Legislature(2001 - 2002)
03/26/2002 03:03 PM House HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 407-CERTIFICATE OF NEED PROGRAM CHAIR DYSON announced the next order of business, HOUSE BILL NO. 407, "An Act relating to the certificate of need program." Number 1010 REPRESENTATIVE COGHILL, sponsor of HB 407, noted that the proposed committee substitute (CS), Version F, is significantly different from the first draft; it is a continuation of efforts to which he'd committed himself in the [House Community and Regional Affairs Standing Committee]; he said he has given a copy [of Version F] to some members of that committee. REPRESENTATIVE COGHILL moved to adopt Version F [22-LS1389\F, Lauterbach, 3/21/02], as the work draft. There being no objection, Version F was before the committee. REPRESENTATIVE COGHILL remarked: This has been likened to a youngster coming out of college [with] a counseling degree and getting hooked up with a ... 40-year dysfunctional marriage ... and wading in with that kind of trepidation. There still are some basic principles of operation that even a young counselor can bring to a situation. Number 1121 REPRESENTATIVE COGHILL told members that one reason he came to the legislature was to preserve and protect a free-market economy. He objects to having health care nationalized, more socialized, and driven by the government, he said; based on that objection, he became involved in the certificate of need (CON) debate. The CON in Alaska requires that if someone wishes to increase services or facilities that cost in excess of one million dollars, permission must be sought from the government. He explained that the [state] has rules, based primarily on [federal law], that determine whether this new facility or service will be allowed. REPRESENTATIVE COGHILL said although the federal government abandoned this system some years ago because it wasn't cost- effective and was creating problems, Alaska continues to use it. He acknowledged that the [CON is warranted] in certain circumstances, but expressed his intention to repeal it completely from [state law], which [Version F] accomplishes, with some safeguards: a time limit and greater accountability for a government-controlled process. He said it allows for the best free-market circumstances when possible. Speaking strongly against government-protected monopolies, he said Alaska has many examples, especially with regard to the CON. Although a lot of public money goes into health care, he suggested this [bill] is a good solution. Number 1270 RYNNIEVA MOSS, Staff to Representative John Coghill, Alaska State Legislature, explained that Section 1 is the crux of Representative Coghill's initial intent. It would require, with the exception of skilled nursing facilities and psychiatric hospitals, a CON for expenditures of one million dollars or more in communities with a population of less than 55,000. Therefore, a [proposed facility] in a community larger than this wouldn't require a CON unless it was a [skilled] nursing facility or a psychiatric hospital. MS. MOSS turned attention to Section 2 and reported that during discussion with the department and Senator Green, some flaws [were observed] in the system, one of which Section 2 seeks to address. Currently, if a facility is destroyed, it cannot be replaced without a new CON; Section 2 therefore eliminates the need for a new CON. It also eliminates an existing requirement for a new CON if a facility moves services from one building to another, provided the capacity and categories of service have not changed. Number 1358 MS. MOSS noted that Section 3 requires the department to adopt regulations to set a time limit for the department to determine whether an application is complete. Section 4 requires the department to set a time limit by which public hearings must be held; it also requires the department to make a determination on an application within 120 days following the determination that an application is complete. MS. MOSS turned to Section 5 and said CONs were originally put in statute to apply only to nursing facilities. A seven-step review process is in place for the review of nursing homes' CONs. As additional [facilities] were added under the CON requirement, a new, broad statute was added. She noted that the sectional [analysis] provides the repealed language; she pointed out that the only standard for review was "that if the availability and quality of existing health care resources, or the accessibility to those resources, is less than the current or projected requirement for health services required to maintain good health of the citizens in this state." Based on this standard, a CON could be issued. This is found in AS 18.07.041. MS. MOSS indicated Version F rolls all other types of facilities into the more defined standard of review found in AS 18.07.043. She said Sections 6 through 10 are simply technical changes that remove AS 18.07.041 from existing statutes. Section 11 repeals AS 18.07.041; Section 12 gives applicability of the new statute only to those CON applications filed on or after the effective date; and Section 13 is an immediate-effective-date clause. Number 1477 REPRESENTATIVE COGHILL requested that testimony on HB 407 be permitted for the next two committee meetings. He noted that some witnesses were unable to attend the March 28 meeting. Number 1515 CHAIR DYSON asked which communities HB 407 would apply to. MS. MOSS responded that criteria were created to arrive at the [55,000] number; according to the U.S. Census Bureau, a community must have a population of 25,000 for data from that community to supply [reliable] demographic data. The national poverty rate was applied to this number; Alaska is automatically 25 percent above that federal poverty rate. This adjustment resulted in [a figure of 31,250]. She explained that three different levels of poverty are applied to medical services: 150, 175, and 200 percent. The middle percent, 175, was applied to the 31,250 to result in 54,688; this was rounded off