BILL ANALYSIS                                                                                                                                                                                                    Ó



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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          2024 (Wood)


          As Amended  August 15, 2016


          Majority vote


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          Original Committee Reference:  B. & P.


          SUMMARY:  Permits a federally certified critical access hospital  
          (CAH) to employ physicians and charge for professional services  
          rendered by those physicians.


          The Senate amendments:


          1)Require, on and after July 1, 2017, a federally certified  
            critical access hospital that is employing licensees and  
            charging for professional services to submit to the Office of  
            Statewide Health Planning and Development (office), on or  
            before July 1 of each year, a report for any year in which  
            that hospital has employed or is employing licensees and  
            charging for professional services rendered by those licensees  
            to patients. 










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          2)Specify that the report shall include data elements as  
            required by the office and shall be submitted in a format as  
            required by the office. 


          3)Further specify that the requirement for submitting the report  
            noted in 1) above, is inoperative on July 1, 2023.


          4)Require, on or before July 1, 2023, the office to provide a  
            report to the Legislature containing data about the impact of  
            employing licensees and charging professional services on  
            federally certified critical access hospitals, and their  
            ability to recruit and retain physicians and surgeons between  
            January 1, 2017, and January 1, 2023. 


          5)Further specify that the requirement for submitting the report  
            noted in 4) above, is inoperative on July 1, 2027.


          EXISTING LAW:  


          1)Provides for the licensure and regulation of physicians and  
            surgeons by the Medical Board of California (MBC). 
          2)Prohibits corporations and other artificial legal entities  
            from having any professional rights, privileges, or powers  
            (known as the "prohibition against the corporate practice of  
            medicine" (CPM)), and further provides that the Division of  
            Licensing of MBC may, pursuant to regulations MBC has adopted,  
            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. 


          3)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,  








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            respectively. 


          4)Provides certain 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, but prohibits 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;


             d)   Under the Knox-Keene Health Care Service Plan Act of  
               1975 (Knox-Keene), 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; and,


             e)   In the Medi-Cal Program, permits hospitals that submit  








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               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.


          5)Defines a "small and rural hospital" as an acute care hospital  
            that is designated within specified peer groups based upon a  
            December 20, 1982 report, as specified; or that is designated  
            within other specified peer groups, has no more than 76 acute  
            care beds, and is located in an incorporated place or census  
            designated place of 15,000 or less population according to the  
            1980 federal census. 
          6)Permits hospitals designated as CAHs and certified by the  
            Secretary of the United States Department of Health and Human  
            Services under the federal Medicare rural hospital flexibility  
            program to be eligible for supplemental payments for covered  
            outpatient services rendered to Medi-Cal eligible persons.


          7)Provides that payments made pursuant to 4) above, are  
            contingent upon receipt of federal financial participation,  
            and are limited by the appropriation in the annual Budget Act  
            for the non- federal share of these payments.  Requires  
            supplemental payments to be apportioned among CAHs based upon  
            their number of Medi-Cal outpatient visits.


          8)Permits the Department of Health and Human Services to develop  
            criteria to waive any requirements for CAHs under the federal  
            Medicare Rural Hospital Flexibility Program, that are in  
            conflict with federal requirements, if the department finds  
            that it is in the public interest to do so, and the department  
            determines that the waiver would not negatively affect the  
            quality of patient care.  


          9)Specifies that a CAH is a general acute care hospital, and  
            every hospital designated by the department as a CAH, and  
            certified as such by the United States Department of Health  
            and Human Services, shall be deemed to be a general acute care  
            hospital, even if the department waives regulatory  








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            requirements otherwise applicable to general acute care  
            hospitals. 


          10)Indicates that each hospital designated by the department as  
            a CAH, and certified as such by the Secretary of the United  
            States Department of Health and Human Services under the  
            federal Medicare rural hospital flexibility program, shall be  
            eligible for supplemental payments for Medi-Cal covered  
            outpatient services rendered to Medi-Cal eligible persons.


          11)Specifies that payments made shall be contingent upon receipt  
            of federal financial participation, and shall be limited by  
            the appropriation in the annual Budget Act for the nonfederal  
            share of these payments.  Supplemental payments shall be  
            apportioned among CAHs based upon their number of Medi-Cal  
            outpatient visits.


