Legislature(2015 - 2016)ANCH LIO BUILDING
05/13/2015 01:00 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB148 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 148 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HOUSE BILL NO. 148
"An Act relating to medical assistance reform
measures; relating to eligibility for medical
assistance coverage; relating to medical assistance
cost containment measures by the Department of Health
and Social Services; and providing for an effective
date."
1:12:17 PM
STACEY KRALY, CHIEF ASSISTANT ATTORNEY GENERAL, DEPARTMENT
OF LAW, placed herself on record.
RACHEL WITTY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, introduced herself.
Ms. Kraly explained that as the Chief Assistant Attorney
General she represented the Department of Health and Social
Services (DHSS) and supervised a section of 10 attorneys
including herself. Her section provided all of the legal
representation for DHSS except for Child-In-Need-Of-Aid
proceedings. Her section did a small amount of work for the
Office of Children's Services (OCS) but did not handle day-
to-day proceedings. At any given time her section had 4 to
5 fulltime attorneys working on Medicaid-related matters;
one fulltime attorney specifically dealt with Medicaid
audits and sanctions relating to provider relationships.
Her section also had a dedicated attorney that handled
Medicaid recovery including third-party liability and trust
and estate recovery. The hours equivalent of 2 attorneys
spread amongst 2 to 5 attorneys, were dedicated to working
on representing and advising the department on various
matters related to the Medicaid program. The work
encompassed dealing with regulations, advising on
legislation, representing the department in administrative
hearings, civil litigation, and Supreme Court appeals.
Ms. Kraly relayed that in preparing for her presentation
she was asked to discuss three topics; Xerox litigation,
other litigation related to DHSS, and efforts of the
Medicaid Fraud Control Unit. She would be inviting Mr.
Peterson to join her when talking about the third item. In
talking about some of the litigation she would try to be as
responsive as possible to the questions posed by the
committee. However, she wanted to remind the committee she
would be talking about active litigation including the
Xerox case and would provide as much information as
possible but some answers might have to be answered at a
later time. She reiterated that she would try to be as
responsive as possible.
Ms. Kraly introduced the PowerPoint "Department of Law's
Presentation on Medicaid Issues."
Ms. Kraly began with slide 3: "Xerox Contract":
· In 2007, DHSS contracted with Xerox to develop and
operate a new Medicaid Management Information System
for the State of Alaska.
· There are two major parts of this contract:
· The design and development of the system
· The operation of the system
Ms. Kraly indicated that once the Xerox system was
certified Xerox would continue to do the day-to-day
operations of the program. The contract encompassed both
components.
1:15:58 PM
Ms. Kraly continued to slide 4: "Purpose of Litigation":
· The claim filed in September 2014 focused on getting
Xerox to provide a fully operational system. DHSS
did not terminate the contract and has continued to
work closely with Xerox to fix the system.
· The litigation appears to have motivated Xerox to
prioritize its Alaska project and has resulted in
significant improvements. As Ms. Brodie testified,
since the claim was filed, Xerox has developed and
implemented a corrective action plan to improve
claims processing and resolve system defects.
Vice-Chair Saddler wanted to confirm that there were a
couple of different avenues of redress the State of Alaska
had against Xerox. He mentioned civil litigation and
hearings before an administrative law judge. He wanted to
know if litigation meant in court or an administrative law
judge.
Ms. Kraly relayed that the case was filled in front of the
Office of Administrative Hearings. The state did not file a
case in Superior Court.
Vice-Chair Saddler clarified that it was considered
litigation before an administrative hearing. Ms. Kraly
stated that Representative Saddler was correct.
Ms. Kraly relayed that as Ms. Brodie testified previously
that since the claim was filed Xerox had developed and
implemented a corrective action plan for claims processing
and was working on resolving system defects.
Ms. Kraly turned to slide 5: "Status of Litigation":
· As noted above, Xerox and DHSS agreed to a "go live"
date of October 1, 2013.
· As noted by Ms. Brodie, significant problems were
identified immediately. DHSS worked with Xerox over
the ensuing year to achieve improvement but to
little or no avail.
· Per the contract, the parties engaged in a two- day
mediation in September 2014. This mediation was not
successful.
Vice-Chair Saddler asked if the state decided to go live on
its own volition or if relied solely on Xerox's
representations that it should. There was a question as to
whether the state should have or could have continued the
old system. He asked if it was clarified as to whose
decision it was to go live without the legacy system
continuing in a parallel fashion.
Ms. Witty responded that in the claim DHSS alleged that
based on representations by Xerox the new system was ready
to engage. It was her understanding that, at a certain
point, running both systems simultaneously had to end. In
the state's claim the decision to cease the operation of
the old system was based on Xerox's representations.
1:19:27 PM
Vice-Chair Saddler clarified whether the decision was
solely going live while concurrently ending the use of the
old system. Ms. Witty answered that it was the state's
decision to go live without the legacy system remaining in
operation.
Co-Chair Thompson acknowledged Representative Josephson in
the audience.
Ms. Kraly continued to explain that in the previous year in
August and September the Department of Law (LAW) and DHSS
evaluated its many options under the state's contract with
Xerox and determined that the contract required that the
parties engaged in alternative dispute resolutions.
Department of Law initiated provisions of the contract that
required a mediation. The parties engaged in a two-day
mediation held in Anchorage in September 2014 held in
Anchorage. Although the mediation highlighted and addressed
a number of significant issues, it was ultimately
unsuccessful.
Ms. Kraly advanced to slide 6: "Status of Litigation":
· On September 22, 2014, DHSS filed a contract claim
with the Commissioner of Administration which was
referred to the Office of Administrative Hearings.
The claim sought the following relief:
· Development of an acceptable corrective action
plan
· Completion and correction of deliverables
necessary for a fully operational system that can
be certified by the federal government
· Payment of liquidated damages and other damages
resulting from the delays and lack of
functionality
Ms. Kraly advanced to slide 7: "Status of Litigation":
· A hearing on the liquidated damages was held on
February 18 and 19, 2015.
· A hearing on the breach of the contract was
scheduled for August 2015.
Representative Gara did not understand why the committee
was rehashing the litigation information rather than
debating the bill.
