BILL ANALYSIS �
SB 359
Page 1
SENATE THIRD READING
SB 359 (Ed Hernandez)
As Amended August 29, 2012
Majority vote
SENATE VOTE :Vote not relevant
HEALTH 13-4
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|Ayes:|Pan, Ammiano, Atkins, |
| |Eng, Gordon, Hayashi, |
| |Roger Hern�ndez, |
| |Bonnie Lowenthal, |
| |Mitchell, Monning, |
| |Nestande, |
| |V. Manuel P�rez, Williams |
| | |
|-----+--------------------------|
|Nays:|Logue, Garrick, Mansoor, |
| |Silva |
| | |
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SUMMARY : Authorizes health care service plans (health plans) to
adjust payment to specified hospitals for prestabilization
emergency services and care when a hospital exceeds an
out-of-network emergency utilization rate of 50% or greater.
Specifically, this bill :
1)Authorizes a health plan, or its contracting medical provider,
that is obligated to reimburse providers for emergency
services and care provided to its enrollees prior to
stabilization, as specified, to adjust its reimbursement to
hospitals in accordance with 3) below.
2)Requires a hospital with an out-of-network emergency
utilization rate of 50% or greater to notify payers at the
time the hospital submits bills, statements, or other demands
for payment for emergency services and care provided to a
patient prior to stabilization, as specified, that the
hospital's out-of-network emergency utilization rate is 50% or
greater and therefore its billed charges for emergency
services may be subject to adjustment, as specified in 3)
below.
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3)Requires the adjustment to be such that the hospital's total
expected payment from a payer for emergency services and care
prior to stabilization shall be 60% of the payer's average
in-network payments, but in no event less than 150% of the
payment the hospital reasonably could expect to receive from
Medicare for providing similar emergency services and care
prior to stabilization. Authorizes a payer that receives the
notification made by a hospital to adjust the reimbursement to
the hospital pursuant to this bill.
4)Establishes the "out-of-network emergency utilization rate" as
the percentage of all emergency department encounters at a
hospital during the course of the reporting period that are
out-of-network for local, privately insured patients.
Requires this rate to be calculated by dividing a hospital's
total number of major emergency department encounters during
the rate reporting period that involved local, privately
insured patients for whom the emergency services and care
provided were out-of-network, by the hospital's total number
of major emergency department encounters that involved local,
privately insured patients.
5)Defines the "average in-network payments" as the average
amount of payments made pursuant to a contract during the
preceding calendar year to hospitals in California that offer
a comparable range of services and, if applicable, education
and research programs, by a health plan or health insurer for
reimbursement of care provided by the hospital or hospitals at
a negotiated rate, provided that payments made by the plan or
insurer during the preceding calendar year for in-system care
shall not be included in the calculation of average.
6)Defines "rate reporting period" as a three-year period,
provided that if the most recent calendar year ended within
the previous 90 days, then data for the three-year period used
to calculate the out-of-network emergency utilization rate
shall be taken from the three calendar years preceding the
most recently completed calendar year.
7)Defines "emergency department encounter" as the patient having
been registered in the emergency department for a period of
five hours or longer, or has been admitted as an inpatient
following registration and a stay of any length in the
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emergency department. An emergency department encounter does
not include an encounter that results from the receipt of
patient transfers pursuant to the transfer requirements of the
federal Emergency Medical Treatment and Active Labor Act from
another hospital that is not affiliated with, or owned,
operated, or substantially controlled by, the same person or
persons or other legal entity or entities as the hospital
receiving the transfer.
8)Provides that if a contract, including a contract with a
health insurer, health plan, or other health care coverage
provider, governs the adjustment of the total billed charges
for prestabilization emergency services and care provided to a
patient by the hospital, the contract shall control.
9)Exempts designated public hospitals, as specified, and a
hospital owned and operated by an entity that is a city,
county, a city and county, the State of California, the
University of California, a local health or hospital
authority, a health care district, any other political
subdivision of the state, any combination of political
subdivisions of the state organized pursuant to a joint powers
agreement, or a new hospital, as specified, from the
provisions of this bill. Exempts a rural general acute care
hospital, small and rural hospitals, as defined, a general
acute care hospital that is located within both of the
following: a county with a population of 1.5 million or less
according to the 2010 federal census, and a medically
underserved population, medically underserved area, or a
health professions shortage area, as designated by the federal
government.
