Initiative Briefs. Five proposed initiatives of great importance to California hospitals

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1 Initiative Briefs Five proposed initiatives of great importance to California hospitals In addition to the issue papers, CHA provides briefs on five proposed Initiatives of great importance to California hospitals. While members will not lobby these initiatives during the legislative visits, we provide this information so that attendees will be prepared in the event a legislator asks a question during the visits. These materials were provided by the initiative campaigns. The Initiative Briefs are as follows: Support Medi-Cal Funding and Accountability Act of 2014 CHA s Hospital Fee Initiative Oppose SEIU-UHW s Hospital Executive Compensation Initiative Oppose SEIU-UHW s Hospital Pricing Initiative Oppose Raising the MICRA Cap on non-economic damages in medical malpractice cases Oppose Health Plan Rate Regulation A special section on the 2014 ballot initiatives has been created on the CHA website at: The website includes links to the coalitions connected to the initiatives.

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3 The Truth About SEIU s Misleading Initiatives March 2014 Service Employees International Union-United Healthcare Workers (SEIU-UHW) is attempting to qualify two initiatives for the November 4, 2014 general election ballot: One initiative would force targeted private non-profit hospitals to limit executives total annual compensation to $450,000. More than half of California s hospitals would be exempted from this requirement. The targeted hospitals must absorb the loss of experienced leaders at the same time these hospitals are navigating the complexities of implementing the Affordable Care Act. The other initiative would impose arbitrary price caps on targeted hospitals; but the exempted hospitals including public, specialty and children s hospitals can set their charges without any limits. These initiatives are dangerous. They will reduce the availability of hospital care for patients and put at risk funding for vital children s healthcare services. Patients throughout California are the ones that will suffer the consequences of SEIU-UHW s ill-conceived initiatives as they will basically serve to limit the availability of hospital services. Patients will see a reduction or loss of essential hospital services like maternity and pediatric care, healthcare staff will be laid off, and investments in new equipment and technology will be severely reduced or eliminated altogether. Further, the independent State Legislative Analyst Office (LAO) has determined that the pricing initiative could significantly decrease the funds that state and local governments receive through the hospital fee program that help cover the costs for children s healthcare and patients on Medi-Cal. Thereby reducing by hundreds of millions of dollars per year funding for healthcare services to those who need it the most. These initiatives are dishonest. They are an abuse of the initiative process by one special interest group. This is a union power play, plain and simple. As the LA Times reported, these measures represent a new type of corporate campaign whereby one labor union is attempting to leverage hospitals in order to serve its own self-interest to increase its union membership not to serve the public s interest. These initiatives are dishonest because they are not really about reducing healthcare costs. They are about pressuring targeted hospitals into buckling to their demands to organize under neutrality agreements. Paid for by Californians Against Initiative Abuse, sponsored and funded by California Association of Hospitals and Health Systems and California Hospitals Committee on Issues, sponsored by California Association of Hospitals and Health Systems K Street, Suite 800 Sacramento, CA Page 1

4 These initiatives are deceptive. They are filled with loopholes and exemptions based on pure politics. Both initiatives exempt public hospitals and specialty hospitals. The executive compensation initiative exempts half of all hospitals in the state. If these initiatives are really about lowering the cost of healthcare, then why are there so many exemptions? The answer is obvious. Everyone agrees with the goal of managing healthcare costs but these initiatives are deceptive and will not address the underlying drivers of rising healthcare costs. Loss of state general funds The pricing initiative will reduce the funding available within the Medi-Cal Hospital Fee program by $1.8 billion annually. The State General Fund will lose $220 million annually from the Medi-Cal Hospital Fee program ($330 million during the last half of the current three-year hospital fee program). This also results in the return of nearly $1 billion a year in funds to the federal government. Summary Abusing the initiative process by one interest group through attempts to leverage another group must be rejected. Otherwise, the floodgates will be opened to leverage-based initiatives in the future. Ballot initiatives should serve the public interest. The SEIU-UHW initiatives do not serve the public. Rather, they will cause harm to all Californians who need hospital services. The vision of California hospitals is an optimally healthy society. These initiatives attack that goal and undermine the implementation of the Affordable Care Act. All healthcare systems and hospitals stand united in opposition to the union s dangerous, dishonest, deceptive initiatives. California residents expect to have necessary hospital services available when they are needed, and hospitals are committed to delivering the best care possible. Residents and hospitals deserve better than to be misled and strong-armed by one union. Paid for by Californians Against Initiative Abuse, sponsored and funded by California Association of Hospitals and Health Systems and California Hospitals Committee on Issues, sponsored by California Association of Hospitals and Health Systems K Street, Suite 800 Sacramento, CA Page 2

