BILL ANALYSIS THIRD READING AB 919 Speier (D) 8/25/93 in Senate 21 73-3, p. 2518, 6/10/93 SUBJECT: Health care referrals SOURCE: Author ____________________________________________________________________________ DIGEST: This bill would enact the "Physician Ownership and Referral šAct of 1993" that generally would ban, with specified exceptions, patient šreferrals by physicians and other specified health care providers for šspecified types of medical services or goods at facilities in which the šphysician or health care provider has a "financial interest." ANALYSIS: Existing state law: 1. Provides for the licensure of physicians and surgeons by the Medical Board of California. 2. Prohibits, with certain exceptions, specified licensed health care š professionals, including physicians, from receiving compensation in any form for referring patients. 3. Does not prohibit, but permits, licensed health care professionals š including physicians to refer patients to any laboratory, pharmacy, clinic or health care facility when the professional has an ownership interest, so long as there is a medical need for the services/goods prescribed for the patient and so long as financial return on the investment therein is measured by the amount of the investment and not on the value of the referrals. 4. Makes it unlawful for health care licensees, including physicians, to š charge, bill or otherwise solicit payment from a patient on behalf of, or refer a patient to, a facility in which the licensee or the licensee's immediate family has a significant ownership interest unless there is a medical need and the licensee first discloses the interest in writing to the patient and advises the patient that he or she may choose any facility for the purpose of obtaining the services ordered or requested by the licensee. Existing federal law prohibits physicians who own, invest in, or have šcompensation arrangements with clinical laboratories from referring šMedicare patients to these facilities for lab tests; and also prohibits špayment or remuneration of any kind for, or to induce, patient referrals špayable under Medicare and Medicaid (federal "anti-kickback" provisions). šExcept for the banned ownership in clinical labs, the federal law šidentifies certain types of investment circumstances (e.g., ownership in a šlarge, publicly-traded company) that are considered to not be illegal (so- šcalled "safe harbors"). The bill would do all of the following, operative January 1, 1995, or the šoperative date of similar federal legislation: 1. Prohibit, notwithstanding any other provision of law, specified health care licensees, including a physician, psychologist, acupuncturist, optometrist, dentist, podiatrist or chiropractor, from referring a person for laboratory, diagnostic nuclear medicine, radiation oncology, physical therapy, physical rehabilitation, psychometric testing, home infusion therapy, or diagnostic imaging goods and services if the licensee or his or her immediate family has a "financial interest" with the person or in the entity that receives the referral. 2. Define various words or terms including: "diagnostic imaging," š "financial interest," "licensee," "licensee's office" and "office of a group practice." 3. Prohibit these health care licensees from entering into certain š arrangements or schemes, such as cross-referral arrangements, that have the purpose of ensuring indirect referral that would be prohibited if made directly by the licensee. 4. Prohibit a claim for payment from being presented to an individual, š third party payor or other entity for any service provided in violation of the referral prohibitions. 5. Prohibit an insurer, self-insurer, or other payor from paying a charge š or lien for a good or service resulting from a prohibited referral. 6. Make a violation of the prohibition in paragraph #1 above (the general š referral ban) a misdemeanor, and also subject to a civil penalty of up to $5,000 for each offense - enforceable by the Attorney General, the Insurance Commissioner or a district attorney. Also, require the Medical Board to review any conviction of that prohibition and take appropriate disciplinary action if the licensee has committed unprofessional conduct. CONTINUED AB 919 Page 3 7. Make a violation of the prohibitions in paragraphs #3 - #5 above a š public offense, punishable by a fine of up to $15,000 for each offense, and disciplinary action by the Medical Board or other appropriate governmental agency. 8. Further, require a licensee who makes a non-prohibited referral to, or š seeks consultation from, an organization in which the licensee has a financial interest, to disclose that financial interest to the patient, in writing, at the time of the referral or consultation request. 9. Provide the following exceptions to the referral prohibition: A. Referral in rural areas where there is no alternative provider available and the provider discloses any financial interest at the time of referral. B. Specified commercially reasonable arrangements, creditor relationships, and corporate investment ownership when the gross assets of the facility exceed $100,000,000, and where the arrangements, creditor relationships and corporate investment ownerships are not related to service volume or referral requirements. (A federal "safe-harbor" under Medicare). C. Referral to a licensed health facility, or to any facility owned or leased by the facility, if the facility does not compensate for the referral and any equipment lease arrangements meet specified requirements. D. Referral within an integrated, non-profit corporation or group practice when the referring licensee's compensation is an annual fixed amount. E. Referral