Legislature(1999 - 2000)
02/24/2000 08:10 AM House STA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 297-CERTIFICATE OF NEED PROGRAM Number 0164 CHAIR JAMES announced the discussion of HOUSE BILL NO. 297, "An Act relating to the certificate of need program; and providing for an effective date." She said HB 297 was heard in the House Health, Education and Social Services Standing Committee (HES), and she had requested that HB 297 be referred to the House State Affairs Standing Committee because it is her bill. She had promised Representative Dyson that she would make sure HES saw the final draft to HB 297 before she sent it on to the Chief Clerk. She noted that she will appoint a subcommittee and is inviting anyone to be part of a work group and attend the subcommittee meetings. [Before the committee was CSHB 297(HES).] Number 0630 DAVID CALDWELL, Senior Financial Analyst, Fairbanks Memorial Hospital (FMH), testified via teleconference from Fairbanks and read the following testimony: The certificate of need (CON) program is not meant to stop competition, rather, it is meant to reduce redundant health care facilities. For example, he added, last summer Fairbanks had three competing CON applications to add surgical capacity. After careful evaluation of all three proposals, the Department of Health and Social Services (DHSS) and the Commissioner, Karen Perdue, decided that there was no need for additional surgical capacity here, and denied all three CON applications. If there had been a need, I am sure the commissioner would have granted approval to one of the CON applications, even though it would mean competition for FMH. If you think adding redundant surgical capacity to the Fairbanks area would save Medicaid money, this is simply not the case. I have been closely involved with the Medicaid rate setting process for the past thirteen years, and thus understand it better than most people in the state. Yes, Medicaid ASC payment rates are lower than the rates Medicaid pays the hospital. Per my calculations, using current FMH package pricing and our year 2000 Medicaid rate of 56.55 percent, the yearly Medicaid savings would be about $60 K [thousand]. However, due to the way the Medicaid rate is set, reducing our revenues by moving hospital surgeries to a for-profit surgery center would actually increase our rate, and would end up costing Medicaid an additional $100 K or so. So, you do the math, 100- 60=$40 K increase in overall Medicaid expenditures! Lastly, I would like to comment on inflation and raising the CON threshold to $7 million. By a number of measures, Medicaid, Medicare, Anchorage consumer price index (CPI), and overall U.S. CPI, inflation from 1983, when the $1 million threshold was set to now has been running at about three percent per year. This would equate to a threshold of anywhere from $1.5 to $1.7 M [million] now, and I believe, if you are going to raise the CON threshold that this is the only justifiable level that can be supported. The $7 M level in this bill is irresponsible and inconsistent with Medicaid inflation rates which have been approved year after year for the past 20 years. Personally, I think the $1 M threshold needs to be kept as it does fulfill nicely the original purpose of the CON which was to cut down on redundant health care facilities. Number 0910 CHAIR JAMES said she had determined to add to CSHB 297 a $15,000 population base so that smaller communities will not feel threatened by the bill. CHARLES FRANZ, Administrator, South Peninsula Hospital (SPH), testified via teleconference from Homer. He noted that South Peninsula Hospital is a small rural facility. Although hearing Chair James talk about adding a population base of 15,000 does make him feel somewhat better, he still testifies in opposition to HB 297. He explained that his hospital board had discussed HB 297 at the board meeting, held several discussions with hospital staff and the boards's conclusion was that they could find any justification for increasing the CON threshold to $7 million. He commented that the threshold figure effectively eliminates the CON program which was established to ensure that proposed new services measured up to detailed review and justification. MR. FRANZ mentioned that SPH had just completed a CON process for an expansion of the facility. He indicated that the process was rigorously detailed but fair and it forced SPH to closely examine the project to ensure it was in the best interests of the community. He emphasized that raising the threshold to $7 million is completely out of line with inflationary increases and has no factual basis. However, he acknowledged that an adjustment for inflation certainly would be reasonable. He remarked that HB 297, as it is currently written, would allow special interest groups to "cherry pick" the low-cost, high- reimbursement cases while community hospitals would be left with the complex cases and the obligation to provide 24-hour-a-day, seven-days-a-week coverage for emergencies. He urged the committee to refrain from passing HB 297. Number 1130 CHAIR JAMES inquired as to the dollar value of SPH's expansion, and how it was financed. MR. FRANZ replied that the dollar value was $9.2 million. Financing came from out-of-pocket funds derived from tax revenue reserves received from the Kenai Peninsula Borough and funded depreciation from hospital operations; in short, hospital profits and tax support from the community paid for the expansion. CHAIR JAMES asked how much extra trouble was required to do a CON as opposed to doing an internal evaluation or public hearing within Homer's taxing district. Number 1202 MR. FRANZ said it took him about three months to collect data and about two weeks of intensive work to actually write the CON. He informed the committee that he wrote the CON himself with staff assistance. He remarked that SPH received CON approval on acute care expansion in about six months but long term care beds approval took quite a bit longer in order to demonstrate need for those beds. CHAIR JAMES asked if Mr. Franz understood that there should be a different process allowed for long term care beds as opposed to regular hospital beds and asked if he saw a difference in the way that the legislature could address those two issues. Number 1300 MR. FRANZ commented he did not see a reason to treat long term care and acute care beds differently but he does understand that DHSS wants them treated differently because DHSS is concerned about the aging population growth and potential impact on the Medicaid budget. He explained that he thinks that DHSS should be concerned about the unnecessary growth of acute care services which will increase costs if excess capacity exists and health facilities would be obliged to spread the fixed costs of facility maintenance across a smaller population. Number 1341 CHAIR JAMES said she has read that 20 percent of the hospital population is covered by Medicaid and Medicaid does include cost recovery of the facilities. She commented that it seems to her that folks in Homer should have the right to decide what health care resources are needed in their area rather than have the state step in and make that decision. She inquired as to how Mr. Franz felt about that. MR. FRANZ answered that the community did support public CON hearings regarding the SPH expansion project and testimony at those hearings was unanimously in support of the construction project. He noted that a public vote was required because a borough threshold had been surpassed and the vote was four to one in favor. He commented that it is helpful to have an outside objective party look at community need and make sure it is valid; and in the case of a CON, the state is the objective party. Number 1541 CHAIR JAMES stated that she disagreed because, from her viewpoint, the legislature is trying to cut the state budget at the state level. She added that it is her personal opinion that if people do things at the local government level rather than look to the state for confirmation then the legislature can cut the cost of state government. Since she has heard several testifiers say that the CON does not have anything to do with competition, she explained that she believes that a CON can be decided at the local level and does not need state intervention. MR. FRANZ recognized that competition is an element to be considered. He cited an example of two general surgeons who worked at SPH and had become angry with him because of a decision he had made. As a result, he added, they refused to perform elective surgeries for about three months and the hospital lost $1 million in revenue. He mentioned that without the CON process or with the threshold set high at $7 million certainly competition is an element to be considered. He recognized that SPH surgeons could go down the street from the hospital and build their own ambulatory surgical center. Number 1736 REPRESENTATIVE HUDSON noted that according to the CON, local communities must obtain state approval to proceed with health care expansion or purchase of health care equipment. He asked Mr. Franz what Mr. Franz thinks is the purpose of a CON and who does it help. Number 1802 MR. FRANZ replied that his understanding of the CON process is that it was intended to improve the quality and availability of health care in the community. He said health care is different from business enterprises where competition will drive costs down and improve quality in many cases. He noted that SPH has to compete with health care providers in Anchorage for many elective procedures. He explained that due to competition SPH cuts expenses for some elective procedures to better serve the community. However, he commented, if the growth of health care service providers in the community is not controlled then the area ends up with three or four laser units, three or four magnetic resonance imaging machines (MRI), etc. He mentioned that SPH as sole health care provider in the community is structured on a cost-based reimbursement system and so the costs that SPH incurs in providing care are calculated into its reimbursement. Number 1928 BRIAN SLOCUM, Tanana Valley Clinic, said he represents a group of about 35 physicians and providers. He noted that the Tanana Valley Clinic is probably the largest in the state and has been serving patients in the Interior for over 40 years. He explained that when he was in school learning about how to run clinics 25 years ago, students were taught that governmental control over market functions was the proper way to do things. He commented that through the years many of those ideas of price and governmental controls over market functions have been discredited; the sole exception seems to be health care delivery. MR. SLOCUM mentioned that the CON was a good idea 25 years ago but is now archaic. He indicated that last summer the state of Mississippi was looking at the issue of changing their CON process and Governor Kirk Fordice published a position statement from which Mr. Slocum quoted: "Health facilities exist to serve the public. How is the public served by a virtual monopoly over this most critical of all public needs? Certificate of Need laws, born out of an effort to control cost, may actually increase health care costs by suppressing competition, as noted by..." a departmental study that was done in Mississippi. MR. SLOCUM added that Governor Fordice had also cited another study done in 1993 by independent researchers that said: "These researchers also found no evidence of increased costs in the initial twelve states that repealed CON requirements... Certificates of Need are primarily designed to constrain supply, not to address quality. Certificates of Need create