10)Exempts a hospital that is part of a health system in which,
as of January 1, 2013, at least 50% of the hospitals are rural
general acute care hospitals, as defined, or small and rural
hospitals, as defined, provided that the health system
includes at least five hospitals that are either rural general
acute care hospitals or small and rural hospitals. For the
purposes of this provision, hospitals that are part of the
same health system if they are owned, operated, or
substantially controlled by the same person or other legal
entity or entities, and hospitals are considered separate
hospitals if they are located at least one mile apart and each
has at least 30 beds, regardless of whether the hospitals
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operate under the same license.
11)Sunsets the provisions of this bill on January 1, 2017,
unless another statute extends or deletes that date.
FISCAL EFFECT : This bill, as amended, has not been analyzed by
a fiscal committee.
COMMENTS : According to the author, this bill responds to issues
raised at a February 24, 2012, Joint Hearing of the Senate and
Assembly Health Committees on hospital reimbursement mechanisms.
The author states that this bill is aimed at a troubling
business practice, employed by a very small number of hospitals,
whereby a hospital will cancel insurance contracts, and use the
emergency room as a source of revenue by charging outrageous
prices for "out-of-network" patients. This bill is intended to
remove the economic incentive behind this business practice so
that this trend does not spread. This bill addresses this issue
by only requiring health plans to pay 60% of their average
in-network contract rate when their patient is in a hospital
with a very high percentage of out-of-network patients. Public
hospitals, as well as all rural hospitals, are exempted from the
bill, and the entire bill sunsets in four years. Testimony
received at the hearing made clear that Prime Healthcare
Services (Prime) hospitals are exploiting this reimbursement
structure for non-contracted emergency care in order to maximize
billed charges.
Beginning in October of 2010, the Center for Investigative
Reporting's California Watch began publishing a series of
articles on Prime's billing practices. The first article
focused on unusually high rates of patients diagnosed with
septicemia, an infection of the blood, which has a high
reimbursement rate from Medicare compared to other infections.
The investigative report by California Watch demonstrates a
troubling practice among some health care providers which can
have significant implications for California's health care
markets and more importantly California consumers. The practice
of variation in care based on payer source has been the subject
of health policy research and more is being uncovered about
trends in California that may be of concern.
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According to the Service Employees International Union (SEIU)
California, this bill would discourage a particular hospital
business practice that drives up the cost of healthcare and
takes advantage of consumers when they are at their most
vulnerable. SEIU states that this bill would limit the amount
hospitals can charge for treating out-of-network emergency
patients and these new limits would apply to hospitals that are
out-of-network for a majority of their privately-insured
emergency room patients-thereby improving incentives for
hospitals to be in-network. SEIU believes this bill would
reduce costs and improve access to care for thousands of
Californians.
The California Hospital Association indicates that the
association's opposition has been removed because of amendments
that limit the scope of the bill and ensure that health plans do
not have an incentive to cancel or non-renew hospital contracts
in order to game the provisions of this bill.
The Private Essential Access Community Hospitals (PEACH) remains
very concerned about the negative impact this bill could have on
access to emergency room care in community safety net hospitals
that depend on non-contracted rates to offset their high volumes
of uninsured and underfunded Medi-Cal and Medicare patients.
PEACH believes this bill would further threaten the viability of
these hospitals and could force them to make difficult decisions
about continuing to provide specific services-including whether
they can keep their emergency departments open. PEACH also
believes this bill could reduce access to care in emergency
rooms across the state-especially in community safety net
hospitals that serve the most vulnerable communities-at a
critical time when hospitals are striving to transform their
systems of care in preparation for full health reform
implementation.
Prime is opposed to this bill. Prime believes this bill
establishes a complicated default reduced reimbursement rate for
emergency services as a means to punish Prime for refusing to
enter into a "neutrality agreement" with SEIU. Prime raises
several other concerns with this bill including concerns about
implications on health care access, jobs, and competition.
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Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
FN: 0005795