BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Adam B. Schiff, Chairman
1999-2000 Regular Session
SB 254 S
Senator Speier B
As Amended March 17, 1999
Hearing Date: May 11, 1999 2
Health and Safety/Insurance Codes 5
GWW:cjt 4
SUBJECT
Independent External Review
-Medical Treatment Decisions and Other Adverse Decisions-
DESCRIPTION
This bill would repeal, for three years effective January
1, 2001, the law added in 1996 which requires health
insurance plans and disability insurers to establish an
external, independent review process to examine coverage
decisions denying experimental or investigational
therapies for enrollees or insureds with a terminal
condition.
It would instead, for that three year period, require the
Department of Corporations to establish the Independent
Medical Review System which would be available for review
of any plan decision denying, delaying, limiting, or
terminating health care covered by the plan. Any
enrollee, including a Medi-Cal enrollee or, unless
expressly preempted by federal law, a Medicare enrollee,
may apply for an independent medical review. (The
proposed system, its procedures, its standard of
inadmissibility, and other provisions are described in
greater detail, below, under changes to existing law.)
The bill would also revise the statutory grievance process
to shorten the time period the enrollee must pursue
remedies under the process before being able to file a
complaint with the department.
BACKGROUND
(more)
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Last session, there were three bills in the Legislature
proposing the independent, external review of treatment
decisions by health plans and disability insurers. Those
bills were: SB 1504 (Rosenthal), SB 1653 (Johnston), and
AB 1667 (Migden). All three bills died in the committee
review process.
This year, there are four bills on this issue: SB 189
(Schiff), SB 254 (Speier),
AB 55 (Migden), and AB 1621 (Thomson). SB 189 is a
re-introduction of SB 1504 and SB 1653, in the form of
those bills as merged and passed by this Committee. The
external review provisions of SB 254 reflect a later
amended version of
SB 1504 which addressed issues raised by the consumer
groups but increased the opposition of the health care
service plans. AB 55 and AB 1621 are still in the
Assembly committee process.
Comment 2 lays out the main differences between SB 189 and
SB 254.
CHANGES TO EXISTING LAW
1. Existing law (Health and Safety Code Section 1370.4)
requires that all health care service plans and all
disability insurers provide an external, independent
review process to review the plan's or insurer's
decisions to deny coverage for experimental or
investigational therapies for individual enrollees or
insured persons who have a terminal condition.
This bill would repeal those provision for a three-year
period, during which time the DOC would be required to
establish the Independent Medical Review System that
would be available for review of any plan decision
denying, delaying, limiting, or terminating. Any
enrollee, including a Medi-Cal enrollee or, unless
expressly preempted by federal law, a Medicare enrollee,
may apply for an independent medical review. Under this
system:
An enrollee or insured (hereinafter "enrollee")
may appeal a health plan's or disability insurer's
(hereinafter "plan") decision to deny, delay, limit
or terminate proposed health care treatment to an
external, independent reviewing body of medical
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professionals where the denial is based on the plan's
finding that the treatment was not medically
necessary or medically appropriate. Appeals of any
other adverse decision affecting the provision of
health care would also be allowed.
Plans would be required to inform enrollees of
their right to an independent medical review; the DOC
(or DOI, as the case may be) would assign eligible
cases to an independent medical review organization.
The DOC commissioner would be required to contract
with a private, non-profit accrediting organization
to accredit independent medical review organizations
that shall be subject to strict accreditation and
conflict of interests standards.
Timelines and procedures would be established for
the submission of relevant documents by the plan and
enrollee. The expert reviewer or reviewers selected
by the independent medical review organization would
review all pertinent information related to an
enrollee's request and determine and state whether
the disputed health care service is or was medically
necessary or appropriate based on generally accepted
practice guidelines or standards of medical practice;
relevant scientific and medical evidence regarding
the clinical value of the treatment in dispute; or
treatments that are likely to benefit the patient for
conditions for which other treatments are not
clinically efficacious.
The medical review organization would require the
reviewers to make a determination, in writing, within
30 days or within shorter time periods for specified
reasons.
The commissioner would be required to immediately
adopt the reviewing body's determination and issue a
written decision to the parties. The decision would
be binding on the plan as an order and would be open
to public review upon removal of all the names of the
parties, the providers, and the plan.
Evidence about the independent review process,
including, but not limited to, the analysis,
recommendations, and conclusions of the review panel
would be inadmissible in any subsequent proceeding.
In cases where an enrollee obtains urgent or
emergency care from a provider outside of the
network, and that care is later found by an
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independent medical review organization to have been
covered under the policy and to be medically
necessary or appropriate, the commissioner shall
require the plan to reimburse the enrollee for the
costs associated with that care.
The commissioner would be directed to periodically
review independent medical review cases to determine
if any audit or enforcement action should be
undertaken where the plan repeatedly fails to
promptly resolve grievances over health care
decisions when the plan's obligation to provide
services is reasonably clear.
All costs associated with an independent medical
review would be borne by the plan. The commissioner
would be directed to establish a reasonable, per-case
reimbursement schedule to pay the costs of the
independent reviews, which may vary depending on the
type of medical condition under review or other
factors.
The use of or failure to pursue, exhaust, or
engage in the independent medical review process
would not preclude the use of any other remedy
provided by law.
This bill would also require the Department of Insurance
to implement a comparable independent review system for
treatment decisions of disability insurers.
2. Existing law (Health and Safety Code Sections 1368
and 1368.01) requires every health care service plan to
establish and maintain a grievance system approved by
the DOC under which enrollees may submit their
grievances to the plan. It provides that a plan must
resolve grievances within 30 days whenever possible, or
within five days in cases involving an imminent and
serious threat to the health of the patient. It
provides that an enrollee may submit their grievance to
DOC after completing the grievance process or after
participating in the process for 60 days. In cases
involving imminent and serious health threats, a patient
may petition DOC to review his or her case without first
going through the plan's grievance process.
This bill would require plans to provide enrollees with
a written response to their grievances, and would permit
an enrollee to submit a complaint to the department if
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the grievance is not resolved after 30 days. In cases
involving a imminent and serious threat to the health of
the enrollee, the bill would require the system to
include a requirement for the plan to immediately
transfer the complaint to the independent review system
upon application by the enrollee.
COMMENT
1. Stated purpose: to offer recourse for patients who
have been denied medically necessary treatment
According to the Senate Insurance Committee analysis of
SB 254, of which she is the Chair:
"The author states that as of mid-1998, 18 states had
enacted legislation establishing external, independent
review (IR) of contested medical care decisions, and
that in California, Health Net and Aetna U.S. Healthcare
have voluntarily adopted an IR process covering a broad
range of unresolved enrollee grievances, and that in
addition, Medicare has an IR system for all unresolved
enrollee grievances.
"The author states that a great diversity of policies
and procedures has been applied to these various State
and federal IR systems. The author cites recent studies
that indicate that there has been only modest enrollee
participation in State IR programs, possibly because
either many consumers are unaware of their right to
access IR or those in need of IR often are ill or
disabled and do not have the ability to pursue an
appeal, and that IR participation could also be limited
if the rules are complex or enrollees are not provided
with advice and assistance to the program.
"The author believes Senate Bill 254 is a
consumer-friendly external, IR process."
2. Key differences between SB 254 and SB 189
Both SB 254 and SB 189 propose a substantially similar
structure for the external review system, with mostly
similar procedures, being cut from the same loom of
fabric. However, there are a few substantial
differences.
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a) Should a plan provider finding of medical
necessity or appropriateness be required as a
condition for an appeal
Under SB 189, one of the conditions for an appeal is
that the enrollee's plan physician must have
recommended the treatment as being medically
necessary or medically appropriate. In this fashion,
the plan provider acts as a "gatekeeper" and screens
out unnecessary treatment requests. Under this
system, the enrollee may appeal only denials of
treatment which a plan physician has already deemed
to be medically necessary or appropriate.
