BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1600|
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THIRD READING
Bill No: AB 1600
Author: Keeley (D), et al
Amended: 9/7/01 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-2, 8/28/01
AYES: Escutia, Kuehl, O'Connell, Peace, Sher
NOES: Ackerman, Haynes
SENATE APPROPRIATIONS COMMITTEE : 7-1, 9/7/01
AYES: Alpert, Bowen, Escutia, Karnette, Murray, Perata,
Speier
NOES: Poochigian
ASSEMBLY FLOOR : Not relevant
SUBJECT : Health care provider contracts: equitable
relief actions to
enforce Knox-Keene
SOURCE : California Medical Association
DIGEST : This bill allows any enrollee, subscriber,
patient, health care provider or their representatives to
file an action for equitable relief from any licensee as to
any violation or threatened violation of the Knox-Keene Act
The bill requires the court to extend for 180 days a plan
provider contract under litigation that is scheduled to
expire while the litigation is pending, to provide
continuing care to enrollees except where the plan is able
CONTINUED
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to terminate the contract on specified grounds.
The bill enacts related provisions to protect the
enforcement of rights under an AB 1600 action. The bill
states that its provisions to allow specified parties and
their representatives to file an equitable relief action
are declaratory of existing law.
Senate Floor Amendments of 9/7/01 would require the person
to first exhaust all available administrative remedies
before filing the action, where the action is brought after
January 1, 2002.
ANALYSIS : Existing law, the Knox-Keene Act (Health and
Safety Code Section 1360 et seq.), regulates health care
providers (henceforth sometimes "providers") and health
care service plans (henceforth sometimes "plans") and sets
forth the Legislature's intent to ensure that Californians
receive high-quality health care coverage in the most
efficient and cost-effective manner possible. It further
provides that all plan/provider contracts shall be fair and
reasonable, and shall contain provisions requiring a fast,
fair, and cost-effective dispute resolution mechanism.
Under existing law, the Department of Managed Health Care
(DMHC) is required to adopt regulations to ensure that
plans have a dispute resolution mechanism that is fair,
fast, and cost-effective for contracting and
non-contracting providers.
Existing law provides that the Department of Managed Care
"has charge of the execution of the laws of the state
relating to health care service plans and the health care
service plan business including, but not limited to, those
laws directing the department to ensure that health care
service plans provide enrollees with access to quality
health care services and protect and promote the interests
of enrollees." (Health and Safety Code Section 1341.
Henceforth all references are to this code unless otherwise
noted.)
Existing law, Section 1347.15, establishes a Financial
Solvency Standards Board within the department, and
provides that the purpose of the board, inter alia, is to
develop and recommend to the director financial solvency
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requirements and standards relating to plan-provider
contractual relationships.
This bill provides that any interested person may obtain
equitable relief from any licensee as to any violation or
threatened violation of this chapter in any court of
competent jurisdiction. The bill specifies that this
remedy is not exclusive, but is cumulative to other
remedies or penalties available under all other laws of
this state and under federal law. For actions brought
after January 1, 2002, the interested person must first
exhaust all available administrative remedies.
The bill requires that if the contract between a licensee
and provider expires during the pendency of an action
brought pursuant to this section, the court must issue an
order extending the contract for a 180-day period, in order
to provide continuing care to enrollees or subscribers.
The current contract rates and terms would stay in effect
during the 180-day period, subject to appropriate
adjustment by the court to ensure enrollee or subscriber
access to health care. This period may be extended by
mutual agreement of the parties. This provision does not
affect the right of a licensee to terminate a contractual
relationship with an individual provider consistent with
the principles of Potvin v. Metropolitan Life Insurance Co.
(2000) 22 Cal.4th 1060, whenever applicable.
The bill provides that it shall not be a defense in an
action brought pursuant to this bill that a provision of
this chapter that is at issue has been contractually
waived. Provisions of contracts of licensees or their
contracting intermediaries that require beneficiaries or
providers to waive any provision of this chapter are
prohibited and unenforceable.
The bill would further make it unlawful for a health plan
to terminate, retaliate against, or otherwise penalize plan
enrollees, subscribers, or providers for exercising their
rights under this bill.
The bill specifies that the above provision does not apply
to an enrollee or subscriber's individual grievance or
complaint with a licensee, nor shall it limit an action to
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obtain equitable relief from a licensee for any violation
or threatened violation of the sections specified in this
subdivision if the action does not seek relief for an
enrollee's or subscriber's individual grievance or
complaint.
A licensee would not be permitted to seek indemnity,
whether contractual or equitable, from a provider,
employer, or employer group purchasing organization for any
liability, as specified.
The bill provides that any waiver of this section is
contrary to public policy and therefore shall be
unenforceable and void.
