BILL ANALYSIS �
AB 824
Page 1
Date of Hearing: April 26, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 824 (Chesbro) - As Amended: March 31, 2011
SUBJECT : Rural hospitals: physician services.
SUMMARY : Establishes a pilot project to permit certain rural
hospitals to directly employ physicians and surgeons
(physicians). Specifically, this bill :
1)Establishes the Rural Hospital Physician and Surgeon Services
Demonstration Project (demonstration project), which permits a
rural hospital, whose service area includes a medically
underserved area, a medically underserved population, or that
has been federally designated as a health professional
shortage area, to employ one or more physicians, not to exceed
10 physicians at one time, as specified, to provide medical
services.
2)Permits the rural hospital to retain all or part of the income
generated by the physician for medical services billed and
collected by the rural hospital, if the physician approves the
charges.
3)Permits a rural hospital to participate in the demonstration
project if both of the following conditions are met:
a) The rural hospital documents that it has been
unsuccessful in recruiting one or more primary care or
specialty physicians for at least 12 continuous months
beginning July 1, 2010. Requires an exception to be
provided to the 12-month recruiting process when there is
an unexpected or sudden vacancy that needs to be filled
immediately; and,
b) The chief executive officer of the rural hospital
certifies to the Medical Board of California (MBC) that the
inability to recruit primary care or specialty physicians
has negatively impacted patient care in the community,
based on a number of factors, including, but not limited
to, the number of patients referred for care outside the
community, the number of patients who experienced delays in
treatment, and the length of the treatment delays.
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4)States that the total number of licensees employed by the
rural hospital at one time shall not exceed 10, unless the
employment of additional physicians is deemed appropriate by
the MBC on a case-by-case basis. Requires the MBC, in making
this determination, to take into consideration whether access
to care is improved for the community served by the hospital
by increasing the number of physicians employed.
5)Requires a rural hospital employing a physician to develop and
implement a written policy to ensure that each employed
physician exercises his or her independent medical judgment in
providing care to patients.
6)Requires each physician employed by a rural hospital to sign a
statement biennially indicating that the physician:
a) Voluntarily desires to be employed by the hospital;
b) Will exercise independent medical judgment in all
matters relating to the provision of medical care to his or
her patients; and,
c) Will report immediately to MBC any action or event that
the physician reasonably and in good faith believes
constitutes a compromise of his or her independent medical
judgment in providing care to patients in a rural hospital
or other health care facility owned or operated by the
rural hospital.
7)Requires a rural hospital to retain the signed statement for
at least three years and submit a copy of the signed statement
to MBC within 10 working days after the statement is signed.
8)Prohibits a rural hospital from interfering with, controlling,
or directing a physician's exercise of his or her independent
medical judgment in providing medical care to patients.
Requires, if MBC believes that a rural hospital has violated
this prohibition, MBC to refer the matter to the State
Department of Public Health (DPH), and requires DPH to
investigate the matter, as specified.
9)States that nothing in this bill exempts a rural hospital from
a reporting requirement or affects the authority of MBC to
take action against a physician's license.
10)Requires MBC to deliver a report to the Legislature regarding
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the demonstration project no later than January 1, 2019, and
requires the report to include an evaluation of the
effectiveness of the demonstration project in improving access
to health care in rural and medically underserved areas and
the demonstration project's impact on consumer protection as
it relates to intrusions into the practice of medicine.
11)Sunsets the project on January 1, 2020.
12)Defines a "rural hospital" as:
a) A general acute care hospital located in an area
designated as nonurban by the United States Census Bureau;
b) A general acute care hospital located in a rural-urban
commuting area code of four or greater as designated by the
United States Department of Agriculture; or,
c) A rural general acute care hospital, as defined based on
existing hospital peer groupings.
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 MBC 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
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, including:
a) 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
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university, if the charges are approved by the physician in
whose name the charges are made;
b) 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) 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
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 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. To qualify for the project, a district 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.
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FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author's office, this
bill is necessary due to an overall shortage of physicians and
the fact that many California hospitals face significant
obstacles attracting and retaining physicians. The author
states that the situation is especially difficult in
California's rural areas, and the physician shortage limits
access to health care for Californians in these communities.
The author states that this bill will improve access to health
care in California's rural communities by allowing rural
hospitals to directly employ physicians and bill for their
professional services.
2)PHYSICIAN SHORTAGE . The University of California's Final
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 California
Medical Association (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.
3)CPM BAR . 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
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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
Attorney General (AG) opinions over several decades. For
example, the statute exempts from the CPM bar the clinics of
teaching hospitals and California, and 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, and that
counties are generally exempt from the CPM bar. 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
districts may not have physician employees.
4)CALIFORNIA RESEARCH BUREAU REPORT . According to an October
2007 California Research Bureau (CRB) report, "The Corporate
Practice of Medicine Doctrine," the CPM bar evolved in the
early 20th century when mining companies had to hire
physicians directly to provide care for their employees in
remote areas. However, problems arose when physicians'
loyalty to the mining companies conflicted with patients'
needs. Eventually, 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 maintenance
organizations (HMOs) in the 1973 federal HMO Act. California
subsequently provided the same type of exemption under
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Knox-Keene, 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 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 have effectively circumvented the CPM bar. According to
CRB, the American Medical Association, historically the
driving force behind the CPM bar, 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 bar 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, established 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. ?" While MBC supports
the CPM bar, 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, MBC contends that the statutes
governing the corporate practice of medicine should not be
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amended as a solution to solve the problem of access to health
care.
