Legislature(2015 - 2016)ANCH LIO BUILDING
05/11/2015 03:00 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB148 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 148 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HHhHOUSE FINANCE COMMITTEE
FIRST SPECIAL SESSION
May 11, 2015
3:05 p.m.
[NOTE: Meeting was held in Anchorage, Alaska at the
Legislative Information Office]
3:05:34 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 3:05 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Les Gara
Representative Lynn Gattis
Representative Scott Kawasaki
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Valerie Davidson, Commissioner, Department of Health and
Social Services; Jered Kosin, Office of Rate Review; Jon
Sherwood, Deputy Commissioner, Medicaid and Health Care
Policy, Department of Health and Social Services; Margaret
Brodie, Director, Division of Health Care Services,
Department of Health and Social Services; Senator Donnie
Olson; Representative Cathy Tilton; Representative Shelly
Hughes; Speaker Mike Chenault; Senator Cathy Giessel;
PRESENT VIA TELECONFERENCE
Representative Bryce Edgmon
Representative David Guttenberg
Representative Cathy Munoz
SUMMARY
HB 148 MEDICAL ASSISTANCE COVERAGE; REFORM
HB148 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson reviewed the agenda for the day. He
indicated that he wanted to have an honest discussion
concerning reform. He relayed that the House Finance
Committee had held five committee hearings on HB 148. In
the meetings testifiers included people from Department of
Health and Social Services, health care providers, and the
public. He asserted it was the job of the legislature to
perform its due diligence concerning reform and expansion,
ensuring that the actions that the legislature took were
right for all Alaskans and protected the financial future
of the state. He announced that in the current meeting two
issues would be addressed; the current status of Alaska's
Medicaid Management Information System (MMIS) and a
provider's tax. He noted that the affidavit of Margaret
Brodie, dated February 2, 2015, was provided to committee
members. He also mentioned that HB 148 called for a
proposal to authorize a provider tax up to the maximum
extent allowed by federal law no later than January 25,
2016. The tax would offset some of the Medicaid program
costs. The issue of provider taxes would be addressed
first.
HOUSE BILL NO. 148
"An Act relating to medical assistance reform
measures; relating to eligibility for medical
assistance coverage; relating to medical assistance
cost containment measures by the Department of Health
and Social Services; and providing for an effective
date."
3:07:32 PM
VALERIE DAVIDSON, COMMISSIONER, DEPARTMENT OF HEALTH AND
SOCIAL SERVICES, acknowledged the two topics she would
address; the Medicaid payment system and the provider tax
section of HB 148. She highlighted that Margaret Brodie,
Director, Division of Health Care Services, Department of
Health and Social Services, was currently in the meeting.
She informed the committee about three items regarding the
Medical Management Information System (MMIS). First, she
acknowledged that the system had definite hurdles in the
implementation process. She reported that when the system
went live in October 2013 there were significant challenges
which the department was transparent about. Second, she
reported that the system had improved remarkably since
December 2014. Director Brodie's affidavit was not a
statement of the current functionality of the MMIS system
in February but rather highlighted a historical problem as
well as delays in the system to support a liquidated
damages claim against Xerox. Third, she wanted the
committee to know that the department would be ready to
enroll new Alaskans under Medicaid Expansion on August 1,
2015.
Ms. Davidson moved on to address implementing a provider
tax. She relayed that there were three items to keep in
mind. First, the bill did not include a provider tax.
Separate legislation would be necessary to implement such a
tax. Second, HB 148 required the state to engage with a
third-party vendor to work with stake holders to provide a
recommendation to the legislature in late January 2016.
Third, a provider tax was authorized in 49 other states.
Alaska was the only state that did not have a provider tax.
She added that most states taxed hospitals and nursing
homes.
Co-Chair Thompson mentioned that Representative Tilton had
joined the audience.
3:11:21 PM
JERED KOSIN, EXECUTIVE DIRECTOR, OFFICE OF RATE REVIEW,
explained that his office was responsible for setting the
reimbursement rates for Medicaid services for providers and
facilities. He indicated he would be discussing the
provider tax provision within HB 148. He relayed that HB
148 directed the department to do two things; analyze
provider taxes and bring provider tax legislation to the
legislature for final consideration. House Bill 148 did not
create or implement a new provider tax. Instead, it
directed the department to analyze provider taxes with the
assistance of an independent contractor and to bring
legislation forward. He reiterated that Alaska was the only
state that did not have a provider tax. He reported that
two thirds of all other states had at least one or more
provider tax on their books. He proceeded to explain the
definition of provider taxes and how they work beginning
with the legal framework. He informed the committee that
federal law specified how providers should work as outlined
in the Code of Federal Regulations (CFR) (42 CFR 433). He
detailed the code. He suggested that if the state wanted to
tax providers it could tax 19 possible classes. The most
common provider tax applied to nursing homes and hospital
inpatient services. He reviewed that most states tax the
mentioned categories. He relayed that most small providers
were not taxed under the provider tax system.
Co-Chair Neuman stated that he had heard a provider tax
described as a tax on Medicaid recipients in which a tax
was passed on from providers to patients. He wondered
whether a provider tax would apply to small clinics with
only one or two physicians or to large hospitals. He asked
about the sideboards of a provider tax.
Mr. Kosin replied that there were specific classes of
providers or services that could be taxed. He reiterated
that the most common providers taxed were nursing homes. A
facility was specifically taxed based on net patient
revenue. A facility might collect revenue from a variety of
sources all of which would be considered. Most states took
a percentage of expected revenue. The provider tax was not
a tax on individuals or on recipients of services. He
suggested that the tax could be modeled through a variety
of structures such as the discharge days at a hospital. He
explained that a formula could be generated from a pool of
data. He mentioned that there was an opinion from the
attorney general that indicated that taxes could only be
used for a general purpose. The legislature, being in
charge of fund appropriations, would be responsible for
deciding about the budgeting of provider taxes if they were
approved. The tax could not be specifically earmarked for
Medicaid but could be appropriated to it.
3:15:03 PM
Co-Chair Neuman commented that many of the questions his
office received had to do with how a provider tax would
affect individual doctors.
Co-Chair Thompson added that the questions were from small
providers.
Mr. Kosin stated that the department sought to hire an
independent contractor to analyze other provider tax
categories. However, he maintained that the most common
provider's tax was on hospital and nursing home facilities.
He expressed that, based on preliminary research, his
office did not anticipate proposing a tax on individual
providers such as doctors. He suggested that the most
likely tax proposed would apply to hospitals or nursing
homes. He concluded that small providers would likely be
excluded from his office's provider tax proposal.
Co-Chair Neuman asked if the provider tax was a pass
through tax to Medicaid recipients.
Mr. Kosin responded that in reviewing the tax structure of
other states he found examples such as in the state of
Tennessee where specific provisions were included in their
tax structures that stated that hospitals could not pass
the cost of the tax onto charges for general services. The
reason his office wanted to use an independent contractor
was due to 49 other states already having a provider tax in
place. His office wanted to take advantage of outside
expertise in order to do what was best for Alaska. He
relayed that the department did not want to see an increase
in charges for healthcare. The state wanted a more
efficient system.
Co-Chair Neuman was unsure whether Mr. Kosin answered his
question. He suggested that maybe someone else could
address the question.
