BILL ANALYSIS �
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 751
S
AUTHOR: Gaines
B
AMENDED: As Introduced
HEARING DATE: April 27, 2011
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CONSULTANT:
5
Chan-Sawin
1
SUBJECT
Health care coverage: provider contracts
SUMMARY
Prohibits a contract by or on behalf of a licensed health
care facility, as defined, and a health care service plan
(health plan) or health insurer from containing a provision
that restricts the ability of the health plan or insurer to
furnish information to enrollees and insureds on the cost
range of procedures or quality of services performed by the
facility, as specified.
CHANGES TO EXISTING LAW
Existing law:
Provides for the licensure and regulation of health plans
and insurers by the Department of Managed Health Care
(DMHC) and the California Department of Insurance (CDI),
respectively.
Requires hospitals to make a written or electronic copy of
its charge description master (a list of prices for
services) available, either by posting an electronic copy
on the hospital's website, or by making a written or
electronic copy available at the hospital.
Continued---
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Requires hospitals to submit their average charges for 25
common outpatient procedures, as specified, annually to the
Office of Statewide Health Planning and Development
(OSHPD), who is required to publish this information on its
website. Requires OSHPD to publish and update on its
website, a list of the 25 inpatient procedures most
commonly performed in California hospitals, along with each
hospital's average charges for those procedures.
Defines "licensed hospital" as an institution, place,
building, or agency that maintains and operates organized
facilities for one or more persons for the diagnosis, care,
and treatment of human illnesses to which persons may be
admitted for overnight stay, including any institution
classified under regulations issued by the State Department
of Public Health (DPH) as a general or specialized
hospital, as a maternity hospital, or as a tuberculosis
hospital, but does not include a sanitarium, rest home, a
nursing or convalescent home, a maternity home, or an
institution for treating alcoholics.
This bill:
Prohibits a contract issued, amended, renewed or delivered
on or after January 1, 2012, by or on behalf of a health
plan or insurer and a licensed hospital, or any other
licensed health care facility owned by a licensed hospital,
to provide inpatient hospital services or ambulatory care
services, from containing a provision that restricts the
ability of the plan or insurer to furnish information to
subscribers or enrollees concerning the cost range of
procedures or the quality of services performed by the
hospital or facility.
Makes any contractual provision that is inconsistent with
this bill void and unenforceable.
Defines "licensed hospital," consistent with existing law.
Defines "licensed health care facility" as any institution
or health facility, other than long-term health care
facility as defined in existing law, licensed by DPH to
deliver or furnish health care services.
Prohibits specified fines and penalties, established in
existing law, from applying to the provisions in this bill.
STAFF ANALYSIS OF SENATE BILL 751 (Gaines) Page
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FISCAL IMPACT
This bill is keyed non-fiscal.
BACKGROUND AND DISCUSSION
According to the author, existing law does not prohibit or
prevent health plans and insurers from furnishing
information on the cost of procedures. However,
contractual agreements between health carriers and
providers can prevent this information from being released,
particularly when a large provider has market power. The
author points to a March 2008 San Francisco Business Times
article that found that CalPERS and one of its contracting
plans were unable to replicate a 2004 cost study because
one health system insisted on contractual agreements that
precluded the release of cost and quality information.
The author asserts that consumers are increasingly being
required to pay more attention to the cost of their care,
due to increasing deductibles and other cost sharing
arrangements. Often, consumers do not have the tools
themselves to make informed decisions based on cost and
quality of care because hospitals have prevented price and
quality information from being disclosed. Information and
tools are needed to help consumers make better, more
informed decisions on their care, particularly for those
consumers in a preferred provider organization (PPO)
product, where the consumer often pays 20 percent or more
of the costs of certain services. The author also contends
that employers have also increased their interest in price
transparency, in an effort to improve health care outcomes
and slow the growth rate of health care expenditures.