Ms. Kraly continued with slide 7:
· On April 2, the administrative law judge stayed the
case. The parties agreed to stay the case until
August 24, 2015 to allow Xerox to complete its work
under the corrective action plan and other deferred
work, and to allow DHSS to evaluate the system for
acceptance.
Ms. Kraly indicated that if the system was acceptable to
DHSS then the hearing in August would be removed from the
calendar.
Ms. Kraly reported that the parties were in an acceptance
phase of the contract negotiation as detailed in slide 8:
"Acceptance":
· On or before July 31, 2015, the parties are to meet
and establish whether the system is acceptable to
DHSS, meaning that all major defects have been
resolved, all deliverables are complete, and Xerox
can be released from the implementation phase of the
contract and allowed to focus solely upon
operations.
· This means that DHSS will have to determine that the
system is functioning at a level and degree that
meet its core business needs. But this does not mean
that DHSS is the sole arbiter for acceptance-DHSS is
in contact with the federal government to assure
that their determination of acceptance meets the
federal standard so that the system will be
certified.
1:23:16 PM
Co-Chair Neuman referred to the slide indicating that the
department would have to certify that all major defects
were resolved. He suggested that the department would not
know for a while whether the program was working properly.
He mentioned new coding requirements from the federal
government. He wondered how the state could certify that
all major defects were resolved having experienced so many
problems with the system.
Ms. Kraly stated that there was a likelihood that there
would always be issues with the systems, functionality and
improvements that would have to be addressed. The concept
articulated in the slide had to do with the idea there had
been a list of correctable defects in the corrective action
plan. Issues encountered with the new International
Statistical Classification of Diseases and Related Health
Problems 10th Revision (ICD 10) codes were not part of the
consideration currently. There would be constant
improvements and additions that would need to be made as
long as the program was operational.
Co-Chair Neuman asked whether Xerox would be held liable
for any complications in the future after July 31, 2015 if
the state signed off on everything the company had done to-
date.
Ms. Kraly responded in the negative. She informed the
committee that there was a contract in place that addressed
both the design and development of the system and the
operations of the program including additional change
orders requested in the future. Xerox would be held
accountable for the changes as they occurred in the future.
Co-Chair Neuman asked about the possibility of having an
independent auditor or analyst that could advise the state
on the signing off of the system.
Ms. Witty relayed that the state had a technical assistance
contractor under contract known in the industry as an
independent verification contractor; a third party
assessing the system that determined whether Xerox was
complying with the corrective action plan. In addition, the
state had the check of the federal government, the Centers
for Medicare and Medicaid Services (CMS). If the system did
not do all that it was expected to do, there was a way to
check against DHSS's assessment.
Co-Chair Neuman asked for a specific list of items being
addressed by Xerox.
1:27:38 PM
Representative Munoz asked about the 38 items that needed
to be fixed subject to the corrective action plan. She
wondered if all of the actions were consistent with federal
requirements. She wondered if there would be an additional
list of demands.
Ms. Kraly communicated that the two items were not mutually
exclusive. The items the DHSS list identified were items
that had to be addressed in order to reach the acceptance
phase. As part of the acceptance phase the department would
be engaging with the federal government, CMS, and with the
technical assistance contractor mentioned earlier to
ultimately ensure certification. She was unclear whether
the items would be the same ones the federal government
would be focusing on. She did not believe they were
mutually exclusive of each other. They went hand-in-hand.
Vice-Chair Saddler wanted Ms. Kraly to elaborate on what
was at stake for the state in terms of finances, the
operations, fines, and penalties. He wanted to know why the
case was important to Alaskans
Ms. Kraly responded that a functioning Medicaid Management
Information System (MMIS) was critical to the
administration of the Medicaid program. She opined that it
had been testified to by the commissioner and Ms. Brodie
over the past two days. It was necessary to operate the
Medicaid program. With respect to getting acceptance and
certification the two functions lead to federal dollars for
the development and operation of the program. In order to
get certification from the federal government they had to
approve the system. Once approved, the federal government
would pay 50 percent of the cost. Upon certification, the
federal government would backfill the additional 40 percent
covering 90 percent of the program.
Ms. Kraly continued that, in terms of the operation phase
and the functionality going forward, the federal government
would pay 75 percent of the operation of the program.
Certification lead to enhanced federal funding for the
operation of the program.
Vice-Chair Saddler asked Ms. Kraly to confirm that the
reason why the administrative investment rate went from 75
to 50 percent. He wondered if it was due to some error on
the part of the state.
Ms. Kraly did not believe it was based upon an error. She
thought it was a functionality of not getting paid the
enhanced rate until certified.
1:30:59 PM
Vice-Chair Saddler wondered about the finances. He heard
that the state was on the hook for a payback to the federal
government with some potential fines and error rates. He
wanted to know the financial implications.
Ms. Kraly communicated that as was testified previously the
intent was for the state to eventually become whole. If the
state had either over paid providers in error then the
state had to pay back the federal government the additional
payment. If the state had underpaid, once reconciled, the
federal government would give the money back. There were no
penalties or sanctions, per se. There was the ultimate
accounting reconciliation at the end of the day that the
federal government was not overpaid or underpaid for billed
services.
Vice-Chair Saddler asked if the state would ever recover
some of the money. Ms. Witty prefaced by saying that it was
important to put Ms. Brodie's affidavit into context. It
was not only a point in time, but it was filed in response
to a motion by Xerox saying that the state's liquidated
damages clause was unenforceable. Xerox claimed that the
state's actual damages were minimal compared to the amount
of damages the state had said it accrued through the
liquidated damages clause. Xerox suggested that it should
be struck from the contract as unenforceable. The affidavit
of Ms. Brodie was to support the state's position that the
damages were difficult to calculate and under the law the
state's situation was the reason why a liquidated damages
clause would be included in a contract.
Ms. Witty added that although the state was uncertain of
the ultimate value of the damages, it could still go after
Xerox for its costs. Accounting reconciliation issues and
repayment issues were causes for damages.
