BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 2024
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|AUTHOR: |Wood |
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|VERSION: |June 9, 2016 |
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|HEARING DATE: |June 22, 2016 | | |
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|CONSULTANT: |Vince Marchand |
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SUBJECT : Critical access hospitals: employment
SUMMARY : Establishes a new exemption, until January 1, 2024, from the
prohibition on the corporate practice of medicine in order to
allow federally certified critical access hospitals to employ
physicians and charge for those services.
Existing law:
1)Prohibits, within the Medical Practice Act, corporations and
other artificial legal entities from having any professional
rights, privileges, or powers. However, permits the Medical
Board of California (MBC), in its discretion, to grant
approval of the employment of physicians on a salary basis by
licensed charitable institutions, foundation, or clinics, if
no charge for professional services rendered to patients is
made by any such institution, foundation, or clinic. This is
known as the ban on the corporate practice of medicine (CPM).
2)Establishes certain exemptions from the ban on the CPM,
including the following:
a) Clinics and hospitals operated primarily for the
purpose of medical education by a public or private
nonprofit university medical school, are permitted 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, are permitted to
AB 2024 (Wood) Page 2 of ?
employ physicians and charge for professional services,
but are prohibited from interfering with or directing a
physician's professional judgment;
c) A narcotic treatment program regulated by the
Department of Alcohol and Drug Programs is permitted to
employ physicians and charge for professional services
rendered by those physicians, but is prohibited from
interfering with or directing a physician's professional
judgment;
d) A hospital that is owned and operated by a licensed
charitable organization that offers only pediatric
subspecialty care, and that employed physicians prior to
January 1, 2013, is permitted to charge for professional
services, under certain specified conditions; and,
e) Although not in statute, existing case law
establishes an exemption from the ban on the CPM for
county hospitals to employ physicians.
1)Permits, under the Knox-Keene Health Care Service Plan Act of
1975, licensed health 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.
This bill:
1)Establishes a new exemption from the ban on the CPM for
federally certified CAHs, only until January 1, 2024, by
permitting a CAH, notwithstanding the ban on the CPM, to
employ physicians and charge for professional services
rendered by those physicians to patients, provided both of the
following conditions are met:
a) The medical staff concur by an affirmative
vote that the licensee's employment is in the best
interest of the communities served by the hospital;
and,
b) The hospital does not interfere with, control,
or otherwise direct a physician's professional
judgment.
AB 2024 (Wood) Page 3 of ?
2)Requires, on or before July 1, 2023, the Office of Statewide
Health Planning and Development (OSHPD) to provide a report to
the Legislature containing data about the impact of this new
exemption from the ban on the CPM on CAHs, and their ability
to recruit and retain physicians between January 1, 2017 and
January 1, 2023.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
PRIOR
VOTES :
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|Assembly Floor: |79- 0 |
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|Assembly Business and Professions |15 - 0 |
|Committee: | |
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| | |
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COMMENTS :
1)Author's statement. According to the author, while he is
sympathetic to the concerns about interference with the
clinical judgment of any health care provider, the ban on the
CPM is not necessarily the best or only tool to assure
physician autonomy in clinical decision making. 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. The
pressures presented by many of these groups are not
significantly different than those experienced in an
employment setting. The many states allowing employment
attest to it as a successful model for some physicians and one
that has not negatively impacted the quality of medical care
provided. 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, California should not limit it as an
option for them. In limiting options, California law may also
be inadvertently limiting access in rural communities just due
to the economics required to maintain a private practice.
Our rural communities struggle with many health care
AB 2024 (Wood) Page 4 of ?
challenges and disparities, and this bill will help provide an
additional tool to rural, critical access hospitals by
providing them this option. It may not work for all of them
but at this point, if it helps just a couple of hospitals
remain open that qualifies as success.
2)Critical Access Hospitals. CAHs are licensed general acute
care hospitals that are certified to receive cost-based
reimbursement from Medicare, which is intended to reduce
hospital closures in rural areas. To be certified as a CAH, a
hospital can have no more than 25 beds and must be located in
a rural area and 1) more than 35 miles from another hospital,
or 2) 15 miles from another hospital in mountainous terrain or
an area with only secondary roads. Other requirements include
operating an emergency department, and having an annual
average length of stay of 96 hours or less per patient.
According to OSHPD, there are 34 CAHs in California, as
follows:
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|Banner Lassen |Kern Valley |Ridgecrest Hospital |
|Medical |Healthcare | |
|-------------------+--------------------+--------------------|
|Bear Valley |Mammoth Hospital |Santa Ynez Valley |
|Community Hospital | |Cottage Hospital |
|-------------------+--------------------+--------------------|
|Biggs-Gridley |Mark Twain St. |Seneca Healthcare |
|Memorial |Joseph's |District |
|-------------------+--------------------+--------------------|
|Catalina Island |Mayers Memorial |Southern Inyo |
|Med Center | |Hospital |
|-------------------+--------------------+--------------------|
|Colorado River Med |Mendocino Coast |St Helena Hospital, |
|Center |Dist. Hosp. |Clearlake |
|-------------------+--------------------+--------------------|
|Eastern Plumas |Mercy Medical |Surprise Valley |
|Hospital, Portola |Center |Cmty. Hospital |
|-------------------+--------------------+--------------------|
|Fairchild Medical |Modoc Medical Ctr. |Sutter Lakeside |
| | |Hospital |
|-------------------+--------------------+--------------------|
|Frank R Howard |Mountains Cmty. |Tahoe Forest |
|Memorial |Hospital |Hospital |
|-------------------+--------------------+--------------------|
|Glenn Medical |Northern Inyo |Tehachapi Hospital |
AB 2024 (Wood) Page 5 of ?