franchises and protect existing facilities, regardless of the quality of care provided." MR. SLOCUM noted that Governor Fordice's message to his legislature was that abandoning the CON process would actually improve pricing in Governor Fordice's state. Mr. Slocum explained that a similar study had been done by the Federal Trade Commission (FTC) in 1987 and what they found was quite illuminating and useful. He quoted from the study as follows: "Federal Trade Commission Economic Study Finds CON Requirements Increase Hospital Prices and Costs-- CON requirements which were intended to control health care costs have actually increased hospital prices by four percent according to a study issued today by the Federal Trade Commission's Bureau of Economics. In addition, the study found hospital expenses are higher in states that have CON laws. According to the study there is no evidence that CON laws have resulted in the resource savings that they were purportedly designed to promote. The study also found that in areas where there were more independent hospitals, consumers get higher quality at the same price because of the increased competition. However, CON laws may be used to reduce the number of hospitals thereby injuring consumers according to the Bureau of Economics. Therefore, recent plans and decisions to repeal CON laws in some states should increase consumer welfare the study says. According to the FTC chairman, the findings concerning CON laws provide further support for my belief that government restrictions on competition are a major source of consumer injury." MR. SLOCUM said that quote was the FTC speaking a number years ago before the market became somewhat more competitive and before costs increased. Number 2290 MR. SLOCUM noted that about five years ago when Columbia Hospital Corporation of America (HCA) acquired a hospital in Anchorage, the FTC required that Columbia HCA divest itself of one of the two ambulatory surgery centers that Columbia HCA had acquired through the purchase. Quoting from the government press release, Mr. Slocum read: "The agreement would settle FTC charges that the acquisition by combining the owners of two competing health facilities in Anchorage that offer outpatient surgery services could result in higher prices and reduced quality for outpatient surgery services in the area. Columbia HCA would divest the Alaska Surgery Center to a new entity that would run it independently of HCA, thus preserving competition. According to the FTC complaint detailing the charges in this case, the acquisition would violate anti-trust laws by substantially reducing competition for outpatient surgery services in Anchorage. The market for these services is highly concentrated, having few competitors and entry by new entities is difficult because of state CON requirements, the complaint states. Thus, the FTC alleged it is unlikely that absent divestiture required by this settlement, a new competitor could establish quickly enough to deter competitive behavior by Columbia HCA. Moreover, the acquisition would increase the probability of collusion among the remaining sources of outpatient surgery in the market and could therefore deny patients and others the benefits of competition based on price, quality, and service for outpatient surgery services in Anchorage." MR. SLOCUM explained that he has presented three clear cases of governmental entities at the state and federal level strongly suggesting that competition in health care services in general and in outpatient surgery specifically is a good thing. He commented that governmental entities are saying that competition does in fact drive down prices and increases quality. He mentioned that when the state began its CON investigation in Fairbanks last year, the state hired Medical Services Research Group (MSRG) out of Memphis, Tennessee. He indicated that the Medical Services Research Group made the following statements in one of their reports: "The issue of cost is hotly debated in Fairbanks. While the hospital claims to be a low-cost provider, physicians argue that lack of competition keeps prices high. Generally speaking, ambulatory surgery centers have the potential for generating significant cost savings....In a rural community, incentives to reduce cost are typically absent. This is due to a lack of direct competition for inpatient hospital services. Without competition, the hospital exerts pressure on payers to purchase all services from the hospital, thereby deterring niche providers from entering the market. For example, if a non- hospital owned ambulatory surgery center opens in Fairbanks, FMH will likely negotiate with payers to include all outpatient surgeries in their provider contract. Otherwise, the payer may be denied access to inpatient services." Mr. Slocum's comment is that, obviously, lack of competition gives a monopoly player in the market a lot of power that the consultants note has a detrimental effect on pricing and competition. Number 2444 MR. SLOCUM again quoted from the Medical Services Research Group report as follows: "The table below presents a comparison of costs for ambulatory surgery procedures performed in hospital outpatient centers and ambulatory free-standing surgery centers provided by HCIA." Mr. Slocum said that the Medical Services Research Group considers Health Care Investment Analysts (HCIA) to be a very reliable, nation-wide company. He noted that MSRG presented a comparison table of 19 procedures and prices that typically happen in hospital outpatient services and in free- standing outpatient surgery centers. He commented that in every single case that MSRG lists in their table there was a significant price decrease and in some cases there was less than half cost of the price [charged at the hospital]. He indicated that MSRG goes on to say that in a typical case, however, it is reasonable to assume cost savings of at least 20 percent if utilization targets are met in efficiencies gained. He informed the committee that MSRG went on to talk about access by asking if an ambulatory setting would enhance patient's access to surgical care. He emphasized that MSRG had established that based upon national utilization it does appear a well-run center can minimize patient bureaucracy, thereby enhancing overall and family experience. He remarked that the data presented by MSRG suggests potential for increased access to care. MR. SLOCUM acknowledged that the Medical Services Research Group said the issue of high cost has not been resolved. He added that MSRG mentions that hospitals claim to be one of the lowest-cost providers in the state and yet at the same time, surgeries and procedures performed in ambulatory surgery centers often demonstrate lower cost. He concluded by saying that the information contained in the Medical Services Research Group report was weeded from the final copy which was submitted to the Commissioner of DHSS. Number 2505 REPRESENTATIVE HUDSON said he is trying to understand the relationship of all the information. He asked if it was correct that Mr. Slocum and some others view the CON as a sanctioned monopoly by the government. Representative Hudson acknowledged that competition usually does drive down the price; therefore, he wonders if all "players would be on the same ball field." For example, hospitals are required to provide services, even non- profitable services, to people who walk in from the street (perhaps homeless people). He asked if a facility outside the requirements of a CON - or if the state did not require a CON - would also be required to provide services to all people equally, regardless of their financial wealth. Number 2576 MR. SLOCUM replied that based upon his own experience at the Tanana Valley Clinic, everyone who walks into the clinic is treated and said the clinic treats Medicaid, Medicare, uninsured, and self-insured patients. Last year, he added, the clinic provided $5 million of charity care to the community and it would be the clinic's intention, as stated in the CON application, to treat the same cross section of people as the hospital would treat. REPRESENTATIVE HUDSON remarked that CSHB 297 should require equal patient treatment on the part of all health care providers in order to "level the playing field" while still allowing a spirit of competition. He asked Mr. Slocum if Mr. Slocum would object to such a requirement. Number 2620 MR. SLOCUM replied no. Philosophically, he added, he likes to let market forces allocate resources and distribute how they are provided. STEPHEN HENDRICKS, Alaska Orthopedics and Sports Medicine Research Center, testified via teleconference from Anchorage. He said he supports HB 297. He referred back to testimony that had been received in 1983 when SB 85 and HB 19 were discussed. He noted that John Mengen from FMH spoke in favor of HB 19 and said the CON promotes dissimilar treatment of private industry, fails to save the state money and does not encourage public input into health care delivery. He explained that during HESS committee discussion regarding SB 85, the Alaska State Medical Association supported SB 85 and said there is no saving in any evaluation, there has been no stoppage of duplication, and it is very expensive to generate a CON. He commented that he finds it interesting that the group now opposing the CON threshold increase back in 1983 all thought that it was a bad idea to have a CON in the first place. He indicated that his conclusion of the reason for change in thought is due to monopoly on the part of those same service providers. MR. HENDRICKS mentioned that Senator Faiks had called attention to the fact that the CON program started with a threshold of $150,000 and seven years later the threshold had increased seven- fold to $1 million. Seventeen years have passed since that time and no inflation correction has occurred for the CON. MR. HENDRICKS informed the committee that the FMH Chief Executive Officer had stated during the HESS meeting in Anchorage last week that doctors choose where patients have service delivered so it does not make any difference if there is competition. Mr. Hendricks had a personal experience regarding where service was to be provided when his son needed surgery. He remarked that the attending physician had assigned Mr. Hendricks' son to Providence Hospital but Mr. Hendricks requested that his son be assigned to the Alaska Surgical Center. When the doctor asked why, Mr. Hendricks said because going to the Alaska Surgical Center would save Mr. Hendricks $750. Number 2826 MR. HENDRICKS reminded the committee that there have been numerous comments about "cherry picking." He observed there are no examples of this in Alaska because the Alaska Surgery Center and Alaska Regional Hospital both provide a percentage of their revenue for indigent care that approximates the same percentage as Providence or Fairbanks' hospitals. MR. HENDRICKS added that when discussing reasonable and customary and co-pay it must be remembered that if a hospital charges more than an insurance company feels is reasonable and customary, then the difference is tacked on to a patient's co-pay bill. He recognized that paying the difference is a subsidy to indigent care because of the insurance rate and lack of coverage spread. He observed that people without insurance go to hospital emergency rooms frequently and this added delivery cost is expressed in increased service fees and insurance rates. He reiterated that he also has to subsidize the difference between what the hospital charges and what the insurance company pays. He suspected that part of his hospital bill goes to pay for indigent care and wants to know how does the indigent care bill vary from one provider to