BILL ANALYSIS
AB 646
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, Chair
AB 646 (Swanson) - As Amended: April 13, 2009
SUBJECT : Physicians and surgeons: employment.
SUMMARY : Permits health care districts (HCDs) and certain
public hospitals, independent community nonprofit hospitals, and
clinics, as specified, to directly employ physicians and
surgeons. Specifically, this bill :
1)Permits a HCD to directly employ, and charge for professional
services rendered by, a physician and surgeon with the
approval of the physician and surgeon.
2)Permits a public or an independent community nonprofit
hospital or clinic located in a medically underserved area, or
an area where unmet priority needs for physicians and surgeons
exist, with a patient census that consists of more than 50%
medically underserved populations, to employ physicians and
surgeons, and to charge for professional services rendered by
a physician and surgeon, with the approval of the physician
and surgeon.
3)Prohibits a HCD, a public or an independent community
nonprofit hospital or clinic from interfering with,
controlling, or otherwise directing a physician and surgeon's
professional judgment.
4)Eliminates the 2003 pilot project administered by the Medical
Board of California (MBC) which permits HCDs to directly
employ physicians, under specified circumstances.
EXISTING LAW :
1)Prohibits corporations and other artificial legal entities
from having any professional rights, privileges, or powers
(known as the "prohibition against the corporate practice of
medicine (CPM)"), and further provides that the Division of
Licensing of MBC may, pursuant to regulations it has adopted,
grant approval for the employment of physicians on a salaried
basis by a licensed charitable institution, foundation, or
clinic if no charge for professional services rendered to
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patients is made by that institution, foundation, or clinic.
2)Exempts medical or podiatry professional corporations
organized and practicing pursuant to the Moscone-Knox
Professional Corporations Act from the CPM prohibition,
providing that a majority of the owners or shareholders of the
corporation are licensed physicians or podiatrists,
respectively.
3)Provides certain additional exceptions to the prohibition
against CPM, as follows:
a) Authorizes clinics operated primarily for the purpose of
medical education by a public or private nonprofit
university medical school, to charge for professional
services rendered to teaching patients by licensed
physicians who hold academic appointments on the faculty of
the university, if the charges are approved by the
physician in whose name the charges are made;
b) Authorizes certain nonprofit clinics organized and
operated exclusively for scientific and charitable
purposes, that have been conducting research since before
1982, and that meet other specified requirements, to employ
physicians and charge for professional services.
Prohibits, however, these clinics from interfering with,
controlling, or otherwise directing a physician's
professional judgment in a manner prohibited by the CPM
prohibition or any other provision of law;
c) Authorizes a narcotic treatment program regulated by the
Department of Alcohol and Drug Programs to employ
physicians and charge for professional services rendered by
those physicians. Prohibits, however, the narcotic clinic
from interfering with, controlling, or otherwise directing
a physician's professional judgment in a manner that is
prohibited by the CPM prohibition or any other provision of
law;
d) Under the Knox-Keene Health Care Service Plan Act of
1975 (Knox-Keene), authorizes licensed health care service
plans to employ or contract with health care professionals,
including physicians, to deliver professional services, and
requires health plans to demonstrate that medical decisions
are rendered by qualified medical providers unhindered by
fiscal and administrative management. Provides in
regulation that the organization of a health plan must
include separation of medical services from fiscal and
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administrative management; and,
e) In the Medi-Cal program, permits hospitals that submit
claims for hospital inpatient psychiatric services under
contract with Medi-Cal managed care plans to receive
reimbursement on a per diem basis for an array of services,
including a mental health professional's daily visit fee.
4)Authorizes until January 1, 2011, a pilot project to allow
qualified HCD hospitals, as defined, to employ a physician, if
the hospital does not interfere with, control, or otherwise
direct the professional judgment of the physician. To qualify
for the project, a HCD hospital must: be in a county with
population of 750,000 or less; have reported net losses in
2000-01; and, have at least 50% of combined patient days from
Medicare, Medi-Cal, and uninsured patients.
