BILL ANALYSIS Ó
AB 2024
Page 1
Date of Hearing: April 5, 2016
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Rudy Salas, Chair
AB 2024
(Wood) - As Introduced February 16, 2016
NOTE: This bill is double-referred, and if passed by this
Committee, it will be referred to the Assembly Committee on
Health.
SUBJECT: Critical access hospitals: employment.
SUMMARY: Permits a federally certified critical access hospital
(CAH) to employ physicians and charge for professional services
rendered by those physicians.
EXISTING LAW:
1)Provides for the licensure and regulation of physicians and
surgeons by the Medical Board of California (MBC).
2)Prohibits corporations and other artificial legal entities
from having any professional rights, privileges, or powers
(known as the "prohibition against the corporate practice of
medicine" (CPM)), and further provides that the Division of
Licensing of MBC may, pursuant to regulations MBC has adopted,
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
AB 2024
Page 2
patients is made by that institution, foundation, or clinic.
3)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.
4)Provides certain 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, but prohibits the narcotic
clinic from interfering with, controlling, or otherwise
directing a physician's professional judgment in a manner
that is prohibited by the CPM prohibition or any other
provision of law;
AB 2024
Page 3
d) Under the Knox-Keene Health Care Service Plan Act of
1975 (Knox-Keene), 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; and,
e) In the Medi-Cal Program, permits 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.
5)Defines a "small and rural hospital" as an acute care hospital
that is designated within specified peer groups based upon a
December 20, 1982 report, as specified; or that is designated
within other specified peer groups, has no more than 76 acute
care beds, and is located in an incorporated place or census
designated place of 15,000 or less population according to the
1980 federal census.
6)Permits hospitals designated as CAHs and certified by the
Secretary of the United States Department of Health and Human
Services under the federal Medicare rural hospital flexibility
program to be eligible for supplemental payments for covered
outpatient services rendered to Medi-Cal eligible persons.
7)Provides that payments made pursuant to #4) are contingent
upon receipt of federal financial participation, and are
limited by the appropriation in the annual Budget Act for the
non- federal share of these payments. Requires supplemental
payments to be apportioned among CAHs based upon their number
of Medi-Cal outpatient visits.
AB 2024
Page 4
8)Permits the Department of Health and Human Services to develop
criteria to waive any requirements for CAHs under the federal
Medicare Rural Hospital Flexibility Program, that are in
conflict with federal requirements, if the department finds
that it is in the public interest to do so, and the department
determines that the waiver would not negatively affect the
quality of patient care.
9)Specifies that a CAH is a general acute care hospital, and
every hospital designated by the department as a CAH, and
certified as such by the United States Department of Health
and Human Services, shall be deemed to be a general acute care
hospital, even if the department waives regulatory
requirements otherwise applicable to general acute care
hospitals.
10)Indicates that each hospital designated by the department as
a CAH, and certified as such by the Secretary of the United
States Department of Health and Human Services under the
federal Medicare rural hospital flexibility program, shall be
eligible for supplemental payments for Medi-Cal covered
outpatient services rendered to Medi-Cal eligible persons.
11)Specifies that payments made shall be contingent upon receipt
of federal financial participation, and shall be limited by
the appropriation in the annual Budget Act for the nonfederal
share of these payments. Supplemental payments shall be
apportioned among CAHs based upon their number of Medi-Cal
outpatient visits.
THIS BILL:
12)Permits a federally certified CAH to employ licensees and
charge for professional services rendered by those licensees.
AB 2024
Page 5
13)Specifies that the critical access hospital shall not
interfere with, control, or otherwise direct the professional
judgment of a physician and surgeon.
FISCAL EFFECT: None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS:
Purpose. This bill is sponsored by the author. According to
the author, "As a health care provider I am sympathetic to the
concerns about interference with the clinical judgment of any
health care provider. Unfortunately, the corporate practice of
medicine ban no longer provides the protections it was
originally intended to provide. The number of exceptions
allowed, combined with the growth of medical groups, independent
practice associations and medical foundations, all represent the
larger medical communities response to pressures within the
delivery system to reduce costs, improve patient outcomes and
increase access. To maintain that the corporate ban protects a
physician's professional judgment and autonomy is naïve and does
not take into consideration that variety of pressures that are
inherent in our health care delivery system. 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
alternative[s] 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 those options for them."
