Legislature(2001 - 2002)

04/23/2002 01:39 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 23, 2002                                                                                           
                          1:39 PM                                                                                               
TAPE HFC 02 - 90, Side A                                                                                                        
TAPE HFC 02 - 90, Side B                                                                                                        
TAPE HFC 02 - 91, Side A                                                                                                        
TAPE HFC 02 - 91, Side B                                                                                                        
CALL TO ORDER                                                                                                                 
Co-Chair Williams called the House  Finance Committee meeting                                                                   
to order at 1:39 PM.                                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Eldon Mulder, Co-Chair                                                                                           
Representative Bill Williams, Co-Chair                                                                                          
Representative Con Bunde, Vice-Chair                                                                                            
Representative Eric Croft                                                                                                       
Representative John Davies                                                                                                      
Representative Richard Foster                                                                                                   
Representative John Harris                                                                                                      
Representative Bill Hudson                                                                                                      
Representative Ken Lancaster                                                                                                    
Representative Carl Moses                                                                                                       
Representative Jim Whitaker                                                                                                     
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Representative  John Coghill;  Representative Lesil  McGuire;                                                                   
Elmer Lindstrom, Special Assistant,  Department of Health and                                                                   
Social  Services;   Mike  Powers,  Administrator,   Fairbanks                                                                   
Memorial  Hospital;  Brian  Slocum,   Tanana  Valley  Clinic,                                                                   
Fairbanks;  Jerome   Selby,  Regional  Director,   Providence                                                                   
Kodiak  Island Medical  Center, Kodiak;  Richard Cobden,  MD,                                                                   
Fairbanks;   Catherine   Reardon,   Director,   Division   of                                                                   
Occupational Licensing, Department  of Community and Economic                                                                   
PRESENT VIA TELECONFERENCE                                                                                                    
Carolyn   Watts,   PH.D.,   Professor,    Health   Economics,                                                                   
University  of   Washington;  Jay  Kaplan,   Vice  President,                                                                   
Emergency Services, Banner Health,  Arizona; Thomas R. Piper,                                                                   
Director,  Certificate of Need  Program, Missouri  Department                                                                   
Health,  Missouri; Dean  Montgomery,  Staff Director,  Health                                                                   
Systems Agency  of Northern  Virginia (HSANV), Virginia;  Kim                                                                   
Pickarel, Market  Coordinator, Health South  Medical Services                                                                   
Corporation,  Anchorage;   Dennis  Murray,   Heritage  Place,                                                                   
Kenai; Harry Porter, Fairbanks  Memorial Hospital, Fairbanks;                                                                   
Susan McLane,  Fairbanks Memorial  Hospital, Fairbanks;  Karl                                                                   
Sanford, Fairbanks Memorial Hospital Foundation, Fairbanks.                                                                     
HB 350    "An Act relating to terroristic threatening."                                                                         
          CSHB 350  (FIN) was REPORTED out of  Committee with                                                                   
          a  "do  pass"  recommendation  and  with  and  four                                                                   
          previously published  fiscal notes: #1 CRT, #3 LAW,                                                                   
          #4 ADM, and #5 COR.                                                                                                   
HB 399    "An  Act relating  to the  Uniform Mechanical  Code                                                                   
          and   other   safety   codes;   annulling   certain                                                                   
          regulations adopted  by the Department of Community                                                                   
          and   Economic   Development    relating   to   the                                                                   
          mechanical    code   that   applies    to   certain                                                                   
          construction     contractors     and     mechanical                                                                   
          administrators;  and  providing  for  an  effective                                                                   
HB 407    "An  Act  relating   to  the  Certificate  of  Need                                                                   
HCR 23    Proposing  amendments  to Uniform  Rule  20 of  the                                                                   
          Alaska  State  Legislature;  and providing  for  an                                                                   
          effective date for the amendments.                                                                                    
          HCR  23 was REPORTED  out of  Committee with  a "do                                                                   
          pass"  recommendation and  with a  new zero  fiscal                                                                   
          note by the Legislative Affairs Agency.                                                                               
HOUSE CONCURRENT RESOLUTION NO. 23                                                                                            
     Proposing amendments to Uniform Rule 20 of the Alaska                                                                      
     State Legislature; and providing for an effective date                                                                     
     for the amendments.                                                                                                        
Vice-Chair  Bunde, Sponsor,  HCR 23 testified  in support  of                                                                   
the legislation.  He noted that  the legislation  would amend                                                                   
the  Uniform  Rules  to create  a  standing  House  Education                                                                   
Committee. It would reconfigure  the House Health, Education,                                                                   
and Social Services Committee  to the House Health and Social                                                                   
Services Committee.  He noted that  "it is a full  plate" for                                                                   
one committee. He  observed that HCR 23 would  not change the                                                                   
Senate HESS Committee. The change  would be effective for the                                                                   
next legislative session.                                                                                                       
Vice-Chair  Bunde noted  that it  was felt  that the  Special                                                                   
Committee  on Education has  proven to  be beneficial  to the                                                                   
legislative  process by facilitating  focused committee  work                                                                   
on education  bills and  issues. He noted  that while  he was                                                                   
chair,  the  House Health,  Education,  and  Social  Services                                                                   
Committee often had to meet five  days a week in order to get                                                                   
through  the  bills before  them.  He  observed that  it  was                                                                   
sometimes difficult to get a quorum.                                                                                            
Vice-Chair  Bunde   emphasized  that  education   issues  are                                                                   
complex  and   very  important.   The  workload   related  to                                                                   
education has  become significant and would  benefit from the                                                                   
full  attention   of  a  permanent  standing   committee.  He                                                                   
observed  that HCR  23  is supported  by  the Association  of                                                                   
Alaska  School  Boards  and  the  Alaska  Council  of  School                                                                   
Vice-Chair   Bunde   pointed   out  that   during   the   22                                                                    
Legislature: 119  bills were referred to HESS;  42 bills were                                                                   
referred to the Special Committee  on Education; and 33 bills                                                                   
were referred to both committees.                                                                                               
Representative  Harris observed the  difficulty of  getting a                                                                   
quorum  and  questioned  if  an  additional  committee  would                                                                   
exacerbate the situation. Vice-Chair  Bunde stressed that the                                                                   
new committee would  be able to maintain a  regular three-day                                                                   
a week schedule.                                                                                                                
Vice-Chair  Bunde MOVED to  ADOPT a  zero fiscal note.  There                                                                   
being NO OBJECTION, it was so ordered.                                                                                          
Representative  Foster   MOVED  to  report  HCR   23  out  of                                                                   
Committee with  the accompanying fiscal note.  There being NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
HCR  23  was REPORTED  out  of  Committee  with a  "do  pass"                                                                   
recommendation  and  with  a  new zero  fiscal  note  by  the                                                                   
Legislative Affairs Agency.                                                                                                     
HOUSE BILL NO. 407                                                                                                            
     "An Act relating to the Certificate of Need program."                                                                      
Representative  John Coghill,  Sponsor, spoke  in support  of                                                                   
the legislation.  He noted that  he was motivated by  an open                                                                   
market system.  He stressed that  health care needs  to cross                                                                   
over  between  regulation and  the  free market  economy.  He                                                                   
maintained that the  consumer (patient) is often  left out of                                                                   
discussions.  Under current statute,  a health care  delivery                                                                   
system costing more  than $1 million dollars  must go through                                                                   
a   Certificate  of   Need   (CON)  discovery   process   and                                                                   
authorization  with  the  Department  of  Health  and  Social                                                                   
Services. He  questioned why government permission  should be                                                                   
required to give  health care services in  certain population                                                                   
and if it is the wisest way to go.                                                                                              
Representative Coghill  reviewed the legislation  by section.                                                                   
Section 1 provides  that a facility may not  expend more than                                                                   
a million  dollars under specific  conditions: for  a skilled                                                                   
nursing  facility or  psychiatric hospital;  to increase  the                                                                   
bed capacity  of a skilled  nursing facility; or  convert bed                                                                   
care style.                                                                                                                     
Section   2. Provides  that a  facility destroyed on  site or                                                                   
demolished  on  site  could be  replaced  without  having  to                                                                   
acquire  a  new  Certificate  of Need  and  provides  that  a                                                                   
facility could move  to a new site without  a new Certificate                                                                   
of Need  as long as  capacity and  categories of  services do                                                                   
not change.                                                                                                                     
Section   3. Requires the department  to adopt regulations to                                                                   
set a  time limit  for the  department to  determine that  an                                                                   
application is complete.                                                                                                        
Section 4.  Requires the  department to set  a time  limit by                                                                   
