BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 932
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|AUTHOR: |Hernandez |
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|VERSION: |April 11, 2016 |
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|HEARING DATE: |April 20, 2016 | | |
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|CONSULTANT: |Teri Boughton |
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SUBJECT : Health care mergers and acquisitions
SUMMARY : Bans seven specified provisions from contracts between health
care providers and payors and requires prior approval from the
Department of Managed Health Care for mergers and other
transactions between health care service plans, risk-based and
other organizations.
Existing law:
1)Establishes the Department of Managed Health Care (DMHC) to
regulate health care service plans (health plans), the
California Department of Insurance (CDI) to regulate insurers,
including health insurers, the Department of Public Health
(DPH) to regulate general acute care hospitals, and the
Department of Justice and Attorney General (AG) to bring civil
and criminal legal actions against individuals and businesses
acting in restraint of trade, and to review and consider the
sale or transfer of assets by a nonprofit hospital.
2)Prohibits contracts and policies on behalf of a health plan or
health insurer and a provider or supplier from containing any
provision that restricts the ability of the health plan or
health insurer to furnish consumers or purchasers information
concerning any of the following:
a) The cost range of a procedure or a full course
of treatment, including, but not limited to,
facility, professional, and diagnostic services,
prescription drugs, durable medical equipment, and
other items and services related to the treatment;
and,
b) The quality of services performed by the
provider or supplier.
SB 932 (Hernandez) Page 2 of ?
3)Makes any contractual provision inconsistent with 2) above
void and unenforceable.
4)Establishes the Health Care Provider's Bill of Rights which
governs contracts between health care providers and health
plans as well as health care providers and health insurers
and, among other provisions, prohibits specified terms such as
a provision that requires a health care provider to accept
additional patients beyond the contracted number or in the
absence of a number if, in the reasonable professional
judgment of the provider, accepting additional patients would
endanger patients' access to, or continuity of, care.
5)Expresses legislative intent that in order to prevent the
improper selling, leasing, or transferring of a health care
provider's contract, every arrangement that results in a payor
paying a health care provider a reduced rate for health care
services based on the health care provider's participation in
a network or panel must be disclosed to the provider in
advance and that the payor must actively encourage
beneficiaries to use the network, unless the health care
provider agrees to provide discounts without that active
encouragement.
6)Prohibits a health plan from changing a material term of the
contract, unless the change has first been negotiated and
agreed to by the provider and the plan or the change is
necessary to comply with state or federal law or regulations
or any accreditation requirements of a private sector
accreditation organization. Requires, if a change is made by
amending a manual, policy, or procedure document referenced in
the contract, the plan to provide 45 business days' notice to
the provider, and gives the provider the right to negotiate
and agree to the change. If the plan and the provider cannot
agree to the change, the provider has the right to terminate
the contract prior to the implementation of the change.
7)Defines "health care provider" as any professional person,
medical group, independent practice association, organization,
health care facility, or other person or institution licensed
or authorized by the state to deliver or furnish health
services.
8)Requires a health plan to give notice to DMHC for approval of
SB 932 (Hernandez) Page 3 of ?
any mergers or acquisitions of controlling interests, which
are considered material modifications to the plan. Pursuant
to regulations, requires a notice of material modification to
be filed as an amendment to the license application.
9)Requires a nonprofit health plan that is a nonprofit mutual
benefit health plan that holds assets subject to a charitable
trust obligation to apply to DMHC to restructure or convert
its activities and provide specified information such as its
original and amended articles of incorporation and bylaws, and
a report summarizing activities undertaken by the plan to meet
its nonprofit obligations as directed by the DMHC director.
10)Permits the Insurance Commissioner to deny a permit in any
case where a domestic insurer is directly affected by a
transaction of which the permit applied for is needed, if it
is determined that reasonable grounds exist that the
transaction:
a) Is a combination of capital, skill, or acts to
create or carry out restrictions on or to prevent
competition in the insurance business; or,
b) Is a combination (in the form of a trust or
otherwise) in restraint of the insurance business; or,
c) Is an attempt to monopolize the insurance business;
or,
d) Is a conspiracy to create any of the foregoing; or,
e) That such total transaction, or any part thereof, if
consummated will create or result in any of the foregoing
or will substantially lessen competition in the insurance
business.
