BILL ANALYSIS Ó SB 1365 Page 1 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. SB 1365 Page 2 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 SB 1365 Page 3 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. SB 1365 Page 4 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. SB 1365 Page 5 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 SB 1365 Page 6 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 SB 1365 Page 7 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 SB 1365 Page 8 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 SB 1365 Page 9 Opposition None on file. Analysis Prepared by:Lara Flynn / HEALTH / (916) 319-2097