CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill
No. 1091

Introduced by Assembly Member Wood

February 15, 2023

An act to add Section 685 to the Business and Professions Code, to add Sections 5931, 5932, and 5933 to the Corporations Code, to add Sections 1255.4 and 1371.26 to the Health and Safety Code, and to add Section 10123.149 to the Insurance Code, relating to health care.


LEGISLATIVE COUNSEL'S DIGEST


AB 1091, as introduced, Wood. Health Care Consolidation and Contracting Fairness Act of 2023.
Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care, and makes a willful violation of the act a crime. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law regulates contracts between health care service plans or health insurers and health care providers or health facilities, including requirements for reimbursement and the cost-sharing amount collected from an enrollee or insured.
This bill, the Health Care Consolidation and Contracting Fairness Act of 2023, would prohibit a contract issued, amended, or renewed on or after January 1, 2024, between a health care service plan or health insurer and a health care provider or health facility from containing terms that, among other things, restrict the plan or insurer from steering an enrollee or insured to another provider or facility or require the plan or insurer to contract with other affiliated providers or facilities. The bill would authorize the appropriate regulating department to refer a plan’s or insurer’s contract to the Attorney General, and would authorize the Attorney General or state entity charged with reviewing health care market competition to review a health care practitioner’s or health facility’s entrance into a contract that contains specified terms. Because a willful violation of these provisions by a health care service plan would be a crime, the bill would impose a state-mandated local program.
Existing law requires a nonprofit corporation that operates or controls a health facility to provide written notice to, and obtain the written consent from, the Attorney General before entering an agreement to dispose of its assets or transfer control of a material amount of its assets. Existing law requires the Attorney General, within 90 days of receiving the written notice, to notify the corporation of the Attorney General’s decision to consent to, give conditional consent to, or not consent to the agreement. Existing law authorizes that period to be extended by 45 days if specified conditions are met.
This bill would require a medical group, hospital or hospital system, specified health facility, health care service plan, health insurer, or pharmacy benefit manager to provide written notice to the Attorney General at the same time as another state or federal agency is notified or otherwise at least 90 days before entering an agreement or transaction to make a specified material change with a value of $15,000,000 or more. The bill would authorize the Attorney General to consent to, give conditional consent to, or not consent to that agreement, and would require the Attorney General to notify the entity of the decision within 90 days, which may be extended by one 45-day period if specified conditions are met. The bill would authorize the Attorney General to stay the running of the 90-day period, pending the outcome of any review required by a state or federal agency. The bill would authorize a medical group, hospital or hospital system, specified health facility, health care service plan, health insurer, or pharmacy benefit manager, within 10 calendar days of that notification, to apply for reconsideration of the Attorney General’s decision under specified circumstances. The bill also would authorize a party to an agreement or transaction to seek judicial review of the Attorney General’s initial decision or reconsideration by a petition for writ of mandate, as prescribed. The bill would authorize the Attorney General to waive the written notice and consent requirements established by the bill if certain conditions apply.
The bill would require the Attorney General to conduct one or more public meetings before issuing a written decision on a major transaction, and would authorize the Attorney General to contract for assistance in reviewing a proposed material change and for monitoring ongoing compliance with the terms of a material change. The bill would prohibit an entity from entering into an agreement without the Attorney General’s written consent.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 685 is added to the Business and Professions Code, to read:

685.
 (a) Notwithstanding any other law, a health care practitioner licensed under this division shall not enter into, amend, enforce, or renew a contractual provision on or after January 1, 2024, with a health care service plan or health insurer if the contractual provision directly or indirectly does or implements any of the following:
(1) The contractual provision restricts the health care service plan or health insurer from doing or implementing either of the following:
(A) Directing or steering enrollees or insureds to other health care practitioners.
(B) Offering incentives to encourage enrollees or insureds to utilize or avoid health care practitioners.
(2) The contractual provision requires the health care service plan or health insurer to enter into an additional contract with any or all affiliates or individual facilities of any health care practitioner as a condition of entering into a contract.
(3) The contractual provision requires the health care service plan or health insurer to agree to payment rates or terms for an individual facility or affiliate of any health care practitioner as a condition of entering into a contract.
(4) The contractual provision requires the health care service plan or health insurer to agree to payment rates or other terms for an affiliate or individual facility that is not party to the contract.
(5) The contractual provision restricts other health care service plans or health insurers that are not party to the contract from paying a lower rate for items or services than the rate the contracting plan pays for those items or services.
(6) The contractual provision prevents a health care service plan or health insurer, directly or indirectly, from providing provider-specific cost or quality of care information, through a consumer engagement tool or any other means, to referring providers, the plan or insurer sponsor, enrollees, insureds, or eligible enrollees or insureds of the plan or insurer.
(b) A health care practitioner’s entrance into a contract that does or implements any of the conduct prohibited in subdivision (a) may be reviewed by the Attorney General and any other state entity charged with reviewing health care market competition for compliance with this section.
(c) Notwithstanding any other law, the Attorney General and any other state entity charged with reviewing health care market competition under this section shall be entitled to specific performance, injunctive relief, and other equitable remedies a court deems appropriate for enforcement of this section and shall be entitled to recover attorney’s fees and costs incurred in remedying each violation.
(d) The Attorney General and any other state agency charged with reviewing health care market competition under this section may adopt regulations to implement this section.
(e) The authority of the Attorney General to maintain competitive markets and prosecute state and federal antitrust and unfair competition violations shall not be narrowed, abrogated, or otherwise altered by this section.

SEC. 2.

 Section 5931 is added to the Corporations Code, to read:

5931.
 (a) (1) A medical group, hospital or hospital system, health facility described in subdivision (a), (b), or (c) of Section 1250 of the Health and Safety Code, health care service plan, health insurer, or pharmacy benefit manager, except for a nonprofit corporation subject to Sections 5914 and 5920, shall provide written notice to, and obtain the written consent of, the Attorney General before entering into an agreement or transaction to do either of the following:
(A) Sell, transfer, lease, exchange, option, encumber, convey, or otherwise dispose of a material amount of its assets.
(B) Transfer control, responsibility, or governance of a material amount of its assets or operations.
(2) The substitution of a new corporate member or members that transfers the control of, responsibility for, or governance of the corporation shall be deemed a transfer for purposes of this section. The substitution of one or more members of the governing body, or an arrangement, written or oral, that would transfer voting control of the members of the governing body, shall also be deemed a transfer for purposes of this section.
(3) This section applies to a material change with a value of fifteen million dollars ($15,000,000) or more.
(b) (1) Subdivision (a) does not apply to a nonphysician provider. For purposes of this section, “nonphysician provider” means an individual or group of individuals licensed under Division 2 (commencing with Section 500) of the Business and Professions Code who does not provide health-related physician, surgery, or laboratory services to consumers.
(2) Subdivision (a) does not apply to an ambulatory surgical center that is not affiliated with or owned by a general acute care facility, as defined in subdivision (a) of Section 1250 of the Health and Safety Code, and is any of the following:
(A) A surgical clinic licensed by the State Department of Public Health.
(B) An ambulatory surgical center certified by the federal Centers for Medicare and Medicaid Services to participate in the Medicare Program.
(C) An outpatient setting that is accredited by an accreditation agency approved by the Medical Board of California.
(3) Subdivision (a) does not apply if a county is purchasing, acquiring, or taking over control, responsibility, or governance of an entity to ensure continued health care access in that county.
(c) The notice to the Attorney General pursuant to subdivision (a) shall be submitted at the same time that any other state or federal agency is notified pursuant to state or federal law, and otherwise shall be provided at least 90 days before the changes, and shall include and contain the information the Attorney General deems is required. The notice, including any other information that is provided to the Attorney General pursuant to this section and that is in the public file, shall be made available by the Attorney General to the public in written form, as soon as is practicable after it is received by the Attorney General. The notice shall include a list of the threshold languages for Medi-Cal beneficiaries, as determined by the State Department of Health Care Services. The Attorney General may require the medical group, hospital or hospital system, health facility described in subdivision (a), (b), or (c) of Section 1250 of the Health and Safety Code, health care service plan, health insurer, or pharmacy benefit manager to provide certain components of the notice in any of these languages.
(d) The Attorney General shall have discretion to consent to, give conditional consent to, or not consent to an agreement or transaction described in subdivision (a). In making the determination, the Attorney General may consider any factors that the Attorney General deems relevant, including all of the following:
(1) Whether or not the proposed material change may have a significant impact on market competition or costs for payers, purchasers, or consumers.
(2) Whether or not the proposed material change may have a significant impact on the quality of care, including the ability to offer culturally competent and appropriate care.
(3) Whether or not the proposed material change may have a significant impact on the access to or availability of health care for payers, purchasers, or consumers.
(4) Whether or not the proposed material change is in the public interest.
(5) Whether or not the proposed material change is likely to maintain access to care in a rural community, low-income community, or disadvantaged community. If the Attorney General finds that access to care in a rural community, low-income community, or disadvantaged community will become more limited with the proposed material change, the Attorney General may approve the proposed material change, and may place conditions on the proposed material change.
(e) Within 90 days of the receipt of the written notice required by subdivision (a), the Attorney General shall notify the medical group, hospital or hospital system, health care service plan, health insurer, or pharmacy benefit manager of the decision to consent to, give conditional consent to, or not consent to the agreement or transaction. The Attorney General shall have discretion to stay the running of the 90-day period of this subdivision pending the outcome of any review by a state or federal agency that has also been notified as required by federal or state law. The Attorney General may extend this period for one additional 45-day period, including at any time for which this period is stayed, if any of the following conditions apply:
(1) The extension is necessary to obtain additional information.
(2) The proposed agreement or transaction is substantially modified after the original notice was provided to the Attorney General.
(3) The proposed agreement or transaction involves a multifacility health system serving multiple communities, rather than a single facility or entity.
(f) Within 10 days of the Attorney General’s notice of the decision to consent to, give conditional consent to, or not consent to the agreement or transaction, any party to the agreement or transaction may make an application to the Attorney General to reconsider the decision and to modify, amend, or revoke the prior decision in whole or in part based upon new or different facts, circumstances, or law. The party making the application shall state by affidavit what order or decisions were made, and what new or different facts, circumstances, or law are claimed to be shown. Pursuant to Section 1008 of the Code of Civil Procedure, the Attorney General shall order or deny reconsideration within 30 days following receipt of the application and affidavit. A decision by the Attorney General on an application filed under this subdivision shall have the same force and effect as the original decision.
(g) (1) If the Attorney General does not consent or gives conditional consent to an agreement or transaction, the medical group, hospital or hospital system, health facility described in subdivision (a), (b), or (c) of Section 1250 of the Health and Safety Code, health care service plan, health insurer, or pharmacy benefit manager may, within 30 calendar days of a decision pursuant to subdivision (a) or (f), seek judicial review of the decision by a petition for writ of mandate pursuant to Section 1085 of the Code of Civil Procedure.
(2) Barring extraordinary circumstances or the consent of the parties, the superior court shall issue its response to the petition within 180 days of receipt of the petition. After a review of the records, including any administrative record and any material submitted in support of the petition, the court may grant the petition upon finding that the decision was a gross abuse of discretion.
(h) (1) Written notice to, and the written consent of, the Attorney General shall not be required under subdivision (a), if the Attorney General has given the medical group, hospital or hospital system, health facility described in subdivision (a), (b), or (c) of Section 1250 of the Health and Safety Code, health care service plan, health insurer, or pharmacy benefit manager a written waiver of the proposed agreement or transaction. The Attorney General may grant a waiver if all of the following conditions apply:
(A) The party makes a waiver request by submitting, in writing, a description of the proposed agreement or transaction, a copy of all documents that effectuate any part of the proposed agreement or transaction, an explanation of why the waiver should be granted, and any other information the Attorney General determines is required to evaluate the waiver request.
(B) The party’s operating costs have exceeded its operating revenue in the relevant market for three or more years and the party cannot meet its debts as they come due.
(C) The party is at grave risk of immediate business failure and can demonstrate a substantial likelihood that it will have to file for bankruptcy under Chapter 11 of the Bankruptcy Act (11 U.S.C. Sec. 1101 et seq.) absent the waiver.
(D) The party would be substantially likely unable to reorganize successfully under Chapter 11 of the Bankruptcy Act (11 U.S.C. Sec. 1101 et seq.).
(E) The agreement or transaction shall ensure continued health care access in the relevant markets.
(F) The party has made commercially reasonable best efforts in good faith to elicit reasonable alternative offers that would keep its assets in the relevant markets and that would pose a less severe danger to competition and access to care than the proposed transaction or agreement.
(2) Any consideration of a party’s finances under this subdivision may include consideration of the finances of any affiliates that are under common control or are under the control of the party.
(3) The Attorney General shall grant or deny the waiver request within 60 days after all information needed to evaluate the waiver request has been submitted to the Attorney General. In determining whether to grant a waiver, the Attorney General shall consider whether any of the decisional factors set forth in subdivision (d) are applicable to the proposed agreement or transaction. A waiver may be denied if any of these decisional factors require full Attorney General review of the proposed agreement or transaction. The Attorney General may condition the grant of a waiver in a manner that eliminates the need for full Attorney General review.
(i) This section applies to a foreign entity that operates or controls a medical group, hospital or hospital system, health facility described in subdivision (a), (b), or (c) of Section 1250 of the Health and Safety Code, health care service plan, health insurer, or pharmacy benefit manager, if that foreign entity operates, manages, or controls any domestic entities that provide similar health care or coverage, or if that foreign entity provides similar health care or coverage to a domestic entity regardless of whether it is currently operating or has a suspended license in California.
(j) The Attorney General may adopt regulations to implement this section.
(k) The authority of the Attorney General to maintain or restore competitive markets and prosecute state and federal antitrust and unfair competition violations shall not be narrowed, abrogated, or otherwise altered by this section.