which  public hearings  must be  held. It  also requires  the                                                                   
department to approve or deny  an application within 120 days                                                                   
of the  date the  department determined  the application  was                                                                   
Section   5.  Places  all Certificate  of  Need  applications                                                                   
under the same  standards of review that currently  exist for                                                                   
nursing home beds.                                                                                                              
Sections  6 and  7 addresses  issuance  and the  rights of  a                                                                   
temporary Certificate of Need.                                                                                                  
Section 8 addresses the suspension  of a Certificate of Need.                                                                   
Section 11  provides for the  development of a  comprehensive                                                                   
health plan.                                                                                                                    
Representative  Coghill  observed  that  limitations  to  the                                                                   
health plan were placed in section 13:                                                                                          
     (1) is not intended by the legislature to be updated                                                                       
     (2) shall be prepared by the Department of Health and                                                                      
          Social Services  by January 1, 2003, and  a copy of                                                                   
          it  shall  be  given   by  the  department  to  the                                                                   
          legislature by that date; and                                                                                         
     (3) shall be prepared by using staff and other                                                                             
          resources  of  the department  that  are  generally                                                                   
          available to  perform the duties of  the department                                                                   
          without  an additional  appropriation  specifically                                                                   
          designated  for preparation of the plan  or without                                                                   
          an  additional appropriation  to fund the  indirect                                                                   
          effect on existing personnel or resources.                                                                            
Representative Coghill maintained  that populations of 55,000                                                                   
or more  should be  open to a  freer market. He  acknowledged                                                                   
that  the size  is  arbitrary. He  emphasized  that the  non-                                                                   
profit  organization world  is  over-running  the for  profit                                                                   
world. He  inferred that non-profits  could indulge  in price                                                                   
fixing   and  that  it   leaves  room   for  discussions   of                                                                   
impropriety. He  stated that he  would not be opposed  to the                                                                   
elimination of section 11.                                                                                                      
Vice-Chair  Bunde clarified  that the  high fiscal costs  are                                                                   
associated with section 11.                                                                                                     
CAROLYN   WATTS,   PH.D.,   PROFESSOR,    HEALTH   ECONOMICS,                                                                   
UNIVERSITY  OF WASHINGTON,  testified  via teleconference  in                                                                   
opposition  to the  legislation.  She has  done research  and                                                                   
taught in the area of health economics  and health policy for                                                                   
the past  26 years.  She has  also written  widely on  issues                                                                   
involving the organization of  health care markets, including                                                                   
several  pieces   on  Certificate   of  Need,  one   for  the                                                                   
Washington State Legislature.                                                                                                   
Ms.  Watts  urged  the  Committee  to  proceed  with  extreme                                                                   
caution. She maintained  that the stakes are  very high, both                                                                   
for  Alaska's  Medicaid  budget   and  for  access  to  basic                                                                   
services  such  as  obstetrics  and  prenatal  care  for  the                                                                   
populations, particularly the  low-income populations, served                                                                   
by sole community hospitals.                                                                                                    
     As  an economist,  I  believe in  competition.  However,                                                                   
     competition  delivers good results  in markets  that can                                                                   
     support many buyers and sellers  where all consumers can                                                                   
     afford to pay their way.  Competition at its best does a                                                                   
     good  job of  catering  to the  desires  of buyers  with                                                                   
     money. It  does nothing for  people without  the ability                                                                   
     to pay.  This is  not the  situation in single  hospital                                                                   
     communities.  Here patients have  no alternative  if the                                                                   
     only   hospital  cannot   survive  financially   because                                                                   
     another provider  has entered the market to  do only the                                                                   
     profitable services.                                                                                                       
     Competition can  lower prices in some  markets. However,                                                                   
     the  only   prices  that  get  lowered   are  for  those                                                                   
     consumers and  services the sellers want to  serve (at a                                                                   
     profit).  Sellers  won't compete  to  serve Medicaid  or                                                                   
     charity  patients  -  but  competition  will  erode  the                                                                   
     ability of charitable hospitals  to serve these patients                                                                   
     if   they   take   away    the   potential   for   cross                                                                   
     The Alaska  State budget  is in trouble.  Medicaid funds                                                                   
     are  in trouble.  Cross  subsidization  of Medicaid  and                                                                   
     charity   services  with   insurance   funds  paid   for                                                                   
     profitable  services  essentially  allows the  state  to                                                                   
     shift  some  of the  financial  burden of  its  Medicaid                                                                   
     obligation  to  the  private  sector.  Competition  that                                                                   
     lowers  the prices  of  profitable  services to  insured                                                                   
     patients benefits insurance  companies at the expense of                                                                   
     the  state  Medicaid budget.  The  hospital's  financial                                                                   
     obligations  around basic  services  such as  obstetrics                                                                   
     and prenatal  care to low  income Medicaid  or uninsured                                                                   
     patients  will  not  be reduced  as  outpatient  surgery                                                                   
     centers and  other niche providers enter  the market. In                                                                   
     the   absence   of   funds   generated   through   cross                                                                   
     subsidization,  the hospital will  either have  to raise                                                                   
     its prices  to Medicaid  or fail financially,  resulting                                                                   
     in major access dilemmas  not just for Medicaid patients                                                                   
     but for all the residents of the community.                                                                                
     Finally,   Certificate  of   Need   does  not   prohibit                                                                   
     competition.  It  simply  provides  a  structure  and  a                                                                   
     public   process  through   which  competition   can  be                                                                   
     monitored, guided, and shaped  to be constructive rather                                                                   
     than destructive.  The free  market, after  all, brought                                                                   
     us Enron.                                                                                                                  
Ms.  Watts urged  legislators  to study  the issue  carefully                                                                   
before they dismantled  the public process that  supports the                                                                   
health  care   infrastructure  of  Alaskan   communities  and                                                                   
maintained  that  Certificate   of  Needs  does  not  inhibit                                                                   
Co-Chair Mulder questioned  if the state of  Washington has a                                                                   
Certificate of Need  process and whether it  had changed over                                                                   
the  last  decade. Ms.  Watts  affirmed  and noted  that  the                                                                   
process has  changed, but the  process of the  Certificate of                                                                   
Need has remained allowing public  discussion around what the                                                                   
community's infrastructure would look like.                                                                                     
Co-Chair  Mulder noted  that there  is  a closed  opportunity                                                                   
into the  Alaskan market,  which has  caused frustration.  He                                                                   
questioned if  it is easier in  the state of  Washington. Ms.                                                                   
Watts observed that  the idea behind the process  is not as a                                                                   
prohibition, but  as a careful introduction into  the market.                                                                   
Proposals  that provide choice  and are  good for the  market                                                                   
without harming  the basic infrastructure go  through without                                                                   
a  lot  of   discussion.  Certificate  of  Need   allows  for                                                                   
alteration  of  projects.  It  provides  a  forum  for  pubic                                                                   
discussion. Without  a Certificate  of Need process  there is                                                                   
no way  to monitor or  assure promises  are kept. There  is a                                                                   
process by  which the  product can  be monitored and  shaped.                                                                   
Co-Chair  Mulder  summarized that  the  process  is open  and                                                                   
occurs in the public discussion. Ms. Watts agreed.                                                                              
Vice-Chair Bunde  clarified that Ms. Watts is  a paid witness                                                                   
through the Fairbanks Memorial Hospital.                                                                                        
In response  to a  question by  Representative Whitaker,  Ms.                                                                   
Watts noted that  market forces cater well to  the people who                                                                   
have  resources but  not  to those  that  cannot  pay or  are                                                                   
represented by agencies like Medicaid  that cannot pay market                                                                   
rates. The competition is around  the profitable patients and                                                                   
services. No one wants patients  that cannot pay or that come                                                                   
with less than market rates, as  do Medicaid patients in most                                                                   
JAY  KAPLAN,  VICE  PRESIDENT,   EMERGENCY  SERVICES,  BANNER                                                                   
HEALTH, ARIZONA,  testified via teleconference  in opposition                                                                   
to the legislation.  Mr. Kaplan practiced  emergency medicine                                                                   
for 21 years [in New Jersey] and  in the state of Arizona for                                                                   
the  past  year.  He referred  to  the  Certificate  of  Need                                                                   
process  in New  Jersey,  which  was implemented  to  prevent                                                                   
duplication of services and increased  costs. The hospital in                                                                   
which he  worked was  not allowed  to initiate an  open-heart                                                                   
program  because of  the affect  on nearby  urban inner  city                                                                   
