BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:  April 19, 2016


                            ASSEMBLY COMMITTEE ON HEALTH


                                   Jim Wood, Chair


          AB 2024  
          (Wood) - As Amended April 11, 2016


          SUBJECT:  Critical access hospitals:  employment.


          SUMMARY:  Authorizes, until January 1, 2024, a federally  
          certified critical access hospital (CAH) to employ physicians  
          and charge for professional services, notwithstanding the  
          prohibition of the "Corporate Practice of Medicine" (CPM).   
          Specifies that the CAH must not interfere with, control or  
          otherwise direct the professional judgement of a physician, and  
          that on or before July 1, 2023, the Legislative Analyst will  
          provide a report to the Legislature containing data about the  
          impact of CAH's employing physicians.   


          EXISTING LAW:  


          1)Prohibits corporations and other artificial legal entities  
            from having any professional rights, privileges, or powers  
            (known as the "prohibition against CPM,") and further provides  
            that the Medical Board of California (MBC) may, pursuant to  
            regulations, grant approval for the employment of physicians  
            on a salaried basis by a licensed charitable institution,  
            foundation, or clinic if no charge for professional services  
            rendered to patients is made by that institution, foundation,  
            or clinic.








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          2)Exempts medical or podiatry professional corporations  
            organized and practicing pursuant to the Moscone-Knox  
            Professional Corporations Act from the CPM prohibition,  
            providing that a majority of the owners or shareholders of the  
            corporation are licensed physicians or podiatrists,  
            respectively.


          3)Provides additional exceptions to the prohibition against CPM,  
            including:


             a)   Clinics operated primarily for the purpose of medical  
               education by a public or private nonprofit university  
               medical school, to charge for professional services  
               rendered to teaching patients by licensed physicians who  
               hold academic appointments on the faculty of the  
               university, if the charges are approved by the physician in  
               whose name the charges are made;


             b)   Certain nonprofit clinics organized and operated  
               exclusively for scientific and charitable purposes, that  
               have been conducting research since before 1982, and that  
               meet other specified requirements, to employ physicians and  
               charge for professional services.  Prohibits, however,  
               these clinics from interfering with, controlling, or  
               otherwise directing a physician's professional judgment in  
               a manner prohibited by the CPM prohibition or any other  
               provision of law;


             c)   A narcotic treatment program regulated by the Department  
               of Alcohol and Drug Programs to employ physicians and  
               charge for professional services rendered by those  
               physicians.  Prohibits, however, the narcotic clinic from  
               interfering with, controlling, or otherwise directing a  








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               physician's professional judgment in a manner that is  
               prohibited by the CPM prohibition or any other provision of  
               law; and,


             d)   A hospital that is owned and operated by a licensed  
               charitable organization that offers only pediatric  
               subspecialty care, as specified.


          4)Under the Knox-Keene Health Care Service Plan Act of 1975,  
            authorizes licensed health care service plans to employ or  
            contract with health care professionals, including physicians,  
            to deliver professional services, and requires health plans to  
            demonstrate that medical decisions are rendered by qualified  
            medical providers unhindered by fiscal and administrative  
            management.  Provides in regulation that the organization of a  
            health plan must include separation of medical services from  
            fiscal and administrative management.


          5)Permits, under the Medi-Cal program, hospitals that submit  
            claims for hospital inpatient psychiatric services under  
            contract with Medi-Cal managed care plans to receive  
            reimbursement on a per diem basis for an array of services,  
            including a mental health professional's daily visit fee.


          6)Authorizes until January 1, 2011, a pilot project to allow  
            qualified district hospitals, as defined, to employ a  
            physician, if the hospital did not interfere with, control, or  
            otherwise direct the professional judgment of the physician.   
            To qualify for the project, a district hospital must have:   
            been in a county with population of 750,000 or less; have  
            reported net losses in 2000-01; and, have had at least 50% of  
            combined patient days from Medicare, Medi-Cal, and uninsured  
            patients.










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          FISCAL EFFECT:  None.


