BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 726|
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THIRD READING
Bill No: SB 726
Author: Ashburn (R)
Amended: 5/6/09
Vote: 21
SENATE BUS., PROF. & ECON. DEVEL. COMMITTEE : 6-2, 4/27/09
AYES: Negrete McLeod, Corbett, Correa, Florez, Oropeza,
Yee
NOES: Aanestad, Walters
NO VOTE RECORDED: Wyland, Romero
SENATE HEALTH COMMITTEE : 10-0, 4/29/09
AYES: Alquist, Strickland, Cedillo, Cox, DeSaulnier, Leno,
Maldonado, Negrete McLeod, Pavley, Wolk
NO VOTE RECORDED: Aanestad
SENATE APPROPRIATIONS COMMITTEE : 11-1, 5/26/09
AYES: Kehoe, Cox, Corbett, Denham, DeSaulnier, Hancock,
Leno, Oropeza, Runner, Wolk, Yee
NOES: Walters
NO VOTE RECORDED: Wyland
SUBJECT : Hospitals: employment of physicians and
surgeons
SOURCE : Author
DIGEST : This bill modifies an existing pilot project
under which a hospital that is owned and operated by a
health care district may directly employ physicians. This
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bill allows any hospital located in a medically underserved
area that has been unsuccessful in recruiting a core
physician, as defined, to participate in the pilot project,
eliminates the existing cap on the number of physicians
that may be employed in total under the pilot project and
allows an individual qualified hospital to expand the
number it employs, as specified, requires the Medical Board
of California (MBC) to provide reports to the Legislature
on its evaluation of the revised pilot project, and extends
the sunset date for the pilot project from January 1, 2011
to January 1, 2018.
ANALYSIS : Existing law prohibits corporations and other
artificial legal entities from having professional rights,
privileges, or powers in relation to the practice of
medicine. Under the Corporate Practice of Medicine (CPM)
doctrine, the state prohibits hospitals and other entities
from employing physicians to provide professional services.
Existing law establishes exemptions from the CPM
restriction for:
1. 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.
2. Clinics operated primarily for the purpose of medical
education by a public or private nonprofit university
medical school.
3. Narcotic treatment programs operated under, and
regulated by, the State Department of Alcohol and Drug
Programs.
4. Medical or podiatry professional corporations organized
and practicing pursuant to the Moscone-Knox Professional
Corporations Act, that require a majority of
shareholders of the corporation to be licensed
physicians, surgeons, or podiatrists.
Existing law establishes, until 2011, a pilot program that
establishes an exemption from the CPM prohibition for
qualified district hospitals, enabling them to directly
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employ physicians and surgeons, if they meet several
requirements. To be eligible to participate in the pilot
project, the district hospital must provide at least 50
percent of its patient days to Medicare, Medi-Cal, and
uninsured patients, must be located in a county with a
total population of less than 750,000 persons, and must
have reported net losses from operations in fiscal year
2000-01, as specified.
Existing law limits the total number of physicians that may
be employed under the pilot project to 20 statewide, and
limits the total number that may be employed at any given
hospital to two. In addition, under the pilot an
employment contract may not exceed four years.
Existing law requires the Medical Board of California (MBC)
to report to the Legislature no later than October 1, 2008,
on the effectiveness of the pilot project.
Existing state law defines rural hospitals as those that
fall within certain peer groupings, based on their
characteristics and size.
This bill:
1. Modifies the pilot project under which qualified
district hospitals may employ a limited number of
physicians as follows:
A. Defines a qualified hospital as any hospital
located within an area that is designated as a
medically underserved area or population, or is a
small and rural hospital as defined, is operated by
the district itself and not another entity, whose
chief executive officer of the hospital has
provided certification, as specified, to the MBC
and medical staff that the hospital has been
unsuccessful, using commercially reasonable
efforts, in recruiting a core physician and surgeon
for 12 consecutive months during the period of July
1, 2008 to July 1, 2009.
B. Defines a "core physician-surgeon" as a
physician and surgeon specializing in family
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practice, internal medicine, general surgery, or
obstetrics and gynecology.
C. Eliminates the 20 physician cap on the total
number of physicians that may be employed under the
pilot project, and allows an individual hospital to
employ no more than three additional licensees if
the hospital makes a showing of clear-need
following a public hearing duly noticed to all
interested parties, and upon an affirmative vote of
the medical staff and elected trustees of the
hospital.
D. Allows a hospital to request permission from MBC
to hire and physician and surgeon in a specialized
field other than those listed if certain
requirements are met, including the hospital can
demonstrate a pervasive inability to meet the needs
of the health care district in that specialized
field.
E. Extends the date by which a physician must enter
into an employment contract with a qualified
hospital under the pilot project from December 31,
2006 to December 31, 2017, and extends the maximum
time period for a contract from four to ten years.
2. Requires the MBC to provide a preliminary report to the
Legislature that evaluates the revised pilot project by
July 1, 2013, and a final report by July 1, 2016.
3. Extends the overall sunset date for the pilot project
from January 1, 2011 to January 1, 2018.
4. Modifies the current exception to the corporate practice
of medicine law to include the pilot project, as revised
by the bill.
Background
Health Care District Hospital Pilot Project . The district
hospital pilot project was established to address the
problem of recruiting and retaining physicians in rural and
underserved communities. The premise behind the pilot
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project was that many district hospitals lack viable
alternatives to attract physicians to their staff, and that
direct employment may offer a better incentive to encourage
physicians to relocate to or remain in rural and
underserved areas.
