A new proposed bill in California is currently pending and will undergo examination until it gets approved or not. If approved, California’s SB-642 would implement changes that could devastate many California healthcare businesses. Many healthcare facilities believe that it is too restrictive and subjective.
It is a change that goes against how many California medical establishments have done business over the years. It will affect all involved and create a decline in the system, which will affect patients.
SB-642 recently got a clearance from the California Senate Health Committee, meaning the law may get enacted within the next two years.
As a part of the bill, Section 2408.5 is an addition to the Business and Professions Code. It reads as follows:
“The shareholders, directors, and officers of a medical corporation as outlined in Section 2408 shall manage and have ultimate control over the assets and business operations of the medical corporation and shall not be replaced, removed, or otherwise controlled by any lay entity or individual, including, without limitation through stock transfer restriction agreements or other contractual agreements and arrangements.”
Healthcare in California is a complex and fluid system where hospitals can independently manage to treat patients with the equipment and staff they have. However, there are some limitations as many hospitals do not have funding for all necessities. To make up for this, many establishments work closely with management services organizations (MSOs).
MSOs fill the gap that healthcare services need by providing various management functions. These operate independently of regular operations and are responsible for handling various administrative tasks, including:
When a healthcare business partners with an MSO, they are getting all the services and equipment they need at a minimal cost. It works well because of limitations medical facilities have:
MSOs are the economical and practical choice, allowing healthcare professionals to focus on patient care rather than running a facility. Additionally, the facilities don’t have to worry about scaling because MSOs have enough staff to scale and cover operations at multiple locations.
By having an MSO at their side, hospitals don’t need to be afraid when attracting partners, vendors, and more. However, making the hospital shareholders solely responsible for this task will create a rift. Work would be much slower, and the lag would create a gap of service for the hospital, which creeps unto its patients.
A sudden implementation of SB-642 will likely catch many establishments unaware. The shock to the healthcare system can affect everything, slowing down services as facilities try to catch up. Here are some of the things that can happen:
Administrative services provided by MSOs are one of the reasons healthcare can operate fast in today’s environment. It makes it easy for hospitals and the like to connect to vendors they need. They can partner and work without having to worry about micromanagement.
Under SB-642, they will have to do this themselves, including covering staffing needs. This will cut their operations and reduce their capacity to take on new patients. California’s healthcare system could see a shock leading to a decline in overall healthcare quality. It could even ripple to the point that it may take years for hospitals to recover.
MSOs are thriving businesses that specialize in healthcare services, and many cannot transition to other industries. As a result, they will likely shut down, leaving companies bankrupt and hundreds, if not thousands of people out of work.
Since many medical operations would lose their MSO connections due to restrictions, they’ll have to reconfigure their entire business. Most will struggle to accommodate this change, and some facilities may close down to restructure.
Aside from the change in MSO arrangements, the bill would change how decisions of a hospital’s governing body can impact hospital operations. SB-642 will prevent these bodies from decisions that are not in the approval of their medical staff. For example, some hospitals will hold judgments made by a physician for treatment.
This change likely targets hospitals in California which consider their beliefs of healthcare. Some prevent medical practices like in-vitro fertilization and abortion due to ethical concerns. With the law, the governing body cannot exercise any change with a treatment recommended by staff if the two don’t agree.
The final part of the bill states that the Attorney General will have the power to approve health care transactions in California. The Attorney General can intervene in two scenarios:
It is not the first time a bill has tried to give more control to the Attorney General. There have been at least three recent bills that tried, but they have all failed due to various concerns. The main concern is that they inhibit hospitals’ abilities to work quickly.
After the information went public, many have stepped forward to go against the bill. The biggest argument is that physicians are getting too much control. Governing bodies are important in making critical decisions, and changing this would destroy the fundamentals of hospital operations, reducing institutional stability.
Additionally, while the bill doesn’t specify religious or ethical activities, Catholic healthcare institutions believe it is targeting their practices directly. Faith-based institutions have a right to operate within their beliefs, and these changes would violate their First Amendment rights.
Many letters from those in opposition go on to state numerous issues that will lead to more problems down the line. These include:
The law is still subject to some changes and is being “shelved” until the next legislative session (2022-2023). It’s still important to be ahead of the curve and prepare. MSOs and healthcare facilities have some time to review their policies and prepare for anything similar. Here are some things that these companies can do within the next year:
Since releasing the information publicly, California’s SB 642 has been on the end of controversy. Many medical facilities and MSOs have spoken out on how the bill will be more detrimental than good. For now, the California Senate Appropriations Committee has listened to all the concerns. They tabled it to next year’s legislative session, subject to deeper review.
Seeing the bill’s objectives, you can make preparations for if something similar arises in the future. Everyone in the healthcare industry in California should remain vigilant. It might resurface next year and still have issues that can affect MSOs. People are hoping new laws don’t affect what is already working well in California.
Please contact us if you have any questions regarding how this bill can affect your healthcare business.