Vice-Chair Saddler pointed to page 8 of the affidavit where
it referenced the state's current outstanding balance of
$104 million. On page 7 it also stated that CMS had dropped
the state's reimbursement rate from 75 percent Federal
Medical Assistance Percentages (FMAP) to 50 percent as a
result of continued delays in correcting defects. He
remarked that Ms. Witty was correct.
Representative Gara wanted to be clear that the
reimbursement rate that Vice-Chair Saddler mentioned had to
do with the reimbursement rate of the cost of the system,
not the reimbursement rate for health care services. He
said it had gone down from 75 percent to 50 percent but it
would retroactively go back to 75 percent once the system
was certified. He wanted to make sure he was correct. Ms.
Kraly responded in the affirmative.
1:34:50 PM
Representative Gara asked that once the system was
certified and the retroactivity was activated, it would be
as if it had been 75 percent the entire time in terms of
reimbursements to the state. Ms. Kraly responded, "That is
correct."
Representative Gara noted was that with all of the
improvements that were enforced through litigation, which
he appreciated, the system was up to about a 95 percent
billing accuracy. Ms. Kraly responded that that was her
understanding.
Representative Gara commented that not only was the system
up to 95 percent accuracy, the remaining 5 percent of
claims were paid within the following one or two billing
cycles. He recapped that the billing performance was
essentially 100 percent accurate. Ms. Kraly responded that
was her understanding.
Representative Gara asked, with the improvements that had
been made, if there was any reason why the state should not
proceed with Medicaid expansion at present. Ms. Kraly
responded, "Through the chair, Representative Gara, I do
not."
Representative Gattis added to the comments made by Co-
Chair Neuman. One of her concerns was that she was not
hearing from both sides of the litigation. She wanted to
hear what the other side had to say.
Representative Pruitt wanted to discuss the money. He asked
Ms. Kraly about her understanding of the system as she had
gone through the litigation process. He wondered if she
considered herself very capable of understanding the full
ramifications of the system.
Ms. Kraly responded that she had been representing DHSS for
fifteen years. In that time she had represented the
Medicaid agency in its various iterations. She reported
working very closely with all of the divisions and the
commissioner's office on a myriad of Medicaid problems. She
had been actively involved in the litigation, although, she
was not one of the attorneys who had entered an appearance
in the litigation. She was very comfortable with discussing
the impact of the MMIS system on the operations of the
department as well as the impact to litigation related to
the Medicaid system.
1:37:59 PM
Representative Pruitt asked about additional discussions
concerning payments or penalties the state might have to
pay. He wondered what the ramifications of a recuperation
the state could have on the litigation from Xerox's faults.
He wondered what the clause covered. He asked if it was
just the money that the state would otherwise receive from
the federal government, labor costs, or other things.
Ms. Kraly wanted to make sure she understood Representative
Pruitt's question. She wondered if he was asking about the
damages the state could potentially recover from Xerox.
Representative Pruitt responded affirmatively and added
that he also wanted to know the scope of the damages. He
wondered if the state would be recouping money lost with
the federal government and future financial actions. He
wanted to make sure the state would be whole again at the
end of the litigation.
Ms. Kraly responded that the purpose of the litigation as
filed was to ultimately get a functioning system. As part
of the litigation the state raised a number of claims in
the accusation including a claim for liquidated damages.
Under the contract there was a provision that allowed for
liquidated damages. Xerox was contesting that provision and
had argued that damages should be held unenforceable.
Xerox's argument was that the damages the state was
assessing were so large in comparison to the actual damages
the state was suffering. As a result, she continued, Ms.
Brodie drafted the affidavit responding to the claim
identifying that the damages that the state suffered were
large and significant but difficult to quantify for a
variety of reasons. The state would not actually know the
dollar amount in damages for quite some time well into the
future. The purpose of a liquidated damages provision under
the law was to identify a penalty. The provision was
initiated because of Xerox's failure to perform and an
inability of the state to quantify damages. It was her
expectation at the conclusion of the litigation that the
state would have a functioning system and there would be
some form of remuneration from Xerox related to some of the
damages. Currently, she was unable to provide an exact
amount. Part of the litigation that was currently in front
of the administrative hearing office was how to quantify
and calculate the amount for damages. The numbers that
needed to be reconciled would be determined once all of the
pieces were in place.
1:42:23 PM
Representative Pruitt asked whether Xerox would make a
profit from the system. Ms. Kraly relayed that there were
two parts to the contract. The first was the design and
development and implementation phase. The operations was
the second part of the contract. She furthered that once
the system was operating and certified by the federal
government the state would be in a contractual relationship
with Xerox and receiving payment, as they would continue to
manage and operate the program. She supposed that it would
be better to ask Xerox about potential profits.
Representative Pruitt understood that the state was going
to pay Xerox. However, if the state was awarded liquidated
damages exceeding what the state paid for the system, he
wondered at what legal opportunity could Xerox end its
business relationship with the state. He was concerned with
being left with a system without support. He wondered if
Xerox would cut its losses and whether the state would have
any recourse.
Ms. Kraly responded that should Xerox determine it no
longer wanted to participate there would be a breach of
contract. The state would then litigate a breach of
contract action against Xerox. She furthered that unless
there was a mutual termination the state would have
additional claims. The current litigation was the one
remedy the state had with respect to Xerox. It was not the
exclusive remedy, there were additional remedies under the
contract up to and including the termination of the
contract. The state did not want to terminate the contract,
rather, it wanted an operational system. If Xerox were to
walk away from the state unilaterally then the state would
evaluate and pursue all of its remedies under the contract.
Representative Pruitt asked about the maintenance contract
duration. Ms. Witty believed the contract ran through 2019
with options to renew. She would get back to the committee
to confirm her answer.
Representative Pruitt mentioned that the state had used the
previous system for 26 years. He expressed further concern
with being stuck with a very large and expensive system
after 5 years if Xerox potentially did not want to support
it down the road. He asked about the state's recourse at
that point.
Ms. Kraly indicated that the state could choose to litigate
with Xerox. She also noted that the system belonged to the
state. The state could bring in a new operator as another
option.
Ms. Witty clarified that the contract expired September
2017.
1:46:27 PM
Co-Chair Thompson suggested that the contract was renewable
for up to 25 years.
