BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 1365
---------------------------------------------------------------
|AUTHOR: |Hernandez |
|---------------+-----------------------------------------------|
|VERSION: |February 19, 2016 |
---------------------------------------------------------------
---------------------------------------------------------------
|HEARING DATE: |April 20, 2016 | | |
---------------------------------------------------------------
---------------------------------------------------------------
|CONSULTANT: |Vince Marchand |
---------------------------------------------------------------
SUBJECT : Hospitals
SUMMARY : Prohibits 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.
Existing law:
1)Licenses and regulates health facilities through the
Department of Public Health (DPH), including general acute
care hospitals, acute psychiatric hospitals, and special
hospitals.
2)Permits DPH to issue a consolidated license to a general acute
care hospital that includes more than one physical plant
maintained and operated on separate premises, under certain
conditions, including that the physical plants maintained and
operated under the consolidated license are located not more
than 15 miles apart, unless one or more of the physical plants
is located in a rural area or only provides outpatient
services, among other specified exceptions.
3)Requires a general acute care hospital and an acute
psychiatric hospital, if supplies or services are provided on
an outpatient basis by an ancillary health services provider
which is not on the same site as, or is not on a site which is
within a 400-yard radius of the boundaries of, the general
acute care hospital, to disclose in writing to the customers
if they have a significant beneficial interest in the
ancillary health service provider, and that they may choose to
have another ancillary health service provider provide any
supplies or services ordered by a member of the medical staff
of the hospital. "Ancillary health services provider" is
SB 1365 (Hernandez) Page 2 of ?
defined, for these purposes, as including, but not limited to,
providers of pharmaceutical, laboratory, optometry,
prosthetic, or orthopedic supplies or services, among others.
4)Establishes the Alfred E. Alquist Hospital Facilities Seismic
Act (Hospital Seismic Act), and defines "hospital building"
for purposes of this Act as any building used, or designed to
be used, for a health facility of a type required to be
licensed, except any building where outpatient clinical
services are provided that is separated from a building in
which hospital services are provided, and other specified
exceptions.
5)Requires DPH to establish minimum licensed nurse-to-patient
ratios for all general acute, acute psychiatric, and special
hospitals, in the following hospital units: critical care
unit; burn unit; labor and delivery room; post-anesthesia
service area; emergency department; operating room; pediatric
unit; step-down/intermediate care unit; specialty care unit;
telemetry unit; general medical care unit; subacute care unit;
and transitional inpatient care unit.
This bill:
1)Requires an entity that operates or controls a general acute
care, acute psychiatric, or special hospital, as defined, and
that also operates, controls, or leases real property for use
as an outpatient treatment setting, to ensure that the
outpatient facility does not charge a fee to, or impose costs
on, a patient or other payer for inpatient care or hospital
care unless the care is provided in the portion of the
facility that is either:
a) Subject to nurse-to-patient staffing ratios;
or,
b) A hospital building as defined for purposes of
the Hospital Seismic Act, as specified.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1)Author's statement. According to the author, this bill is
intended to prohibit a hospital from charging a hospital
facility fee for care provided in an outpatient setting when the
outpatient setting is not a part of the actual hospital campus.
SB 1365 (Hernandez) Page 3 of ?
In many of these instances, these hospital-affiliated clinics
are simply providing primary care services that could easily be
performed in a physician's office. Worse, patients often have no
idea that the clinic where they are receiving care is part of a
hospital, since it is miles away from the actual hospital
campus, and are therefore getting care at a more expensive
setting. This has two significant consequences: 1) consumers may
have higher out-of-pocket costs, particularly those patients
served by a PPO; and, 2) health insurance premiums will be
driven up as a result of patients unwittingly, and
unnecessarily, receiving care at more expensive settings. With
the passage of the Affordable Care Act, we are now requiring
everyone to purchase health insurance. It is incumbent upon
policymakers to contain costs to keep insurance rates as
affordable as possible. This bill will ensure these facility
fees stay where they belong -- at the hospital.
