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SB 376 Pilot Program - Direct Employment of Physicians by Qualified District Hospitals

Senate Bill 376 (Chapter 411, Statutes of 2003) was authored by Senator Wesley Chesbro and signed into law by the Governor. Under that law, which took effect on January 1, 2004, the Medical Board of California is to establish a pilot project to provide for the direct employment of physicians by qualified district hospitals. The pilot project is set to expire on January 1, 2011.

This bill was sponsored by the Association of California Healthcare Districts to enable qualified district hospitals to recruit, hire and employ physicians as full-time paid staff in a rural or underserved community meeting the criteria contained in this bill. Support for this bill was premised upon the belief that the employment of physicians could improve the ability of district hospitals to attract the physicians required to meet the needs of those communities and also help to ensure the continued survival of health care district hospitals in rural and underserved communities, without any cost to the state.

Current sections of law (commonly referred to the "Corporate Practice of Medicine" - B & P Code section 2400) generally prohibit corporations or other entities that are not controlled by physicians from practicing medicine, to ensure that lay persons are not controlling or influencing the professional judgment and practice of medicine by physicians.

Specific requirements of the Pilot Program:

  • Provides for the direct employment of a total of 20 physicians in California by qualified district hospitals.
  • Limits the total number of physicians and surgeons employed by a qualified district hospital to no more than two at a time.
  • A "qualified district hospital" is defined as a hospital that meets all of the following requirements:
  • Is a district hospital organized and governed pursuant to the Local Health Care District Law.
  • Provides a percentage of care to Medicare, Medi-Cal, and uninsured patients that exceeds 50 percent of patient days.
  • Is located in a county with a total population of less than 750,000. (According to the 2000 Census, the following counties have a population over 750,000; therefore, hospitals in these counties are not eligible to participate in the pilot program: Alameda, Contra Costa, Fresno, Los Angeles, Orange, Riverside, Sacramento, San Bernardino, San Diego, San Francisco, Santa Clara, and Ventura counties.)
  • Has net losses from operations in fiscal year 2000-01, as reported to the Office of Statewide Health Planning and Development.
  • The participating hospital is prohibited from interfering with, controlling, or otherwise directing the physician's professional judgment.
  • The medical staff and the elected trustees of the qualified district hospital concur by an affirmative vote of each body that the physician's employment is in the best interest of the communities served by the hospital.
  • The physician enters into or renews a written employment contract with the qualified district hospital prior to December 31, 2006, for a term not in excess of four years, and the employment contracts provide for mandatory dispute resolution under the auspices of the Medical Board for disputes directly relating to the physician's clinical practice.
  • The qualified district hospital must notify the Medical Board in writing that the hospital plans to enter into a written contract with the physician; the Medical Board must provide written confirmation to the hospital within five working days of receipt of the written notification to the Medical Board.

To evaluate the effectiveness of the pilot project in improving access to health care in rural and medically underserved areas, and the project's impact on consumer protection as it relates to intrusions into the practice of medicine, the Medical Board must report to the Legislature no later than October 1, 2008, on the outcome of the program. Both the employer hospital and the employee physician will be contacted quarterly during the contract period to see input on the effectiveness of the pilot project.

To find out more about the program, please click on the following links: