Connecticut Seal

General Assembly

File No. 557

    February Session, 2016

Substitute Senate Bill No. 351

Senate, April 7, 2016

The Committee on Public Health reported through SEN. GERRATANA of the 6th Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT CONCERNING MATTERS AFFECTING PHYSICIANS AND HOSPITALS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective from passage) (a) For purposes of this section: (1) "Covenant not to compete" means any contract or agreement that restricts the right of a physician to practice medicine in any geographic area of the state for any period of time; (2) "physician" means an individual licensed to practice medicine under chapter 370 of the general statutes; and (3) "primary site where such physician practices" means the office, facility or location where a majority of the revenue derived from such physician's services is generated.

(b) Any covenant not to compete, to the extent it exceeds the provisions of this section, is against public policy and shall be void and unenforceable.

(c) (1) A covenant not to compete is valid and enforceable only if: (A) The covenant not to compete is necessary to protect a legitimate business interest; (B) the geographic, time and other provisions of the covenant are necessary to protect such business interest; and (C) the covenant not to compete is otherwise reasonable and not contrary to public policy. In no event may a covenant not to compete restrict the physician's competitive activities (i) for a period of more than one year, or (ii) in a geographic region of more than fifteen miles from the primary site where such physician practices.

(2) A covenant not to compete between a hospital, health system, as defined in section 19a-508c of the general statutes, medical school or medical foundation, organized pursuant to subdivision (1) of subsection (a) of section 33-182bb of the general statutes, as amended by this act, and a physician may restrict only the physician's right to practice medicine with another hospital, a health system, as defined in section 19a-508c of the general statutes, a medical school or a medical foundation, organized pursuant to subdivision (1) of subsection (a) of section 33-182bb of the general statutes, as amended by this act.

(d) The remaining provisions of any contract or agreement that contains a covenant not to compete that is rendered void and unenforceable, in whole or in part, under the provisions of this section shall remain in full force and effect.

(e) Notwithstanding the provisions of this section, a covenant not to compete shall be void if (1) the employment or contractual relationship is terminated by the employer unless such termination is for good cause, or (2) the contract or agreement expires.

(f) A covenant not to compete shall not be subject to injunctive relief or specific enforcement in a court of law. Any party alleging violation of a covenant not to compete may bring an action for damages. Such action shall be subject to neutral binding arbitration by an arbitrator appointed by the court. Damages shall be limited to actual damages suffered. The party seeking enforcement of the covenant not to compete shall have the burden of proving by clear and convincing evidence: (1) That the covenant not to compete conforms to the requirements of this section, (2) that the covenant not to compete has been violated, and (3) the actual damages suffered. The costs of such action shall be borne by the party bringing the action.

Sec. 2. Section 19a-486i of the 2016 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2016):

(a) As used in this section:

(1) "Affiliation" means the formation of a relationship between two or more entities that permits the entities to negotiate jointly with third parties over rates for professional medical services;

(2) "Captive professional entity" means a partnership, professional corporation, limited liability company or other entity formed to render professional services in which a partner, a member, a shareholder or a beneficial owner is a physician, directly or indirectly, employed by, controlled by, subject to the direction of, or otherwise designated by (A) a hospital, [or] (B) a hospital system, (C) a medical school, (D) a medical foundation, organized pursuant to subdivision (1) of subsection (a) of section 33-182bb, as amended by this act, or (E) any entity that controls, is controlled by or is under common control with, whether through ownership, governance, contract or otherwise, another person, entity or organization described in subparagraphs (A) to (D), inclusive, of this subdivision;

(3) "Hospital" has the same meaning as provided in section 19a-490;

(4) "Hospital system" means: (A) A parent corporation of one or more hospitals and any entity affiliated with such parent corporation through ownership, governance or membership, or (B) a hospital and any entity affiliated with such hospital through ownership, governance or membership;

(5) "Health care provider" has the same meaning as provided in section 19a-17b;