another. MR. HENDRICKS stated that if his co-pay on insurance (or Medicaid) is 20 percent and Provider A charges $1000 (cataracts for example) and Provider B charges $2000, at Provider A he would be pay $200 out-of-pocket versus Provider B's $400 out-of-pocket charge. He reiterated that the co-pay charge is in addition to what has family pays for premiums and individual deductibles. He said that as of January 2000, rather than pay an increase in insurance premiums, he chose to increase his [health care insurance] deductible from $1000 to $1500 per person. Number 2937 MR. HENDRICKS noted that FMH claims "competitors could provide services that would take away our ability to perform other services where the expenses exceed the reimbursement." He asked if FMH is referring to non Alaskans. He asked if FMH was so profitable to Lutheran Health Services (LHS) that FMH could export excess revenue to help pay for other hospitals in the LHS system that are not as profitable as FMH. TAPE 00-10, SIDE B MR. HENDRICKS explained that some have said a CON application takes three to six months to complete. He emphasized that such a notion is complete balderdash. He commented that submission of a CON letter of intent is time zero, at which time the CON coordinator may declare the letter of intent incomplete, requiring additional information. He mentioned that the next CON step is a waiting period of 60 days until the earliest day the CON application may be submitted and then add 30 days until the CON coordinator determines if the application is complete (additional requested information will extend the process). He indicated that at this point another 60 days must be added to the CON process until the CON coordinator submits recommendations to the DHSS commissioner and finally add another 30 days until the commissioner releases a recommendation. He quoted Senator Faiks, in testimony during the Senate HESS committee meeting to discuss SB 85 on February 16, 1983 as saying: "The average length of time of the application before issuance is about 170 days. You then have to get a letter of intent, which is an additional 60 days." He informed the committee that a CON really requires one or two years to complete. Number 2887 WILSON PATTERSON, Vice-President of Finance, Valley Hospital, testified via teleconference from the Matanuska-Susitna Valley. He spoke in opposition to HB 297. He said he is concerned that hospitals are compelled to provide a certain community benefit that others potentially not subject to CON would not be compelled to meet as far as treating of indigents and certain other uninsured and underinsured individuals. He explained that he is concerned about "creaming," whether there is evidence of this in Alaska or not is irrelevant since the CON exists. Therefore, the opportunity to "cream" has probably not occurred to any great extent. He noted that he does believe that by maintaining the CON in its current form with the $1 million threshold it allows hospitals to generate revenues from paying patients to cover uncompensated care and provide community benefit. MR. PATTERSON informed the committee that Valley Hospital paid $900,000 in charity care last year, carried $2.5 million in bad debts, and wrote off $13 million on contractual Medicare and Medicaid patients. He reiterated that the present CON situation allows Valley Hospital to provide high quality health care to all Alaskans and he is concerned that if the threshold is increased to $7 million potential financial hardship caused to the hospitals may reduce access to health care to Alaskans who do not have the ability to pay. He admonished the committee to closely study the CON issue and make sure that competitors all play by the same set of rules. Number 2722 CHAIR JAMES asked if Valley Hospital has done any expansion in the last few years. MR. PATTERSON answered that renovation and expansion is occurring now. CHAIR JAMES asked if the expansion required a CON. Number 2699 MR. PATTERSON replied in the affirmative. CHAIR JAMES said she was planning to add a 15,000 population limit to CSHB 297 and asked if Valley Hospital would be under that population limit. MR. PATTERSON answered that the Matanuska-Susitna Borough has a service area population of about 60,000 so Valley Hospital would be over the proposed population limit. CHAIR JAMES explained that her thought was to help small communities (if "small community" can be defined), of less than 15,000 population that wanted to expand existing [health care] facilities, skip the horrible CON process. She envisioned that there would not be competition anyway in small communities because the market drives where facilities will be built. She observed that it seems to her as if the CON process now determined at the state level is unnecessary bureaucracy and feels that people on the local level can make their own decision based on their own public hearings. Number 2641 MR. PATTERSON noted that Valley Hospital had financed their expansion through a public bond issue in order to receive favorable interest rates and were able to acquire insurance. He said he believed that the CON process actually helped Valley Hospital obtain insurance because the hospital had demonstrated through the process that there was a need for the work that was being done and the insurer received comfort from the fact that the possibility of any significant competitive intrusion was blocked. CHAIR JAMES asked if that same public bond process was available to Valley Hospital without a state law requiring it. Number 2572 MR. PATTERSON replied that the bond issue process is available to Valley Hospital without the CON process but the point he was trying to make is that he believes Valley Hospital was able to obtain financing in part because the CON process does exist. REPRESENTATIVE HUDSON asked if Mr. Patterson had said that Valley Hospital has $15 million of write-off loss. MR. PATTERSON answered in the affirmative and said that it was uncompensated care, billed amounts that were uncollectible for one reason or another. REPRESENTATIVE HUDSON inquired as to what percentage of billed charges did the uncompensated care figure represent. Number 2530 MR. PATTERSON replied that uncompensated care represents about 30 percent of Valley Hospital's total billed charges. REPRESENTATIVE HUDSON understood then that all the other patients in the hospital had to carry the unpaid bills. MR. PATTERSON answered that charges are set in such a way that Valley Hospital generates enough net revenue, or collectible revenue, to operate the hospital as long as it is operated in an efficient manner. He stated that governmental payers, Medicare and Medicaid, are paying at cost or slightly below; insured and self-paying patients are essentially helping Valley Hospital to finance care to the indigent and underinsured. He reiterated that the set charges are not peculiar to Valley Hospital but is a national situation. Number 2488 CHAIR JAMES inquired as to how Valley Hospital's 30 percent uncompensated care compared with other hospitals in the state. MR. PATTERSON replied he did not know. MARTIN RICHMAN, Chief Executive Officer, Central Peninsula General Hospital, testified via teleconference from Kenai. He said there are some basic questions that need to be considered and one is whether or not health care is a commodity. He noted that the reason he raised that question is because government says health care is not a commodity by virtue of requiring hospitals to see everyone who comes to the emergency room and render whatever care is necessary whether or not the patient can pay. He explained that a playing field has been established and HB 297 would undermine the franchise that has been granted with the requirement that hospitals will not refuse anybody. He commented that even in other basic needs that the populace has, for example, transportation and food supplies, no one can get a car or food without paying. He reiterated that only in health care can a person get service without paying. MR. RICHMAN asked the committee to question what quality controls exist in free-standing facilities as opposed to requirements which are imposed on hospitals, both from state and national organizations such as the Joint Commission On Accreditation of Healthcare Organizations and Medicare. He stated he does not believe quality controls are the same for free-standing facilities as for hospitals. Finally, he added, the question needs to be explored as to why individuals and physicians do not operate hospitals; there must be a reason they do not do so, yet these same people are interested in operating free-standing ambulatory centers and similar facilities. Number 2349 CHAIR JAMES asked if Mr. Richman's hospital would be above or below the 15,000 population level. MR. RICHMAN answered that his hospital would be above that level in its service area. Number 2286 JOHN BRINGHURST, Administrator, Petersburg Medical Center, testified via teleconference from Petersburg. He said that Petersburg is under the 15,000 population limit but he wants to speak about the industry as a whole. He explained that he has heard the testimony regarding competition and what it does in the marketplace. He noted that intuitively competition sounds correct but he can testify that he recently moved to Petersburg from a very competitive environment in southern Oregon where a number of hospitals and other players competed. He observed the waste that competition produces and said that he had a $1 million marketing budget in his organization and an entire staff of people who did nothing but sit around and produce big, glossy brochures to accommodate the competition. He stated that he has lived in a community where surgery centers had moved in with promises to lower costs in the area by providing lower-cost services. The result was, he stated, that a large number of high-volume, high-profit procedures went to those surgery centers. He observed that it was not easy to obtain price information from the surgery centers but when he could obtain it, he found those prices to be almost as high, and in some cases higher, than what was charged in the hospital. Therefore, he added, the claim that prices would be lower was never realized. He reiterated that profits were re-distributed into the hands of private interests away from full-service providers who had been using those same profits to provide emergency services, obstetrics, and other lose-money services. MR. BRINGHURST stated that raising the CON threshold to $7 million works to the advantage of special interest groups and to the disadvantage of long-haul providers. He envisioned that special interest groups would come into a community and provide services for only a limited period of time and accept only those patients in whom they were interested. As a result, he added, average cost of care would increase for those providers that remain in the community. He emphasized that he would not like to see duplication of services as he saw in southern Oregon which made all of those services operate inefficiently. He said he would rather see the CON dismantled entirely rather than see it dismantled piecemeal and believes that the CON does eliminate the proliferation of unnecessary health care services. He observed that the present CON threshold seems to work and he would support leaving it as is. Number 2068 CHAIR JAMES asked if southern Oregon health care providers were also competing with health maintenance organizations (HMOs). MR. BRINGHURST replied in the affirmative. CHAIR JAMES inquired as to what effect an HMO had on competition. MR. BRINGHURST answered that the effect was many service discounts and increase in rates to accommodate the discounts. Number 