BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 1285
AUTHOR: Hernandez
AMENDED: March 26, 2012
HEARING DATE: April 25, 2012
CONSULTANT: Marchand
SUBJECT : Hospital billing: emergency services and care.
SUMMARY : Requires hospitals with an out-of-network emergency
utilization rate of greater than 50 percent to adjust charges
for out-of-network emergency care so that expected reimbursement
does not exceed the greater of (1) the amount the hospital could
reasonably expect Medicare to pay for the care or (2) a good
faith and reasonable estimate of the actual cost of providing
the necessary pre-stabilization care.
Existing law:
1.Requires hospital emergency departments, under the federal
Emergency Medical Treatment and Active Labor Act (EMTALA) and
state law, to provide emergency screening and stabilization
services without regard to the patient's insurance status or
ability to pay.
2.Requires a health plan to reimburse providers for emergency
services and care provided to its enrollees until the care
results in stabilization of the enrollee.
3.Prohibits a health plan from engaging in an unfair payment
pattern and defines in regulation, for purposes of this law,
what constitutes appropriate reimbursement of a claim. For
noncontracted providers, regulations require the payment of
the reasonable and customary value for the health care
services, based upon statistically credible information that
takes into consideration certain specified items, including
the fees usually charged by the provider.
4.Permits a noncontracted provider to dispute the
appropriateness of a plan's computation of the reasonable and
customary value and requires the plan to respond to the
dispute through the plan's mandated provider dispute
resolution process.
This bill:
Continued---
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1.Requires a hospital with an out-of-network emergency
utilization rate, as defined, of 50 percent or greater to
adjust its total billed charges for emergency services and
care provided to a patient prior to stabilization, as
specified.
2.Requires the adjustment to its billed charges to be such that
the hospital's total expected payment does not exceed the
amount of payment the hospital reasonably could expect to
receive from Medicare for providing the same care, or if the
Medicare amount is less than the actual cost to the hospital,
the adjustment shall not exceed a good faith and reasonable
estimate of the actual cost of providing the care.
3.Excludes charges billed by an emergency physician from the
adjustment to the hospital's total billed charges.
4.Requires, if a contract with a health plan or health insurer
governs the payment for the care provided, the contract to
control the payment and the adjustment required by this bill
shall not be applied.
5.Excludes from the provisions of this bill medical care
provided to a patient that is compensable for purposes of
workers' compensation.
6.Excludes from the provisions of this bill medical care
provided to a patient for whom Medicare, Medi-Cal, or any
other government program of health benefits, excluding public
employee benefit plans, is the primary payer for those
services and care.
7.Requires, if federal law requires a payment from a health plan
or health insurer in an amount greater than would be called
for under the provisions of this bill, the hospital to adjust
its charges so that the total expected payment is the minimum
amount that will comply with applicable federal law.
8.Prohibits this bill from requiring a hospital to modify its
uniform schedule of charges or published rates or precluding
the recognition of a hospital's established charge schedule or
published rates for purposes of applying any payment limit,
interim payment amount, or other payment calculation based
upon a hospital's rates or chargers under the Medi-Cal
program, the Medicare Program, workers' compensation, or other
federal, state, or local public program of health benefits.
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9.Requires a hospital to provide reimbursement for any amount
actually paid in excess of the amount due under the provisions
of this bill, including interest, as specified, unless the
amount due is less than $5.
10.Defines, for purposes of this bill, the following terms:
a. "Hospital" means a general acute care hospital or a
special hospital, as defined, that has an emergency
department licensed by the California Department of Public
Health.
b. "Local patient" is a patient whose residence is in the
same county as the hospital at which the patient receives
services and care, or whose residence is in an adjacent
county.
c. "Major emergency department encounter" means a patient
encounter in a hospital emergency department for which the
hospital's total billed charges for all in-patient and
out-patient services and care provided, excluding charges
billed by an emergency physician, are greater than $2,000,
which is required to be adjusted each year for medical
inflation, as specified.
d. "Privately insured patient" is a patient for whom the
primary payer is a health insurer or health care service
plan.
e. "Out-of-network" refers to care provided to a patient
by a hospital that has not contracted with the patient's
health care service plan or health insurer for
reimbursement at a negotiated rate with respect to the
care provided.
f. "Out-of-network emergency utilization rate" means the
percentage of all major emergency department encounters at
a hospital during the course of a calendar year 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 most recently completed calendar
year that involved local, privately insured patients for
whom the services and care were out-of-network, by the
hospital's total number of major emergency department
encounters in the same calendar year of local, privately
insured patients.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
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COMMENTS :
1.Author's statement. According to the author, current law
governing payment rates for out-of-network emergency hospital
care has created unintended incentives that raise the cost of
health care and reduce the appropriate coordination of patient
care. Pursuing these incentives as part of their business
practice, a small but growing number of hospitals now refuse
to contract with most insurers and demand excessive payments
for out-of-network emergency care. The author states that
there are any number of legitimate reasons why any given
health plan may not have a contract with any given hospital.