(6) "Medical foundation" means a medical foundation formed under chapter 594b;

(7) "Physician" has the same meaning as provided in section 20-13a;

(8) "Person" has the same meaning as provided in section 35-25;

(9) "Professional corporation" has the same meaning as provided in section 33-182a;

(10) "Group practice" means two or more physicians, legally organized in a partnership, professional corporation, limited liability company formed to render professional services, medical foundation, not-for-profit corporation, faculty practice plan or other similar entity (A) in which each physician who is a member of the group provides substantially the full range of services that the physician routinely provides, including, but not limited to, medical care, consultation, diagnosis or treatment, through the joint use of shared office space, facilities, equipment or personnel; (B) for which substantially all of the services of the physicians who are members of the group are provided through the group and are billed in the name of the group practice and amounts so received are treated as receipts of the group; or (C) in which the overhead expenses of, and the income from, the group are distributed in accordance with methods previously determined by members of the group. An entity that otherwise meets the definition of group practice under this section shall be considered a group practice although its shareholders, partners or owners of the group practice include single-physician professional corporations, limited liability companies formed to render professional services or other entities in which beneficial owners are individual physicians; and

(11) "Primary service area" means the smallest number of zip codes from which the group practice draws at least seventy-five per cent of its patients.

(b) At the same time that any person conducting business in this state that files merger, acquisition or any other information regarding market concentration with the Federal Trade Commission or the United States Department of Justice, in compliance with the Hart-Scott-Rodino Antitrust Improvements Act, 15 USC 18a, where a hospital, hospital system or other health care provider is a party to the merger or acquisition that is the subject of such information, such person shall provide written notification to the Attorney General of such filing and, upon the request of the Attorney General, provide a copy of such merger, acquisition or other information.

(c) Not less than thirty days prior to the effective date of any transaction that results in a material change to the business or corporate structure of a group practice, the parties to the transaction shall submit written notice to the Attorney General of such material change. For purposes of this subsection, a material change to the business or corporate structure of a group practice includes: (1) The merger, consolidation or other affiliation of a group practice with (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized or controlled by such hospital or hospital system; (2) the acquisition of all or substantially all of (A) the properties and assets of a group practice, or (B) the capital stock, membership interests or other equity interests of a group practice by (i) another group practice that results in a group practice comprised of eight or more physicians, or (ii) a hospital, hospital system, captive professional entity, medical foundation or other entity organized or controlled by such hospital or hospital system; (3) the employment of all or substantially all of the physicians of a group practice by (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized by, controlled by or otherwise affiliated with such hospital or hospital system; and (4) the acquisition of one or more insolvent group practices by (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized by, controlled by or otherwise affiliated with such hospital or hospital system.

(d) (1) The written notice required under subsection (c) of this section shall identify each party to the transaction and describe the material change as of the date of such notice to the business or corporate structure of the group practice, including: (A) A description of the nature of the proposed relationship among the parties to the proposed transaction; (B) the names and specialties of each physician that is a member of the group practice that is the subject of the proposed transaction and who will practice medicine with the resulting group practice, hospital, hospital system, captive professional entity, medical foundation or other entity organized by, controlled by, or otherwise affiliated with such hospital or hospital system following the effective date of the transaction; (C) the names of the business entities that are to provide services following the effective date of the transaction; (D) the address for each location where such services are to be provided; (E) a description of the services to be provided at each such location; and (F) the primary service area to be served by each such location.

(2) Not later than thirty days after the effective date of any transaction described in subsection (c) of this section, the parties to the transaction shall submit written notice to the Commissioner of Public Health. Such written notice shall include, but need not be limited to, the same information described in subdivision (1) of this subsection. The commissioner shall post a link to such notice on the Department of Public Health's Internet web site.

