BILL ANALYSIS �
AB 1360
Page 1
Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1360 (Swanson) - As Introduced: February 18, 2011
SUBJECT : Physicians and surgeons: employment.
SUMMARY : Permits, until December 31, 2022, a health care
district (district) to employ physicians and surgeons
(physicians) and charge for their professional services.
Specifically, this bill :
1)Permits a district to employ physicians and charge for their
professional services if the physician in whose name the
charges are made approves the charges, and if all of the
following conditions are met:
a) The service area of the district includes a medically
underserved area (MUA) or a medically underserved
population (MUP), as defined in current law, or has been
federally designated as a health professions shortage area
(HPSA);
b) The district board conducts a public hearing and adopts
a formal resolution declaring that a need exists for the
district to recruit and directly employ one or more
physicians to serve unmet community need;
c) Requires the resolution referenced in 1) b) above to
include the following findings and declarations:
i) Patients living within the community have been
forced to seek care outside the community, or have faced
extensive delays in access to care, due to the lack of
physicians;
ii) The communities served by the district lack
sufficient numbers of physicians to meet community need
or have lost or are threatened with the impending loss of
one or more physicians and surgeons due to retirement,
planned relocation, or other reasons;
iii) The district has been actively working to recruit
one or more physicians to address unmet community need,
or to fill an impending vacancy, for a minimum of 12
consecutive months, beginning July 1, 2010, without
AB 1360
Page 2
success; and,
iv) The direct employment of one or more physicians by
the district is necessary in order to augment or preserve
access to essential medical care in the communities
served by the district.
d) Requires the resolution referenced in 1) b) and c) above
to also:
i) Direct the district's executive officer to begin
actively recruiting one or more physicians, as specified,
as district employees;
ii) Prohibit the executive officer from actively
recruiting a physician who is currently employed by a
federally qualified health center, rural health center,
or other community clinic not affiliated with the
district; and,
iii) Require the executive officer, upon adoption of the
resolution by the district board, to submit an
application to the Medical Board of California (MBC)
certifying the district's inability to recruit
physicians, as specified.
2)Requires the MBC, upon receipt and review of the application,
adopted resolution, and all relevant documentation of the
district's inability to recruit a physician, to approve and
authorize the employment of up to five primary or specialty
care physicians by the district.
3)Requires the MBC, upon receipt and review of subsequent
documentation of the need for additional primary or specialty
care physicians by the district, to approve and authorize the
employment of up to five additional primary or specialty care
physicians by the district.
4)Requires that employment contracts with physicians issued
pursuant to the bill to be for a period of not more than 10
years, but permits those contracts to be renewed or extended.
Permits districts to enter into, renew, or extend employment
contracts with physicians until December 31, 2022.
5)Requires the Office of Statewide Health Planning and
Development, in consultation with the State Department of
Public Health and MBC, to conduct an efficacy study of the
program under the bill to evaluate improvement in physician
AB 1360
Page 3
recruitment and retention in the district's participating in
the program, impacts on physician and health care access in
the communities served by these districts, impacts on patient
outcomes, degree of patient and participating physician
satisfaction, and impacts on the independence and autonomy of
medical decision-making by employed physicians. Requires this
study to be completed and its results reported to the
Legislature no later than June 1, 2020.
6)Provides that the bill applies to districts and to any clinic
owned or operated by a district, provided the district meets
the criteria of, and ensures compliance with, the requirements
of the bill.
7)Requires a district authorized to employ physicians pursuant
to the bill to not interfere with, control, or otherwise
direct a physician's professional judgment in a manner
prohibited by current law pertaining to the corporate practice
of medicine (CPM) or any other provision of law. Violation of
this prohibition is punishable as a violation of current law
pertaining to the practice of medicine without a license, by a
fine not exceeding $10,000, by imprisonment in the state
prison, by imprisonment in a county jail not exceeding one
year, or by both the fine and either imprisonment.
EXISTING LAW :
1)Prohibits, under the CPM, corporations and other artificial
legal entities from having any professional rights,
privileges, or powers, and further permits the Division of
Licensing of MBC, pursuant to regulations it has adopted, to
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, as follows:
AB 1360
Page 4
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
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.