This is the purpose behind the "reasonable and customary"
billing mechanism for noncontracted emergency services.
However, this billing mechanism should not be used to
facilitate a business strategy of not entering into contracts
with insurers. This bill will improve incentives for hospital
emergency care by limiting the amount hospitals can bill
out-of-network emergency patients. These new limits will only
apply to hospitals that have out-of-network patients for a
majority of their local, privately-insured emergency room
patients, which are a very small minority of hospitals in this
state.
2.Background on out-of-network emergency reimbursement. Under
federal EMTALA and state law, hospitals are required to
provide appropriate screening examinations to determine
whether emergency medical conditions exist, regardless of
patients' ability to pay. When emergency medical needs are
identified, hospitals are required to provide care until the
patient is stabilized.
If the patient's health plan has a contract with the hospital
that provided the emergency care, billing is relatively
straightforward. However, if there is no contract, the amount
billed by the hospital may be more than the health plan
believes is reasonable. Often, there is simply a lapse between
contracts with the hospital and the health plan, and the bill
may be held up just until a new contract is negotiated. If
that is not the case, disputes over the amount the health plan
is required to pay are resolved by applying what is referred
to as the Gould Criteria.
3.AB 1455 and the "Gould Criteria."
AB 1455 (Scott), Chapter 827, Statutes of 2000, established
requirements for prompt payment of provider claims by health
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plans, including a prohibition on health plans engaging in an
unfair payment pattern. In regulations implementing this law,
the Department of Managed Health Care (DMHC) defined what
constituted appropriate reimbursement of a claim. In the case
of providers with a written contract, the regulations require
reimbursement at the agreed upon contract rate. For
noncontracted providers, however, the regulations adopted what
is known as the "Gould Criteria" (from Gould v. Workers'
Compensation Appeals Board, 1992), which requires:
The payment of the reasonable and customary value for the
health care services rendered based upon statistically
credible information that is updated at least annually and
takes into consideration:
(1) the provider's training, qualifications,
and length of time in practice;
(2) the nature of the services provided;
(3) the fees usually charged by the
provider;
(4) prevailing provider rates charged in the
general geographic area in which the services were
rendered;
(5) other aspects of the economics of the
medical provider's practice that are relevant; and
(6) any unusual circumstances in the case.
1.Emergency rooms as a source of revenue? Beginning in October
of 2010, the Center for Investigative Reporting's California
Watch began publishing a series of articles on Prime
Healthcare Services (Prime), which operates 14 hospitals,
primarily in Southern California. 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. Subsequent
articles raised questions about high rates of a rare
malnutrition disorder known as Kwashiorkor among Prime's
Medicare patients, again raising concern of possible Medicare
fraud.
An article published on July 23, 2011, by California Watch,
looked at an increase in emergency room admission rates at
Prime hospitals, again focusing on Medicare, but this time
also describing a conflict regarding emergency room admissions
with Kaiser Permanente. In the article, California Watch
described an allegation from Kaiser that Prime had failed to
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give them an opportunity to care for Kaiser patients after an
emergency situation had stabilized. According to the article,
"Kaiser accused Prime of using improper medical criteria to
'capture' its patients, treating them without authorization
and performing unneeded tests to create hefty bills."
In the same article, California Watch describes Heritage
Provider Network, another managed care plan, as making similar
allegations against Prime. According to the article, "Heritage
claims Prime is engaging in racketeering when it 'mislabels'
Heritage members as too sick to be transferred back to the
managed care network."
The claims of both Kaiser and Heritage are part of lawsuits
between the health plans and Prime. Prime has denied the
allegations.
2.Joint hearing on hospital reimbursement. The Senate and
Assembly Health Committees held a joint hearing in Los Angeles
on February 24, 2012, on hospital reimbursement mechanisms.
At this hearing, a number of witnesses expressed concern with
the Prime hospital chain. The Committees heard testimony that
the Prime chain of hospitals operate largely without insurance
contracts, and seek to bill full charges whenever a patient
receives treatment at one of their facilities. Several
witnesses described Prime as pursuing a strategy of maximizing
the treatments, and the billing for those treatments, provided
to patients before they are deemed stabilized and then
discharged or transferred.