Vice-Chair Saddler stated that the enterprise system went
live in October 2013, 4 years behind schedule according to
what Xerox promised the state. Xerox was currently 2 months
into a corrective action plan and there was nothing
regarding the enterprise system that stood in the way of
expanding Medicaid at present. He asked if the enterprise
system was currently certified. If not, he wondered if the
state would receive any FMAP if it expanded Medicaid today.
Ms. Kraly answered that the system was not certified.
However, certification would not impact the enhanced
federal match for the expansion population. The state would
still receive the 100 percent federal match in 2016 if it
expanded as indicated in HB 148 on August 1, 2016.
Vice-Chair Saddler asked why the state would need to
certify the system. Ms. Kraly responded that certification
had to do with the functionality or the operation of the
system. It had nothing to do with the federal match for the
reimbursement from the federal government for services that
were provided. Certification had to do with whether the
MMIS met certain protocols set by the federal government.
It did not impact payment. She provided an example. She
suggested that the state was receiving its 50 percent match
for all of the services that the state was currently
providing. The state was receiving a little more for
certain children and pregnant women. The matching dollars
were coming in from the federal government every day, week,
or month.
Ms. Kraly briefly discussed slide 9: "Certification":
Once the system is accepted, DHSS will seek
certification for the system. Certification relates to
the federal matching for the development and operation
of the system, not to the federal match for the
payment of services.
For example:
For development of a new MMIS system, the federal
government pays 90% of that cost, the state pays
10%
For operation of the MMIS system, the federal
government pays 75% of that cost and the state
pays 45%
Ms. Kraly stated that the slide discussed the
certification, the concept of certification, and its
related funding from the federal government.
1:49:06 PM
Ms. Kraly outlined slide 10: "Certification":
Currently the federal government is only paying 50% of
the cost of the development and is paying 50% of the
operation. Once the system is certified the federal
government will reimburse the state to the full match
noted above, e.g., the additional 40% for design and
25% for operation. And this payment is retroactive.
Thus, certification relates to funds expended by the
state to build and operate the new system and does not
impact provider payments for federal match related to
those payments.
Ms. Kraly summarized that slide 10 discussed more about
certification.
Representative Wilson asked about page 9. She wanted to
know if what was listed for the federal government's
operational costs for the MMIS of 75 percent and the
state's portion of 45 percent was accurate. Ms. Kraly
responded that it was a typographical error.
Co-Chair Thompson clarified that the number should have
been 25 percent.
Representative Wilson asked about the coding in October.
She wondered why the state did not wait to pursue
litigation with Xerox until the next large test of the
system occurred or until certification was completed.
Ms. Kraly indicated that she was not qualified to answer
Representative Wilson's question. She pointed out that the
commissioner and Ms. Brodie spoke on the topic the previous
day. As far as her second question, certification was not
the trigger for reimbursement from the federal government
for the provision of services. In her opinion, waiting for
certification to expand did not make sense. The state would
receive money from the federal government regardless of
certification.
Representative Wilson indicated she was only referring to
the state's agreement with Xerox. She wondered why the
state would not wait to take care of the litigation
following the certification for Xerox. She was not looking
at expansion. She was looking at whether other states
waited until they changed over.
Ms. Kraly relayed that if she understood Representative
Wilson's question correctly the state was in a status quo
position with Xerox currently. The state had not withdrawn
the litigation or the claim for liquidated damages. The
state was able to reinstitute or go back off the stay or
address additional claims should there be additional
problems in the future. The state did not intend on
releasing Xerox from performing under the contract in the
future. There was really no need to wait until the two
milestones were reached. The state was moving forward on a
day-to-day basis.
Representative Wilson suggested looking again during the
interim at whether other states in converting to a new
system, used certification as a stamp of approval.
1:52:50 PM
Co-Chair Thompson commented that, in terms of the whole
system, when it initially went live it seemed to work.
However, when the big load was initialized there was a
significant problem. The system currently appeared to be
working, but the state would be adding 20 thousand to 40
thousand new people and 70 thousand NCCI [National Council
on Compensation Insurance] codes into the system
simultaneously. He was concerned whether the system could
handle the additional load.
Ms. Kraly moved to slide 12: "State Litigation":
Filipino American Assisted Living Providers
Association v. DHSS:
This class action complaint for injunction, damages,
and declaratory relief related to DHSS' efforts to
engage in cost-based rate setting for assisted living
home operators.
Ms. Kraly reported that the committee requested that the
topic of ongoing litigation within DHSS be included in the
presentation as well as to discuss a couple of federal
cases. She reported that the Filipino American Assisted
Living Providers Association v. DHSS was currently in a
lull. The state had prevailed on all motions [Secretary's
note: Audio cut out briefly].
Ms. Kraly turned to slide 13: "State Litigation":
Putnam and Brown v. State of Alaska, DHSS, DSDS:
Litigation filed on behalf of two Medicaid nursing
home recipients, requesting a preliminary injunction,
and declaratory and injunctive relief arguing that the
notices sent by DHSS violated due process because they
did not engage in a material improvement
analysis/process similar to what is done when
terminating a person from home and community-based
waivers under AS 47.07.045.
Ms. Kraly relayed that the litigation was filed by two
Medicaid recipients who were challenging the state's
determination that they no longer met nursing facility
level of care conditions and could no longer have their
services paid for in a nursing home. The allegations raised
were that the state should use the same process that was
used for home and community-based waivers establishing that
recipients had materially improved.
Vice-Chair Saddler asked for details about the case on
slide 12. Ms. Kraly responded that 4 or 5 years prior the
legislature and the department discussed a variety of
issues concerning consistency within the assisted living
home arena. The discussion included moving to cost-based
reporting required by the federal government. Department of
Health and Social Services engaged in a regulatory proposal
to require assisted living homes to engage in cost-based
reporting which was a fundamental shift in how rates were
established previously. A number of assisted living homes
participated in providing cost-based reports and certified
accounting records. Other homes did not like the new plan
and filed the litigation arguing that the system the state
was engaging in through regulations was too extensive and
ineffective. The state presently prevailed on all claims at
present.