AB 2024
Page 6
Background. Physician Shortage. Estimates obtained from the
Council on Graduate Medical Education (CGME) indicate that the
number of primary care physicians actively practicing in
California is far below the state's need. The distribution of
these primary care physicians is also poor. In 2008, there were
69,460 actively practicing primary care physicians in
California, of which only 35 percent 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.
When rural communities are examined, there is a significant
shortage of physicians. Rural hospitals experience difficulty in
recruiting and retaining physicians. Factors influencing this
include a lack of benefits and retirement as a result of working
as an independent contractor. Similarly, results of a 2015
survey of medical residents indicate that 92 percent of
respondents would prefer employment with a salary versus working
as an independent practitioner (Merritt Hawkins, Survey of
Final-Year Medical Residents, 2015).
Critical Access Hospitals. 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.
AB 2024
Page 7
The primary eligibility requirements for CAHs are as follows:
A CAH must have 25 or fewer acute care inpatient beds.
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).
It must maintain an annual average length of stay of 96
hours or less for acute care patients.
It must provide 24/7 emergency care services.
CAH Mileage Exemption. The CAH requirements also included a
provision allowing states to waive the minimum of 35 miles
distance requirement and designate small hospitals considered
"necessary providers" as CAHs. This permitted states to provide
small, struggling facilities with federal funding. The
exemption provision was utilized widely, and more than 1,300, or
nearly one in four acute care hospitals, had been designated as
CAHs by 2006. In 2006, Congress eliminated the exception, and
those hospitals that had already been designated as CAHs under
the exemption were grandfathered. (Kaiser Health News, When
Critical Access Hospitals Are Not So Critical, 2011). In
California, there are 34 CAHs. Of those, 3 have received an
exemption: 1) Redwood Memorial Hospital in Fortuna, CA, 2)
Healdsburg District Hospital in Healdsburg, CA and 3) Orchard
Hospital in Gridley, CA.
The Ban on the Corporate Practice of Medicine (CPM). The CPM is
defined as any involvement of corporations in medicine. The CPM
may also be defined more narrowly, for example, as the
employment of a physician by a lay-controlled corporation that
AB 2024
Page 8
sells the services of the physician for a profit or provides the
physician's services to its employees free of charge. The CPM
now most commonly refers to the employment of physicians by
hospitals, but is also used to refer to employment of physicians
by for-profit and non-profit corporate entities and government
(see BPC § 2400).
According to a report published by the California Research
Bureau, The Corporate Practice of Medicine Doctrine, the ban on
CPM evolved in the early 20th century when mining companies had
to hire physicians directly to provide care for their employees
in remote areas. However, problems arose when physicians'
loyalty to the mining companies conflicted with patients' needs.
Eventually, physicians, courts, and legislatures prohibited CPM
in an effort to preserve physicians' autonomy and improve
patient care. Currently, only five states: 1) California, 2)
Colorado, 3) Iowa, 4) Ohio and, 5) Texas, clearly prohibit
hospitals from employing physicians and in all five states,
certain types of hospitals and providers are exempt from the
ban.
Exemptions to the Ban on the CPM. The following entities may
employ physicians:
A clinic operated primarily of the purpose of medical
education by a public or private nonprofit university
medical school.
AB 2024
Page 9
A clinic operated by a nonprofit corporation as an
entity organized and operated exclusively for scientific
and charitable purposes.
A narcotic treatment program.
A hospital owned and operated by a licensed charitable
organization that offers only pediatric subspecialty care,
as specified.
A health maintenance organization (HMO).
The author indicates that due to the problems with recruiting
and retaining physicians to work in CAHs, CAHs should be
included as a group that is exempt from the ban on the CPM.
Prior Related Legislation. SB 1274 (Wolk), Chapter 793,
Statutes of 2012, permits a hospital that is owned and operated
by a charitable 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.
AB 824 (Chesbro) of 2012, would have established a pilot project
to permit certain rural hospitals to directly employ physicians
and surgeons. Note: AB 824died in the Assembly Committee on
Health.
AB 2024
Page 10
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. Note: AB 648 failed passage in
the Senate Committee on Business, Professions and Economic
Development.
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. Note: AB 646 failed passage in
the Senate Committee on Business, Professions and Economic
Development.
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. Note: SB 726 failed passage in the
Senate Committee on Business, Professions and Economic
Development.
AB 1944 (Swanson) of 2008, would have allowed health care
districts to employ a physician. Note: AB 1944 died in the
Senate Committee on Health.