2060 CHAIR JAMES asked if there was competition from insurance preferred providers. MR. BRINGHURST replied in the affirmative. CHAIR JAMES said she is concerned about the premium that she pays for her insurance and she is not sure that an insurance preferred provider is the best deal. She recognized that there is competition among the payers but if there is no competition among the providers there is a missing ingredient to market-based competition. She observed that true competition is competition among sellers and purchasers so that there is a balanced mix. She mentioned that Alaska does not have HMOs and, therefore, she was curious as to what effect an HMO would have on other providers. JOE FAULHABER, Secretary, Greater Fairbanks Community Hospital Foundation, testified via teleconference from Fairbanks in opposition to HB 297. He said he wanted to address the issue of free enterprise and observed he is pro-enterprise, for smaller government, and against parking meters. He noted that most physicians attended publicly-funded schools, often with the help of government loans. He explained that, nationally, 60 percent of all medical costs in the United States are paid by the government in one form or another but he thinks that in Fairbanks the percentage is 50 percent. Number 1798 MR. FAULHABER indicated that if HB 297 passes, physicians who are credentialed at Fairbanks Community Hospital will perform profitable procedures at their own clinics or surgery centers. He envisioned that "loser" procedures will be done at Fairbanks Memorial Hospital and the community will have to absorb the cost. He remarked that if the committee believed that free-standing surgery centers will not turn anyone away based upon ability to pay, he wants to talk to that legislator about a real estate deal. He added that the concept of different testimony regarding the CON process in 1983 is based upon a totally different economic environment given the fact that medicine had functioned on a cost-plus basis prior to 1983. He recognized that then physicians could charge what they wanted and liked working in a free hospital that was provided by the community. He reminded the committee that HB 297 is not about patient care, it is about revenue enhancement. Number 1744 MIKE POWERS, Administrator, Fairbanks Memorial Hospital (FMH), testified via teleconference from Fairbanks. He said he does not believe that the committee can understand ramifications of HB 297 in even four weeks of study. He asked the committee to remember that the CON process has been in place for almost 30 years and to dismantle it in a week study or a month study is irresponsible. MR. POWERS noted that he wanted to discuss the issue of markets. He expressed disagreement with Mr. Slocum's testimony because Mr. Powers thinks the market of Fairbanks is much like the market of 25 years ago. He explained that there are four requirements for competition: 1) well informed buyers, 2) numerous buyers and sellers, 3) buyers and sellers independent from each other, and 4) easy access and exit from the market. He commented that not one of those conditions is true in Alaska. MR. POWERS mentioned that someone had cited the Medical Services Research Group report (MSRG). He also cited from the MSRG report as follows: "There is no need for additional surgery in the Fairbanks community until the year 2004. Without any real price pressure from insurers, given the hospital status as a sole- community provider, the hospital is monitoring national trends and maintaining competitive pricing structure. This is encouraging since it ultimately benefits the community. Fairbanks Memorial Hospital is responsive to community needs despite competitive pressure. Clearly, the hospital compares to national averages. Competition does not always lower costs in a rural community. The net gain from a free-standing ambulatory surgery center may not be realized when the overall cost structure is considered. Cost savings and ambulatory surgery centers may never materialize in this environment." The Health System Agency of northern Virginia which reviewed the MSRG report said: "Free-standing surgery centers do not necessarily result in economic savings, lower costs, or lower aggregate community spending on surgery. Efficient use of existing surgery capacity for both inpatient and outpatient tends to be more economical than developing additional redundant dedicated ambulatory surgery capacity." He added that a third review of the MSRG study said: "Costs can be reasonable when there is a sole provider..." He recognized that it is a very complex issue. MR. POWERS cited another article dated August 5, 1999 from the New England Journal of Medicine entitled "When Money is the Mission" and quoted as follows: "The competitive free market described in textbooks does not and cannot exist in health care for several reasons. First, roughly half of Americans live in areas too sparsely populated to support medical competition. Second, an informed choice by consumers which results in efficiency according to market theory is a mirage in health care. Many patients cannot comparison shop, reduce their demand for services when suppliers raise prices, or accurately appraise quality. Third, purchasers cannot accurately appraise a product; they cannot determine whether a price is fair. Efforts to evaluate care are no match for profit-driven schemes to misrepresent it. Finally, neither patients nor employers pay for most of the cost of health care; government does. It is an odd free market that relies largely on public dollars. Health care cost is too precious, intimate, and corruptible to entrust to the theory of a perfect market." MR. POWERS asked for a full labor impact analysis to the labor market. He asked the committee to consider what happens when a group comes in and essentially raids precious labor dollars in very sensitive areas such as ultrasound, MRI, surgery and pharmacy. He reminded the committee that it is the hospital who recruits for specialized labor to fulfill sensitive duties. MR. POWERS said the $7 million threshold does not make sense. He added that he is curious about the 15,000 population limit and inquired as to how the committee defines the service area; does it include the military and native patients. He noted that in Fairbanks, military physicians are credentialed at FMH and the native clinic is attached to the hospital thereby resulting in lower health care cost to the community. Number 1345 CHAIR JAMES inquired as to what advantage there was for the Hospital Foundation in building the oncology center without a CON. MR. POWERS replied that two physicians from outside the area had purchased land and started to build a center which FMH did not feel met the needs of the community. He added that in FMH estimation that center was the beginning of "cherry picking" imaging and lab services upon which FMH balances its hospital revenues. He said that FMH has 30 years' experience in providing health care service and radiation therapy. He acknowledged that Chair James had highlighted a perfect example to prove that the CON needs some tweaking and provision of a level playing field. Ultimately, he noted, the two competitors mentioned earlier collaborated with FMH to provide health care at a lower cost. Number 1253 CHAIR JAMES inquired as to what assets the Hospital Foundation has in its portfolio; does the Foundation own the land and the buildings of FMH. MR. POWERS answered in the affirmative. He said the Hospital Foundation is the owner of the land and buildings and they have ultimate responsibility for financial stewardship of the community hospital. CHAIR JAMES asked who owned equipment and assets of the oncology cancer treatment center. MR. POWERS replied that it is all Foundation owned. Number 1210 CHAIR JAMES commented that now the Foundation owns equipment besides the land and buildings. MR. POWERS answered that the Foundation has owned equipment for 30 years. CHAIR JAMES asked if all the equipment in FMH belongs to the Foundation. MR. POWERS replied in the affirmative. CHAIR JAMES said she is asking these questions because she had read in something from DHSS that the Foundation was not considered a health care facility because the balance sheet of the hospital belonged to the Lutheran Hospital Society (LHS). Number 1151 MR. POWERS answered in the affirmative. CHAIR JAMES inquired as to what is on the LHS balance sheet. She understood that fixed assets are not on the FMH balance sheet. MR. POWERS replied that assets are reflected on the Foundation financial sheets, they are not on the LHS balance sheet. CHAIR JAMES asked if the cancer treatment center was going to be managed by the doctors. MR. POWERS answered that it is his hope that it would be managed by FMH by Banner Health Systems, formerly LHS, in that the physicians would provide medical oversight similar to what exists now in the emergency room, anesthesia, and radiology. Number 1125 CHAIR JAMES said she understood that the cancer center will be managed by FMH. MR. POWERS replied administratively yes, medically no. CHAIR JAMES said she is having a problem separating those things. If for example, she added, the hospital wanted to build some other facilities on Foundation property, FMH probably would not have to apply for a CON according to the current ruling by DHSS. MR. POWERS answered that FMH would have to apply for a CON; the Foundation would not. CHAIR JAMES stated that the Foundation does everything; FMH does not own any land and buildings or even equipment. Number 1057 MR. POWERS replied that FMH operates the facility under a lease arrangement. Just to recap, he added, there has been a CON on Denali Center, on FMH outpatient center, on the south tower, on an MRI and large capital equipment; the one exception was a radiation therapy center. CHAIR JAMES stated she does not know why FMH did a CON for the other projects and did not apply for a CON for the radiation therapy center. Number 1019 MR. POWERS replied that from a practical standpoint, land was purchased, building had started, and FMH was afraid of what two competing Anchorage doctors were going to do to our community. CHAIR JAMES concluded then that FMH wanted to skip the CON process because of time constraint. MR. POWERS answered in the affirmative. Number 0994 JEFF COOK, Trustee at Large, Greater Fairbanks Community Hospital Foundation, testified via teleconference from Fairbanks. He said that the Hospital Foundation Executive Committee is the operating board for FMH and also reviews contractual agreements with the doctors at the cancer center. He agreed that the issue of CON needs study and if the threshold is to be raised, that requires very careful review. He stated that HB 297 should be deferred to a future legislative session after the review and study are completed. Number 0933 HARRY PORTER, Treasurer, Greater Fairbanks Community Hospital Foundation, testified via teleconference from Fairbanks. He said he has been a member of the board since it was created 30 years ago. He reminded the committee that FMH is not on any tax roll and never has been; it is owned strictly by the Foundation and operated by lease for the Foundation, thus keeping money in the community. He noted that medical care is not the same as regular business enterprises. As already testified, he added, no one can go into a grocery store, pick up groceries and walk out; the same is true of a clothing store or a car dealer. On the other hand, he explained, FMH does take everyone who walks in through the front door which is open 24 hours a day and has been open for 30 years. He commented that a hospital is the only facility that he knows of that is built and financed for the