5 SUMMARY OF SEIU-UHW S EXECUTIVE COMPENSATION INITIATIVE Based on the Analysis by the Independent Legislative Analyst s Office March 5, 2014 Service Employees International Union United Healthcare Workers West (SEIU-UHW) is pursuing two ballot initiatives for the November 4, 2014, general election. A summary of the Executive Compensation initiative follows: BACKGROUND Two Broad Categories of Hospitals: Public and Private. Hospitals generally fall into one of two broad categories: public or private. A public hospital is operated by the state of California, a county, a city, the University of California, a local health district or authority, or any other political subdivision of the state. A private hospital is typically operated by a corporation (either for-profit or nonprofit). In California, about 80 percent of hospitals are private hospitals and about 20 percent of hospitals are public hospitals. Relative to private hospitals, public hospitals tend to deliver a large percentage of medical care to uninsured and low-income persons in California. Public hospitals primarily are funded from federal, state, and/or local government payments. Two Broad Categories of Private Hospitals: For-Profit and Nonprofit. For taxation purposes, there are two broad categories of private hospitals: for-profit and nonprofit. Of the private hospitals in California, about 30 percent are for-profit and about 70 percent are nonprofit. The for-profit hospitals pay corporate income taxes to the state and local sales and property taxes. Nonprofit hospitals are exempt from state corporate income taxes and local sales and property taxes. The tax exemptions for nonprofit hospitals are intended to allow them to use the funds that would have been paid in taxes to provide patient care, invest in their facilities and equipment, and implement other measures that would be beneficial to their delivery of health care services, such as providing charity care and community benefits. Charity care is generally considered to be care provided for which payment is not expected and patients are not billed. Executive Compensation at Nonprofit Hospitals. A recent study published in the Journal of the American Medical Association Internal Medicine found that nonprofit hospital Chief Executive Officers (CEOs) nationwide earned almost $600,000 on average in 2009; although, earnings ranged from less than $50,000 to over $3 million. The CEOs managing nonprofit teaching hospitals and managing large nonprofit hospitals in urban areas were paid more than other CEOs. As of 2011, it is estimated, based on tax filings, that there were a few hundred nonprofit hospital executives in California earning total annual compensation above $450,000. Paid for by Californians Against Initiative Abuse, sponsored and funded by California Association of Hospitals and Health Systems and California Hospitals Committee on Issues, sponsored by California Association of Hospitals and Health Systems 1215 K Street, Suite 800, Sacramento, CA 95814

6 Pg. 2 PROPOSAL This measure would impose a cap on total annual compensation for executives at nonprofit hospitals, impose new data reporting requirements on nonprofit hospitals, impose new administrative responsibilities on the Attorney General (AG), and give the AG authority to oversee and enforce the provisions of this measure. This measure would go into effect on January 1, Caps Executive Compensation at Nonprofit Hospitals Executive Compensation May Not Exceed the Salary of the President of the United States. This measure imposes a cap on total annual compensation paid to nonprofit hospital executives at the salary received by the President of the United States. Currently, the President makes $450,000 per year. Executives are defined under this measure to include individuals whose primary responsibilities are executive, managerial, or administrative, such as CEOs or chief financial officers, for example. Total annual compensation capped by this measure includes, but is not limited to, wages, salary, paid time off, bonuses, incentive payments, lump-sum cash payments, loan forgiveness, housing payments, travel, meals, reimbursement for entertainment or social club memberships, the cash value of housing or automobiles, scholarships or fellowships, the cash value of stock options or awards, and payments or contributions to severance. Total annual compensation does not include the cost of health insurance or disability insurance, or contributions to health reimbursement accounts. The President receives tens of millions of dollars annually in housing (White House), food, transportation, etc., and is guaranteed lifetime protection, staff and $190,000 in pension payments. Summary of Fiscal Effects This measure would have the following significant fiscal effect (according to the State Legislative Analyst s Office): State administrative costs in the low millions of dollars annually to enforce the measure, with authority to recover costs through fees assessed on nonprofit hospitals. Paid for by Californians Against Initiative Abuse, sponsored and funded by California Association of Hospitals and Health Systems and California Hospitals Committee on Issues, sponsored by California Association of Hospitals and Health Systems 1215 K Street, Suite 800, Sacramento, CA 95814