|-------------------+--------------------+--------------------|
|Healdsburg |Ojai Valley Cmty. |Trinity Hospital |
|District Hospital |Hospital | |
|-------------------+--------------------+--------------------|
|J Phelps Cmty. |Plumas District | |
|Hospital |Hospital | |
|-------------------+--------------------+--------------------|
|John C Fremont |Redwood Memorial | |
|Healthcare | | |
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3)Background on the CPM and California Research Bureau (CRB)
reports. The ban on the CPM has historically prevented
corporations from practicing medicine, which includes the
employment of physicians. From the late 1920s, California
courts have staunchly protected the right of physicians to
practice without being subject to potential interference by
corporate employers. Since that time, California has created a
number of exemptions to the ban on the CPM. Where exemptions
do not exist, physicians and hospitals work together without
creating employment relationships.
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
noted 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. On April 12, 2016 the CRB
released a new report, "The Corporate Practice of Medicine in
a Changing Healthcare Environment," which reviewed the current
status of the ban in California and key policy issues
associated with it. In the 2016 report, the CRB points out
that there are a variety of issues within the healthcare
environment that cause conflicts of interest, though not
necessarily wrongdoing, within the healthcare field, including
self-referrals for office services and physician-owned
centers, reimbursement models and bonuses, and pharmaceutical
promotions and drug samples, among others. With respect to
physician autonomy, the CRB states that recent survey research
indicates that physicians' status as salaried employees in
AB 2024 (Wood) Page 6 of ?
large organizations is not associated with decreased reports
by physicians of freedom in making clinical decisions. The CRB
notes that as discussions about the ban on the CPM continue,
it is important that public policy discussions consider it
within the context of conflicts of interest and autonomy in
the modern healthcare environment.
4)SB 376 pilot program for district hospitals. SB 376 (Chesbro,
Chapter 411, Statutes of 2003), established a pilot project
until 2011 to allow qualified district hospitals 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:
a) Been in a county with population of 750,000 or less;
b) Reported net losses in 2000-01; and,
c) Had at least 50% of combined patient days from
Medicare, Medi-Cal, and uninsured patients.
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 for 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
AB 2024 (Wood) Page 7 of ?
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 CPM - most
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 a number of bills were introduced
to continue the pilot project or allow hospital districts to
employ physicians, none became law and the pilot expired on
January 1, 2011.
5)Double referral. This bill was heard in the Senate Business,
Professions and Economic Development Committee on June 6,
2016, and passed with an 8-0 vote.
6)Prior 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. AB 824 was never heard in Assembly
Health Committee.
AB 648 (Chesbro of 2009) 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. AB 648 failed
passage in the Senate Business, Professions and Economic
Development Committee.
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 Business, Professions and Economic Development
Committee.
AB 2024 (Wood) Page 8 of ?
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 failed passage in the Senate
Business, Professions and Economic Development Committee.
AB 1944 (Swanson of 2008) would have allowed health care
districts to employ a physician. AB 1944 failed passage 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.
SB 1294 failed passage in the Assembly Appropriations
Committee.
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.
7)Support. This bill is supported by the Association of
California Healthcare Districts (ACHD), which states that 20
of the state's CAHs are district hospitals, which are located
in rural and remote areas of the state and have a difficult
time recruiting health professionals to their areas. According
to ACHD, in many communities, doctors cannot support
themselves financially in an independent practice, which makes
it extremely difficult for rural communities to attract and
retain physicians. Additionally ACHD points out that many
physicians currently working in rural communities are nearing
retirement, and supports this bill as one important solution
to increase access to care. The California Hospital
Association (CHA) also supports this bill, stating that CAHs
are the smallest, most remote rural hospitals, and they face
myriad challenges due to their inability to effectively
recruit and retain physicians. According to CHA, California
continues to be the most restrictive state for employment of
physicians by hospitals, and that 92% of medical residents
would prefer employment with a salary in their first practice.
SEIU California states in support that more than 5 million
Californians live in rural communities, and counties like
Alpine, Mariposa, Sierra and Trinity are entirely rural. SEIU
AB 2024 (Wood) Page 9 of ?
California states that access to health care, even basic
emergency care, is a major barrier to California's rural
population. SEIU California states that this bill will provide
a narrow, time-limited exception to the CPM bar, and allow the
Legislature the opportunity to evaluate its outcomes with the
proposed sunset. The Union of American Physicians and Dentists
states in support that only 16 of California's 58 counties
fall within the needed supply range for primary care
physicians, with rural counties experiencing the greatest
difficulty recruiting and retaining primary care physicians.
The Alliance of California Health Care, representing
California's Catholic-affiliated health systems and hospitals,
supports this bill, noting that it requires the medical staff
to concur by an affirmative vote that the professional's
employment is in the best interest of the communities served
by the hospital. The California Special Districts Association
states in support that by allowing CAHs to directly employ
physicians, just as the University of California and county
hospitals are able to do, this bill will provide CAHs an
additional tool to attract much needed physicians to rural
areas of the state.
SUPPORT AND OPPOSITION :
Support: Alliance of Catholic Health Care
Association of California Healthcare Districts
California Hospital Association
California Special Districts Association
SEIU California
Union of American Physicians and Dentists
Oppose: None received
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