Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law requires every nonprofit health care service plan applying to restructure, as defined, or convert its activities to secure the approval of the Director of the Department of Managed Health Care. Existing law requires the Director of the Department of Managed Health Care to provide the public notice of, reasonable access to, and an opportunity to comment on, public records relating to the restructuring or conversion of a health care service plan. Existing law requires any nonprofit health care service plan that is formed under, or subject to, either the Nonprofit Public Benefit Corporation Law or the Nonprofit Mutual Benefit Corporation Law to secure the written consent of the Director of the Department of Managed Health Care prior to any merger. If a health care service plan proposes a merger, consolidation, acquisition of a controlling interest, or sale of the plan or all or substantially all of the assets of the plan, existing law requires the plan to file a notice of material modification with the Director of the Department of Managed Health Care, who shall, within 20 business days or additional time as the plan may specify, approve, disapprove, suspend, or postpone the effectiveness of the change, subject to specified procedural requirements.

This bill would require any person that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any health care service plan or risk-bearing organization to give notice to, and to secure the prior approval from, the Director of the Department of Managed Health Care. The bill would require any risk-bearing organization to give notice to, and to secure the prior approval from, the Director of the Department of Managed Health Care for any agreement, collaboration, relationship, or joint venture entered into with another risk-bearing organization or any other organization, such as a hospital or health care service plan, for the purpose of increasing the level of collaboration in the provision of health care services. The bill would require the director to hold a public hearing and to make specified findings regarding the proposal prior to approving these transactions or agreements, transactions, including that the proposal does not adversely affect competition. In making this finding, the bill would require the director to request an advisory opinion from the Attorney General regarding whether competition would be adversely affected and what mitigation measures could be adopted to avoid this result. The bill would require the Attorney General to prepare and submit to the director an independent health care impact statement to assist the director in his or her approval of the transaction if the director determines that a material amount of assets, as defined by the director by regulation, of a health care service plan or risk-bearing organization is subject to merger, consolidation, acquisition, purchase, or control. The bill would authorize the director to give conditional approval for any transaction or agreement if the parties to the transaction or agreement commit to taking action to prevent adverse impacts on competition, or health care costs, access, and quality of care in this state.

This bill would prohibit specified provisions in contracts agreements between health care service plans or health insurers that contract with providers for alternative rates of payment and health care contracting providers, and contracts agreements between network vendors, as defined, or payors, as defined, and general acute care hospitals, hospitals that are contracting providers, as defined, including a requirement that the health care service plan, health insurer, or network vendor or payor includes include in its network any one or more providers owned or controlled by, or affiliated with, the health care contracting provider or general acute care hospital as a condition of allowing the health care service plan, health insurer, or payor to include in its network the health care provider or general acute care hospital. that is a contracting provider. The bill would also prohibit a contracting provider from imposing these prohibited terms as a condition to its participation in a network or as a condition to more favorable contract rates. The bill, commencing January 1, 2017, would provide that any contract provision that violates these prohibitions in a contract an agreement entered into, issued, amended, or renewed before, on, or after January 1, 2017, shall become void and unenforceable.

Because a willful violation of the act is a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law requires every nonprofit health care service plan applying to restructure, as defined, or convert its activities to secure the approval of the Director of the Department of Managed Health Care. Existing law requires the Director of the Department of Managed Health Care to provide the public notice of, reasonable access to, and an opportunity to comment on, public records relating to the restructure restructuring or conversion of a health care service plan. Existing law requires any nonprofit health care service plan that is formed under, or subject to, either the Nonprofit Public Benefit Corporation Law or the Nonprofit Mutual Benefit Corporation Law to secure the written consent of the Director of the Department of Managed Health Care prior to any merger. If a health care service plan proposes a merger, consolidation, acquisition of a controlling interest, or sale of the plan or all or substantially all of the assets of the plan, existing law requires the plan to file a notice of material modification with the Director of the Department of Managed Health Care, who shall, within 20 business days or additional time as the plan may specify, approve, disapprove, suspend, or postpone the effectiveness of the change, subject to specified procedural requirements.