AB 1360
Page 5
4)Authorized 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
had to: 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 health care districts to
provide health care services and authorizes health care
districts 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 district for the benefit of the district and the
people served by the district.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to one of the cosponsors of
this bill, the Association of California Healthcare Districts
(ACHD), the communities served by health care districts have
suffered from a chronic shortage of physicians for over a
decade. This shortage is most acute in California's rural and
underserved urban communities where Medi-Cal and Medicare are
the primary payers of health care services. ACHD maintains
that, in rural communities, doctors cannot support themselves
financially in independent practice and that, in urban areas,
physicians are increasingly declining to accept Medi-Cal and
Medicare patients. ACHD asserts that this bill will grant
health care districts parity with other public health care
agencies in the state, and provide them with a critical
physician recruitment tool to address the shortage of
physicians in the communities they serve.
2)PHYSICIAN SHORTAGE . The University of California's Final
Report of the Advisory Council on Future Growth in the Health
AB 1360
Page 6
Professions indicates that California will face a shortage of
nearly 17,000 doctors by 2015. The January 2007 the
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)DISTRICT HOSPITAL 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 20 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.
MBC administered the pilot project and, based on the population
requirement, the following 12 counties were ineligible to
participate in the pilot project: Alameda; Contra Costa;
Fresno; Los Angeles; Orange; Riverside; Sacramento; San
Bernardino; San Diego; San Francisco; Santa Clara; and,
Ventura. Five district hospitals participated in the pilot
project with six physicians employed. The participating
hospitals were: Chowchilla District Hospital (Madera County);
Kaweah Delta Health Care District (Tulare); John C. Fremont
Healthcare District (Mariposa); Pioneers Memorial District
(Imperial, two physicians); and, Mendocino Coast District
Hospital (Mendocino). The pilot ended January 1, 2011. SB
326 required MBC to evaluate the project in a report to the
Legislature due October 2008. 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
AB 1360
Page 7
practice of medicine should not be amended as a solution to
solve the problem of access to health care.
4)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
bar 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
Attorney General (AG) opinions over several decades. For
example, the statute exempts from the 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
AB 1360
Page 8
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
districts 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.
5)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
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 (AMA), 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 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
AB 1360
Page 9
lacks coherence and relevance in today's health care
landscape."
6)SUPPORT . According to the American Federation of State,
County and Municipal Employees (AFSCME), sponsors of this
bill, due to the large number of uninsured and underinsured
Californians, a number of California communities are
experiencing difficulty recruiting and retaining physicians
and surgeons. In particular, AFSCME maintains rural and
underserved urban communities served by California's districts
suffer from a long-standing shortage of doctors. AFSCME and
all other supporters argue that in order to recruit
professionals to provide medically necessary services in these
communities, many districts must directly employ them in order
to provide adequate economic security. Supporters further
state that several counties in California have such a shortage
of physicians that the federal government has designated them
as HPSA. Many of the physicians in the state who are working
in rural California are nearing retirement and over 60% of
physicians in the state do not treat Medi-Cal patients.
Supporters argue that all Californians should have the right
to accessible medical facilities and qualified medical
professionals in the area in which they live.
7)OPPOSE UNLESS AMENDED . 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 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
AB 1360
Page 10
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. CMA has requested that the following amendments be
made to this bill:
a) Narrow the pilot project focus to health care district
hospitals as opposed to health care districts;
b) Add the following conditions to that which must be
satisfied for a district hospital to participate in the
pilot project:
i) Require that a district hospital is not under
control of another entity or corporation other than the
district board;
ii) Require the district hospital to provide a
percentage of care to Medicare, Medi-Cal, and uninsured
patients that exceeds 50% of patient days;
iii) Require that the total number of physicians employed
by the district hospital does not exceed five at any one
time;
iv) Require the medical staff and the elected trustees
of the district hospital to concur by an affirmative vote
that the physician's employment is in the best interest
of the communities served by the district hospital; and,
v) Require that if the district hospital is located
within 30 miles of a clinic not affiliated with the
hospital, the board of the clinic/center and the county
supervisors in which the district hospital is located
concur by an affirmative vote that the physician
employment is in the best interest of the communities
served by the hospital.
c) Require a physician to enter into or renew a written
employment agreement with the district hospital for a term
not to exceed four years and that, among other things,
provides for mandatory dispute resolution under the
auspices of the MBC for disputes directly related to the
physician's clinic practice;
AB 1360
Page 11
d) Require the district hospital to notify MBC in writing
that the hospital plans to enter into a written contract
with a physician, and require MBC to confirm that the
physician's employment is within the maximum number
permitted. Require MBC to provide written confirmation to
the district hospital within five working days of receipt
of the written notification to the MBC;
e) Require the MBC to independently study and evaluate
whether the district hospitals interfered or attempted to
interfere with, control, or otherwise direct physician's
professional judgment or the practice of medicine in a
manner prohibited by existing law. Require the MBC to also
evaluate how the employment impacted the independence and
autonomy of medical decision-making of the medical staff
members, including the employed physicians;
f) Prohibit the district hospital from actively recruiting
to employ physicians employed by a federally qualified
health center, a rural health center, or other community
clinic not affiliated with the hospital; and,
g) Specify that the pilot project is to remain in effect
only until January 1, 2022, and as of that date is
repealed, unless a later enacted statute, that is enacted
before January 1, 2022, deletes or extends that date.