          COMMENTS:  


          1)PURPOSE OF THIS BILL.  The author states that as a health care  
            provider he is sympathetic to the concerns about interference  
            with the clinical judgment of any health care provider but,  
            unfortunately, the CPM ban no longer provides the protections  
            it was originally intended to provide.  The author notes the  
            number of exceptions allowed, combined with the growth of  
            medical groups, independent practice associations and medical  
            foundations, all represent the larger medical community's  
            response to pressures within the delivery system to reduce  
            costs, improve patient outcomes and increase access.  The  
            author continues, to maintain that the CPM ban protects a  
            physician's professional judgment and autonomy is naïve and  
            does not take into consideration the variety of pressures that  
            are inherent in our health care delivery system regardless of  
            practice structure.  The author states, protecting a  
            clinician's professional judgment is critical and something  
            that we should fight to preserve but the CPM doctrine may no  
            longer be the best way to assure this protection and other  
            alternatives should be explored:  the private practice of  
            medicine is a valuable component in our communities and should  
            be preserved but preserving it to the exclusion of other modes  
            of practice seems shortsighted.   If younger physicians are  
            comfortable in an employment setting, we should not limit that  
            option, because in limiting practice options, we may also be  
            inadvertently limiting access in our rural communities just  
            due to the basic economics of what is required to maintain a  
            private practice.   The author concludes, it may not work for  
            all of them but at this point, if it helps just a couple of  
            hospitals remain open he believes that qualifies as a success  
            story.











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          2)BACKGROUND.  


             a)   CPM.  The prohibition against CPM has historically  
               prevented a corporation from practicing medicine, which  
               includes the employment of physicians.   California's ban  
               on CPM was well established by 1928, but the clearest  
               policy rationale was not established until 1932.  That  
               year, the state Supreme Court heard the case of Painless  
               Parker.  Born Edgar Randolph Parker, he was a licensed  
               dentist and consummate marketer who had legally changed his  
               first name to "Painless."  His dental corporation hired  
               dentists and opened practices across the United States and  
               Canada.  In considering Parker's commercial dental  
               enterprise, the court argued that "the underlying theory  
               upon which the whole system of dental is framed is that the  
               state's licensee shall possess consciousness, learning,  
               skill and good moral character, all of which are individual  
               characteristics, and none of which is an attribute of an  
               artificial entity." Over 65 years later, another court put  
               it even more clearly:  "The rationale behind the doctrine  
               is that a corporation cannot be licensed to practice  
               medicine because only a human being can sustain the  
               education, training, and character-screening which are  
               prerequisites to receiving a professional license."

             b)   California Research Bureau (CRB) reports.  In 2007, the  
               CRB published a report examining the status of the ban on  
               the CPM, and it argued that exemptions had created a  
               doctrine whose "power and meaning are now inconsistent."   
               The CRB also raised the idea that the many exemptions to  
               the ban may "signal a change in public opinion." The CRB  
               report notes that although the CPM doctrine is generally  
               not believed to be extremely detrimental, its present  
               utility seems limited, as the evolution and erosion of the  
               CPM prohibition over many decades has resulted in a  
               doctrine that is far removed from its origin and lacks  
               coherence and relevance in today's health care landscape.   








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               Because the policy concerns that the CPM prohibition was  
               meant to address are still important and have been raised  
               in other contexts, California's statutes and regulations  
               now address these concerns more directly.  The existence of  
               these more focused safeguards, and the ability to enact  
               others if needed, raise the question of whether maintaining  
               the CPM doctrine still makes sense.



             As a result of these findings, the 2007 CRB report provided  
               several policy options for the legislature to consider.   
               These focused on clarifying which organizations were exempt  
               and also on increasing the number of exemptions.  The  
               report also included an option to eliminate the ban  
               entirely, provided some employment safeguards were in  
               place. 

             On April 12, 2016 the CRB released a new report, "The  
               Corporate Practice of Medicine in a Changing Healthcare  
               Environment," which reviews the current status of the ban  
               in California and key policy issues associated with it, one  
               of them being the effect of the ban on rural areas.