7 SUMMARY OF SEIU UHW HOSPITAL PRICING INITIATIVE Based on the Analysis by the Independent Legislative Analyst s Office March 5, 2014 Service Employees International Union United Healthcare Workers West (SEIU UHW) is pursuing two ballot initiatives for the November 4, 2014, general election. A summary of the Hospital Pricing initiative follows: BACKGROUND California Hospitals A general acute care hospital (hereafter referred to as hospital ) must be licensed by the state Department of Public Health (DPH) to operate in California. According to the Office of Statewide Health Planning and Development (OSHPD), there were 355 general acute care hospitals operating in California in These hospitals fall under two broad categories: Public Hospitals. These are 61 hospitals operated by counties, the University of California, health care districts, cities, or other political subdivisions of the state. Private Hospitals. These are 294 hospitals owned and operated by nonprofit or for profit entities. Chargemaster Lists Gross Charges for Services and Items A chargemaster is a file system used and maintained by each hospital to inventory and record services and items provided to patients. Specifically, the chargemaster includes an entry for every individual service and item that is provided at the hospital and recognized by payers for the purposes of billing and payment determination. (Billing refers to the process of submitting claims, invoices, and other required documents to third party payers and patients to obtain payment for services rendered.) Examples of services that appear on a chargemaster are laboratory tests and x rays, and examples of items that appear on a chargemaster are medications and medical instruments. Many services such as laundry, housekeeping, maintenance, insurance, administration, utilities, etc., are not charged separately on the chargemaster. Most Hospital Payments Are Not Directly Based on Gross Charges Hospitals gross charges have been likened to automobile sticker prices or hotel rack rates due to some perceived similarities in that the list prices are significantly higher than the payment sellers expect to ultimately receive from most buyers. However, these analogies imply that consumers or their agents eventually negotiate Paid for by Californians Against Initiative Abuse, sponsored and funded by California Association of Hospitals and Health Systems and California Hospitals Committee on Issues, sponsored by California Association of Hospitals and Health Systems 1215 K Street, Suite 800, Sacramento, CA 95814

