BILL ANALYSIS Ó
SB 1365
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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