BILL ANALYSIS
AB 1600
Page 1
Date of Hearing: May 8, 2001
ASSEMBLY COMMITTEE ON HEALTH
Helen Thomson, Chair
AB 1600 (Keeley) - As Amended: April 30, 2001
POLICY QUESTIONS :
1)Should the Legislature state its intent to implement a
solution to achieve the state's health care priorities by
allowing competing health care providers to renegotiate
contracts with health plans?
2)Should the Legislature intend that this solution is consistent
with the state action immunity doctrine, which establishes
immunity from federal antitrust laws?
3)Should health care providers, on a class basis, and health
plans be permitted to agree to negotiate and mediate any
contract term or condition upon renewal of a contract or
during the contract term if there is no provision for
renegotiation?
4)Should, in the event mediation is unsuccessful, the matter be
required to be referred to arbitration?
5)Should the mediator or arbitrator be required to lodge a copy
of the mediation decision or arbitration award and a statement
of reasons and submitted evidence to the Department of Managed
Health Care (DMHC) to be reviewed and confirmed, modified or
vacated?
6)Should DMHC, when considering the award, be required to
consider whether it is supported by substantial evidence
consistent with specified factors including the reasonableness
of reimbursement rates?
SUBJECT : Health care service plans: provider contracts.
SUMMARY : States legislative intent to implement a solution to
achieve the state's health care priorities, and states this
solution would allow competing health care providers to
renegotiate contracts with health plans. Permits health care
providers, on a class basis, and health plans to agree to
negotiate and mediate, any contract term or condition upon
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renewal of a contract or during the contract term, if there is
no provision for renegotiation. Permits the parties, in the
event the parties reach an impasse during the negotiations, upon
mutual agreement, to submit the issues in dispute to mediation.
Requires, in the event mediation is unsuccessful, the matter to
be referred to arbitration. Specifically, this bill :
1)Finds and declares the principal priorities of the Legislature
for health care are the following:
a) The citizens of this state have access to the highest
quality health care;
b) Patients have the opportunity for continuing access to
their own health care providers;
c) Health care costs be reasonable and affordable;
d) Administrative costs in the health care service plan and
health care provider relationship be as low as possible in
order to keep health care costs affordable; and,
e) Health care service plans and health care providers
remain financially solvent in order to provide the highest
quality care and to retain patients' continuing access to
their own health care providers.
1)Finds and declares that the current health care service plan
and health care provider relationship is not satisfactorily
meeting the state's health care priorities for the following
reasons:
a) There is evidence that some health care providers are
choosing not to practice in California because of this
relationship, thereby threatening the quality of, and
access to, health care in this state;
b) Some patients have not been able to have continuing
access to their own health care providers because health
care service plans and health care providers have been
unable to reach agreement on contract extensions;
c) Administrative costs in the health care service plan and
health care provider relationship are still high, resulting
in higher health care costs for both health care service
plans and health care providers;
d) A large number of providers have been economically
failing, threatening the quality of, and access to, health
care in this state and the continuity of care for patients;
e) Too much of a health care provider's time is spent in
the administrative aspects of the relationship, determining
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what care may be provided to patients and settling claims,
thereby reducing the amount of time that providers spend
with patients, increasing the cost of health care, reducing
patient access to health care, and impairing the quality of
care available; and,
f) The negotiating relationship between health care service
plans and health care providers is imbalanced.
2)States legislative intent to implement a solution to achieve
the state's health care priorities, given the unsatisfactory
relationship between health care service plans and health care
providers. States this solution would allow competing health
care providers to renegotiate contracts with health care
service plans, thereby allowing an improved balance in the
contracting relationship that should result in improvements in
the state's priorities because of the interests of health care
service plans and health care providers to resolve issues that
are consistent with the interests of the state. States this
solution would displace unfair competitive practices and have
an actively supervised state program to ensure that health
care service plan contracts with health care providers are
fair, reasonable, and provide appropriate reimbursement,
consistent with the best interests of the patients and this
act.
3)States the legislature's intent that this solution is
consistent with the state action immunity doctrine, which
establishes immunity from federal antitrust laws for conduct
taken or supervised by a state.
4)Permits health care providers, on a class basis, and health
care service plans to agree to negotiate and mediate any
contract term or condition upon renewal of a contract or
during the contract term, if there is no provision for
renegotiation.
5)Permits, in the event the parties reach an impasse during the
negotiations, the parties, upon mutual agreement, to submit
the issues in dispute to mediation. Defines "impasse" as when
the parties to a dispute have reached a point in meeting and
negotiating where their differences in position are so
substantial or prolonged that future meetings would be futile.
6)Requires, in the event mediation is unsuccessful, the matter
to be referred by the parties to arbitration.
