BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       SB 1365|
          |Office of Senate Floor Analyses   |                              |
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                                   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  








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            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  







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          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  







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            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  







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            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  







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          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,  







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          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  







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          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








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