SB 1294 (Ducheny) of 2008, would have expanded the pilot project
enabling health care districts to directly employ physicians.
Note: SB 1294 failed passage in the Assembly Appropriations
Committee.
AB 2024
Page 11
SB 1640 (Ashburn) of 2008 would have expanded the pilot project
to enable general acute care hospitals to directly employ
physicians. Note: SB 1640 failed passage in the Assembly
Committee on Business and Professions.
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.
ARGUMENTS IN SUPPORT:
The California Hospital Association supports the bill and
writes, "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.
Ninety-two percent of medical residents would prefer employment
with a salary in their first practice rather than an independent
practice income guarantee or loan. 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."
The Catalina Island Medical Center writes, "With the rapid
changes in healthcare due to the Affordable Care Act, the
federal government is in the process of changing the methods of
reimbursement to rural hospitals. Rural hospitals are on the
cusp of receiving bundled payments for the services that
patients receive from physicians and the organization. This
change in reimbursement methodology is forcing all hospitals to
employ physicians. To remain competitive in an already
challenging environment, we should have the opportunity to offer
physicians economic security and financial stability through
AB 2024
Page 12
employment."
The Alliance of Catholic Healthcare writes in their letter of
support, "[We are] pleased to support AB 2024 because our member
health systems and hospitals know firsthand about the
significant difficulties hospitals encounter in attracting,
recruiting and retaining physicians to practice in rural and
underserved communities. The ability to hire physicians will
directly improve and increase access to quality health care
services and the health of the communities that our hospitals
serve. The ability to recruit and retain physicians, both
primary care and specialists, through direct employment
contributes to the economic stability of the hospital and the
community."
The Association of California Healthcare Districts supports the
bill and writes, "Healthcare Districts located in rural and
remote areas of the state have a difficult time recruiting
health professional to their areas. In many communities,
doctors cannot support themselves financially in an independent
practice. This makes it extremely difficult for rural
communities to attract and retain physicians. Additionally,
many physicians working in rural communities are nearing
retirement. ACHD supports a number of solutions to increase
access to care and allowing critical access hospitals to
directly hire physicians is one important solution."
Several hospitals including: Fairchild Medical Center, San
Bernardino Mountains Community Hospital, Eastern Plumas Health
Care, Glenn Medical Center, Mendocino Coast District Hospital ,
Kern Valley Healthcare District , Santa Ynez Valley Cottage
Hospital , Northern Inyo Healthcare District , Mayers Memorial
Hospital District , Plumas District Hospital , Trinity Hospital ,
and Orchard Hospital , support the bill and write in their
letters, "CAHs are the smallest, most remote rural hospitals,
and we face numerous challenges in effectively recruiting and
AB 2024
Page 13
retaining physicians. One of the biggest challenges is not
being able to hire physicians who ask to be hired."
The District Hospital Leadership Forum supports the bill and
writes, "Physician shortages and maldistribution are very real
problems in rural and underserved communities that threaten the
ability of California residents to received timely access to
quality health care."
The Adventist Health and Loma Linda University Health also
support the bill, "We know firsthand about the significant
difficulties hospitals encounter in attracting, recruiting and
retaining physicians to practice in rural and underserved
communities."
AMENDMENTS:
In order to provide the Legislature with data on the
effectiveness of the exemption proposed in this bill, the bill
should be amended to include:
1)A seven year sunset date.
2)A requirement that the Legislative Analyst Office provides a
report to the Legislature, at the conclusion of the seven year
sunset date, containing data about the impact of the CPM
exemption on CAHs during the seven year time frame.
REGISTERED SUPPORT:
California Hospital Association
AB 2024
Page 14
Catalina Island Medical Center
Adventist Health and Loma Linda University Health
Alliance of Catholic Healthcare
Association of California Healthcare Districts
District Hospital Leadership Forum
Eastern Plumas Health Care
Fairchild Medical Center
Glenn Medical Center
Kern Valley Healthcare District
Mayers Memorial Hospital District
Mendocino Coast District Hospital
Northern Inyo Healthcare District
Orchard Hospital
AB 2024
Page 15
Plumas District Hospital
San Bernardino Mountains Community Hospital
Santa Ynez Valley Cottage Hospital
Trinity Hospital
REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Le Ondra Clark Harvey, Ph.D. / B. & P. /
(916) 319-3301