Existing law, known as the Cartwright Act, generally regulates trusts, which the act defines as a combination of capital, skill, or acts by 2 or more persons for certain purposes, including to create or carry out restrictions in trade or commerce. If a violator of the act is a corporation, the act punishes the violator by a fine of the greater of an amount not more than $1,000,000 and an amount related to the pecuniary gain from the violation or the pecuniary loss to another by the violation, as prescribed. If a violator of the act is an individual, the act punishes the violator by imprisonment of one, 2, or 3 years in a state prison or county jail, as specified, imprisonment of not more than one year in a county jail, by a fine of not more than the greater of $250,000 and an amount related to the pecuniary gain from the violation or the pecuniary loss to another by the violation, or by both a fine and imprisonment.

This bill would would, on or after January 1, 2026, increase the fine described above with respect to corporate violators to $100,000,000. The bill would also increase the term of imprisonment in a state prison or county jail described above to not more than 10 years and would increase the fine described above with respect to an individual violator to $1,000,000. By increasing the maximum term an individual violator could serve in a county prison, this 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, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, that generally requires employers to secure the payment of workers compensation for injuries incurred by their employees that arise out of, and in the course of, employment. Existing law requires every employer to establish a utilization review process, as described, and establishes an independent medical review process to resolve disputes over a utilization review decision, as specified. Existing law authorizes an insurer, employer, or entity that provides physician network services to establish or modify a medical provider network for the provision of medical treatment to injured employees. Existing law requires every medical provider network to post on its internet website a roster of all participating providers, as specified.

Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, that generally requires employers to secure the payment of workers compensation for injuries incurred by their employees that arise out of, and in the course of, employment. Existing law requires every employer to establish a utilization review process, as described, and establishes an independent medical review process to resolve disputes over a utilization review decision, as specified.

This bill would require the department to conduct a study on the viability of and regulatory steps that would be required to be taken to link health care reimbursement in workers compensation claims to the value of care provided to injured workers. The bill would require that study to include a discussion of the viability of developing and adopting an accountable care organization model to manage workers compensation claims. The bill would require the department to hold 5 stakeholder workshops to discuss the findings of the study and to post the findings of the study on its internet website.

Date of Hearing: August 7, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

SBPCA Bill Id:SB 697

Author:(Hurtado) – As Amended Ver:July 3, 2024

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill increases the punishments for a person or corporation convicted of conspiracy against trade under the Cartwright Antitrust Act.

Specifically, this bill:

1. Increases the maximum fine for a violation by a corporation from $1 million to $100 million or twice the amount of the gain or loss from the violation, whichever is greater.
2. Increases the maximum fine for a violation by a person from $250,000 to $1 million or twice the amount of the gain or loss from the violation, whichever is greater.
3. Increases the term of incarceration for a felony violation by a person from three years to 10 years in county jail, or up to 10 years in state prison if the person has certain prior convictions.

FISCAL EFFECT:

1. Costs (local funds, General Fund) to the counties and the California Department of Corrections and Rehabilitation to incarcerate people convicted of conspiracy against trade. Actual incarceration costs will depend on the number of convictions, the length of each sentence, and whether each sentence must be served in county jail or state prison. The average annual cost to incarcerate one person in county jail is approximately $29,000. The Legislative Analyst’s Office (LAO) estimates the average annual cost to incarcerate one person in state prison is $133,000. Although county incarceration costs are generally not considered reimbursable state mandates pursuant to Proposition 30 (2012), overcrowding in county jails creates cost pressure on the General Fund because the state has historically granted new funding to counties to offset overcrowding resulting from 2011 public safety realignment.
2. Possible increase in fine revenue (local funds, special funds) of an unknown but potentially significant amount, since the bill significantly increases the maximum fines that may be levied against a corporation or individual convicted of conspiracy against trade.

According to the LAO, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years. 