3:17:29 PM
JON SHERWOOD, DEPUTY COMMISSIONER, MEDICAID AND HEALTH CARE
POLICY, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, clarified
that federal law limited what could be charged to Medicaid
recipients for the cost of their care. He did not believe
that there was any direct way to pass the cost of the
provider tax onto Medicaid patients. He suggested that as
Mr. Kosin continued with his presentation he would be
pointing out other practical considerations that would not
permit passing on the cost. He explained that generally the
tax structure was arranged such that Medicaid
reimbursements could be used to offset some of the impact
of the tax. However, he was speaking of Medicaid
reimbursements from the state, not from a recipient.
Co-Chair Thompson asked about the impact of a provider tax
on the insured and expressed concern about costs being
shifted to the privately insured patient.
Mr. Kosin responded that the payer of the tax was the
facility being taxed. For instance if a hospital was taxed,
the hospital would be responsible for paying the tax. He
stated that the state of Tennessee had provisions to
preclude hospitals or the tax payer from increasing
charges, thereby, shifting liability to private patients.
The state would need expertise to craft its legislation to
protect private patients.
Co-Chair Thompson asked if non-profit tribal health
providers could be included in the provider tax structure.
Mr. Kosin differed to the attorney general's office and to
council for an answer to Co-Chair Thompson's question. He
was unclear whether the state could tax a tribal entity. He
indicated that the state set rates for 19 different
hospitals, 12 of which were combined with nursing homes and
6 stand-alone nursing home facilities. All of the
facilities, with the exception of 4, were non-tribal
entities. He continued that if he was correct in assuming
that tribal entities could not be taxed by the state, other
hospitals should be able to be taxed including non-profit
entities.
Vice-Chair Saddler asked about the 19 different providers
eligible to be taxed. He wondered which category generated
the most revenue for the state. He asked Mr. Kosin to
recite a list.
Mr. Kosin responded that his office had not ranked the
classes. He wanted to operate in good faith to indicate to
providers that his office was not targeting a certain class
or specific providers. His office performed the primary
rate function for hospitals and nursing homes. He explained
that part of the reason that hospitals and nursing homes
were some of the common provider tax candidates was because
they often received Medicaid reimbursement. He furthered
that there were very specific limitations. There was a
mechanism in which the state could draw down federal funds
with a certain amount of generated tax revenue, essentially
matching funds and offsetting liabilities. The reason the
provider tax was palatable because the state could offset
some of the liability with enhanced payments for Medicaid.
3:22:29 PM
Vice-Chair Saddler asked Mr. Kosin for a general ranking of
facilities that generated the most patient revenues. He
wanted a list of the top three or four.
Mr. Kosin reported that for the FY 15 authorized budget
physician services made up the largest Medicaid
expenditure. Inpatient hospital services, outpatient
hospital services, nursing homes, mental health services,
personal care services, followed in the ranking. He
reiterated that for the purpose of looking at a provider
tax hospitals and nursing homes rose to the surface.
Currently he was unable to say where the state would apply
a provider tax. He wanted to operate in good faith which
was why he would be bringing in a contractor with
expertise.
Co-Chair Thompson acknowledged Representative Hughes in the
audience and Representative Pruitt at the table.
Vice-Chair Saddler wanted to clarify that if the state
sought to impose a provider tax that it would make sense to
investigate the top payers. He wanted to make sure that Mr.
Kosin provided a ranking of Medicaid billing.
Mr. Kosin asserted that he provided a list of Medicaid
expenditures. He stressed that based on HB 148 and the
provider tax provision the state had already issued a
request for proposal (RFP) for a contractor. His office
requested a specific provision that the independent
contractor would focus primarily on reviewing every type of
class of provider tax as an act of good faith. He
emphasized that he anticipated any proposal would include
hospitals and nursing homes.
Vice-Chair Saddler wanted to hear additional details about
fees, time, and costs. He wanted to know about patient
revenue in each of the classes of providers. He understood
there were some limitations as to what the provider tax
would be able to collect. He mentioned 6 percent of net
patient revenue. He wondered about access to the data.
Mr. Kosin responded that a consultant would have to compile
the information. He indicated that his division collected
Medicare cost reports from hospitals and nursing homes and
were able to determine different revenue and other
financial information.
Mr. Kosin addressed the safe harbor provision of a provider
tax. He relayed that it was often thought of as a 6 percent
tax. The federal government said that the state could not
hold its providers harmless. In other words, the federal
government did not want states to impose a tax that would
keep everyone harmless. The federal government did not want
any state to levy a tax, collect the revenue, draw down
federal funds, and then pay the provider back in full.
There were certain caps in place including the safe harbor
provision. The safe harbor provision was a 6 percent cap
that held entities harmless as long as their tax was less
than or equal to 6 percent of net patient revenue.
Vice-Chair Saddler clarified that the 6 percent tax was not
a 6 percent provider tax but a tax cap in which the state
could collect no more that 6 percent of net patient revenue
for a class of provider. Mr. Kosin responded, "That is
correct."
Vice-Chair Saddler remarked that the tax could be .5
percent, 1 percent, or 5 percent depending on the net
revenue.
Mr. Mr. Kosin elaborated that in theory the state could go
over 6 percent. However, there was an additional test. The
test was referred to as a 75/75 test. He qualified that the
test stated that if the tax collected exceeded 6 percent,
the tax remained valid unless 75 percent or more of
providers in the same class received 75 percent or more of
the total tax cost through enhanced Medicaid payments. This
was another measure to prevent drawing down federal funds
to make providers whole.
3:27:21 PM
Representative Gara asked about the administrative costs
for a provider tax. He referred to the department hand-out.
He suggested that in the first year of Medicaid expansion
the state savings in its budget equaled $6.6 million and
rose every year until 2021 to $24.5 million. He relayed
that the administrative costs were less than $2 million. He
suggested that the state could save money without a
provider tax by accepting Medicaid expansion. He wondered
if he was correct.
Mr. Sherwood responded affirmatively. He elaborated that
Medicaid expansion would offset funds that were currently
being paid through the state's GF. He anticipated that the
offsets would exceed the administrative costs of the
expansion and would ultimately be equal to 10 percent of
the cost of the actual services provided.
Co-Chair Neuman commented that the numbers Mr. Sherwood
shared with the committee came from a report conducted by
Evergreen Economics. He relayed that three different
reports were completed by three different contractors, the
results of which varied. He warned that there was nothing
substantiating the findings in Evergreen's report. A
previous report by The Lewin Group claimed that Medicaid
expansion would cost the state up to $44 million. He
suggested that the numbers from the Evergreen report were
not necessarily accurate.
Mr. Sherwood agreed that the department's numbers were
estimates based on Evergreen' report. He informed the
committee that Evergreen Economics had been doing DHSS's
long-term care forecasts for approximately 10 years.
Originally the company was a subcontractor of The Lewin
Group. He emphasized that Evergreen's forecast was more
recent than that of The Lewin Group. He also pointed out
that some of the previous forecasts included the estimated
cost of more people applying for Medicaid as a result of
the Affordable Care Act which required a person to show
proof of health insurance or to pay a tax penalty. He
stressed the importance of making an apples-to-apples
comparison when looking at the numbers. He stated that DHSS
thought the Evergreen numbers were reasonable and based on
Alaska-specific information, information not considered in
some of the other forecasts. He noted that there was always
a degree of uncertainty in forecasts and projections.
Co-Chair Neuman emphasized that the numbers were estimates
rather than factual numbers.
3:31:31 PM
Mr. Mr. Kosin communicated that in the process of his
analysis he typically started with reviewing federal law.
He suggested things were pretty straight forward because
many other states had a provider tax. He believed that in
order to determine what was best for Alaska he needed to
better understand and learn from the expertise of an
independent contractor. He added that all provider taxes
had three requirements. First, the tax had to be broad-
based for all providers within a class, uniformly imposed
at the same rate or amount for providers within a class,
and providers could not be held harmless using Medicaid
reimbursement to effectively make them whole with federal
funds. He spoke of the RFP that DHSS issued on April 30,
2015 in order to be proactive. He highlighted the purpose
of the RFP was to perform a feasibility study, and if
viable, put together a tax proposal to bring to the
legislature for final approval. He anticipated that the
contract would be awarded by June 30, 2015. He concluded
his presentation by offering to answer any questions from
members of the committee.
Representative Wilson asked if a fee could be applied
rather than a tax. She suggested that a fee would likely
affect more providers. Mr. Kosin responded that he did not
feel knowledgeable enough to distinguish between a fee and
a tax. He noted that other states collected licensing fees
based on the number of beds that an entity had or based on
something structural for the facility. In terms of a tax
versus a fee, generally what he had seen was a tax for the
19 classes of providers.
Mr. Sherwood added that he had seen some examples of states
that referred to their revenue as fees such as a bed fee.
However, he believed that a higher level of analysis by a
contractor was necessary to better understand federal
requirements.
3:34:25 PM
Representative Wilson wanted to know why the provider tax
was not included in the bill. She suggested that the bill
was crafted not only because of Medicaid expansion, but
also due to the growth in costs for Medicaid. She believed
that the bill was about all healthcare costs to the state.
She opined that it was an integral part and wondered why it
was not included in the legislation.
Mr. Sherwood responded that commonly states had enacted
provider taxes to avoid rate reductions or in times of
budget stress. The department's understanding and the
advice from the Department of Law was that any taxing
authority that the state had needed to be very specific.
The taxing authority could not be open-ended. Department of
Health and Social Services was not comfortable with putting
a proposal together until it conducted more research and
brought in experts to evaluate the different considerations
and potential implications to health care providers.
Representative Wilson asked about how to determine whether
a provider had folded a tax into the cost to patients.
Mr. Kosin affirmed that his office had the same question.
He explained that, specifically for hospitals and nursing
homes, the way in which Alaska reimbursed through Medicaid
and the way it set reimbursement rates included a rigorous
financial analysis using Medicaid cost reports. He
contended that his office could track numbers very
effectively. He suggested that not only could the
legislature include language prohibiting the passing on of
fees, the Office of Rate Review could do effective
oversight through the state's Medicaid cost reporting and
through the reimbursement of rates by tracking dollars.
Representative Wilson wanted to make sure that people were
aware that a Tennessee hospital was one of the highest
charging providers. The entity charged a total of $286
million in 2009 and 2010. She found it difficult to believe
that some of those charges were not pass-through charges.
Mr. Kosin responded that there were other states that could
be used as examples other than Tennessee. He suggested that
perhaps Tennessee was not the best model.
3:37:50 PM
Vice-Chair Saddler asked about Mr. Kosin's reference to an
RFP. He was specifically looking at an RFP entitled
"Medicaid Redesign and Expansion Technical Assistance." He
wondered if the RFP that Mr. Kosin was referring to was a
different RFP. Mr. Kosin responded that he was referencing
a different RFP.
Vice-Chair Saddler asked for more details of the contract
such as the duration of the contract and the expected cost.
Mr. Kosin relayed that the state was seeking to award the
contract by June 30, 2015 for the term of approximately one
year in the amount of $175 thousand. He added that the
scope of the project focused on three specific deliverables
with iterations of the items. He offered to provide a copy
of the RFP to the committee upon request.
Co-Chair Thompson indicated he wanted a copy of the RFP.
Mr. Kosin continued to detail the three deliverables; a
feasibility and recommendation, a draft tax proposal, and
public presentation and subject matter expertise. The RFP
outlined definite timelines and milestones.
Vice-Chair Saddler asked Mr. Kosin to repeat the three
deliverable items of the contract.
Mr. Kosin reiterated that the first deliverable item was a
feasibility study and recommendation. He indicated that a
draft tax proposal would then be crafted with the intention
of it being presented to the legislature. The tax proposal
was the second deliverable item and would be shaped with
the help of the Department of Revenue (DOR). The third item
was public presentation and significant stake-holder input
in regular meetings with providers and the general public.
Representative Kawasaki commented that many doctors had
come to him with their concerns about losing their
practices upon the implementation of a provider tax. He
wondered if separate legislation was necessary prior to a
provider tax taking effect. Mr. Kosin responded
affirmatively.
Representative Kawasaki asked if he was currently working
on an RFP outside of the context of the Medicaid reform
bill. Mr. Kosin replied, "Yes." He explained that the
department wanted to make sure a proposal was crafted
properly.
Representative Kawasaki asked whether HB 148 had any
provider taxes within the legislation. Mr. Kosin made it
clear that HB 148 did not propose, create, or implement a
provider tax. The bill directed the public to study a
proposal for the legislature.
Co-Chair Thompson interjected that what Mr. Kosin had
stated was cited in the bill.
Representative Kawasaki asked if the department was doing
the RFP. Mr. Kosin replied that the RFP had been issued and
the department was reviewing it.
Representative Kawasaki asked if Section 1 of HB 148 was
necessary for the RFP to go out. Mr. Kosin deferred to the
Department of Law and the deputy commissioner.
3:41:42 PM
Mr. Sherwood believed DHSS had the authority to pursue the
RFP whether it was contained in the bill.
Representative Pruitt was trying to understand why the
provider tax was written into HB 148. He suggested that if,
in the department's view, Medicaid expansion covered itself
there was no reason to discuss authorizing a provider tax
to the maximum extent allowed under federal law. He wanted
to know why it was included in the bill, whether it would
have been included no matter what the circumstance, or
whether it was included because the current Medicaid system
was significantly broken. Mr. Sherwood reported that the
legislation included a proposal for expansion and a
proposal for reform. He added that it was the intent of the
department to be open and transparent about looking at
expansion and reform.
Representative Pruitt asked if it was accurate that the
state would not be able to cover the cost of Medicaid
because of the fiscal challenges it was facing. He
continued that the provider tax would help offset some of
the state's costs. Mr. Sherwood replied that in periods of
revenue shortfalls states typically analyzed whether a
provider tax system could help support GF expenditures for
the Medicaid program. Alaska was facing a time of revenue
deficits. He also mentioned that Medicaid expansion could
reduce charity care. The question was asked whether it was
an opportune time for providers who shoulder the burden of
charity care to look at a provider tax. He believed that
these considerations brought the issue to the forefront.
Representative Pruitt asked how the state would proceed
with an expanded population if reimbursement fell from 90
percent to 50 percent. He wondered if the state would
consider an additional tax in the future to cover expenses
for an increase in Medicaid population. Mr. Sherwood
responded that the current legislation included a provision
that if the revenue fell below 90 percent, the state would
not cover the expanded population.