Vice-Chair Saddler thanked Ms. Kraly for the helpful
information.
Ms. Kraly continued to explain slide 13. She reported that
the case remained active and an oral argument was scheduled
at the end of June [2015].
1:56:57 PM
Ms. Kraly pointed to slide 14: "State Litigation":
Henderson v. DHSS, DHCS:
Litigation related to the DHSS' protocols regarding
the approval for prior authorization for the
hepatitis C drug Sovaldi violated federal and state
law. The drug in question is Sovaldi, a relatively new
treatment for hepatitis C with a high rate of success
in patients with the disease, along with a cost of
$84,000 for each course of treatment. At issue is
whether the criteria were properly adopted under the
Administrative Procedures Act, whether the policy
unjustly discriminates in violation of 42 CFR
440.230(c), and whether the notice of denial comports
with due process.
Ms. Kraly indicated that the state had been sued. The
argument was that the state's protocols were in violation
of the Administrative Procedures Act; they discriminated
under the federal rules related to the Medicaid Act and
that the state's notice violated due process. She reported
that the case was in its infancy in the discovery and
motion practice.
Ms. Kraly detailed the case on slide 15: "State
Litigation":
Nafalhu v. SDS:
Litigation related to the Division of Senior and
Disabilities Services (SDS) alleging that the process
used by SDS to determine eligibility for personal care
services violates due process because eligibility is
not based solely upon the assessment but is put
through a quality control system to assure the
accuracy of the assessment in light of all other
factors, such as medical diagnoses and medical
records.
Ms. Kraly relayed that the case was filed within the
previous month regarding how the division determined needs
of patients for personal care services.
Ms. Kraly clarified that the four cases that she had
presented she would highlight. They were active
litigations. The department had a myriad of additional
cases it dealt with at the Office of Administrative
Hearings, which dealt with Medicaid provider audits and
recipient fair hearings with respect to the denial,
suspension, or termination of Medicaid benefits.
Ms. Kraly moved on to slide 16: "Federal Litigation":
King v. Burwell:
The issue is whether a person who purchases insurance
on an exchange established by the federal government,
instead of on an exchange established by a state, is
authorized to get tax credits under Obamacare.
Only 16 states have their own exchange; the remaining
states have relied upon the federal exchange. It is
estimated that at least 5 and maybe as many as 8
million people will lose their tax credits, if the
Court finds that the tax credits do not apply to
insurance purchased on the federal exchange.
Ms. Kraly relayed that the case was before the United
States Supreme Court. She provided case details regarding
the Affordable Care Act. Individuals who purchased
insurance through the exchanges had been provided with tax
credits. The question in front of Burwell was whether the
tax credits could be provided if a person had purchased the
insurance through the federal exchange. There was a
provision in the Affordable Care Act that indicated that a
person could only receive a tax credit if they applied
through a state exchange. The litigation was asking whether
the tax credits were available through the federal
exchange.
2:00:17 PM
Vice-Chair Saddler asked if the state was at issue in the
case being that it did not have its own exchange relying on
the federal exchange. Ms. Kraly responded affirmatively.
Vice-Chair Saddler asked about the potential impact if the
Burwell case went against the federal administration's
position. Ms. Kraly explained that the ultimate impact
would be that those individuals that received tax credits
through the federal exchange would no longer be eligible to
receive them.
Vice-Chair Saddler asked if Alaskans would be required to
repay the tax credits. Ms. Kraly did not know the answer to
Vice-Chair Saddler's question. She assumed not.
Vice-Chair Saddler wondered if the State of Alaska would be
required to step in for the people affected. Ms. Kraly
responded that the State of Alaska could certainly step in,
but currently the questions and answers would be
hypothetica1. She reiterated that the state could step in
to provide fixes.
Vice-Chair Saddler asked if the state would be obligated to
step in. Ms. Kraly did not believe so.
Co-Chair Neuman commented that when he had spoken with many
Alaskans around the state who had received the credits and
expressed their concerns. He suggested having something in
HB 148 that addressed the needs of Alaskans who would be
subject to losing the credits. He mentioned Obama Care. He
suggested that the Department of Law come up with options
for the legislature to consider to make sure that the state
did not lose the 21 thousand Alaskans that were currently
covered. He also did not want the same people to incur
additional costs just because the state decided to expand
Medicaid.
Representative Pruitt asked about the income level for
people who would qualify for tax credits. Ms. Kraly stated
that roughly speaking insurance was made available to those
with an income of 133 percent to 400 percent of the federal
poverty line. An individual making approximately $16
thousand to $47 thousand would be required to purchase
coverage but would no longer receive any help should the
court rule against the administration. She suggested that
the department might have more accurate information.
Representative Pruitt asked about the numbers. Ms. Kraly
answered 133 percent to the 400 percent of the federal
poverty guideline.
Representative Pruitt did not believe the income levels
matched the percentage levels. He wanted to hear from the
commissioner if possible.
2:05:04 PM
VALERIE DAVIDSON, COMMISSIONER, DEPARTMENT OF HEALTH AND
SOCIAL SERVICES, responded that the subsidized insurance
available on the federally facilitated market place in
Alaska was based upon an individual falling between 100
percent and 400 percent of the federal poverty level. In
terms of state versus federal-based exchanges, every state
had the opportunity to develop their own state-based
exchange by a certain date. She relayed that there were
federal grants available for states to take advantages of
building the exchanges. She continued that for states
unable or chose not to develop their own state-based
exchange were subject to the federally facilitated market
place. Previously, the issue was addressed by the
department in a letter to Senator Coghill addressed by the
commissioner of insurance in a memorandum. She could make
the letter dated April 14, 2015 available to the committee.
Commissioner Davidson relayed the exchange options for the
state. The first was to do a traditional state-based
exchange which Alaska no longer had the opportunity to
pursue due to federal dollars no longer being available.
The second option was to build a state designated exchange
in which the state basically designated the federal
exchange to serve as the state-based exchange in order to
comply with the rules. The third option was to establish a
supported state-based exchange. The fourth was where Alaska
could contract with another state. The fifth option was to
build a regional exchange where a number of states could
work together to develop an exchange. The sixth option was
a state private exchange. She relayed that based upon
Alaska's situation, the most cost-effective systems
available and being pursued by the Division of Insurance
were the state-designated exchange or the contracted state-
based exchange. The federally facilitated market place
would be designated as Alaska's exchange or the state could
contract with another state to provide the service for
Alaska.