This bill would declare the intent of the Legislature to enact legislation that would require a review of health care mergers and acquisitions for impacts on health care costs, access, and quality of care. require any person that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any health care service plan or risk-bearing organization to give notice to, and to secure the prior approval from, the Director of the Department of Managed Health Care. The bill would require any risk-bearing organization to give notice to, and to secure the prior approval from, the Director of the Department of Managed Health Care for any agreement, collaboration, relationship, or joint venture entered into with another risk-bearing organization or any other organization, such as a hospital or health care service plan, for the purpose of increasing the level of collaboration in the provision of health care services. The bill would require the director to hold a public hearing and to make specified findings regarding the proposal prior to approving these transactions or agreements, including that the proposal does not adversely affect competition. In making this finding, the bill would require the director to request an advisory opinion from the Attorney General regarding whether competition would be adversely affected and what mitigation measures could be adopted to avoid this result. The bill would require the Attorney General to prepare and submit to the director an independent health care impact statement to assist the director in his or her approval of the transaction if the director determines that a material amount of assets, as defined by the director by regulation, of a health care service plan or risk-bearing organization is subject to merger, consolidation, acquisition, purchase, or control. The bill would authorize the director to give conditional approval for any transaction or agreement if the parties to the transaction or agreement commit to taking action to prevent adverse impacts on competition, or health care costs, access, and quality of care in this state.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law requires every nonprofit health care service plan applying to restructure, as defined, or convert its activities to secure the approval of the Director of the Department of Managed Health Care. Existing law requires the Director of the Department of Managed Health Care to provide the public notice of, reasonable access to, and an opportunity to comment on, public records relating to the restructure or conversion of a health care service plan. Existing law requires any nonprofit health care service plan that is formed under, or subject to, either the Nonprofit Public Benefit Corporation Law or the Nonprofit Mutual Benefit Corporation Law to secure the written consent of the Director of the Department of Managed Health Care prior to any merger.

This bill would declare the intent of the Legislature to enact legislation that would require a review of health care mergers and acquisitions for impacts on health care costs, access, and quality of care.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 932 (Hernandez) - Health care mergers, acquisitions, and collaborations

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 932 would prohibit contracts between health care providers and payors from including specified provisions. The bill would require prior approval from the Department of Managed Health Care for mergers and other transactions between health plans and other organizations.

Fiscal Impact:

• One-time costs of $145,000 and ongoing costs of $140,000 per year for the adoption of regulations and to review proposed mergers and contracts between providers and health plans by the Department of Managed Health Care (Managed Care Fund). The Department projects that it will need to review three mergers per year, on average, and about 40 revised provider contracts per year.
• Ongoing projected costs of $300,000 per year for the Attorney General’s Office to provide advisory opinions to the Department of Managed Health Care regarding whether a transaction under review will reduce competition (Managed Care Fund). The Attorney General’s Office indicates that the cost to contract for an economic analysis of a proposed transaction will be about $100,000. Under current practice, the Department would be required to reimburse the Attorney General’s Office for those costs.
• Minor costs for the Department of Insurance to review additional materials provided by health insurers for compliance with the requirement that contracts with providers not include specified provisions (Insurance Fund).
• Likely ongoing costs in the millions per year for review of contracts between hospitals and payors by the Department of Public Health (Licensing and Certification Fund). The bill puts restriction on hospital contracting activity in the body of law regulating hospitals which is enforced by the Department of Public Health as a licensing agency. To the extent that the Department reviews hospital contracts as part of its regular licensing surveys, the Department would incur additional staff costs. The number of contracts per hospital that will need to be reviewed could be substantial, depending on how many contracts per payor a hospital has.
• Unknown potential future reduction in state health care costs (various funds). See below.

Background:

Under current law, health insurers are regulated by the Department of Insurance and health plans are regulated by the Department of Managed Health Care. Under current practice, health insurers and health plans contract with a wide range of primary care and specialty care providers as well as facilities such as hospitals and pharmacies. Current law requires the Department of Managed Health Care to approve significant proposed mergers and acquisitions by licensed health plans. Current law authorizes the Insurance Commissioner to deny a permit when a California insurer is directly affected by a transaction that meets certain criteria.

Proposed Law:

SB 932 would prohibit contracts between health care providers and payors from including specified provisions. The bill would require prior approval from the Department of Managed Health Care for mergers and other transactions between health plans and other organizations.