It is not clear if SB 254 has the same "gatekeeper"
function. It would allow the enrollee to apply for
independent review when: 1) the grievance involves a
disputed health care service or other adverse
decision, and the enrollee first sought the treatment
under dispute from an in-plan provider, and 2) the
health care service was denied, significantly
delayed, limited, or terminated by the plan. As
drafted, this scheme does not require treatment
approval by the in-plan physician. In fact, under SB
254, an enrollee would have the right to appeal where
the in-plan physician denied the request for
treatment and the enrollee then went to an
out-of-plan physician who recommended the treatment.
Without the "gatekeeper" function, SB 254 would allow
a greater number of appeals under broader
circumstances.
SHOULD IN-PLAN PHYSICIAN APPROVAL BE GENERALLY
REQUIRED AS A CONDITION FOR PURSUING EXTERNAL REVIEW?
b) Should coverage decision disputes be subject to
external review?
SB 254 would permit an enrollee to any other
adverse decision which is defined as the denial,
significant delay, termination, or imposition of
other limits on health care services by the plan ?
for reasons other than the service was not medically
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necessary or appropriate. This broad provision would
allow appeals of coverage decisions.
In sharp contrast, SB 189 makes the policy
judgment that a medical reviewer, and therefore the
external review process, is not qualified to make
coverage determinations. Medical reviewers are not
legal experts. Therefore, any decision made by them
that reflects, in whole or in part, a coverage
determination, would be legally incompetent and
inadmissible. This policy is reflected in SB 189 on
page 14, line 19: Any opinion of medical necessity
or medical appropriateness based in whole or in part
on whether the proposed or rendered treatment is a
covered treatment under the terms and conditions of
the plan shall be inadmissible.
ARE MEDICAL REVIEWERS QUALIFIED TO MAKE LEGAL
COVERAGE DETERMINATIONS?
CAHP contends that "Denials based on coverage
limitations in the plan contract should not be
included in this clinically-based review; physician
experts are not the appropriate individuals to review
contract disputes. ACLHIC voices similar concerns
that the bill should be limited to adverse medical
necessity determinations.
SHOULD THE PROVISION ALLOWING APPEALS OF COVERAGE
DECISIONS BE DELETED FROM THE BILL?
c) Inadmissibility of reviewer's decision
Under SB 254: "Nothing about the independent
review process?, including, but limited to, the
analysis, recommendations, and conclusions of the
review panel, shall be admissible in any subsequent
proceeding."
In contrast, SB 189 reflects the policy adopted by
this Committee last year when it considered and
approved SB 1504 and SB 1653. Both bills were
amended to limit the admissibility of an independent
reviewer's decision in civil or administrative
hearings by providing that the testimony of the
medical reviewer would be admissible solely as expert
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opinion testimony for the party who calls the medical
professional as his or her expert, and not as the
testimony of the medical professional conducting the
review. SB 189 would also provide that the testimony
would be subject to the same rules, including
cross-examination. This policy reflects the view
that, given an unbiased reviewer selected by a
neutral body, the opinion of the medical reviewer on
medical necessity or medical appropriateness is much
like the opinion of an expert witness.
The California Association of Health Plans (CAHP),
the Association of California Life and Health
Insurance Companies (ACLHIC), HealthNet, and Kaiser
Permanente, oppose both the inadmissibility and
limited admissibility provisions, saying that this
information is relevant and making it inadmissible is
unfair. CAHP asserts that the trier of fact should
be aware of all the steps the plan took in reaching
its final decision, especially in bad faith lawsuits.
HealthNet points out that
SB 254 provides that the results of the review are
binding on the plan, including a determination to
uphold a denial Thus, HealthNet argues, "the bill
would prohibit a plan from presenting evidence that
it followed state law even in cases where the
plaintiff is alleging bad faith."
The Consumer Attorneys of California (CAOC) oppose
both admissibility and limited admissibility
language, arguing that the proposed review process
lacks basic due process protections -- it is designed
to be informal, without an evidentiary hearing or
representation by counsel, and therefore ought not be
admissible. They further contend that the
prejudicial effect of the introduction of an advice
decision would outweigh its probative value, and
unless evidence from the review process is fully
inadmissible, plans will be able to use the
independent review process to insulate themselves
against bad faith liability.
