Legislature(2013 - 2014)HOUSE FINANCE 519

02/04/2013 01:30 PM FINANCE

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01:31:20 PM Start
01:32:27 PM Healthcare Cost Containment Overview
03:04:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Health Care Cost Containment by TELECONFERENCED
Becky Hultberg, Commissioner, Dept. of
Administration & William Streur, Commissioner,
Dept. of Health & Social Services
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                     February 4, 2013                                                                                           
                         1:31 p.m.                                                                                              
1:31:20 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Austerman called the House Finance Committee                                                                           
meeting to order at 1:31 p.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
Representative David Guttenberg                                                                                                 
ALSO PRESENT                                                                                                                  
William Streur, Commissioner, Department of Health and                                                                          
Social Services; Becky Hultberg, Commissioner, Department                                                                       
of Administration.                                                                                                              
HEALTHCARE COST CONTAINMENT OVERVIEW                                                                                          
^HEALTHCARE COST CONTAINMENT OVERVIEW                                                                                         
1:32:27 PM                                                                                                                    
WILLIAM STREUR, COMMISSIONER, DEPARTMENT OF HEALTH AND                                                                          
SOCIAL SERVICES, highlighted the PowerPoint presentation                                                                        
"Healthcare and Fiscal Sustainability" (copy on file).                                                                          
BECKY HULTBERG, COMMISSIONER,  DEPARTMENT OF ADMINISTRATION,                                                                    
began with slide 2: "By  2037, health insurance will swallow                                                                    
your  entire paycheck."  She quoted  a recent  study stating                                                                    
that without  major changes in the  United States healthcare                                                                    
system, insurance  premiums would surpass  average household                                                                    
income by  2037. The  problem existed  at both  national and                                                                    
state levels. She  voiced that the country  must address the                                                                    
significant growth  and healthcare costs, since  our economy                                                                    
could not sustain it.                                                                                                           
1:33:47 PM                                                                                                                    
Commissioner  Hultburg discussed  slide  3: "Healthcare:  43                                                                    
percent of  Massachusetts state  budget." She  stressed that                                                                    
the  state  must  lower  the  rate of  cost  growth  of  the                                                                    
healthcare plans.                                                                                                               
Commissioner  Hultburg  detailed  slide  4:  "The  State  of                                                                    
Alaska is a significant  healthcare consumer." She explained                                                                    
that  the   cumulative  impact   of  spending   between  the                                                                    
Department  of   Health  and  Social  Services   (DHSS)  and                                                                    
Department  of  Administration   (DOA)  was  significant  to                                                                    
Alaska. The graph depicted  various components of healthcare                                                                    
spending in the state. The  union portion was contributed by                                                                    
the  state-to-union  health  trusts  for  Alaskan  employees                                                                    
within the  plans. One trust  is the Alaska  State Employees                                                                    
Association Health  Trust (ASEA), which covered  the general                                                                    
government  unit   employees.  The  retirement   system  was                                                                    
detailed in  the graph. The AlaskaCare  plan was significant                                                                    
in  terms of  size, but  a smaller  overall contribution  in                                                                    
comparison to Medicaid.                                                                                                         
She pointed  out the  Medicaid portion  of the  graph, which                                                                    
was the largest area of healthcare spending.                                                                                    
1:36:16 PM                                                                                                                    
Commissioner Streur discussed slide  4. He stressed that the                                                                    
state  made a  significant contribution  to healthcare  when                                                                    
compared to the  total budget. He agreed that  a solution to                                                                    
growing healthcare costs was a priority.                                                                                        
Commissioner Hultburg  estimated that 25 percent  of overall                                                                    
healthcare   was   state   spending.   Government   spending                                                                    
(including  federal) was  approximately  60  percent of  the                                                                    
total healthcare spending in the state.                                                                                         
1:37:24 PM                                                                                                                    
Commissioner Hultburg discussed slide 5: "State Revenue."                                                                       
     TAPS subsidizes much of modern life in Alaska                                                                              
       · Schools - about 66 percent of K-12 spending                                                                            
        · State - about 90 percent of state general purpose                                                                     
          unrestricted revenue                                                                                                  
        · PFDs - over $900 million in payouts each year                                                                         
        · State capital projects                                                                                                
Co-Chair  Stoltze  emphasized  the gravity  of  the  slide's                                                                    
information.  He hoped  to thoroughly  discuss the  issue of                                                                    
the Trans-Alaska Pipeline System (TAPS) subsidy.                                                                                
Commissioner   Hultburg  discussed   slide  6:   "State  Oil                                                                    
Production:  2001   -  2010."  She  noted   that  healthcare                                                                    
spending   increased  while   oil  production   declined  by                                                                    