Representative Pruitt asked Mr. Sherwood if he thought the
state would start off providing Medicaid to certain people
then halt providing it to the same group if the federal
government's portion fell below 90 percent. He suggested
that if the government's portion fell, for example, to 88
percent, he anticipated an argument that it was only 2
percent below 90 percent.
3:46:04 PM
Commissioner Davidson explained that when the governor
included federal receipt authority in the original budget
bill at the beginning of the year, the House Finance
Committee asked if a provider tax had been considered since
all other states had provider taxes. At the time the
committee wondered if providers had or should have skin in
the game. As the governor and the department were
considering introducing a stand-alone bill, in the interest
of transparency, they included at least a thorough study of
the issue prior to considering a provider tax. She pointed
out that HB 148 specifically stated that the participation
for the expansion population was contingent upon a federal
match of at least 90 percent.
Representative Pruitt was concerned with whether Alaska
would actually pull out of expansion if federally matching
funds dropped below 90 percent. Commissioner Davidson
responded that she would expect the department to follow
the law. The law that was currently being proposed outlined
that if the federal match went below 90 percent the state
would discontinue its participation.
Representative Gara commented, "Congress will do what
Congress will do." He suspected that if the federal
government went below 90 percent, as the current law
promised, there would be many states up in arms. He asked
how many states were signed up for Medicaid expansion at
present. Commissioner Davidson responded that there were
approximately 27 states enrolled. She added that almost 30
states had participated in Medicaid expansion.
Representative Gara referred to one of the pamphlets
provided by DHSS. He asked about proposals between Medicaid
expansion and Medicaid reform which the department
projected a state savings of $580 million over the
following 6 years. He asked if there was a need for a
provider tax for the Medicaid and expansion portion given
the potential savings. Commissioner Davidson responded in
the negative. She elaborated that there was not necessarily
a need for a provider tax. However, since Alaska was the
only state without a provider tax it was unusual and
something to consider moving forward in financing the
state's healthcare delivery system.
3:50:13 PM
Representative Gara summarized that the state would save
approximately $580 million over the following 6 years. He
asked if the regular Medicaid program cost money to the
state. He opined that the provider tax would help to offset
some of the costs of the regular Medicaid program. He
wanted to know if the commissioner agreed. Commissioner
Davidson responded affirmatively.
Vice-Chair Saddler understood that states that had provider
taxes could collect no more that 25 percent of its Medicaid
revenue, an imposed cap. For example, if the state spent
$800 million on Medicaid the state could collect a maximum
of $200 million in provider taxes. He wanted to make sure
he was understanding the calculation correctly. Mr. Kosin
believed that the cap applied to each class of provider. He
restated that it was 25 percent of expenditures per class
of providers or services. He thought the cap was based on
classes. He would find out and provide a written answer to
the Representative's question.
Co-Chair Thompson asked that the answer be provided to his
office. He would see to it that committee members were
provided with a copy.
Vice-Chair Saddler noticed, after doing some research on
provider taxes, that there had been proposals by the
federal government to reduce the cap from 6 percent to 3.5
percent of patient revenue. He wanted to know if the
department had considered what kind of effect such a change
would have on the state's calculations. Mr. Kosin confirmed
that the department had considered the change and its
effects. He clarified that Representative Saddler stated
that the federal government had considered lowering the
Safe Harbor provision to 3.5 percent. He emphasized that
the department would be asking the contractor to do a
separate analysis on the issue. It would be included in the
tax proposal.
Vice-Chair Saddler noted that the federal budget projected
the federal Medicaid costs to jump 62 percent by 2026 to
approximately $567 billion. There was a strong likelihood
that the federal government would consider rolling back its
caps. Mr. Kosin relayed that the federal government had had
a deficit for a long period and had never taken action to-
date. He could not confirm with a "yes" or "no".
Representative Wilson wanted to verify a couple of items.
First, she inquired whether the provider tax could be
passed to patients or any entities. Mr. Kosin remarked that
he had heard that other states had protocol in place to
prevent it from happening. He added that he would look into
it with the contractor. He stressed that the analysis would
be included in any tax proposal presented to the
legislature.
Representative Wilson asked if other states shared the same
challenges of attracting providers. She mentioned the
Washington, Wyoming, Alaska, Montana, and Idaho (WWAMI)
program to entice providers to Alaska. She also noted other
incentives such as loan forgiveness. Commissioner Davidson
responded in the affirmative. She elaborated that there
were a number of other states that were considered health
professional shortage areas that had to undertake measures
to attract providers.
Representative Wilson wondered about which states were
included. Commissioner Davidson indicated that she would
provide the committee with a list.
3:54:27 PM
Representative Wilson wondered if the state could proceed
with implementing a provider tax whether or not Medicaid
was expanded. Commissioner Davidson stressed that HB 148
did not implement a provider tax. However, it did require
the state to engage a contractor to recommend a provider
tax to the legislature. She added that it would be up to
the legislature to act on the recommendation.
Representative Wilson restated her question. She wondered
if, following the study, the department would bring
legislation forward to implement a provider tax even if the
state did not opt to participate in Medicaid expansion.
Commissioner Davidson restated that the department would
provide a recommendation to the legislature on whether the
state should institute a provider tax. She suggested
waiting for the third-party contractor recommendations
before making any speculations.
Representative Pruitt asked about pass through and tax. He
wondered if the department would be able to identify a pass
through fee to an individual payee or an insurance payee.
He wondered if the department would be able to see all
elements concerning payees. Mr. Kosin was uncertain. He
thought it was possible to conduct the necessary analysis
but needed to consult with a contractor. He opined that at
the state did not want to see costs passed on to patients
or a rise in health care costs.
3:57:08 PM
Vice-Chair Saddler followed up regarding the hold harmless
cap. He wondered if the state would be obligated to
backfill the difference through the state GF. Mr. Kosin
appreciated the representative's question. He suggested
that he would refer to the contractor's analysis. He was
unsure of the answer. He was aware that the department did
not want to put the governor or the State of Alaska in the
position of repayment. The department wanted to do things
correctly and responsibly.
Vice-Chair Saddler commented that a consultant would do a
better assessment. However, he wanted to know how likely it
was that the government would change the hold-harmless
rate. Commissioner Davidson responded that in order to
change the cap the federal government would have to change
the federal law requiring consent from both bodies of
congress as well as the consent of the president. Mr. Kosin
also suggested that regulation could be changed and was
aware that the president had looked into it.
Vice-Chair Saddler pointed out that the president had a pen
that he could use.
Representative Gattis wanted to make sure that the study
considered the concerns of providers from her district
regarding non-profits earning huge profits on the backs of
small providers. Mr. Kosin responded that the governor had
made it very clear that he did not intend to put any
proposals forward that would affect small providers to the
extent that the state would lose healthcare providers. The
department would be looking into the fairness of a proposed
tax.
Co-Chair Thompson announced that the committee would hear
the next section of the day's presentation.
4:00:42 PM
AT EASE
4:02:32 PM
RECONVEYNED
MARGARET BRODIE, DIRECTOR, DIVISION OF HEALTH CARE
SERVICES, DEPARTMENT OF HEALTH AND SOCIAL SERVICES,
introduced herself and explained that she would provide a
status update on the Medicaid Payment System (MMIS) as it
related to her affidavit she filed on February 2, 2015 in
the lawsuit against Xerox.