Finally, the bill specifies that the enactment of this bill
shall not be construed to suggest that the law in existence
prior to enactment of this section prohibits or permits the
filing of an action for equitable relief by a private party
for a violation of this chapter, and shall not in any way
be deemed to affect any litigation to enforce this chapter
that is pending on January 1, 2002.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
Fiscal Impact (in thousands)
Major Provisions 2001-02 2002-03
2003-04 Fund
Legal intervention Unknown Special*
CalPERS, Medi-Cal Unknown Various
& Healthy Families
* Managed Health Care Fund
SUPPORT : (Verified 9/7/01)
California Medical Association (source)
California Nurses Association
California Association of Neurological Surgeons
California Primary Care Association
California Psychiatric Association
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California Chapter of ACP-ASIM Services
The Foundation for Taxpayer and Consumer Rights
The American College of Obstetricians and Gynecologists
California Podiatric Medical Association
Consumers Union
California Dental Association
American College of Physicians
American Society of Internal Medicine, California Chapter
California Psychological Association
American Academy of Pediatrics
Numerous individual physicians
OPPOSITION : (Verified 9/10/01)
American Medical Groups Association (AMGA)
National Independent Practice Association Coalition (NIPAC)
California Association of Physician Organizations (CAPO)
California Association of Health Plans
HealthNet
PacifiCare of California
Association of California Life and Health Insurance
Companies
California Chamber of Commerce
Health Insurance Companies
Blue Shield
Health Insurance Association of America
Molina Health Plan
ARGUMENTS IN SUPPORT : According to the sponsor, the
California Medical Association (CMA), AB 1600 is needed to
correct serious imbalances in plan-provider contracts that
has and could continue to occur when the health plans have
the ability to offer provider contracts on a "take-it or
leave-it" basis. As an example, HealthNet reportedly
advised some of its providers that contract rates will be
reduced by 5% next year, and that providers have until
November 1, 2001 to decide whether to stay in the plan.
CMA asserts that with four or five health plans controlling
over 80% of the market not served by Kaiser, giving them
substantial market dominance, "plans are able to insist
that providers accept contract terms which are unfair,
unreasonable and harmful to patient care."
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As another example, CMA contends that reimbursement rates
on provider contracts, already inadequate in many cases to
cover the aggregate cost of treating the patient base, have
not kept remotely apace with rising business costs, such as
rents, employee wages and energy costs. Consequently, many
physicians have had to acquire personal or business loans
to pay the bills. Other physicians, says CMA, have simply
given up their practice and moved to another locale.
This bill, asserts CMA, would allow providers as well as
enrollees to seek equitable relief in order to protect
their rights under current law. While one practical result
of an AB 1600 action might be the reformation of the
contract by the court to require a "fair and reasonable"
rate of compensation, CMA argues that more adequate
compensation would encourage physicians to stay in
practice, and will also relieve the pressures of potential
financial insolvency, which is a growing problem facing
medical groups as well as individual physicians.
The author further notes that "plans are difficult to deal
with, acting abruptly and refusing to renew contracts that
would provide clarity and fairness in addition to
addressing patient care issues. Saddled with ambiguous and
unreasonable contracts, providers repeatedly find
themselves in disputes with plans over the interpretation
of contract provisions. This takes time away from patient
care and increases administrative costs."
The author also argues that physicians do not have equal
bargaining position with health plans in contract
negotiations. "If this were to occur, then providers could
have meaningful discussions about both contract terms and
rates. Terms are just as important as rates."
ARGUMENTS IN OPPOSITION : Opponents, the health plans,
dispute the claim that providers lack bargaining power
against the plans. In some locales, asserts PacifiCare,
provider groups are actually dictating terms to HMOs who
must accept the terms in order to fulfill the HMO's
obligation to its enrollees to have an adequate physician
base to provide care under the plan. More fundamentally,
however, opponents assert that there is no justification to
create a new cause of action that will result in
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significant litigation costs for the HMOs.
Opponents also contend that the bill would interfere with
long established policy, generally known as the "primary
jurisdiction doctrine," that courts defer to administrative
agencies when the questions raised involve expertise
possessed by the administrative agency and court rulings on
the matter might result in inconsistent application of the
laws.
PacifiCare asserts that AB 1600 is extremely broad and
would substantially increase the number of frivolous
lawsuits filed against health plans and thereby
unnecessarily increases the cost of health care for
consumers and employers.
The California Association of Health Plans (CAHP) further
contends that AB 1600 is a raw attempt to increase provider
reimbursement rates by creating the right for providers to
sue in court to reform their provider contracts. Just the
threat of a possible lawsuit could intimidate plans into
providing more generous reimbursement rates, which would
eventually increase health care premium costs.
The health plans also argue that AB 1600 would render the
new DMHC toothless and would defeat the purpose of its
creation. CAHP argues creating a private right of action
to challenge and reform contracts under Knox-Keene would
fundamentally affect the ability to DMHC to fulfill its
regulatory mission to enforce the law to promote the
delivery of medical care to the people of this State.
Private judgments could significantly affect the financial
health of the HMO and its ability to deliver services, thus
compromising the DMHC's mission. CAHP argues that with
each judge having the ability to affect policy, which would
invariably lead to inconsistent results, the question can
fairly be asked if AB 1600 is enacted: "Who's in charge?"
Finally, opponents argue that AB 1600 is not needed because
existing law already allows providers numerous remedies to
resolve violations of the Knox-Keene Act, including a
process for mandatory arbitration of contract disputes and
the new dispute resolution process for plan-provider
disagreements made by AB 1455 (Scott).
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RJG:jk 9/10/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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