BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1365|
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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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