BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1365| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1365 Author: Hernandez (D), et al. Introduced:2/19/16 Vote: 21 SENATE HEALTH COMMITTEE: 5-1, 4/20/16 AYES: Hernandez, Hall, Mitchell, Monning, Pan NOES: Nguyen NO VOTE RECORDED: Nielsen, Roth, Wolk SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Hospitals SOURCE: California Teamsters Public Affairs Council DIGEST: This bill 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. ANALYSIS: 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 SB 1365 Page 2 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 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 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 SB 1365 Page 3 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: 1)Subject to nurse-to-patient staffing ratios; or, 2)A hospital building as defined for purposes of the Hospital Seismic Act, as specified. 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. 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)Facility fees. Medicare rules have historically established the payment structure 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 SB 1365 Page 4 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 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 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 SB 1365 Page 5 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 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. Related/Prior Legislation SB 932 (Hernandez) bans seven specified provisions from SB 1365 Page 6 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 has been placed on suspense file. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes SUPPORT: (Verified5/24/16) California Teamsters Public Affairs Council (source) 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 OPPOSITION: (Verified5/24/16) Association of California Healthcare Districts California Children's Hospital Association California Hospital Association ARGUMENTS IN 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, SB 1365 Page 7 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 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. ARGUMENTS IN 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 SB 1365 Page 8 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 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. Prepared by:Vince Marchand / HEALTH / (916) 651-4111 5/25/16 13:50:29 SB 1365 Page 9 **** END ****