COMMENTS:

1. Purpose. According to the author:

The financial penalties under the Cartwright Act are outdated and inadequate to serve as effective deterrents against anti-competitive behaviors… Due to the relatively low fines and short prison terms, the existing penalties fail to effectively deter corporations from engaging in anti-competitive practices. This insufficiency undermines the enforcement capabilities of regulatory bodies and does not adequately protect market competition or consumer interests. The modern economic environment, characterized by digital economies and global corporations, has intensified the potential harm caused by anti-competitive practices, including price fixing, barriers to entry for smaller competitors, and monopolistic control over essential markets.

1. Background. Cartwright Act. The Cartwright Act is a state antitrust law that prohibits anticompetitive business practices. A violation of the Cartwright Law may be enforced through civil litigation, a civil enforcement action brought by a public prosecutor, or through criminal charges filed by the Attorney General or a county district attorney. A criminal violation of the Cartwright Act is called “conspiracy against trade.” Conspiracy against trade is an offense that may be charged either as a misdemeanor or a felony. Under current law, a misdemeanor violation is punishable by up to one year in county jail. A felony violation is punishable by one, two, or three years in county jail, or, if the defendant has certain prior convictions, a state prison term. A person convicted of conspiracy against trade may also be punished by a fine of up to $250,000 or two times the amount of pecuniary gain or loss caused by the violation, whichever is greater. The fine may be imposed instead of or in addition to incarceration. If a corporation is convicted of conspiracy against trade, the offense is punishable by a fine of up to $1 million or two times the amount of pecuniary gain or loss from the violation, whichever is greater.

This bill increases the maximum fines for a conspiracy against trade conviction, and increases the term of incarceration for a person convicted of a felony violation. The punishments proposed in the bill are somewhat parallel to the punishments for the federal Sherman Antitrust Act, which imposes criminal fines of up to $100 million for a corporation and $1 million for a person, and up to 10 years in federal prison for a person.

In California, the Attorney General has not brought a criminal prosecution under the Cartwright Act in decades. However, in March 2024, the California Department of Justice announced that it intended to revive its criminal antitrust practice in the coming years, which may result in more convictions subject to the punishments increased by this bill.

Law Revision Commission Study. In 2022, the Legislature tasked the California Law Revision Commission (Commission) with studying the state’s antitrust laws and recommending changes to revise and modernize them. To that end, the Commission has recruited expert contributors and solicited and reviewed feedback from the public and industry professionals. According to the Assembly Committee on Judiciary, the Commission’s recommendations on this topic may be completed in 2025. The recommendations will likely include guidance regarding enforcement of antitrust violations.

Analysis Prepared by: Annika Carlson / APPR. / (916) 319-2081

Date of Hearing: July 2, 2024

ASSEMBLY COMMITTEE ON JUDICIARY

Ash Kalra, Chair

SBPCA Bill Id:SB 697

Author:(Hurtado) – As Amended Ver:May 20, 2024

As Proposed to be Amended

SENATE VOTE: Not Relevant

SUBJECT: Conspiracy against trade: punishment

KEY ISSUES:

1. should the fine for a corporation that commits a conspiracy against trade, as provided in the Cartwright Act, increase from one million dollars to one-hundred million dollars starting january 1, 2026?
2. should the punishment for an individual that commits a conspiracy against trade, as provided in the cartwright act, increase from not more than three years imprisonment or a fine of $250,000 to more than ten years imprisonment or a fine of not more than one million dolars starting january 1, 2026?

SYNOPSIS

The Cartwright Act is California’s statutory scheme for addressing anticompetitive business practices in this state, akin to the Sherman Antitrust Act at the federal level. Despite the Cartwright Act’s presence, over the past two decades mergers and acquisitions have dominated the economic landscape in this state, resulting in less competition and fewer choices for consumers. Recognizing that the Cartwright Act is showing its age, this bill increases the penalties for corporations or individuals that violate the Cartwright Antitrust Act, which prohibits conspiracy to restrain trade.

