BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON
          BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
                              Senator Jerry Hill, Chair
                                2015 - 2016  Regular 

          Bill No:            AB 2024         Hearing Date:    June 6,  
          2016
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          |Author:   |Wood                                                  |
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          |Version:  |May 23, 2016                                          |
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          |Urgency:  |No                     |Fiscal:    |Yes              |
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          |Consultant|Sarah Mason                                           |
          |:         |                                                      |
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                  Subject:  Critical access hospitals:  employment


          SUMMARY:  Authorizes a federally certified critical access hospital  
          (CAH) to employ physicians and charge for their services until  
          2024 and requires the Medical Board of California (MBC) to  
          provide a report to the Legislature on the impact of authorizing  
          CAHs to employ physicians.   

          Existing law:
          
          1)Provides for the licensure and regulation of physicians  
            and surgeons by the MBC pursuant to the Medical Practice  
            Act (Act). (Business and Professions Code (BPC) § 2000 et  
            seq.)

          2)States that corporations and other artificial legal entities  
            shall have no professional rights, privileges, or powers.   
            Provides that the MBC may in its discretion, and under  
            regulations adopted by it, grant approval of the employment of  
            licensees on a salary basis by licensed charitable  
            institutions, foundations, or clinics, if no charge for  
            professional services rendered patients is made by any such  
            institution, foundation, or clinic.  (BPC § 2400)
          3)Establishes exceptions to the ban on the corporate practice of  
            medicine (CPM), thereby allowing certain types of facilities  
            to employ physicians, including:









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             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  
               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.  (BPC § 2401)


          4)Establishes the following protections against retaliation for  
            health care practitioners who advocate for appropriate health  
            care for their patients pursuant to Wickline v. State of  
            California (192 Cal. App. 3d 1630):
             a)   It is the public policy of the State of California that  
               a health care practitioner be encouraged to advocate for  
               appropriate health care for his or her patients.  For  
               purposes of this section, "to advocate for appropriate  
               health care" means to appeal a payer's decision to deny  








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               payment for a service pursuant to the reasonable grievance  
               or appeal procedure established by a medical group,  
               independent practice association, preferred provider  
               organization, foundation, hospital medical staff and  
               governing body, or payer, or to protest a decision, policy,  
               or practice that the health care practitioner, consistent  
               with that degree of learning and skill ordinarily possessed  
               by reputable health care practitioners with the same  
               license or certification and practicing according to the  
               applicable legal standard of care, reasonably believes  
               impairs the health care practitioner's ability to provide  
               appropriate health care to his or her patients.
             b)   The application and rendering by any individual,  
               partnership, corporation, or other organization of a  
               decision to terminate an employment or other contractual  
               relationship with or otherwise penalize a health care  
               practitioner principally for advocating for appropriate  
               health care consistent with that degree of learning and  
               skill ordinarily possessed by reputable health care  
               practitioners with the same license or certification and  
               practicing according to the applicable legal standard of  
               care violates the public policy of this state.


             c)   This law shall not be construed to prohibit a payer from  
               making a determination not to pay for a particular medical  
               treatment or service, or the services of a type of health  
               care practitioner, or to prohibit a medical group,  
               independent practice association, preferred provider  
               organization, foundation, hospital medical staff, hospital  
               governing body, or payer from enforcing reasonable peer  
               review or utilization review protocols or determining  
               whether a health care practitioner has complied with those  
               protocols.  (BPC § 510)


          5)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  








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            fiscal and administrative management.  (Health and Safety Code  
            §§ 1340 et seq.)


          

          This bill:

          1) Until 2024, authorizes a federally certified critical access  
             hospital (CAH) to employ physicians and charge for  
             professional services rendered by those licensees if the  
             medical staff concur by an affirmative vote that the  
             physician's employment is in the best interest of the  
             communities served by the hospital and the hospital does not  
             interfere with, control, or otherwise direct the physician's  
             professional judgment.