2)Background on facility fees. Medicare rules have historically
established the payment structure that that is used throughout
the insurance industry. Under Medicare's payment policies, when
a service is provided in a physician office, Medicare makes a
single payment to the physician at Medicare's physician fee
schedule "non-facility rate." When the service is provided in a
hospital outpatient department (HOPD), however, Medicare makes
two payments: one payment at the physician fee schedule
"facility rate," and a second payment to the hospital at the
hospital outpatient prospective payment system rate, often
referred to as the facility fee. While the facility rate payment
for physician services at an HOPD is a little lower compared to
the non-facility rate payed at a doctor's office, when the two
separate charges for services at an HOPD are combined, the total
charge is higher for the same service. The argument for the
higher payment rates for services in HOPDs is that these higher
reimbursements are necessary to compensate for the additional
costs associated with maintaining a hospital - costs such as
maintaining an emergency room, more extensive equipment,
increased staffing, etc. However, this facility fee can be added
to bills even when the service is provided in a setting up to 35
miles away from the actual hospital, if the outpatient setting
is on the hospital's license. In many of these cases, the
hospital's outpatient clinics look nearly indistinguishable from
a physician practice that is not associated with a hospital (and
are not permitted to charge a facility fee). This has created a
situation in which patients go to what they believe is simply a
medical doctors office, but are billed a much higher fee than
SB 1365 (Hernandez) Page 4 of ?
expected.
3)GAO report and Medicare's new "site neutral" payment reform. The
United States Government Accountability Office (GAO) issued a
report in December of 2015 titled "Increasing Hospital-Physician
Consolidation Highlights Need for Payment Reform." According to
this GAO report, Medicare expenditures for hospital outpatient
department (HOPD) services have grown rapidly, and there have
been questions raised about the extent to which this growth in
spending can be attributed to services that were previously
performed in physician offices shifting to HOPDs. The GAO report
stated that "regardless of what has driven hospitals and
physicians to vertically consolidate, paying substantially more
for the same service when performed in an HOPD rather than a
physician office provides an incentive to shift services." The
GAO concluded that in order to prevent a shift toward HOPDs from
increasing costs, Congress should consider equalizing payment
rates between settings for evaluation and management offices
visits.
Even prior to the publication of the GAO report, Congress included
a Medicare "site neutral" payment reform provision as part of
the budget deal approved in October of 2015. Beginning on
January 1, 2017, Medicare will no longer pay a facility fee to
HOPDs that are located more than 250 yards from the main campus
of the hospital. However, this new law grandfathered in all
existing HOPDs, and only applies to new outpatient departments
going forward. The hospital industry is seeking to allow
locations in the planning or construction phase to be
grandfathered in as well.
4)Corporate Practice of Medicine. Across the nation, the drive
for "site neutral" payment reform has been driven, in large
part, by an escalation in hospital-physician consolidation, with
hospitals acquiring physician practices, and then increasing
charges due to the ability to charge HOPD rates. In California,
however, this is mitigated by the ban on the corporate practice
of medicine, which prevents corporations from practicing
medicine, including the employment of physicians. However, there
are a number of exceptions to the ban on hospital employment of
physicians, established over the years through both statutory
exemptions as well as case law. All teaching hospital systems
are allowed to employ physicians, which includes the five
University of California medical schools, as well as the three
private medical schools at Stanford University, Loma Linda
SB 1365 (Hernandez) Page 5 of ?
University, and the University of Southern California.
Additionally, all 12 county-owned hospital systems are allowed
to employ physicians. Other exemptions from the ban include
nonprofit community clinics, health maintenance organizations,
state agencies, and certain charitable institutions.
5)Regulations pertaining to HOPDs. As hospitals argue in
opposition to this bill, outpatient services operated by
hospitals are subject to certain requirements that do not apply
to physician offices not affiliated with a hospital. For
example, regulations for outpatient services of a hospital
require a registered nurse to be responsible for the nursing
service in the outpatient setting. Additionally, HOPDs are
subject to more stringent building code requirements than
physician offices, as HOPDS are required to meet the same "OSHPD
3" building code requirements as primary care clinics, which
specify minimum size of examination rooms, and specific plumbing
and mechanical requirements, among other building code
requirements.
6)Related legislation. SB 932 (Hernandez) would ban 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. SB 932 is set for hearing on April 20,
2016, in this Committee.
7)Support. This bill is sponsored by the California Teamsters
Public Affairs Council (Teamsters), which states that
increasingly, hospitals that own outpatient clinics providing
routine treatment are charging consumers exorbitant "facility
fees" as if they were being treated in an acute care facility.