of university-employed licensees to university facilities for a licensee service where the referral is not compensated. F. Services provided within, or goods that are supplied by, a licensee's office or the office of a licensee's group practice. G. Cardiac rehabilitation services if they are provided to patients meeting the criteria for Medicare reimbursement for services. H. Referrals made by the practitioner in the office of a group practice to a "multi-specialty clinic," as that term is defined in Section 1206 (l) of the Health and Safety Code. I. Referral to any facility used to provide healthcare services to enrollees of a licensed Knox-Keene Health Care Service Plan. Comment The bill is a companion measure to the author's AB 891 and AB 1291. Along šwith similar provisions involving only the workers' compensation system šthat were just enacted (effective January 1, 1994), all three bills are š CONTINUED AB 919 Page 4 intended to eliminate alleged over-utilization and unnecessary health costs šby prohibiting physician referrals to facilities in which they have a šfinancial interest. This bill contains the broadest prohibition, šapplicable to all physicians, psychologists, acupuncturists, optometrists, šdentists, podiatrists and chiropractors and contains specified exceptions što that prohibition. AB 1291 contains a similar prohibition, but is limited to physicians štreating Medi-Cal and public employee patients, a requirement for prior šauthorization for specified services, and would become effective January 1, š1994. AB 891 would require physician self-reporting of financial interests šin health facilities as a means of monitoring and enforcing the referral šprohibitions if either this bill or AB 1291 is enacted. This year, there were three different proposals to ban so-called physician šself-referrals pending before Congress as proposed amendments to the 1993 šOBRA (Omnibus Budget Reconciliation Act). Two of the three would only have šapplied to Medicare and Medicaid, while the third proposal, authored by šRepresentative "Pete" Stark would have applied to other payors in addition. š The effective date of these various proposals was generally January 1, š1995. One of these proposals, applicable only to Medicare and Medicaid patients šwas just enacted in the past two weeks. That legislation's referral šprohibitions will take effect on January 1, 1995, but only apply to šlicensed physicians and not the other health care licensees covered by this šbill's proposal prohibitions. FISCAL EFFECT: Appropriation: No Fiscal Committee: Yes Local: Yes SUPPORT: (Verified 8/31/93) California Trial Lawyers Association California Pharmacists Association California Business Group on Health California Medical Association Health Insurance Association of America California Commission on Aging California Senior Legislature Older Women's League (Capitol Center) California State Employees Association California Clinical Laboratory Association Blue Cross of California National Federation of Independent Business John Garamendi, Insurance Commissioner California Association of Life Underwriters California Radiological Society California Business Group on Health Health Coalition '93 Health Access Foundation Association of California Insurance Companies California Nurses Association Senior Citizen Advisory Council of Orange County CONTINUED AB 919 Page 5 California Association of Hospitals and Health Systems Association of California Life Insurance Companies Sacramento County Commission on Aging California School Employees Association California Dental Hygienists' Association California Society for Clinical Social Work American Association of Retired Persons (California) Department of Insurance Pharmacy Board (re: inclusion of home infusion) Public Employees' Retirement System Home Infusion Therapy Center of California (HITCO) 80 individual radiologists/radiation oncologists OPPOSITION: (Verified 8/30/93) American Imaging Association Life Source, Inc. California Home Therapeutic Inc. Radiation Care, Inc. Abbey Home Health Care 28 individual physicians ARGUMENTS IN SUPPORT: According to the author and proponents, various šstudies done in Florida, California and elsewhere indicate that many šphysicians are reaping massive profits by referring patients to facilities šin which they have invested, often in a joint-venture type of arrangement. šProponents believe that this is anti-competitive, represents an inherent šconflict of interest, and compromises the independent judgment and šfiduciary responsibility of investing physicians. The author states that šsimilar legislation has been considered at the federal level this year, and šhas been enacted at the state level in Florida, Georgia, Maryland, šIllinois, Virginia, New Jersey and New York. Several other states have šsimilar legislation pending. These various state enactments vary as to the šbreadth of circumstances that are banned. ARGUMENTS IN OPPOSITION: The American Imaging Association opposes the šbill, citing a lack of hard evidence linking physician ownership to over- šutilization, the elimination of competition, existing legal prohibitions šagainst payment for referrals and disclosure of financial interest, the šoverly-broad reach of the bill's proposed ban beyond alleged abusive šsituations, and the divestiture hardship. Life Source and California Home šTherapeutic, both home infusion therapy companies, oppose inclusion of š"home infusion therapy," citing lack of evidence of over-utilization, lower šcosts of home infusion therapy than comparable in-hospital service, and špatient convenience. ASSEMBLY FLOOR VOTE: CONTINUED AB 919 Page 6 CP:ctl 8/31/93 Senate Floor Analyses CONTINUED