2:08:44 PM
Vice-Chair Saddler asked that the information be provided
in writing. He suggested that the Commissioner was saying
that if there was a reduction through federal litigation in
health care benefits to some Alaskans that the state would
consider several options to maintain that [health care
benefits]. Commissioner Davidson responded that the
department would be happy to provide the information.
Representative Pruitt assumed that the closer a person was
to the poverty the higher the subsidy or tax credit. He
wondered if he was correct in his assumption. Commissioner
Davidson responded affirmatively.
Representative Pruitt wanted to know how many people within
the expansion population could potentially be impacted.
Commissioner Davidson would try to provide the information
Representative Pruitt was requesting.
Representative Gara asked a question about the donut hole.
He suggested when Governor Parnell and other governors sued
to stop the Affordable Care Act the ruling resulted in what
was commonly referred to as a donut hole. He wanted to
better understand the circumstances for those people who
would have received insurance subsidies but currently did
not receive either insurance subsidies or Medicaid. He
wanted to better understand the gap and wondered how many
people were affected.
Commissioner Davidson stated that she could provide some
specificity on the exact number of Alaskans that fall
within the gap Representative Gara was talking about. She
explained that in terms of the donut hole created by the
Supreme Court it resulted because under the original
Affordable Care Act that was drafted Medicaid expansion was
required of all states. As a result some states sued
including Alaska. The Supreme Court determined that while
the Affordable Care Act was constitutional states could
reject Medicaid. Individuals that are at less than 100
percent of the federal poverty level did not qualify for a
subsidized insurance plan in the marketplace.
2:11:57 PM
Representative Gara asked if there was a group of people
below 100 percent of the federal poverty line that were
also not eligible to receive Medicaid even with expansion.
Commissioner Davidson responded in the affirmative. She
pointed out that people in the expansion populations that
were newly eligible between the ages of 19 to 64 in 2016 of
the almost 42 thousand Alaskans who would be eligible under
the expansion, 23,344 were below 100 of the federal poverty
level, ineligible for a subsidy on a federally facilitated
marketplace.
Representative Munoz asked about how many people were
purchasing subsidized insurance that would transfer to
Medicaid with expansion. Commissioner Davidson would get
back to the committee with the information Representative
Munoz was requesting.
Ms. Kraly pointed to slide 18: "Federal Litigation":
Scott v. DSS:
On April 29, 2015, Governor Rick Scott, filed suit
against the federal Government related to its decision
to defund the Low Income Pool, a grant program
authorized by the federal government to assist in
offsetting cost of care for persons who do not qualify
for Medicaid.
Florida receives 1.3 billion to help hospitals cover
the cost of care for uninsured persons. The federal
Government decided not to re-issue the grant that paid
for the Low Income Pool arguing that those persons
should be covered by Medicaid expansion.
Governor Scott filed suit arguing that this reduction
of the grant was akin to the coercion argument that
was struck down by the US Supreme Court in the
Sebelius case in 2010.
The federal government stated that the program was
temporary and had been previously set to expire in
June. The pool funding shouldn't be used to pay for
costs that would be covered by an expansion of
Medicaid
Ms. Kraly concluded her portion of the presentation.
2:15:13 PM
ANDREW PETERSON, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, introduced himself indicating that he was the
supervisor of the Medicaid Fraud Control Unit. He would be
discussing a number of things including the unit's mission
and how it had been fulfilled through collaborating with
other state and federal agencies. He would be pointing out
some of the results of the enhanced collaboration and the
effectiveness it had provided the unit and the resulting
cost savings. He would also talk about some of the reforms
his office and Ms. Kraly's office recommended to DHSS. He
noted that he would be summarizing the first few slides to
save time.
Mr. Peterson started with slide 20: "Introduction":
Omnibus Budget Reconciliation Act 1993
Requires states to establish Medicaid Fraud
Control Units (MFCU)
Sets performance standards and guidelines
Minimum personnel requirements
Federal Financial Participation (FFP) grant
Funds 75% of MFCU costs
Mr. Peterson explained that the Medicaid Fraud Control Unit
was established in 1993 by federal regulation. Essentially
the regulation required that all states had Medicaid Fraud
Control Units (MFCU) nationwide. Currently, there were 49
states and the District of Columbia that had MFCU. North
Dakota was the only state that did not have a MFCU
presently. The federal government set forth certain
performance standards and guidelines that had to be
followed similar to DHSS. The unit was audited on a regular
basis to back sure it is being a good steward of federal
resources being received. As a result, the unit had a 75
percent federal financial participation match.
Mr. Peterson advanced to slide 21: "Medicaid Fraud Control
Unit [MFCU]"
MFCU investigates and prosecutes:
Medical Assistance Fraud
Allegations of abuse or neglect
Financial exploitation or misappropriation of
patient assets
Mr. Peterson indicated that MFCU was responsible for
investigating and prosecuting medical assistance fraud,
allegations of neglect and abuse, and financial
exploitation or misappropriation of patient assets. The
unit had statewide jurisdiction to prosecute any crime in
the State of Alaska. The way he described it was that if
the unit had Medicaid fraud or abuse allegation of hook the
unit would prosecute any other crime involved in the case.
If a Medicaid hook was not part of a case the case would
move to another prosecutor such as the District Attorney's
office or the Office of Special Prosecutions. He mentioned
having a couple of limitations.
Vice-Chair Saddler asked how many staff he had and about
the division's budget. Mr. Peterson answered that there was
a total of 10 staff in the MFCU. He expounded that there
were two prosecutors, himself and another. There were 6
criminal investigators, one of whom was in a supervisory
role. The other staff member was the only forensic auditor
in the state.
Mr. Peterson discussed the unit's budget. He relayed that
in federal FY 2015 totaled $1,105,990. Ms. Kraly
interjected that the number was on slide 28.