             As the 2016 CRB report notes, attempting to address the rural  
               healthcare gap, Senate Bill 376 (Chesbro) Chapter 411,  
               Statutes of 2003, established a pilot project to allow  
               qualified hospital districts to directly employ physicians.  
               The pilot allowed each hospital district to hire two  
               physicians, for a total of 20 physicians throughout the  
               state.  To qualify for the pilot project, a hospital  
               district was required to have:

               i)     Been in a county with population of 750,000 or less;
               ii)    Reported net losses in 2000-01; and,


               iii)   Had at least 50% of combined patient days from  
                 Medicare, Medi-Cal, and uninsured patients.








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               SB 376 was sponsored by the Association of California  
               Healthcare Districts, which argued that authorizing the  
               employment of physicians could improve the ability of  
               district hospitals to attract the physicians required to  
               meet the needs of the communities and ensure the continued  
               survival of district hospitals.  Proponents hoped direct  
               employment would provide the kind of economic security that  
               might encourage physicians to choose a rural community,  
               just as the State of California is able to offer when it  
               directly hires physicians and staffs its rural prisons.



               During the pilot project, five participating hospital  
               districts recruited and hired six physicians, whose  
               employment contract periods ran three to four years.  The  
               MBC sent letters to participating physicians, participating  
               administrators, and also administrators in nonparticipating  
               hospital districts to get their views on the project.  All  
               six participating physicians were positive about the  
               employment experience.  Responding administrators  
               acknowledged it would have been more difficult to recruit  
               the physicians without the employment opportunity, and  
               expressed support of the project.  Responding  
               nonparticipating administrators also generally supported  
               the project as a means of recruiting physicians into rural  
               areas.  The MBC, in its assessment, stated there was not  
               enough evidence to draw conclusions about the effectiveness  
               of the program, but believed there might be justification  
               to extend the pilot so a comprehensive analysis could be  
               made.  The MBC also noted that, "[f]rom the responses  
               received to the Board's queries about the pilot, there  
               seems to be a universal belief that many physicians  
               hesitate settling in California, especially rural areas of  
               the state, because of the disincentive created by the laws  
               governing the corporate practice of medicine - most  








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               physicians in California work as contractors, not  
               employees.  Hospital administrators view the prohibition of  
               the corporate practice of medicine as complicating their  
               ability to ensure adequate staffing."  Though legislators  
               initiated a number of bills to continue the pilot project  
               or allow hospital districts to employ physicians, none  
               became law and the pilot expired on January 1, 2011. 

               The CRB's 2016 report notes that limited data makes it more  
               difficult to assess how the CPM ban affects California's  
               doctors because the state does not collect the specific  
               numbers of doctors that are employed directly by nonprofit  
               clinics, teaching hospitals, state governments, and some  
               county governments and pediatric hospitals.  The CRB could  
               not find data for some county governments or pediatric  
               hospitals and could not find any reliable data for  
               professional medical corporations or medical foundations.   
               CRB concludes that without a full understanding of how many  
               physicians in the state are employed through an exemption,  
               it is difficult to know whether the exemptions are, as the  
               original CRB report argued, so broad as to dilute the  
               meaning of the ban.

               The CRB's 2007 report notes that the Legislature has  
               clearly and repeatedly stated its intent that physicians,  
               and not corporations, be responsible for patient care  
               decisions. However, the report also argued that the  
               fragmented manner in which California had extended the ban  
               resulted in a doctrine whose "power and meaning are now  
               inconsistent." It also considered the idea that the many  
               exemptions to the ban may have signaled a change in public  
               opinion.  
             c)   Other states.  As noted in the most recent CRB report,  
               there is considerable variation in how states approach the  
               ban with regard to the employment of physicians.  Nearly  
               all states allow for some type of employment of physicians  
               by certain specified government, nonprofit or corporate  
               entities.  The one similarity across all states is that  
               each allows physician employment by professional  








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               corporations or similar entities as long as physicians own  
               the corporation.  However, unlike California:

               i)     Twenty-eight states (55%) allow hospitals to employ  
                 physicians;
               ii)    Thirty states (59%) allow physicians to operate a  
                 medical practice as a limited liability company; and,


               iii)   Nine states (17%) allow physicians to operate a  
                 medical practice as a limited liability partnership.



