BILL ANALYSIS
SB 279
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Date of Hearing: June 21, 2005
ASSEMBLY COMMITTEE ON HEALTH
Wilma Chan, Chair
SB 279 (Cedillo) - As Amended: June 15, 2005
SENATE VOTE : 39-0
SUBJECT : Physicians and surgeons: locum tenens services.
SUMMARY : Declares that temporary physician staffing agencies,
commonly referred to as locum tenens agencies, are not employers
of the physicians they place. Specifically, this bill :
1)Prohibits labeling a locum tenens agency (LTA) as an employer,
employment agency, employment counseling service, job listing
service, nurse's registry, temporary services employer, or
leasing employer of a license.
2)Defines a LTA as an individual or entity that meets all of the
following:
a) Contracts with clients or customers to identify
licensees willing to perform locum tenens services and to
arrange for the licensees to perform locum tenens services
for the clients or customers;
b) Arranges for the licensees to perform locus tenens
services only to those clients and customers that are
legally authorized to enter into independent contractor
arrangements with licensees;
c) Does not determine the rates of payment made to a
licensee providing locum tenens services;
d) Receives payment directly from its clients or customers
for its services which, to the degree that the payment
includes payment for locum tenens services, remits the
payment for the locum tenens services in full directly to
the licensee; and,
e) Charges fees that are reasonably related to the value of
the services that the LTA provides its clients and
customers, and that are in no way related to the quantity
or value of locum tenens services provided by the licensee.
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Allows a LTA to charge its clients and customers based on
the number of days or hour the locum tenens services are
provided or based on the particular specialty of the locum
tenens services.
3)Prohibits a LTA from employing a licensee to perform locum
tenens services or from interfering with or attempting to
influence the clinical judgment of a licensee providing locum
tenens services.
4)Prohibits considering the relationship between the client and
customer of the LTA and the licensee providing locum tenens
services as employment relationship for any purpose.
5)Defines the following terms:
a) Licensee as a licensed physician and surgeon; and,
b) Locum tenens services as professional medical services
of a licensee who provides the services, either:
i) On a temporary basis in place of another licensee
who is regularly scheduled to provide professional
medical services but is unable to do so because of
various reasons, including vacation, illness, continuing
education, or family emergency; or,
ii) On any basis, other than a permanent basis, to
otherwise meet the medical staffing needs of the client
or customer of the LTA.
6)Makes legislative findings and declarations on the shortage of
physicians.
7)States legislative intent that this bill is declaratory,
rather than a change, of existing law.
8)Limits application of this bill to physicians and surgeons, as
specified.
EXISTING LAW :
1)Prohibits corporations, with certain exceptions, from
employing physicians.
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2)Defines employment as a service performed by an employee for
wages and under any contract of hire, written or oral, express
or implied (Unemployment Insurance Code Section 601).
3)States that any individual who, under the usual common law
rules applicable in determining the employer-employee
relationship, has the status of an employee. (Unemployment
Insurance Code Section 621(b)).
4)Sets forth factors to consider when determining
employer-employee relationship.
5)Specifies in Unemployment Insurance Code Section 606.5 that a
"temporary services employer" and a "leasing employer" is an
employing unit that contracts with clients or customers to
supply workers to perform services for the client or customer
and performs all of the following functions:
a) Negotiates with clients or customers for such matters as
time, place, type of work, working conditions, quality, and
price of the services;
b) Determines assignments or reassignments of workers, even
though workers retain the right to refuse specific
assignments;
c) Retains the authority to assign or reassign a worker to
other clients or customers when a worker is determined
unacceptable by a specific client or customer;
d) Assigns or reassigns the worker to perform services for
a client or customer;
e) Sets the rate of pay of the worker, whether or not
through negotiation;
f) Pays the worker from its own account or accounts; and,
g) Retains the right to hire and terminate workers.
6)Excludes professional services performed by a consultant
working as an independent contractor from the definition of
employment. States that there is a rebuttable presumption
that services provided by an individual engaged in work
requiring specialized knowledge and skills attained through
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completion of recognized courses of instruction or experience
are rendered as independent contractor. Limits these services
provided by attorneys, physicians, dentists, engineers,
architects, accountants, chiropractors and the various types
of physical, chemical, natural and biological sciences
(Unemployment Insurance Code Section 656).
FISCAL EFFECT : None.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the sponsor, California
Hospital Association (CHA), this bill is in response to a
ruling by the Employment Development Department (EDD) labeling
physicians and surgeons who work on a temporary or locum
tenens basis as employees of the staffing or LTA. CHA states
that EDD's ruling involved three LTAs, namely, National
Medical Registry, Staff Care, Inc., and Registry of Physician
Specialists. According to CHA, these firms provided
physicians to hospitals, medical groups, correctional
facilities, and other health care providers on a temporary
basis. Labeling the relationship between a LTA and locum
tenens physician as an employer/employee relationship makes it
more costly to do business in California. In addition, such
an arrangement compromises the status of the physician who
could potentially lose his or her license to practice medicine
because of an existing law prohibiting lay organizations, such
as an LTA, from employing physicians. CHA also believes if
the issue is not addressed, the physician shortage in the
state could get worse. CHA points out that LTA's place
physicians in various facilities in California, including
private hospitals, health care service plans, medical group,
correctional facilities, and mental health facilities.
2)BACKGROUND . The locum tenens staffing industry was founded in
1980 in Atlanta, Georgia. The term locum tenens is a Latin
term for "to hold the place of, to substitute for" and has
been used to mean temporary physician. According to the
National Association of Locum Tenens Organizations, locum
tenens physicians contract with a staffing company to perform
medical services for healthcare organization for a specific
period of time. LTAs provide malpractice insurance to the
physicians they assist, even though the cost of the insurance
is paid by the clients soliciting the services of LTAs. In
response to an inquiry by the committee, EDD staff indicates
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that the issue at hand revolves around the determination of
who is, and who is not, an employer in a three-cornered
relationship. Determining the correct employer in the
temporary services and employee leasing industries involves
the application of Unemployment Insurance Code Section 606.5.
Section 606.5 defines the employer in a situation where an
individual or entity contracts with a client or customer to
supply workers (employees) to perform services for the client
or customer. EDD staff presented to the committee the steps
it takes in determining the correct employer under Section
606.5. According to information provided by CHA, and
corroborated by an article in the San Francisco Chronicle
published on June 16, 2005, EDD over a year and a half ago
started looking into whether LTAs were acting as employers. A
series of audits were performed and LTAs were sent notices of
back payroll and other state taxes owed to the state. It
appears that when EDD made the determination that LTAs were
employers of the physicians they place, it considered Section
606.5 of existing law. It is unclear why EDD started auditing
these LTAs, but one reason given was that a doctor, who was
placed by a LTA, filed for unemployment compensation.
3)EMPLOYEE VS. INDEPENDENT CONTRACTOR . The distinction between
an employee and independent contractor is significant in
various ways. One of this is the effect of the relationship
in employment taxes. For example, existing law states that
unemployment insurance taxes accrue only on amounts paid as
remuneration for services rendered by employees. Under the
meaning of Unemployment Insurance Code Section 601, services
of independent contractors are not employment within the
Unemployment Insurance Code's meaning and remuneration paid
for such services is not taxable. The Unemployment Insurance
Code in Section 606.5 also lists factors to consider in
determining whether an employee or independent contractor
relationship exists in "a temporary service employer" or
"leasing employer" setting.
4)EDD CASES . CHA presented the committee with two cases
involving a determination of whether a physician placed by an
agency or organization should be treated as an independent
contractor or employee for purposes of determining
unemployment taxes. The California Unemployment Insurance
Appeals Board (board) heard both cases with distinct outcome.
a) Associated Indian Services, Inc. (AISI) . This case was
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decided on August 19, 1986. AISI is a nonprofit
corporation operated by a health or medical clinic to
provide medical services to Indians (Native Americans) and
low income individuals. AISI engaged the services of
certain professionals including doctors, dentists,
hygienists, nurses, optometrists, nutritionists, and
paramedics. Until January 1980, these individuals were
"brought on" as employees and the normal deductions were
withheld from their paychecks. In January 1980, after the
Indian Health Branch of the State Department of Health
Services required that subcontracts must be developed for
all providers, AISI required such professionals to enter
into a written contract designating each professional a
subcontractor. The contract terms included provisions
reserving to AISI all final decisions, probationary period,
written guidelines, policies and regulations, and review of
the quality of service provided by the professional. In
finding that the professionals placed by AISI were
employees, the board first looked at whether existing law's
presumption that the physicians were independent
contractors existed in this case. The board looked at the
tasks of the "consultants," the level of control AISI
exercised on these professionals through the terms of the
contract and determined that the facts did not support the
presumption. The board then considered whether the common
law definition of employment applied. The board concluded
that AISI's actions, including reserving the right and
control of all business aspects of the services, reserving
the right to monitor the quality of the services provided,
its ability to terminate the service at will, the
probationary period, earned sick leave and vacation days
and the petitioner supplying the place of work and the
majority of supplies and equipment all supported an
employment relationship.
b) Cancer Care Point, Inc. (CCPI) . The second case was
decided by the board in 2003 and involved a physician
claimant and CCPI. CCPI is a Georgia corporation which
provided temporary and permanent staffing for hospitals,
healthcare groups or individual doctors and specialized in
the placement of Oncology physicians. CCPI and the
physicians entered into an annual agreement where
physicians agreed to provide independent contractor
services on an ad hoc or full time basis and CCPI agreed to
offer work assignments and set of rate for the assignments.
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The arrangement provided no workers' compensation,
unemployment insurance, or health insurance, no employment
deductions are taken and made the physician responsible for
these items. For its part, CCPI entered into contract with
hospitals, private practice physicians and other healthcare
facilities and agreed to identify well-qualified
Oncologists, verified physician license status, paid for
malpractice insurance and arranged for transportation for
the physicians. CCPI's clients (providers or facilities)
agreed to a certain standard daily rate of pay, overtime,
premium rate, or holiday pay. The duration of the
positions varied from a few days to permanent. The client
decides which physician is acceptable and the physician can
accept or reject any assignment. The facts also stated
that a physician who is dissatisfied with the wages offered
by the client is free to negotiate a higher wage or other
working conditions. CCPI did not influence or control how
client operated its facility or dealt with the physician.
In addition, physicians do not have to attend any meetings
conducted by CCPI and were not required to come to CCPI's
office. Other than carrying malpractice insurance, CCPI
only issued payment checks to the physicians bi-monthly.
The agreement between the physician and CCP can be
terminated on 30-days notice and physicians assigned to
healthcare facilities either work independently or report
to the department head of the facility of the physician's
assignment. CCPI is not involved in the care or treatment
of patients nor can it influence the working environment of
the healthcare facility.
The board, in ruling that CCPI is not the employer of the
physician claimant, considered whether there is common law
employment that existed and looked at several factors in
making its determination. These factors included who
controls the manner and means of accomplishing the desired
result; manner of discharge; is there a distinct occupation
or business; level of supervision; skill required; who
supplies the instrumentalities, tools, and place of work of
the one performing services; length of time for the
services; method of payment; whether or not the work is
part of a regular business of the beneficiary of the
services; or whether or not the parties believe they are
creating a relationship of master and servant. The board
stated that CCPI provided Oncologists to hospitals and
other healthcare facilities; it did not exercise control
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over the manner and means in which physician services are
provided; the contract between CCPI and the physician
provided for a 30-day notice of discharge and did not give
CCPI the authority to discharge a physician or to terminate
a contract without cause. The board also indicated that
the physician's services are performed in a distinct and
separate occupation, the work is done either independently
by the physician or under the direction of the department
head at the healthcare facility, and a high degree of skill
is required. The board also considered Section 606.5 of
the Uniform Insurance Code and noted that all the elements
were not met and precluded it from making a finding that
CCPI was an employer.