Under existing law a corporate violator of the Cartwright Act is subject to a fine of not more than one-million dollars, or double the amount of pecuniary gain (to the violator) or pecuniary loss (to another), whichever is greater. This bill would subject a corporate violator to a fine of the greater amount of not more than one-hundred million dollars ($100,000,000) or double the pecuniary gain or loss. Under existing law an individual violator is subject to imprisonment of not more than three years, by imprisonment of not more than one year in county jail, a fine of not more than $250,000, or double the amount of pecuniary loss or gain, whichever is greater, or some combination of fine and imprisonment. This bill would increase the potential prison term to ten years and increase the fine potential to one million dollars. Recognizing that reforms to the Cartwright Act are currently being considered by the California Law Revision Commission, proposed amendments will delay the implementation date of this measure to January 1, 2026, to align with the potential release and adoption of the Commission’s recommendations.

This bill is author sponsored and has no formal support on file. The bill is opposed by the California Chamber of Commerce and the Civil Justice Association of California.

SUMMARY: Increases the fines and punishments for violations of the Cartwright Antitrust Act. Specifically, this bill:

1. Increases the maximum fine for corporations violating the Cartwright Act to one hundred million dollars ($100,000,000) or twice the amount of the gain or loss from the conduct, whichever is greater.
2. Increases the maximum fine for individuals violating the Cartwright Act to one million ($1 million) or twice the amount of the gain or loss from the conduct, whichever is greater.
3. Extends the potential prison term for individuals found guilty of violating the Cartwright Act to up to ten years.
4. Delays the implementation of this bill until January 1, 2026.

EXISTING LAW:

1. Regulates, under the Cartwright Act, trusts, which the Act defines as a combination of capital, skill, or acts by two or more persons for certain purposes, and generally prohibits combinations that constitute a conspiracy to restrain trade or commerce. (Business & Professions Code Section 16720.)
2. Provides that any contract or agreement in violation of 1) is absolutely void and is not enforceable at law or in equity. (Business and Professions Code Section 16722.)
3. Provides that if a violator of the Cartwright Act is a corporation, the violator may be punished by a fine of the greater of an amount not more than $1,000,000 and an amount related to the pecuniary gain from the violation or the pecuniary loss to another by the violation, as prescribed. (Business and Professions Code Section 16755 (a)(1).)
4. Provides that if a violator of the Cartwright Act is an individual, the violator may be punished by imprisonment of one, two, or three years in a state prison or county jail, imprisonment of not more than one year in a county jail, by a fine of not more than the greater of $250,000 or an amount equal to two times the pecuniary gain or loss caused by violation, or by both a fine and imprisonment. (Business & Professions Code Section 16755 (a)(2).)
5. Provides, pursuant to federal law, that every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a felony. (Title 15 of the United States Code, Sections 1 through 7.)
6. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. (Ibid.)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: The Cartwright Act, originally enacted in 1907, is California's antitrust law designed to promote fair competition. However, the author of this bill believes that the penalties for violating the Act have become outdated and insufficient in deterring the monopolistic behaviors of large corporations. The Cartwright Act currently imposes a maximum fine of $1 million for corporations and $250,000 for individuals, with potential prison terms of one to three years for individuals who violate the law. This bill aims to increase these penalties to $100 million for corporations and $1 million for individuals, with imprisonment terms of up to ten years. This change is intended to align California's penalties with those under the federal Sherman Antitrust Act.

According to the author, the “Cartwright Act, California's primary antitrust law, has not kept pace with the evolving economic landscape, particularly the increasing concentration of market power among large corporations.” The author believes that the existing and outdated dollar amounts – $1,000,000 for a corporation and $250,000 for an individual – fail “to effectively deter corporations from engaging in anti-competitive practices.” The author believes this bill will “address these deficiencies by significantly increasing the penalties for violations of the Cartwright Act, aligning them with the federal Sherman Act. By recalibrating the penalties to be proportional to the contemporary economic landscape, this measure aims to provide a more formidable deterrent against anti-competitive behaviors, enhance the enforcement of antitrust laws, and protect consumers and smaller businesses from the adverse effects of monopolistic practices.”