benefit of the people who work in it. A hospital, he added, is built and paid by others for the benefit of the people who operate within it; no one else does that. MR. PORTER seconded Chair James' opinion that there should be sellers and providers in a true competitive market but he said there is another element in a hospital health situation over which the hospital has no control and that element is the professional component. He informed the committee that the professional component is not addressed in the CON and not addressed in any manner of which he is aware. He mentioned that the hospital has no bonding authority and no taxing authority so the hospital has to live on income from people who use the hospital. It is true, he added, that some people who use the hospital are paid for by the state but anything else is paid for by third party payers in the form of an insurance company, an employer, or by the individual himself. MR. PORTER stated that it is the Foundation's sacred responsibility to see that good medical care is provided to the Fairbanks community, yet done in such a way as to keep the hospital financially viable. So far, he remarked, the Foundation has been able to do that but fears "cherry picking." He reminded the committee that no one else has stepped forward to take on money-losing operations such as mental health patients. He observed that the Foundation just spent several million dollars on a mental health facility to benefit mental health patients but no one came forward to help on that project, there was no state money put in it, and no one was arguing about providing the service. He reiterated that it is sad but no one ever steps forward to take on a money-losing project. Number 0605 CHAIR JAMES reminded the committee and audience that there are many volunteers in Fairbanks who dedicate thousands of hours for the betterment of the community. Number 0485 STEVE STEPHENS, President, Greater Fairbanks Community Hospital Foundation, testified via teleconference from Fairbanks. He stated that issues involving the CON need to be studied in depth and analyzed thoroughly because proposed changes could have a tremendous impact on the delivery of health care costs in Alaskan communities. He noted that 75 percent of states require some form of CON to ensure accountability and responsible stewardship of community resources. He explained that the CON promotes community scrutiny, public debate, accountability, discourages "cherry picking," levels the playing field, and is consistent with 75 percent of other states. He urged the committee to leave the CON process as it is presently written. Number 0371 DAVE RASLEY, 1st Vice President, Greater Fairbanks Community Hospital Foundation, testified via teleconference from Fairbanks in opposition to HB 297. He said that whether the legislature passed HB 297 with a limit of $7 million or repealed the CON as now written, the result will be the same. He noted that those hospitals which provide a full range of services under present CON statutes will be forced to cut back marginal services in regard to payment. The following, he added, are only some of services that will not be provided: adolescent psychological care, mental health, home care, neo-natal care, inebriate care, and radiation therapy. He reminded the committee that in any given area there are just so many patients and he envisioned that many paying patients will go to the new service units, thus drawing money away from community infrastructure. He recognized that under the present system, FMH is able to provide the above mentioned services because they are supported by imaging, outpatient surgery, and other lucrative services. If those services, he added, are "cherry picked" away, the hospital will not be able to provide the services on a sustainable basis. Number 0165 KAREN PORTER, Business Manager, Greater Fairbanks Community Hospital Foundation, testified via teleconference from Fairbanks. She said that the CON process required much study and may need some revision but is definitely still needed as a control. In 1997, she added, Nebraska reduced CON scope to only include ambulatory surgery centers, long term care, and rehabilitation. She noted that the state of Maryland did a major revision to streamline their CON process in 1997 and included changes for ambulatory surgery services. Their threshold, she commented, is $1.25 million. She remarked that approximately 38 states and the District of Columbia have some of form of CON and they have relied on the American Health Planning Associations's data as the best available. TAPE 00-11, SIDE A Number 0109 HUNTER JUDKINS, Physician, Tanana Valley Clinic, Fairbanks, testified in favor of HB 297. He said the restraints caused by a CON are currently relatively arbitrary and are inhibiting the Tanana Valley Clinic from bringing additional value, convenience, improved access, and innovation to Fairbanks. He noted that a CON does not only limit facilities but also other services, some of which the clinic is already sharing with the hospital. He commented that in these days of more technology-dependent medicine, the cost of providing technological services is increasing. He mentioned that Tanana Valley Clinic had investigated bringing a new piece of technological equipment called an open MRI scanner which is not presently available in Fairbanks. He informed the committee that the price for this equipment is $1 million and it is not considered exotic anymore because many clinics and hospitals nationwide have it. He acknowledged that he has patients who refuse to be put in the tunnel MRI so they leave town, go to Seattle and pay money to have their MRIs done there. MR. JUDKINS observed that when a community only has one player who is able because of present constraints to bring new services and technology it is a problem. He stated that patients in the community suffer but this is not meant to be a doctor versus hospital issue. He acknowledged that doctors work in the hospitals and provide much service. He recognized that hospitals are not the only entities who care for the indigent, but physicians many times attend to patients who cannot pay for services; physicians may see them in the clinic or in the hospital. He stated that he is called to attend emergency room patients all the time. He explained that he does not ask what insurance they have but responds to the can and cares for them. ELIZABETH RIPLEY, Valley Hospital, testified via teleconference from Palmer in opposition to HB 297. She said Valley Hospital is a private, free-standing, not-for-profit community hospital that serves the Matanuska-Susitna (Mat-Su) Valley which has a population of 60,000 spread across an area the size of the state of West Virginia. She noted that the facility is located in the core area of Palmer and Wasilla but Valley Hospital directly competes with Anchorage hospitals for market share. She stated she is unequivocally against HB 297. She explained that in her community Valley Hospital provides many mission-oriented programs to meet the specific needs of the Mat-Su population. She commented that staff and board members of Valley Hospital strive to balance fiscal responsibility and mission in the community while competing with hospitals in Anchorage. MS. RIPLEY said if HB 297 were to pass, it would eliminate the level playing field for hospitals. She mentioned that hospitals are required to accept any patient that enters the door. She remarked that if the CON were altered as proposed, private, profit-centered enterprises such as ambulatory surgery centers would be created and these centers could decide who can utilize their services. In other words, she added, the surgery centers can limit clientele to third-party insurance payers. She said that she believes firmly in the benefits of competition and that hospitals should be efficient in their operation but a level playing field is needed. She emphasized that hospitals need accountability to maintain health care institution [standards] and the CON process, while not perfect, provides for that accountability. Number 0657 LARAINE DERR, Alaska State Hospital and Nursing Home Association (ASHNHA), testified in opposition to HB 297. DENNIS MURRAY, Administrator, Harry's Place Nursing Facility, testified via teleconference from Kenai in opposition to HB 297. He said that the committee has heard testimony that the CON process does provide a public discussion debate regarding the allocation of limited health resources. He commented that part of the logic for raising the CON threshold is perhaps the assumption that there are unlimited resources and, therefore, if unlimited resources were available there would be no need for the CON process. He noted that it has been suggested that eliminating the CON statute would stimulate competition and the consumer public would benefit. Again, he added, the committee heard testimony that competition works in most industries but health care is somewhat unique in its partnership between community, government, employers, and individuals. Number 0909 MR. MURRAY emphasized that health care is a complicated relationship and he urged the committee to spend more time examining the issue. He explained that health care is a complex relationship in any given community between the laws of supply and demand, volumes, and critical access. He remarked that the committee had heard testimony that those things are very delicately balanced; therefore, where the committee may think they are helping the system, it may be found that solving one problem actually diminishes the ability of the community in another area. He recognized that no one jumps to provide critical service for mental health and yet it is a support service that must be provided for those citizens who need it. He observed that there is no willingness on the part of the broader society in the case of mental health to pay what is necessary and appropriate to provide that service in a community. MR. MURRAY stated that creating niche markets as suggested earlier can provide competition but it must be remembered that Alaska is the second smallest populated state in the Union. Consequently, niche markets may function well in the Lower 48 but not necessarily in Alaska because Alaska has a dispersed population relying on sole providers (outside of Anchorage) in terms of a health network. MR. MURRAY suggested that eliminating or raising the threshold of the CON will further fragment a system that, at best, is fragmented already. He urged the committee to fully examine HB 297 as to the implications of changing the laws that currently exist. Number 0994 ELMER LINDSTROM, Special Assistant to Commissioner Perdue, Department of Health and Social Services, reiterated the interest of the department regarding the CON law. He said the department historically has been most concerned with the CON process as it relates to the long term care system, specifically for construction of nursing home beds. He noted that last year there was a proposal adopted by the legislature that laid out new and much improved standards for the review of CONs for long term care beds. He explained that the department's interest in that area is driven by financial exposure (about 85 percent) since the department is the dominant payer of nursing home costs to the state. MR. LINDSTROM commented that acute care beds also are subject to CON and the department represents about 20 percent of the market, which is a significant player but certainly not a dominant player; and, therefore, the department's interest in the CON process on the acute-care side is less. He indicated that the department is not taking a position on HB 297 primarily due to its inability to give