Ms. Brodie turned to slide 2: "Background":
October 2013: Alaska Medicaid program deployed a new
claims payment system developed by Xerox Corporation
to replace the old system.
These systems are known as Medicaid Management
Information Systems (MMIS).
The new system had significant performance problems;
many claims suspended or denied in error, causing
providers to experience serious difficulties getting
paid.
Ms. Brodie explained that in October 2013 the State of
Alaska replaced its 30 year-old legacy MMIS with the Xerox
enterprise system. She reported that the new system had
immediate and significant performance problems on the first
day of its initialization. She elaborated that there were
claims suspended or denied in error as well as claims being
paid to the wrong provider.
Ms. Brodie moved to slide 3: "Background, Cont.":
While Xerox worked to fix the system, the State issued
advance payments to providers on request.
The State has made over $165 million in advance
payments. Of that, the State has recouped $70 million
as of May 1, 2015.
Ms. Brodie explained that Xerox and the state worked to fix
the problems with the system. She relayed that in order for
providers to continue providing services to Medicaid
recipients the state had to help by advancing payments to
providers per their request. The state had to evaluate the
claims that had been submitted into the system. The state
analyzed whether the claims had been denied, suspended, or
paid inappropriately. If providers had submitted valid
Medicaid claims for payment the state paid the claims in
the form of advanced payments from GF dollars.
Ms. Brodie reported that the state had made over $165
million in advance payments at present. The state had
recuperated over $70 million of those dollars currently.
Ms. Brodie continued to slide 4: "State Holds Xerox
Accountable":
August 2014 State finds Xerox in breach of contract
due to performance problems.
October 2014 Xerox agrees to corrective action plan.
February 2015 Administrative hearing on liquidated
damages. Decision pending; next hearing scheduled for
August 2015.
May 2015 The system is processing new claims at
greater than 90 percent accuracy. This is better
performance than the old legacy system.
Ms. Brodie continued to explain that as of August 2014,
after 11 months of attempting to resolve claims, the state
filed a breach of contract against Xerox. In October of
2014 Xerox agreed to a corrective action plan that included
certain changes that would resolve the payments problems.
She added that the corrective action plan was not intended
to fix the entire system. Its purpose was to fix claims
pricing and payments which were the items that most
affected providers. There were also other items within the
system that needed correction.
Co-Chair Thompson asked Ms. Brodie to make sure to announce
any slide changes for proper record keeping. He also
indicated that Speaker Chenault had joined the audience.
Ms. Brodie reported that in February 2014 the state
formally accepted Xerox's corrective action plan and had
its first hearing in front of an administrative law judge.
She added that the next hearing was scheduled for August
2015. She specified that the completion of the corrective
action plan was scheduled for the end of March 2015. It
took until the end of April 2015 to complete all of the
tasks specified in the corrective action plan. However,
while addressing the initial items more defects were
identified. She asserted that even with the remaining
defects the state was processing 90 percent of the claims
accurately.
4:07:42 PM
Ms. Brodie advanced to slide 5: "System Improvement":
Xerox and the State agreed to a Correction Action Plan
requiring correct claims pricing and correct claims
payment by certain timelines.
Xerox is required to make 17 system corrections,
called Design, Development & Implementation (DDI)
deliverables.
Xerox has submitted all deliverables. They have not
been fully accepted by the State.
Ms. Brodie reiterated that the state had agreed to a
corrective action plan. She also reported outstanding
design, development, and implementation (DDI) work on the
enterprise system. She relayed that Xerox had submitted all
of the corresponding deliverables but the state had not
fully accepted them to-date. The state contended that if
the system had been fully tested, as it should have been,
the state would not have had the number of defects that it
was currently experiencing. She clarified that a large
system like the one the state had would never be completely
free of defects. She added that the enterprise systems in
the country were not without a dozen or more ongoing
defects. She claimed that the state's legacy system also
had many defects.
Ms. Brodie advanced to slide 6: "System Improvement,
Con't.":
State outlined 38 items that needed to be completed
for the corrective action plan.
16 effect claims
4 have already been resolved
For system acceptance the State outlined:
19 deferred items
13 DDI deliverables
Ms. Brodie highlighted that Xerox had completed the
corrective action plan. A few items remained that needed to
be addressed because they were not working as intended. She
clarified that these items were problems arising from of
changes in regulations and new federal mandates. Xerox
approached the state about being released from the
corrective action plan. The state reviewed the system and
generated a list of 38 additional items that Xerox had to
address to be released from the corrective action plan. In
comprising its list the state took a look at the broad
functionality of the system. The state identified 16 items
that needed to be fixed affecting claims, 4 of which were
resolved. The state anticipated that Xerox would have the
remaining items affecting claims processing dealt with
within 3 months. She relayed that the state had a schedule
of all deployments through January 2015.
Ms. Brodie informed the committee the state was identifying
any item that would prevent it from accepting the system
before releasing Xerox. She relayed that in order for the
state to accept the system it needed the 19 deferred items
completed. She claimed that some of the 19 items no longer
existed. She relayed that some of the enhancements had to
do with something called "smart PA" which the state no
longer used. Smart PA was the state's prior authorization,
also known as a service authorization system. Its function
was to obtain permission to perform a service prior to the
performance of the service. Currently, service
authorizations were done through the enterprise system. She
shared that over the course of the following month the
state would be negotiating with Xerox about what function
the state would receive in lieu of the Smart PA. The state
was not interested in receiving a dollar amount in place of
adding a different function.
Ms. Brodie reiterated that the conditions of Xerox's
release included addressing 19 deferred items, 13 DDI
deliverables, and acquiring certification.
4:12:44 PM
Ms. Brodie continued with slide 7: "System Improvement,
Con't.":
There are three components to the system:
Claims processing
Financial accounting
Reporting
Claims processing has dramatically improved. Claims
are now processing timely and with over 90 percent
accuracy.
Acceptance by the State depends on:
Additional fixes to financial reason codes
Further improvements in reporting
Ms. Brodie explained that there were three components
within MMIS. The corrective action plan focused on the
claims processing system. The majority of the work left to
complete had to do with the financial accounting and
reporting portions of the system, both of which affected
the state rather than providers. She reported that the
state had had a temporary system in place for the previous
20 months.
Ms. Brodie noted the vast improvement of claims processing
in the previous month. She relayed that her office had been
inundated with calls on Tuesdays and Wednesdays after a
cycle ran and people could verify the status of a claim.
She observed that calls had ceased with the implementation
of improvements. She also mentioned a reduction in staff
time addressing claim issues. She highlighted that her
office had had difficulties processing a particular
provider's claims about 50 percent of the time. Currently,
the office was able to process all claims for this provider
within a cycle.
Ms. Brodie made it clear that acceptance of the system was
also contingent on fixing the financial reason codes. The
codes identified the reason for a claim such as
overpayment. The reason codes had not worked until the
month prior. She reported that they were currently working
and that only one or two more codes needed to be fixed.
Ms. Brodie emphasized that the most important area to
improve was reporting. The major report that was currently
missing was the cost report that enable the state to set
rates for providers.
Ms. Brodie detailed the graph on slide 8: "System
Timelines." She explained that the slide showed the state's
current timely processing of claims. She offered that
claims were, "flying through the system." The claims were
no longer needing manual intervention, it was all auto
adjudication.