          2) Requires MBC, on or before July 1, 2023, to provide a report  
             to the Legislature containing data about the impact of  
             employing physicians on CAHs and their ability to recruit and  
             retain physicians.


          FISCAL  
          EFFECT:  Unknown.  This bill is keyed "fiscal" by Legislative  
          Counsel. 

          
          COMMENTS:
          
          1. Purpose.  The  Author  is the  Sponsor  of this bill.  According  
             to the Author, in April 2016, the California Research Bureau  
             (CRB) published a report "The Corporate Practice of Medicine  
             in a Changing Healthcare Environment" which raised questions  
             as to whether the existing exemptions are already so broad  
             that the original intent of the ban, to assure clinical  
             decisions remain independent, has been seriously diluted.   
             The Author notes that the report reviewed key policy issues  
             associated with the ban including the impact on rural access.  
              According to the Author, the report noted the need for  
             additional data to assess how the CPM ban affects physicians  
             and access, and the Author notes that this bill can provide  
             that additional data.









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             According to the Author, the shortage of physicians is well  
             documented and notes that in 2008, the Council on Graduate  
             Medical Education (CGME) estimated there were 63 primary care  
             physicians per 100,000 persons.  By CGME estimates, up to 80  
             primary physicians are needed per 100,000 people.   Using the  
             CGME metric, only 16 California counties fall within the  
             needed supply range meaning less than one third of  
             Californians live in a county with adequate health access.   
             Strategies, such as increased funding for residency and loan  
             forgiveness programs, are being actively pursued to address  
             this crisis.  The Author notes that those funding strategies  
             provide hope for long term solutions but more can be done to  
             make rural communities and the hospitals located in them  
             inviting places to practice medicine. 

             According to the Author, CAHs are small (25 or less beds) and  
             located in remote, rural areas.   They suffer significant  
             challenges in recruiting and retaining physicians.  The  
             difficulty in attracting physicians has serious implications  
             for public health.   Maintaining these hospitals is necessary  
             for both the health of residents and the viability of the  
             community.  The Author states that allowing these hospitals  
             to employ physicians would provide physicians with the  
             economic security and financial stability that comes with  
             employment and assist in the ability to attract physicians.  

             The Author also notes that medical practice models have  
             changed over the years.   The private practitioner is now  
             just one option available to new physicians.   While medical  
             residents identify geographic location, personal time and  
             lifestyle as the most important considerations in evaluating  
             practice opportunities, 92 percent of residents prefer an  
             employment situation and the income guarantee it provides.    
             Younger physicians are comfortable with an employment setting  
             and extending those opportunities to hospitals in rural  
             California provides benefits to the physicians, hospitals and  
             communities. 
          
          2. Ban on the Corporate Practice of Medicine (CPM).  CPM is  
             usually referred to in the context of a prohibition, banning  
             hospitals from employing physicians.  The ban on CPM evolved  
             in the early 20th century when mining companies had to hire  
             physicians directly to provide care for their employees in  
             remote areas.  However, problems arose when physicians'  








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             loyalty to the mining companies conflicted with patients'  
             needs.  Eventually, physicians, courts, and legislatures  
             prohibited CPM in an effort to preserve physicians' autonomy  
             and improve patient care.     

             Over the years, various state and federal statutes have  
             weakened the CPM prohibition.  According to the 2007 CRB  
             report, "California's CPM doctrine has been defined largely  
             through lawsuits and Attorney General opinions over decades,  
             and then riddled by HMO and other legislation; its power and  
             meaning are now inconsistent?.  Although some non-profit  
             clinics may employ physicians, California applies the CPM  
             doctrine to most other entities....  Teaching hospitals may  
             employ physicians, but other hospitals, including most public  
             and non-profit hospitals, may not employ physicians.   
             Professional medical corporations are expressly permitted to  
             engage in the practice of medicine, and may employ  
             physicians.  [However, t]hese medical corporations may  
             operate on a for-profit basis, although the profit motive was  
             one of the original rationales of the CPM prohibition."  