SEC. 3.

 Section 5932 is added to the Corporations Code, to read:

5932.
 (a) Before issuing a written decision pursuant to Section 5931, the Attorney General shall conduct one or more public meetings on a major transaction. The Attorney General may also conduct one or more public meetings on other transactions.
(b) If the transaction involves a medical group or a hospital or hospital system, one of the public meetings shall be in the county in which the acquired entity is located, to hear comments from interested parties.
(c) At least 14 days before conducting the public meeting, the Attorney General shall provide written notice of the time and place of the meeting through publication in one or more newspapers of general circulation in the affected community and to the boards of supervisors of the county or counties in which the medical group or the hospital or hospital system is located. This notice shall be provided in English and in the primary languages spoken at the facility, if any, and the threshold languages for Medi-Cal beneficiaries, as determined by the State Department of Health Care Services.
(d) If a substantive change in the proposed agreement or transaction is submitted to the Attorney General after the initial public meeting, the Attorney General may conduct an additional public meeting to hear comments from interested parties with respect to that change.
(e) (1) With respect to a health care service plan, health insurer, or pharmacy benefit manager, “major transaction” has the same meaning as in Section 1399.65 of the Health and Safety Code.
(2) With respect to a hospital or hospital system, “major transaction” means a transaction that would have been subject to Section 5914 if it involved a nonprofit corporation.
(3) With respect to a medical group, the Attorney General shall define “major transaction” by regulation.
(f) The Attorney General may adopt regulations to implement this section.

SEC. 4.

 Section 5933 is added to the Corporations Code, to read:

5933.
 (a) (1) Within the time periods designated in Section 5931 and relating to the factors specified in Section 5931, the Attorney General may do both of the following:
(A) Contract with, consult, and receive advice from a state agency on the terms and conditions that the Attorney General deems appropriate.
(B) In the Attorney General’s sole discretion, contract with experts or consultants to assist in reviewing the proposed material change in control.
(2) Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. A contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. Upon request, the Attorney General shall be paid promptly by the entities seeking consent for all contract costs.
(3) The Attorney General shall be entitled to reimbursement from the entities seeking consent for all actual, reasonable, direct costs incurred in reviewing, evaluating, and making the determination referred to in this section, including administrative costs. The entities seeking consent shall promptly pay the Attorney General, upon request, for all of those costs.
(b) (1) To monitor effectively ongoing compliance with the terms and conditions of a material change of control subject to Section 5931, the Attorney General may, in their sole discretion, contract with experts and consultants to assist in this regard.
(2) Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. A contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. The entities seeking consent shall pay the Attorney General promptly for all contract costs.
(3) The Attorney General shall be entitled to reimbursement from either the selling or the acquiring entity, depending upon which one the burden of compliance falls, for all actual, reasonable, and direct costs incurred in monitoring ongoing compliance with the terms and conditions of the sale or transfer of assets, including contract and administrative costs. The Attorney General may bill either the selling or the acquiring entity and the entity billed by the Attorney General shall promptly pay for all of those costs.
(c) The Attorney General may adopt regulations to implement this section.

SEC. 5.

 Section 1255.4 is added to the Health and Safety Code, to read:

1255.4.
 (a) Notwithstanding any other law, a health facility shall not enter into, amend, enforce, or renew a contractual provision on or after January 1, 2024, with a health care service plan or health insurer if the contractual provision directly or indirectly does or implements any of the following:
(1) The contractual provision restricts the health care service plan or health insurer from doing or implementing either of the following:
(A) Directing or steering enrollees or insureds to other health facilities.
(B) Offering incentives to encourage enrollees or insureds to utilize or avoid health facilities.
(2) The contractual provision requires the health care service plan or health insurer to enter into an additional contract with any or all affiliates of the health facility, or individual facilities, as a condition of entering into a contract with a health facility.
(3) The contractual provision requires the health care service plan or health insurer to agree to payment rates or terms for an individual facility or affiliate of the health facility as a condition of entering into a contract with a health facility, other individual facility, or affiliate.
(4) The contractual provision requires the health care service plan or health insurer to agree to payment rates or other terms for an affiliate or individual facility that is not party to the contract.
(5) The contractual provision restricts other health care service plans or health insurers that are not party to the contract from paying a lower rate for items or services than the rate the contracting plan or insurer pays for those items or services.
(6) The contractual provision prevents a health care service plan or health insurer, directly or indirectly, from providing provider-specific cost or quality of care information, through a consumer engagement tool or any other means, to referring providers, the plan or insurer sponsor, enrollees, insureds, or eligible enrollees or insureds of the plan or insurer.
(b) A health facility’s entrance into a contract that does or implements any of the conduct prohibited in subdivision (a) may be reviewed by the Attorney General and any other state entity charged with reviewing health care market competition for compliance with this section.
(c) Notwithstanding any other law, the Attorney General and any other state entity charged with reviewing health care market competition under this section shall be entitled to specific performance, injunctive relief, and other equitable remedies a court deems appropriate for enforcement of this section and shall be entitled to recover attorney’s fees and costs incurred in remedying each violation.
(d) The Attorney General and any other state agency charged with reviewing health care market competition under this section may adopt regulations to implement this section.
(e) The authority of the Attorney General to maintain competitive markets and prosecute state and federal antitrust and unfair competition violations shall not be narrowed, abrogated, or otherwise altered by this section.

SEC. 6.

 Section 1371.26 is added to the Health and Safety Code, to read:

1371.26.
 (a) A contract issued, amended, or renewed on or after January 1, 2024, between a health care service plan offering coverage in the group market or individual market and a health care provider, network or association of health care providers, or other service provider offering access to a network of service providers shall not contain a contract term if that contract term directly or indirectly does or implements any of the following:
(1) The contract term restricts the health care service plan from doing or implementing either of the following:
(A) Directing or steering enrollees to other health care providers.
(B) Offering incentives to encourage enrollees to utilize or avoid specific health care providers.
(2) The contract term requires the health care service plan to enter into an additional contract with any or all affiliates or individual facilities of any provider as a condition of entering into a contract.
(3) The contract term requires the health care service plan to agree to payment rates or terms for an individual facility or affiliate of any provider as a condition of entering into a contract with another provider, other individual facility, or affiliate.
(4) The contract term requires the health care service plan to agree to payment rates or other terms for an affiliate or individual facility that is not party to the contract.
(5) The contract term restricts other health care service plans or health insurers that are not party to the contract from paying a lower rate for items or services than the rate the contracting plan pays for those items or services.
(6) The contract term prevents a health care service plan, directly or indirectly, from providing provider-specific cost or quality of care information, through a consumer engagement tool or any other means, to referring providers, the plan sponsor, enrollees, or eligible enrollees of the plan.
(b) The director may refer contracts subject to this section to the Attorney General or any other state entity charged with reviewing health care market competition to review the contract for compliance with this section. The authority of the Attorney General to maintain competitive markets and prosecute state and federal antitrust and unfair competition violations shall not be narrowed, abrogated, or otherwise altered by this section.

SEC. 7.

 Section 10123.149 is added to the Insurance Code, to read:

10123.149.
 (a) A contract issued, amended, or renewed on or after January 1, 2024, between a health insurer offering coverage in the group market or individual market and a health care provider, network or association of health care providers, or other service provider offering access to a network of service providers shall not contain a contract term if that contract term directly or indirectly does or implements any of the following:
(1) The contract term restricts the health insurer from doing or implementing either of the following:
(A) Directing or steering insureds to other health care providers.
(B) Offering incentives to encourage insureds to utilize or avoid health care providers.
(2) The contract term requires the health insurer to enter into an additional contract with any or all affiliates or individual facilities of a provider as a condition of entering into a contract.
(3) The contract term requires the health insurer to agree to payment rates or terms for an individual facility or affiliate of any providers as a condition of entering into a contract with another provider, other individual facility, or affiliate.
(4) The contract term requires the health insurer to agree to payment rates or other terms for an affiliate or individual facility that is not party to the contract.
(5) The contract term restricts other health insurers or health care service plans that are not party to the contract from paying a lower rate for items or services than the rate the contracting plan pays for those items or services.
(6) The contract term prevents a health insurer, directly or indirectly, from providing provider-specific cost or quality of care information, through a consumer engagement tool or any other means, to referring providers, the insurer sponsor, insureds, or eligible insureds of the insurer.
(b) The commissioner may refer contracts subject to this section to the Attorney General or any other state entity charged with reviewing health care market competition to review the contract for compliance with this section. The authority of the Attorney General to maintain competitive markets and prosecute state and federal antitrust and unfair competition violations shall not be narrowed, abrogated, or otherwise altered by this section.

SEC. 8.

 The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 9.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.