hospitals. Another suburban hospital  was allowed to open due                                                                   
to political  maneuverings.  A major urban  area hospital  in                                                                   
the  vicinity of  the new  open-heart  clinic now  has a  $40                                                                   
million   dollar   shortfall  and   increased   uncompensated                                                                   
Mr. Kaplan noted  that the state of Arizona is  seeing a rise                                                                   
in  specialty hospitals  and  boutique  health care  services                                                                   
that  are  planned and  developed  by  for profit  groups  to                                                                   
attract paying, insured patients,  especially those requiring                                                                   
surgical procedures,  which have  a higher profit  margin. He                                                                   
noted  that  Arizona  has  a  serious  medical  problem  with                                                                   
overcrowded emergency departments:  with a lack of access and                                                                   
8  -  10  hour  weights.  It  is  difficult  to  get  on-call                                                                   
physicians to  care for Medicaid  and uninsured  patients. He                                                                   
argued  that  eliminating  the Certificate  of  Need  process                                                                   
would  not  increase  access   and  competition  or  lead  to                                                                   
reductions in cost. Not for profit  hospitals have a mandated                                                                   
social  responsibility to  care for all  patients. He  argued                                                                   
that  Medicaid  patients  are  not  accepted  at  for  profit                                                                   
hospitals. He maintained that  elimination of the Certificate                                                                   
of Need  process would threaten  the viability of  the safety                                                                   
net [for  low income patients]  and begin a health  care arms                                                                   
race  with  the  elimination.  Studies have  shown  that  the                                                                   
unbridled   ability  of   services   result  in   unnecessary                                                                   
procedures and  surgeries, which  increase cost.  He stressed                                                                   
that health  care premiums would  be raised, leading  to more                                                                   
people that cannot  afford insurance and maintained  that the                                                                   
Medicaid   and  uninsured   population   would  swell.   More                                                                   
facilities  would  also strain  the  shortage  of nurses  and                                                                   
technicians, which  would lead  to increased labor  costs. He                                                                   
concluded  that  elimination   of  the  Certificate  of  Need                                                                   
process would not lower costs or help physicians.                                                                               
THOMAS  R.  PIPER, DIRECTOR,  CERTIFICATE  OF  NEED  PROGRAM,                                                                   
MISSOURI   DEPARTMENT   HEALTH,   MISSOURI,   testified   via                                                                   
teleconference  in opposition to  the legislation. He  is the                                                                   
director  of the  Missouri Certificate  of  Need program.  He                                                                   
reviewed  changes  in the  Missouri  system  since 1979.  The                                                                   
Missouri program has evolve and change in many ways:                                                                            
     1979  - Original  Certificate of  Need law passed.  1983                                                                   
     Establishment    of   the   Nursing    Home   Moratorium                                                                   
     1988 - Expenditure minimums  raised, but Federal funding                                                                   
     1991 -  Parking facilities,  utility systems  and others                                                                   
     waived from review.                                                                                                        
     1996  -   Acute  care   sunset  passed  by   Legislature                                                                   
     effective 12/31/01.                                                                                                        
     1999 - Long-term care replacements  and purchase of beds                                                                   
     2001  - The  sunset took  affect and  acute care  review                                                                   
     ended except for new hospitals.  Ambulatory centers have                                                                   
     not been reviewed; long term  care, residential care and                                                                   
     major medical  equipment over $1 million  dollars in any                                                                   
     location have continued to be reviewed.                                                                                    
     2002 - Two  bills have been introduced  that, HB1717 and                                                                   
     SB 1087,  which would restore and strengthen  acute care                                                                   
Mr. Piper observed that hospitals  were split for many years,                                                                   
but are now united with the intent  to reform the Certificate                                                                   
of Need  process. Proposed bills  would cover both  acute and                                                                   
long-term care with zero thresholds  for first-time services,                                                                   
but   broaden   flexibility   for   service   expansion   and                                                                   
replacement.  The basic rationale  is to protect  established                                                                   
community services  while restraining double-digit  inflation                                                                   
in health  care premiums  and Medicaid  costs. The  impact of                                                                   
deregulation  has   been  jolting   in  the  number   of  new                                                                   
ambulatory  surgery  and  diagnostic  imaging  centers,  plus                                                                   
major hospital  expansions. He argued that the  fiscal impact                                                                   
cannot  yet be measured  accurately,  but emphasized  that it                                                                   
could not  come at  a worse  time with  state budget  cuts of                                                                   
over  $500   million  dollars  and  federal   limitations  on                                                                   
reimbursement. Mr. Piper observed that:                                                                                         
     Such funding  problems are being experienced  everywhere                                                                   
     in  our country.  As  I  have monitored  CON  activities                                                                   
     nationally  over  the last  13  years, and  watched  the                                                                   
     demise of  managed care, we  have seen CON  stabilize in                                                                   
     36  states and the  District of  Columbia. Missouri  has                                                                   
     streamlined  their  Certificate  of Need  process;  many                                                                   
     other  states that  repealed their  Certificate of  Need                                                                   
     programs subsequently  reenacted them, such  as Indiana,                                                                   
     Minnesota,  Wisconsin. Louisiana  started a  Certificate                                                                   
     of  Need program  in 1991.  Pennsylvania reformed  their                                                                   
     program  and continues the  activities under  licensure.                                                                   
     There have been efforts in Texas and Kansas to restore                                                                     
     Certificate of Need programs.                                                                                              
Mr.  Piper emphasized  that state  oversight  of health  care                                                                   
persists because public funds  pay for over two-thirds of the                                                                   
health  care   services,  and  maintained   that  competition                                                                   
doesn't  work in  health care;  health  care is  part of  the                                                                   
caring  community,   not  a   commodity.  He  stressed   that                                                                   
public/private  partnerships with  community health  planning                                                                   
and  oversight  continues  to  be  the  best  investment.  He                                                                   
reiterated that competition does  not work in health care and                                                                   
that state oversight is important.                                                                                              
Co-Chair Mulder questioned Mr.  Piper's statement that public                                                                   
funds pay  for over two-thirds  of health care  services. Mr.                                                                   
Piper clarified  that his statistics were based  the national                                                                   
number: 68 percent.                                                                                                             
Chair Mulder noted that his biggest  concern is the impact on                                                                   
the state's  Medicaid  budget. Mr. Piper  thought that  there                                                                   
would be  an impact on the  state of Alaska  Medicaid system.                                                                   
He  suggested  that  there  would be  a  rapid  expansion  of                                                                   
surgery  centers   and  nursing  homes.  Medicaid   would  be                                                                   
impacted   because   patients   would  be   divided   between                                                                   
Co-Chair   Mulder   noted   that   proponents   justify   the                                                                   
legislation based on the anticipated  growth of population in                                                                   
the  state  of  Alaska;  in five  years  there  would  be  an                                                                   
additional 55,000  in population;  and more facilities  would                                                                   
translate into more opportunity.                                                                                                
Mr. Piper pointed out that the  planning component must occur                                                                   
to look at  the expanding population and determine  where and                                                                   
which services  should be provided. Planning  is needed along                                                                   
with regulation.                                                                                                                
Co-Chair Mulder asked if there  were comparisons with Montana                                                                   
or  other states  with similar  demographics  to Alaska.  Mr.                                                                   
Piper  did  not  have  information  on  states  with  similar                                                                   
demographics to Alaska.                                                                                                         
Vice-Chair  Bunde asked  who is  the  ultimate arbitrator  in                                                                   
Missouri.  Mr.  Piper  explained   that  there  is  a  health                                                                   
facilities  review  committee,  which  is  a  9-member  panel                                                                   
appointed  by  the  governor and  legislature.  There  are  4                                                                   
legislators on the body. The committee  prepares and analyzes                                                                   
information consistent  with a  set of regulations  that help                                                                   
to plan for what is needed and  then compare for feasibility.                                                                   
He observed that  acute care review in Missouri  is poised to                                                                   
pass, which would strengthen the  Certificate of Need process                                                                   
in Missouri.                                                                                                                    
Vice-Chair   Bunde  maintained   that  Certificate   of  Need                                                                   
regulations  in Alaska  have  been handled  arbitrarily.  Mr.                                                                   
Piper noted  that a  Certificate of  Need technical  advisory                                                                   
committee with 73 members helped  the state to streamline and                                                                   
rewrite their rules. They have  been able to reduce times and                                                                   
costs by 20 - 40 percent.                                                                                                       
Representative  Coghill noted  that the legislation  tightens                                                                   
up  Certificate of  Need requirements  for  a school  nursing                                                                   
facility,  psychiatric hospital  or  nursing and  psychiatric                                                                   
facility. These facilities would  be under the Certificate of                                                                   
Need requirements in communities under 55,000.                                                                                  