Comparing the provisions of SB 189 and SB 254, the
two bills may not be that far apart. SB 254 clearly
bars any part of the review proceedings from being
admitted as evidence in any subsequent proceeding.
The bill, however, does not clearly or even
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implicitly bar a party from calling the medical
reviewer as an expert witness so long as he does not
testify about the review process itself - which is
the policy of SB 189. By the same token, SB 189
allows the medical reviewer to be called as an expert
witness by any party, but makes that person's
testimony admissible solely as expert opinion
testimony for the party calling the medical
professional as his or her expert, and not as the
testimony of the medical professional conducting the
review. Implicitly, SB 189 may be read to prohibit
the reviewer from testifying about any part of the
review process, including its findings -which is the
policy set forth in SB 254.
SHOULD THE TWO PROVISIONS BE RECONCILED SO THAT
THE COMMITTEE DOES NOT APPROVE INCONSISTENT POLICIES?
Reconciliation of the two proposals on this point
would not remove or mitigate the opposition of the
HMO groups.
(d) Should there be a monetary threshold or an
appeals fee?
None of these bills would provide for a monetary
threshold in order to qualify for external review,
though earlier versions of SB 1653 and
AB 1667 last year contained thresholds. The
threshold was originally intended to discourage
frivolous appeals. To meet that concern, both senate
bills were amended by this Committee to provide that
the enrollee must pay a $50 application fee, which
would be refunded if the enrollee prevails. The fee
would be waived in cases of financial hardship.
SB 189 conforms to that policy and would provide for
a refundable and waivable $50 application fee. In
contrast, SB 254 would provide for costs of the
appeal to be paid by the health plans.
Consumer groups and seniors are strongly opposed
to any monetary threshold or appeals fee, asserting
that the requirement for a plan provider to recommend
the treatment as a precondition to an appeal refutes
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any concern that the appeal would be frivolous.
Western Center on Law and Poverty asserts that no
other state has a monetary threshold. They also
contend that an application fee would be a deterrent
to lower-income enrollees.
Opponents have expressed concern that without a
monetary threshold that is higher than the cost of a
treatment, there will be an incentive for insurers
and plans to approve treatment requests they would
have otherwise refused, thereby raising costs. The
California Physician's Group writes that financial
thresholds or enrollee filing fees would minimize
premium increases resulting from the new mandate.
(e) Criteria for determining "medically necessary or
appropriate"
The two bills have different criteria for the
medical reviewer to apply when determining if the
proposed treatment was medically necessary or
appropriate.
Under SB 189, the medical reviewer would determine
whether the proposed treatment was medically
necessary or medically appropriate "based on
scientific and medical evidence regarding the
efficacy of the proposed or rendered treatment, or on
applicable generally accepted practice guidelines."
Under SB 254, the medical reviewer would determine
and state whether the disputed health care service is
or was medically necessary or appropriate based on
generally accepted practice guidelines or standards
of medical practice; relevant scientific and medical
evidence regarding the clinical value of the
treatment in dispute; or treatments that are likely
to benefit the patient for conditions for which other
treatments are not clinically efficacious.
CAHP contends that reviewers should make their
decisions based on clinical evidence and medical
literature. They assert that "generally accepted
practice guidelines should not be a preferred basis
for making their decision because the guidelines are
numerous, vary tremendously, and may not necessarily
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be based on valid clinical evidence."
CAOC asserts that the criteria under SB 189 is too
narrow and should instead provide a broad definition
of medical necessity that focuses on the needs of a
particular patient. They argue that medicine is not
a static expertise, where widely agreed-upon textbook
solutions are readily available for every disease and
condition. New, sound innovations may be the best
course, but are unacceptable under the SB 189
definition because there has not been sufficient time
to produce statistically reliable clinical evidence.