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7)Prohibits an arbitration conducted under the provisions of
this bill from limiting the rights and remedies otherwise
available to the parties under common or statutory law.
8)Permits, in addition to 8) above, the arbitrator to order a
party, the party's attorney, or both, to pay reasonable
expenses, including attorney's fees, incurred by another party
as a result of bad faith actions or tactics that are frivolous
or that are solely intended to cause unnecessary delay.
9)Requires DMHC to adopt regulations by July 1, 2002, that
ensure that the mediation and arbitration processes described
in this bill are fair and effective. Requires these
regulations to include a provision requiring that the mediator
and arbitrator be neutral. Requires the regulations to
specify factors to be considered by the mediator or arbitrator
when resolving the issues that include, but are not limited
to, the following:
a) The stipulations of the parties;
b) The interest and welfare of patients;
c) The patient's access to care;
d) The ability of health care providers to render quality
health care services;
e) The cost of providing the services, taking into
consideration the increasing age of the population, new
pharmaceuticals, the increasing sophistication of medical
technology, and the medical demographics of the population
of the plan's enrollees; and,
f) The reasonableness of the reimbursement rates.
1)Requires, upon reaching the decision, the mediator, or if
mediation is unsuccessful, the arbitrator, to file a copy of
the mediation decision or arbitration award, a statement of
reasons, and submitted evidence with DMHC for review and to
confirm, modify, or vacate the decision or award.
2)Requires DMHC, when considering the award, to consider whether
it is supported by substantial evidence consistent with the
factors described in 10) above.
EXISTING LAW :
1)Licenses and regulates health care service plans by DMHC.
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2)Declares to be illegal under federal law every contract,
combination in the form of trust or otherwise, or conspiracy
in restraint of trade or commerce among the several states.
3)Requires all health care service plan contracts with providers
to be fair, reasonable, and consistent with the objectives of
the body of law governing health care service plans (the
Knox-Keene Act).
4)Requires all health care service plan contracts with providers
to contain provisions requiring a fast, fair, and
cost-effective dispute resolution mechanism under which
providers may submit disputes to the plan, and requires the
plan to inform its providers upon contracting with the plan,
or upon change to these provisions, of the procedures for
processing and resolving disputes, including the location and
telephone number where information regarding disputes may be
submitted.
5)Requires each health care service plan to ensure that a
dispute resolution mechanism is accessible to noncontracting
providers for the purpose of resolving billing and claims
disputes.
6)Requires DMHC, on or before July 1, 2001, to adopt regulations
that ensure that plans have adopted a dispute resolution
mechanism. The regulations are to require that any dispute
resolution mechanism of a plan is fair, fast, and
cost-effective for contracting and non-contracting providers.
7)Defines a "provider," for purposes of the Knox-Keene Act
regulating health care service plans, as any professional
person, organization, health facility, or other person or
institution licensed by the state to deliver or furnish health
care services.
FISCAL EFFECT : Unknown
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, at present,
the goal of ensuring that Californians receive high-quality
health care coverage in the most efficient and cost-effective
manner possible is not being achieved. The author states
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physicians, particularly specialists, are leaving the state
and patients are not receiving the care they deserve. The
author argues that part of the problem is market imbalance in
that several plans control over 80% of the market, and for
chiropractors, one plan controls over 90% of the market.
Another major factor is the dominance of capitated managed
care as costs have risen while capitated rates have stayed
static or declined. This bill states the intent of the
Legislature to implement a solution to achieve the state's
health care priorities, given the unsatisfactory relationship
between health care service plans and health care providers,
to allow competing health care providers to renegotiate
contracts with health care service plans. This bill states
that the Legislature intends that this solution is consistent
with the state action immunity doctrine, which establishes
immunity from federal antitrust laws for conduct taken or
supervised by a state.
2)SUPPORT . This bill's sponsor, the California Medical
Association (CMA), states this bill will allow providers to
obtain contracts that are fair, reasonable and sufficient to
assure patient access. The University of California writes in
support that this bill provides an important tool to level the
playing field for health care providers who are often forced
to accept unreasonable contracts from health plans that
prescribe terms on a "take-it-or-leave-it" basis. The
California Psychological Association (CPA) and the California
Chiropractic Association (CCA) write that the disproportionate
market dominance of specialized health care service plans has
led to contracting relationships between plans and providers
which are unfair because of the economically lopsided market,
making the existing contract dispute resolution processes
ineffective. CPA and CCA state this bill will prevent a
health plan from imposing contract terms that are not in the
best interest of patients.