DEAN  MONTGOMERY, STAFF  DIRECTOR, HEALTH  SYSTEMS AGENCY  OF                                                                   
NORTHERN VIRGINIA (HSANV), VIRGINIA,  testified in opposition                                                                   
to the  legislation. He  noted that HSANV  is a private  non-                                                                   
profit corporation,  which does health services  research and                                                                   
planning,  under  contract,  for   both  public  and  private                                                                   
entities.  They have conducted  a number  of CON and  related                                                                   
planning studies in Virginia and  elsewhere over the last two                                                                   
decades. He noted  that he has more than 25  years experience                                                                   
in this field.                                                                                                                  
Mr. Montgomery stated that:                                                                                                     
     The merits,  and necessity  of CON and related  planning                                                                   
     have been  debated in Virginia, with varying  degrees of                                                                   
     intensity,   every  year   since   1986.  The   Virginia                                                                   
     experience  may  be  instructive   and  of  use  as  you                                                                   
     consider  changes to  Alaska's program.  After years  of                                                                   
     debate,   most   covered   service   in   Virginia   was                                                                   
     deregulated   in  1989.   Among  acute  care   services,                                                                   
     planning  controls  were  kept on  only  hospital  beds,                                                                   
     operating  rooms   and  open-heart  surgery.   Following                                                                   
     deregulation,  there was  an immediate proliferation  of                                                                   
     new  services  (notably,  CT,  MRI,  radiation  therapy,                                                                   
     cardiac  catheterization).  The  resulting  increase  in                                                                   
     capital expenditures, and  the sharp decrease in average                                                                   
     program use/volumes  and the associated revenue  loss at                                                                   
     established  programs.  led  the  state  legislature  to                                                                   
     reimpose planning  controls three years later,  in 1992.                                                                   
     Controls were reimposed on  all of the services that had                                                                   
     been deregulated in 1989.  It took between 7 and 8 years                                                                   
     for average  program volumes  to return to  1989 levels.                                                                   
     Virginia  has been  a rapidly growing  state during  the                                                                   
     last decade:  2 percent a year. Were this  not the case,                                                                   
     the  negative effects  of deregulation  would have  been                                                                   
     even greater and longer lasting.                                                                                           
     This  experience notwithstanding,  CON has been  debated                                                                   
     annually (during  each general assembly  Session), since                                                                   
     the  re-imposition of  controls in  1992. To date  there                                                                   
     has been no significant change  in the program. Although                                                                   
     there is  a strong lobby  in favor of the  deregulation,                                                                   
     particularly  of  surgery   centers,  diagnostic-imaging                                                                   
     services,    specialized   cardiac   services,    cancer                                                                   
     treatment  Centers,  and similar  services  that can  be                                                                   
    operated profitably outside of community hospitals.                                                                         
     The CON' debate has centered  on three broad issues: (1)                                                                   
     on the  economic effects  of deregulation,  particularly                                                                   
     for  community  hospitals, (2)  on  the  access to  care                                                                   
     implications,  especially  l hr  the medically  indigent                                                                   
     and   Medicaid  patients,   and  (3)   on  the   quality                                                                   
     implications,  notably  for   specialized  surgical  and                                                                   
     other tertiary care services.                                                                                              
     To  date  (the  2002  general   assembly  session  ended                                                                   
     recently),  the legislature  has  not deregulated  again                                                                   
     because the evidence and testimony indicate that:                                                                          
     •   Community  hospitals  would  lose  critical  revenue                                                                   
         from   the  loss  of  a  large   percentage  of  the                                                                   
         services   on  which  they  make   a  profit  (e.g.,                                                                   
         ambulatory   surgery,  diagnostic  imaging,  cardiac                                                                   
         catheterization)  and  use  to subsidize  losses  in                                                                   
         necessary hut unprofitable services;                                                                                   
TAPE HFC 02 - 90, Side B                                                                                                      
    •    In some cases, and perhaps in many, the loss of                                                                        
         this revenue would  undercut the economic  viability                                                                   
         of  the  hospital  upon  which  a  community,  or  a                                                                   
         specific population, is dependent;                                                                                     
    •    Many community hospitals would he unable, or less                                                                      
         able, to  provide necessary  emergency services  and                                                                   
         services to the  medically indigent and  to Medicaid                                                                   
         patients,   without   a  substantial   increase   in                                                                   
         Medicaid payments;                                                                                                     
    •    Cost of deregulation to community hospitals is                                                                         
         estimated, at  minimum, to  be tens  of millions  of                                                                   
         dollars  annually,   and  perhaps  several   hundred                                                                   
         million,  depending on  the categories  of  services                                                                   
         removed from regulation; and                                                                                           
    •    Although there have been sustained negotiations                                                                        
         over  several years,  to  date the  legislature  has                                                                   
         been unwilling  or unable  to appropriate  monies or                                                                   
         to   increase   Medicaid  payments   to   offset   a                                                                   
         significant  part  of  these   losses  to  essential                                                                   
         community  hospitals,  or  to  otherwise  level  the                                                                   
         playing field to  offset the inherent  advantages in                                                                   
         proprietary  ambulatory  surgery centers  and  other                                                                   
         diagnostic  and  treatment  centers,  if  they  were                                                                   
Mr. Montgomery concluded that:                                                                                                  
     Virginia  hospitals are highly  dependent on  ambulatory                                                                   
     surgery  and  diagnostic   imaging  revenues  to  offset                                                                   
     losses  in  a  number  01'  essential  but  unprofitable                                                                   
     services they are required  to provide. The same is true                                                                   
     of most essential community hospitals elsewhere,                                                                           
     Deregulation should occur, only after careful study of                                                                     
     the economic and service implications, particularly the                                                                    
     cost to community hospitals.                                                                                               
In  response   to  a  question   by  Vice-Chair   Bunde,  Mr.                                                                   
Montgomery  acknowledged  that  some  services  performed  by                                                                   
hospitals  are   profitable.  These  services   are  used  to                                                                   
subsidize services that do not make money.                                                                                      
KIM  PICKAREL,  MARKET  COORDINATOR,   HEALTH  SOUTH  MEDICAL                                                                   
SERVICES     CORPORATION,    ANCHORAGE,     testified     via                                                                   
teleconference  in support of  the legislation.  She observed                                                                   
that Medicaid  patients seen in an ambulatory  surgery center                                                                   
are charged  an average  of $310  dollars less  for the  same                                                                   
surgery done  in an  acute care  facility. She observed  that                                                                   
they  are able  to offer  23-hour service  for patients  that                                                                   
need an  extended stay. Very  rarely are these  patients sent                                                                   
to  the acute  care  facility. She  argued  that out  patient                                                                   
surgery  would  be  done  by teams  that  specialize  in  out                                                                   
patient  surgery.  She  maintained that  this  would  improve                                                                   
patient outcome,  reduce time  under anesthesia,  reduce risk                                                                   
and lessen  time in the  operating room. She  emphasized that                                                                   
competition is needed in the state of Alaska.                                                                                   
Co-Chair Mulder  question whether  the Medicaid budget  would                                                                   
be affected. Ms.  Pickarel acknowledged that there  may be an                                                                   
affect but maintained that it  would balance out. She pointed                                                                   
out that non-profits  that do not pay taxes  provide indigent                                                                   
In response  to a question  by Co-Chair Mulder,  Ms. Pickarel                                                                   
explained  that patients could  remain up  to 23 hours.  They                                                                   
could not care  for the patient beyond 23 hours  because they                                                                   
are not an acute care facility.                                                                                                 
Representative  Hudson noted  that  it has  been a  community                                                                   
goal to have  a broad base hospital with as  many specialties                                                                   
as possible. He questioned the impact on hospital services.                                                                     
Ms.  Pickarel explained  that  out patience  care allows  the                                                                   
surgery  to be  completed,  cost  and time  efficiently.  She                                                                   
maintained that  patients and physicians would  not be bumped                                                                   
by  emergency needs.  There  are many  facets  of acute  care                                                                   
facilities that would not be compromised.                                                                                       
Co-Chair  Mulder observed  that there  is a frustration  with                                                                   
the  process among  those that  are attempting  to enter  the                                                                   
market through the Certificate  of Need process. Ms. Pickarel                                                                   
agreed.  Co-Chair   Mulder  questioned  why  they   have  not                                                                   
advocated   for  streamlining   the  process.  Ms.   Pickarel                                                                   
observed  that   discussions  have  occurred   regarding  the                                                                   
building of a data site to compare data.                                                                                        
Co-Chair  Mulder  stressed that  a  more open  process  would                                                                   