6)SUPPORT . The California Hospital Association (CHA), the
sponsor of this legislation, writes in support that this bill
will improve access to health care in California's rural
communities by giving physicians the choice to be employed.
According to CHA, the overall shortage of physicians is made
worse by an obsolete law that denies physicians their right to
choose where and how they care for patients. CHA maintains
that it is increasingly clear that high-quality,
cost-effective health care can only be provided if physicians
and hospitals work closely together. This can be
accomplished, according to CHA, if physicians are allowed to
establish a variety of practice settings based on the
circumstances of their communities and their personal needs.
CHA argues that employment of a physician by a hospital should
be one of the options available to physicians desiring to
locate in California's rural communities. CHA cites a recent
survey conducted by Merrit Hawkins & Associates which found
that 22% of final-year graduates said that hospital employment
was the practice setting that they would be most open to, as
compared to 4% in the same survey five years earlier. CHA,
the Regional Council of Rural Counties, the California State
Association of Counties, and Mee Memorial Hospital all stress
the significant obstacles that rural hospitals face attracting
and retaining physicians. They state the reasons are varied
but often include the higher Medicare/Medi-Cal payer mix in
rural communities with the accompanying lower reimbursements.
Supporters assert that rural areas tend to have higher
proportions of low-income, uninsured, and older patients.
Hence, primary care physicians and specialists cannot generate
sufficient income to sustain a rural practice. Supporters
maintain that if rural hospitals had the ability to directly
hire physicians, they could provide the economic incentive to
attract and retain these physicians resulting in increased
access to quality health care services for millions of rural
residents.
7)OPPOSITION . The CMA and the California Chapter of the
American College of Emergency Physicians write in opposition
to this bill that physicians must retain the independent
practice of medicine, free from corporate influence. CMA
states that the bar against CPM has been in place in
California since 1938 and has been protected by the courts and
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the Legislature since. According to CMA, the bar provides a
fundamental protection for patients by ensuring their
physicians' sole interest is what is best for the patient.
CMA asserts that when hospitals are allowed to directly employ
and charge for physician services, quality of care suffers due
to the fact that hospitals derive income from patient beds
being filled. While CMA writes that they agree that access to
physician services is essential and that, in some areas, there
are physician shortages, this bill is not the answer to solve
the question of access. The CMA maintains that they have been
very supportive of measures to deal with physician supply
problems, including advocating for increased slots for medical
training in California, the development of a medical school at
UC Merced, and establishing a well-funded loan repayment
program that will place physicians in underserved areas. CMA
lastly argues that hospital employment of physicians
eliminates competition for outpatient services and instead
forces all care to be delivered through the hospital.
According to CMA, as hospitals gain market share in small
communities, physicians not employed will likely be forced out
of business. This will result, CMA asserts, in increased
costs as the hospital is able to negotiate higher rates from
third party payers for both physicians and hospital services.
8)RELATED LEGISLATION .
a) AB 926 (Hayashi) reenacts a pilot project, until January
1, 2022, that allows qualified district hospitals, as
specified, to employ up to 50 physicians and surgeons,
under certain circumstances. AB 926 is scheduled to be
heard by the Assembly Business, Professions & Consumer
Protection Committee.
b) AB 1360 (Swanson) permits health care districts in
medically underserved areas to employ physicians and
surgeons, under certain circumstances. AB 1360 will be
heard by the Assembly Health Committee on May 3, 2011.
9)PRIOR LEGISLATION .
a) AB 646 (Swanson) of 2009 would have permitted health
care districts and certain public hospitals, independent
community nonprofit hospitals, and clinics, as specified,
to directly employ physicians and surgeons. AB 646 failed
passage in the Senate Business, Professions and Economic
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Development Committee.
b) SB 726 (Ashburn) of 2009, would have revised and
extended 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. SB 726
failed passage in the Senate Business, Professions and
Economic Development Committee.
c) AB 1944 (Swanson) of 2008 was similar to this bill and
would have allowed health care districts to employ a
physician. AB 1944 died in Senate Health Committee.
d) SB 1294 (Ducheny) of 2008 would have expanded the pilot
project enabling health care districts to directly employ
physicians. SB 1294 failed passage in the Assembly
Appropriations Committee.
e) 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.
10)DOUBLE REFERRAL . This bill has been double-referred. Should
this bill pass out of this committee, it will be referred to
the Assembly Business, Professions & Consumer Protection
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hospital Association (sponsor)
Association of California Healthcare Districts
Barton Memorial Hospital
California Center for Rural Policy, Humboldt State University
California State Association of Counties
Catalina Island Medical Center
Eastern Plumas Health Care
El Centro Regional Medical Center
George L. Mee Memorial Hospital
John C. Fremont Healthcare District
Lompoc Valley Medical Center
Mammoth Hospital
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Modoc Medical Center
Regional Council of Rural Counties
St. Joseph Health System - Humboldt County
Sutter Amador Hospital
Tehachapi Valley Healthcare District
Trinity Hospital
Opposition
California Chapter of the American College of Emergency
Physicians
California Medical Association
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097