approximately 5 percent per year.                                                                                               
1:38:25 PM                                                                                                                    
Commissioner  Streur discussed  slide  7: "State  Healthcare                                                                    
Spend:  2001  -  2011." He  mentioned  Medicaid,  AlaskaCare                                                                    
active,  AlaskaCare  Public   Employees'  Retirement  System                                                                    
(PERS)/Teachers  Retirement  System   (TRS),  State  Workers                                                                    
Compensation, Department of Corrections  and union trusts as                                                                    
pieces  of the  total spend  puzzle. State  healthcare costs                                                                    
grew at an average of 9  percent per year during FY 01 ($886                                                                    
million) through FY 11 ($2 billion).                                                                                            
1:39:24 PM                                                                                                                    
Commissioner  Streur  discussed  slide 8:  "Where  does  our                                                                    
current  path lead?"  He expressed  his concern.  Without an                                                                    
increase in oil or gas  revenue, the state would eclipse the                                                                    
current state  budget by 2033. He  recommended an aggressive                                                                    
     If the state paid health costs continue to increase at                                                                     
     9 percent per year, in FY 2020 they will exceed $4                                                                         
     billion (before Medicaid reimbursement).                                                                                   
Commissioner  Streur discussed  slide  9:  "AK DHSS  10-year                                                                    
plan operating budget."  He stated that the  FY 13 operating                                                                    
budget was $2.6  billion and the projected FY  22 budget was                                                                    
$6.6 billion.  He added  that the  federal budget  was under                                                                    
close  scrutiny.  Alaska  had   seen  cuts  in  grant  areas                                                                    
already.   He  mentioned   broad   economic  problems   like                                                                    
financial  markets,  energy  costs,  mortgage  defaults  and                                                                    
medical inflation.                                                                                                              
1:41:15 PM                                                                                                                    
Commissioner  Streur discussed  slide  10: "Medicaid  direct                                                                    
services beneficiaries and  expenditures." He explained that                                                                    
the average  cost per recipient  had stabilized. He  saw the                                                                    
stability as a respite, but not a trend.                                                                                        
1:42:00 PM                                                                                                                    
Commissioner  Hultburg   discussed  slide   11:  "Challenge:                                                                    
PERS/TRS." She used  the retirement plan as  an example. She                                                                    
noted  that the  department's spend  was driven  by employee                                                                    
plans, retiree  plans and contributions to  the union health                                                                    
trusts. She  illustrated issues  regarding cost  growth. She                                                                    
echoed that  FY 11 and FY  12 were considered good  years in                                                                    
terms  of  healthcare cost  growth.  She  reviewed the  past                                                                    
decade   where  the   rate  of   healthcare  inflation   had                                                                    
temporarily stabilized,  followed by  double-digit increases                                                                    
for several years. The chart  illustrated that the number of                                                                    
retirees was growing at a significant rate.                                                                                     
Commissioner Hultburg  discussed slide 12:  "Retiree medical                                                                    
expense  growth."  The  chart  illustrated  the  interaction                                                                    
between  price  and  utilization.  The  slide  compared  two                                                                    
periods and the  price paid per member per  month. The costs                                                                    
rose by  6 percent,  but when the  components of  the growth                                                                    
were  broken down,  utilization decreased  by 6  percent and                                                                    
pricing increased by 13 percent.                                                                                                
1:44:58 PM                                                                                                                    
Commissioner  Hultburg   discussed  slide   13:  "Controlled                                                                    
growth  in AlaskaCare."  She illustrated  the challenges  of                                                                    
addressing the  costs. She pointed  out the "levers"  on the                                                                    
left side  of the chart that  could be adjusted to  manage a                                                                    
health plan.  She noted  that the  levers in  the AlaskaCare                                                                    
retirement plan  were adjustable,  but the plan  was covered                                                                    
by the  diminishment clause in  the constitution.  The state                                                                    
had freedom to change the plan,  but if the change was a net                                                                    
diminishment  of benefits,  it would  be litigated.  Raising                                                                    
the deductible or co-payment  was considered a diminishment.                                                                    
Therefore,  the  plan  increased  in value  to  the  retiree                                                                    
because of the impact of  inflation. The plan was expensive,                                                                    
unmanageable with gaps in coverage.                                                                                             
Commissioner Hultburg mentioned  the AlaskaCare active plan,                                                                    
which was  self-insured and the  department had  the ability                                                                    
to manage  the plan.  She added that  the Union  Trusts were                                                                    
unmanageable. Finally, the  political subdivisions' coverage                                                                    
was  not  managed  by  the state,  but  the  employees  were                                                                    
inherited  as retirees  making  their  preventative care  an                                                                    
interesting subject to the state.                                                                                               