               Three of the five states noted in the CRBs original report  
               as maintaining the most robust laws and enforcement,  
               California, Colorado, and Iowa, continue to do so.  In the  
               other two states, Ohio and Texas, state legislatures have  
               made changes to the ban:  Ohio's corporate practice of  
               medicine ban now "appears to be all but extinct," and Texas  
               modified its ban in 2011 to allow direct employment.



             d)   Physician shortage.  The Council on Graduate Medical  
               Education (CGME) estimates that the number of primary care  
               physicians actively practicing in California is far below  
               the state's need.  In 2008, there were 69,460 actively  
               practicing primary care physicians in California, of which  
               only 35% reported they actually practiced primary care.   
               This equates to 63 active primary care physicians per  
               100,000 persons.  However, according to the CGME, up to 80  
               primary care physicians are needed per 100,000 persons in  
               order to adequately meet the needs of the population.  When  
               the same metric is applied regionally, only 16 of  
               California's 58 counties fall within the needed supply  
               range for primary care physicians.  In other words, less  
               than one third of Californians live in a community where  
               they have access to adequate health care services. 








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               In the 2015 Merritt Hawkins Survey of Final-Year Medical  
               Residents, participants identified geographic location,  
               personal time and lifestyle as their most important  
               considerations when evaluating a medical practice  
               opportunity.  The great majority of residents (92%) would  
               prefer employment with a salary in their first practice  
               rather than an independent practice income guarantee or  
               loan, and 93% would prefer to practice in communities of  
               50,000 people or more.  Only 3% would prefer to practice in  
               communities of 25,000 or less.



             e)   CAHs.  This bill authorizes CAHs to employ physicians  
               and surgeons.  The CAH program was created by Congress in  
               1997 in response to numerous rural hospitals closing across  
               the nation in the 1980s and 1990s.  It is a designation  
               provided by the Centers for Medicare and Medicaid Services  
               to ensure that individuals in isolated areas have access to  
               health care services.  The Medicare Rural Hospital  
               Flexibility Program helps to reduce CAHs financial burdens  
               through a cost-based Medicare reimbursement for services  
               rendered.  The primary eligibility requirements for CAHs  
               are as follows: 

               i)     A CAH must have 25 or fewer acute care inpatient  
                 beds;
               ii)    It must be located more than 35 miles from another  
                 hospital (or 15 miles across secondary roads to account  
                 for difficult terrain such as mountains, rivers or snow);


               iii)   It must maintain an annual average length of stay of  
                 96 hours or less for acute care patients; and, 


               iv)    It must provide 24/7 emergency care services.









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          3)SUPPORT.  Health Access California (HAC) supports this bill  
            and states California is one of a handful of states that has  
            law banning CPM.  HAC notes that existing state law allows  
            teaching hospitals and public hospitals to employ physicians,  
            but does not have and exceptions specific to rural hospitals.   
            HAC concludes that this bill will help attract doctors to  
            medically underserved areas of the state by allowing hospitals  
            to attract, hire, and retain them.  The Rural County  
            Representatives of California (RCRC) note that rural  
            communities throughout California suffer from a shortage of  
            physicians, and these shortages have serious implication to  
            public health, access to care, and threaten the operational  
            stability of medical facilities in rural and underserved  
            areas.  RCRC concludes that they support the ability for  
            hospitals to directly hire physicians, as step which will  
            greatly improve and increase access to quality health care  
            services in rural and underserved areas.