8)OPPOSITION . The Central Valley Health Network (CVHN) writes
in opposition that providing a CPM bar for specified districts
to hire physicians directly is not a practical method to
address and solve the underlying problem of the physician
shortage and distribution of qualified physicians. This
approach, according to CVHN, will likely only shift the health
care settings in which physicians currently practicing in MUAs
provide their services, such as from a preventive primary care
setting, provided at federally qualified health centers to a
hospital environment which is primarily suited for acute and
emergency care. The California Chapter of the American
College of Emergency Physicians and the California Orthopaedic
Association write in opposition to this bill that as
physicians, it is of the utmost importance that they have the
ability to treat patients according to their specific medical
need without the influence or pressure of an administrator.
Opponents argue that this bill will grant some control over
treatment decisions to hospital Chief Executive Officers and
AB 1360
Page 12
administrative staff who have different motivations and
mandates than physicians. Opponents maintain that ensuring
that physicians are independent of the hospitals with which
they are contracted is a patient protection which this bill
would seriously harm.
9)RELATED LEGISLATION .
a) AB 926 (Hayashi) reenacts a similar pilot project to the
MBC pilot project and allows qualified district hospitals,
as specified, to employ up to 50 physicians and surgeons,
under certain circumstances. AB 926 is currently in the
Assembly Business, Professions & Consumer Protection
Committee.
b) AB 824 (Chesbro) establishes a 10 year pilot project to
permit certain rural hospitals to directly employ up to 10
physicians. AB 824 is currently in the Assembly Health
Committee.
10)PREVIOUS LEGISLATION .
a) AB 646 (Swanson) of 2009 would have permitted districts
and certain public hospitals, independent community
nonprofit hospitals, and clinics, as specified, to directly
employ physicians. AB 646 failed passage in the Senate
Business, Professions and Economic 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) SB 1294 (Ducheny) of 2008 would have extended for five
additional years the MBC pilot project authorizing district
hospitals to employ physicians and would have revised the
qualifications for a district hospital to participate in
the pilot project, such that eligible hospitals must be in
a MUA or a HPSA, serve a MUP or meet the definition of a
rural hospital in current law. SB 1294 failed passage in
the Assembly Appropriations Committee.
AB 1360
Page 13
d) AB 1640 (Ashburn) of 2008 would have revised the MBC
pilot project by allowing any general acute care hospital
located in a MUA to employ up to five physicians. AB 1640
failed passage in the Senate Business, Professions and
Economic Development Committee.
e) AB 1944 (Swanson) of 2008 would have eliminated the MBC
pilot project and allowed districts to employ a physician.
AB 1944 died in the Senate Health Committee.
f) SB 19 X1 (Cogdill) of 2008 would have repealed the CPM
bar. SB 19 X1 died in the Senate Health Committee.
g) SB 1325 (Kuehl), Chapter 699, Statutes of 2004, requires
a hospital medical staff's right to self-governance to
include specified requirements in establishing medical
staff bylaws, and makes numerous legislative findings and
declarations regarding the responsibilities of the medical
staff and the hospital governing board.
h) SB 376 (Chesbro), Chapter 411, Statutes of 2003,
authorizes the pilot project to allow direct employment of
physicians by qualified district hospitals.
11)DOUBLE REFERRAL . This bill was previously heard in Assembly
Business, Professions & Consumer Protection Committee on April
12, 2011 as was approved on a 5-4 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
(sponsor)
California Farm Bureau Federation
Health Access California
Regional Council of Rural Counties
Union of American Physicians and Dentists
Opposition
California Association of Physician Groups
California Chapter of the American College of Emergency
Physicians
California Orthopaedic Association
AB 1360
Page 14
California Primary Care Association
California Society of Anesthesiologists
Central Valley Health Network
Union of American Physicians and Dentists
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097