Co-Chair Neuman recollected DHSS moving over about $6
million from its budget to help with fraud control. He
asked Mr. Peterson to clarify. Mr. Peterson speculated that
Co-Chair Neuman was likely referring to funds designated
for the fraud control unit within the Division of Public
Assistance. One of the specific requirements of
establishing MFCU was that they be entirely independent
from DHSS. Twenty-five percent of MFCU's budget came from
the Attorney General's budget. The remaining 75 percent of
funds came from a federal match.
2:19:55 PM
Mr. Peterson detailed slide 22: "MFCU Limitations":
Non-Medicaid cases
Investigating or prosecuting recipient fraud
Data mining
Mr. Peterson mentioned that MFCU had some limitations on
what the unit could prosecute. In a recipient case in which
there was a collaboration with a doctor or provider the
unit would charge both together. The last limitation was
doing any kind of data mining. Instead the unit took a
referral from any source, primarily from DHSS. The referral
could come from a citizen or a physician. When the unit
received a referral it opened the door to initiate an
investigation.
Mr. Peterson advanced to slide 23: "NFCU Collaboration with
DHSS":
Coordination Between
Program Integrity
Quality Assurance (SDS)
Health Care Services QA
Behavioral Health QA
Department of Law - Civil Division
Identify Problems or Limitations
Criminal vs. Civil Action
Regulation modification
Mr. Peterson talked about the way MFCU had been able to
enhance the unit's ability to investigate through
collaboration, primarily with DHSS. In meeting with other
directors from MFCU nationwide, Alaska's unit had one of
the best relationships with a DHSS than any throughout the
nation. It was baring fruit which he would demonstrate when
he discussed results. The Medicaid Fraud Control Unit had a
close relationship with DHSS and with the civil unit. He
relayed that when DHSS sent over a referral Mr. Peterson's
unit could work closely to collaborate on the best way to
handle a case. If neither MFCU nor the criminal division
were able to prosecute, the next discussion needed to be
about some type of regulatory reform or a request for
statutory reform. If Department of Health and Social
Services wanted to address a problem the unit had to figure
out a way to approach it.
Mr. Peterson scrolled to slide 24: "Collaboration with
other Agencies":
Office of Inspector General (OIG) Agents
FBI
Immigrations and Customs Enforcement
Other Federal Agencies (SSA, DEA, USPS)
Alaska State Troopers
Municipality of Anchorage & APD
Dept. of Labor
Dept. of Commerce
Dept. of Corrections
Mr. Peterson pointed to the extensive list of additional
agencies that MFCU worked with on a daily or weekly basis.
He reported the unit worked closely with many different
federal agents and state law enforcement officers. He
reported that in the previous three years MFCU had entered
into memorandums of agreement with the Department of Labor
and Workforce Development, the Department of Commerce,
Community and Economic Development, and the Department of
Corrections. The agreements had allowed the sharing of
information. The data that was exchanged helped the unit to
fulfill its mission of prosecuting waste, fraud, and abuse
within the system.
2:22:29 PM
Mr. Peterson revealed slide 25: "Results":
102 Criminal Cases Filed since FFY 2012
80 Criminal Convictions
Suspension from providing Medicaid services
8 civil resolutions - limitation on providing
services
Restitution Judgments totaling $2,806,369.70
Pending Cases:
Number of pending and ongoing investigations
Potential Restitution: $4 million in pending
criminal cases
Mr. Peterson affirmed that those individuals who received a
criminal conviction were suspended from providing Medicaid
services for 10 years typically, and faced a possible
extension of 10 years which was determined by the
commissioner of DHSS. The unit had secured 8 civil
resolutions that had not risen to the level of a criminal
charge or a negotiation had been agreed upon.
Vice-Chair Saddler asked about the $2.8 million in
restitution judgements. He wonder about the loss
percentage. Mr. Peterson assumed Vice-Chair Saddler had
heard about audits within DHSS and how it looked at
statistically valid samples. In terms of criminal
prosecution Mr. Peterson had to have a verifiable loss. He
furthered that what the unit could prove in court was equal
to what the restitution judgements would be. The $2.8
million in judgements were criminally court ordered
restitution judgements based upon the prosecutions.
Vice-Chair Saddler asked if it equaled 100 percent of the
proven loses. Mr. Peterson speculated that it was never 100
percent of the proven losses. It was what the unit could
prove in court. He relayed that there were often times
situations where the unit believed that there was more lost
than could be proven. He was referring to what could
actually be proven.
Vice-Chair Saddler remarked that he was not completely
clear about Mr. Peterson's remarks. He rephrased his
question. If the unit was recovering $2.8 million, he
wondered about the amount being lost. He wanted a
percentage provided.
Mr. Peterson commented that the Federal Bureau of
Investigations (FBI) had statistics estimating what the
percentage was for fraudulent health care billing. He added
that it was 100 percent of what the unit had been able to
prove in its criminal cases.
Vice-Chair Saddler was still unclear about the percentage.
He appreciate any information Mr. Peterson could provide on
the subject. Mr. Peterson responded that the FBI statistics
suggested that 3 percent to 10 percent of all health care
billing was fraudulent. If the 3 percent FBI statistic was
applied to the Medicaid system of the state of Alaska then
potentially $45 million per year could be determined to be
fraudulent.
Co-Chair Thompson asked if judgements were different from
collections. He cited that the state had not collected the
amount it just reflected the amount the state had received
in judgements. He wondered if he was correct.
Mr. Peterson stated that Co-Chair Thompson was correct. He
relayed his surprise at the amount that had been collected.
He also mentioned that MFCU had recently received a fairly
significant judgement. One of the benefits was that once a
potential fraud was identified the federal government
essentially reached into the state's coffers and took the
fraudulent amount of the federal share back from the state,
a sign that the state had been a poor steward of the
state's resources. Once a conviction was obtained against a
defendant and the state proved the judgement was not
collectable the state would then be able to get the money
back from the federal government. Although the state might
not collect 100 percent of the funds that the state
received in restitution judgements there was clearly a
financial benefit back to the State of Alaska.