resolve some of the issues. Ms. Pickarel agreed.                                                                                
Representative  Foster  observed   that  Valley  Hospital  is                                                                   
legally and ethically  bound to cover any patient  that comes                                                                   
to them.  He observed that  Valley Hospital had  unreimbursed                                                                   
care of  $4 - $5.5 million  dollars. Ms. Pickarel  noted that                                                                   
12 percent of their care was to indigents.                                                                                      
ELMER LINDSTROM, SPECIAL ASSISTANT,  DEPARTMENT OF HEALTH AND                                                                   
SOCIAL SERVICES, provided information  on the legislation. He                                                                   
observed  that  the department  is  a  payer of  health  care                                                                   
through the Medicaid  program: 1 of 6 Alaskans.  The state is                                                                   
the major payer for long-term  nursing home care (85 percent)                                                                   
and psychiatric  care. The  state pays  about 20 percent  for                                                                   
other  types  of  acute  care. The  state  is  interested  in                                                                   
assuring that  Alaskans have  access to  primary care  and in                                                                   
preserving and  expanding health  care. Alaska has  worked to                                                                   
maintain rural  facilities. The  Certificate of Need  program                                                                   
is in  administered by  the Department  of Health and  Social                                                                   
Services  and operated  by  one person.  He  referred to  the                                                                   
state health plan compiled in  1984 and noted that it has not                                                                   
been updated. He observed the  lack of available information.                                                                   
Representative Hudson  questioned if the Certificate  of Need                                                                   
application covers  the cost of  their review.  Mr. Lindstrom                                                                   
did not  know if  there was a  charge. Representative  Hudson                                                                   
spoke in support of a fee.                                                                                                      
Co-Chair   Mulder   noted   that   there   are   frustrations                                                                   
surrounding  the openness  of the program.  He questioned  if                                                                   
the  department would  consider  revamping  the process.  Mr.                                                                   
Lindstrom  indicated that  the  department would  be open  to                                                                   
discussion. He  observed that the  process is similar  to the                                                                   
regulatory process,  which allows public hearings  and public                                                                   
Vice-Chair Bunde suggested that  it is a large responsibility                                                                   
to  place   on  a  single   person.  He  asked   for  further                                                                   
information regarding section 11.                                                                                               
Mr. Lindstrom  reviewed the legislation. Section  one repeals                                                                   
and  reenacts  existing law  to  make a  distinction  between                                                                   
communities  with  populations  below and  above  50,000.  He                                                                   
noted  that  the  department  is  not  comfortable  with  the                                                                   
approach and  pointed to  the lack  of data. He  acknowledged                                                                   
that the  market in  Anchorage is  different than in  smaller                                                                   
communities,  but emphasized that  they do  not have  data to                                                                   
indicate the  affect of  unbridled competition in  Fairbanks,                                                                   
Mat-Su  or other areas  that make  the cut-off.  They do  not                                                                   
endorse the cut-off  provision. He explained  that the intent                                                                   
is  to treat  psychiatric beds  similarly  to long-term  care                                                                   
beds. Long-term beds cannot be  built, remodeled or converted                                                                   
without a  CON. The  state is the  [primary] payer  for these                                                                   
facilities. The department supports this provision.                                                                             
Mr.  Lindstrom  reviewed  section  2, which  relates  to  the                                                                   
replacement of health care facilities.  He observed that many                                                                   
small facilities  in  small communities  are hanging  on. The                                                                   
CON process requires  communities to ask what  sort of health                                                                   
facilities are needed and what  can be afforded. He suggested                                                                   
that  the legislature  look at  the issue  of long-term  care                                                                   
beds,  nursing  home beds,  and  psychiatric  beds where  the                                                                   
state is the primary payer.                                                                                                     
Mr. Lindstrom  continued  his review of  the legislation.  He                                                                   
observed that  the department is comfortable  with section 3,                                                                   
time limits. Section 4 provides  technical cleanup. Section 5                                                                   
provides new  standards of review  for Certificates  of Need.                                                                   
The  Department  supports  the   approach  contained  in  the                                                                   
legislation,  which applies  nursing  home  standards to  all                                                                   
types.  He stressed that  nursing home  standards are  better                                                                   
and more objective.                                                                                                             
Mr.  Lindstrom  observed that  section  11 was  an  amendment                                                                   
offered in  the House Health  and Social Services  Committee,                                                                   
which would direct  the department to prepare  a state health                                                                   
plan. The  department is  not capable  of doing the  facility                                                                   
piece of the  plan. Section 11 was later modified  by section                                                                   
13,  which   would  suspended  the  provision   for  periodic                                                                   
updates, place a January 2003  deadline, and require the work                                                                   
to  be done  without any  additional  resources. He  stressed                                                                   
that the department would update  the plan without additional                                                                   
resources  if they  could.  The department  needs  additional                                                                   
resources   to  implement  [the   legislative  intent].   The                                                                   
department's  fiscal  note  for  the  plan  was  not  carried                                                                   
forward. The  remaining $4  - $5  million dollar fiscal  note                                                                   
reflects the cost to the Medicaid  program if facilities were                                                                   
built  without   going  through  the  Certificate   of  Needs                                                                   
process.   He  observed   that   the  fiscal   note  is   the                                                                   
department's  best estimate,  which is  based on  assumptions                                                                   
that  would  be  made by  private  business  outside  of  the                                                                   
MIKE  POWERS,  ADMINISTRATOR,  FAIRBANKS  MEMORIAL  HOSPITAL,                                                                   
testified in opposition to the  legislation. He observed that                                                                   
patients  do  not decide  where  they  will be  emitted.  The                                                                   
physician makes  the choice. He  observed that 93  percent of                                                                   
Alaskans are covered  by some type of insurance.   Government                                                                   
generally pays for  45 percent of a patient's  hospital stay:                                                                   
15%   Medicaid  and   30%   Medicare.   He  maintained   that                                                                   
entrepreneurs  will  say  "no" to  programs  like:  homecare,                                                                   
trauma,   chemical    dependency,   neonates    and   chronic                                                                   
inebriates. He  asserted that  entrepreneurs would  say "yes"                                                                   
to  imaging and  surgery and  entrepreneurs in  the lower  48                                                                   
would  say   "yes"  to   cardiology,  imaging  and   surgery.                                                                   
Hospitals  are required  by  law and  mission  to handle  all                                                                   
comers,  at all  times. If  a patient  calls their  physician                                                                   
after hours they  are told to go to the hospital.  He pointed                                                                   
out that every  Alaskan town but Anchorage is  a one-hospital                                                                   
town.  This  does  not  add  choice.   He  pointed  out  that                                                                   
technicians  that  move  to outpatient  care  would  use  the                                                                   
equipment.  He emphasized  that  the healthcare  "choice"  is                                                                   
largely the  producer's, not  the consumer's. The  physician,                                                                   
not the patient,  wrestles with the question: "Do  I admit to                                                                   
hospital where  I am not  a shareholder; or  Do I admit  to a                                                                 
surgery center where I am a shareholder?"                                                                                       
Mr. Powers  responded to testimony  that surgery  centers are                                                                   
20%  less expensive.  He  observed  that the  Alaska  Surgery                                                                   
Center in Anchorage  charges $600 dollars more  per cataract,                                                                   
$400  dollars more  for carpal  tunnel  procedure, and  other                                                                   
Representative Davies questioned  if Mr. Powers was comparing                                                                   
"apples to apples". Mr. Powers  explained that the comparison                                                                   
was to the  technical component. A professional  charge would                                                                   
be additional. He  assumed that the surgical  charge would be                                                                   
the same.                                                                                                                       
Mr.  Power concluded  that "deregulation"  sounds great,  but                                                                 
that it does  not lead to healthcare competition  because the                                                                   
physician   maintains  their   "state-licensed  monopoly   on                                                                   
admitting privileges."  He emphasized  that Alaska  is facing                                                                   
double-digit  health inflation,  small businesses are  seeing                                                                   
health premium increases of 20%  to 30%; surgical volumes are                                                                   
flat in  Fairbanks and  Juneau. He stated  that it  is ironic                                                                   
that the  state would  consider eliminating  one of  the cost                                                                   
control mechanisms  available. He suggested the  formation of                                                                   
an  "honest" study  group  to include  the  best elements  of                                                                   
"competition"  where appropriate and  the best protection  of                                                                   
Co-Chair Mulder questioned if  Mr. Powers would support a new                                                                   
formula that is  more open. Mr. Powers stated  that he would.                                                                   
He  emphasized  that  there  needs   to  be  a  solution.  He                                                                   
estimated that  it costs  them $10 thousand  dollars to  do a                                                                   
CON. He stated that he would support a study group.                                                                             
Representative  Hudson  stressed  the  need  for  an  updated                                                                   
health plan.                                                                                                                    
BRIAN   SLOCUM,   ADMINISTRATOR,    TANANA   VALLEY   CLINIC,                                                                   
FAIRBANKS, testified in Juneau.  He disagreed with statements                                                                   