11)Requires the Public Utilities Commission to request an
advisory opinion from the AG regarding whether competition
will be adversely affected and what mitigation measures could
be adopted to avoid this result when approving mergers,
acquisitions or direct or indirect control of any public
utility organized and doing business in California.
This bill:
1)Prohibits a contract between a general acute care hospital and
a payor from containing, directly or indirectly, any of the
following terms:
a) A requirement that the payor includes in its network
SB 932 (Hernandez) Page 4 of ?
any one or more providers owned or controlled by, or
affiliated with, the general acute care hospital as a
condition of allowing the payor to include in its network
the general acute care hospital;
b) A requirement that a payor places all members of a
provider, whether medical group, independent practice
association, organization, health care facility, or other
person or institution licensed or authorized by the state
to deliver or furnish health services in the same tier of
a tiered network plan;
c) A provision that sets rates for emergency services
by any general acute care hospital not participating in a
network at a rate greater than that which is provided for
pursuant to existing law and regulation, as specified;
d) A requirement that the payor compensate the general
acute care hospital at the contracted rate for services
by a provider acquired by the general acute care hospital
during the term of the contract and with which the payor,
at the time of acquisition, has a contract in effect;
e) A requirement that the payor or general acute care
hospital submit to binding arbitration, or any other
alternative dispute resolution programs, any claims or
causes of action that arise under state or federal
antitrust laws;
f) A provision that prohibits the offering of
incentives to subscribers, enrollees, insureds, or a
payor's beneficiaries that encourages a subscriber,
enrollee, insured or payor's beneficiary to access health
care providers other than the general acute care
hospital, or that creates disincentives to access the
general acute care hospital; or,
g) A provision that prohibits the disclosure of the
contracted rate between the payor and the general acute
care hospital to subscribers, enrollees, insureds,
payor's beneficiaries, or the payor before the services
or products of the general acute care hospital are
utilized and billed.
1)Extends the prohibited contract provisions described above to
any contract between a health plan or health insurer and a
health care provider.
2)Requires any contract entered into, issued, amended, or
renewed before, on or after January 1, 2017 containing the
provisions in 1) above to become void and unenforceable
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commencing January 1, 2017.
3)Defines payor as a health plan, including a specialized health
plan, an insurer licensed under the Insurance Code to provide
disability insurance that covers hospital, medical, or
surgical benefits, automobile insurance, workers' compensation
insurance, or a self-insured employer that is responsible to
pay for health care services provided to beneficiaries.
4)Defines a health care provider as any professional person,
medical group, independent practice association, organization,
health care facility, or other person or institution licensed
or authorized by the state to deliver or furnish health
services.
5)Requires any person that intends to merge with, consolidate,
acquire, purchase, or control, directly or indirectly, any
health plan or risk-bearing organization (RBO) organized and
doing business in this state to give notice to, and secure
prior approval from, the director of DMHC.
6)Requires any person that intends to merge with, consolidate,
acquire, purchase, or control, directly or indirectly, any
health plan to file an application for licensure as a health
care service plan.
7)Requires any RBO to give notice to, and secure prior approval
from, the director of DMHC for any agreement, collaboration,
relationship, or joint venture entered into with another RBO
or any other organization, such as a hospital or health plan,
for the purpose of increasing the level of collaboration in
the provision of health care services, which may include, but
are not limited to, sharing of physician resources in hospital
or other ambulatory settings, cobranding, and expedited
transfers to advanced care settings.
8)Requires prior to approving any transaction or agreement
described in 6)-8) above, the DMHC director to hold a public
hearing and find that the proposal meets certain criteria,
such as:
a) Provides short-term and long-term benefits to
purchasers, subscribers, enrollees, and patients, in
the form of lower prices, better quality and improved
access to care;
b) Does not adversely affect competition.