5)Permits the establishment of local HCDs to provide health care
services and authorizes HCDs to establish, maintain, and
operate, or provide assistance in the operation of, one or
more health facilities or health services, including, but not
limited to, outpatient programs, services, and facilities;
retirement programs, services, and facilities; chemical
dependency programs, services, and facilities; or, other
health care programs, services, facilities and activities at
any location within or without the HCD for the benefit of the
HCD and the people served by the HCD.
FISCAL EFFECT : None.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author's office, many
California communities have suffered from a chronic, severe
shortage of doctors for over a decade. The author contends
that the shortage is most severe in California's rural and
underserved inner-city areas where Medi-Cal and Medicare are
the primary payers for health care services and, in many
communities doctors cannot support themselves financially in
independent practice. The author states that since the
majority of doctors in California do not accept Medi-Cal
patients, it is extremely difficult for rural and inner city
communities to attract and keep the doctors their residents
need. The author also points out that many physicians now
working in these communities are planning to retire within the
next two to three years. Residents in these communities are
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often unable to get access to the medical care they need, or
must travel hundreds of miles from home in order to get it.
According to the author and sponsors, this bill will empower
all 75 of California's HCDs, as well as all nonprofit
hospitals and clinics in Health Professional Shortage Areas,
to recruit and keep the doctors their communities need to
provide care to Medi-Cal patients and the uninsured. It would
do so by allowing physician employers to provide doctors with
the financial security they need to stay in our communities.
2)BACKGROUND . The CPM prohibition is also sometimes referred to
as the CPM doctrine, ban, or bar. According to a 1991 report
by the United States Department of Health and Human Services
Office of Inspector General (OIG) entitled "State Prohibitions
on Hospital Employment of Physicians," state laws prohibiting
hospitals and other non-medical corporations from employing
physicians derive from laws requiring that individuals must be
licensed to practice medicine. In some states, including
California, judicial decisions dating back to the 1930's have
interpreted these laws to preclude hospitals, with some
exceptions, from employing physicians for the purpose of
practicing medicine. According to OIG, the rationale for the
prohibition on employment of physicians is based on the
potential for conflict between a physician's loyalty to the
patient and the financial interests of the corporation that
would employ the physician. OIG also reported that opponents
of the CPM bar contend that it is a vestige of an earlier era
and that in the current health care system hospitals need
authority to control all aspects of health care delivery and
personnel within their walls, including medical care.
According to OIG, only five states: California; Colorado;
Iowa; Ohio; and, Texas, clearly prohibit hospitals from
employing physicians and even in these states, as in
California, certain types of hospitals and providers are
exempt from the bar. In practice, states with CPM bars,
including California, permit professional service or medical
corporations to practice medicine, but only if controlled by
physicians.
According to MBC, current California law generally prohibits
corporations or other entities that are not controlled by
physicians from practicing medicine, to ensure that lay
persons are not controlling or influencing the professional
judgment and practice of medicine by physicians. California's
CPM bar is the result of statute, judicial decisions and
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Attorney General (AG) opinions over several decades. For
example, the statute exempts from the CPM bar, the clinics of
teaching hospitals and California courts subsequently held
that the CPM bar does not apply to "state university medical
schools and hospitals," specifically including hospitals
operated by the University of California: California Medical
Association (CMA) et al v. Regents of California (2000) 79
Cal.App.4th 542, 94 Cal.Rptr2d 194. California courts have
determined that counties are generally exempt from the CPM
bar: Community Memorial Hospital of San Buena Ventura v.
County of Ventura 50 Cal.app.4th 199, 56 cal.Rptr.2d 732. A
1975 AG opinion (58 Ops.Cal.Atty.Gen. 291) found that licensed
community clinics may lawfully employ physicians, including
those community clinics which are a subsidiary of a parent
hospital organization, if specific conditions are met. In
1996, the California Court of Appeals held that hospital HCDs
may not have physician employees but are authorized to
contract with physicians who perform services as independent
contractors: Conrad v. Medical Board of California (1996) 48
Cal.App.4th 1038, 1041.