a credible estimate of either the cost or the saving associated with HB 297. He read the analysis from the fiscal note as follows: CSHB 297 will increase the financial threshold for requiring a certificate of need for acute care health facilities and medical equipment from $1,000,000 to $7,000,000. The $7,000,000 threshold will assure that major health care projects, e.g., replacement of a community hospital, will continue to be subject to the certificate of need requirement. Smaller projects, e.g., many pieces of major medical equipment or construction of some outpatient facilities will no longer require a certificate of need. To the extent that the higher threshold results in the construction of health care facilities which create excess health care capacity in a community, the Medicaid program would likely incur additional costs which would not otherwise be incurred. The impact on the Medicaid budget will depend on the location, cost, and date new projects are brought online. The department lacks sufficient detailed information about the universe of possible projects to provide a credible and concrete estimate of these potential costs. The longer-term fiscal impacts of increased health care competition in a community are extremely difficult to predict. Excess capacity, where it exists, may be absorbed by population increases over time. Increased competition may result in other cost efficiencies within the community health system. The results of increased competition will likely result in different outcomes in different communities over time. Again, the department lacks sufficient community-specific information to determine the fiscal impact of these longer-term impacts on the Medicaid budget. Number 1229 MR. LINDSTROM said that 20 years ago the department maintained considerable infrastructure in health planning but that infrastructure no longer exists and all that remains is the CON program. He remarked that what the department believes, given its inability to provide concrete and credible information as to cost and saving, is that individual committee members and the legislature as a whole are better equipped to decide what the likely impact of HB 297 will be on individual communities. Number 1382 CHAIR JAMES asked if Mr. Lindstrom knew what the dollar value was of the contracts that were let to do the CONs in Fairbanks last year. DAVID PIERCE, CON Coordinator, Department of Health and Social Services, noted that CONs vary considerably because of the cost to hire a consultant. He explained that the lowest amount he had heard was $5,000 for a consultant and the highest amount could be up to $50,000. He commented that the subject under discussion is the difference in project costs from a $1 million to $80 million. He mentioned that many hospitals do not pay any additional cost for consultants because they use in-house staff. Number 1498 CHAIR JAMES indicated that she is bothered by the manner in which the CON process has been applied in the case of FMH. She informed the committee that given the information as heard in testimony she now understands that all property and equipment used at FMH belongs to the Foundation. She observed that it was determined [by DHSS] that the Foundation was not required to do a CON because they were not considered a health care facility and that the cancer center was a stand-alone project to be managed by doctors, not FMH. She asked if the [DHSS] determination meant that at anytime in the future when FMH wants to build more facilities FMH does not ever have to obtain a CON. Number 1590 MR. LINDSTROM replied that he was unable to reconcile the testimony today with departmental understanding of the Fairbanks documentation so he asked if he could defer an answer in order to speak to the Fairbanks folks. CHAIR JAMES reiterated that she can see the levels that were present in the Fairbanks documentation. She stated that it is obvious to her that the Foundation has property all around FMH and the Foundation can build at any time without a CON. She remarked that she does not think FMH has done anything wrong but it is engaged in competition with the public. She observed that when Dr. Odom started the CON process for a $3.5 million surgery center, it was denied. Subsequently, she added, the next time he applied, it was denied again because by that time FMH had built a $9 million expansion, thus rendering Dr. Odom's application null and void because there did not appear to be any need as determined by a CON for a surgery center. Further, she reiterated, she had read in FMH literature that FMH could not support the expansion because there was not enough business. She emphasized that in the whole scheme of things if FMH is able to build whenever they please, whether a CON process exists or not, FMH will repeat past procedure and block any competition that comes in to Fairbanks. Number 1764 CHAIR JAMES said she understands the [business entity] separation between the Foundation and FMH but also understands that the two entities think they have found an open door whereby they really do not have to apply for a CON again. She noted that their exemption from the CON process is because technically FMH is not doing the expansion, the Foundation is doing the expansion. MR. LINDSTROM recognized over time and in different communities there can be good and bad effects from HB 297. CHAIR JAMES said that as she listens to testimony, she hears fear in the voices of those who oppose HB 297. She commented that it is almost as if opposing testifiers are personally being threatened. She recognized that many opposing testifiers work in the medical field and are dedicated to giving patient care; they would not be in the medical profession if they were not dedicated. She explained that she does not want to cause fear with HB 297 but she is not happy with the way the CON process functions. Number 1975 KARL SANFORD, Nursing Executive, Fairbanks Memorial Hospital, testified via teleconference from Fairbanks. He said he wanted to share his experiences working in Yakima and the Tri-Cities area of the Pacific Northwest. He noted that what he saw happen in health care there is deja vu as he observes what is happening in Alaska. He explained that many health care facilities that he worked for and with had a similar experience to Alaska's where outside entities came into communities and built CT scanners facilities, radiology centers, and installed MRI. Essentially, he added, the effect was delusion on the part of limited pool providers because despite reassurances given to hospitals and city/state officials, the promises never materialized. He emphasized that failure to deliver as promised is a significant occurrence that happens time after time in situations like HB 297. MR. SANFORD urged the committee to thoroughly explore the impact to communities that would be affected by the 15,000 population limit. He remarked that Fairbanks, Mat-Su, Kenai, and Juneau would feel significant economic impact as a result of HB 297. He reminded the committee that employment impact would result as well. He reiterated that his experience in Washington was that because of "cherry picking," hospitals ended up with limited resources and subsequently could not provide funding for non insured or underinsured individuals. MR. SANFORD mentioned that he wanted to cite an example of what happened in Fairbanks as a possible motive for supporters of HB 297. He explained that in 1999 he had worked with Mr. Pierce [DHSS] to develop a CON for expansion of the mental health facility at FMH. He observed that no one came forward to compete with FMH in providing inpatient mental health services, the reason being that such services are not lucrative or profitable. He asked the committee to be careful not to confuse competition with exploitation. He recognized that passage of HB 297 will indeed change the landscape of health care in the state and the impact should not be underestimated. Number 2183 CHAIR JAMES asked whether or not the state should be involved regarding the issue of expansion of existing facilities in small communities. She asked Mr. Sanford if local government should make the decision for its community. MR. SANFORD said there is no motivation for an outside entity to come into a small community. CHAIR JAMES said what she really wants to know is if Homer, for example, wanted to expand, why does Homer have to request permission of the state to expand Homer's health care facilities. Number 2308 MR. SANFORD replied that the state requires a health care facility to thoroughly review the cost and benefit of providing expansion. He said he does not see state involvement as obtaining permission but demonstrating that a thorough review was done. CHAIR JAMES emphasized that she could not believe that a health care facility would not do a thorough review anyway without having to go to the state. She explained that she does not understand the need for extra state bureaucracy and she would like to give almost all government control back to the local level. One of the reasons, she added, that state government costs so much to operate is because the state provides services to little communities, instead of allowing little communities to make their own decisions. She envisioned that the more little communities were allowed to stand on their own and make their own decisions, the state would be better off. She mentioned that if little communities are funding their own health care facilities she does not think that the state needs to be involved. There might be some inspection quality control and health issues, she added, in which the state should be involved but it is a separate issue from HB 297. She reiterated that requiring a community to go through the state CON process for a local need is superfluous. Number 2389 DONNA HERBERT, Financial Consultants of Alaska, said she represents 16 of 22 hospitals, nursing homes, and other health care entities in Alaska in the health care reimbursement arena with Medicare and Medicaid. She noted that she had assisted several facilities in going through the CON process. She commented that everyone knows the health care system is very complex and has become convoluted. She mentioned that Alaska is even more so because of its huge size, small population, and sole community providers. MS. HERBERT reminded the committee that hospitals and physicians do care for many indigents but it must be admitted that most indigents are seen in emergency rooms. She remarked that national health care statistics indicate that the age of Alaska health care facilities is far behind the national norm which means that in the next few years facilities must look at building new facilities or major renovation. She added that Alaska is behind in all national statistics regarding technology but Alaska should be trying to keep up to a certain standard. MS. HERBERT recognized that small to mid-size communities face access-to-care problems. For example, if a patient needs an MRI and there is none available in the community and the weather is so bad that the patient cannot be flown to Anchorage, the patient could die for lack of latest technology and medical expertise. She observed that there just is not enough revenue base in small communities to keep prices down; therefore, she sees competition as being very different in Alaska than in the Lower 48. She concluded that some of those factors need to be studied. Number 2697 MS. HERBERT stated that the cost of replacing or updating an existing facility is different in this state than the Lower 48. She noted that approximately 72 percent of states still have some kind of CON process in place in order to preclude duplication of services. She added that it is