by Mr.  Power that the prices  in ambulatory  surgery centers                                                                   
are higher than  in hospitals. He explained  that the federal                                                                   
government  says that  an ambulatory  surgery  center has  to                                                                   
charge  the  patient  one of  eight  different  charges.  The                                                                   
dollars that  can be  charged for  services at an  ambulatory                                                                   
surgery center range from a low  of $242 dollars to a high of                                                                   
$962 dollars.  The doctor's  charges are  added to  the base.                                                                   
The hospital  bills from  a more  expansive menu, but  cannot                                                                   
charge for  the doctor. In  an ambulatory surgery  center the                                                                   
whole  bill is  lumped together.  He noted  that the  federal                                                                   
government stated  in the November 11, 1999  federal register                                                                   
that the use of ambulatory surgery  centers nationwide, since                                                                   
1982, has saved  hundreds of millions of dollars  in Medicare                                                                   
and Medicaid charges. The law  prevents charges at ambulatory                                                                   
surgery centers from being more than at a hospital.                                                                             
Mr. Slocum  observed that  Certificate of  Need comes  from a                                                                   
central planning  area of  the 1970's when  it was  felt that                                                                   
one person or a team of people  could allocate all the health                                                                   
care  resources   over  the  entire   state  of   Alaska.  He                                                                   
maintained  that  there  have   not  been  any  studies  that                                                                   
indicate  that the  Certificate  of Need  process works.  The                                                                   
Certificate of Need process was  intended to control costs by                                                                   
eliminating  new facilities  and services.  He asserted  that                                                                   
the CON  process is associated  with a 20.6 percent  increase                                                                   
in  hospitals  and 9  percent  increase in  other  healthcare                                                                   
according to  a 1998 study. The  increases are the  result of                                                                   
erecting  barriers  to  entry.   Less  expensive  methods  of                                                                   
delivery cannot occur.                                                                                                          
TAPE HFC 02 - 91, Side A                                                                                                      
Mr. Slocum  emphasized that they  would not be  testifying if                                                                   
the  Certificate of  Need process  worked.  He stressed  that                                                                   
they  have tried  to streamline  the  process. He  maintained                                                                   
that  the CON  program  is the  "lap  dog of  the  healthcare                                                                   
industry" in  Alaska and  it keeps people  who have  a better                                                                   
way of  doing business  out of the  community. He  noted that                                                                   
hospitals have  never been turned down (19  applications have                                                                   
been  approved), but  that no  entities  in competition  with                                                                   
hospitals have  been granted a  Certificate of  Need. Twenty-                                                                   
nine states currently  have eliminated their  CON programs or                                                                   
scaled  them  back to  an  extent  that  it would  not  cover                                                                   
ambulatory surgery. Alaska is  the only state, of the smaller                                                                   
populated  states, with  a Certificate  of  Need program.  He                                                                   
stressed that  there have  been lots  of studies, which  show                                                                   
that nothing bad happens when  CON programs are discontinued.                                                                   
A 1999 study,  Certificate of Need Revisited,  concluded that                                                                   
there was  no evidence of increasing  costs in the  12 states                                                                   
that  repealed   their  CON  programs.  In  1988,   the  Duke                                                                   
University Center  of Health Policy and Politics  performed a                                                                   
study  with 16  years of  federal data.  The study  concluded                                                                   
that states  that  lifted CON  did not experience  a rise  in                                                                   
spending  on hospital  and physicians'  services relative  to                                                                   
those that  retained it. He  emphasized that more  facilities                                                                   
were  generated  in others  states  that repealed  their  CON                                                                   
programs, but the total cost to  the community stays the same                                                                   
as  people "vote  with their  feet". He  noted that  hospital                                                                   
profits do  not decrease  when CON  programs are deleted.  He                                                                   
added that if hospital  profits do not go down  then there is                                                                   
no reason  for charity care to  go down. A study  showed that                                                                   
there was no  linkage between stringent CON  laws and charity                                                                   
care increases.  The states  that have  made the change  have                                                                   
found  it  to  be  beneficial.  He  challenged  the  hospital                                                                   
industry  to bring data  demonstrating  that the deletion  of                                                                   
the CON  program would make  a difference. He  estimated that                                                                   
there  would  be a  20  percent  reduction if  an  ambulatory                                                                   
surgery center were built in Fairbanks.                                                                                         
Co-Chair   Mulder  observed  that   Mr.  Slocum's   testimony                                                                   
conflicted  with  the  previous  five  speakers.  Mr.  Slocum                                                                   
acknowledged that the number of  facilities would rise if the                                                                   
CON program were  eliminated, but emphasized that  it did not                                                                   
mean that  the total  amount spent  by health care  consumers                                                                   
would  rise. Co-Chair  Mulder  argued that  the  cost to  the                                                                   
state would  increase. Discussion  ensued regarding  the cost                                                                   
to the state.  Mr. Slocum stated that a study  by Information                                                                   
Insights  in Anchorage  (Brian Rogers)  showed that it  would                                                                   
take 5  years for  the impact  to be  felt. The study  showed                                                                   
that  a decrease  in  prices could  occur  in  the first  and                                                                   
second years as  people prepare for competition.  There was a                                                                   
range  of  possibilities  for  the third  year  depending  on                                                                   
assumptions: a $20  thousand dollar decrease to  the state to                                                                   
a $190  thousand dollar  increase. During  the fourth,  fifth                                                                   
and subsequent  years, competition and the opportunity  for a                                                                   
new less  expensive service would  decrease price.  The total                                                                   
five-year  estimate was a  decreasing cost  to the  state for                                                                   
all operations.                                                                                                                 
Vice-Chair  Bunde questioned  if  Mr. Slocum  had  experience                                                                   
applying for a Certificate of  Need. Mr. Slocum gave examples                                                                   
of problems within the existing  Certificate of Need program.                                                                   
Applicants are told to send four  copies of the proposal to a                                                                   
health systems agency that does  not exist. Proposals must be                                                                   
consistent  with the  health care  plan,  published in  1984,                                                                   
which  has  pages   out  of  order.  There   are  conflicting                                                                   
Representative  Hudson  noted  that the  Valley  Hospital  is                                                                   
legally and  ethically bound to  help all patients  that come                                                                   
through their door and questioned  if the same applied to Mr.                                                                   
Slocum.  Mr.   Slocum  clarified  that  there   is  no  legal                                                                   
requirement, but they feel that  they are ethically [required                                                                   
to  help  those  that  come  to  them].  They  have  provided                                                                   
approximately $17.7  million dollars in unreimbursed  care in                                                                   
the  last three  years. Forty-four  percent  of one  doctor's                                                                   
practice  is made  up of  Medicare patients,  which pays  .27                                                                   
cents on a dollar.                                                                                                              
Representative  John   Davies  asked  if  costs   were  being                                                                   
transferred.  He summarized that  ambulatory surgery  centers                                                                   
and  hospitals  are  dealing with  the  same  basic  economic                                                                   
problems.   He asked if  the Medicaid reimbursement  rate was                                                                   
the same. Mr.  Slocum explained that hospitals  operate under                                                                   
a different reimbursement scenario.  Hospitals are not capped                                                                   
in the  same fashion as an  ambulatory center. The  intent of                                                                   
the federal  government's decision to pay  ambulatory surgery                                                                   
centers  for Medicare  in 1982  was to  control those  costs.                                                                   
Anything an  ambulatory surgery  center can  do must  go into                                                                   
one of  eight different cost charges;  these are capped  at a                                                                   
maximum  rate. Hospitals  have more options.  He pointed  out                                                                   
that hospitals  could appear  to be cheaper:  "you may  go in                                                                   
and  look at  a $10  dollar steak  in the  hospital, but  you                                                                   
don't  realize you  are going  to  spend $5  dollars for  the                                                                   
potato and $7 dollars of the salad."                                                                                            
RICHARD  COBDEN,  M.D.,  TANANA   VALLEY  CLINIC,  FAIRBANKS,                                                                   
testified that he  did not like what is happening  because of                                                                   
the Medicare  practices. Over  the last  30 years,  there has                                                                   
been  a gradual  disenfranchisement of  patients that  cannot                                                                   
pay  or are  under government  programs.  This year  Medicare                                                                   
will pay  approximately one-third  of what  was paid  for the                                                                   
same procedure  seven years ago.  He noted that  his Medicare                                                                   
practice  had  grown from  5%  to  36%  because many  of  his                                                                   
colleagues  are giving  up  Medicare and  Medicaid  patients.                                                                   
The  Tanana  Clinic  has  never refused  a  patient.  As  the                                                                   
population shifts  away from private practice it  is going to                                                                   
come to the  large clinics and hospitals. If  patients cannot                                                                   
be seen,  by a  doctor and  is told  to go  to the  emergency                                                                   
room, they  will pay more. The  same treatment for  a urinary                                                                   
infection  cost $900 dollars  at the  emergency room  and $36                                                                   
dollars  in a doctor's  office. Cost  shifts when  physicians                                                                   