Specific provisions of the bill would:

• Prohibit an agreement between a hospital and a payor (e.g. health plans health insurer, or self-insured employers) from including specified terms – such as a requirement that a payor include in its network other providers owned or controlled by the hospital or a requirement that the payor refrain from offering a tiered network plan;
• Prohibit an agreement between a health plan or health insurer and a provider from containing any of the terms prohibited above;
• Require prior approval by the Department of Managed Health Care for any proposed merger, consolidation, acquisition, or purchase of a health plan and require any person intending to do so to file an application for licensure as a health plan;
• Require the Department to hold a public hearing on the proposed transaction;
• Require certain criteria to be met before the Department can approve the transaction, including a requirement that the Department request an advisory opinion from the Attorney General regarding the impact on competition;
• Authorize the conditional approval of a transaction.

Related Legislation:

SB 1365 (Hernandez) would prohibit an outpatient setting that is controlled by hospital from charging a hospital facility fee unless care is provided in a hospital building. That bill will be heard in this committee.

Staff Comments:

Studies have indicated that concentration of providers (such as hospitals) in the health care market has increased costs, due to reduced competition and greater bargaining power by providers when negotiating reimbursement rates with health plans and health insurers. For example, a study conducted by researchers at the University of California, Berkeley found that market concentration of hospitals and physician groups increased health care premiums for coverage sold through Covered California.

The intention of the bill is to limit cost increases by reducing the market power of providers such as hospitals when negotiating with payors. For example, the bill would prohibiting a hospital from requiring a health plan to include all the hospital’s affiliated hospitals in the health plan network when contracting for services with that hospital. The intention of this provision is to reduce the incentive for hospitals to affiliate with one another and require health plans to include all affiliated hospitals within a network, which often reduces price competition between hospitals.

The bill would require prior approval for health plan and health insurer transactions. The intention is to prevent consolidation in markets that would reduce competition between health plans and therefore increase the power for health plans to increase rates.

Given the complexity of the health care market, it is difficult to anticipate the extent to which the bill would be successful in reducing health care costs in the future by reducing the ability of providers and payors to engage in anticompetitive behavior. To the extent that the bill is successful in preventing contracting practices or transactions in the health care market that do lead to higher prices, the bill could reduce future health care spending. The extent to which that would occur is unknown.

The rates paid by the Medi-Cal program are generally set by the state and are considered to be significantly below market rates. Given the unique system for setting Medi-Cal reimbursement rates, any reduction in overall health care costs attributable to the bill is not likely to significantly impact Medi-Cal expenditures. However, to the extent that the bill does result in lower health care costs, health care coverage provided by CalPERS to state and local government agencies could have lower future costs.

The only costs that may be incurred by a local agency relate to crimes and infractions. Under the California Constitution, such costs are not reimbursable by the state.

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SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 932

SUBJECT: Health care mergers and acquisitions

SUMMARY:

Bans seven specified provisions from contracts between health care providers and payors and requires prior approval from the Department of Managed Health Care for mergers and other transactions between health care service plans, risk-based and other organizations.

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health care service plans (health plans), the California Department of Insurance (CDI) to regulate insurers, including health insurers, the Department of Public Health (DPH) to regulate general acute care hospitals, and the Department of Justice and Attorney General (AG) to bring civil and criminal legal actions against individuals and businesses acting in restraint of trade, and to review and consider the sale or transfer of assets by a nonprofit hospital.
   
2. Prohibits contracts and policies on behalf of a health plan or health insurer and a provider or supplier from containing any provision that restricts the ability of the health plan or health insurer to furnish consumers or purchasers information concerning any of the following:
   1. The cost range of a procedure or a full course of treatment, including, but not limited to, facility, professional, and diagnostic services, prescription drugs, durable medical equipment, and other items and services related to the treatment; and,
   2. The quality of services performed by the provider or supplier.
3. Makes any contractual provision inconsistent with 2) above void and unenforceable.
4. Establishes the Health Care Provider’s Bill of Rights which governs contracts between health care providers and health plans as well as health care providers and health insurers and, among other provisions, prohibits specified terms such as a provision that requires a health care provider to accept additional patients beyond the contracted number or in the absence of a number if, in the reasonable professional judgment of the provider, accepting additional patients would endanger patients’ access to, or continuity of, care.
   