While the majority of hospitals in California already allow
this information to be shared, the author argues that some
hospitals are turning to "gag clauses" in contracts with
health plans and insurers that preclude the plan or insurer
from sharing cost and quality information about hospitals
with their enrollees. According to the author, this bill
is needed to ensure that health insurers are not restricted
in their ability to provide cost and quality information to
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their members.
Quality measurement and price transparency
Price transparency encourages consumers and their
representatives to use price and quality information in
their health care decisions. Governments, employers, and
insurers are increasingly interested in price transparency,
in an effort to improve outcomes and slow the rate of
health care expenditures. The concept behind price
transparency is to make comparative information on the
prices charged by health care providers for specific
services publicly available. The intent is to encourage
consumers, and others who make decisions on their behalf
(e.g., employers, health plans, referring practitioners),
to consider price alongside quality in deciding among
health care providers and services, and ultimately to
foster a more value-driven health care delivery system.
According to a 2007 National Quality Forum report, price
transparency is not simply "pulling back the curtain" on
health care industry financial data, much of which might
not be useful for the typical consumer. To make price
information "actionable," it needs to be not only accurate
and reliable, but also specifically tailored to the
perspectives and needs of a particular audience.
The report points out that "relevant" information might be
different for each audience. Their different definitions of
"price" might include the following:
Retail prices - list prices for services that are
charged by providers to patients who are not covered
by insurance or otherwise eligible for discounts.
Negotiated prices - the price a provider agrees to
charge patients covered by a specific health plan. In
general, health plans and insurers with greater
purchasing power have greater leverage to negotiate
discounts.
Patient out-of-pocket payments (i.e., coinsurance,
deductibles, and exclusions) - the share the patient
is responsible for paying. This is the "price tag" of
most interest to patients and their families.
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Health plans and insurers, under current law, are allowed
to establish economic profiles of providers and provider
groups. Efforts are underway nationally and in California
to also establish quality rating systems of individual
providers and provider groups.
Antitrust and cost inflation issues
As noted in a February 2008 California HealthCare
Foundation (CHCF) report, there are two major issues
related to price transparency involving health care
providers: (1) fears regarding antitrust violations, and
(2) the possibility of inadvertently contributing to a rise
in prices.
Providers may be concerned about exposure to federal
antitrust actions if they publicize negotiated prices.
However, in 1996, the Department of Justice and the Federal
Trade Commission established an antitrust "safety zone" for
these types of disclosures that has several conditions,
including a condition that pricing that is disclosed be at
least three months old.
Economists have found that, when a market is highly
concentrated and there is little competition, cost
transparency can lead to higher, not lower, prices.
However, the CHCF report notes that, if prices are bundled
based on episodes of care, the information is not only more
useful to the consumer, but less likely to lead to cost
inflation.
Hospital quality rating initiatives
Hospital-specific quality-related information is currently
available through both state and national organizations.
In April 2005, the Centers for Medicare and Medicaid
Services (CMS) launched "Hospital Compare," the first
government-sponsored hospital quality score card. Health
Grades, a national health care ratings organization,
publishes risk-adjusted mortality and complication rates
for hospitals using Medicare data. The Hospital Care
Quality Information from the Consumer Perspective, also
administered by CMS, provides a standardized survey
instrument and data collection methodology for measuring
patients' perspectives on hospital care.
In December 2002, the American Hospital Association, the
Federation of American Hospitals and the Association of
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American Medical Colleges launched the Hospital Quality
Alliance (HQA), a national, public-private collaboration to
encourage hospitals to voluntarily collect and report
hospital quality performance information. The HQA effort
is intended to make important information about hospital
performance accessible to the public and to inform efforts
to improve quality.
At the state level, OSHPD publishes risk-adjusted outcome
reports detailing each individual hospital's mortality
rates associated with treatment of acute myocardial
infarction and coronary artery bypass graft surgeries. The
"Hospital Compare" project, a partnership involving the
CHCF, the University of California at San Francisco
Institute for Health Policy Studies, and the California
Hospitals Assessment and Reporting Taskforce, provides
ratings for clinical care, patient safety, and patient
experience for the 216 hospitals in California that have
chosen to participate in the project. In addition, several
health plans and insurers provide comparative pricing and
quality information on hospitals, by geographic region.