1:47:51 PM                                                                                                                    
Commissioner Streur  discussed slide 14:  "Controlled growth                                                                    
in Medicaid." He noted that  eligibility, because of federal                                                                    
requirements, was  unmanageable through 2015 for  adults and                                                                    
2019 for children.  He added that the  covered services were                                                                    
worth detailing.                                                                                                                
Commissioner Streur stated that  Alaskan rates were good. He                                                                    
shared  that  Alaska  paid  rates   greater  than  those  of                                                                    
Medicare.  The  majority  of other  states  paid  less  than                                                                    
Medicare rates  for their  Medicaid population.  States were                                                                    
encouraged  to raise  Medicaid rates  to  Medicare rates  of                                                                    
reimbursement  with   substantial  participation   from  the                                                                    
federal government.                                                                                                             
Commissioner  Streur discussed  utilization controls,  which                                                                    
provided  the  best  results.  He  advocated  for  increased                                                                    
scrutiny  along with  prior authorization  of radiology  and                                                                    
the encouragement  of generic  medications toward  a primary                                                                    
driven  system.  He   mentioned  compliance  and  anti-fraud                                                                    
audits.  He  minimized the  threat  of  fraud, but  remained                                                                    
diligent in its prevention.  The federal government assisted                                                                    
with the anti-fraud effort. He  was unsure of the results of                                                                    
increases in technology.                                                                                                        
1:52:00 PM                                                                                                                    
Commissioner  Streur  concluded   with  maximizing  revenue.                                                                    
"Right cure, right time, right  place for the right people,"                                                                    
was  his  adage  regarding  a maximization  of  revenue.  He                                                                    
proposed the solution in the controlled growth of Medicaid.                                                                     
Commissioner   Streur   discussed    slide   15:   "Medicaid                                                                    
         · Inpatient hospital                                                                                                   
         · Outpatient hospital                                                                                                  
         · Physicians                                                                                                           
         · Nurse midwives                                                                                                       
         · Lab and X-ray                                                                                                        
         · Advanced Nurse Practitioners                                                                                         
         · Early   Periodic   Screening,    Diagnosis,   and                                                                    
         · Family planning services                                                                                             
         · Pregnancy-related services                                                                                           
         · Nursing facility (NF) services                                                                                       
         · Home Health (NF qualified)                                                                                           
         · Medical/surgical dental services                                                                                     
        · MH Rehab/Stabilization                                                                                                
        · Diagnostic/Screening/Preventive                                                                                       
        · Therapies                                                                                                             
        · Inpatient psychiatry <21 years                                                                                        
        · Drugs                                                                                                                 
        · Intermediate Care Facility for the Intellectually                                                                     
        · Personal care                                                                                                         
        · Dental                                                                                                                
        · Other home health                                                                                                     
        · Other licensed practitioners                                                                                          
        · Transportation                                                                                                        
        · Targeted Case Management                                                                                              
1:53:58 PM                                                                                                                    
Commissioner   Streur    discussed   slide    16:   "Payment                                                                    
Comparisons." He  stated that Medicaid  paid $221.58  for an                                                                    
office  visit while  Medicare paid  $177.40. He  stated that                                                                    
the  commercial mean  for Alaska  was  $290.64. He  compared                                                                    
Alaska to  Washington, whose Medicaid  plan paid  $76.86 for                                                                    
office  visits the  commercial mean  was  $183.24. He  added                                                                    
that North Dakota's Medicaid office  payment was $186.19 and                                                                    
Idaho  was $117.01.  He noted  that North  Dakota and  Idaho                                                                    
were  selected to  provide a  comparison  because they  were                                                                    
small rural states.                                                                                                             
1:55:26 PM                                                                                                                    
Commissioner   Hultburg   discussed   slide   17:   "Payment                                                                    
comparisons:  by procedure."  The slide  was composed  using                                                                    
claims  data from  the former  state  vendor who  determined                                                                    
customary and  reasonable charges. She appreciated  the data                                                                    
leading to the  comparisons shown in the  table. She thanked                                                                    
the healthcare  commission for the  work done  regarding the                                                                    
relative  cost of  healthcare in  Alaska  compared to  other                                                                    
