Senator Monning Announces Legislation to Address Healthcare Affordability and Unfair Business Practices

March 28, 2017

(SACRAMENTO, CA) – Senator Bill Monning (D-Carmel) announced Senate Bill (SB) 538, legislation that would target the unfair business practices of dominate healthcare providers that use their market power to force higher charges on consumers.  

“The future of the federal Affordable Care Act remains uncertain and we need to do everything we can at the state level to ensure Californians have access to affordable healthcare,” Senator Monning said.  “SB 538 will help address the issue of pricing fairness and access to affordable healthcare in the state, as well as help ensure California consumers are not subjected to unfair business practices that increase healthcare costs.”

California has seen a surge in provider consolidation as major hospitals have acquired competitors, outpatient facilities, and physician practices, which has resulted in reduced competition and higher costs for consumers, according to studies, such as “Hospital Prices Increase in California, Especially Among Hospitals in the Largest Multi-hospital Systems” by researchers Glenn A. Melnick and Katya Fonkych at the University of Southern California.  Prices at the largest multi-hospital systems have increased 43 percent faster than at other hospitals because of their market prominence.  It now costs on average $4,000 more per admission to seek the same services from a dominant multi-hospital system than at all other California hospitals.

SB 538 would declare that certain classic anti-competitive practices are unenforceable.  Specifically, it would prohibit any contract between a hospital and a health care service plan from:

  • Setting payment rates or other terms for affiliates of the hospitals not included in the agreement.  By insisting on a single contract to cover all their hospitals, dominant providers are able to tie inflated prices in certain regions to their entire network of hospitals, even in more price-competitive regions.  This dramatically increases the prices these providers could otherwise charge in competitive regions. ​
  • Requiring the health plan to contract with all affiliates of the hospital. The bill would prohibit the practice of forcing health plans to include all of a provider’s hospitals in a contract, even if some are located in areas where networks of lower cost competitors are available. 
  • Forcing employers to attest that they are bound by the terms of the contract between the hospital and the health plan.  Dominant providers use their market power to require that employers agree to be bound by onerous contractual provisions or face punitive out-of-network rates or even worse, lose access to their doctor.  In particular, employers are being asked to surrender their rights to challenge abusive market practices in court and instead submit to binding arbitration outside of the public view.
  • Mandating that a health care service plan submit to binding arbitration for antitrust claims.  SB 538 would ban the coercive inclusion of the requirement that health plans or their customers must arbitrate claims of anti-trust.
  • Requiring that the health plan provide coverage to its enrollees at the same level of copayment, coinsurance or deductible at affiliated hospitals.  One strategy payers use to encourage the use of more cost-effective providers is to offer tiered networks that provide lower cost-sharing for more cost-effective providers.  Dominant providers prevent this practice because it would steer business to more cost-effective competitors.


Contact: Elizabeth Stitt, (916) 651-4017