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Requires DMHC director to request an advisory opinion
from the AG regarding whether competition would be
adversely affected and what mitigation measures could
be adopted to avoid this result;
c) Does not jeopardize the financial stability of
the parties or prejudice the interests of their
purchasers, subscribers, enrollees and patients; and,
d) Does not result in a significant effect on the
availability or accessibility of existing health care
services.
9)Authorizes the DMHC director to give conditional approval for
any transaction or agreement described in 6)-8) above if the
parties to the transaction or agreement commit to taking
action to prevent adverse impacts on competition, or health
care costs, access and quality of care in this state.
10)Requires the AG to prepare and submit to DMHC an independent
health care impact statement to assist DMHC in approving a
transaction described in 6)-8) above if the DMHC director
determines that a material amount of assets of a health care
service plan or RBO is subject to merger, consolidation,
acquisition, purchase, control, directly or indirectly.
11)Requires DMHC to develop by regulation a definition of
"material amount of assets."
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1)Author's statement. According to the author, California has
to do more to address the rising costs of health care to keep
health coverage affordable for individuals, government,
employers and other purchasers. Health care economists
indicate that the market power of certain health care
providers is a major driver of price increases and health care
spending. While extensive consolidation already exists in both
the health care provider and health insurance markets, these
trends will continue as new payment models develop in response
to implementation of the Affordable Care Act (ACA). Many
providers are consolidating to remain viable. Health policy
experts are calling for initiatives beyond traditional
antitrust enforcement to promote competition. States such as
Massachusetts, New York, Texas and others have passed
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legislation to review mergers and transactions and promote
more market competition in health care. This bill will
increase scrutiny over mergers and transactions that have the
potential to impede competition and prohibit contract
provision which experts indicate are anticompetitive and
possibly in violation of antitrust laws.
2)Informational Hearing. On March 16, 2016 the Senate Health
Committee held an informational hearing to explore policy
options to minimize the negative impact on cost, quality and
access to care for Californians when there is a lack of
competition due to overconcentration in the health care
marketplace. At the hearing, experts suggested states should
address restrictions on anti-competitive practices such as
anti-tiering restrictions, all-or-none contracting
restrictions, most favored nation clauses, and regulate
network adequacy wisely in order to foster competition in
consolidated markets. In addition it was stated that these
anticompetitive agreements are the leading cause of the high
cost of healthcare in Northern California and the primary
challenge for fixing our broken healthcare system. One speaker
indicated that such agreements have been condemned in policy
statements of the Federal Trade Commission and the U.S.
Department of Justice.
3)Provider Market Power. A study on the impact of health care
market power on premiums for products available in 2014
through Covered California conducted by researchers at the
University of California, Berkeley found that the
concentration of medical groups and hospitals had an impact on
premium rates in California's 19 health insurance rating
regions. The researchers found that the concentration of
health plans did not have an impact on premiums. They did find
that reducing hospital concentration to levels that would
exist in moderately competitive markets could reduce overall
premiums of more than 2% and in three regions by more than
10%. The study authors found that while increasing
concentration in hospital markets is occurring nationally,
medical group concentration is more specific to California.
The authors recommend that policy makers monitor and promote
competition to ensure Covered California consumers have access
to affordable health plans. A June 2015 issue brief from the
California HealthCare Foundation (CHFC) indicates that in
California there are eight large systems which comprise 40% of
the state's hospitals and general acute care hospital beds.
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The brief indicates that integration and strategic alliances,
rather than traditional mergers, seem to be on the rise.
Another CHCF paper indicates that contrary to claims by
dominant providers that ability to command higher
reimbursements results in savings for consumers and improved
outcomes, the absence of competitive pressures tends instead
to produce organizational slack, weaker accountability for
performance, and lower-quality of care.
A 2014 article published in the Journal of the American Medical
Association found between 2009 and 2012 hospital-owned
physician organizations in California incurred higher
expenditures for commercial HMO enrollees for professional,
hospital, laboratory, pharmaceutical, and ancillary services
than physician-owned organizations. The authors found that
organizations in California that are owned by local hospitals
or multihospital systems incur significantly higher
expenditures per patient than integrated medical groups and
Independent Practice Associations owned by participating
physicians. In the study period, the total expenditures for
care per patient were 10% higher in physician organizations
that were owned by a local hospital and 20% higher in
organizations owned by multihospital system than in
organizations owned by participating physicians, after
adjusting for patient disease severity and other factors.