The financial penalties under the Cartwright Act, California's primary antitrust law, have not kept pace with these developments. Currently, the maximum fine for corporations determined to have restrained trade in violation of the Cartwright Act is capped at $1 million, while individual violators face a maximum fine of $250,000. Additionally, the potential prison terms for individual violators range from one to three years. Given that many of the companies that are most prone to engage in anti-competitive market behavior are large multi-national corporations, these penalties no longer appear to serve as a proper deterrent and are not proportionate to the severity and impact of anti-competitive activities in today's markets. As a result, many large corporations view these penalties as minor costs of doing business rather than significant punitive measures.

This insufficiency undermines the enforcement capabilities of regulatory bodies and does not adequately protect market competition or consumer interests. The modern economic environment, characterized by digital economies and global corporations, has intensified the potential harm caused by anti-competitive practices, including price-fixing, barriers to entry for smaller competitors, and monopolistic control over essential markets.

This bill seeks to address these deficiencies by significantly increasing the penalties for violations of the Cartwright Act. The bill proposes to align the penalties contained in California’s state-level antitrust laws with those of the federal Sherman Act. In order to align California and federal law related to uncompetitive business practices, this bill raises the maximum fine for corporate violators of the Cartwright Act to $100 million and for individual violators to $1 million. This bill also proposes that individual violators of the Cartwright Act face the possibility of up to ten years of imprisonment, up from the current one to three year sentences authorized by law. By recalibrating the penalties to be proportional to the contemporary economic landscape, this bill aims to provide a more formidable deterrent against anti-competitive behaviors, enhance the enforcement of antitrust laws, and protect consumers and smaller businesses from the adverse effects of monopolistic practices.

Opposition stakeholders believe this measure is premature. In 2022, the Legislature tasked the California Law Revision Commission with studying ways to modernize the Cartwright Act. (ACR 95 (Cunningham) Res. Chap. 147, Stats. 2022.) In recent months, the staff of the California Law Revision Commission has received seven reports from legal scholars on different aspects of the Cartwright Act and is presently reviewing and compiling the reports to generate a formal proposal for the Commission’s consideration. (CLRC Study B-750, available at: http://www.clrc.ca.gov/B750.html.) Given the complexity of antitrust law, the Commission process is taking longer than some stakeholders anticipated.

Several of the stakeholders interested in the California Law Revision Commission’s study are opposing this measure, including the California Chamber of Commerce and the Civil Justice Association of California. Their main concerns center on timing and process, economic impact, and regulatory consistency. The opposition argue that the bill proposes significant changes without waiting for the California Law Revision Commission's recommendations, which are expected before 2025. The opposition argues that changes to the Cartwright Act should not be made impulsively or without comprehensive review. Furthermore, the opposition argues that the dramatic increase in penalties could have severe consequences for businesses, particularly those operating across state lines, as the opposition believes broader reach of the Cartwright Act, when compared to the federal Sherman Act, could result in penalties for actions considered legal under federal law or the laws of other states.

Author’s proposed amendment. This measure represents a significant step towards modernizing California's antitrust laws. However, recognizing the opposition’s concerns regarding the timing of this bill and the anticipated report from the California Law Revision Commission, the author is proposing to delay the implementation of this measure to better align with the Commission’s timeline. The proposed amendment will delay the implementation of this bill to January 1, 2026. The delay should allow for the Commission and stakeholders to consider this bill when making recommendations to the Legislature for modernizing the Cartwright Act in its entirety.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

Civil Justice Association of California

California Chamber of Commerce

Analysis Prepared by: Nicole Larson & Tom Clark / JUD. / (916) 319-2334

 THIRD READING  

Bill No: SB 697

Author: Hurtado (D)

Introduced: 2/16/23

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 4-0, 4/19/23

AYES: Cortese, Durazo, Laird, Smallwood-Cuevas

NO VOTE RECORDED: Wilk

SENATE APPROPRIATIONS COMMITTEE: 6-1, 5/18/23

AYES: Portantino, Ashby, Bradford, Seyarto, Wahab, Wiener

NOES: Jones

SUBJECT: Value of care review

SOURCE: Boomerang Healthcare

DIGEST:

This bill requires the Department of Industrial Relations to study the viability and regulatory steps to implement a value of care reimbursement system for workers’ compensation claims.

