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.
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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