Hospital rating and federal health care reform
The recently enacted federal health care reform act, the
Patient Protection and Affordable Care Act (PPACA),
contains significant and sweeping changes that affect both
health care delivery and health insurance coverage in the
United States. Among these changes are a number of
provisions relating to performance measurement and quality
improvement, including:
Identifying gaps in quality reporting and
developing missing quality measures;
Promoting standardization of quality measures,
including convening a multi-stakeholder process to
develop a list of quality measures for use in public
reporting or payment;
Providing grants for the collection and aggregation
of data on quality and resource use measures for
public reporting;
Developing a core set of quality measures and
requiring the reporting of those requirements for
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state Medicaid programs, including at the provider
level;
Requiring public reporting of physician performance
for physicians, including outcomes, patient experience
and other important indicators; and,
Requiring public reporting of quality data by
Medicare hospitals.
PPACA includes a number of provisions that are intended to
change consumer, purchaser and provider behavior in order
to improve efficiency and align incentives within the
health care system. One such provision, which is aimed at
empowering purchasers with better data, is requiring each
hospital to make public a list of standard charges for
items and services provided by the hospital.
The federal reform law also provides that certain Medicare
incentive payments will continue for physicians that report
standard quality data, and applies Medicare payment
penalties beginning in 2015 for providers that do not
report. In addition, the federal Department of Health and
Human Services will develop and update provider-level
outcome measures (at least ten measures for acute and
chronic conditions by 2012).
Arguments in support
Blue Shield states that people routinely receive quality
and cost data on a variety of goods and services they
purchase, yet that is not the case with something as
important as the health care someone receives. Blue Shield
argues that SB 751 makes a modest step in the right
direction towards unlocking the mystery behind rising
hospital costs, which represents one of the biggest cost
drivers in the system.
The California Association of Health Plans (CAHP) concurs,
stating that there is a growing recognition at the state
and federal level that the only way to control health care
costs is to focus on the costs and quality of medical
services. CAHP points out that rising hospital costs have
contributed to rising premiums, and that hospitals have
shortfalls in funding for services provided to the
uninsured and government programs. However, that should
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not mean that insured patients should be barred from
receiving cost and quality information.
Service Employees International Union (SEIU) asserts that
SEIU members and California consumers are increasingly
being required to pay more for health care as costs
continue to increase. SEIU states that as members are
forced to shoulder the burden of higher co-pays and
deductibles, it is critical that they be personally armed
with data and tools to make informed decisions about the
costs of the services they are receiving and the quality of
those services.
The California Retailers Association supports this bill and
states that when deciding which products and services to
buy, most consumers base their decisions on price and
quality. Health care should be no different, and in fact,
transparency rises to an even more important level for
consumers making what can literally become life-changing
health care decisions.
Oppose unless amended
The University of California (UC) states that, while UC
endorses the concept of transparency, it believes that the
bill as written will result in consumers receiving
misleading information that will not assist them in making
informed choices about their medical care. UC argues that
a robust risk-adjustment methodology is necessary to enable
meaningful comparisons across hospitals and providers that
have a very different mix of services and roles in the
community. For example, the cost and quality of complex
second and third hip replacements performed at an academic
medical center should not be compared to a simple
first-time hip replacement that is commonly performed in
community hospitals. Although UC contracts do not contain
confidentiality clauses, UC believes that quality and cost
information should be risk-adjusted or "normalized" to
ensure that consumers can make apples-to-apples comparisons
of services across hospitals.