(e) Not less than thirty days prior to the effective date of any transaction that results in an affiliation between one hospital or hospital system and another hospital or hospital system, the parties to the affiliation shall submit written notice to the Attorney General of such affiliation. Such written notice shall identify each party to the affiliation and describe the affiliation as of the date of such notice, including: (1) A description of the nature of the proposed relationship among the parties to the affiliation; (2) the names of the business entities that are to provide services following the effective date of the affiliation; (3) the address for each location where such services are to be provided; (4) a description of the services to be provided at each such location; and (5) the primary service area to be served by each such location.

(f) Written information submitted to the Attorney General pursuant to subsections (b) to (e), inclusive, of this section shall be maintained and used by the Attorney General in the same manner as provided in section 35-42.

(g) No partnership, professional corporation, limited liability company or other entity formed to render professional services shall be a captive professional entity of an insurance company.

[(g)] (h) Not later than December 31, 2014, and annually thereafter, each hospital and hospital system shall file with the Attorney General and the Commissioner of Public Health a written report describing the activities of the group practices owned or affiliated with such hospital or hospital system. Such report shall include, for each such group practice: (1) A description of the nature of the relationship between the hospital or hospital system and the group practice; (2) the names and specialties of each physician practicing medicine with the group practice; (3) the names of the business entities that provide services as part of the group practice and the address for each location where such services are provided; (4) a description of the services provided at each such location; and (5) the primary service area served by each such location.

[(h)] (i) Not later than December 31, 2014, and annually thereafter, each group practice comprised of thirty or more physicians that is not the subject of a report filed under subsection [(g)] (h) of this section shall file with the Attorney General and the Commissioner of Public Health a written report concerning the group practice. Such report shall include, for each such group practice: (1) The names and specialties of each physician practicing medicine with the group practice; (2) the names of the business entities that provide services as part of the group practice and the address for each location where such services are provided; (3) a description of the services provided at each such location; and (4) the primary service area served by each such location.

[(i)] (j) Not later than December 31, 2015, and annually thereafter, each hospital and hospital system shall file with the Attorney General and the Commissioner of Public Health a written report describing each affiliation with another hospital or hospital system. Such report shall include: (1) The name and address of each party to the affiliation; (2) a description of the nature of the relationship among the parties to the affiliation; (3) the names of the business entities that provide services as part of the affiliation and the address for each location where such services are provided; (4) a description of the services provided at each such location; and (5) the primary service area served by each such location.

Sec. 3. Section 19a-508d of the 2016 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2016):

Each health care provider that refers a patient to another health care provider who is not a member of the same partnership, professional corporation or limited liability company formed to render professional services but is affiliated with the referring health care provider shall notify the patient, in writing, that the health care providers are affiliated. Such notice shall also [(1)] inform the patient that the patient (1) is not required to see the provider to whom he or she is referred and that the patient has a right to seek care from the health care provider chosen by the patient, and (2) [provide the patient with the Internet web site and toll-free telephone number of the] may contact the patient's health carrier to obtain information regarding other in-network health care providers and estimated out-of-pocket costs for the referred service. A health care provider is not required to provide notice to a patient pursuant to this section if the health care provider otherwise provides substantially similar notice to patients pursuant to federal law. For purposes of this section, "affiliated" means a relationship between two or more health care providers that permits the health care providers to negotiate jointly or as a member of the same group of health care providers with third parties over rates for professional medical services. "Affiliated" does not include participation in an accountable care organization or similar value-based collaborative care model where the participating providers do not jointly negotiate with third parties over rates for professional medical services.

Sec. 4. (Effective from passage) The Commissioner of Public Health shall study the licensure of limited service health clinics. Not later than December 1, 2016, the commissioner shall submit a report, in accordance with the provisions of section 11-4a of the general statutes, to the joint standing committee of the General Assembly having cognizance of matters relating to public health concerning the results of such study. Such report shall include, but need not be limited to, recommendations for legislation to establish a licensure category for limited service health clinics.