western states. She  found the premium paid in  Alaska to be                                                                    
Commissioner  Hultburg  stated  that the  chart  illustrated                                                                    
physician   fees  for   certain   procedures  and   compared                                                                    
Washington to  Anchorage. Alaska paid double,  and sometimes                                                                    
triple  the  cost  that  Washington   paid  for  the  listed                                                                    
procedures. She  admitted that costs  were higher  in Alaska                                                                    
and noted the importance  of supporting local providers, but                                                                    
the cost growth could not be sustained.                                                                                         
1:58:10 PM                                                                                                                    
Commissioner Hultburg  discussed slide 18: "The  hidden cost                                                                    
of healthcare."                                                                                                                 
     As  healthcare  costs  consume   a  larger  and  larger                                                                    
     percentage  of the  state budget,  they will  crowd out                                                                    
     other  items, like  roads, public  safety, schools  and                                                                    
     other public services                                                                                                      
Commissioner  Hultburg  quoted  a study  stating  that  "for                                                                    
every one  healthcare job  created, 0.85  jobs were  lost in                                                                    
other areas of the  economy." She maintained that healthcare                                                                    
was not a growth industry.                                                                                                      
2:00:13 PM                                                                                                                    
Commissioner  Streur  discussed  slide 20:  "Innovations  in                                                                    
service delivery/payment."                                                                                                      
   · Medicaid                                                                                                                   
        o Medical Home                                                                                                          
        o Tribal Health                                                                                                         
        o Bundled services                                                                                                      
        o Integrated    Behavioral    Health/Primary    care                                                                    
        o Utilization review and management (radiology, Rx)                                                                     
        o Community base long-term care                                                                                         
        o Disease/Case Management                                                                                               
        o Managed Care                                                                                                          
Commissioner  Streur advocated  for primary  care providers.                                                                    
He  credited  the  tribal health  providers  for  the  great                                                                    
contribution they provided. He  added that the rapidly aging                                                                    
population contributed to increased costs.                                                                                      
2:02:57 PM                                                                                                                    
Commissioner  Hultburg discussed  slide 21:  "Innovations in                                                                    
service delivery/payment."                                                                                                      
   · AlaskaCare                                                                                                                 
        o Better leverage our purchasing power and continue                                                                     
          to aggressively pursue contractual discounts                                                                          
        o Implement retire "plan B" to provide enhanced                                                                         
          benefits and ability to impact steerage                                                                               
        o Consider expanded travel benefits or Centers of                                                                       
          Excellence for certain services                                                                                       
       o Develop a robust employee wellness program                                                                             
        o Align contracting strategies around innovative                                                                        
          care delivery and payment models (patient-                                                                            
         centered medical home, bundled payments)                                                                               
        o Encourage consumerism                                                                                                 
        o Change benefit design to incent healthy behavior                                                                      
          and support contracting strategy                                                                                      
        o Align plans based on best practices                                                                                   
Commissioner  Hultburg recounted  a  story  about a  patient                                                                    
requesting    a   diagnostic    test.   She    opined   that                                                                    
overutilization  was possible  when  the  entity making  the                                                                    
financial decisions was not  present. She mentioned patients                                                                    
who  had  "double coverage"  and  viewed  their services  as                                                                    
"free."  When  a  service  was   free,  it  was  often  over                                                                    
consumed.  She   proposed  an  alternate  path   to  provide                                                                    
retirees  with  coverage  while creating  a  better  managed                                                                    
plan. She detailed  "plan B" as another  option for retirees                                                                    
where benefits would be provided  with a cost structure that                                                                    
kept pace with inflation.  She offered to provide additional                                                                    
details about the plan, upon request.                                                                                           
2:09:05 PM                                                                                                                    
Commissioner  Hultburg   discussed  the   employee  wellness                                                                    
program. The  program's purpose  was to  encourage employees                                                                    
to develop  a workplace  culture of  health. She  focused on                                                                    
the  alignment of  contracting strategies  around innovative                                                                    
care  delivery and  payment models.  She spoke  in favor  of                                                                    