Catholic Healthcare West (CHW) states that hospitals
support providing meaningful, accurate and reliable
information to consumers. However, without appropriate
standards on how that information is provided, insurance
companies could potentially provide patients with
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information that is wrong or misleading. Although most
insurance companies already choose to provide bundled cost
information for an episode of care, as recommended in the
aforementioned 2008 CHCF report, SB 751 does not make this
best practice mandatory, thereby allowing an insurance
company the option to selectively post disaggregated
information that may be misleading. CHW argues that
insurers should be required to provide consumers with data
that provides an accurate comparison and tells the whole
story.
The California Hospital Association (CHA) concurs with
CHW's assertions, and points out that many hospitals report
that health plans frequently post false information on
their websites regarding hospital costs and quality. If
hospitals are to be prohibited from addressing this common
problem contractually, insurers should be required to use a
scientifically valid and unbiased methodology that applies
to all hospitals, instead of allowing this to be negotiated
on a contract-by-contract basis. CHA argues that consumers
and hospitals should not be placed in the position of
having to trust that the insurance company's rating
methodology is accurate and unbiased, and that providers
who are being rated should be given an opportunity to
review and make corrections to inaccurate data prior to the
distribution of ratings. Furthermore, CHA states that
presentation of hospital costs should properly address
capitation and that exclusion of capitation rates in price
information can materially skew the results.
Prior legislation
AB 2389 (Gaines) of 2010 was similar in intent to SB 751,
but would have also provided a review and appeals process
for quality of care data, as specified. Would have
specified that data to be disclosed must meet certain
requirements, such as nationally recognized evidence- or
consensus-based clinical recommendations or guidelines, and
must be risk adjusted. Would have also limited disclosure
of cost information to certain elective, uncomplicated
procedures. Failed concurrence on the Assembly Floor.
SB 196 (Corbett) of 2009, as introduced, would have
prohibited a contract between a health care provider and a
health plan from containing a provision that restricts the
ability of the health plan to furnish information on the
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cost of procedures or health care quality information to
plan enrollees. Substantively amended to another subject
area before the first policy hearing.
AB 2533 (Fuentes) of 2009 would have required plans and
insurers to annually submit their policies and procedures
regarding economic profiling and quality ratings of
physicians, providers (including hospitals), medical
groups, or individual practice associations to DMHC and
CDI, respectively. Died on the Senate inactive file.
SB 1300 (Corbett) of 2008 was substantively similar to SB
196 (Corbett) of 2009. Failed passage on the Senate Floor.
ABX1 1 (Nunez) of 2007 would have established a committee
to develop a plan to improve and expand public reporting of
health care safety, quality, and cost information, as
specified. ABX1 1 would additionally have required OSHPD,
beginning January 1, 2010, to publish risk-adjusted outcome
reports for percutaneous coronary interventions (for
example, angioplasty and stents) conducted in hospitals,
and to compare risk-adjusted outcomes by hospital and
physician. Vetoed by the Governor.
AB 8 (Nunez) of 2007 would have established a commission to
develop a plan similar to ABX1 1 (Nunez) of 2007. It would
have required its commission to publicly report certain
patient safety and quality indicators, and associated
infection rates, for each acute care hospital licensed in
California. Failed passage in the Senate Health Committee.
AB 2967 (Lieber) of 2007 would have established a Health
Care Cost and Quality Transparency Committee, to develop
and recommend to the Secretary of the Health and Human
Services Agency, a health care cost and quality
transparency plan, and would have made the Secretary
responsible for the timely implementation of the
transparency plan. Failed passage in the Senate
Appropriations Committee.
AB 1296 (Torrico), Chapter 698, Statutes of 2007, requires
a health plan or contractor offering health benefits to
CalPERS members and annuitants to disclose to CalPERS the
cost, utilization, actual claim payments, and contract
allowance amounts for services rendered by participating
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hospitals to each member and annuitant. Requires this
information to be deemed confidential information.
