BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 932 (Hernandez) - Health care mergers, acquisitions, and
collaborations
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|Version: April 26, 2016 |Policy Vote: HEALTH 5 - 1 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: May 9, 2016 |Consultant: Brendan McCarthy |
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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
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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
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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
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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
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costs are not reimbursable by the state.
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