4)Health insurance mergers. There are at least four health
insurance company mergers currently under consideration
nationally with implications in California: Blue Shield of
California's acquisition of Care 1st, Aetna's acquisition of
Humana, Anthem's acquisition of Cigna, and Centene's
acquisition of Health Net. Nationally, these mergers, if
approved, will reduce the top five plans to three. Anthem's
acquisition of Cigna would make it the largest health
insurance company putting United Health into second place. An
August 2015 analysis by Cattaneo and Stroud of the impacts of
the proposed mergers on California indicates that there would
be minor changes in enrollment numbers resulting in three
plans representing 55% of the market, but there will also be
fewer competitors in many counties. With the Anthem-Cigna
merger competitiveness is reduced in 31 counties, and
Aetna-Humana reduces competitiveness in eight counties. The
study concludes that major concentration has already occurred
prior to the currently proposed mergers and/or acquisitions.
However, the proposed transactions further exacerbate the
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concentrations. Additionally, there will be a reduction of
competing plans in the majority of California counties, which
will likely result in increased contracting pressure on
delegated medical groups.
5)Other state laws. The National Academy of Social Insurance
and the Catalyst for Payment Reform published a report on
state efforts to enhance the competitiveness of health care
markets and reduce the ability of providers to use market
power in way that creates negative consequences for those who
use and pay for health care. The report describes laws and
regulations encouraging competitive behavior in health plan
contracting such as limiting most favored nation agreements,
removing restrictions on plan's ability to offer tiered
products, limiting "all or none" contracting for hospitals
systems, and limiting rating increases by providers to health
plans. Texas has enacted legislation that requires review of
the impact on market competition during the development and
implementation of Accountable Care Organizations. A growing
number of states are forming regulatory bodies to monitor
health care prices. Delaware, Maryland, Massachusetts, New
York, Pennsylvania, and West Virginia have established health
care commissions to monitor and review health care prices.
Connecticut recently passed a law requiring a pre-acquisition
market analysis and review by the AG and that establishes a
state health care cabinet to study health care cost
containment models in other states.
6)Related legislation. SB 1159 (Hernandez) would require the
Secretary of California Health and Human Services Agency to,
no later than January 1, 2017, use a competitive process to
contract, as specified, with one or more independent,
nonprofit organizations in order to administer the California
Health Care Cost and Quality Database. SB 1159 is pending in
the Senate Appropriations Committee.
SB 1365 (Hernandez) would prohibit an outpatient setting that
is operated or controlled by a hospital from charging a fee or
imposing costs on a patient or payer for hospital care unless
the care is provided in a hospital building, as defined. SB
1365 is pending in the Senate Health Committee.
AB 533 (Bonta) would establish requirements for the payment of
non-contracting individual health professionals when a health
care service plan enrollee obtains services from the
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non-contracting individual health professional in a
contracting health facility, as specified. Failed passage on
the Assembly Floor.
7)Prior legislation. SB 1340 (Hernandez, Chapter 83, Statutes of
2014), makes a number of technical and clarifying changes to
existing law prohibiting contracts between health plans or
insurers and hospitals restricting the ability of the health
plan/insurer from furnishing information concerning the cost
range of procedures at the hospital or facility or the quality
of services performed by the hospital or facility to
subscribers or enrollees.
SB 1196 (Hernandez, Chapter 869, Statutes of 2012), prohibits
a contract in existence or issued, amended, or renewed on or
after January 1, 2013, between a health plan, or health
insurer, and a provider or supplier, from prohibiting,
conditioning, or in any way restricting the disclosure of
claims data related to health care services provided to an
enrollee or subscriber of the health plan or carrier, or
beneficiaries of any self-funded health coverage arrangement
administered by the carrier to a qualified entity, as defined.