Ms. Brodie advanced to slide 9: "Defects." She explained
that the chart showed the number of defects from July 2014
through the present and noted the substantial decrease in
the numbers. She reported that the number for the current
day was 80 the majority of which had nothing to do with
claims payment and pricing.
Ms. Brodie moved to the chart on slide 10: "System
Performance." She pointed out that since initiating the
corrective action plan the state had been successful in
getting more claims paid with less new claims being
suspended. She noted that the gray bars on the chart were
claims being reprocessed; old claims that had been paid,
denied, or suspended incorrectly were given a suspend
status to be reprocessed.
4:16:58 PM
Ms. Brodie turned to slide 11: "Payment Processing." She
pointed out that the blue horizontal line represented the
state's historical payment level. The state had been paying
above the historical level. She explained that the
encounter rates were paid using the new system. However,
previous encounter rates had to be paid outside of the
legacy system. She expected the new normal to be $27
million to $28 million.
Co-Chair Thompson announced that Senator Giessel had joined
the audience.
Ms. Brodie observed that the last few slides showed marked
improvement in every area of the enterprise system.
Ms. Brodie detailed slide 12: "February 2015 Affidavit":
A February 2015 affidavit signed by Margaret Brodie,
Director of Health Care Services, outlined the
problems the State had with Xerox's system since its
October 2013 deployment.
Since that time, many of the defects identified have
been corrected or significantly improved.
Ms. Brodie informed the committee that she filed an
affidavit on February 2, 2014. The affidavit was in
response to the Xerox litigation claiming harm to the state
as a result of Xerox not performing its job. Since the
filing the state had seen significant improvement on the
part of Xerox to correct its performance defects. The
number of defects had been reduced significantly. The
company had fixed most of the claims payment and pricing
issues. She mentioned that she would review her comments
made in the affidavit and provide the committee with a
current update. She maintained that at present not
everything was fixed.
Ms. Brodie read from slide 13: "Item Number 7: Defects":
Affidavit: System unable to accurately balance claims
as a result of an embedded rounding error
Current Status: CORRECTED, April 2015
Affidavit: Slow system performance on medical service
authorization authorizations were taking 30 minutes
Current Status: IMPROVED: Authorizations are taking 5
to 10 minutes. Xerox has committed to continuous
improvement.
Ms. Brodie indicated that the state wanted to see further
improvement in reducing the time it took to process an
authorization request. She noted that in the legacy system
the most expeditious people could complete an authorization
within two minutes.
Co-Chair Thompson asked, "How many minutes?" Ms. Brodie
responded, "Fourteen."
Vice-Chair Saddler read from Ms. Brodie's affidavit that
Xerox had committed to continuous improvement. He opined
that based on her affidavit Xerox had been "shinning the
state on for the four years." He wondered if Xerox could be
trusted currently.
Ms. Brodie pointed to Xerox's performance since the
implementation of the corrective action plan in October
2014. She felt the state was getting results from Xerox.
Vice-Chair Saddler asked Ms. Brodie again if she trusted
Xerox. Ms. Brodie relayed that she trusted their
performance because of significant improvements.
4:20:36 PM
Ms. Brodie detailed slide 14: "Item Number 7: Deficit
Con't":
Affidavit: System does not price claims correctly
(12.4 percent of all claims are not pricing
correctly):
Current Status: CORRECTED, March 2015.
Affidavit: System fails to pay certain categories of
claims (e.g. hospital stays longer than three days)
Current Status: CORRECTED with minor exceptions:
TEFRA solution ready to go (few claims)
Hospital stays where Medicaid is secondary payer
primary (low dollar amounts)
Ms. Brodie explained that the 12.4 percent reported in the
affidavit applied to claims that were priced incorrectly
from October 2013 through September 2014. Currently, the
system was paying claims at an accuracy rate of more than
90 percent.
Ms. Brodie discussed the statement made in the affidavit
about the failure to pay certain types of claims. She
clarified that the system was not paying many claims
associated with behavioral health and with hospital stays
greater than three days. She relayed that there were only a
small number of these challenging claims and indicated that
the state had mapped out solutions for Xerox. She added
that the state had problems with claims having to do with
hospital stays where a commercial insurance company or
Medicare was the primary payer and Medicaid was the
secondary payer. It really came down to low dollar amounts
due to co-pays and deductibles that only Medicaid paid.
Representative Wilson referred to slide 14. She asked when
Medicaid was a secondary versus a primary payer. Ms. Brodie
responded that she would need to get a percentage of the
number of recipients that had other health care. She gave
an estimate of 20 percent to 25 percent of the state's
recipients. She would provide Representative Wilson with
the exact figure. Mr. Sherwood also indicated that Medicaid
was the payer of last resort for all payers except for
services covered by Indian Health Service (IHS). Medicaid
was a secondary payer behind Medicare, Veterans Insurance,
Tricare, private insurance, and any other liable individual
such as worker's compensation. He reiterated that Medicaid
was secondary.
Ms. Brodie moved to slide 15: "Item Number 7: Deficit
Con't":
Affidavit: System inappropriately denies claims; many
remain wrongly denied and outstanding for over a year
Current Status: CORRECTED. New claims are processing
correcting.
Backlog: Old claims wrongly denied have been
identified and are being reprocessed. Many
providers have resubmitted claims and been paid.
September target for completion.
Ms. Brodie informed the committee that her office had a
plan for old claims that had been processed in error.
Claims had been identified, a work plan had been drafted
for reprocessing claims, and claims were sorted into three
categories. The categories included claims resulting in
payouts to providers, claims resulting in paybacks to the
state from overpayments to providers, and claims without
any monetary changes.
4:24:45 PM
Ms. Brodie advanced to slide 16: "Item Number 7: Deficit
Con't":
Affidavit: System is unable to process many claims,
causing the claims to incorrectly suspend.
Current Status: CORRECTED.
Some claims suspend because they require manual
review:
School-based services suspend pending payment of
the school district's state match.
Durable medical equipment claims suspend for
manual review of the invoices.
Claims that require medical necessity
justification suspend until payment is
authorized.
Claims that were first billed to insurance
suspend until any insurance payments are
reviewed.
Ms. Brodie indicated that the slide applied to claims that
were suspended inappropriately. She highlighted that
incorrect suspensions had been corrected and that any
claims that remained in suspension status were supposed to
be suspended.
Ms. Brodie informed the committee that there were two
categories of claims intended to be suspended. The first
was the school-based services claims in which school
districts billed Medicaid for services they provided to
children in their districts. The state had an agreement
with the participating school districts where they paid the
state match portion of the services. She elaborated that
three years prior the state had been able to pay the claims
and subsequently collect the money from the school
districts. However, the federal government mandated that
once a claim was paid a state could not go back and collect
money from a school district. Therefore, the state had to
receive the match up front. Currently, the state suspended
claims, the school district paid the claims to the state,
and then the state released the claims for payment. She
reported that there were other types of claims such as
durable medical equipment claims that were suspended in
order to attach an invoice prior to submission. She added
that someone had to manually inspect the invoices and price
the claims.
Ms. Brodie presented slide 17: "Item Number 7: Deficit
Con't":
Affidavit: System lists claims as being paid, but
links no provider to the claim, so checks can't issue
and the claims aren't paid.
Current Status: CORRECTED.
Affidavit: System pays wrong provider.
Current Status: CORRECTED.