             The 2016 CRB report notes that "since 2007, the provision of  
             healthcare has undergone changes in California.  The  
             Affordable Care Act is responsible for an increase in insured  
             patients across the state. In 2016-2017, 13.5 million  
             Californians are expected to have enrolled in Medi-Cal, up  
             from 7.9 million in 2012-2013, and 1.5 million people will be  
             enrolled in Covered California at the end of 2015-2016.  As a  
             result, more insured patients than ever are accessing  
             healthcare services without a commensurate increase in  
             healthcare practitioners."  The report suggested assessing  
             changing financial incentives; considering whether other  
             methods of protecting physician autonomy are sufficient;  
             increasing patient access to data about physician-hospital  
             relationships and hospital metrics; determining whether the  
             current alignment strategies used by physicians and hospitals  
             are more costly than direct employment models; and collecting  
             additional data to better understand the impact of CPM.

             California is one of only five remaining states that adhere  
             to some form of the ban. The American Medical Association  
             (AMA), historically the driving force behind the CPM  
             prohibition, no longer views physician employment as a  
             violation of medical ethics and has removed the doctrine from  








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             its ethical code.  

          3. Health Care Access and the Changing Healthcare Employment  
             Landscape. California currently has a physician shortage.  As  
             the 2016 CRB report notes, "AMA figures show that, on  
             average, California has 80 primary care physicians and 138  
             specialty physicians per 100,000 residents.  This is in the  
             upper range for primary care physicians (60-80) and above the  
             range for specialty care physicians (85-105) recommended by  
             the Department of Health and Human Services.  However, when  
             disaggregated by region, there is a coverage disparity.   
             California's rural regions have lower numbers of physicians  
             than its urban areas.  For instance, the San Joaquin Valley  
             has only 45 primary care physicians and 74 specialty  
             physicians per 100,000 residents, compared with the Bay  
             Area's 78 primary care physicians and 155 specialists per  
             100,000 residents. The number of healthcare providers,  
             including primary care physicians, in California is not  
             anticipated to dramatically increase soon."

             The nationwide trend in healthcare is toward direct  
             employment.  According to a 2011 survey from the consulting  
             firm Accenture:

               "U.S. physicians continue to sell their private practices  
               and seek employment with healthcare systems, according to a  
               new survey from Accenture.  As physicians migrate from  
               private practice to larger health systems, the new  
               landscape will require healthcare information technology  
               (IT), medical device manufacturers, pharmaceutical  
               companies and payers to revise their business models and  
               offerings.  At the same time, hospitals will need to  
               determine how to retain and recruit the correct mix of  
               physicians, especially in high-growth service lines,  
               including cardiovascular care, orthopedics, cancer care and  
               radiology.  Patients will increasingly move to large health  
               systems, as opposed to the current trend of visiting  
               doctors in private, small practice settings.

               "'Health reform is challenging the entire system to deliver  
               improved care through insight driven health,' said Kristin  
               Ficery, senior executive, Accenture Health.  'We see an  
               increasing number of physicians leaving private practice to  
               join hospital systems, which will force all stakeholders to  








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               revise and refine their business models, product offerings  
               and service strategies.'"  

             Benefits to employment include:  

                       Relief from administrative responsibilities,  
                  especially those relating to insurance billing.

                       Malpractice insurance. 

                       Greater access and support for healthcare IT  
                  tools, facilities, and medical equipment.

                       A predictable work week.

                       Economic stability. 

          4. SB 376 Pilot Program.  In 2003, the Legislature established a  
             pilot project to allow qualified hospital districts to  
             directly employ physicians (SB 376, Chesbro, Chapter 411,  
             Statutes of 2003).  As the 2016 CRB report notes, hospital  
             districts were established in California in 1945 in an  
             attempt to give rural, low income areas without ready access  
             to hospital facilities a source of tax dollars that could be  
             used to construct and operate community hospitals and  
             healthcare institutions, and, in medically underserved areas,  
             to recruit physicians and support their practices.  
          SB 376 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  
             meet certain criteria, including population numbers and  
             numbers of uninsured patients.  During the pilot project,  
             five participating hospital districts recruited and hired six  
             physicians, whose employment contract periods ran three to  
             four years.  