3)HEALTH CARE DISTRICTS. California's 75 HCDs are voter-created
local government entities governed by publicly elected boards
of trustees. HCDs currently operate 46 of California's 72
public hospitals, providing health care services to over two
million Californians annually. HCDs are subject to
California's CPM prohibition. According to the Assembly
Business and Professions Committee, this bill would enable 46
HCD hospitals and approximately 130 other public, independent
community nonprofit hospitals and clinics to hire physicians
directly.
4)CALIFORNIA RESEARCH BUREAU REPORT . According to an October
2007 California Research Bureau (CRB) report, "The Corporate
Practice of Medicine Doctrine," physicians, courts, and
legislatures prohibited CPM in an effort to preserve physician
autonomy and improve patient care. The CRB report states
that, over the years, various state and federal statutes have
substantially weakened the CPM bar. One example cited by CRB
is the exemption from the CPM bar for health plans under the
Knox-Keene Health Care Service Plan Act of 1975, the state
licensing law governing HMOs, and other similar health plans.
The CRB report further states, "Corporate managed
organizations now dominate the health care environment, and
even physicians who are not employed by them are likely to
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provide services for them." CRB noted that California
prohibits hospital employment of physicians, but provides for
several notable exemptions in addition to HMOs, including
teaching hospitals, certain community clinics, narcotic
treatment programs, and some non-profit organizations to
employ physicians. CRB suggested that the exemptions to CPM
bar have effectively circumvented the CPM doctrine. According
to CRB, the American Medical Association (AMA), historically
the driving force behind the CPM prohibition, no longer views
physician employment as a violation of medical ethics and has
removed the doctrine from its ethical code. CRB found no
research examining the effects of the CPM bar on health care
quality or costs. CRB concluded that: "The evolution and
erosion of the CPM prohibition over many decades has resulted
in a doctrine that is far removed from its origin and lacks
coherence and relevance in today's health care landscape."
5)MBC PILOT PROJECT . SB 326 (Chesbro), Chapter 411, Statutes of
2003, establishes a pilot project permitting district
hospitals meeting specific requirements to hire and employ up
to two physicians each, for a total of twenty physicians
statewide, if the district hospital met the following
conditions:
a) Operates in a county of 750,000 or less population;
b) Reported net operating losses in fiscal year 2000-01;
and,
c) Has a patient base of at least 50% combined Medi-Cal,
Medicare, and uninsured patients.
SB 326 required MBC to administer and evaluate the project
prior to its sunset on January 1, 2011. In its 2008 report,
the MBC stated that it was "challenged in evaluating the
program and preparing this report because the low number of
participants did not afford us sufficient information to
prepare a valid analysis of the pilot. ? [W]hile the Board
supports the ban on the corporate practice of medicine; it
also believes there may be justification to extend the pilot
so that a better evaluation can be made. However, until there
is sufficient data to perform a full analysis of an expanded
pilot, the Board contends that the statutes governing the
corporate practice of medicine should not be amended as a
solution to solve the problem of access to healthcare."
6)PHYSICIAN SHORTAGE . The University of California's Final
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Report of the Advisory Council on Future Growth in the
Health Professions indicates that California will face a
shortage of nearly 17,000 doctors by 2015. The January
2007 CMA informational brochure, "Doctors in California,"
states that, the average age of physicians in rural and
underserved urban communities is approaching 60, with
many of these physicians planning to retire within the
next two years.
7)SUPPORT . American Federation of State, County and
Municipal Employees (AFSCME), AFL-CIO, a co-sponsor of
this bill states that because of the large number of
uninsured and underinsured Californians, a number of
California communities are experiencing difficulty
recruiting and retaining physicians and surgeons. In
particular, the rural and underserved urban communities
served by HCDs, suffer from a long-standing shortage of
doctors. AFSCME states that to recruit professionals to
provide medically necessary services in these
communities, many HCD hospitals must directly employ them
in order to provide adequate economic security.