also important to study the CON threshold but $7 million does not seem right to her. She explained that market basket indices need to be compared to inflation factors and then the legislature needs to take that information into account when setting a CON threshold. She commented that if sole provider hospitals lose the higher-paying services and at the same time have to provide non-paying services, their small profit, if any, drops considerably and she thinks that should be considered carefully by the legislature. Number 2740 CHAIR JAMES commented she is thinking of the different kinds of surgery. She explained that she does not understand why some people refer to surgery as "cherry picking" and why some surgeries are considered lucrative when in fact some surgeries are not expensive. She mentioned that most of a hospital's revenue seems to come from inpatient stay and not from surgery. She asked Ms. Herbert to explain why Ms. Herbert believes that outpatient services support the hospital. MS. HERBERT replied that outpatient services are some of the services that help raise the hospital's bottom financial line. She noted that whereas an outpatient clinic stays open only eight hours a day and sends patients with complications to the hospital, hospitals must stay open 24 hours a day, seven days a week. Therefore, she added, this method of taking patients with easier surgeries on a regular schedule is what is referred to by the term "cherry picking." Number 2830 CHAIR JAMES said that if she were a patient she would prefer going to an eight-hour facility and go home as opposed to going to a hospital. She asked if anyone is concerned about what the patient really wants. MS. HERBERT answered in the affirmative and said that is why she is not against possibly raising the CON threshold, however, she thinks jumping from $1 million to $7 million is unreasonable. CHAIR JAMES noted that she had received information about legislation in the state of Illinois regarding raising the CON threshold from $1 million to $7 million. She commented that she was happy to see that another state thought along the same lines as Alaska. Number 2883 MS. HERBERT mentioned that she does not think patients would be against outpatient surgery centers, she just thinks that there is a very delicate balance regarding access to health care in Alaska. Number 2917 CHAIR JAMES recognized that people really resist change even after they find that the change was in their benefit. She said she understands the fear of disruption that people have and recognized that sometimes their thought process limits their view of potential that might be good. She observed that it takes time to convince people to really try to understand and look for advantages in considering change. MS. HERBERT stated that she thinks sometimes local people have trouble being objective. TAPE 00-11, SIDE B Number 2981 LOUISE BJORNSTAD, Manager, All Alaska Health Corporation, said that the Alaska Surgery Center (ASC) would like to expand because there are new standards to which ASC must comply and as has been previously testified, Alaska is behind on some technology standards. She agreed with a former testifier that cost of construction is extremely different in Alaska than in the Lower 48 as is the cost of shipping major medical equipment. MS. BJORNSTAD noted that the ASC started their first cases in February of 1977. She objected to previous comments that care would be fragmented and dilute it because the ASC has been there all along. She explained that ASC was started in response to a need within the community. She commented that in 1992 ASC applied for its first CON to replace the old facility, which was a modified 35,000 square foot office building that did not meet standards. She mentioned that because the building had been built for office condominiums only 60 percent of the 35,000 square feet could actually be used by ASC for clinic purposes. MS. BJORNSTAD stated that ASC cannot build outside the footplate of the original building in order to comply with needed additional storage requirements because of new parking regulations enacted by the Municipality of Anchorage. Therefore, she said, ASC must relocate in order to meet new standards but because ASC is already an existing facility, to again go through the whole process of CON seems rather redundant. Number 2813 MS. BJORNSTAD reminded the committee that ASC started the construction process back in 1983. She noted that Alaska Regional Hospital and Providence Hospital were applying for a CON at the same time to add more beds to their facilities also. She commented that she would have liked to have shown to the committee the additions that have occurred at Providence and Alaska Regional campuses in the same time frame as ASC which has remained as originally constructed. She asked the committee to remember that on the Alaska Regional campus in 1982 there was a main office building, the hospital, and the teamsters building. She explained that later Alaska Regional remodeled the main building, the emergency room, day surgery, regular surgery and last year they applied for a CON to add a heart trauma/pump room combination onto the operating room. She added that Alaska Regional has also added two medical office buildings, a parking structure, and the Veteran's Affairs complex. MS. BJORNSTAD asked the committee to take into account what Providence Hospital has added. She stated that since 1983 Providence Hospital has added a neo-natal unit, a new emergency room, the east and west wings, a maternity center, expanded and remodeled the cancer treatment center, the imaging center, three parking garages, classrooms and auditorium, Providence House, a day care center, a new cafeteria, the Rose Room Cafe, the heliport, and has changed portions of the administrative area. She noted that off campus Providence Hospital acquired Our Lady of Compassion, which is now their extended care facility, added the Mary Conrad Center, purchased a rehabilitation center, own Horizon House, purchased majority interest in an office building at Laurel Street and 42nd Street, bought an office building located at 36th and LaTouche, own a suite within a professional office building at 3650 LaTouche, purchased a private practice in Girdwood, and has even co-signed notes for physicians who are starting other facilities. Number 2658 CHAIR JAMES asked if a CON was required for any of those extensions. Number 2647 MS. BJORNSTAD answered in the affirmative. She said that the Anchorage community recognizes that Providence Hospital is constantly expanding and building. She wondered where the money for expansion comes from since Providence Hospital claims to be a non-profit hospital. CHAIR JAMES asked Ms. Bjornstad if Ms. Bjornstad thinks Providence Hospital should be required to apply for a CON or should they be able to build without a CON. MS. BJORNSTAD replied that she does not believe that a CON limits what someone can do. She noted that Providence Hospital has used the CON to expand what they already have because they want to be the major health care provider for the entire state of Alaska. Number 2549 CHAIR JAMES asked how many people from around the state go to Providence Hospital as opposed to going to their local hospital. Her question is "where do all the extra people come from, the Anchorage area or from the rest of the state." MS. BJORNSTAD answered that not all small facilities have a heart program so people must go to a major population area which is either Seattle or Anchorage. She observed that ASC is a for profit business and pays corporate tax, federal tax, state corporate tax, business property tax, and property tax. She reminded the committee that businesses who pay taxes help the government in turn pay the majority of cost for health care which supports the non-profit hospitals. Number 2480 CHAIR JAMES said she understood that Alaska Regional Hospital also pays the various taxes. MS. BJORNSTAD replied in the affirmative. She added that the most commonly performed procedure at ASC is cataract extraction with lens implant that is paid by Medicare 90 percent of the time. She observed that ASC does more cataract operations due to efficiency than both Providence and Alaska Regional combined. Number 2424 JEROME SELBY, Providence Alaska Health Systems, testified in opposition to HB 297 as written. He said he would have no objection to HB 297 if there was intent to bump the $1 million threshold up to $1.5 million to adjust for a reasonable inflation number. CHAIR JAMES asked if Mr. Selby minded applying for a CON. MR. SELBY answered yes, he does mind. He noted that he had just finished a CON application to upgrade an surgery suites and an emergency room for Providence Hospital. He explained that it seems unfair to bring in competitors from within Alaska and potentially outside who are exempt from the CON process. He commented that if Providence Hospital must apply for a CON and competitors do not, then the playing field is not level. He reiterated that the CON process is about capacity, facilities, and cost of those facilities. He mentioned that the CON does not do anything for competition because competition already exists in Anchorage and in fact he is not concerned about competition. However, he indicated he is concerned about what the overall cost of overbuilding many new facilities will do to the cost of health care for all of us in Alaska because we will all end up paying the tab. He added that all Alaskans will pay through Medicaid, Medicare, and private insurance premiums that will increase if too many unnecessary facilities are built in the state. Number 2336 CHAIR JAMES observed that it seems to her that a private, for- profit corporation would not invest in a huge facility if there is not enough business out there to expect a return on investment. She commented that patients seem to like and need surgery centers; therefore, private business naturally seeks to fill a market niche. Number 2286 MR. SELBY mentioned that there are two levels of activity; the small community and the large community. He stated that smaller communities express great concern regarding the CON. He indicated that those folks are operating on a very thin margin and for anyone to come in and take away some of the small facility's business places the small facility in a dire situation. Either the community, he added, has to cough up more taxes or some other way has to be found to offset revenue loss to the small facility. MR. SELBY remarked that larger communities, such as Anchorage, already have competition so the CON is not a competition issue. He recognized that the concern is about overbuilding facilities to the point that costs are driven up indirectly for everybody. He reiterated that if overbuilding occurred, Providence Hospital would either have to cut services, stop paying charity cases, or raise prices because there is no magic money. He observed that money has to come into the system. Meanwhile, he added, the cost to Providence Hospital for charity care has gone from $12 million to $25 million in the space of three years so the trend does not look good for the future. He stated that the only place that extra cost can be absorbed is Medicare, Medicaid, and increased health insurance premiums for everybody in the state. Number 2024 CHAIR JAMES commented that many people would go to surgery centers so her insurance rates will go down. MR. SELBY replied that insurance companies will love the surgery centers because it will result in savings for insurance companies but Mr. Selby said he is talking about truly expensive inpatient surgeries. He envisioned that costs for inpatient care at hospitals will skyrocket. He acknowledged that