Sec. 5. Section 19a-509 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2016):

(a) All hospitals and all nursing homes shall include on their admission forms a question as to whether a person is a veteran or the spouse of a veteran. All hospitals shall include on their admission forms a conspicuous notice that a self-pay patient may, upon request, receive a copy of the hospital charges related to such patient. Such admission forms shall also include a conspicuous notice specifying the name and contact information of a person whom the patient may contact to request a copy of the hospital charges related to the patient.

(b) All hospitals shall include in their bills to patients, and to third party payors unless previously furnished, (1) an explanation of any items identified by any code or by initials, and (2) the hospital's cost-to-charge ratio. Upon request by a self-pay patient, a hospital shall provide such patient with an itemized bill not later than thirty days after the date of such request. Such itemized bill shall identify, in plain language pursuant to chapter 742, each individual service, supply or medication provided to the patient by the hospital and the specific charge for such service, supply or medication.

(c) No nursing home may bill a patient or third party payor an amount for telephone service, community antenna television service or other telecommunications service, which amount includes a surcharge or administrative fee or which otherwise exceeds the amount paid by the nursing home to provide such service.

Sec. 6. Section 33-182aa of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2016):

As used in this chapter:

(1) "Affiliate" means any person that directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with another person. A person is deemed controlled by another person if the other person, or one of that other person's affiliates, officers, agents or management employees, acts as a general partner or manager of the person in question;

(2) "Certificate of incorporation" means a certificate of incorporation, as defined in section 33-1002, or any predecessor statute thereto;

(3) "Hospital" means a hospital licensed pursuant to chapter 368v;

(4) "Health system" means a business entity consisting of a parent corporation of one or more hospitals licensed pursuant to chapter 368v, and affiliated through governance, membership or some other means;

(5) "Medical school" means a school of allopathic medicine leading to the M.D. degree, accredited by the Liaison Committee on Medical Education, and affiliated through governance with or part of a university that is either incorporated in this state or established pursuant to any provision of the general statutes and accredited by the New England Association of Schools and Colleges Commission on Institutions of Higher Education; [and]

(6) "Provider" means a physician licensed under chapter 370, a chiropractor licensed under chapter 372, an optometrist licensed under chapter 380 or a podiatrist licensed under chapter 375; and

(7) "Independent practice association" means an organization of independent providers and other licensed health professionals that provide services to and on behalf of its members or owners. Such services may include (A) practice management and administrative services such as accounting, payroll, billing, human resource and information technology services, (B) contract management and managed care organizations, and (C) collaborative efforts to implement value-based care models.

Sec. 7. Section 33-182bb of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2016):

(a) (1) Any hospital, health system or medical school may organize and become a member of a nonprofit medical foundation under the provisions of chapter 602 for the purpose of practicing medicine and providing health care services as a medical foundation through employees or agents of such medical foundation who are providers. [Such]

(2) Any independent practice association or other business entity (A) that is registered to do business in this state pursuant to title 33 or 34, (B) that has a principal place of business in the state, and (C) that has sixty per cent or more of the entity's ownership and control held individually or jointly by an independent practice association, a provider, or a professional partnership, professional corporation or limited liability company that is not a captive professional entity, as defined in section 19a-486i, as amended by this act, and that is formed to render professional medical services, and each partner, shareholder or member of such professional partnership, professional corporation or limited liability company is a physician licensed under chapter 370, may organize and become a member of a medical foundation for the purpose of practicing medicine and providing health care services as a medical foundation through employees or agents of such medical foundation who are providers. The ownership or control of any independent practice association or other business entity organizing a medical foundation pursuant to this subdivision may not include any hospital, health system, medical school or medical foundation organized pursuant to subdivision (1) of this subsection or insurance company.

(3) A medical foundation shall be governed by a board of directors, which shall consist of an equal or greater number of providers than nonprovider employees of the members, in addition to such other directors as may be elected by the members. The authority to appoint or elect board members shall not be granted to any person or entity that is not a member of the medical foundation.

