California Passes Major Hospice Reform, Including Minimum One Year New License Moratorium

California Governor Gavin Newsom signed into law two pieces of legislation intended to improve hospice oversight in the state on October 4, 2021. The laws resulted in part from the U.S. Department of Health and Human Services, Office of Inspector General’s (“OIG”) “Hospice Deficiencies Pose Risks to Medicare Beneficiaries” report and a Los Angeles Times investigation into alleged misconduct among California hospice providers. In the OIG’s report, 723 California hospices were surveyed between 2012 and 2016, and 94% of those surveyed had at least one deficiency. Further, the OIG identified 313 hospice facilities nationwide as “poor performers.” California and Texas had the greatest number of poor performers, with 45 and 39, respectively.

California legislators Senator Ben Allen and Assemblymember Jacqui Irwin proposed Senate Bill No. 664 and Assembly Bill No. 1280, respectively. Senate Bill No. 664 includes a moratorium on new hospice care licenses issued by the California Department of Public Health. Beginning January 1, 2022, the Department will not issue any new licenses for hospice services unless the Department makes a written finding that an applicant has shown “demonstrable need for hospice services in the area where the applicant proposes to operate based on the concentration of all existing hospice services in that area.” The moratorium on new licenses will end either (i) 365 days from the date that the California State Auditor publishes a report on hospice licensure or (ii) when the provisions are repealed on January 1, 2027, whichever is sooner. Current licensure renewal will not be impacted by the moratorium.

The California State Auditor’s website will provide independently developed and verified information related to the California Department of Public Health’s (“Public Health”) and the Department of Health Care Services’ (“DHCS”) licensure and oversight of hospice care providers. The audit will include, but will not be limited to, the following activities: assessing the scope of hospice fraud and abuse in California and the impact of such fraud on the Medicare and Medi-Cal programs, evaluating reporting of hospice abuse and neglect in California and, to the extent possible, assessing compliance with mandated reporting requirements, and evaluating the effectiveness and comprehensiveness of Public Health’s system to screen and license applicants for hospice licensure.

Assembly Bill No. 1280 prohibits a hospice provider, employed hospice staff, or an agent for the hospice from paying referral sources for patient referrals to the hospice. Payment for these referrals includes “anything of value, including cash, gift cards, prepaid cards, or remuneration of any kind.” Further, to ensure that patients receive the right care that addresses their needs, only a registered nurse, licensed vocational nurse, medical social worker, chaplain, or counselor employed by the hospice can complete a patient’s “election of hospice, informed consent, completed signatures, and counsel on the election of hospice to a patient, patient’s family, or patient’s representative.”

The new laws are significant and represent a major change in California’s regulation of hospice providers. For example, while in effect, it appears the moratorium on new licenses will effectively make California akin to a certificate of need (CON) state.  It is unclear what impact this may have on hospice transactions within the state since existing licenses may now be more valuable. Additionally, both transactions and day-to-day operations will be affected as providers contend with increased scrutiny from the state. Hospice providers around the country will also be thinking about the old saying: “as California goes, so goes the nation.”

For more information, please contact Hedy S. Rubinger, Alexander B. Foster, or Kadeja A. Watts.

The Arnall Golden Gregory Change of Ownership (CHOW) team leads all regulatory aspects of healthcare transactions for investors, operators, managers, capital partners, and developers of every size in all 50 states.  The team streamlines the regulatory process so that clients close their transactions on or ahead of schedule. Whether obtaining licensure and Medicare/Medicaid approvals, structuring transactions to expedite closings, anticipating issues to minimize cash flow disruption, negotiating regulatory terms in deal documents, creatively resolving diligence issues, or advising on CHOW guidelines and compliance, the team provides extensive experience and practical solutions. To date, the CHOW team has served as primary regulatory counsel in transactions valued at more than $25 billion.​