             SB 376 required MBC to report to the Legislature on the  
             evaluation of the effectiveness of the pilot project in  
             improving access to health care in rural and medically  
             underserved areas and the project's impact on consumer  
             protection as it relates to intrusions into the practice of  
             medicine.  In the report, MBC estimated that a total of 20  
             physician participants were needed to conduct a valid  
             analysis of the project.  Only six physicians were hired by  








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             eligible hospitals.  Further, MBC had difficulty gathering  
             information from the participants on the success of the plan.  
              Only three of the five participating hospitals and five of  
             the six participating doctors responded to MBC's inquires.   
             MBC stated that it regrets the lack of participation in the  
             project.

             According to the report, MBC held discussions with numerous  
             interested parties, even beyond those participating in the  
             project and found widespread concern over the lack of  
             physicians in rural areas.  MBC stated that due to the  
             "limited extent" of participation, it was unable to fully  
             evaluate the project.  In the report, MBC stated that it does  
             not support the complete removal of the limitations on the  
             corporate practice of medicine, but concluded that there may  
             be justification to continue the project.  MBC stated that it  
             might be appropriate to expand the pilot project to allow  
             more hospitals to participate; but until more information is  
             available it does not recommend amending the statues that  
             govern the corporate practice of medicine.

          5. Arguments in Support.  Supporters note how difficult it is  
             for hospitals to recruit and retain physicians to practice in  
             rural and underserved areas and write that the ability to  
             hire physicians as this bill allows will directly improve and  
             increase access to quality health care services and the  
             health of the communities rural hospitals serve.  Supporters  
             note that CAHs are the smallest, most remote rural hospitals  
             in the state and face numerous challenges in being able to  
             hire the physicians who would actually like to be hired.   
             Supporters write that California continues to be the most  
             restrictive state for employment of physicians by hospitals  
             and 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.

          6. Prior Related Legislation.   AB 824  (Chesbro, 2011) was  
             similar to bill language in AB 648 of 2009 below which would  
             have extended the pilot project to January 1, 2022.  (  Status:   
              This bill failed passage in the Assembly Committee on  
             Health.)









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              AB 926  (Hayashi, 2011) would have reenacted SB 376 pilot  
             project but would have allowed all qualified district  
             hospitals to employ not more than 50 physicians and surgeons  
             until January 1, 2022.  (  Status:   This bill failed passage in  
             the Assembly Committee on Business, Professions and Consumer  
             Protection.)

              AB 1360  (Swanson, 2011) would have authorized a new pilot  
             project that allowed a healthcare district and a clinic owned  
             or operated by a healthcare district to employ physicians and  
             surgeons if the service area included a medically underserved  
             area or a medically underserved population or had been  
             federally designated as a health professional shortage area.   
             The bill would have provided that a district could extend any  
             employee contracts up to 10 years and would have required a  
             study of the program's effectiveness and a sunset date of  
             January 1, 2022.  (  Status:   This bill failed passage in the  
             Assembly Committee on Health.)

              SB 726  (Ashburn, 2009) would have extended the SB 376 pilot  
             project to 2018 and would have revised the pilot to authorize  
             the direct employment by qualified healthcare districts and  
             qualified rural hospitals of an unlimited number of  
             physicians and surgeons, and authorized such hospitals to  
                                                                     employ up to five physicians and surgeons at a time with a  
             term of contract not to exceed 10 years.  (  Status:   This bill  
             failed passage in the Senate Committee on Business,  
             Professions and Economic Development.)

              AB 646  (Swanson, 2009) was almost identical to AB 1360.   
             (  Status:   This bill failed passage in the Senate Committee on  
             Business, Professions and Economic Development.)
             