[(2)] (4) Notwithstanding the provisions of this subsection, (A) no employee or representative of a for-profit hospital, for-profit health system, for-profit medical school or any entity that owns or controls a for-profit hospital, for-profit health system or for-profit medical school may serve on the board of directors of a medical foundation organized by a nonprofit hospital, nonprofit health system or nonprofit medical school or a medical foundation organized pursuant to subdivision (2) of this subsection; (B) no employee or representative of a nonprofit hospital, nonprofit health system, nonprofit medical school or any entity that owns or controls a nonprofit hospital, nonprofit health system or nonprofit medical school may serve on the board of directors of a medical foundation organized by a for-profit hospital, for-profit health system or for-profit medical school or a medical foundation organized pursuant to subdivision (2) of this subsection; and (C) no person shall serve on the board of directors of [a] more than one medical foundation. [organized by a for-profit hospital, for-profit health system or for-profit medical school and, at the same time, serve on the board of directors of a medical foundation organized by a nonprofit hospital, nonprofit health system or nonprofit medical school.]

(b) Any medical foundation organized on or after July 1, 2009, shall file a copy of its certificate of incorporation and any amendments to its certificate of incorporation with the Office of Health Care Access division of the Department of Public Health not later than ten business days after the medical foundation files such certificate of incorporation or amendment with the Secretary of the State pursuant to chapter 602.

(c) Any medical group clinic corporation formed under chapter 594 of the general statutes, revision of 1958, revised to 1995, which amends its certificate of incorporation pursuant to subsection (a) of section 33-182cc, shall file with the Office of Health Care Access division of the Department of Public Health a copy of its certificate of incorporation and any amendments to its certificate of incorporation, including any amendment to its certificate of incorporation that complies with the requirements of subsection (a) of section 33-182cc, not later than ten business days after the medical foundation files its certificate of incorporation or any amendments to its certificate of incorporation with the Secretary of the State.

(d) Any medical foundation, regardless of when organized, shall file notice with the Office of Health Care Access division of the Department of Public Health and the Secretary of the State of its liquidation, termination, dissolution or cessation of operations not later than ten business days after a vote by its board of directors or members to take such action. A medical foundation shall, annually, provide the office with (1) a statement of its mission, (2) the name and address of the organizing members, (3) the name and specialty of each physician employed by or acting as an agent of the medical foundation, (4) the location or locations where each such physician practices, (5) a description of the services [it provides,] provided at each such location, (6) a description of any significant change in its services during the preceding year, (7) a copy of the medical foundation's governing documents and bylaws, (8) the name and employer of each member of the board of directors, and (9) other financial information as reported on the medical foundation's most recently filed Internal Revenue Service return of organization exempt from income tax form, or any replacement form adopted by the Internal Revenue Service, or, if such medical foundation is not required to file such form, information substantially similar to that required by such form. The Office of Health Care Access shall make such forms and information available to members of the public and accessible on said office's Internet web site.

(e) A medical foundation [shall not operate for profit and] may operate at such locations as are designated by its members.

(f) A hospital, health system, [or] medical school, independent practice association or other business entity authorized to organize a medical foundation may organize and be a member of no more than one medical foundation.

Sec. 8. Section 33-182ff of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2016):

[Chapter 602 is applicable] The provisions of titles 33 and 34, as applicable, shall apply to a medical foundation organized pursuant to this chapter, except to the extent that any of the provisions of this chapter are interpreted to be in conflict with [the] such provisions, [of said chapter 602,] in which event the provisions of this chapter shall take precedence with respect to such medical foundation. A medical foundation organized under this chapter may consolidate or merge only with another medical foundation organized under this chapter or under chapter 594 of the general statutes, revision of 1958, revised to 1995, that is duly organized pursuant to this chapter, a professional corporation organized under chapter 594a, a limited liability company organized under chapter 613 or a partnership or limited liability partnership organized under chapter 614, if such corporation, company or partnership is organized to render the same specific professional services.

