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.
          Amended:  5/31/16  
          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 requires a general acute care hospital that  
          offers a service in a hospital-based outpatient clinic, as  
          defined, to provide a notice to patients informing them that the  
          location may have higher costs, and that the same service may be  
          available at other locations that cost less. 

          Senate Floor Amendments of 5/31/16 reflect an agreement the  
          author made when the bill was heard in Senate Health Committee  
          to change this bill to a disclosure requirement.

          ANALYSIS:  
          
          Existing federal law:

          1)Defines "department of a provider" as a facility or  
            organization that is either created by, or acquired by, a  








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            hospital for the purpose of furnishing health care services of  
            the same type as those furnished by the main hospital. 

          2)Defines "campus" of a hospital as the physical area  
            immediately adjacent to the hospital's main buildings, other  
            areas and structures that are not strictly contiguous to the  
            main buildings but are located within 250 yards of the main  
            buildings, and any other areas determined on an individual  
            case basis by the Centers for Medicare and Medicaid Services  
            to be part of the hospital's campus.

          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  
            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"  







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            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.

          This bill:
          1)Requires a general acute care hospital, that offers a service  
            in a hospital-based outpatient clinic, to notify each patient  
            when that services is available in a nonhospital-based  
            location, as follows:

            "The location where you are being scheduled to receive  
            services is a hospital-based clinic, and, therefore, may have  
            higher costs. The same service may be available at another  
            location that is not hospital-based, which may cost less.  
            Check with ____ (Patient Financial Services Office) for  
            another location within out health system, or your health  
            insurance company, for more information about other locations  
            that may cost less."

          2)Defines "hospital-based outpatient clinic," for purposes of  
            this bill, as a department of a provider, as defined in  
            specified provisions of federal regulations, that is not  
            located on the campus of that provider.

          Comments
          
          Author's statement.  According to the author, this bill is  
          intended to notify patients when a hospital is scheduling them  
          to receive services in an outpatient setting, that is not on the  
          hospital campus, that charges a hospital facility fee. 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  







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          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 at least makes sure that patients are aware that they  
          may face higher costs at these types of facilities, and gives  
          them an option to seek care at a less expensive alternative  
          location.
           
          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 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.  

          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  







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          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.

          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.

          Regulations pertaining to HOPDs. As hospitals argue in  
          opposition to this bill, outpatient services operated by  







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          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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          SUPPORT:   (Verified5/31/16)


          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:   (Verified5/31/16)


          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  







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          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 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 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 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.


          ARGUMENTS IN OPPOSITION:  The California Hospital Association  
          (CHA) states in opposition (to the prior version of this bill)  
          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 to rigorous standards for  
          patient care, facility infrastructure and operational procedures  







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          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 (to the prior version of  
          this bill) 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
          6/1/16 18:41:41


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