          The California Hospital Association (CHA) states that CAHs are  
            the smallest, most remote rural hospitals and they face myriad  
            challenges due to their inability to effectively recruit and  
            retain physicians.  CHA notes that all states allow employment  
            of physicians, subject to certain conditions, however  
            California continues to be the most restrictive state for  
            employment of physicians by hospitals.  CHA concludes that to  
            remain competitive in an already challenging environment, CAHs  
            should have the opportunity to offer physicians economic  
            security and financial stability through employment, thereby  
            ensuring that rural residents have access to medically  
            necessary services.
          4)PREVIOUS LEGISLATION.  


             a)   SB 1274 (Wolk) Chapter 793, Statutes of 2012, permits a  
               hospital that is owned and operated by a charitable  








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               organization and offers only pediatric subspecialty care to  
               begin billing health carriers for physician services  
               rendered, notwithstanding the prohibition in the CPM if  
               specified conditions are met. 

             b)   AB 824 (Chesbro) of 2012 would have established a pilot  
               project to permit certain rural hospitals to directly  
               employ physicians and surgeons.  AB 824 died in the  
               Assembly Committee on Health.



             c)   AB 648 (Swanson) of 2010 would have established a  
               demonstration project to permit rural hospitals, as  
               defined, whose service area includes a medically  
               underserved or federally designated shortage area and which  
               meet certain specified requirements, to directly employ  
               physicians and surgeons, and required a report to be  
                                                        completed by MBC regarding the project and submitted to the  
               Legislature by June 1, 2019.  AB 648 failed passage in the  
               Senate Committee on Business, Professions and Economic  
               Development.



             d)   AB 646 (Swanson) of 2009 would have permitted health  
               care districts and certain public hospitals, independent  
               community nonprofit hospitals, and clinics, as specified,  
               to directly employ physicians and surgeons.  AB 646 failed  
               passage in the Senate Committee on Business, Professions  
               and Economic Development.



             e)   SB 726 (Ashburn) of 2009 would have revised and extended  
               the MBC pilot project that allows qualified district  
               hospitals, as defined, to employ a physician, if the  
               hospital does not interfere with, control, or otherwise  
               direct the professional judgment of the physician. SB 726  








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               failed passage in the Senate Committee on Business,  
               Professions and Economic Development.



             f)   AB 1944 (Swanson) of 2008 would have allowed health care  
               districts to employ a physician.  AB 1944 died in the  
               Senate Committee on Health. 



             g)   SB 1294 (Ducheny) of 2008 would have expanded the pilot  
               project enabling health care districts to directly employ  
               physicians.  SB 1294 failed passage in the Assembly  
               Appropriations Committee. 



             h)   SB 1640 (Ashburn) of 2008 would have expanded the pilot  
               project to enable general acute care hospitals to directly  
               employ physicians.  SB 1640 failed passage in the Assembly  
               Committee on Business and Professions. 



             i)   SB 376 (Chesbro), Chapter 411, Statutes of 2003,  
               authorized, until January 1, 2011, a hospital owned and  
               operated by a health care district meeting specified  
               criteria to employ a physician, and to charge for  
               professional services rendered by the physician if the  
               physician approves the charges.


          5)DOUBLE REFERRAL.  This bill has been double referred.  It  
            passed the Assembly Committee on Business and Professions with  
            a vote of 15-0 on April 5, 2016. 


          REGISTERED SUPPORT / OPPOSITION:








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          Support


          Banner Lassen Medical Center
          California Hospital Association
          Catalina Island Medical Center
          Fairchild Medical Center
          Healdsburg District Hospital
          Health Access California
          Rural County Representatives of California
          Jerold Phelps Community Hospital
          Last Frontier Healthcare District Modoc Medical Center
          Mayers Memorial Hospital District
          Plumas District Hospital
          San Bernardino Mountains Community Hospital
          Santa Ynez  Valley Cottage Hospital
          St. Helena Hospital Clear Lake
          Sutter Health
          Trinity Hospital


          Opposition


          None on file.


          Analysis Prepared by:Lara Flynn / HEALTH / (916) 319-2097


          












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