stop seeing  certain  type of  patients.  The  impact on  the                                                                   
state's  budget,  if  doctors  refuse  to  see  Medicare  and                                                                   
Medicaid patients,  would be  enormous because patients  will                                                                   
start going to the hospital.                                                                                                    
Dr. Cobden pointed  out that the state of Alaska  cannot make                                                                   
Congress raise Medicare and Medicaid  rates. He stressed that                                                                   
ancillary  services help  to support  non-paying patients  in                                                                   
hospitals. He  questioned why  the same cost shifting  option                                                                   
to pay their  overhead is being denied in  ambulatory surgery                                                                   
centers. If  the Tanana  Valley Clinic  could no longer  cost                                                                   
shift it  would result in  a discontinuation of  services. He                                                                   
maintained that there is a catastrophe coming.                                                                                  
Representative Croft  questioned if there would  be a problem                                                                   
with  applying an  exemption to  the Certificate  of Need  to                                                                   
those that take all patients.                                                                                                   
JEROME  SELBY, REGIONAL  DIRECTOR,  PROVIDENCE KODIAK  ISLAND                                                                   
MEDICAL  CENTER,  KODIAK, testified  via  teleconference.  He                                                                   
asserted that  the 55,000-population clause is  a showstopper                                                                   
in terms of  negative impact on health care  for Alaskans. He                                                                   
stressed  that  the population  orientation  would  say  that                                                                   
competition is  good in Fairbanks,  Mat-Su and  Anchorage but                                                                   
nowhere  else  in  the state.  This  provision  would  foster                                                                   
competition in  the three medical  markets that are  the most                                                                   
competitive.  Anchorage  is  already   the  most  competitive                                                                   
medical  market  in  Alaska.   He  disagreed  that  the  bill                                                                   
addressed  competition and  maintained  that the  legislation                                                                   
would shift economic  advantage to surgery centers  that want                                                                   
to provide only profitable services.  Non-profitable services                                                                   
would be left to hospitals. He  stressed that quality of care                                                                   
must be a major consideration.  He referred to a study, which                                                                   
stated that  patient risk of death  was 21 percent  higher in                                                                   
18 states that  did not have Certificate of Need.  He did not                                                                   
think that  the level of  care was comparable.  He maintained                                                                   
that a surgery  center, which is  staffed from 8 am  to 5 pm,                                                                   
cannot  be compared  to a hospital  with a  larger staff  and                                                                   
emergency services.  Hospital services require  approximately                                                                   
3.7 staff to  each physician. Surgery centers  should be able                                                                   
to provide the  same level of care at 30 percent  less than a                                                                   
hospital. He  maintained that a  limit on charges  by surgery                                                                   
centers of  30 percent  of the  prevailing cost for  hospital                                                                   
services would  level the field. The legislation  would shift                                                                   
money  away from  hospitals, which  would "hammer"  Anchorage                                                                   
Providence and  Alaska Regional  hospitals. He asserted  that                                                                   
Providence  Hospital  would  lose  the  ability  to  continue                                                                   
development of high level health  care for Alaskans, such as:                                                                   
neonatal intensive  care unit, children's  hospital, advanced                                                                   
cancer care, and  advanced heart care. There are  a number of                                                                   
services that  lose money,  such as  Life Guard, which  flies                                                                   
around  the state  and picks up  sick babies  and others.  He                                                                   
questioned if the  state of Alaska would pick  up the service                                                                   
if  Providence Hospital  were no  longer able  to afford  the                                                                   
service.  He  stressed  that  the  playing  field  should  be                                                                   
equitable if it  is changed. The current Certificate  of Need                                                                   
program as  written is closer  to a level playing  field than                                                                   
the proposed legislation.                                                                                                       
Mr. Selby pointed out that persons  that use the facility are                                                                   
going to have pay for the facilities  and the state of Alaska                                                                   
and federal government  are the biggest payers.  He felt that                                                                   
the $4  million dollar estimated  impact on the  state budget                                                                   
was  low. He  noted  that discussions  on  costs centered  on                                                                   
developed services,  not on the  remaining services  that are                                                                   
not covered  at surgery centers.  He emphasized  that quality                                                                   
is  important  to make  sure  that  staff is  competent.  The                                                                   
neonatal unit at Providence, which  receives sick babies from                                                                   
around the state,  only sees enough cases to  barely meet the                                                                   
national  standards   to  keep  their  staff   qualified  and                                                                   
certified. A  second neonatal  unit would probably  result in                                                                   
insufficient  numbers   at  either  unit  to   meet  national                                                                   
standards.  He summarized  that  removal of  the CON  program                                                                   
would be extremely detrimental.                                                                                                 
HB  407  was   heard  and  HELD  in  Committee   for  further                                                                   
HOUSE BILL NO. 350                                                                                                            
     An Act relating to terroristic threatening.                                                                                
Representative John Davies MOVED to ADOPT Amendment #1:                                                                         
     Sec. 11.56.807.  Terroristic threatening in the first                                                                      
     (a)    A   person  commits  the  crime   of  terroristic                                                                   
     threatening in  the first degree if the  person sends or                                                                   
     delivers  a bacteriological,  biological,  chemical,  or                                                                   
     radiological  substance, or radiological  substance with                                                                   
     intent to                                                                                                                  
        (1)    place a  person in fear of physical  injury to                                                                   
        any person;                                                                                                             
        (2)    cause  evacuation of a building,  public place                                                                   
        or  area,  business  premises,  or   mode  of  public                                                                   
        transportation; or                                                                                                      
        (3)  cause serious public inconvenience.                                                                                
     (b)  In this section,                                                                                                      
        (1)    "bacteriological,  biological,   chemical,  or                                                                   
        radiological  substance"  means a  material  that  is                                                                   
        capable of causing serious physical injury;                                                                             
        (2)      "imitation   bacteriological,    biological,                                                                   
        chemical,   or  radiological   substance"   means   a                                                                   
        material  that  by   its  appearance  would   lead  a                                                                   
        reasonable person  to believe that  it is  capable of                                                                   
        causing serious physical injury.                                                                                        
REPRESENTATIVE   LESIL  MCGUIRE   recommended  that   "or  an                                                                   
imitation bacteriological or chemical" be added.                                                                                
Representative  John Davies MOVED  to Amend Amendment  #1 to:                                                                   
"or  an  imitation  bacteriological,  biological,  chemical".                                                                   
There being NO OBJECTION, #1 was adopted.                                                                                       
Representative John Davies WITHDREW Amendment #2.                                                                               
Representative  John Davies MOVED  to ADOPT #3:  delete lines                                                                   
26 and  27 on page 9.  Representative McGuire did  not object                                                                   
to  the  amendment.  There  being NO  OBJECTION,  it  was  so                                                                   
Representative Foster MOVED to  report CS HB 350 (FIN) out of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal notes.  There  being NO OBJECTION, it was                                                                   
so ordered.                                                                                                                     
CSHB  350 (FIN)  was REPORTED  out  of Committee  with a  "do                                                                   
pass" recommendation  and with and four  previously published                                                                   
fiscal notes: #1 CRT, #3 LAW, #4 ADM, and #5 COR.                                                                               
HOUSE BILL NO. 399                                                                                                            
     An  Act relating  to  the  Uniform Mechanical  Code  and                                                                   
     other  safety   codes;  annulling  certain   regulations                                                                   
     adopted  by the  Department  of Community  and  Economic                                                                   
     Development  relating   to  the  mechanical   code  that                                                                   
     applies   to   certain  construction   contractors   and                                                                   
     mechanical   administrators;   and  providing   for   an                                                                   
     effective date.                                                                                                            
REPRESENTATIVE  LESIL MCGUIRE, SPONSOR,  spoke in  support of                                                                   
the legislation. She observed  that the Committee could adopt                                                                   
a  proposed  committee  substitute, which  would  return  the                                                                   
legislation  to its original  form or  adopt the House  Labor                                                                   
and Commerce version of the legislation.  The House Labor and                                                                   
Commerce version  is the product of a compromise.  House Bill                                                                   
399 was created to correct a separation  of powers violation.                                                                   
She  noted  that  as  the  chairman   of  the  Administrative                                                                   
Regulation  Review Committee  she  has reviewed  at least  25                                                                   
issues  questioning  if  the  regulations  comport  with  the                                                                   
original intent  of the  legislation. She  noted that  HB 399                                                                   
was  the  first  bill  that  she   has  introduced  to  annul                                                                   
regulations.  There are  three  statutes  that reference  the                                                                   
Uniform  Mechanical Code,  which is  a trademark  proprietary                                                                   
Representative McGuire  referred to AS 8.40.270(3)  governing                                                                   