c) Analysis . CHA indicates that EDD is using the AISI
matter as a basis for its audit, instead of the CCPI case,
which according to CHA, is very similar to the arrangement
LTAs have with the physicians they place. CHA also argues
that the facts of the AISI case are distinguishable from
the CCPI case. AISI involved an entity that operated its
own health or medical clinic and provided medical services
to certain classes of clients while CCPI was not providing
any medical services. Another important distinction is the
body of law the board cited in making its determination in
both cases. In AISI, the board relied on common law and
Section 656 of the Unemployment Insurance Code, whereas the
appeals board in CCPI relied both on common law and Section
606.5 of the Unemployment Insurance Code. It should be
noted that Section 606.5 became effective on September 15,
1986, about a month after the board made its ruling in
AISI.
5)PHYSICIAN SHORTAGE . According to background information
provided by CHA, there is a growing physician shortage in the
United States, with one study estimating a shortage of 200,000
physicians nationwide in 2020. An April 2005 report by the
University of California Health Sciences education indicates
that California will face a shortfall of up to 17,000
physicians by 2015. The American Medical Association (AMA)
states this shortage is more evident in rural, urban and
underrepresented minority populations. According to the
Medical Board of California, there were 159 physicians engaged
in patient care per 100,000 Californians in 2000. In
addition, a study by the California Healthcare Foundation
released in January 2005 indicated that since visits to
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emergency departments have increased to 10.1 million annually,
emergency care experts estimate one-fourth of all visits
require the involvement of a consulting medical or surgical
specialists or 2.5 million consultations every year. This
shortage is exacerbated by the aging physician population,
especially in California. According to the AMA, there are
75,459 physicians in active patient care in the state, where
43,938 or 58.2% are 50 years old or older. According to a
2004 review by Staff Care Inc., an LTA, in 2003 there was a
demand for 220,252 temporary "physician days" in the state and
Staff Care, Inc. fills about 12,000 such days annually.
6)OPPOSE UNLESS AMENDED . The Union of American Physicians and
Dentists has taken an oppose unless amended position on this
bill. It asks that on page 3, lines 35-37 be removed because
it believes the provision may have unintended, yet deleterious
consequences, to its members.
7)SUPPORT . According to CHA, this bill is declarative of state
law and ensures that LTAs are not deemed employers of
physicians temporary placed with hospitals and other
providers. CHA states that since the industry began,
physicians have worked with locum tenens staffing firms as
independent contractors, not employees. To support this, CHA
points to the practice of these firms acting as matchmakers or
go-betweens by identifying physicians willing to practice on a
temporary basis and match them with clients such as hospitals
or medical groups who require additional medical services. As
medical professionals, CHA indicates, locum tenens physicians
control the manner in which they perform their professional
medical responsibilities and are not controlled or dictated by
staffing firms. Physicians almost never meet with any
representatives of the staffing agency and many work with a
variety of staffing firms simultaneously. In addition,
physicians' fees are not typically set by LTAs. Generally,
fees are negotiated by the medical facility and the locum
tenens physician. In addition, the supporters claim that this
bill will ensure that an important service in the health care
industry continues to operate in the state. The National
Association of Locum Tenens Organizations claims that it is
difficult to recruit and retain qualified physicians,
particularly in rural or disadvantaged areas and locum tenens
physicians fill the gap in many health care facilities.
8)DOUBLE REFERRAL . Should this bill pass out of this committee,
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it will be referred to the Assembly Committee on Business and
Professions.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hospital Association (sponsor)
California Chamber of Commerce
California Medical Association
California Society of Anesthesiologists
Medical Board of California
MHA Group / Staff Care (Locum Tenes Company)
National Association of Locum Tenens Organizations
Opposition
None on file.
Analysis Prepared by : Rosielyn Pulmano / HEALTH / (916)
319-2097