bundled  payments.  She   echoed  Commissioner  Streur  that                                                                    
health began  with a primary  care system that  was utilized                                                                    
Commissioner  Hultburg   encouraged  conscious  consumerism.                                                                    
Many  patients  refrain  from  requesting  the  price  of  a                                                                    
procedure  prior to  incurring the  cost. She  advocated for                                                                    
members  becoming better  healthcare consumers,  which would                                                                    
send the message to providers that people cared about cost.                                                                     
Commissioner Hultburg  discussed the benefit design  for the                                                                    
employee plan.  A new third  party administrator was  in the                                                                    
procurement  process,  which  was   a  complex  process.  An                                                                    
analysis of the  coverage would follow. She  wished to align                                                                    
the various plans based on best practices.                                                                                      
2:13:20 PM                                                                                                                    
Commissioner  Streur   discussed  slide  22:   "The  State's                                                                    
     Our challenge:                                                                                                             
   · We must lower the rate of growth of our healthcare                                                                         
     spend. Our current path is not sustainable.                                                                                
     Our approach:                                                                                                              
   · Work together with the hospital and physician                                                                              
   · Support    high-quality,   cost-effective    healthcare                                                                    
     delivery in Alaska                                                                                                         
   · Develop and support innovative solutions to our                                                                            
     healthcare challenges                                                                                                      
2:14:59 PM                                                                                                                    
Co-Chair  Austerman wondered  about  the  reaction from  the                                                                    
providers. He  understood that the insurance  plan would pay                                                                    
up to 80 percent of the charge.                                                                                                 
Commissioner Streur  replied that the departments  were well                                                                    
received by  the providers.  The issue  was well-established                                                                    
and the message was received.                                                                                                   
2:17:22 PM                                                                                                                    
Commissioner  Hultburg   noted  that   the  high   costs  of                                                                    
healthcare could lead to the  demonization of providers. She                                                                    
explained that  providers were acting rationally  within the                                                                    
existing market.  She stated that  the problem was  not with                                                                    
providers,  but instead  with employers.  She stressed  that                                                                    
the  employers  must  seek  solutions   to  develop  a  more                                                                    
sustainable system.                                                                                                             
Commissioner  Hultburg discussed  the Division  of Insurance                                                                    
regulation requiring  that insurers  pay 80 percent  of what                                                                    
was  considered  customary  or usual.  She  noted  that  the                                                                    
state's  plan  was  exempt  from  the  insurance  code.  She                                                                    
believed   that  mandating   a   payment   level  could   be                                                                    
problematic with respect to specialists.                                                                                        
2:20:16 PM                                                                                                                    
Representative Gara  asked if the 80  percent rule suggested                                                                    
that the  state reimburse at  80 percent rather than  at the                                                                    
Commissioner  Hultburg responded  that the  commercial plans                                                                    
paid   prices  that   were  deemed   usual,  customary   and                                                                    
reasonable in  the market.  Vendors were  hired to  make the                                                                    
determinations regarding customary and reasonable payments.                                                                     
Representative Gara asked if the  recommendation was made by                                                                    
statute or by regulation.                                                                                                       
Commissioner  Hultburg  understood that  the  recommendation                                                                    
was a Division of Insurance regulation.                                                                                         
Representative  Gara understood  that other  states required                                                                    
that  the   median  was  paid,  while   Alaska  required  an                                                                    
additional 30 percent.                                                                                                          
2:22:21 PM                                                                                                                    
Commissioner Streur concurred.                                                                                                  
Representative  Gara  addressed  the issue  of  preventative                                                                    
care. He  announced that he  received a small  discount when                                                                    
joining a  local exercise  facility because  he was  a state                                                                    
employee. He  wondered if the state  considered negotiations                                                                    
with  other health  clubs that  might  charge their  members                                                                    
less money.                                                                                                                     
Commissioner Hultburg replied that  many different gyms were                                                                    
contacted  for   the  potential  promotion.   Limited  staff                                                                    
resources were  dedicated to the  issue. Only the  gyms that                                                                    
responded to the promotions were included as providers.                                                                         
2:24:27 PM                                                                                                                    