CAOC also notes that some courts in defining "medical
necessity" have applied a "benefit to the patient"
test, and urge that
SB 189 be amended to be reflective of the law and
practice regarding the definition of medical
necessity.
f) SB 254 has slightly simpler processing of appeal
application; no delay in cases requiring expedited
review; SB 189 has gatekeeper function
Under SB 189, pursuant to proposed Section
1399.81, the commissioner would assign the request
for external review to an outside reviewing entity
when the following conditions are satisfied: 1) The
enrollee has provided an executed release to obtain
necessary medical records. 2) The enrollee has paid
the application fee, unless the fee was waived. 3)
The commissioner finds that the plan's decision to
deny treatment was based in whole or in part upon a
determination that the proposed services were not
medically necessary or appropriate. 4) The enrollee
has participated in the plan's grievance process for
the 60-day statutory period, except that in cases
involving serious and imminent danger to health, the
enrollee need only follow the grievance process for
five business days.
SB 254 would instead have the department assign the
request for review in accordance with regulations or
orders of the commissioner when the enrollee has: 1)
provided the necessary records and information in
support of the claim; 2) applied for review within 60
days of completion of the plan grievance process; 3)
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appealed a grievance involving a "disputed health
care service" or "other adverse decision" whereby
healthcare treatment was denied, significantly
delayed, or limited by the plan or by its contracting
provider; and 4) participated in the plan's grievance
process for 30 days, except that in cases involving
serious and imminent danger to health, the enrollee
would not be required to participate in the statutory
grievance process at all.
Of the two bills, SB 254 would require shorter
participation in the statutory grievance process (30
vs. 60 days) and would excuse it completely in cases
of imminent and serious danger to health (0 vs. 5
days). In addition, SB 189 requires the commissioner
to make a finding that the plan's denial of care was
based upon a determination that the proposed care was
not medically necessary or appropriate, which may or
may not be a needed "gatekeeper" function. In
contrast, SB 254 would not require the commissioner
to make this specific finding, and instead would
require the referral when the appeal involves a
disputed health care service or other adverse
decision which results in the denial or delayed
provision of care.
The Western Center on Law and Poverty favors the
shortened timelines and expedited review in urgent
cases. It urges that SB 189 be amended to also
provide a smooth and expedited transition from DOC to
the independent review.
g) SB 254 would start one year later, but sunset in
three years
The independent medical review system proposed by
SB 254 would be mandatory as of January 1, 2001, but
would sunset on January 1, 2004.
No reasons have been advanced for the sunset. While
it is not unusual for new programs to be given trial
runs before being permanently implemented, a sunset
puts the burden on the consumer groups to re-enact
the legislation in three years. Further, a "sunset"
provision may send a mixed message that external
review is only experimental.
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In comparison, SB 189 would become operative on
January 1, 2000, and would not be sunsetted.
The California Association of Health Plans believes
the effective date of the proposed system should be
delayed until January 1, 2001 in order to ensure
appropriate start-up. They question whether any
accredited organizations would be in place by January
1, 2000.
3. Other issues raised by opponents
(a) Participation by Medicare and Medi-Cal enrollees
Both bills would provide that Medi-Cal enrollees
are eligible for participation in the external review
process, and that Medicare enrollees would also be
eligible unless federal law expressly preempts.
The Western Center on Law and Poverty (WCLP) and
senior groups argue that the inclusion of Medi-Cal
and Medicare beneficiaries are essential to protect
these recipients from receiving less rights than
other enrollees WCLP also requests that the language
in SB 254 be clarified so that its independent review
process does not undermine or replace any existing
rights or benefits under federal or state law or
regulation.
CAHP argues that Medicare enrollees should be
excluded from external review, because federal law
and regulations already preempt state law in the area
of grievance and appeals processes as well as benefit
determination. CAHP further argues that if Medi-Cal
enrollees are included in external review,
alternative financing mechanisms will have to be
considered, since Medi-Cal plans cannot raise their
rates to accommodate costs.
b) Repeal of AB 1663 (Friedman-Knowles) - external
review for experimental therapies
CAHP asserts that the framework created by AB 1663
is the more appropriate framework for experimental
treatments and urges the author to work with CAHP to
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fix it instead of repealing it. The criteria for
review -whether standard therapies have been tried or
considered - and the standard of review - whether the
therapy would be more beneficial -- is more
appropriate for experimental therapies than the
language in
SB 254, says CAHP.