Ms. Brodie reported that claims listed as being paid but
without a link to a provider were referred to as "ghosted
claims" because of the difficulty in tracking them. The
deficit had been corrected five months previously. Another
deficit that had been corrected was the system paying the
wrong provider due to provider identification numbers being
mapped incorrectly to the wrong provider. She continued to
explain that providers had several different provider
numbers. If the system did not match to the correct
provider identification number it was possible that an
incorrect provider could be paid.
Ms. Brodie continued with slide 18: "Item Number 7: Deficit
Con't":
Affidavit: System is not able to produce cost-based
reports needed to change provider rates
Current Status: Xerox correction target date June 2015
Affidavit: Error with third-party liability insurance
Current Status: CORRECTED.
Ms. Brodie relayed that there was one report that had not
been able to be produced and Xerox hoped to resolve the
issue in June 2015. She stated that the problem was not
necessarily the report that was incorrect, but the way in
which information had to be loaded into the decision
support system to run the report correctly.
Ms. Brodie briefly stated that the third-party liability
insurance error had been corrected.
4:28:13 PM
Ms. Brodie slide 19: "Item Number 10: Responding to
Providers":
Affidavit: Xerox is not adequately responding to
provider calls.
Current Status: The number of calls being abandoned
has decreased significantly. This means Xerox has
increased its capacity to handle provider calls.
Ms. Brodie stated that upon the initialization of the
system the number of calls abandoned often reached 50
percent, a problem that Xerox had since rectified. She
clarified that an abandoned call was a call in which a
caller got tired of being on hold and hung up. Mr. Sherwood
added that there was always a certain percentage of call
abandonment expected. He never expected the percentage to
equal zero, but wanted to see the number decrease as it
had.
Ms. Brodie turned to slide 20: "Item Number 11: State Staff
Time":
Affidavit: Xerox system problems are requiring State
time and resources.
Current Status: State staff time spent working with
providers on claims problems has decreased
considerably in the last three months.
DHSS has one dedicated FTE remaining through
December 2015.
Ms. Brodie explained that as Xerox continued to work on the
corrective action plan and amended the defects that
affected claims payment and pricing, the call volume
decreased on a weekly basis.
Ms. Brodie detailed slide 21: "Item Number 12: Loss of
Federal Match":
Affidavit: Xerox problems are delaying enhanced federal
reimbursement to the State for the MMIS project.
Current Status: When the system is certified the State will
receive the 25% enhanced match. There is no loss of federal
funds.
CMS letter: "Upon certification?.the state may
retroactively claim the remaining 25%"
Ms. Brodie offered that there had been problems with
delayed enhancement federal reimbursement to the state for
the MMIS project. She offered that the state typically
received an enhanced federal medical assistance percentage
rate of 75 percent for the operations of the MMIS project.
However, because the system was not certified the federal
government notified the state that it was dropping its
federal participation rate to 50 percent. The state
received its notice nine months after the state went live
with the system. She stressed that the state had a letter
from the Centers for Medicare and Medicaid Services (CMS)
that upon certification of the system the state's federal
match percentage would resume at 75 percent retroactively.
Co-Chair Thompson clarified that the federal match
percentage of 75 percent would be retroactive from the
initiation of the system. He asked if there was a
compliance cutoff. Ms. Brodie responded that there was not
a cutoff for certification of an enterprise system but that
it typically took between 24 to 30 months for a system to
be certified.
Co-Chair Thompson wanted to confirm that that it took 24 to
30 months to get a system certified. Ms. Brodie responded
affirmatively.
4:31:30 PM
Ms. Brodie explained the chart on slide 22: "Item Number
13: Advantages to Providers":
Affidavit: The State is having to advance payments to
providers due to Xerox system problems.
Current Status:
$165 million in advance payments have been issued
$70 million has been recouped from providers;
collections are ongoing.
Ms. Brodie emphasized that the level of advance payments
was not increasing. She suggested that if the state was
having problems with payments to providers the amount would
be increasing. Providers were willingly repaying advances
they received.
Ms. Brodie scrolled to slide 23: "Item Number 14: General
Fund Shifting":
Affidavit: Legislative Audit disallowed manual
adjudication of advance payments, delaying State's
ability to receive federal match FY 2014.
Current Status: Correction in progress. As we process
these claims though the MMIS system, the State will be
able to receive federal reimbursement in FY 2015 and
FY 2016.
There is no loss of general funds.
Ms. Brodie relayed that the state had worked with CMS to
claim the advance payments that it had made in FY 14. The
state had taken care to review and document each claim in
which it paid out an advance to a provider. The federal
government was comfortable with the state seeking
reimbursement for the advance payments and drawing down the
state's federal match because of the thoroughness with
which the state took with each claim. She reported that
Legislative Budget and Audit disallowed the state's action
following the state's reappropriation period. Currently,
many of the claims had already processed through the system
and federal dollars had been drawn down. There were
approximately $95 million outstanding. She added that the
division was hoping to collect the bulk of the
reimbursement monies by June 30, 2015 and complete
collection by December 31, 2015.
Ms. Brodie continued to slide 24: "Item Number 15: Loss of
Insurance Payments":
Affidavit: System did not produce clean data to allow
state to bill third-party payers.
Current Status: CORRECTED.
Going out this week:
Commercial insurance billing: $37 million
Commercial insurance billing: $200 thousand
Medicare billing: $48 thousand
Going out next week:
Medicare B billing: $25 thousand
Ms. Brodie clarified that the second line should read,
"Commercial insurance recoupment: $200 thousand."
Ms. Brodie moved to slide 25: "Item Number 16: Xerox
Affidavit: Xerox did not sufficiently staff its Alaska
project.
Current Status: Xerox continues to recruit for these
positions. State is monitoring closely.
Mr. Brodie relayed that Xerox had provided additional staff
from other locations to assist with the Alaska project. The
state had been able to work with the temporary staff Xerox
provided and significant progress had been made. The state
continued to monitor the recruitment process closely.
4:35:26 PM
Ms. Brodie advanced to slide 26: "Item Number 17: Liability
of Audits":
Affidavit: We anticipated Xerox problems would cause
the State to have high error rates in federal Payment
Error Rate Measurement (PERM) audits
Current Status: Preliminary results from the PERM
audit in March, April, and May are very positive, with
lower-than-expected error rates.
Affidavit: Xerox's processing of editing claims does
not meet federal criteria.
Current Status: Xerox is working on it. This problem
is not unique to Alaska and exists throughout Xerox's
MMIS legacy and new systems.
Affidavit: State concerned about federal Office of
Inspector General (OIG) audit of IHS payment.
Current Status: Audit not finalized yet.
Ms. Brodie explained that six years prior the state had the
best PERM rating in the nation and three years prior Alaska
had the second-best rating. She supposed that the state
would be rated the worst in the nation due to the period of
time in which the PERM auditors were focused. She conveyed
that the auditors reported finding discrepancies and
associated dollar amounts much lower than the state
anticipated. The auditors reported finding a total of $18.3
thousand in discrepancies for 29 claims. More information
was forthcoming from the auditors. She was surprised and
encouraged by the correspondence the state had received
from the auditors to-date.
Co-Chair Thompson asked if the state had received any
penalties related to past errors in billing or if there
were potential penalties the state might receive. Mr.