8 Pg. 2 and pay some percentage discount that is based off of the original list prices. In contrast, most third party payments for hospital services have increasingly moved away from using gross charges as a basis for setting payments. Most third parties (private and government) pay hospitals on a per day, per diagnosis, per case, per episode, global amount or capitation. Charges have little effect on most payments to hospitals. PROPOSAL This measure places a cap on certain private hospitals gross charges for patient care services or items, requires these hospitals to file reports with state agencies, and imposes penalties for failure to comply with the measure s provisions. This measure goes into effect on July 1, Public hospitals and private children s hospitals are exempted from the application of this measure. Therefore, the measure would apply to about 289 private hospitals. Measure Limits Gross Charges Set by Certain Private Hospitals Limit on Gross Charges Based on Hospitals Actual Costs as defined in the initiative. The measure generally limits a private hospital s gross charges to individual persons and third party payers, such as insurers, to 25 percent above the hospital s good faith reasonable estimate of its actual costs for a service or item to each patient. The measure requires private hospitals estimates of actual costs to be consistent with what is an allowable and reportable cost under federal regulations. The measure provides that the 25 percent limit on gross charges above allowable costs may be adjusted upward according to the hospital specific factors discussed below. Limit on Gross Charges May Be Adjusted Upwards Based on Various Factors. There are two ways the measure allows private hospitals to have the limit on gross charges that would otherwise generally apply to them under the measure adjusted upwards. A private hospital may have the limit adjusted upward by applying a formula that accounts for various fiscal factors, including whether the hospital incurred net losses in its provision of care for patients who are uninsured or covered under certain government programs. A private hospital may have the limit on gross charges that applies to it adjusted upward if it can prove in court that the limit would prevent the hospital from realizing a reasonable return on its investments. Private Hospitals Must Revise Chargemasters. Hospitals subject to the measure must set and maintain their gross charges for services and items on their chargemaster, subject to the measure s limits. Under the measure, hospitals may only list gross charges that comply with this limit on their chargemasters. A hospital must attest on all billing statements that it has not charged any patients or payers above this limit. Limit on Total Revenues and Refund Requirement. If a hospital s revenue for each payer (as limited by the measure) for any year exceed its individual patient care expenses incurred that year (again defined as reasonable and allowable costs under federal regulations), then the hospital must refund each payer an amount equal to the Paid for by Californians Against Initiative Abuse, sponsored and funded by California Association of Hospitals and Health Systems and California Hospitals Committee on Issues, sponsored by California Association of Hospitals and Health Systems 1215 K Street, Suite 800, Sacramento, CA 95814

9 Pg. 3 actual revenues received by the hospital from that payer for patient care services, minus the capped gross charges for those services. Summary of Fiscal Effects The measure would result in the following major fiscal impacts (according to the State Legislative Analyst s Office): State and local government savings associated with reduced government employer sponsored health insurance spending on hospital services, potentially ranging from the mid to high hundreds of millions of dollars annually, offset to an unknown degree by (1) various responses by insurers and hospitals and (2) possible pressures to increase General Fund spending on Medi Cal hospital services. Significant state and local government costs over the next few years, due to likely decreased revenues from existing limited term fees on certain private hospitals to (1) offset state costs for children s health coverage and (2) support state and local public hospitals. Losses to the State General Fund will exceed $240 million per year. Hospitals will lose nearly $1 billion annually in federal Medicaid dollars. Further, private hospitals will lose more than $12 billion per year if this initiative passes (nearly 20 percent of their annual patient revenue). Paid for by Californians Against Initiative Abuse, sponsored and funded by California Association of Hospitals and Health Systems and California Hospitals Committee on Issues, sponsored by California Association of Hospitals and Health Systems 1215 K Street, Suite 800, Sacramento, CA 95814

10 Protect Access to Quality Health Care and Patient Privacy Oppose the Costly MICRA Measure Here s why a broad coalition of doctors, community health clinics, hospitals, local governments, public safety, business and labor opposes the proposed November ballot proposition that would make it easier and more profitable for lawyers to sue doctors and hospitals: Costly for consumers and taxpayers. According to California s independent Legislative Analyst s Office (LAO), the proposition could increase state and local government medical liability and health care costs by hundreds of millions of dollars annually, placing the burden of this additional cost on all of us. County and state hospitals have to pay medical malpractice awards out of the budgets they receive from taxpayers. If medical malpractice awards increase, government costs will increase too. Somebody has to pay, and that will be taxpayers through higher taxes and California citizens through higher health care premiums. This measure will vastly increase the number of lawsuits filed in California. That s one reason why the independent LAO says that state and local governments will see costs of tens of millions of dollars that taxpayers will have to pay. Jeopardizes the privacy of our personal health information. This measure mandates use of a government database with personal information on patients prescription drug history. Hackers have already managed to access personal information from millions of Target customers and even the Pentagon, and another big database will only make our information more vulnerable. A misleading measure intended to fool the voters. This measure was written by trial attorneys to make it easier and more profitable for lawyers to sue doctors and hospitals even if that means higher health costs for the rest of us. Our health laws should protect access to care and control costs for everyone, not increase lawsuits and payouts for lawyers.

11 A misleading measure intended to fool the voters. This is another example of special interest legislation intended to fool the voters into thinking this is something that it s not. Authors purposely added doctor drug testing to disguise the real intent: to increase lawsuits against health care providers, which will increase our health care costs and reduce access to quality healthcare. According to the Los Angeles Times: The drug rules are in the initiative because they poll well, and the backers figure that s the way to get the public to support the measure. It s the ultimate sweetener, says Jamie Court, the head of Consumer Watchdog. Jeopardizes patient access to quality health care. This measure will cause doctors to leave the state and practice in places where malpractice insurance rates are lower. Many people could lose their personal physician if this measure were to become law. Community health care clinics, like Planned Parenthood Affiliates of California, say this measure will raise insurance costs that will cause specialists, like OBGYNs, to reduce or eliminate services to their patients. Finding doctors to deliver babies in rural areas and work in community clinics is already difficult and reducing services will make a bad situation worse. There are regrettably individual tragic cases of medical negligence. Currently, the law requires unlimited awards for willful misconduct, and unlimited awards for loss of past and future income, and unlimited awards for past and future medical expenses. It is wrong to increase costs for all Californians when the system is working as is.

12 Health Care Initiative Will Impact Provider Reimbursement & Limit Access to Care A broad coalition of doctors, hospitals, health insurers and health care providers oppose the November 2014 statewide ballot initiative that gives the State Insurance Commissioner sweeping new powers over health care. This special interest measure - sponsored by the same trial lawyer-backed group that is pushing to increase MICRA lawsuits - would impact payments to providers and limit patient access to care. Here s why health care providers oppose this ballot initiative: Another Trial Lawyer Health Care Ballot Measure Coalition Members California Medical Association California Hospital Association California Association of Physician Groups California Children s Hospital Association Hospital Association of San Diego and Imperial Counties Hospital Association of Southern California Hospital Council of Northern and Central California Imperial County Medical Society Riverside County Medical Association San Bernardino County Medical Society Santa Clara County Medical Association Southern California Public Health Association *Partial Listing Measure Gives One Politician Control over Health Insurance Rates, Benefit Levels and Co-pays Decisions that Ultimately Impact Provider Reimbursements and Patient Access to Care The measure would give the State Insurance Commissioner total control over our health insurance for individuals and small groups, including the power to approve or reject insurance rates, benefit levels, co-pays and deductibles. Giving one politician the power to approve or reject benefits interferes with care decisions that are better made between doctors, health care providers and patients. The measure would also allow the Commissioner to set rates at levels which don t meet the cost of providing care, resulting in lower reimbursements to providers and ultimately reduced access to care for patients. Measure Sponsored by the Same Trial Lawyer Front Group Pushing to Repeal MICRA The same trial lawyer funded group pushing to repeal MICRA Consumer Watchdog is behind this measure. Even though it would create a massive layer of regulation of health care in California, they drafted it without any input from doctors or health care providers. The real motives are found buried in the fine print a provision that opens up a new mechanism that allows proponents and their trial lawyer backers to file regulatory and legal challenges in rate proceedings, and pocket millions of dollars in so-called intervenor fees. In fact, the proponents have already received over $11.5 million from a similar provision used in auto and home insurance regulation. Measure Could Jeopardize Implementation of the Affordable Care Act and Create Uncertainty at the Worst Possible Time Under the ACA and California law implementing the ACA, Covered California (California s health insurance market exchange) is explicitly required to negotiate directly with participating health plans to establish rates and coverage levels. But the initiative, which was written in 2011, years before Covered California was in existence, gives the Insurance Commissioner the authority to approve or reject the rates, benefits, co-pays and deductibles that Covered California has already negotiated. In other words, after Covered California has negotiated and finalized rates, benefits, copays, and deductibles, the Insurance Commissioner could go in and reject or change these rates and benefit levels. This could delay the ability of patients to enroll in plans under contention and potentially cause disruption in continuity of care K Street, Suite 2260 Sacramento CA, info@stophighercosts.com Paid for by Californians Against Higher Health Care Costs, a coalition of doctors, hospitals, health insurers, and California employers. Major funding by Wellpoint, Inc., Kaiser Foundation Health Plan, Inc., Blue Shield of California, Health Net, Inc. and United Healthcare Insurance Company.