ANALYSIS:

Existing law:

1. Establishes the Division of Workers’ Compensation (DWC) within the Department of Industrial Relations and tasks DWC with the promulgation of the Official Medical Fee Schedule to be used for payment of medical services required to treat work-related injuries and illnesses.
   
2. Requires every employer to establish a medical treatment process directly or through an insurer or an entity with which the employer or insurer contracts for these services and establish penalties for failure to establish and comply with requirements.
   
3. Requires an employer or their insurer to provide medical treatment that is reasonably required to cure or relieve the injured worker from the effects of the worker’s injury means treatment that is based upon the guidelines adopted by the administrative director.
   
4. Requires DWC, after public hearings, to adopt and revise a fee schedule in accordance with the resource-based value scale that shall establish reasonable maximum fees paid for medical services, other than physician services, for drugs and pharmacy services, health care facility fees, home health care, and all other treatment, care, services, and goods. Except for physician services, all fees shall be in accordance with the fee-related structure and rules of the relevant Medicare and Medi-Cal payment systems, provided that employer liability for medical treatment, including issues of reasonableness, necessity, frequency, and duration.
   
5. Authorizes an employer or insurer to contract for reimbursement rates different from those in the adopted fee schedule if the medical provider fee schedule differs.

This bill:

1. Requires DIR to conduct a study on the viability of and regulatory steps that would be required to be taken to link health care reimbursement in workers’ compensation claims to the value of care provided to injured workers.
   
2. Requires the study to include a discussion of the viability of developing and adopting an accountable care organization model to manage workers’ compensation claims.
   
3. Requires DIR to hold five stakeholder workshops to discuss the findings of the study and to post the findings of the study on its website.

Background

Accountable care organizations are groups of doctors, hospitals, and other healthcare providers that collaborate to offer coordinated care to Medicare patients with the goal of avoiding unnecessary duplication of services and preventing medical errors. The concept is to spend more wisely while delivering high quality care so the entities can share savings within the Medicare program.

Medicare and most HMOs use a resource based relative value system as the foundation for calculating payment for physician services, which is based on the principle that payments for physician services should vary with the resource costs for providing those services and is intended to improve and stabilize the payment system. Most states use this value system in their workers' compensation system. In California, this topic has been debated, and the subject of consideration and hearings by DWC.

During the last workers’ compensation reform, a fee schedule model was created to provide payment for injured workers’ medical care. The reforms were also designed to improve the quality of medical provider networks (MPNs), and in that regard improve the quality of evidence-based medicine as the basis of treating injured workers, and based on these improvements, enhance the ability of employers to provide treatment for injured workers within the MPN. This bill would explore an alternative payment model to assess whether it could provide high quality care for less and reduce litigation.

Comments

Purpose of this bill. According to the author, “The bill would require [DWC] to study the viability of linking workers’ compensation medical reimbursements to the value of care being provided. As part of the study, [DWC] would be required to assess needed regulatory steps to implement a change in policy.

“The value-of-care basis for determining medical payments differs from the fee-for-service approach currently employed. Presently, providers are paid based on the extent that health care services are rendered. Value is derived from measuring health outcomes against the cost of the services.

“Value-based care in California workers' compensation could provide several benefits for injured workers, employers, and insurance providers… Overall, value-based care in California workers' compensation could help improve the quality of care for injured workers, reduce costs for employers and insurers, increase transparency and reduce litigation, and provide greater flexibility to address the unique needs of California's workers' compensation system.”

