BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:  June 28, 2016


                            ASSEMBLY COMMITTEE ON HEALTH


                                   Jim Wood, Chair


          SB  
          1365 (Hernandez) - As Amended June 16, 2016


          SENATE VOTE:  26-11


          SUBJECT:  Hospitals.


          SUMMARY:  Requires a general acute care hospital to notify each  
          patient scheduled for a service in a hospital-based outpatient  
          clinic when that service is available in another location that  
          is not hospital-based.  Specifically, this bill:  


          1)Requires the notification to be in substantially the following  
            form:


               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 within our health system that is not  
               hospital-based, which may cost less.  Check with the  
               [insert name of office] at [insert telephone number] for  
               another location within our health system, or check with  
               your health insurance company, for more information about  
               other locations that may cost less.









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          2)Defines hospital-based outpatient clinic as a department of a  
            provider, as defined in federal regulations, that is not  
            located on the campus of that provider.


          EXISTING STATE LAW:  


          1)Establishes the Department of Public Health (DPH) which  
            licenses and regulates health facilities, 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  








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            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, to include, 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, and defines hospital building 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.


          EXISTING FEDERAL LAW:


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








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          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.


          COMMENTS:


          1)PURPOSE OF THIS BILL.  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.   
            The author states that 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.  The author notes that 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 in a more expensive  
            setting.  The author also notes this has two significant  
            consequences:  a) consumers may have higher out-of-pocket  
            costs, particularly those patients served by a Preferred  
            Provider Organization; and, b) health insurance premiums will  
            be driven up as a result of patients unwittingly, and  
            unnecessarily, receiving care in more expensive settings.   
            With the passage of the Patient Protection and Affordable Care  
            Act, we are now requiring everyone to purchase health  
            insurance and it is incumbent upon policymakers to contain  
            costs to keep insurance rates as affordable as possible.  The  
            author concludes this bill will at least make 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.


          2)BACKGROUND.  










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             a)   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, and increased  
               staffing.  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.  


             b)   GAO report and Medicare's new "site neutral" payment  
               reform.  The U.S. Government Accountability Office (GAO)  
               issued a report in December 2015 titled "Increasing  
               Hospital-Physician Consolidation Highlights Need for  
               Payment Reform." According to this GAO report, Medicare  








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               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, the U.S. Congress should consider  
               equalizing payment rates between settings for evaluation  
               and management offices visits.





               Even prior to the publication of the GAO report, the U.S.  
               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.





             c)   Corporate Practice of Medicine.  Across the nation, the  
               push 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  








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               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.


          3)SUPPORT.  The California Teamsters Public Affairs Council  
            (Teamsters) are the sponsors of this bill and state,  
            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 contend 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.  The Teamsters conclude that  
            healthcare is expensive enough without making consumers pay  
            for the use of hospitals that they are not being treated in.



          Health Access California (HAC) supports this bill stating that  
            to HAC, 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 US Oncology Network (the Network) supports this bill and  
            points to a 2015 study by the IMS Institute which found that  
            in 2014 Medicare paid HOPDs twice as much as a physician's  








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            offices for the same drug administration service.  The Network  
            concludes 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.


          4)RELATED LEGISLATION.  SB 932 (Hernandez) would prohibit  
            contracts between health care providers and payors from  
            including specified provisions.  SB 932 would require prior  
            approval from the Department of Managed Health Care for  
            mergers and other transactions between health plans and other  
            organizations.  SB 932 was held on the Senate Appropriations  
            Committee Suspense File.


          5)POLICY COMMENT.  As this bill moves forward the author may  
            wish to clarify that patients should be provided the required  
            notice enough in advance to allow them time to re-schedule the  
            service at a non-hospital based location.  


          REGISTERED SUPPORT / OPPOSITION:




          Support



          California Teamsters Public Affairs Council (sponsor)
          Alliance for Site Neutral Payment Reform
          America's Health Insurance Plans
          California Labor Federation
          Consumer Federation of California
          Health Access California
          US Oncology Network










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          Opposition


          None on file.




          Analysis Prepared by:Lara Flynn / HEALTH / (916)  
          319-2097