the  examination   of  a  mechanical  contractor   applicant.                                                                   
Applicants  must  be  familiar   with  the  following  codes:                                                                   
Uniform Plumbing  Code, Uniform  Swimming Pool, Spa,  and Hot                                                                   
Tub  Code, and  Uniform Solar  Energy Code,  and the  Uniform                                                                   
Mechanical  Code.  There  is   a  four-year  code  cycle.  In                                                                   
September 2002, the  Department of Public Safety  made a move                                                                   
to adopt regulations  that would implement  the International                                                                   
Mechanical Code. She noted that  the Division of Occupational                                                                   
Licensing intended to follow suit.                                                                                              
Representative McGuire pointed  out that when the legislature                                                                   
chooses  a technical  term,  as they  have  with the  Uniform                                                                   
Mechanical Code,  that those terms  are presumed to  have the                                                                   
technical  meaning.  She  maintained that  a  department  has                                                                   
decided  to make  a  policy issue  based  on  the actions  of                                                                   
another  department,  which  is  in  violation  of  law.  She                                                                   
pointed  out  that the  Division  of  Occupational  Licensing                                                                   
opted  to change  their regulations  in  direct violation  to                                                                   
what the  legislature  placed in statute.  She stressed  that                                                                   
she indicated  to the division  that she was willing  to work                                                                   
with them  and cautioned that  there would be an  clear issue                                                                   
of the separation  of powers and that any change  should come                                                                   
through  legislation. There  are  severe arguments  regarding                                                                   
the merits  of International  Code versus Uniform  Mechanical                                                                   
Code. She pointed out that people  are going to be passionate                                                                   
about what they do and their livelihood.                                                                                        
TAPE HFC 02 - 91, Side B                                                                                                      
Representative McGuire  stressed that the  legislature guides                                                                   
policy and  maintained that the  change is being  spearheaded                                                                   
by  one major  urban  area. The  entire  state  is under  the                                                                   
Uniform Mechanical  Code.  There  are people in  the business                                                                   
that  know  the  code, which  has  been  changed  "overnight"                                                                   
through a regulation.                                                                                                           
Representative  McGuire noted  that the  first version  would                                                                   
repeal   the   regulations.   She  pointed   out   that   the                                                                   
Municipality of  Anchorage has postponed the  adoption of the                                                                   
International  Mechanical  Code  until  May 10.   The  second                                                                   
version  recognizes that  there may  be a move  to adopt  the                                                                   
International Mechanical Code and would test under both.                                                                        
Representative McGuire discussed  the Department of Community                                                                   
and  Economic  Development's  fiscal note  for  $40  thousand                                                                   
dollars. The department  noted in their proposed  fiscal note                                                                   
that the state Fire Marshal currently  uses the International                                                                   
Code,  which  would  be superceded  by  the  legislation  and                                                                   
require new licensing tests that  would need to be rewritten.                                                                   
She argued  that the bill  specifically allows the  1997 test                                                                   
to be given.                                                                                                                    
Representative  McGuire  stressed  that  it would  be  a  bad                                                                   
precedent to allow  a department to adopt regulations  on the                                                                   
basis  of  regulations  adopted  by  another  department,  in                                                                   
direct contrast  to statute adopted  by the legislature.  She                                                                   
maintained that the issue is black  and white. There is a law                                                                   
on the books  that specifies mechanical code  that should not                                                                   
be changed until the legislature adopts a change.                                                                               
Representative  Harris   questioned  which  version   of  the                                                                   
legislation  she supports.  Representative McGuire  responded                                                                   
that although  there  is a move  to go  to the  International                                                                   
Mechanical Code,  all the participants  have not been  at the                                                                   
table. She  observed that  the "little  guys" weren't  at the                                                                   
table. She  supports continuation  of the Uniform  Mechanical                                                                   
Code  until the  process  has  been followed  (House  Finance                                                                   
Committee  proposed  committee substitute  22-LS1461\O).  She                                                                   
observed that the O version carries no fiscal note.                                                                             
CATHERINE   REARDON,  DIRECTOR,   DIVISION  OF   OCCUPATIONAL                                                                   
LICENSING, DEPARTMENT OF COMMUNITY  AND ECONOMIC DEVELOPMENT,                                                                   
spoke to the fiscal note. She  explained that she submitted a                                                                   
zero fiscal note to the House  Labor and Commerce [the fiscal                                                                   
note  was  not  adopted  by  the  House  Labor  and  Commerce                                                                   
HB  399  was   heard  and  HELD  in  Committee   for  further                                                                   
HOUSE BILL NO. 407                                                                                                            
    An Act relating to the Certificate of Need program.                                                                         
DENNIS   MURRAY,   ADMINISTRATOR,  HERITAGE   PLACE   NURSING                                                                   
FACILITY, KENAI,  testified via teleconference  in opposition                                                                   
of the legislation.  He maintained that Alaska  should retain                                                                   
mechanisms   to  evaluate   the  cost/benefit   relationships                                                                   
between the construction  of health facilities.  He felt that                                                                   
the current threshold was appropriate  given the state's role                                                                   
in financing services.  He argued that there  are no concrete                                                                   
examples where elimination  of the CON process  in Alaska has                                                                   
resulted in  consumer/community benefit.  He drew  an analogy                                                                   
to  public  school  construction   and  concluded  that  more                                                                   
capacity  does  not necessary  generate  better  pricing  and                                                                   
availability. He observed, as  a member of the Kodiak Borough                                                                   
Assembly,  that parties  were  brought  together through  the                                                                   
Certificate of Need  process to prevent an adverse  impact on                                                                   
the viability of the Kodiak Hospital by another facility.                                                                       
HARRY   PORTER,  FAIRBANKS   MEMORIAL  HOSPITAL   FOUNDATION,                                                                   
FAIRBANKS, testified via teleconference  in opposition of the                                                                   
legislation.  [Teleconference  difficulty  occurred;  written                                                                   
testimony is included].                                                                                                         
     The movement  in the state government to  change the CON                                                                   
     rules alarms me. We have  operated as they are presently                                                                   
     on  the books  since we  began  our community  hospital.                                                                   
     Reflect  for a moment  where we  came from: 1967  flood,                                                                   
     departure of the Sisters  of Providence, creation of the                                                                   
     Greater Fairbanks Community  Hospital Foundationvarious                                                                    
     fund drives,  constant building arid changes  to deliver                                                                   
     the best  hospital care at  the least possible  cost. We                                                                   
     have  done and  are continuing  to  do the  job for  the                                                                   
     Fairbanks   community   without   cost  to   the   state                                                                   
     government. We  are not receiving an  appropriation from                                                                   
     the state  in 2002. We are  not a part of any  Senate or                                                                   
     House appropriation bill.                                                                                                  
     Some legislators  have expressed  the feeling  that they                                                                   
     do not understand the hospital  business. Give us credit                                                                   
     for  30+ years  of involvement  on a daily  basis  at no                                                                   
     cost to  anyone gives us  an understanding of  our local                                                                   
     hospital  and healthcare  needs. Kill those  unwarranted                                                                   
     CON bills.                                                                                                                 
Mr.  Porter  maintained that  he  has  seen first  hand  what                                                                   
competition can do.  He noted that it took 35  years to build                                                                   
the Fairbanks Memorial Hospital.                                                                                                
SUSAN   MCLANE,  FAIRBANKS   MEMORIAL  HOSPITAL   FOUNDATION,                                                                   
FAIRBANKS, testified via teleconference  in opposition to the                                                                   
legislation. She suggested that  a working group be appointed                                                                   
to address the  Certificate of Need issue. She  observed that                                                                   
there is  a shortage of  nurses; additional facilities  would                                                                   
dilute the workforce.                                                                                                           
KARL  SANFORD,   DIRECTOR  OF  NURSING,   FAIRBANKS  MEMORIAL                                                                   
HOSPITAL FOUNDATION, FAIRBANKS,  testified via teleconference                                                                   
in opposition to the legislation.  He noted that the hospital                                                                   
has reinvested,  back into the community, $4  million dollars                                                                   
into  mental health  services  over the  last  two years.  He                                                                   
stressed that  there is no  competition in regards  to mental                                                                   
health services because it is  not profitable. Competition is                                                                   
focused on the  high cost and low cost services.  The impacts                                                                   
of   removing  these   services  from   the  hospital   would                                                                   
tremendous.  Two other  homecare  providers disappeared  from                                                                   
the Fairbanks community  due to a decrease in  revenue and an                                                                   
increase  of   federal  scrutiny   for  Medicare   fraud.  He                                                                   
questioned if for profit providers  were knowingly performing                                                                   
charity care.                                                                                                                   
HB  407  was   heard  and  HELD  in  Committee   for  further                                                                   
The meeting was adjourned at 4:30 PM                                                                                            

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