5. Expresses legislative intent that in order to prevent the improper selling, leasing, or transferring of a health care provider’s contract, every arrangement that results in a payor paying a health care provider a reduced rate for health care services based on the health care provider’s participation in a network or panel must be disclosed to the provider in advance and that the payor must actively encourage beneficiaries to use the network, unless the health care provider agrees to provide discounts without that active encouragement.
   
6. Prohibits a health plan from changing a material term of the contract, unless the change has first been negotiated and agreed to by the provider and the plan or the change is necessary to comply with state or federal law or regulations or any accreditation requirements of a private sector accreditation organization. Requires, if a change is made by amending a manual, policy, or procedure document referenced in the contract, the plan to provide 45 business days’ notice to the provider, and gives the provider the right to negotiate and agree to the change. If the plan and the provider cannot agree to the change, the provider has the right to terminate the contract prior to the implementation of the change.
   
7. Defines “health care provider” as any professional person, medical group, independent practice association, organization, health care facility, or other person or institution licensed or authorized by the state to deliver or furnish health services.
   
8. Requires a health plan to give notice to DMHC for approval of any mergers or acquisitions of controlling interests, which are considered material modifications to the plan. Pursuant to regulations, requires a notice of material modification to be filed as an amendment to the license application.
   
9. Requires a nonprofit health plan that is a nonprofit mutual benefit health plan that holds assets subject to a charitable trust obligation to apply to DMHC to restructure or convert its activities and provide specified information such as its original and amended articles of incorporation and bylaws, and a report summarizing activities undertaken by the plan to meet its nonprofit obligations as directed by the DMHC director.
   
10. Permits the Insurance Commissioner to deny a permit in any case where a domestic insurer is directly affected by a transaction of which the permit applied for is needed, if it is determined that reasonable grounds exist that the transaction:
11. Is a combination of capital, skill, or acts to create or carry out restrictions on or to prevent competition in the insurance business; or,
12. Is a combination (in the form of a trust or otherwise) in restraint of the insurance business; or,
13. Is an attempt to monopolize the insurance business; or,
14. Is a conspiracy to create any of the foregoing; or,
15. That such total transaction, or any part thereof, if consummated will create or result in any of the foregoing or will substantially lessen competition in the insurance business.
    
16. Requires the Public Utilities Commission to request an advisory opinion from the AG regarding whether competition will be adversely affected and what mitigation measures could be adopted to avoid this result when approving mergers, acquisitions or direct or indirect control of any public utility organized and doing business in California.
    

This bill:

1. Prohibits a contract between a general acute care hospital and a payor from containing, directly or indirectly, any of the following terms:
2. A requirement that the payor includes in its network any one or more providers owned or controlled by, or affiliated with, the general acute care hospital as a condition of allowing the payor to include in its network the general acute care hospital;
3. A requirement that a payor places all members of a provider, whether medical group, independent practice association, organization, health care facility, or other person or institution licensed or authorized by the state to deliver or furnish health services in the same tier of a tiered network plan;
4. A provision that sets rates for emergency services by any general acute care hospital not participating in a network at a rate greater than that which is provided for pursuant to existing law and regulation, as specified;
5. A requirement that the payor compensate the general acute care hospital at the contracted rate for services by a provider acquired by the general acute care hospital during the term of the contract and with which the payor, at the time of acquisition, has a contract in effect;
6. A requirement that the payor or general acute care hospital submit to binding arbitration, or any other alternative dispute resolution programs, any claims or causes of action that arise under state or federal antitrust laws;
7. A provision that prohibits the offering of incentives to subscribers, enrollees, insureds, or a payor’s beneficiaries that encourages a subscriber, enrollee, insured or payor’s beneficiary to access health care providers other than the general acute care hospital, or that creates disincentives to access the general acute care hospital; or,
8. A provision that prohibits the disclosure of the contracted rate between the payor and the general acute care hospital to subscribers, enrollees, insureds, payor’s beneficiaries, or the payor before the services or products of the general acute care hospital are utilized and billed.
   
9. Extends the prohibited contract provisions described above to any contract between a health plan or health insurer and a health care provider.
   
10. Requires any contract entered into, issued, amended, or renewed before, on or after January 1, 2017 containing the provisions in 1) above to become void and unenforceable commencing January 1, 2017.
    