to [55,000]. CHAIR DYSON asked what poverty has to do with this. MS. MOSS replied: Just the level of need for medical assistance - how the federal government has defined it. You've heard in debates about Denali KidCare, for instance, that money may go further if we reduce those poverty levels. But the truth of the fact is, that's what's the feds use. We're dealing with Medicaid money here, so we're applying those percentage because of the Medicaid involvement. Number 1600 CHAIR DYSON offered: I'm very sure I don't understand the logic trail. But it may be that the government doesn't have a firm logic trail. I thought the argument about certificate of [need] had to do with the significant capital investment it takes to build a major facility. And the argument is that in smaller communities, if indeed, there's too much competition, then there won't be the economic incentive and the return on investment for folks to invest in building one. So, I thought that ... the rationale was to protect smaller communities from having ... fractured providers, all of whom were below some economic threshold. What's that got to do with Medicare or poverty? MS. MOSS reiterated that this issue involves Medicaid; the decision was that this should involve the "federal logic" - which was all that was available - rather than arbitrarily selecting a [population] figure. She said three [local governments] in Alaska would qualify under [the 55,000 population] number: Anchorage, the Fairbanks North Star Borough, and the Matanuska-Susitna Borough. Number 1663 REPRESENTATIVE COGHILL acknowledged getting creative in arriving at the figure, but indicated the basic question remains of the significant investment in the smaller communities. He asked at what point there should be some scrutiny in a limited market, and at what point it would be considered a growing market and therefore not require proof of [market] limitation. He offered his belief that a handful of communities fall into [this latter description]. REPRESENTATIVE COGHILL said he was willing to discuss the [population] number, since it is a bit arbitrary; part of the discussion pertains to the size of a community resulting in a finite market wherein competition could not happen. He offered his perspective that the market could handle this, and indicated astonishment that someone [might build an unnecessary facility]; he allowed, however, that this does happen as a result of poor judgment calls. "I'm not always sure that the government is the best answer," he said. He reiterated that he was open to discussion. He concluded by saying the Medicaid and Medicare expenditures were significant throughout the state. Number 1733 CHAIR DYSON, in response to Representative Cissna, expressed his wish to hear from the administration and some witnesses in opposition to HB 407, to allow members to get a sense of the arguments and to evaluate relevant correspondence. REPRESENTATIVE COGHILL concurred. Number 1799 ELMER LINDSTROM, Deputy Commissioner, Department of Health and Social Services (DHSS), came forward and told members, "I'll be more than happy to muddy the waters for you on this one." He explained that the CON program impacts the department in several ways on different levels, which is confusing. He said DHSS operates the CON program, which consists of one employee in the facility section of the Division of Administrative Services. MR. LINDSTROM referred to the sponsor's mention of the federal government's creation of, and subsequent backing away from, the CON program. This is not all the federal government backed away from, Mr. Lindstrom pointed out. When the CON program was created in Alaska and many other states as a result of federal law, a range of health-planning activities went along with it. States were expected to have a state health program; funding went into regional health planning. He said, "All of that superstructure has disappeared over time. In fact, we have not had a state health plan written ... since, I think, 1983." The resulting lack of current health data precludes a thorough evaluation and well-reasoned findings with regard to the review of CONs, he indicated - a job that is difficult without this information. Number 1902 MR. LINDSTROM offered another department perspective: the department pays substantial health care costs, primarily through the Medicaid program, which insures about one of every six Alaskans. For certain types of facility-based services including long-term care or nursing home beds, DHSS is, for all practical purposes, the payor. A non-Medicaid-eligible person upon entering a nursing facility will likely become Medicaid- eligible within several months because assets will be spent down; in all likelihood, this person will end up on Medicaid. MR. LINDSTROM reported that DHSS pays 85 percent of the costs for nursing home beds in Alaska. It is also a primary payor for acute-care psychiatric beds; generally, more is spent for children's services than for adults, but for all psychiatric care the state is the major payor. On the other hand, DHSS is not the major payor for other kinds of acute-care costs; it covers 20 percent of the market. Consequently, DHSS is concerned about the CON programs' maintaining integrity for cost-containment purposes proportionate to the amount the department pays. He said, "We're very concerned about long-term care costs and controlling ... the number of nursing home beds and the number of psychiatric beds. We are, as a payor, less concerned about certain other types of care." Number 1980 CHAIR DYSON asked, "Your worry is that with competition ... those providers might not ... have a large enough share of the market that they can make a living, so they jack their rates up, and your costs will go up?" MR. LINDSTROM replied, "That's true." He indicated Chair Dyson had broached another complex issue, the Medicaid rate-setting system for facilities; he acknowledged he was not an expert in that field. Capital costs become part of a facility's rate, he explained; to the