Legislature(2013 - 2014)HOUSE FINANCE 519
02/04/2013 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Healthcare Cost Containment Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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.
SUMMARY
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
approach.
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
Services."
Mandatory
· Inpatient hospital
· Outpatient hospital
· Physicians
· Nurse midwives
· Lab and X-ray
· Advanced Nurse Practitioners
· Early Periodic Screening, Diagnosis, and
Treatment
· Family planning services
· Pregnancy-related services
· Nursing facility (NF) services
· Home Health (NF qualified)
· Medical/surgical dental services
Optional
· MH Rehab/Stabilization
· Diagnostic/Screening/Preventive
· Therapies
· Inpatient psychiatry <21 years
· Drugs
· Intermediate Care Facility for the Intellectually
Disabled
· 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
illuminating.
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
services
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
appropriately.
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
approach."
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
community
· 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
median.
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
severity.
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
litigation.
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
changes.
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
ADJOURNMENT
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 |