Representative  Gara   disclosed  that   some  chiropractors                                                                    
treated  clients four  times per  week for  long periods  of                                                                    
time. He  wondered if the  chiropractic visits  were covered                                                                    
by insurance indefinitely.                                                                                                      
Commissioner  Hultburg  responded   that  the  coverage  for                                                                    
chiropractors   was    limited.   She   opined    that   the                                                                    
overutilization of  chiropractic care was  probably specific                                                                    
to provider.                                                                                                                    
2:25:47 PM                                                                                                                    
Co-Chair   Stoltze   asked   about  the   ongoing   contract                                                                    
negotiations  and   the  potential  for  cost   savings.  He                                                                    
requested  a  broad   answer  regarding  potential  economic                                                                    
Commissioner Hultburg agreed that  she was unable to divulge                                                                    
the  details  of  negotiations. She  noted  that  healthcare                                                                    
costs were  a growing  part of  the personal  services line.                                                                    
The  state  covered  100  percent of  the  premium  for  the                                                                    
economy plan for  an employee and family. Alaska  was one of                                                                    
only seven states that continued  to fund 100 percent of the                                                                    
premium share  for a basic  plan. The items  were negotiated                                                                    
and the status quo was difficult to change.                                                                                     
2:28:00 PM                                                                                                                    
Co-Chair Stoltze  discussed proposed legislation  that would                                                                    
alter the  retirement system. The  focus of  the legislation                                                                    
was medical benefits.                                                                                                           
Commissioner Hultburg  expressed interest  in the  issue and                                                                    
had testified in  previous sessions about the  impact that a                                                                    
change  in the  retiree plan  would mean.  According to  the                                                                    
department's  actuary,  the  bills  would add  cost  to  the                                                                    
existing plan.  She noted  that of  the $12  billion pension                                                                    
and health  liability, $4 billion was  related to healthcare                                                                    
alone. She did not advocate for  layering on costs to a plan                                                                    
if containment was impossible.                                                                                                  
2:29:56 PM                                                                                                                    
Co-Chair Stoltze  asked about medical costs  containment. He                                                                    
asked if  the healthcare containment would  be preferable to                                                                    
Commissioner Streur  replied that the  Healthcare Commission                                                                    
continued to focus  on rates and rate  structures. He stated                                                                    
that the discussion regarding the  cost of litigation versus                                                                    
that of healthcare containment had not been broached.                                                                           
Co-Chair Stoltze  offered information regarding  the medical                                                                    
business  and  its  structure.  He  added  that  malpractice                                                                    
insurance as  well as  potential litigation  increased costs                                                                    
for providers.                                                                                                                  
Commissioner Streur believed that  the providers involved in                                                                    
the Healthcare Commission were interested in the issue.                                                                         
2:32:45 PM                                                                                                                    
Representative Guttenberg  discussed medical care.  He found                                                                    
the third party administrator  frustrating. Changes in third                                                                    
party administrators led to uncertainty.                                                                                        
2:34:28 PM                                                                                                                    
Commissioner  Hultburg appreciated  the  comment. The  third                                                                    
party administrator  was changed every  3 - 5  years because                                                                    
of  the  procurement code.  She  stated  that the  selection                                                                    
process  for  a new  third  party  administrator began  last                                                                    
August. She spoke to the  complexity of the procurement of a                                                                    
third  party  administrator.  She  expressed  commitment  to                                                                    
minimize  disruption felt  by  active  employee members  and                                                                    
retirees. She stated  that she and her  management team were                                                                    
aware of the problem and giving it the highest priority.                                                                        
2:36:20 PM                                                                                                                    
Representative Guttenberg  discussed the blame  game between                                                                    
DOA  and   DHSS.  He  suggested   a  formal   structure  for                                                                    
departments to interact and problem solve.                                                                                      
Commissioner Hultburg  responded that the structure  was not                                                                    
formal, but  communication was  frequent. She  repeated that                                                                    
the state's  plan was exempt  from the insurance  code which                                                                    
was  under  the purview  of  the  Division of  Insurance  in                                                                    
Department of Commerce,  Community and Economic Development.                                                                    
The code impacted  the part of the market  that was private,                                                                    
but had  little effect  on the plan.  She stressed  that the                                                                    
departments communicated well.                                                                                                  
2:38:10 PM                                                                                                                    