Proponents of the repeal respond that terminally ill
patients need the right to a fast and fair review of
a decision denying or limiting treatment most of all,
and that AB 1663 does not meet those needs because
the selection and determination process is biased in
favor of the industry.
c) Requirement for California licensed reviewers may
limit pool
Both SB 189 and SB 254 would require the medical
reviewer to be licensed in California unless good
cause is shown, such as the unavailability of
qualified licensed reviewers.
CAHP opines that the selected reviewers should not be
limited to California licensed professionals,
asserting that the conflict of interests provisions
make it very difficult to find California-based
experts to review these cases.
CAHP also asserts that a less onerous accrediting
process may be needed in light of AB 1663's
experience in finding a very limited pool of
qualified applicants.
Proponents respond that both bills already address
the problem by allowing the use of out-of-state
licensed reviewers if California licensed reviewers
are unavailable.
d) Costs
Opponents express concern that the proposed review
system could be very expensive, and would drain
dollars away from patient care. Alternatively,
premiums could be increased to offset the added
costs. In that event, asserts the California Chamber
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of Commerce and the Californians for Affordable
Health Reform, employers would be concerned about the
increased costs and some may be force to cancel
health care coverage if costs in fact increase
significantly.
Proponents respond that these added costs may be
offset where the external review system saves a
health insurer from liability exposure and a large
damages award for failing to provide health care.
Given the choice of receiving medical treatment
before it is too late, or not receiving the treatment
and suing for damages, a rational person would
presumably prefer to receive the health treatment.
By overruling "poor" decisions to deny treatment and
instead forcing the provision of care, the proposed
system may in some cases protect the HMO from
liability which would have ensued had treatment not
been ordered.
e) Should HMO liability be joined to this bill?
The Foundation for Taxpayer and Consumer Rights
assert that third party review systems only work well
in conjunction with public laws for HMO
accountability and liability. Otherwise, the
external review system could encourage HMOs to deny
treatment requests, knowing that the person's only
recourse is an appeal to the external review body if
the person's health benefits were employer provided.
The Foundation urges the authors of SB 189 and SB 254
to join their bills to an HMO liability bill.
The HMO groups in opposition would oppose anyjoinder
ofthis bill to liability.
4. Support
Supporters of SB 254 argue that patients who are denied
care ought to have a right to have that denial reviewed
by an independent review entity. They also argue that
provisions in this bill that would reform the health
plan internal grievance procedure will help to ensure
that grievances are resolved in a more timely manner and
that a patient will be provided with more complete
information regarding why a decision was reached.
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5. Question of federal ERISA preemption of mandatory
external review system
In Corporate Health Insurance, Inc. v. Texas Department
of Insurance (1998) ___F.Supp. __, the United States
District Court for the Southern District of Texas,
Houston Division, ruled that Texas' enactment of an
independent review process for adverse benefit
determinations was preempted by the federal Employment
Retirement Income Security Act of 1974 (ERISA), citing
New York State Conference of Blue Cross and Blue Shield
Plans v. Travelers Ins. Co.,514 U.S. 645 (1995). Noted
the Court, Congress intended for ERISA to preempt "state
laws that mandate employee benefit structures or their
adminstration." Id., at 658.
The Texas model is different from this bill's proposed
model, in that it requires an enrollee or insured to
submit his or her claim challenging an adverse benefit
determination to a review by an independent review
organization if such a review is requested by the
managed care entity. However, it is not known whether
this difference is a distinction of legal significance
for ERISA purposes.
Support: California Teachers Association; United Nurses
Association
Opposition: California Ass'n. of Health Plans;
California Chamber of
Commerce; Californians for Affordable Health
Reform; Association of California Life and
Health Insurance Companies; Heath Net; Kaiser
Permanente
HISTORY
Source: Author
Related Pending Legislation: SB 189 (Schiff) - Pending in
this Committee
Prior Legislation: SB 1504 (Rosenthal) - Died in Assembly
Health Committee
AB 1667 (Migden) - Died in Senate
Appropriations Committee
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Page 17
Prior Vote: Senate Insurance Committee - Ayes 6, Noes 1
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