Sec. 9. Subsection (e) of section 17b-59d of the 2016 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2016):

(e) Notwithstanding the provisions of subsection (d) of this section, [if,] on or before [January] July 1, 2016, the Commissioner of Social Services, [in consultation] with the approval of the State Health Information Technology Advisory Council, established pursuant to section 17b-59f, [submits] shall submit a plan to the Secretary of the Office of Policy and Management for the [establishment] procurement of a State-wide Health Information Exchange consistent with subsections (a), (b) and (c) of this section. [, and such plan is approved by the secretary] After receiving the secretary's approval of the plan, the commissioner [may] shall implement such plan and enter into any contracts or agreements to implement such plan to procure a health information exchange. The Commissioner of Social Services shall not acquire assets intended for use in the health information exchange prior to entering into a contract to procure the health information exchange.

This act shall take effect as follows and shall amend the following sections:

Section 1

from passage

New section

Sec. 2

October 1, 2016

19a-486i

Sec. 3

October 1, 2016

19a-508d

Sec. 4

from passage

New section

Sec. 5

October 1, 2016

19a-509

Sec. 6

October 1, 2016

33-182aa

Sec. 7

October 1, 2016

33-182bb

Sec. 8

October 1, 2016

33-182ff

Sec. 9

October 1, 2016

17b-59d(e)

Statement of Legislative Commissioners:

In Section 1(f)(1), "complies with this section" was changed to "conforms to the requirements of this section"; in the last sentence of Section 7(a)(2), "medical school, medical foundation" was changed to "medical school or medical foundation" for clarity; and in Section 9, "if," was bracketed for clarity and internal consistency.

PH

Joint Favorable Subst.

 

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 17 $

FY 18 $

UConn Health Ctr.

General and Clinical Funds – Cost/Revenue Loss

Significant

Significant

Social Services, Dept.

GF - Cost

See Below

See Below

Note: GF=General Fund

Municipal Impact: None

Explanation

Section 1 of the bill results in a potential significant cost and revenue loss to the University of Connecticut Health Center (UCHC) by setting limits on physician non-compete agreements. Non-compete agreements are used to protect initial investments, and ensure that physicians do not leave the institution to develop or join competing practices close by once they are acclimated to the area and have developed a patient base. Limiting such agreements would require the UCHC to provide greater inducements for physicians to remain with the UCHC. Additionally the UCHC could lose significant clinical revenue if patients follow physicians to their new practices.

Section 9 will result in a cost to the Department of Social Services (DSS) due to requiring, rather than allowing, the department to implement a plan for the procurement of a State-wide Health Information Exchange. Under current law, plan implementation can be accomplished without procurement. The actual fiscal impact of the bill's provisions is dependent on the cost of the contract.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

OLR Bill Analysis

sSB 351

AN ACT CONCERNING MATTERS AFFECTING PHYSICIANS AND HOSPITALS.

SUMMARY:

This bill:

EFFECTIVE DATE: October 1, 2016, except upon passage for the provisions on physician non-compete agreements and the DPH commissioner's study of limited service health clinics.

1 — PHYSICIAN NON-COMPETE AGREEMENTS

The bill sets limitations on physician covenants not to compete—i.e., contracts or agreements that restrict a physician's right to practice medicine in any geographic area of the state for any period of time. Such covenants that exceed what is allowed by the bill are against public policy and are void and unenforceable.

It appears that the bill applies to existing contracts. If so, it is unclear how the bill comports with the Contracts Clause of the U.S. Constitution (see BACKGROUND).

Allowable Scope and Restrictions

Under the bill, a physician covenant not to compete is valid and enforceable only if the covenant:

The bill prohibits any such covenant from restricting a physician's competitive activities (1) for longer than one year or (2) beyond 15 miles from the primary site where the physician practices (i.e., the office, facility, or location from where a majority of the revenue from the physician's services is generated).