             AB 648  (Chesbro, 2009) would have established a new pilot  
             project that extended the scope of the first pilot and would  
             have authorized a rural hospital to employ up to 10  
             physicians and surgeons at one time and to retain all or part  
             of the income generated for medical services billed and  
             collected, provided the physician and surgeon in whose name  
             the charges are made approved the charges. The bill would  
             have required a rural hospital to develop and implement a  
             policy regarding the independent medical judgment of the  
             physician and surgeon. This pilot would have expired January  
             1, 2020.  (  Status:   This bill failed passage in the Senate  








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             Committee on Business, Professions and Economic Development.)

              SB 1294  (Ducheny, 2008) would have extended the SB 376 pilot  
             project to January 1, 2017 and would have allowed district  
             hospitals to hire an unlimited number of physicians and  
             surgeons, subject to board approval. It would also have  
             changed the definition of a qualified district hospital to a  
             hospital that, among other things, is located in a medically  
             underserved area or a rural hospital that had net losses in  
             the most recent fiscal year.  (  Status:   This bill failed  
             passage in the Assembly Appropriations Committee.)

              SB 1640  (Ashburn, 2008) would have extended the SB 376 pilot  
             project to January 1, 2016 and revised it to authorize  
             "general acute care hospitals" in rural or underserved areas,  
             to employ an unlimited number of physicians and surgeons and  
             to charge for professional services rendered by those  
             physicians.  (  Status:   This bill failed passage in the Senate  
             Committee on Business, Professions and Economic Development.)
             
             AB 1944  (Swanson, 2008) would have eliminated the SB 376  
             pilot project and instead would have permanently authorized  
             healthcare districts to employ physicians to primarily treat  
             Medi-Cal patients and bill for the physicians' services with  
             their approval.  It would have prohibited the hospital from  
             interfering with the professional judgment of physicians and  
             surgeons.  (  Status:   This bill failed passage in the Senate  
             Health Committee.)
          
          7. Who Should Report to the Legislature?  This bill proposes to  
             have MBC report on the impact of CAHs employing physicians.   
             As noted above, MBC was required to provide a report to the  
             Legislature under SB 376 and the same requirement for MBC was  
             contained in legislation seeking to extend the pilot project,  
             as well as legislation to extend and expand the pilot.   
             Throughout those discussions, this Committee has been  
             concerned about the role of MBC in making determinations  
             about the unmet medical needs of communities and weighing in  
             on the impacts of lifting CPM on health care access.  MBC is  
             primarily a licensing agency and an  enforcement agency, with  
             the primary mission to protect consumers and patients and to  
             take necessary licensing actions against physicians and  
             surgeons for violation(s) of the Medical Practices Act.  









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             The role of making determinations about the unmet medical  
             needs of communities in California and to what extent  
             additional physicians and surgeons are needed in these  
             communities would seem more appropriate for an agency such as  
             the Office of Statewide Health Planning and Development  
             (OSHPD).  
             
             The Author may wish to consider amending the measure in the  
             next committee to make this change.
          

           NOTE  :  Double-referral to Senate Committee on Health.
          
          SUPPORT AND OPPOSITION:
          
           Support:  

          Adventist Health
          Alliance of Catholic Health Care
          Association of California Healthcare Districts
          Banner Lassen Medical Center
          California Hospital Association
          California Special Districts Association
          Catalina Island Medical Center
          Eastern Plumas Health Care
          Fairchild Medical Center
          Glenn Medical Center
          Health Access California
          Jerold Phelps Community Hospital
          Kern Valley Healthcare District
          Loma Linda University Health
          Mayers Memorial Hospital District
          Mendocino Coast District Hospital
          Modoc Medical Center
          Northern Inyo Healthcare District
          Rural County Representatives of California
          San Bernardino Mountains Community Hospital
          Santa Ynez Valley Cottage Hospital
          Sutter Lakeside Hospital
          Tehachapi Valley Healthcare District
          Trinity Hospital

           Opposition:  









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          None on file as of June 1, 2016.

                                      -- END --