Again, current law requires hospitals to provide emergency care
to anyone who comes into an emergency room, regardless of
their ability to pay. Accordingly, current law requires
health plans to pay a noncontracting hospital the reasonable
and customary value for that emergency care provided to their
enrollees. Witnesses at the joint hearing testified that
Prime hospitals are exploiting this reimbursement structure
for noncontracted emergency care in order to maximize billed
charges.
3.Prior legislation. AB 1203 (Salas), Chapter 603, Statutes of
2008, prohibits a noncontracting hospital from charging a
patient or his/her health plan for post-stabilization care
unless certain requirements are met; requires health plans to
provide 24-hour access for noncontracting hospitals to obtain
authorization for post-stabilization care; and requires
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hospitals to contact the health plan to provide the plan with
information about the patient.
AB 1628 (Frommer), Chapter 583, Statutes of 2004, requires a
hospital to contact an enrollee's health plan to obtain the
enrollee's medical record information before admitting the
enrollee for post-stabilization care as an in-patient
following emergency services in a noncontracting hospital,
under certain circumstances, and prohibits a hospital from
billing the enrollee if it fails to do so, as specified.
AB 1455 (Scott), Chapter 827, Statutes of 2000, establishes
requirements for prompt payment of provider claims by health
plans, including a prohibition on health plans engaging in an
unfair payment pattern.
4.Support. This bill is supported by SEIU California (SEIU),
which states that when a medical emergency strikes, we rush to
the nearest hospital - whether it's in our insurance network
or not. Federal and state laws protect us: hospitals are
required to stabilize emergency patients, and health insurers
are required to pay for emergency care whether it is in
network or not. However, SEIU states that a small number of
unscrupulous hospital owners are taking advantage of these
laws by making a business out of canceling insurance
contracts, so they can collect exorbitant reimbursements for
out-of-network emergency room patients. SEIU states that
Ontario-based Prime Healthcare is a case study on why this
bill is necessary, arguing that Prime refuses to contract with
most managed care organizations and even refuses to coordinate
with the HMO physicians that have access to members' medical
records when HMO members turn up at Prime-operated hospitals.
According to SEIU, in legal filings, managed care
organizations such as Kaiser allege that Prime racks up
unnecessary charges in the emergency room to reap even bigger
profits. SEIU states that this bill would discourage Prime and
its imitators from employing these predatory practices, which
will reduce costs and improve access to care for thousands of
Californians.
The Congress of California Seniors is also in support of this
bill, stating that a limited number of hospitals are canceling
contracts with health plans, and finding reasons to admit
privately insured patients who show up in their emergency room
for a hospital stay. The Congress of California Seniors states
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that these patients, many of whom may have chronic conditions,
specific treatment plans and strong relationships with
particular providers, find themselves effectively trapped, far
from those who know best how to care for them. Congress of
California Seniors argues that by limiting reimbursement, it
would force these hospitals to take a strong look at their
practices and reconsider their current approach.
5.Opposition. This bill is opposed by the California Hospital
Association (CHA), the United Hospital Association, and
Community Medical Centers, all of whom make similar arguments.
These organizations are all opposed to SB 1285 because (1)
rate setting reduces access to emergency hospital services,
(2) a default rate is complex and imposes conflicting legal
standards, (3) a default rate eliminates the incentive for
health plans to contract, and (4) hospitals and health plans
are effectively implementing existing law regarding
noncontracted reimbursement for emergency services and rate
setting is not necessary.
According to CHA, not every hospital is able to obtain a
contract with every health plan, and one of the most common
reasons hospitals are noncontracted is because they have been
unable to negotiate a fair contract with health plans. CHA
states that a major reason that hospitals downsize, close
departments or limit services is because they have inadequate
managed care contracts with health plans. CHA notes that it is
especially difficult for these hospitals to negotiate adequate
managed care contracts when they are located in geographic
regions that are dominated by only a few large health plans.
CHA states that this bill harms those communities in which the
local hospital is unable to obtain contracts with certain
health plans. CHA argues that a statutory default rate
interferes with the contracting process and that health plans
lose the incentive to negotiate because they have the default
rate to fall back on. CHA states that this bill adds
unnecessary complexity to an already complex system. Finally,
CHA asserts that most disagreements between hospitals and
health plans are resolved internally or through formal
processes such as mediation and arbitration and that when
necessary, the appropriate forum to resolve disputes remains
with the courts.
SUPPORT AND OPPOSITION :
Support: Congress of California Seniors
SEIU California
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Oppose: California Hospital Association
Community Medical Centers
United Hospital Association
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