11. Defines payor as a health plan, including a specialized health plan, an insurer licensed under the Insurance Code to provide disability insurance that covers hospital, medical, or surgical benefits, automobile insurance, workers’ compensation insurance, or a self-insured employer that is responsible to pay for health care services provided to beneficiaries.
    
12. Defines a health care provider as any professional person, medical group, independent practice association, organization, health care facility, or other person or institution licensed or authorized by the state to deliver or furnish health services.
    
13. Requires any person that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any health plan or risk-bearing organization (RBO) organized and doing business in this state to give notice to, and secure prior approval from, the director of DMHC.
    
14. Requires any person that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any health plan to file an application for licensure as a health care service plan.
    
15. Requires any RBO to give notice to, and secure prior approval from, the director of DMHC for any agreement, collaboration, relationship, or joint venture entered into with another RBO or any other organization, such as a hospital or health plan, for the purpose of increasing the level of collaboration in the provision of health care services, which may include, but are not limited to, sharing of physician resources in hospital or other ambulatory settings, cobranding, and expedited transfers to advanced care settings.
    
16. Requires prior to approving any transaction or agreement described in 6)-8) above, the DMHC director to hold a public hearing and find that the proposal meets certain criteria, such as:
    1. Provides short-term and long-term benefits to purchasers, subscribers, enrollees, and patients, in the form of lower prices, better quality and improved access to care;
    2. Does not adversely affect competition. Requires DMHC director to request an advisory opinion from the AG regarding whether competition would be adversely affected and what mitigation measures could be adopted to avoid this result;
    3. Does not jeopardize the financial stability of the parties or prejudice the interests of their purchasers, subscribers, enrollees and patients; and,
    4. Does not result in a significant effect on the availability or accessibility of existing health care services.
       
17. Authorizes the DMHC director to give conditional approval for any transaction or agreement described in 6)-8) above if the parties to the transaction or agreement commit to taking action to prevent adverse impacts on competition, or health care costs, access and quality of care in this state.
    
18. Requires the AG to prepare and submit to DMHC an independent health care impact statement to assist DMHC in approving a transaction described in 6)-8) above if the DMHC director determines that a material amount of assets of a health care service plan or RBO is subject to merger, consolidation, acquisition, purchase, control, directly or indirectly.
    
19. Requires DMHC to develop by regulation a definition of “material amount of assets.”
    

FISCAL EFFECT:

This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. Author’s statement. According to the author, California has to do more to address the rising costs of health care to keep health coverage affordable for individuals, government, employers and other purchasers. Health care economists indicate that the market power of certain health care providers is a major driver of price increases and health care spending. While extensive consolidation already exists in both the health care provider and health insurance markets, these trends will continue as new payment models develop in response to implementation of the Affordable Care Act (ACA). Many providers are consolidating to remain viable. Health policy experts are calling for initiatives beyond traditional antitrust enforcement to promote competition. States such as Massachusetts, New York, Texas and others have passed legislation to review mergers and transactions and promote more market competition in health care. This bill will increase scrutiny over mergers and transactions that have the potential to impede competition and prohibit contract provision which experts indicate are anticompetitive and possibly in violation of antitrust laws.
   
2. Informational Hearing. On March 16, 2016 the Senate Health Committee held an informational hearing to explore policy options to minimize the negative impact on cost, quality and access to care for Californians when there is a lack of competition due to overconcentration in the health care marketplace. At the hearing, experts suggested states should address restrictions on anti-competitive practices such as anti-tiering restrictions, all-or-none contracting restrictions, most favored nation clauses, and regulate network adequacy wisely in order to foster competition in consolidated markets. In addition it was stated that these anticompetitive agreements are the leading cause of the high cost of healthcare in Northern California and the primary challenge for fixing our broken healthcare system. One speaker indicated that such agreements have been condemned in policy statements of the Federal Trade Commission and the U.S. Department of Justice.
   