extent a community overcapitalizes the system, inefficiencies are brought into the system and are reflected in the rate paid to the facilities through Medicaid. MR. LINDSTROM returned to the subject of the CON from the department's perspective - specifically, the public health perspective. He said DHSS is concerned about access to health care throughout the state. The CON provides a process for communities to rationally plan and understand what type of health care is needed in that community; the department thinks this is a good process. Number 2053 CHAIR DYSON asked whether Alaska has examples where the presence of too many providers is driving up costs. MR. LINDSTROM offered to find out. Number 2075 MR. LINDSTROM noted that Section 1 of the bill differentiates between larger and smaller communities in determining whether a CON is required. He offered the department's concurrence that Anchorage, Fairbanks, and the Matanuska-Susitna ("Mat-Su") area would be exempt from the requirement for CONs, except for nursing home facilities and some construction of psychiatric beds; he noted the department's support for that change. Intuitively, he offered, one would acknowledge that the market in Anchorage is very different from the market in a small, rural community. He said, however, that the department also believes the Anchorage market significantly differs from the Fairbanks market; likewise, both differ from the market in the Mat-Su area. Number 2128 MR. LINDSTROM said the department doesn't have the data, understanding, or capacity to finely understand those distinctions. "We can't tell you whether or not it makes sense to make this distinction," he said. He reiterated that lumping the larger markets together makes sense intuitively. Would it hurt the local hospital in Fairbanks or Mat-Su if there were a [large] freestanding ambulatory surgical center? He said he couldn't answer that question; as a result, the department has some reservations. Number 2162 REPRESENTATIVE CISSNA offered her belief that the health care industry is the fastest-growing sector of the private economy. MR. LINDSTROM replied, "I believe that's true." In further response, he said this lack of data is, sadly, not unique; the capacity DHSS once had for planning and the ability to understand these issues no longer exists. The department no longer has the ability to gather, sort, and understand that information. He reiterated that the state has not written a health plan since 1983. CHAIR DYSON noted that he wished to hear from other witnesses as well. He asked Mr. Lindstrom, following Representative Wilson's next question, to summarize the department's concerns; he said Mr. Lindstrom would have other opportunities to present input. Number 2230 REPRESENTATIVE WILSON said 14 states have repealed the CON program. She asked if Mr. Lindstrom had been in contact with any of these states to find out the consequences of the change. MR. LINDSTROM replied that on a number of occasions this issue has been raised; the department has looked into it to summarize what other states are doing. He expressed uncertainty about the number of states that have repealed the CON program, but reported that the data indicate "the significant majority" of states have retained the CON program. The [CON] criteria widely vary in different states for facility types and [need] thresholds, among others, but most states still have a certificate of need program. Number 2274 REPRESENTATIVE WILSON surmised that one reason is that these states haven't gotten around to repealing the CON programs. She expressed interest in discovering the results in states that [have repealed the CON]; have Medicaid costs increased, for example? MR. LINDSTROM replied that the department would give it another look. He referenced several studies with conflicting conclusions on effects [of discontinuing the CON program]. MR. LINDSTROM returned to his analysis of the bill. He said Section 1 is missing an amendment to [AS] 18.07.031(b), which speaks only to nursing home beds; it prohibits the conversion of any type of bed - assisted living, acute care, or other - to a nursing home bed without a CON, regardless of the cost. Perhaps this could be a new Section 2, he suggested. He said this concern was based on the department's role as the primary payor for nursing home beds. He suggested that similar language related to acute psychiatric care might also be appropriate. He referenced a suggestion from an unspecified Senate staff person that this might need to be more finely tuned than that; it might need to preclude conversions from adult psychiatric care to psychiatric care for minors. He noted that the department would be glad to address this with the committee. Number 2340 MR. LINDSTROM noted that Section 2 relates to facility replacement; this would most likely come into play should a facility be destroyed. He said the department's reading of [Section 2] includes facilities that have reached the end of their useful life; this would be a more common occurrence than destruction by fire or earthquake, for example. He said: Intuitively, it makes sense, I guess, that if we've been going along with a facility in a community at "X" number of beds and offering this array of services, that if they want to continue to do that, ... why should they go through a certificate of need? But, on the other hand - wearing the public health hat, and the notion of having some sense of what is really appropriate for a community - saying that it should just be replaced assumes that what's there now makes some sense. TAPE 02-24, SIDE B MR. LINDSTROM noted that Alaska has a number of very small hospitals; unlike in most states, these have not been closed, but many are "hanging on by a thread." He asked whether it makes sense for the state to tell these hospitals to go ahead and replicate the current model that is not working very well. He suggested it might make more sense for a community to go through some sort of intelligent process to ask what sort of facility the