that existing state law allows
teaching hospitals and public hospitals to employ physicians,
but does not have and exceptions specific to rural hospitals.
HAC concludes that this bill will help attract doctors to
medically underserved areas of the state by allowing hospitals
to attract, hire, and retain them. The Rural County
Representatives of California (RCRC) note that rural
communities throughout California suffer from a shortage of
physicians, and these shortages have serious implication to
public health, access to care, and threaten the operational
stability of medical facilities in rural and underserved
areas. RCRC concludes that they support the ability for
hospitals to directly hire physicians, as step which will
greatly improve and increase access to quality health care
services in rural and underserved areas.
The California Hospital Association (CHA) states that CAHs are
the smallest, most remote rural hospitals and they face myriad
challenges due to their inability to effectively recruit and
retain physicians. CHA notes that all states allow employment
of physicians, subject to certain conditions, however
California continues to be the most restrictive state for
employment of physicians by hospitals. CHA concludes that to
remain competitive in an already challenging environment, CAHs
should have the opportunity to offer physicians economic
security and financial stability through employment, thereby
ensuring that rural residents have access to medically
necessary services.
4)PREVIOUS LEGISLATION.
a) SB 1274 (Wolk) Chapter 793, Statutes of 2012, permits a
hospital that is owned and operated by a charitable
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organization and offers only pediatric subspecialty care to
begin billing health carriers for physician services
rendered, notwithstanding the prohibition in the CPM if
specified conditions are met.
b) AB 824 (Chesbro) of 2012 would have established a pilot
project to permit certain rural hospitals to directly
employ physicians and surgeons. AB 824 died in the
Assembly Committee on Health.
c) AB 648 (Swanson) of 2010 would have established a
demonstration project to permit rural hospitals, as
defined, whose service area includes a medically
underserved or federally designated shortage area and which
meet certain specified requirements, to directly employ
physicians and surgeons, and required a report to be
completed by MBC regarding the project and submitted to the
Legislature by June 1, 2019. AB 648 failed passage in the
Senate Committee on Business, Professions and Economic
Development.
d) AB 646 (Swanson) of 2009 would have permitted health
care districts and certain public hospitals, independent
community nonprofit hospitals, and clinics, as specified,
to directly employ physicians and surgeons. AB 646 failed
passage in the Senate Committee on Business, Professions
and Economic Development.
e) SB 726 (Ashburn) of 2009 would have revised and extended
the MBC pilot project that allows qualified district
hospitals, as defined, to employ a physician, if the
hospital does not interfere with, control, or otherwise
direct the professional judgment of the physician. SB 726
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failed passage in the Senate Committee on Business,
Professions and Economic Development.
f) AB 1944 (Swanson) of 2008 would have allowed health care
districts to employ a physician. AB 1944 died in the
Senate Committee on Health.
g) SB 1294 (Ducheny) of 2008 would have expanded the pilot
project enabling health care districts to directly employ
physicians. SB 1294 failed passage in the Assembly
Appropriations Committee.
h) SB 1640 (Ashburn) of 2008 would have expanded the pilot
project to enable general acute care hospitals to directly
employ physicians. SB 1640 failed passage in the Assembly
Committee on Business and Professions.
i) SB 376 (Chesbro), Chapter 411, Statutes of 2003,
authorized, until January 1, 2011, a hospital owned and
operated by a health care district meeting specified
criteria to employ a physician, and to charge for
professional services rendered by the physician if the
physician approves the charges.
5)DOUBLE REFERRAL. This bill has been double referred. It
passed the Assembly Committee on Business and Professions with
a vote of 15-0 on April 5, 2016.
REGISTERED SUPPORT / OPPOSITION:
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Support
Banner Lassen Medical Center
California Hospital Association
Catalina Island Medical Center
Fairchild Medical Center
Healdsburg District Hospital
Health Access California
Rural County Representatives of California
Jerold Phelps Community Hospital
Last Frontier Healthcare District Modoc Medical Center
Mayers Memorial Hospital District
Plumas District Hospital
San Bernardino Mountains Community Hospital
Santa Ynez Valley Cottage Hospital
St. Helena Hospital Clear Lake
Sutter Health
Trinity Hospital
Opposition
None on file.
Analysis Prepared by:Lara Flynn / HEALTH / (916) 319-2097
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