3)OPPOSITION . This bill is opposed by health plans, agents and
the California Chamber of Commerce. Health Net writes in
opposition that this bill purports to provide for voluntary
bargaining but it will have the effect of granting health care
providers immunity from anti-trust laws. Health Net states
this bill will allow otherwise competing providers, including
those not party to a contract, to join together to coerce
health plans to bargain with them. Health Net argues this
aggregation of economic power is prohibited by anti-trust laws
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that are designed to protect consumers from the harm caused by
concerted economic action by economic parties that are
expected to compete, not conspire, for economic gain. Health
Net states this bill would protect the interest of health care
providers to the disadvantage of health plans, payors and
consumers, and that competition in health care promotes
innovation and cost containment, and this bill would endanger
both.
The California Association of Health Plans has proposed
amendments to this bill that would strike the contents of this
bill and instead allow, when a plan/provider contract is due
to expire within 30 days and the parties have been negotiating
for at least 30 days, the Director of DMHC to order the
contract to continue for up to 60 days, and to order that both
parties jointly retain the services of a private mediator.
4)STATE ACTION EXEMPTION FROM FEDERAL ANTI-TRUST LAW . Existing
federal law declares every contract, combination in the form
of trust or otherwise, or conspiracy in restraint of trade or
commerce among the several states to be illegal. To establish
anti-trust immunity under the "state action" doctrine, an
activity that would otherwise violate anti-trust law must be
clearly articulated and affirmatively expressed as state
policy and be actively supervised by the state itself.
This bill's intent language and authorization for health care
providers, on a class basis, and health care service plans to
agree to negotiate and mediate any contract term or condition,
as specified, would appear to meet the first test of the state
action doctrine in that the state is expressing its intent to
allow competing health care providers to negotiate contracts
with health plans. However, it is not clear that this bill
meets the second test that there be active supervision by the
state, which would include the state exercising sufficient
independent judgment and control so that the details of the
contract are a product of deliberate state intervention,
particularly if the parties reach an agreement voluntarily.
5)RELATED LEGISLATION . SB 801 (Speier) requires the Director of
DMHC, or the Commissioner of the Department of Insurance, to
assist in non-binding negotiations between a health care
provider and a health plan/insurer when a provider and the
health plan/insurer are unable to reach an agreement on the
terms of a contract.
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6)PREVIOUS LEGISLATION . AB 1455 (Scott), Chapter 827, Statutes
of 2000, and SB 1177 (Perata), Chapter 825, Statutes of 2000,
among other provisions, requires each health care service plan
to ensure that a dispute resolution mechanism is accessible to
noncontracting providers for the purpose of resolving billing
and claims disputes. AB 1455 and SB 1177 also require, on and
after January 1, 2002, each health care service plan to
annually submit a report to DMHC regarding its dispute
resolution mechanism, and requires the report to
include information on the number of providers who utilized
the dispute resolution mechanism and a summary of the
disposition of those disputes.
AB 1455 and SB 1177 also require DMHC, on or before July 1,
2001, to adopt regulations that ensure that plans have adopted
a dispute resolution mechanism required under existing law.
The regulations are to require that any dispute resolution
mechanism of a plan is fair, fast, and cost-effective for
contracting and non-contracting providers.
7)COMMENTS . This bill permits health care providers, on a class
basis, and health care service plans to negotiate and mediate
any contract term or condition, upon renewal of a contract or
during the contract term, if there is no provision for
renegotiation. The Knox-Keene Act defines a "provider" as any
professional person, organization, health facility, or other
person or institution licensed by the state to deliver or
furnish health care services. While individual health care
providers (e.g., a physician or a chiropractor) or a
particular facility (e.g., a hospital) may lack market power
in negotiating with health plans, this bill allows providers
on a class basis, irrespective of size or provider type, to
negotiate and mediate any contract term or condition with
health plans upon renewal of a contract or during the contract
term, as specified.
The support and opposition listed below is on previous versions
of this bill. The Committee has not received letters
indicating any of the groups listed below have changed their
position due to recent amendments.
8)DOUBLE REFERRAL . Should this bill pass out of this committee,
it will be referred to the Assembly Committee on Judiciary.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Medical Association (sponsor)
American Academy of Pediatrics
American Federation of State, County and Municipal Employees
AOS Medical Center
California Academy of Family Physicians
California Chiropractic Association
California Dental Association
California Podiatric Medical Association
California Psychiatric Association
California Psychological Association
Union of American Physicians & Dentists
University of California
2 individuals
Opposition
American Medical Group Association
Association of California Life and Health Insurance Companies
Blue Cross of California
Blue Shield of California
California Association of Health Plans
California Association of Health Underwriters
California Association of Physician Organizations
California Chamber of Commerce
Health Insurance Association of America
Health Net
National Independent Practice Association Coalition
PacifiCare of California
Analysis Prepared by : Scott Bain / HEALTH / (916) 319-2097