Related/Prior Legislation

SB 863 (De León, Chapter 363, Statutes of 2012) reformed the workers’ compensation system, including the implementation of an independent medical review process similar to what had been developed at the Department of Managed Health Care.

SB 923 (De León, Chapter 737, Statutes of 2012) would have required the DWC to adopt a resource based relative value system within workers’ compensation. These contents were removed and replaced with unrelated language.

SB 899 (Poochigian – Chapter 34, Statutes of 2004) reformed the workers’ compensation system, including substantially changing the permanent disability rating system.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Committee on Appropriations, “DIR would incur one-time costs of about $350,000 to contract for the study (special fund).”

SUPPORT: (Verified 5/18/23)

Boomerang Healthcare (source)

OPPOSITION: (Verified 5/18/23)

California Applicants’ Attorneys Association

ARGUMENTS IN SUPPORT: According to the sponsor, Boomerang Healthcare, “the proposed legislation seeks to shift the current fee-for-service approach to a value-of-care basis, which measures health outcomes against the cost of services provided. This change could offer significant benefits to injured workers, employers, and insurance providers in California's workers' compensation system. Value-based care could incentivize healthcare providers to prioritize improving health outcomes for injured workers, resulting in better quality of care, improved patient satisfaction, and reduced disability and lost time. Additionally, it could lead to cost savings for both injured workers and their employers, reducing the overall cost of workers' compensation insurance.

“Moreover, the proposed bill would direct the DWC to analyze the feasibility of developing and adopting an accountable care organization model to manage workers' compensation claims. This approach would bring providers together to deliver high-quality, coordinated care while also controlling costs and improving quality.

“Overall, SB 697 offers a unique opportunity to improve the quality of care for injured workers, reduce costs for employers and insurers, increase transparency, and reduce the need for litigation in California's workers' compensation system. We believe that this proposed legislation would be invaluable in helping Boomerang Healthcare, and the overall Provider community, achieve their goals.”

ARGUMENTS IN OPPOSITION: According to the California Applicants’ Attorneys Association (CAAA), “One of the top priorities for CAAA is finding ways to expedite the treatment of injured workers under California’s workers’ compensation system. To this end, we have sponsored or supported legislation in this vein the past several years. SB 697, however, may set the foundation for a system that creates several problems. Although this bill is a study bill, its findings may result in the following perhaps unintended consequences: 1. The creation of a value-based payment model which may inappropriately assign accountability to physicians and hospitals for services they did not deliver and cannot control; 2. Financially penalize physicians and hospitals who care for patients with complex health problems; 3. Fail to provide physicians, hospitals, and other providers with the kind of actionable information they need to identify opportunities to control healthcare spending without harming patients; 4. Injured workers will not receive the care they need to recover and return to work if the primary driving factor in providing care is cost control.”

Prepared by: Dawn Clover / L., P.E. & R. / (916) 651-1556

5/20/23 13:05:29

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 697 (Hurtado) - Value of care review

Bill Summary:

SB 697 would require the Department of Industrial Relations (DIR) to study the viability and regulatory steps to implement a value of care reimbursement system for workers’ compensation claims.

Fiscal Impact:

DIR would incur one-time costs of about $350,000 to contract for the study (special fund).

Background:

Under current law, the Division of Workers’ Compensation (DWC) within DIR is tasked with the promulgation of the Official Medical Fee Schedule to be used for payment of medical services required to treat work related injuries and illnesses.

Medicare and HMOs generally use a resource-based relative value system as the foundation for calculating payment for physician services, which is based on the principle that payments for physician services should vary with the resource costs for providing those services and is intended to improve and stabilize the payment system. Most states use this value system in their workers' compensation system. In California, this approach, though debated and the subject of hearings by DWC, has not been adopted. Resource based relative value systems are not universally embraced by the medical community. Specialists contend that it favors primary care physicians over specialists and would result in unfair reimbursement cuts to specialists. On the other hand, primary care physicians argue that some specialties receive significantly higher reimbursement from California's workers' compensation system.