3. Provider Market Power. A study on the impact of health care market power on premiums for products available in 2014 through Covered California conducted by researchers at the University of California, Berkeley found that the concentration of medical groups and hospitals had an impact on premium rates in California’s 19 health insurance rating regions. The researchers found that the concentration of health plans did not have an impact on premiums. They did find that reducing hospital concentration to levels that would exist in moderately competitive markets could reduce overall premiums of more than 2% and in three regions by more than 10%. The study authors found that while increasing concentration in hospital markets is occurring nationally, medical group concentration is more specific to California. The authors recommend that policy makers monitor and promote competition to ensure Covered California consumers have access to affordable health plans. A June 2015 issue brief from the California HealthCare Foundation (CHFC) indicates that in California there are eight large systems which comprise 40% of the state’s hospitals and general acute care hospital beds. The brief indicates that integration and strategic alliances, rather than traditional mergers, seem to be on the rise. Another CHCF paper indicates that contrary to claims by dominant providers that ability to command higher reimbursements results in savings for consumers and improved outcomes, the absence of competitive pressures tends instead to produce organizational slack, weaker accountability for performance, and lower-quality of care.
   
   A 2014 article published in the Journal of the American Medical Association found between 2009 and 2012 hospital-owned physician organizations in California incurred higher expenditures for commercial HMO enrollees for professional, hospital, laboratory, pharmaceutical, and ancillary services than physician-owned organizations. The authors found that organizations in California that are owned by local hospitals or multihospital systems incur significantly higher expenditures per patient than integrated medical groups and Independent Practice Associations owned by participating physicians. In the study period, the total expenditures for care per patient were 10% higher in physician organizations that were owned by a local hospital and 20% higher in organizations owned by multihospital system than in organizations owned by participating physicians, after adjusting for patient disease severity and other factors.
   
4. Health insurance mergers. There are at least four health insurance company mergers currently under consideration nationally with implications in California: Blue Shield of California’s acquisition of Care 1^st, Aetna’s acquisition of Humana, Anthem’s acquisition of Cigna, and Centene’s acquisition of Health Net. Nationally, these mergers, if approved, will reduce the top five plans to three. Anthem’s acquisition of Cigna would make it the largest health insurance company putting United Health into second place. An August 2015 analysis by Cattaneo and Stroud of the impacts of the proposed mergers on California indicates that there would be minor changes in enrollment numbers resulting in three plans representing 55% of the market, but there will also be fewer competitors in many counties. With the Anthem-Cigna merger competitiveness is reduced in 31 counties, and Aetna-Humana reduces competitiveness in eight counties. The study concludes that major concentration has already occurred prior to the currently proposed mergers and/or acquisitions. However, the proposed transactions further exacerbate the concentrations. Additionally, there will be a reduction of competing plans in the majority of California counties, which will likely result in increased contracting pressure on delegated medical groups.
   
5. Other state laws. The National Academy of Social Insurance and the Catalyst for Payment Reform published a report on state efforts to enhance the competitiveness of health care markets and reduce the ability of providers to use market power in way that creates negative consequences for those who use and pay for health care. The report describes laws and regulations encouraging competitive behavior in health plan contracting such as limiting most favored nation agreements, removing restrictions on plan’s ability to offer tiered products, limiting “all or none” contracting for hospitals systems, and limiting rating increases by providers to health plans. Texas has enacted legislation that requires review of the impact on market competition during the development and implementation of Accountable Care Organizations. A growing number of states are forming regulatory bodies to monitor health care prices. Delaware, Maryland, Massachusetts, New York, Pennsylvania, and West Virginia have established health care commissions to monitor and review health care prices. Connecticut recently passed a law requiring a pre-acquisition market analysis and review by the AG and that establishes a state health care cabinet to study health care cost containment models in other states.
   
6. Related legislation. SB 1159 (Hernandez) would require the Secretary of California Health and Human Services Agency to, no later than January 1, 2017, use a competitive process to contract, as specified, with one or more independent, nonprofit organizations in order to administer the California Health Care Cost and Quality Database. SB 1159 is pending in the Senate Appropriations Committee.

SB 1365 (Hernandez) would prohibit an outpatient setting that is operated or controlled by a hospital from charging a fee or imposing costs on a patient or payer for hospital care unless the care is provided in a hospital building, as defined. SB 1365 is pending in the Senate Health Committee.

AB 533 (Bonta) would establish requirements for the payment of non-contracting individual health professionals when a health care service plan enrollee obtains services from the non-contracting individual health professional in a contracting health facility, as specified. Failed passage on the Assembly Floor.