The Teamsters state that this is fundamentally unfair to
health care consumers who seek treatment in outpatient
facilities precisely because they are supposed to be less
expensive than hospitals. America's Health Insurance Plans
(AHIP) states in support that this bill directly addresses one
of the cost-drivers that is occurring under provider
consolidation. According to AHIP, when a hospital purchases a
physician practice and re-categorizes it under the hospital
organization, nothing has changed for the physician's office,
yet they are now allowed to bill under a differed code,
because it is now considered an "outpatient facility" for
billing purposes. AHIP states that when a change of ownership
SB 1365 (Hernandez) Page 6 of ?
is all that allows for physician offices to bill for higher
reimbursement, without any corresponding change in service,
the patient pays more through either higher copayments or
higher premiums. Health Access California states in support
that this bill simply says that a provider cannot charge for
hospital services unless those services are provided in a
hospital. According to Health Access, charging for hospital
services when care is provided outside a hospital appears to
misrepresent the level of care provided and the costs
associated with that care. The California Labor Federation
(CLF) states in support that the shift toward outpatient care
has meant that more patients are receiving care outside of
acute care hospitals. However, CLF states that the facility
fee has followed patients out of hospitals and into outpatient
care, which is designed to be less expensive and intensive
than inpatient care. CLF states that patients who go to their
doctor's office for a minor procedure find themselves on the
hook for unexpected facility fees simply because the
physician's office is owned by a hospital. The US Oncology
Network states in support that it is all too familiar with the
higher rates for outpatient oncology services that hospitals
command, and that this bill is an important step to ensure
patients do not pay more for medical treatment, regardless of
whether they receive treatment in a hospital or outpatient
facility. The Alliance for Site Neutral Payment Reform states
that it believes payment policies that support higher
reimbursement in the HOPD setting encourages the acquisition
of office-based physician practices, which results in higher
costs to patients, payers and employers. The Consumer
Federation of California states that by prohibiting hospitals
from charging facility fees for services provided in an
outpatient setting that is not a part of the actual hospital
campus, this bill will protect consumers and control health
insurance premiums by averting unnecessary costs.
8)Opposition. The California Hospital Association (CHA) states
in opposition that this bill fails to recognize the critical
role hospitals play in our health care system and would only
exacerbate the access issues that proliferate across
California. According to CHA, off-campus facilities are part
of a hospital's license and must comply with applicable laws
and regulations. Hospital outpatient settings operate with
higher cost structures due to greater regulatory requirements
compared to physician offices or ambulatory surgery centers.
According to CHA, hospital outpatient departments must adhere
SB 1365 (Hernandez) Page 7 of ?
to rigorous standards for patient care, facility
infrastructure and operational procedures as if they were
directly on a hospital campus. This increases the cost of
care, and CHA states that the Medicare program accordingly
supports payment rates inclusive of a facility fee and a
professional fee. The California Children's Hospital
Association (CCHA) states in opposition that it is extremely
concerned by the public health and financial impacts of this
bill, which could destabilize the state's network of
hospital-based outpatient clinics and reduce access to
critically needed specialty care for children with complex
medical needs. According to CCHA, California's children's
hospitals experienced more than one million outpatient clinic
visits in 2014, including neurosurgery, speech, prenatal
diagnostic centers, audiology, genetics, and high risk infant
follow-up clinics, and that 65% of the visits were Medi-Cal
insured. CCHA states that facility fees are utilized to
reimburse hospitals for the level and intensity of the nursing
services and hospital resources used in an outpatient clinic
setting. CCHA states that by prohibiting hospitals from
charging for these additional costs of providing care unless
it is provided in an inpatient setting, this bill would create
an unsustainable financial burden for children's hospitals.
Without the ability to cover these expenses, CCHA states it
would be forced to reevaluate the outpatient clinics they
offer and possibly close clinics, moving patients to the more
expensive and unnecessary inpatient setting, or attempt to
manage patients through the emergency room. This bill is also
opposed by the Association of California Healthcare Districts
(ACHD), which states in many instances, healthcare districts
are the sole source of health care in the community, and that
outpatient clinics provide needed health care services to
Medi-Cal patients. According to ACHD, this bill does not take
into account the cost structure inherent in hospitals that are
meeting community needs and addressing access to care.
SUPPORT AND OPPOSITION :
Support: California Teamsters Public Affairs Council (sponsor)
Alliance for Site Neutral Payment Reform
America's Health Insurance Plans
California Labor Federation
Consumer Federation of California
Health Access
SEIU California
US Oncology Network
SB 1365 (Hernandez) Page 8 of ?
Oppose:Association of California Healthcare Districts
California Children's Hospital Association
California Hospital Association
-- END --