          FISCAL EFFECT:  According to the Senate Committee on  
          Appropriations, this bill will result in:


          1)Potential one-time costs of $70,000 to develop information  
            technology systems to collect specified data from  
            participating hospitals by the office.
          2)Potential ongoing costs of $130,000 per year to develop data  
            standards for reporting by participating hospitals, collect  
            and review data submitted by participating hospitals, and  
            eventually develop the required report.


          COMMENTS:  


          Physician Shortage.  Estimates obtained from the Council on  
          Graduate Medical Education (CGME) indicate that the number of  
          primary care physicians actively practicing in California is far  
          below the state's need.  The distribution of these primary care  
          physicians is also poor.  In 2008, there were 69,460 actively  
          practicing primary care physicians in California, of which only  








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          35 percent 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. 


          When rural communities are examined, there is a significant  
          shortage of physicians.  Rural hospitals experience difficulty  
          in recruiting and retaining physicians.  Factors influencing  
          this include a lack of benefits and retirement as a result of  
          working as an independent contractor.  Similarly, results of a  
          2015 survey of medical residents indicate that 92% of  
          respondents would prefer employment with a salary versus working  
          as an independent practitioner (Merritt Hawkins, Survey of  
          Final-Year Medical Residents, 2015). 


          Critical Access Hospitals.  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: 


          1)A CAH must have 25 or fewer acute care inpatient beds. 
          2)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). 










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          3)It must maintain an annual average length of stay of 96 hours  
            or less for acute care patients. 


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


          CAH Mileage Exemption.  The CAH requirements also included a  
          provision allowing states to waive the minimum of 35 miles  
          distance requirement and designate small hospitals considered  
          "necessary providers" as CAHs.  This permitted states to provide  
          small, struggling facilities with federal funding.  The  
          exemption provision was utilized widely, and more than 1,300, or  
          nearly one in four acute care hospitals, had been designated as  
          CAHs by 2006.  In 2006, Congress eliminated the exception, and  
          those hospitals that had already been designated as CAHs under  
          the exemption were grandfathered.  (Kaiser Health News, When  
          Critical Access Hospitals Are Not So Critical, 2011).  In  
          California, there are 34 CAHs.  Of those, three have received an  
          exemption:  1) Redwood Memorial Hospital in Fortuna, CA, 2)  
          Healdsburg District Hospital in Healdsburg, CA and 3) Orchard  
          Hospital in Gridley, CA.


          The Ban on the Corporate Practice of Medicine (CPM).  The CPM is  
          defined as any involvement of corporations in medicine.  The CPM  
          may also be defined more narrowly, for example, as the  
          employment of a physician by a lay-controlled corporation that  
          sells the services of the physician for a profit or provides the  
          physician's services to its employees free of charge.  The CPM  
          now most commonly refers to the employment of physicians by  
          hospitals, but is also used to refer to employment of physicians  
          by for-profit and non-profit corporate entities and government  
          (see Business and Professions Code Section 2400).


          According to a report published by the California Research  
          Bureau, The Corporate Practice of Medicine Doctrine, 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'  
          loyalty to the mining companies conflicted with patients' needs.  








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           Eventually, physicians, courts, and legislatures prohibited CPM  
          in an effort to preserve physicians' autonomy and improve  
          patient care.  Currently, only five states:  1) California, 2)  
          Colorado, 3) Iowa, 4) Ohio and, 5) Texas, clearly prohibit  
          hospitals from employing physicians and in all five states,  
          certain types of hospitals and providers are exempt from the  
          ban.  


          Exemptions to the Ban on the CPM.  The following entities may  
          employ physicians: 


          1)A clinic operated primarily of the purpose of medical  
            education by a public or private nonprofit university medical  
            school.
          2)A clinic operated by a nonprofit corporation as an entity  
            organized and operated exclusively for scientific and  
            charitable purposes.


          3)A narcotic treatment program. 


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


          5)A health maintenance organization (HMO).


          The author indicates that due to the problems with recruiting  
          and retaining physicians to work in CAHs, CAHs should be  
          included as a group that is exempt from the ban on the CPM. 


          Analysis Prepared by:                                             
                          Le Ondra Clark Harvey Ph.D. / B. & P. / (916)  
                          319-3301                                 FN:  
          0004943









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