Proposed Law:

This bill would do the following:

• Require DIR to conduct a study on the viability of and regulatory steps that would be required to be taken to link health care reimbursement in workers’ compensation claims to the value of care provided to injured workers.
• Require the study to include a discussion of the viability of developing and adopting an accountable care organization model to manage workers’ compensation claims.
• Require DIR to hold five stakeholder workshops to discuss the findings of the study and to post the findings of the study on its website.

Related Legislation:

• SB 863 (De León, Chapter 363, Statutes of 2012) reformed the workers’ compensation system, including the implementation of an independent medical review process similar to what had been developed at the Department of Managed Health Care.
• SB 923 (De León, Chapter 737, Statutes of 2012) would have required DWC to adopt a resource based relative value system within workers’ compensation. The was amended to address a different policy area.
• SB 899 (Poochigian, Chapter 34, Statutes of 2004) reformed the workers’ compensation system, including substantially changing the permanent disability rating system.

Staff Comments:

During the last reform of the State’s workers’ compensation system, a fee schedule model was created to provide payment for injured workers’ medical care. The reforms were also designed to improve the quality of medical provider networks (MPNs), and in that regard improve the quality of evidence-based medicine as the basis of treating injured workers, and based on these improvements, enhance the ability of employers to provide treatment for injured workers within the MPN. This bill would consider an alternative payment model to assess its potential viability.

-- END --

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Dave Cortese, Chair

2023 - 2024 Regular

Bill No: SB 697 Hearing Date: April 19, 2023

SUBJECT: Value of care review

KEY ISSUE

Should the Legislature require the Department of Industrial Relations to study the viability and regulatory steps to implement a value of care reimbursement system for workers’ compensation claims?

ANALYSIS

Existing law:

1. Establishes the Division of Workers’ Compensation (DWC) within the Department of Industrial Relations and tasks DWC with the promulgation of the Official Medical Fee Schedule to be used for payment of medical services required to treat work related injuries and illnesses. (Labor Code §3200 et seq.)
   
2. Requires every employer to establish a medical treatment process directly or through an insurer or an entity with which the employer or insurer contracts for these services and establish penalties for failure to establish and comply with requirements. (Labor Code §4610)
   
3. Requires an employer or their insurer to provide medical treatment that is reasonably required to cure or relieve the injured worker from the effects of the worker’s injury means treatment that is based upon the guidelines adopted by the administrative director. (Labor Code §4600)
   
4. Requires DWC, after public hearings, to adopt and revise a fee schedule in accordance with the resource-based value scale that shall establish reasonable maximum fees paid for medical services, other than physician services, for drugs and pharmacy services, health care facility fees, home health care, and all other treatment, care, services, and goods. Except for physician services, all fees shall be in accordance with the fee-related structure and rules of the relevant Medicare and Medi-Cal payment systems, provided that employer liability for medical treatment, including issues of reasonableness, necessity, frequency, and duration. (Labor Code §5307.1)
   
5. Authorizes an employer or insurer to contract for reimbursement rates different from those in the adopted fee schedule if the medical provider fee schedule differs. (Labor Code §5307.11)

This bill:

1. Requires DIR to conduct a study on the viability of and regulatory steps that would be required to be taken to link health care reimbursement in workers’ compensation claims to the value of care provided to injured workers.
   
2. Requires the study to include a discussion of the viability of developing and adopting an accountable care organization model to manage workers’ compensation claims.
   
3. Requires DIR to hold five stakeholder workshops to discuss the findings of the study and to post the findings of the study on its website.

COMMENTS

1. Background:

Accountable care organizations are groups of doctors, hospitals, and other healthcare providers that collaborate to offer coordinated high quality care to Medicare patients with the goal of avoiding unnecessary duplication of services and preventing medical errors. The concept is to spend more wisely while delivering high quality care so the entities can share savings within the Medicare program.