surgery centers are a relatively small piece of health care so some money will be saved on a small piece but costs are driven up on large pieces because infrastructure costs of Providence do not just go away. He said HB 297 is far reaching and a great impact to the health care system so he asked the committee to take a close look at the CON issue. Number 1942 DAVID MCGUIRE, M.D., Orthopedic Surgery, said he had an opportunity to give testimony at the DHSS committee hearing some time ago. At that time, he added, he had made a statement that he was proud that no patient had ever gone away from his office needing medical care and not getting it because of their inability to pay. He noted that last year he saw 80 patients on Medicare and 89 patients on Medicaid which numbers comprised 10 percent of his practice. He observed that the number of patients on Medicare and Medicaid has been rising year by year. DR. MCGUIRE noted that the CON process is a proven failure not because he says so but because the FTC says so and it has not been demonstrated to work anywhere. He reminded the committee that testimony had been heard earlier that where the CON is in place it may well inflate costs. He reiterated that the CON is a proven failure because the system is arbitrary and limits entry, but once an entity entry there is no control over any medical costs from then on. He offered to cite some specific examples of CONs that are major expenditures of money and that did not go through the CON process at all. He asked the committee to bear in mind that the money used in these expenditures came from the community and was alleged to be regulated by the CON but was completely exempt from regulation. DR. MCGUIRE explained that the committee had already heard testimony regarding the June 3, 1998 determination that the Fairbanks hospital did not need a CON for what was then described as a 3,000 square foot facility and linear accelerator to cost $2.5 million. Well, he added, it turned out to cost $9.5 million. DR. MCGUIRE cited an example of Providence Hospital, July 14, 1998, which submitted a letter of intent to construct a new employee parking structure costing $8.2 million and a determination was made that the project did not require a certificate of need. He cited another example of Providence Hospital submitting a letter of intent in July 1997 to upgrade cooling plant capacity at a cost of $2.1 million and again not required to apply for a CON. DR. MCGUIRE said that the Pacific Cataract and Laser Institute (PCLI) leased 6,400 square feet in a facility and because they leased the space it was not included in the CON. He noted that their project was said to have cost $902,000 which brought the project in under the $1 million CON level; therefore, they did not need to apply for a CON. He reminded the committee that it would be very difficult to buy an excimer laser [a piece of equipment that PCLI had purchased for the leased facility], equip two surgery suites for cataract surgery and provide the facility for less than $1 million but because PCLI leased the facility they were not required to apply for a CON. DR. MCGUIRE stated that when the Alaska Regional Hospital replaced plumbing in March 12, 1998 it cost over $6 million but no CON was required because it was determined to be routine maintenance. DR. MCGUIRE cited another example of Providence Hospital when Providence submitted a letter of intent on June 8, 1999 to build an outpatient clinic for the Alaska Family Practice. He said he does not know how much money was spent but it was determined not to be a health care facility and, therefore, it did not need to be included in a CON. DR. MCGUIRE explained that his point is that when it comes to the delivery of health care, arguments such as "cherry picking" and non caring are defamatory and not accurate. He commented that physicians take care of patients and somebody present here should start advocating for patients. He mentioned that patients should be able to obtain the best possible service for the least possible price and the institution as a whole should figure out how to provide that care. He reminded the committee that he provides a lot of charity care and so does the surgery center but they are not non profit. He acknowledged that non profits do not pay taxes which represent about 30 percent of a business' bottom line. He reiterated that the committee ought to focus its efforts on evaluating the system and ascertain whether or not the system has done any good rather than hurling untrue charges against the opposition. Number 1617 GORDY LEWIS testified via teleconference from Fairbanks and reminded the committee that Alaska is not Mississippi, Fairbanks is not Anchorage, and the FTC is not Alaska state government. He said he supported Alaska challenges and Alaska solutions. He noted that he spoke to the committee as someone who has 20 years' health care experience, particularly in managing limited resources in the delivery of health care. He commented that he had watched with much interest, as a member of the Fairbanks community, the most recent CON proposals and has read them all. He applauded DHSS's right decision because what was in the CON proposals only considered the Fairbanks population and disregarded the 21,000 Department of Defense beneficiaries who live in Fairbanks and North Pole. He noted that 88 percent of Department of Defense personnel obtain their health care through the health care delivery system provided by the Bassett Army Community Hospital. MR. LEWIS mentioned that he is a little offended that now, after 30 years since the CON has been in place, someone comes in and makes an "end run" on the system; in fact, language in HB 297 says that changed policy about CONs is even retroactive to pending CON proposals. He indicated that a fundamental rule of law is "stare decisis" (stand by the decision) and a sound CON law is in place. He emphasized that the reason for CON laws is to preclude the rampant expansion of health care costs. He informed the committee that he had checked on the Internet and found that the last time the state CON law was reviewed was in 1993. He recognized that if the national consumer price index (CPI) is used in order to arrive at $7 million, someone would have to refer back to 1949 with a $1 million, move it forward to 2000 and there would still be $260,000 left over. Therefore, he stated, he thinks the CON threshold is too high and he believes the state does have a duty to provide over watch in such a large area of the economy. Number 1326 MR. LEWIS reiterated that the CON process already provides for emergency grants of CON. He said that if there really was an interest to look at access quality and cost of care then he urged the committee to determine needs and impacts on all Alaskans, from rural to urban to Bush. He noted that deliberate planning needs to happen. He commented that there is an assumption that competition reduces costs but in fact the unbridled growth and expansion of health care services was the initial driving force behind the start of CONs in the first place. He reiterated that the issue is open to public debate and he, for one, is convinced that the CON process has its place, especially within a geographically dispersed population. He mentioned that he thinks the current law provides due process, sets the appropriate economic threshold, and in fact works at reducing unnecessary overuse of services. He indicated that he thinks the CON creates a reasonable check and balance between parochial self interest and community public interest. He emphasized that he thinks it ensures the best choice for all and effectively precludes unabated health care costs. Number 1253 BARBARA HUFF-TUCKNESS, Director of Legislative and Governmental Affairs, Teamsters Local 959, testified that she represented approximately 7,000 members around the state of Alaska and within the health care field the Teamsters represents about 500 people. She recognized that one of the CON issues under discussion is the ability to relocate an already established facility. She also acknowledged that the CON is a very time-consuming process and her ultimate reaction was "get rid of the whole program;" that will really level the playing field for everybody. MS. HUFF recognized that the Teamsters major concern is with surgery nurses and Teamsters members that perform lab services. She remarked that the Teamsters has a preferred provider agreement with Providence Hospital but there is no preferred provider agreement for outpatient service. She reiterated that the health care delivery system is maintained on a delicate balance but to de-regulate the industry on a local level is desirable. However, she expressed concern about the impact that HB 297 will have on Teamster employees. Number 0411 CHAIR JAMES asked if medical services (hospitals and facilities) is an industry. She said she believed medical services is an industry. For example, she added, pharmaceuticals is an industry to such an extent that they have stock in their companies published on the stock market. As an industry, she added, should it be allowed to proceed on its own. She explained that the medical industry should be allowed to proceed as long as the patients are being served. Another issue to be discussed, she noted, is government as the major health care payer. She inquired as to whether the state wants to amass all the activity in non profits. She reminded the committee that non profits do not pay local or federal taxes and it is amazes her that non profits are allowed to compete with for profits who must pay taxes. She observed that non profits are continually expanding and making money; probably they are expanding on taxes paid for by for profits as testified by Ms. Bjornstad. She asked if that was a level playing field and recognized that it is a deep subject. Number 0253 MS. HUFF commented that the Teamsters had wanted to publish for their members a list of what doctors charge so that member consumers could choose which doctor the member wanted to go to. She observed that price information should be available to consumers, yet the Teamsters were told that the information was not available. [Due to recorder malfunction, remaining minutes are reconstructed from log notes and written testimony] REBECCA DEAN, Private Consultant, testified that she is an independent health care consultant in Fairbanks. She read the following testimony: Thank for your insight and recognition of the need to scrutinize our state certificate of need process. As many have testified, it is a very complex process. In respect of time restraints and duplication of comments, I strongly urge the legislature to amend the threshold now and develop a process review to investigate parity and maneuverability (wiggle room) within the regulatory guidelines and revise the CON process itself to become an equal playing field during the process. Number 0176 CHAIR JAMES asked where is the level playing field when a non profit is competing with a for profit. She said it seems to her like handicap bowling, "you have to give the other team a few extra starting points." She observed that Dr. Judkins from the Tanana Valley Clinic testified that they had wanted to purchase an open MRI and the decision to do so was based on service to patient needs. She reminded the committee that Dr. Judkins had testified that some patients cannot tolerate the tunnel MRI. She added that FMH does not have an open MRI so now maybe they will get one just to keep up with competition. She closed testimony and appointed a subcommittee for HB 297 composed of Representatives Green, Smalley and herself. [HB 297 was held over.]
| Document Name | Date/Time | Subjects |
|---|