Representative Guttenberg  mentioned that he  had introduced                                                                    
prescription  drug   bills  with   a  bipartisan   group  of                                                                    
legislators  to lower  the cost  of  prescription drugs.  He                                                                    
stated  that  the  increasing  cost  of  prescription  drugs                                                                    
contributed   to    unfunded   liability.   He    asked   if                                                                    
accomplishments were made to lower costs.                                                                                       
Commissioner Streur responded that  the state had a pharmacy                                                                    
benefit  manager  who worked  to  combine  efforts to  lower                                                                    
costs.  The state  received  maximum  discounts and  rebates                                                                    
were  received.  He  added  that  the  increase  of  generic                                                                    
medication use  was the  greatest accomplishment.  For every                                                                    
percent  that generic  drug  utilization  was increased,  $1                                                                    
million was saved on medications.                                                                                               
2:41:16 PM                                                                                                                    
Representative Guttenberg observed that  the medical care in                                                                    
Seattle was  excellent. He  noted that  some aspects  of the                                                                    
care in  Seattle fit the  needs of Alaskans. He  strived for                                                                    
centers of excellence in Alaska.                                                                                                
2:42:40 PM                                                                                                                    
Vice-Chair  Neuman asked  about the  process of  contracting                                                                    
medical  procedures with  private organizations.  He assumed                                                                    
that  the contractual  agreement  served to  save money.  He                                                                    
wondered   if  the   contract  would   trigger  changes   in                                                                    
certificate-of-need regulations.                                                                                                
2:43:52 PM                                                                                                                    
Commissioner  Streur stated  that  he did  not anticipate  a                                                                    
change  in  the   certificate-of-need  seal  resulting  from                                                                    
contracting  services.  He  thought that  the  requests  for                                                                    
certificate-of-needs might change,  but the regulations were                                                                    
sufficiently flexible.                                                                                                          
2:44:41 PM                                                                                                                    
Vice-Chair Neuman  discussed slide 7. He  wondered about the                                                                    
cost to  the state  with regard  to PERS/TRS.  He understood                                                                    
that the unfunded liability was  due in-part to increases in                                                                    
healthcare  costs. He  wondered  how  the suggested  changes                                                                    
would affect the unfunded liability.                                                                                            
2:45:54 PM                                                                                                                    
Commissioner  Hultburg  replied that  the  state  had a  $12                                                                    
billion  unfunded  liability  with  $4  billion  related  to                                                                    
healthcare. She noted that the  pension side was fixed based                                                                    
on  a   calculation,  but  the  healthcare   side  could  be                                                                    
manipulated   to  affect   the   liability.  The   actuarial                                                                    
projections by  Mercer ultimately led to  the lawsuit, where                                                                    
the state  recovered some money.  A portion of  the unfunded                                                                    
liability  was the  result of  those incorrect  assumptions.                                                                    
She  stressed   that  the   unfunded  liability   had  grown                                                                    
significantly  since  the  projections were  made  and  then                                                                    
changed.  She  clarified  that the  initial  amount  of  the                                                                    
unfunded liability following the  changed projections was $5                                                                    
billion  and it  had grown  to  $12 billion  since for  many                                                                    
reasons, most significantly the investment market.                                                                              
2:47:48 PM                                                                                                                    
Vice-Chair   Neuman  discussed   the  projected   retirement                                                                    
growth. He  reviewed the payment  schedule for  the unfunded                                                                    
liability,  which peaked  in 15  years  when payments  would                                                                    
then decline.  He wondered how  the cost to the  state would                                                                    
be affected.                                                                                                                    
Commissioner  Hultburg believed  that Vice-Chair  Neuman was                                                                    
referring to  a comparison between the  payment schedule for                                                                    
unfunded  liability  and a  chart  detailing  SB 125.  State                                                                    
assistance payment was projected to  grow to over $1 billion                                                                    
by 2026. She agreed that  the growth of the state assistance                                                                    
program did correspond to the  retirement system growth seen                                                                    
on  slide  7.  She  added   that  the  SB  125  payment  was                                                                    
calculated on the percent of payroll.                                                                                           
2:49:51 PM                                                                                                                    
Vice-Chair  Neuman asked  about  Tier IV  and the  resulting                                                                    
Commissioner  Hultburg  replied  that the  state's  unfunded                                                                    
liability   would  have   increased   further  without   the                                                                    
incorporation  of  the  fourth  tier.  She  noted  that  the                                                                    
creation  of the  new tier  included the  creation of  a new                                                                    