Supporters argue that physician recruitment is essential
to the continued existence of HCDs which operate 46 of
the state's public hospitals. The Association of
California Healthcare Districts, also a co-sponsor,
reports that, in order to recruit and keep physicians,
rural and underserved urban communities in California
must compete with large physician groups, Kaiser, the
state Department of Corrections and Rehabilitation, rural
hospitals in almost every other state in the nation as
well as other entities that may directly employ
physicians. Supporters argue that exempting HCDs from
the CPM ban will enable them to attract physicians by
absorbing all of the overhead and administrative duties
of establishing a medical practice, and providing a
stable, competitive salary.
8)OPPOSITION . CMA writes in opposition to this bill that the
bar against the corporate practice of medicine has been in
place in California since 1938 and has been protected by the
courts and the Legislature since. CMA contends that the bar
provides a fundamental protection for patients by ensuring the
physicians' sole interest is what is best for the patient.
CMA argues that when hospitals are allowed to directly employ
and charge for physician services, quality of care suffers due
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to the fact that hospitals derive income from patient beds
being filled. CMA argues that the bar on CPM is an important
public policy provision to ensure physician independence and
the ability to practice in the patient's best interests. CMA
suggests that the difficulty in recruiting physicians in some
parts of California is more likely the result of declining
reimbursement than physicians' employment status. According
to CMA, this decline in reimbursement is driven by the
increased market dominance of large health care plans and
insurers, which would in no way be affected by this bill. CMA
further argues that hospital employment of physicians
eliminates competition for outpatient services and instead
forces all care to be delivered through the hospital. As
hospitals gain market share in small communities, physicians
not employed will likely be forced out of business. CMA
expresses the concern that this will result in increased costs
as the hospital is able to negotiate higher rates from third
party payers for both physician and hospital services.
9)RELATED LEGISLATION .
a) AB 648 (Chesbro) of 2009 would allow rural hospitals, as
specified, to directly employ physicians and surgeons.
This bill is set for hearing in the Assembly Health
Committee on April 28, 2009.
b) SB 726 (Ashburn) of 2009, pending in the Senate, would
revise, expand and extend the MBC pilot project that allows
qualified district hospitals, as defined, to employ a
physician, if the hospital does not interfere with,
control, or otherwise direct the professional judgment of
the physician.
10)PRIOR LEGISLATION .
a) AB 1944 (Swanson) of 2008 was a similar bill that would
allow ACHDs to employ a physician and surgeon. AB 1944
died in Senate Health Committee.
b) SB 1294 (Ducheny) of 2008 would have expanded the pilot
project enabling HCDs to directly employ physicians. SB
1294 failed passage in the Assembly Appropriations
Committee.
c) SB 1640 (Ashburn) of 2008 would have expanded the pilot
project to enable general acute care hospitals to directly
employ physicians. SB 1640 failed passage in the Assembly
Business and Professions Committee.
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11)POLICY COMMENT . This bill eliminates the existing pilot
project and allows, on a permanent basis, additional
hospitals, including but not limited to HCDs, meeting
specified conditions, to directly employ physicians. MBC, in
evaluating the existing pilot allowing HCDs to employ
physicians, concluded that there was insufficient data and
inadequate participation of employed physicians to fully
evaluate the program. The author may wish to consider placing
some limits, either in number or length of time, on the
authority in this bill for specified hospitals to directly
employ physicians. The author may also wish to provide for an
independent evaluation of the experience of hospitals and
physicians with direct physician employment under the
provisions of this bill.
12)Double referred . This bill is double-referred; it was heard
in the Assembly Business and Professions Committee on April
21, 2009 and passed on a vote of 6-4.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees,
AFL-CIO (cosponsor)
Association of California Healthcare Districts (cosponsor)
Union of American Physicians and Dentists (cosponsor)
California Commission on Aging
Congress of California Seniors
Fallbrook Healthcare District
Mendocino Coast District Hospital
Regional Council of Rural Counties
Numerous individuals
Opposition
California Medical Association
California Society of Pathologists
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097