Medicare and most HMOs use a resource based relative value system as the foundation for calculating payment for physician services, which is based on the principle that payments for physician services should vary with the resource costs for providing those services and is intended to improve and stabilize the payment system. Most states use this value system in their workers' compensation system. In California, this topic has been debated, and the subject of consideration and hearings by DWC. However, it has not been adopted. Resource based relative value systems are not without controversy within the medical community, even as it is a well understood system that is updated regularly by Medicare. Specialists contend that it favors primary care physicians over specialists and would result in unfair reimbursement cuts to specialists. On the other hand, primary care physicians argue that some specialties receive significantly higher reimbursement from California's workers' compensation system.

During the last workers’ compensation reform, a fee schedule model was created to provide payment for injured workers’ medical care. The reforms were also designed to improve the quality of medical provider networks (MPNs), and in that regard improve the quality of evidence-based medicine as the basis of treating injured workers, and based on these improvements, enhance the ability of employers to provide treatment for injured workers within the MPN. This bill would explore an alternative payment model to assess whether it could provide high quality care for less and reduce litigation.

2. Need for this bill?

According to the author, “The bill would require [DWC] to study the viability of linking workers’ compensation medical reimbursements to the value of care being provided. As part of the study, [DWC] would be required to assess needed regulatory steps to implement a change in policy.

The value-of-care basis for determining medical payments differs from the fee-for-service approach currently employed. Presently, providers are paid based on the extent that health care services are rendered. Value is derived from measuring health outcomes against the cost of the services.

Value-based care in California workers' compensation could provide several benefits for injured workers, employers, and insurance providers… Overall, value-based care in California workers' compensation could help improve the quality of care for injured workers, reduce costs for employers and insurers, increase transparency and reduce litigation, and provide greater flexibility to address the unique needs of California's workers' compensation system.”

4. Committee Discussion:

This bill would require DIR to study an alternative payment model to workers’ compensation health care reimbursement, assess the viability to adopting an accountable care organization model, and hold five stakeholder workshops to discuss the study findings. As this bill moves along in the process, the author may wish to add a report due date.

3. Proponent Arguments:

According to the sponsor, Boomerang Healthcare, “the proposed legislation seeks to shift the current fee-for-service approach to a value-of-care basis, which measures health outcomes against the cost of services provided. This change could offer significant benefits to injured workers, employers, and insurance providers in California's workers' compensation system. Value-based care could incentivize healthcare providers to prioritize improving health outcomes for injured workers, resulting in better quality of care, improved patient satisfaction, and reduced disability and lost time. Additionally, it could lead to cost savings for both injured workers and their employers, reducing the overall cost of workers' compensation insurance.

Moreover, the proposed bill would direct the DWC to analyze the feasibility of developing and adopting an accountable care organization model to manage workers' compensation claims. This approach would bring providers together to deliver high-quality, coordinated care while also controlling costs and improving quality.

Overall, SB 697 offers a unique opportunity to improve the quality of care for injured workers, reduce costs for employers and insurers, increase transparency, and reduce the need for litigation in California's workers' compensation system. We believe that this proposed legislation would be invaluable in helping Boomerang Healthcare, and the overall Provider community, achieve their goals.”

4. Opponent Arguments:

None received

5. Prior Legislation:

SB 863 (De León – Chapter 363, Statutes of 2012) reformed the workers’ compensation system, including the implementation of an independent medical review process similar to what had been developed at the Department of Managed Health Care.

SB 923 (De León – Chapter 737, Statutes of 2012) would have required the DWC to adopt a resource based relative value system within workers’ compensation. These contents were removed and replaced with unrelated language.

SB 899 (Poochigian – Chapter 34, Statutes of 2004) reformed the workers’ compensation system, including substantially changing the permanent disability rating system.

SUPPORT

Boomerang Healthcare (Sponsor)

OPPOSITION

None received

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