BILL ANALYSIS
AB 1600
Page 1
Date of Hearing: May 30, 2001
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
AB 1600 (Keeley) - As Amended: May 24, 2001
Policy Committee: HealthVote:13-2
Judiciary 8-2
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill allows physicians to organize as a class for purposes
of negotiating with health plans on contract terms and
conditions. Specifically, this bill :
1)Allows health care providers, organized as a class, and health
care plans to agree to negotiate any contract term or
condition upon renewal, or during the contract term if there
is no provision for renegotiation. If a health plan declines
to participate, no further action by the class of providers is
permitted.
2)If the parties reach an impasse, as defined, permits the
parties to mutually agree to submit the issues to facilitated
negotiation.
3)If facilitated negotiation is unsuccessful, permits the
parties to mutually agree to refer the matter to advisory
arbitration.
4)Upon successful conclusion of 1), 2), or 3), requires
specified parties to submit a statement of reasons and
submitted evidence to the Department of Managed Health Care
(DMHC) for review, requires the DMHC to conduct an independent
review, using specified factors, and to confirm, modify, or
vacate the contract, agreement, or award.
5)Requires the DMHC to issue regulations by July 1, 2002, to
ensure the facilitated negotiation and advisory arbitration
processes are fair and effective and requires the regulations
to specify factors for a neutral mediator or arbitrator to
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consider when resolving the issues.
6)States legislative intent that the above procedures are
consistent with the state action immunity doctrine, and
therefore immune from federal and state anti-trust laws.
FISCAL EFFECT
1)Costs to the DMHC-about $500,000 (Managed Health Care Fund)
annually-to develop regulations and review negotiated
contracts. Actual costs will depend on the number of
contracts submitted for review.
2)To the extent health premiums paid by CalPERS increase,
additional annual state costs to purchase health coverage for
state employees. For every 1% increase in premiums, annual
state costs will increase by $3 million.
COMMENTS
1)Purpose . This bill is sponsored by the California Medical
Association (CMA), which states that physicians need better
leverage in negotiating with the six health plans affected by
this bill. (Due to the way it purchases physician services,
Kaiser is not affected.) CMA argues that mergers of health
plans in the last decade have resulted in seven health plans
controlling the California market. Consequently, physicians
and other health care providers have little opportunity to
conduct meaningful negotiations because they need the
contracts to conduct business and see patients. Reimbursement
rates, according to CMA, are insufficient in many cases,
leading to closure of physician groups and reducing patient
access to care.
To remedy the current situation, this bill permits physicians
and any other healing arts practitioner licensed under the
Business and Professions Code to organize as a class for
purposes of negotiating with health plans on contract terms
and conditions. The process must be engaged in with the
consent of both parties, and any negotiated or arbitrated
results must be approved by the DMHC.
2)Background . The federal Sherman Antitrust Act prohibits any
person from engaging in anticompetitive behavior in restraint
of trade or commerce. However, an exemption from this
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prohibition is available in limited contexts. State economic
regulation can authorize private parties to engage in
anticompetitive practices where the state regulation satisfies
the "state action doctrine," which requires the state to (a)
clearly articulate a policy to allow the anticompetitive
conduct and (b) provide active supervision of anticompetitive
conduct undertaken by private parties. According to the
Assembly Judiciary Committee analysis, "[t]he theory behind
the state action doctrine is that a state may determine if, in
particular instances, the competitive market economy is not
working to the interest of the state, and state regulation in
this particular area is a more appropriate method of achieving
the state's goals and the public interest". The recent
amendments made by the Assembly Judiciary Committee are
intended to satisfy the requirements of the state action
doctrine.
3)Dispute Resolution Mechanism . AB 1455 (Scott, Chapter 827,
Statutes of 2000) and SB 1177 (Perata, Chapter 825, Statutes
of 2000), require each health plan to ensure that a dispute
resolution mechanism is accessible to non-contracting
providers for the purpose of resolving billing and claims
disputes. The bills require the DMHC to issue regulations by
July 1, 2001, that ensure plans have adopted a mechanism that
is fair, fast, and cost-effective for contracting and
non-contracting providers. By January 1, 2002, each health
plan must annually submit a report to DMHC on its dispute
resolution mechanism.
4)Opposition . The California Association of Health Plans
(CAHP), the California Chamber of Commerce and individual
health plans have written in opposition to this bill. CAHP
argues that, despite the requirement that negotiations be
voluntary for both parties, consumers will still be harmed
even if negotiations do not proceed. CAHP feels that price
fixing can nonetheless occur because providers will be able to
get together in advance and agree to certain terms and
conditions, prior to contacting any health plan. CAHP further
points to the requirement in current law that each health plan
have a dispute resolution mechanism, and questions what
improvements will be made by this bill. Finally, CAHP argues
that health care costs will increase under this bill because
of the cartel authority given to providers.
The Chamber of Commerce and health plans raise similar
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arguments, arguing that providers will be allowed to engage in
price fixing that will lead to higher health care premiums.
5)Should a Class Be Narrowed ? As drafted, the bill allows a
class to be any size and to include any licensed health care
provider. A class could potentially be all providers in the
state. In a related case involving a District of Columbia
proposal, the Federal Trade Commission opined that "such an
exemption [from the antitrust act] will not ensure better care
for patients, and threatens to raise health care costs and
reduce access to care". Should the bill be amended to require
the DMHC to approve the establishment of a class prior to
engaging in negotiations ? Since it would be difficult to
specify criteria in statute to cover all situations, the DMHC
could review a proposed class and certify that it does not
violate the intent of federal anti-trust law.
6)Sunset . Should the committee decide to approve this bill, it
may wish to consider adding a two-year sunset to allow the
Legislature to review and evaluate the results.
Analysis Prepared by : Joyce Iseri / APPR. / (916) 319-2081