BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 932 (Hernandez) - Health care mergers, acquisitions, and collaborations ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: April 26, 2016 |Policy Vote: HEALTH 5 - 1 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 9, 2016 |Consultant: Brendan McCarthy | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 932 would prohibit contracts between health care providers and payors from including specified provisions. The bill would require prior approval from the Department of Managed Health Care for mergers and other transactions between health plans and other organizations. Fiscal Impact: One-time costs of $145,000 and ongoing costs of $140,000 per year for the adoption of regulations and to review proposed mergers and contracts between providers and health plans by the Department of Managed Health Care (Managed Care Fund). The Department projects that it will need to review three mergers per year, on average, and about 40 revised provider contracts per year. Ongoing projected costs of $300,000 per year for the Attorney General's Office to provide advisory opinions to the Department of Managed Health Care regarding whether a SB 932 (Hernandez) Page 1 of ? transaction under review will reduce competition (Managed Care Fund). The Attorney General's Office indicates that the cost to contract for an economic analysis of a proposed transaction will be about $100,000. Under current practice, the Department would be required to reimburse the Attorney General's Office for those costs. Minor costs for the Department of Insurance to review additional materials provided by health insurers for compliance with the requirement that contracts with providers not include specified provisions (Insurance Fund). Likely ongoing costs in the millions per year for review of contracts between hospitals and payors by the Department of Public Health (Licensing and Certification Fund). The bill puts restriction on hospital contracting activity in the body of law regulating hospitals which is enforced by the Department of Public Health as a licensing agency. To the extent that the Department reviews hospital contracts as part of its regular licensing surveys, the Department would incur additional staff costs. The number of contracts per hospital that will need to be reviewed could be substantial, depending on how many contracts per payor a hospital has. Unknown potential future reduction in state health care costs (various funds). See below. Background: Under current law, health insurers are regulated by the Department of Insurance and health plans are regulated by the Department of Managed Health Care. Under current practice, health insurers and health plans contract with a wide range of primary care and specialty care providers as well as facilities such as hospitals and pharmacies. Current law requires the Department of Managed Health Care to approve significant proposed mergers and acquisitions by licensed health plans. Current law authorizes the Insurance Commissioner to deny a permit when a California insurer is directly affected by a transaction that meets certain criteria. Proposed Law: SB 932 would prohibit contracts between health care providers and payors from including specified provisions. The bill would SB 932 (Hernandez) Page 2 of ? require prior approval from the Department of Managed Health Care for mergers and other transactions between health plans and other organizations. Specific provisions of the bill would: Prohibit an agreement between a hospital and a payor (e.g. health plans health insurer, or self-insured employers) from including specified terms - such as a requirement that a payor include in its network other providers owned or controlled by the hospital or a requirement that the payor refrain from offering a tiered network plan; Prohibit an agreement between a health plan or health insurer and a provider from containing any of the terms prohibited above; Require prior approval by the Department of Managed Health Care for any proposed merger, consolidation, acquisition, or purchase of a health plan and require any person intending to do so to file an application for licensure as a health plan; Require the Department to hold a public hearing on the proposed transaction; Require certain criteria to be met before the Department can approve the transaction, including a requirement that the Department request an advisory opinion from the Attorney General regarding the impact on competition; Authorize the conditional approval of a transaction. Related Legislation: SB 1365 (Hernandez) would prohibit an outpatient setting that is controlled by hospital from charging a hospital facility fee unless care is provided in a hospital building. That bill will be heard in this committee. Staff Comments: Studies have indicated that concentration of providers (such as hospitals) in the health care market has increased costs, due to reduced competition and greater bargaining power by providers when negotiating reimbursement rates with health plans and health insurers. For example, a study conducted by researchers at the University of California, Berkeley found that market concentration of hospitals and physician groups increased health care premiums for coverage SB 932 (Hernandez) Page 3 of ? sold through Covered California. The intention of the bill is to limit cost increases by reducing the market power of providers such as hospitals when negotiating with payors. For example, the bill would prohibiting a hospital from requiring a health plan to include all the hospital's affiliated hospitals in the health plan network when contracting for services with that hospital. The intention of this provision is to reduce the incentive for hospitals to affiliate with one another and require health plans to include all affiliated hospitals within a network, which often reduces price competition between hospitals. The bill would require prior approval for health plan and health insurer transactions. The intention is to prevent consolidation in markets that would reduce competition between health plans and therefore increase the power for health plans to increase rates. Given the complexity of the health care market, it is difficult to anticipate the extent to which the bill would be successful in reducing health care costs in the future by reducing the ability of providers and payors to engage in anticompetitive behavior. To the extent that the bill is successful in preventing contracting practices or transactions in the health care market that do lead to higher prices, the bill could reduce future health care spending. The extent to which that would occur is unknown. The rates paid by the Medi-Cal program are generally set by the state and are considered to be significantly below market rates. Given the unique system for setting Medi-Cal reimbursement rates, any reduction in overall health care costs attributable to the bill is not likely to significantly impact Medi-Cal expenditures. However, to the extent that the bill does result in lower health care costs, health care coverage provided by CalPERS to state and local government agencies could have lower future costs. The only costs that may be incurred by a local agency relate to crimes and infractions. Under the California Constitution, such SB 932 (Hernandez) Page 4 of ? costs are not reimbursable by the state. -- END --