The bill sets an additional restriction for covenants between physicians and (1) hospitals, health systems, or medical schools or (2) medical foundations formed by any such entities. It allows such covenants to restrict a physician's right to practice only with another such entity or medical foundation.

It also provides that a physician covenant not to compete is void if (1) it expires or (2) the employer terminates the employment or contractual relationship, unless that termination is for good cause.

If a covenant not to compete is rendered void and unenforceable under the bill, the remaining provisions of the contract remain in full force and effect.

Enforcement

The bill prohibits physician covenants not to compete from being subject to injunctive relief or specific enforcement in a court. Instead, a party alleging a violation of such a covenant may bring an action for actual damages suffered, subject to neutral binding arbitration conducted by a court-appointed arbitrator. The party bringing the action must pay the action's costs.

The party seeking to enforce the covenant must prove by clear and convincing evidence (1) that the covenant conforms to the bill's requirements, (2) that the covenant was violated, and (3) the actual damages suffered.

6-8 — MEDICAL FOUNDATIONS

Authority Extended to Independent Practice Associations and Other Specified Entities

Current law (1) authorizes a hospital, health system, or medical school to organize and become a member of a medical foundation to practice medicine and provide health care services as a medical foundation through its employees or agents who are physicians, chiropractors, optometrists, or podiatrists (“providers”) and (2) prohibits a medical foundation from operating for profit.

The bill allows certain other entities to form for-profit or nonprofit medical foundations. This applies to independent practice associations and certain other entities formed to render professional medical services.

For this authority to apply, the independent practice association or other business entity must:

Also, if the entity is a partnership, professional corporation, or LLC, each partner, shareholder, or member must be a physician.

Under the bill, an “independent practice association” is an organization of independent providers and other licensed health professionals that provides services to and on behalf of its members or owners, including (1) practice management and administrative services, such as accounting, payroll, billing, human resources, and information technology, (2) contract management and managed care organizations, and (3) collaborative efforts to implement value-based care models.

By law and the bill, an entity may organize and join no more than one medical foundation.

Current law provides that the non-stock corporation law applies to a medical foundation organized under the medical foundation law, except that any of the medical foundation law's provisions that conflict with the non-stock corporation law are controlling. The bill makes a conforming change for new medical foundations that are subject to other business entity laws, specifying that the medical foundation law controls in the case of a conflict.

Board of Directors

As under existing law, a medical foundation must be governed by a board of directors, with providers comprising at least half of the board.

The bill prohibits anyone who is employed by, represents, or owns or controls a hospital, health system, or medical school (whether nonprofit or for-profit) from serving on the board of a medical foundation organized by an independent practice association or other entity formed to render professional medical services as described above. Existing law prohibits anyone who is employed by, represents, or owns or controls a for-profit hospital, health system, or medical school from serving on the board of a medical foundation organized by such a nonprofit entity and vice versa.

Current law prohibits an individual from simultaneously serving on the boards of a medical foundation organized by a for-profit and nonprofit entity. The bill expands this by prohibiting anyone from serving on the board of more than one medical foundation, however organized.

Annual Reporting Requirements

Existing law requires medical foundations to file specified information annually with DPH's Office of Health Care Access (OHCA). The bill (1) extends this requirement to the new medical foundations it authorizes and (2) adds to the information that all medical foundations must report.

In addition to what is required by current law, the bill requires medical foundations to annually provide to OHCA:

Under current law, this required annual reporting includes a description of the medical foundation's services. The bill specifies that this must be a description of the services provided at each location where a physician employed by, or acting as an agent of the foundation, practices.

By law and under the bill, OHCA must make this information available to the public and accessible on its website.

9 — STATEWIDE HEALTH INFORMATION EXCHANGE PLAN

By law, DSS has administrative authority over the Statewide Health Information Exchange (which is not yet operational).