1. Prior legislation. SB 1340 (Hernandez, Chapter 83, Statutes of 2014), makes a number of technical and clarifying changes to existing law prohibiting contracts between health plans or insurers and hospitals restricting the ability of the health plan/insurer from furnishing information concerning the cost range of procedures at the hospital or facility or the quality of services performed by the hospital or facility to subscribers or enrollees.
   

SB 1196 (Hernandez, Chapter 869, Statutes of 2012), prohibits a contract in existence or issued, amended, or renewed on or after January 1, 2013, between a health plan, or health insurer, and a provider or supplier, from prohibiting, conditioning, or in any way restricting the disclosure of claims data related to health care services provided to an enrollee or subscriber of the health plan or carrier, or beneficiaries of any self-funded health coverage arrangement administered by the carrier to a qualified entity, as defined.

SB 751 (Gains and Hernandez, Chapter 244, Statutes of 2011), prohibits contracts between health plans and health insurers and a licensed hospital or health care facility owned by a licensed hospital from containing any provision that restricts the ability of the carrier from furnishing information to subscribers, enrollees, policyholders, or insureds concerning cost range of procedures or the quality of services. Provides hospitals at least 20 days in advance to review the methodology and data developed and compiled by the carriers, requires risk adjustment factors for quality data, requires a disclosure on the carrier's Web site about the data developed and compiled by the carriers and an opportunity for a hospital to provide a link where the hospital's response to the data can be accessed.

AB 2389 (Gaines) of 2009 would have prohibited a contract between a health facility and a carrier from containing a provision that restricts the ability of the carrier to furnish information on the cost of procedures or health care quality information to carrier enrollees. AB 2389 died in the Assembly on Concurrence.

SB 1300 (Corbett of 2008) would have prohibited a contract between a health care provider and a health plan from containing a provision that restricts the ability of the health plan to furnish information on the cost of procedures or health care quality information to plan enrollees. SB 1300 died on the Senate Floor.

AB 1296 (Torrico, Chapter 698, Statutes of 2007), requires a health plan or contractor offering health benefits to California Public Employees’ Retirement System (CalPERS) members and annuitants to disclose to CalPERS the cost, utilization, actual claim payments, and contract allowance amounts for health care services rendered by participating hospitals to each member and annuitant. Requires this information to be deemed confidential.

1. Support. The Service Employees International Union (SEIU) writes that this bill responds to trends toward greater consolidation by plans and providers with significant market share by providing state regulators with the authority needed to more thoroughly scrutinize health care mergers, acquisitions and consolidations for impacts on competition and health care costs, access and quality of care and by banning certain contract provisions that are believed to result in increased health care costs. Recent market forces, along with incentives in the ACA which pushes providers to take on risk and become more integrated, have led to an intensifying of consolidations among health plans and providers. For example, in California, eight large hospital systems account for 40% of the state’s hospitals and general acute hospital beds. In order for market theory to work, policymakers must move beyond antitrust laws to ensure that plan and provider consolidations do not drive up costs – particularly where cost increases are based solely on market power, and there is no evidence of improved patient quality or outcomes. Health Access California writes since 2002, health insurance premiums in California have increased by 202%, more than five times the 36% increase in the state’s overall inflation rate. Workers are also seeing reduced benefits and increased cost sharing. It is imperative that the state critically evaluates how consolidation in the health care industry will impact the significant strides California has made in reducing our rate of uninsured and our ability to control health care costs. Over the last few decades, increasing consolidation in provider and insurer markets have led to higher health care costs and expenditures. The recent acceleration of merger activity, coupled with new alliances being formed within the healthcare industry, pose significant risks for consumers. California needs to have oversight over these important changes and ensure that the state maintains a robust and competitive market that delivers quality and affordable health care. Although integration can better coordinate care and reduce unnecessary spending, it can also lead to further consolidation, higher prices and less accountability. While there is currently some oversight over health insurer consolidation, a large swath of health industry mergers, such as consolidation amongst medical groups and vertical integration between hospitals and providers, fly under the regulatory radar. The state’s regulatory framework needs to adapt to new conglomerations and affiliations within the health care industry.
   