AB 1045 (Frommer), Chapter 532, Statutes of 2005, requires
each hospital to submit to OSHPD its average charges for 25
common outpatient procedures, and requires OSHPD to post
the information on its website. Also requires OSHPD to
publish, and update online, a list of the 25 most commonly
performed inpatient procedures in California hospitals,
along with each hospital's average charges for those
procedures. Requires hospitals, upon request, to provide a
person without health coverage a written estimate of the
amount the hospital will charge for services, procedures,
and supplies that are expected to be provided to the person
by the hospital, as specified.
AB 1627 (Frommer), Chapter 582, Statutes of 2003, requires
hospitals to make available to the public their charge
description masters and to file them with OSHPD. Also
requires hospitals to compile and make available lists of
charges for commonly performed procedures, and authorizes
OSHPD to compile a list of the 10 most common Medicare
diagnosis-related groups, a system to group similar
hospital cases, and the average charges.
COMMENTS
1.Effect of the bill. The bill does not provide a framework
for how cost and quality ratings, and their associated
methodologies, should be established within a geographic
area under one health insurance product. As such, each
health plan and insurer may establish their own
methodologies and ratings system, which may be subject to
negotiations on a hospital-by-hospital,
contract-by-contract basis. Depending on the market and
the hospital's ability to negotiate more favorable
contracts, it is possible that a plan or insurer may, even
within the same geographic area, have two or more different
methodologies and rating systems for the hospitals it
contracts with. The author may wish to consider amendments
to establish a framework to ensure that information
provided to consumers is accurate and uses a consistent
methodology.
2.Should hospitals and facilities be allowed to review data
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and make appeals? The bill is silent on whether hospitals
and hospital-owned facilities may make corrections related
to the claims data used to determine cost or quality rating
(claims data is often used to determine both cost ranges
for procedures, and quality measurement of providers and
facilities). Plans and insurers argue that such details
should be left to contract negotiations with providers.
However, it is conceivable that some hospitals may not be
able to negotiate provisions to address this in their
contract.
3.Should cost information provided to enrollees and insureds
be risk adjusted for acuity? Some hospitals, such as
academic teaching hospitals, see a larger number of higher
acuity cases, compared to other facilities. Cost data
provided that is not normalized to account for such
differences in severity and complexity of cases, in order
to achieve "apples-to-apples" comparisons, may be
misleading to consumers.
4.Should cost information be bundled based on episodes of
care? There are numerous charges associated with each
hospital visit, and economists have found that, when a
market is highly concentrated and there is little
competition, cost transparency can lead to higher, not
lower, prices. Hospitals argue that it may be more useful
to the consumer to have information provided based on an
episode of care. According to a 2008 CHCF report, this is
less likely to lead to cost inflation. While plans and
insurers do not disagree that a bundled amount is helpful,
they also point out that consumers should have the right to
request and view an itemized breakdown of the services
under a bundled amount.
5.Hospitals could file grievances with DMHC and CDI
concerning plan and insurer practices. Existing law allows
hospitals and other providers to file grievances with DMHC
and CDI regarding health plan and health insurer practices.
This process would be available to hospitals if they
believe plans and insurers are not complying with the
provisions of this bill.
6.Multiple overlapping definitions of facilities and entities
covered by the bill. The definitions specified in the bill
are unclear and overlap with other definitions in existing
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law. The author may wish to strike existing definitions
and replace with the following clarifying amendment:
For the purposes of this section, "licensed hospital"
has the same meaning as defined in Section 1250 (a),
(b) and (f) of the Health and Safety Code.
7.Suggested technical amendments:
(a) On page 2, line 13, replace "contractural"
with "contractual"
(b) On page 2, line 35, replace "contractural"
with "contractual"
POSITIONS
Support: Aetna, Inc.
America's Health Insurance Plans
Association of California Life and Health
Insurance Companies
Blue Shield of California
California Association of Health Plans
California Association of Health Underwriters
California Association of Joint Powers
Authorities
California Retailers Association
California School Employees Association
Service Employees International Union
Oppose: California Healthcare West (unless amended)
California Hospital Association (unless amended)
University of California (unless amended)
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