SB 751 (Gains and Hernandez, Chapter 244, Statutes of 2011),
prohibits contracts between health plans and health insurers
and a licensed hospital or health care facility owned by a
licensed hospital from containing any provision that restricts
the ability of the carrier from furnishing information to
subscribers, enrollees, policyholders, or insureds concerning
cost range of procedures or the quality of services. Provides
hospitals at least 20 days in advance to review the
methodology and data developed and compiled by the carriers,
requires risk adjustment factors for quality data, requires a
disclosure on the carrier's Web site about the data developed
and compiled by the carriers and an opportunity for a hospital
to provide a link where the hospital's response to the data
can be accessed.
AB 2389 (Gaines) of 2009 would have prohibited a contract
between a health facility and a carrier from containing a
provision that restricts the ability of the carrier to furnish
information on the cost of procedures or health care quality
information to carrier enrollees. AB 2389 died in the
Assembly on Concurrence.
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SB 1300 (Corbett of 2008) would have prohibited a contract
between a health care provider and a health plan from
containing a provision that restricts the ability of the
health plan to furnish information on the cost of procedures
or health care quality information to plan enrollees. SB 1300
died on the Senate Floor.
AB 1296 (Torrico, Chapter 698, Statutes of 2007), requires a
health plan or contractor offering health benefits to
California Public Employees' Retirement System (CalPERS)
members and annuitants to disclose to CalPERS the cost,
utilization, actual claim payments, and contract allowance
amounts for health care services rendered by participating
hospitals to each member and annuitant. Requires this
information to be deemed confidential.
8)Support. The Service Employees International Union (SEIU)
writes that this bill responds to trends toward greater
consolidation by plans and providers with significant market
share by providing state regulators with the authority needed
to more thoroughly scrutinize health care mergers,
acquisitions and consolidations for impacts on competition and
health care costs, access and quality of care and by banning
certain contract provisions that are believed to result in
increased health care costs. Recent market forces, along with
incentives in the ACA which pushes providers to take on risk
and become more integrated, have led to an intensifying of
consolidations among health plans and providers. For example,
in California, eight large hospital systems account for 40% of
the state's hospitals and general acute hospital beds. In
order for market theory to work, policymakers must move beyond
antitrust laws to ensure that plan and provider consolidations
do not drive up costs - particularly where cost increases are
based solely on market power, and there is no evidence of
improved patient quality or outcomes. Health Access California
writes since 2002, health insurance premiums in California
have increased by 202%, more than five times the 36% increase
in the state's overall inflation rate. Workers are also seeing
reduced benefits and increased cost sharing. It is imperative
that the state critically evaluates how consolidation in the
health care industry will impact the significant strides
California has made in reducing our rate of uninsured and our
ability to control health care costs. Over the last few
decades, increasing consolidation in provider and insurer
markets have led to higher health care costs and expenditures.
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The recent acceleration of merger activity, coupled with new
alliances being formed within the healthcare industry, pose
significant risks for consumers. California needs to have
oversight over these important changes and ensure that the
state maintains a robust and competitive market that delivers
quality and affordable health care. Although integration can
better coordinate care and reduce unnecessary spending, it can
also lead to further consolidation, higher prices and less
accountability. While there is currently some oversight over
health insurer consolidation, a large swath of health industry
mergers, such as consolidation amongst medical groups and
vertical integration between hospitals and providers, fly
under the regulatory radar. The state's regulatory framework
needs to adapt to new conglomerations and affiliations within
the health care industry.
The California Labor Federation writes that increased
consolidation of hospitals can have a negative effect on
purchasers and consumers since market dominance allows
hospitals to charge inflated prices. A 2015 study found that
hospital prices in monopoly markets are 15.3% higher than in
more competitive markets. Unions negotiate and purchase health
benefits for 2 million union members and their families in
California and the rising cost of health care is increasingly
unsustainable. Hospital consolidations only exacerbate the
problem. Unions and employers have taken action to control
health care costs by developing a number of internal
strategies to increase quality and lower cost. One example is
the use of benefit designs such as tiering and reference
pricing. Higher value providers-those that are lower cost and
higher quality are placed in tiers with lower cost-sharing for
consumers. This creates an incentive for consumers to go to
high value providers, lowering costs for the payer, but also
improving health care outcomes and reducing low-quality side
effects such as expensive re-admissions and hospital acquired
infections. Safeway introduced reference pricing for certain
elective procedures in 2009 and CalPERS followed suit by using
reference-pricing for joint replacements. Reference-pricing
resulted in a 20.2% decline in spending per hip or knee
replacement for a total of $3.1 million in savings in the
first year for CalPERS. However, value-based benefit design
such as tiering and referencing pricing may be prohibited if a
provider requires anti-competitive language in contract
provisions.