   The California Labor Federation writes that increased consolidation of hospitals can have a negative effect on purchasers and consumers since market dominance allows hospitals to charge inflated prices. A 2015 study found that hospital prices in monopoly markets are 15.3% higher than in more competitive markets. Unions negotiate and purchase health benefits for 2 million union members and their families in California and the rising cost of health care is increasingly unsustainable. Hospital consolidations only exacerbate the problem. Unions and employers have taken action to control health care costs by developing a number of internal strategies to increase quality and lower cost. One example is the use of benefit designs such as tiering and reference pricing. Higher value providers—those that are lower cost and higher quality are placed in tiers with lower cost-sharing for consumers. This creates an incentive for consumers to go to high value providers, lowering costs for the payer, but also improving health care outcomes and reducing low-quality side effects such as expensive re-admissions and hospital acquired infections. Safeway introduced reference pricing for certain elective procedures in 2009 and CalPERS followed suit by using reference-pricing for joint replacements. Reference-pricing resulted in a 20.2% decline in spending per hip or knee replacement for a total of $3.1 million in savings in the first year for CalPERS. However, value-based benefit design such as tiering and referencing pricing may be prohibited if a provider requires anti-competitive language in contract provisions.
2. Opposition. The California Hospital Association (CHA) writes that this bill will harm consumers by decreasing the level of collaboration in the provision of health care services. This bill will not help reduce health care costs, provide informed consumer choice, or increase access to care; instead, several of the bill’s provisions will conflict with existing law and will increase costs, reduce consumer choice, confuse consumers, decrease access to care, and reduce collaboration. CHA has extensive comments on each provision of this bill. For example one provision, CHA writes is inconsistent with the ACA. On tiering, CHA writes that separate tiering within the same group would restrict access to care or result in unexpected out-of-pocket bills. Another provision on emergency services contains several inconsistencies and they are unable to determine its purpose or impact. On the arbitration provision, CHA believes it conflicts with the Federal Arbitration Act. Another provision, CHA indicates would violate the legislative intent of the Silent PPO law. CHA agrees with the conceptual goal on a transparency provision but only if it provides information that is meaningful. On the merger provisions CHA writes the sweeping scope will ensnare virtually every health care organization in a web of duplicative and counterproductive regulatory reviews. The California Association of Physician Groups (CAPG) believes the inclusion of RBOs in the merger review process would be cumbersome, expensive, and would require vast changes in the current licensure and regulatory structure. Many of the contract provisions in the bill presumably target one or two entities out of 200 in the California Capitated physician group community. CAPG strongly disagrees that multi-billion dollar health plans should be so advantaged over providers through the mechanism of statutory contracting provisions. CAPG also writes that there is already significant oversight of merger activity by providers in California at the federal and state level. There is one pending merger that has been under review for the past three years. CAPG believes adding jurisdiction authority over RBOs will increase costs and urges other transparency efforts to take effect in the market place before further mechanisms are considered.
   
3. Policy Comments.
4. Broad Application. This bill requires any RBO to give notice to, and secure prior approval from the DMHC for any agreement, collaboration, relationship, or joint venture entered into with another RBO or any other organization, such as a hospital or health plan for the purpose of increasing collaboration. Would this result in the DMHC being overwhelmed with approval requests? Should a dollar threshold, number of lives affected, or some other indicator be developed in order to trigger prior approval or is it the author’s intent to apply these provisions this broadly?
   
5. Approval Process. This bill does not flesh out the details of the approval process or timeframes for when DMHC must hold a public hearing or issue a decision. The author and committee may wish to establish some parameters around this process in order to give the requesting organizations a reasonable expectation of the process.
   
6. Parallel Authority. This bill gives explicit authority to DMHC to review and approve mergers and acquisitions of health plans and other entities and requires consultation with the AG. As part of the review process the DMHC is required to analyze impacts of the transaction on market competition. CDI has authority to review domestic insurance companies under the department’s jurisdiction for impacts on market competition. However, the limit on this authority is to companies that are domestic insurers that are organized in California. Should this bill be amended to provide CDI authority to review these types of transactions involving company mergers involving insurers who are not organized in California but who are doing business in California as would be the case if the DMHC provisions in this bill are enacted?
   

SUPPORT AND OPPOSITION:

Support: California Nurses Association (as amended)

California Labor Federation

California Reinvestment Coalition

Health Access California

Pacific Business Group on Health

Service Employees International Union

Silicon Valley Employers Forum

Western Center on Law and Poverty

Oppose: California Association of Physician Groups

California Hospital Association

California Medical Association

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