healthcare plan.                                                                                                                
2:50:59 PM                                                                                                                    
Vice-Chair  Neuman   asked  about  tribal  health   and  the                                                                    
contribution  to  the  state's  costs.  He  understood  that                                                                    
tribal  organizations were  facing financial  challenges. He                                                                    
asked about the state's responsibility to cover the costs.                                                                      
2:51:56 PM                                                                                                                    
Commissioner   Streur  predicted   many  opportunities   for                                                                    
reimbursement  of  tribal  healthcare providers.  He  stated                                                                    
that 40  percent of the  healthcare covered by  Medicaid was                                                                    
delivered within  the tribal system. The  reimbursement rate                                                                    
was  generous and  helped cover  tribal community  costs. He                                                                    
promoted systems  such as  telemedicine and  the enhancement                                                                    
of  the capabilities  of rural  health clinics.  He did  not                                                                    
anticipate Indian Health Service (IHS) funding to increase.                                                                     
Vice-Chair Neuman agreed with the commissioner.                                                                                 
2:53:33 PM                                                                                                                    
Representative Holmes appreciated  the collaboration between                                                                    
departments. She mentioned  that she had served  on the DHSS                                                                    
subcommittee  for seven  years  and  remained worried  about                                                                    
healthcare  costs  and  their   impact  on  the  state.  She                                                                    
appreciated  the information  about encouraging  consumerism                                                                    
and bundling. She advocated for greater cost transparency.                                                                      
2:54:51 PM                                                                                                                    
Commissioner Hultburg  echoed the importance  of consumerism                                                                    
and cost  transparency in regard to  healthcare savings. She                                                                    
mentioned other  large employers  who had  experienced large                                                                    
success by  encouraging members  to become  better consumers                                                                    
through the  creation of high  deductible health  plans. She                                                                    
added  that better  education on  behalf  of the  department                                                                    
would help create better consumers of healthcare.                                                                               
2:56:55 PM                                                                                                                    
Commissioner  Streur  responded  that  Medicaid  encountered                                                                    
similar  challenges regarding  good  consumerism. He  viewed                                                                    
healthcare  as a  "three-legged  stool"  with the  consumer,                                                                    
provider, and  the payer. He  advocated for both  reward and                                                                    
punishment for  behaviors. The consumer must  be enlisted to                                                                    
take responsibility  by reducing  obesity and  smoking while                                                                    
educating about safety.                                                                                                         
2:58:41 PM                                                                                                                    
Representative  Gara  asked  about medical  procedures  that                                                                    
offered better  outcomes with certain injuries  or diseases.                                                                    
He  offered  a personal  story  about  visiting a  reputable                                                                    
doctor   in   hope   of   treating   his   prostate   cancer                                                                    
successfully. He hoped that changes  in the state healthcare                                                                    
options would not limit consumer/employee choices.                                                                              
Commissioner  Hultburg responded  that  the highest  quality                                                                    
provider could  often provide care  at the lowest  cost. She                                                                    
stated that  her husband received  complex heart  surgery at                                                                    
the  Mayo clinic.  She did  not  want to  limit other  state                                                                    
employees when faced with a  similar decision. She supported                                                                    
employees in  making the best  decisions for  themselves and                                                                    
their family members.                                                                                                           
3:02:04 PM                                                                                                                    
Representative  Gara   inquired  if  the  term   "center  of                                                                    
excellence" referred to a center  chosen by the state or one                                                                    
chosen by the employee seeking care.                                                                                            
Commissioner Hultburg  responded that the department  had no                                                                    
intention  of  preventing  excellent  care.  The  department                                                                    
wanted to endorse clinics or  centers that provided the best                                                                    
quality at the  best value. She noted  that other commercial                                                                    
insurers  had  identified  centers of  excellence  and  then                                                                    
waived  out-of-pocket fees  for the  employee if  the center                                                                    
was chosen.  The state might incentivize  certain choices in                                                                    
the future.                                                                                                                     
3:03:47 PM                                                                                                                    
Co-Chair  Austerman concluded  that it  sometimes took  more                                                                    
than one branch of government to fix a situation.                                                                               
3:04:21 PM                                                                                                                    
The meeting was adjourned at 3:04 p.m.                                                                                          

Document Name Date/Time Subjects
DOA HSS cost containment2-4.pdf HFIN 2/4/2013 1:30:00 PM
DOA-DHSS Health Cost Containment HFIN2/4