2:26:30 PM
Representative Gara discussed a comment made by fraud
investigators that it would be cost effective to hire
additional investigators in order to recuperate money by
discovering fraud. He furthered that they had suggested
that money spent on hiring additional investigators would
be less than the money returned. He asked for Mr. Peterson
to comment.
Mr. Peterson relayed that, based on statistics he would be
reviewing, Representative Gara's statement was accurate. He
reported that prior to 2012 the MFCU had 3 investigators
and was prosecuting on average zero to 3 cases per year. In
2012 MFCU expanded its number of investigators to 6 which
greatly enhanced the unit's ability to look at a larger
number of cases. Since then, the unit had dramatically
increased both the amount of restitution and the number of
prosecutions secured for Medicaid fraud.
Mr. Peterson advanced to slide 26: "Results Cont.":
121 suspensions of Medicaid providers based on
credible allegation of fraud
114 Individual PCAs
4 PCA agencies
Transportation service provider
Two medical practices
Mr. Peterson acknowledged that there had been 121
suspensions of Medicaid providers which included the 102
prosecutions mentioned earlier in the presentation.
Mr. Peterson advanced to slide 27: "Cost Savings":
Estimated Savings: $30 Million
FFY 2013: $461,805
FFY 2014: $18,089,187
FFY 2015: $12,154,541
Mr. Peterson conveyed that the number had been provided to
the unit by DHSS's Program Integrity Unit. The way the
number was estimated was based on the number of suspensions
in each year. The cost savings were estimated going forward
based on the suspensions. The estimated savings was $30
million since federal FY 2013.
Vice-Chair Saddler asked what the number was based on. Mr.
Peterson replied that it was the Program Integrity Unit's
best estimate.
Mr. Peterson detailed slide 28: "Funding," pointing out
that the chart showed the total expenses for MFCU each year
in 2012 through 2014. The third line down was the state's
25 percent share. On the fourth line the fines were shown
and in each year starting in 2012 through 2014 the unit had
increased the amount of fines ordered by court order
judgements. He mentioned that the two cases in which the
defendants had already entered plea agreements, but
sentencing was pending for the following summer, would
result in $450 thousand in additional fines being paid to
the state. Similarly, with restitution, the slide indicated
an escalation in the amount of restitution the unit had
been collecting as part of the prosecutions. Additionally,
with the two pending cases that should be sentenced the
following summer the unit anticipated an excess of $1.5
million additional restitution ordered to the state.
Mr. Peterson discussed the national civil cases was that
one of the benefits the state received by having a MFCU was
that the state was able to participate in National
Association of Medicaid Fraud Control Unit cases. The cases
are national cases against health care providers or
pharmaceutical companies. The State of Alaska was able to
join in the civil litigation without having to fund the
litigation itself. The amount of money on the chart were
civil judgements that had come in to the MFCU as a result
of Alaska's membership in the national association.
Mr. Peterson pointed a few other items on the slide. He
noted the return on investment, a return on the state's
investment of the 25 percent share on the amount of money
the state was getting back. Each year with the additional
investigators additional funds had been collected. The
bottom line of the chart reflected the number of
convictions each year since 2012.
2:31:10 PM
Ms. Kraly continued to slide 29: "Civil Recoveries: 2
Attorneys and 1.5 Paralegals." She explained that the slide
reflected a calculation of the recoveries that her section
had achieved over the prior 4 calendar years. The numbers
represented actual recoveries the Human Services Section
had obtained as a result of the estate recovery, trust
recovery, third-party subrogation, and audits. She added
that she had two attorneys and 1.5 paralegals dedicate to
civil recoveries, a good return on investment overall.
Mr. Peterson concluded with slide 30: "Reform":
Collaboration to achieve/implement reform:
Interest Penalties on Overpayments (HB 148)
Civil fines on providers for regulation
violations (HB 148)
Revisions to Personal Care Attendant Program
(draft regulations pending)
Revisions to durable medical equipment program
(regulations pending)
HB 161, pending transmittal to Governor for
signature
Mr. Peterson began at the bottom of the slide. He stated
that in the unit's meetings with DHSS identifying reform
was an important component. He conveyed his support of HB
161 [Short Title: Medicaid: Used Durable Medical
Equipment], a reform in an area that the MFCU had been
looking at with respect to durable medical equipment. At
the top of the list on the slide he stated that HB 148 had
several reforms that had been proposed by both the criminal
and civil divisions of the Department of Law and of DHSS
with respect to interest penalties for providers that had
been either potentially billing Medicaid for services that
were not allowed or not keeping proper paperwork and
imposing civil fines. The reason he felt it was so
important was that currently if a provider was billing
Medicaid in a manner that maybe was not appropriate and was
caught, the only penalty was a mulligan; return the money
and start over. They had the opportunity to litigate in the
administrative hearing process of the state's claim that
the provider owed the state money which could take years.
In all of the time there was no loss to the provider. There
was no interest charged on the money that the state paid
out. One of the ideas was to make sure that providers had
some skin in the game. The two proposals would ensure that
providers had skin in the game. If providers were billing
Medicaid inappropriately and receiving funds they were not
entitled to they would be entitled to appeal or challenge
the state's findings. However, in the end, if the providers
were determined to be wrong they would likely have to pay
interest on the monies improperly received. Currently the
only way to address providers that were doing something
wrong was with a criminal charge which came with
significant consequences. The civil fines that the unit was
asking the legislature to consider would provide the option
to remedy potential waste, fraud, or abuse without having
to potentially put a provider out of business.
Mr. Peterson concluded that some of the revisions the unit
had worked with both on the criminal and civil sides had
been addressing revisions in the personal care attendant
program. The unit had implemented a number of revisions in
past years. He intimated that the committee had heard from
the director of Senior Disability Services (SDS) as to the
amount of money that had been saved, some of which were due
to prosecutions but most of it was due to reforms
implemented by SDS.
Co-Chair Thompson asked that any written responses to the
questions be directed to his office.
HB 148 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 148 DOL Presentation to House Finance May 13 2015.pdf |
HFIN 5/13/2015 1:00:00 PM |
HB 148 |
| HB 148 Medicaid Fraud Press Release 050615.pdf |
HFIN 5/13/2015 1:00:00 PM |
HB 148 |