While it was expected that the maximum allowed number of 20
physicians would end up being employed under the pilot
project, according to the MBCs report to the Legislature in
October 2008, due to a number of constraints, only six
physicians have been employed (by five qualifying
hospitals) under the pilot. Of the six, only one
represented a physician who came from outside of the area
of the hospital; the remaining five were in practice in the
areas served by the hospital prior to their employment. In
the report, the MBC notes that due to the limited
participation in the pilot, and the limited responses from
hospitals that elected and decided not to participate in
the pilot, it is difficult to draw conclusions regarding
the effectiveness of the pilot. However, the MBC states
that it believes there may be justification to extend the
pilot so that a better evaluation of direct employment of
physicians can be made, and recommends broadening the pilot
to include more hospitals, while maintaining limits on the
number of physicians employed under the pilot and while
maintaining the general prohibition on the corporate
practice of medicine.
Health Care Districts . Health care districts operate
roughly two-thirds of the public hospitals in California.
The vast majority of facilities are located in rural parts
of California. Most of these facilities are quite small,
and tend to serve a disproportionate percentage of
uninsured and Medi-Cal patients. In many cases, 50 percent
or more of the patients served by the health care districts
and their health facilities are insured by Medi-Cal and
Medicare.
Medically underserved areas and populations and health
professions shortage areas . Several types of medically
underserved areas are designated by the federal Health
Resources and Services Administration, including the four
types that are targeted by this bill: (1) a primary care
health professional shortage area generally must have a
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population to physician ratio 3,500 to 1 or greater (an
area with a ratio of 3,000 to 1 that has "unusually high
need" may also qualify) and have a lack of access to health
care in surrounding areas because of excessive distance,
over-utilization, or access barriers; (2) a mental health
professional shortage area must have a population to mental
health professional ratio of 6,000 to 1 or greater and a
population to psychiatrist ratio of 20,000 to 1 or greater,
or a 9,000 to 1 ratio for mental health professionals
solely, or a 30,000 to 1 ratio for psychiatrists solely;
(3) a dental health professional shortage area must have a
population to dentist ratio of 5,000 to 1, or have a ratio
of 4,000 to 1 and be an area of "unusually high need" and
have a lack of access to dental care in surrounding areas
because of distance, overutilization, or access barriers;
and (4) medically underserved areas and populations must
meet an index that takes into account four criteria of
medical need: (1) percentage of population below 100
percent of the federal poverty level (FPL); (2) percentage
of population age 65 and over; (3) infant mortality rate;
and 4) primary care physicians per 1,000 population.
Health care providers providing services in health
professional shortage areas qualify for student loan
repayment programs and placement through the National
Health Service Corps, and in some cases enhanced Medicare
reimbursement.
Prior legislation
SB 1294 (Ducheny), of 2007 , which died in the Assembly
Appropriations Committee revised the pilot project to allow
the employment of more than 20 physicians and surgeons, at
the discretion of the MBC, and allowed the total number of
physicians employed by a qualified district hospital to
exceed two, if deemed appropriate by the MBC on a
case-by-case basis, revised the definition of a qualified
hospital to a district hospital that is located in a
medically underserved area that had net losses in the most
recent fiscal year, extended the pilot project until
January 1, 2017 and made other conforming changes.
SB 1640 (Ashburn), of 2007 , would have revised the district
hospital pilot project to allow general acute care
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hospitals that meet specified requirements to directly
employ up to five physicians each and collectively to
employ an unlimited number of physicians statewide. Would
have extended the pilot project until January 1, 2016, and
required MBC to report to the Legislature no later than
October 1, 2013, on the evaluation of the effectiveness of
the pilot project. Failed passage in the Senate Business,
Professions, and Economic Development Committee.
AB 1944 (Swanson), of 2007 , would have eliminated the
district hospital pilot project and instead authorized such
hospitals to directly employ physicians to primarily treat
Medi-Cal patients without limits, if specified requirements
are met. Failed passage in the Senate Health Committee.
SB 376 (Chesbro), Chapter 411, Statutes of 2003 ,establishes
a pilot project in which qualified healthcare district
hospitals may employ physicians, and charge for
professional services rendered by the physician. Limits
the number of physicians employed by all qualified district
hospitals in the state to 20, and also limits each district
hospital to two employed physicians or surgeons. Sunsets
the pilot project in 2011, and requires submitting report
to the Legislature by October 2008 on the effectiveness of
the pilot project.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11
2011-12 Fund
Pilot project expansion Up to
$100 one time by 10/1/12 and Special*
and extension by 10/1/16
*Contingent Fund of the Medical Board of California
SUPPORT : (Verified 5/27/09)
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Regional Council of Rural Counties
OPPOSITION : (Verified 5/27/09)
Children's Specialty Care Coalition
California Radiological Society
California Society of Pathologists
San Bernardino County Medical Society
ARGUMENTS IN SUPPORT : According to the author's office,
California is one of a small number of states that do not
allow hospitals to directly hire permanent staff doctors.
The author's office points out that at a time when
increasing access to health care has been a top priority of
the state's leadership, the Legislature needs to revisit
the exclusion against the corporate practice of medicine.
The author's office states that small and rural hospitals
have asked repeatedly for authority to recruit and hire
physicians directly. According to the author's office,
this bill will address the shortage of physicians who
practice in medically underserved areas. Specifically, the
author's office states that there will be advantages for
physicians who enter into employment contracts under the
bill, including lower overhead costs and employment
benefits that attract doctors to areas where they are not
normally be inclined to practice, but where the need is
great.
JJA:do 5/27/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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