SB 932 (Hernandez) Page 13 of ?
9)Opposition. The California Hospital Association (CHA) writes
that this bill will harm consumers by decreasing the level of
collaboration in the provision of health care services. This
bill will not help reduce health care costs, provide informed
consumer choice, or increase access to care; instead, several
of the bill's provisions will conflict with existing law and
will increase costs, reduce consumer choice, confuse
consumers, decrease access to care, and reduce collaboration.
CHA has extensive comments on each provision of this bill.
For example one provision, CHA writes is inconsistent with the
ACA. On tiering, CHA writes that separate tiering within the
same group would restrict access to care or result in
unexpected out-of-pocket bills. Another provision on emergency
services contains several inconsistencies and they are unable
to determine its purpose or impact. On the arbitration
provision, CHA believes it conflicts with the Federal
Arbitration Act. Another provision, CHA indicates would
violate the legislative intent of the Silent PPO law. CHA
agrees with the conceptual goal on a transparency provision
but only if it provides information that is meaningful. On the
merger provisions CHA writes the sweeping scope will ensnare
virtually every health care organization in a web of
duplicative and counterproductive regulatory reviews. The
California Association of Physician Groups (CAPG) believes the
inclusion of RBOs in the merger review process would be
cumbersome, expensive, and would require vast changes in the
current licensure and regulatory structure. Many of the
contract provisions in the bill presumably target one or two
entities out of 200 in the California Capitated physician
group community. CAPG strongly disagrees that multi-billion
dollar health plans should be so advantaged over providers
through the mechanism of statutory contracting provisions.
CAPG also writes that there is already significant oversight
of merger activity by providers in California at the federal
and state level. There is one pending merger that has been
under review for the past three years. CAPG believes adding
jurisdiction authority over RBOs will increase costs and urges
other transparency efforts to take effect in the market place
before further mechanisms are considered.
10) Policy Comments.
a) Broad Application. This bill requires any RBO to
give notice to, and secure prior approval from the DMHC
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for any agreement, collaboration, relationship, or joint
venture entered into with another RBO or any other
organization, such as a hospital or health plan for the
purpose of increasing collaboration. Would this result in
the DMHC being overwhelmed with approval requests?
Should a dollar threshold, number of lives affected, or
some other indicator be developed in order to trigger
prior approval or is it the author's intent to apply
these provisions this broadly?
b) Approval Process. This bill does not flesh out the
details of the approval process or timeframes for when
DMHC must hold a public hearing or issue a decision. The
author and committee may wish to establish some
parameters around this process in order to give the
requesting organizations a reasonable expectation of the
process.
c) Parallel Authority. This bill gives explicit
authority to DMHC to review and approve mergers and
acquisitions of health plans and other entities and
requires consultation with the AG. As part of the review
process the DMHC is required to analyze impacts of the
transaction on market competition. CDI has authority to
review domestic insurance companies under the
department's jurisdiction for impacts on market
competition. However, the limit on this authority is to
companies that are domestic insurers that are organized
in California. Should this bill be amended to provide
CDI authority to review these types of transactions
involving company mergers involving insurers who are not
organized in California but who are doing business in
California as would be the case if the DMHC provisions in
this bill are enacted?
SUPPORT AND OPPOSITION :
Support: California Nurses Association (as amended)
California Labor Federation
California Reinvestment Coalition
Health Access California
Pacific Business Group on Health
Service Employees International Union
Silicon Valley Employers Forum
Western Center on Law and Poverty
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Oppose: California Association of Physician Groups
California Hospital Association
California Medical Association
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