community really needs, and can afford. He said Section 2 would allow communities to beg that question, and that DHSS isn't certain it is a good idea. MR. LINDSTROM told members that DHSS needs to review the timeframes in Section 3. He said he was uncertain whether the department would have objection to Sections 3 and 4. He expressed his opinion that Section 5 is "quite good." He referenced the proposed repealed language [in AS 18.07.041]; that standard existed for everything until several years ago, when the legislature created new, more rigorous, standards for nursing homes; the department wanted to see this happen because it is the [primary payor] for nursing homes. He offered that the department believes these standards are applicable to other types of facilities, and that it would support having these be put into statute. He added that the standards may need "a tweak or two" from the department's perspective. Number 2305 CHAIR DYSON asked whether the department would have brought this forward if the sponsor hadn't done so. MR. LINDSTROM said he didn't believe so. The department has many other priorities, and this wouldn't have risen to a level requiring pursuit. CHAIR DYSON asked Representative Coghill whether he had discussed the aforementioned items with the department. REPRESENTATIVE COGHILL said no; he expressed reluctance to include some of the items in [Version F], but agreed that the discussion would take place now that the department is present. He expressed his appreciation for Mr. Lindstrom's stated concerns, which give him a better understanding of [the issues from the department's perspective]. Number 2240 JEROME SELBY, Regional Director; Planning, Development, and Advocacy; Providence Health System in Alaska ("Providence"), explained that he was currently working in Kodiak. In response to Chair Dyson, he affirmed that he had reservations about the bill, but said there are some good provisions. He indicated that the Hospital Association provided some of the suggested [language in Version F]; he expressed appreciation for the sponsor's incorporating these suggestions. He said he wished to offer a technical change to Section 2 and then focus on the major concern that [Providence] has with the bill. CHAIR DYSON suggested that Mr. Selby address the technical change with Representative Coghill [later] because the committee would not [move] the bill at this hearing. He noted his interest in hearing Mr. Selby's major concerns about the concept of modifying the certificate of need. Number 2200 MR. SELBY reported that the major concern he referenced is the issue of the 55,000-population criterion. He noted [Providence's] inability to find how that figure relates to "the real world." He suggested that allowing a "feeding frenzy" of spending money for unnecessary medical facilities in Alaska's three largest communities will reap a cost to the state that far exceeds any fiscal note the committee has yet seen. He expressed concern that [HB 407] is not about competition in the medical industry; there is currently a great deal of competition in the Anchorage medical community, for example. The CON maintains the competition on a level playing field and controls costs to the state, he explained. A CON means that health care will be developed in the state based on needed services, rather than a "whatever the market will bear" basis; he suggested the latter would happen if the CON were removed. He added his belief that the state will bearing [the costs] of most of the market in this situation. MR. SELBY noted that competition is perceived as a good thing in the U.S. Although it is great when it relates to used cars, however, he said it isn't "the main thing that you want to be looking at in a health care delivery system." For example, a person scheduled for heart surgery won't be seeking the cheapest price. He told members, "That's the problem when you start trying to move a pure competition model into a health care delivery system where one of the big issues is quality of care." MR. SELBY noted that a report released in January indicates a 21-percent increase in mortality in states that have no CON; this is a nationwide study; the second sobering conclusion of the study is that states with a CON have 84 percent greater use of existing facilities. He explained that [high use] means the volume is large enough that health care personnel stay competent and maintain high skills. When too many facilities are built and each facility has little volume, quality "goes right down the drain" because staff aren't practicing enough of any one [procedure] to maintain a high level of skill. He cautioned that quality is a huge concern. MR. SELBY noted the fourth concern from Providence's perspective: if the 55,000-population limit is used to include Anchorage and Fairbanks, "tertiary care" will be destroyed in the state. He said, "The only way that we can pay for taking care of tertiary-care patients in Alaska is to take the profits that we do make from things like surgery and ... plow them back into the system in order to develop tertiary care." Number 2032 CHAIR DYSON asked for a definition of "tertiary care." MR. SELBY said it is care such as advanced cancer care or advanced heart care; it requires specialists and technical medical equipment for delivery, and has huge overhead costs. He remarked, "You'll end up sending tertiary care back to Seattle and points south." He noted that Providence has, in the past 20 years of the CON law, been returning any net gains to tertiary care systems in Alaska. This allows residents to remain in Alaska for high-level cancer and heart treatments, whereas previously residents were required to go to Seattle. [Removal of the CON] would preclude further development of this type of care. He offered to provide further details to interested members. Number 1978 CHAIR DYSON informed Mr. Selby that he would have another opportunity to testify and answer questions. [HB 407 was held over.]
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