April 9, 2012The Honorable Ed HernandezChair, Senate Health CommitteeState Capitol, Room 4085Sacramento, CA 95814
SUBJECT: SB 1285 (Hernandez) – Oppose
Dear Senator Hernandez:The California Hospital Association, which represents over 400 hospitals and health systems, is opposedto SB 1285, which establishes a complicated default reimbursement rate for emergency services providedby a hospital that has an out-of-network emergency utilization rate of 50 percent or greater for majorencounters by local patients. CHA is opposed to SB 1285 because:
Rate-setting reduces access to emergency hospital services.
Default rate is complex and imposes conflicting legal standards.
Default rate eliminates the incentive for health plans to contract.
Hospitals and health plans are effectively implementing existing law regarding non-contractedreimbursement for emergency services. Procedures are in place to resolve disputes. Complex ratesetting legislation is not necessary.Hospitals and health plans are often able to negotiate contracts that allow them to be partners in providinghealth care services to patients. Not every hospital, however, is able to obtain a contract with every healthplan, resulting in some patients receiving emergency services at an out-of-network hospital. Somehospitals do not have contracts simply because they serve communities with very few insured residents.Hospitals may also be unable to obtain a contract because of a health plan’s network strategy, such asfocusing on narrow or tiered networks that include only a limited number of hospitals. Hospitals may alsobe temporarily non-contracted when an existing contract terminates prior to the completion of negotiations.One of the most common reasons hospitals are non-contracted is because they have been unable tonegotiate a fair contract with health plans. A major reason that hospitals downsize, close departments orlimit services is because they have inadequate managed care contracts with health plans. It is especiallydifficult for these hospitals to negotiate adequate managed care contracts when they are located ingeographic regions that are dominated by only a few large health plans. In 1990, California had 23 majorhealth plans. Today, the market has consolidated to the point where there are only five major health plans.Meanwhile, hospitals’ share of overall health care spending has been in decline. In 1980, hospitalsaccounted for 43 percent of health care spending. In 2010, that share dropped to 33 percent.This bill harms those communities in which the local hospital is unable to obtain contracts with certainhealth plans. The statutory default rate reduces access to care because it does not provide sufficient funds