Current law establishes a procedure for the commissioner to enter a contract to establish the exchange without issuing a request for proposals. He may do so if (1) by January 1, 2016 and in consultation with the State Health Information Technology Advisory Council, he submitted a plan, consistent with the law's requirements for the exchange, to the Office of Policy and Management secretary and (2) the secretary approves the plan.

The bill instead requires the commissioner, by July 1, 2016 and with the council's approval, to submit a plan to the secretary to procure a statewide health information exchange consistent with the law's requirements. (This section does not take effect until October 1, 2016.)

The bill requires the commissioner, after the secretary approves the plan, to implement it and enter any necessary contracts to procure such an exchange. It prohibits the commissioner from acquiring assets intended for the exchange before entering such a contract.

2 — CAPTIVE PROFESSIONAL ENTITIES

The bill prohibits partnerships, professional corporations, LLCs, or other entities formed to render professional services from being captive professional entities of an insurance company.

For this purpose, it expands an existing definition of “captive professional entity” that applies to notice requirements of material changes to certain physician group practices (see BACKGROUND).

Current law defines a captive professional entity as a professional corporation, LLC, or other entity formed to render professional services in which a beneficial owner is a physician employed by or otherwise designated by a hospital or hospital system. The bill (1) specifies that a partnership may be a captive professional entity, (2) adds to the types of relationships the physician may have to the employing or similar organization, and (3) adds to the types of such organizations.

Thus, the bill defines a captive professional entity as any partnership, professional corporation, LLC, or other entity formed to render professional services in which a partner, member, shareholder, or beneficial owner is a physician directly or indirectly employed by, controlled by, subject to the direction of, or otherwise designated by:

This definition also applies to the bill's provisions on medical foundations (see above).

5 — COST-TO-CHARGE RATIO ON HOSPITAL BILLS

The bill requires hospitals to include their cost-to-charge ratio on bills to (1) patients and (2) third party payers unless provided to such payers already.

3 — NOTICE OF REFERRAL TO AFFILIATED PROVIDERS

By law, health care providers generally must give patients written notice when referring them to an affiliated provider who is not a member of the same partnership, professional corporation, or LLC as the referring provider.

For this purpose, current law defines “affiliated” as a relationship between two or more providers that permits them to negotiate, jointly or as members of a provider group, with third parties over rates for professional medical services. The bill specifies that this does not include participating in an accountable care organization or similar value-based collaborative care model where the participating providers do not jointly negotiate such rates with third parties.

The bill also eliminates a requirement that the required notice include the website and phone number of the patient's health carrier from which to obtain information on in-network providers and estimated out-of-pocket costs. Instead, it requires the notice to inform the patient that he or she may contact his or her carrier to obtain information on other in-network providers and such estimated costs.

4 — STUDY OF LIMITED SERVICE HEALTH CLINIC LICENSURE

The bill requires the DPH commissioner to study the licensure of limited service health clinics. By December 1, 2016, he must report on the study to the Public Health Committee, including on recommendations for legislation to establish a licensure category for these clinics.

BACKGROUND

Contracts Clause

The Contracts Clause of the U.S. Constitution (Article I, Section 10) bars states from passing laws that impair the obligation of contracts. When analyzing an alleged contracts clause violation, the threshold inquiry for a court is whether a state law has substantially impaired a contractual relationship. If so, in deciding whether to uphold the law at issue, the court must determine whether the (1) law has a legitimate and important public purpose and (2) adjustment of the rights of the parties to the contractual relationship was reasonable and appropriate in light of that purpose (Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411-413 (1983)).

Notice of Material Change to Physician Group Practice

By law, parties engaging in a transaction that materially changes a physician group practice must notify the (1) attorney general at least 30 days before the transaction takes effect and (2) DPH commissioner no later than 30 days after it takes effect. For this purpose, a material change includes any of the following transactions between a physician group and various entities, including a captive professional entity:

COMMITTEE ACTION

Public Health Committee

Joint Favorable Substitute

Yea

18

Nay

10

(03/21/2016)

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