Sherwood responded that the state had never received any
penalties related to the PERM audits that assess the
state's overall accuracy. Generally speaking in other
audits, the state simply had to repay any error amounts. He
clarified that the PERM audit was conducted in each state
every three years. He purported that until the current year
the state had been ranked number one or number 2 each time
it had been subject to a PERM audit. The state had very
high rates of accuracy regarding Alaska's claim payments.
Vice-Chair Saddler relayed that in Ms. Brodie's affidavit
the PERM rate for Alaska was 6 percent to 12.4 percent. He
wondered what rating Ms. Brodie anticipated from the audit
that was in progress. Ms. Brodie responded that the 6
percent to 12.4 percent was based on a study conducted by
Kevin Quinn of Xerox. She believed the state would receive
a rating between 5 to 8 percent.
Vice-Chair Saddler asked how a rating between 5 to 8
percent compared to previous ratings before the
implementation of the enterprise system. Mr. Sherwood
stated that for FY 08 the PERM rate equaled .47 percent. In
FY 11 the PERM rate was 1.4 percent.
Vice-Chair Saddler concluded that the state was looking at
a possible rate 10 times the rate the state had previously.
Ms. Brodie stated yes. She explained that the rate was
determined based on how a claim processed in its first
attempt. The rating had nothing to do with rectifying
errors. The period of time that the PERM audit reviewed was
from October 2013 through September 2014, a time when there
were many errors.
4:40:08 PM
Vice-Chair Saddler asked about potential financial impacts
of an error rate. Ms. Brodie answered that if there was an
error on a claim, the state had to reprocess the claim and
pay it correctly. If a claim was paid when it should not
have been paid, the state would be obligated to repay the
amount. If a claim paid incorrectly with the wrong dollar
amount, the claim would have to be reprocessed and either
the state would end up paying more or recouping funds from
a provider. She elaborated that any time a provider was
overpaid there was no limit on the amount of time for the
state to receive the money back from a provider.
Vice-Chair Saddler read page 11, lines 6 through 10 of Ms.
Brodie's affidavit:
We are expecting to have to pay back to the federal
government substantial sums. While DHSS can't know
what this number will be with certainty, it will
likely be between 6 percent and 12.4 percent of the
total amount of Medicaid claims paid, which is
approximately $1.2 billion.
Vice-Chair Saddler wondered about how much the state would
have to repay if the rate was 5 percent to 8 percent rather
than 6 percent to 12.4 percent. Ms. Brodie explained that
what the affidavit stated was of the $1.2 billion in claims
paid, the state had documentation from Xerox indicating
that 6 percent to 12.4 percent of the claims were paid in
error. Xerox's report looked at the end result of the claim
including any reprocessing of claims. The PERM only looked
at the initial processing of a claim. She offered that
processing incorrectly meant that a claim was either
overpaid or underpaid. She was not able to provide a dollar
amount because some were overpaid and some were underpaid
claims.
Vice-Chair Saddler suggested that the language was damning
and wanted to give Ms. Brodie an opportunity to clarify. He
stated that since the state had to pay back a substantial
sum he wanted to know if the amount was $60 million. Ms.
Brodie indicated that the division expected a very high
PERM error rate due to the period of time being evaluated.
However, she expressed her confidence in new date claims.
She furthered that claims found in error would be
reprocessed and literally the money would come from or to
the providers.
4:44:11 PM
Representative Pruitt referred to Ms. Brodie's estimate of
a 5 percent to 8 percent PERM error rate. He wanted to
understand the PERM error compared to her earlier
discussion about the system processing at greater than 90
percent accuracy. Ms. Brodie answered that the PERM error
reflected looking back in time. Whereas, the 90 percent
represented present day, new day claims. The presentation
slide showed that there were a significant number of errors
in claims since October 2013 through October 2014. Since
the state began working with Xerox on the corrective action
plan to address defects in the system and to implement the
change requests, claims were currently processing
expeditiously through the system. She reported a maximum of
9 days to process a claim currently and with accuracy.
Representative Pruitt wanted to understand how a 10 percent
error rate was an improvement to a PERM error rate of 5
percent to 8 percent. Ms. Brodie noted that the state
actually thought the claims were being paid at 95 percent
but did not have the resources to calculate a specific
percentage. She furthered that it would take an analysis of
every claim that went through the system. The state had
requested that its contractor perform such an analysis.
However, the contractor provided a similar figure to the
state's number. She relayed that she did not want to get
anyone's hopes up when there were issues still remaining in
the system.
Mr. Sherwood interjected that the PERM error measured
against the dollar value of the errors. He supposed that
relatively small errors counted against the state, but
looking at the payment accuracy it was small. He furthered
that when looking at the volume of claims the state
considered that there might be a number of errors but small
in value. The small value items did not get the priority
the big volume errors received. PERM was a very specific
error rate and auditors looked at more than just claims
processing. They actually evaluated policy and the
documentation of claims. Adequate documents were required
in order to support the claims.
Ms. Brodie revealed that the state knew that a number of
claims processed in the time period were paid a fraction of
a cent off and counted as an error against the state.
4:47:44 PM
Representative Pruitt supposed that if the state were to
have another perm audit done presently it would have a 95
percent accuracy rate or a 5 percent error rate. Ms. Brodie
responded affirmatively.
Representative Pruitt thought the 5 percent was close to
the rates listed in the affidavit. He felt that the update
concerning the system was more glowing than in the
affidavit. He wondered how the state would argue its case
to get restitution. Mr. Sherwood pointed out that the
affidavit reported that in the last PERM cycle in 2011 the
national error rate was 3.3 percent and was comprised of
approximately one third of the states in various stages of
maturity. He opined that with a very mature system in which
the state had 25 years to work out various issues it would
be operating at a very high level of accuracy. He continued
that a system tested within its first year of operation
would likely have a greater error rate than the national
average because of the time needed to identify and address
problems with a large system. He was encouraged by the fact
that the state's new system, in operation for only about 12
months, had an error rate close to that of a system in
operation for 20 years.
Representative Pruitt commented that part of the argument
in the state's case appeared based on estimating the
state's error rate. He thought that Mr. Sherwood was
contradicting the argument by indicated that the error rate
was anticipated because the system was new. He asked if the
state's case was harmed with such a contradiction.
Commissioner Davidson replied in the negative. She pointed
out that the affidavit was not a statement of the current
functionality of the MMIS system. Rather, it highlighted
historical problems that documented problems as well as
delays in the system to pursue a liquidated damages claim
against Xerox. She explained that the claim was for past
damage and past harm to the state. Similar to all
litigation, damages were assessed for a historical point in
time.
4:51:28 PM
Representative Pruitt understood Commissioner Davidson's
point. However, he felt that the state was more
comfortable, currently, with the original issue. He found
it interesting that currently the state did not have the
same challenges with the system that it did at the time it
filed litigation against Xerox. He remarked that what was a
problem previously was not a problem presently. He opined
that the state had a different standard currently than it
did prior.
Commissioner Davidson stated that she disagreed with
Representative Pruitt's characterization.
Ms. Brodie continued with slide 26. She reported that
Xerox' process editing claims was not firing in the proper
sequence. Xerox was working on a corrective action. She
added that any state using Xerox's MMIS legacy and new
systems were experiencing the same issue. She explained
that the state had an audit of the Indian Health Service
payment conducted by the federal Office of Inspector
General. The state was waiting for the audit to be
finalized before it would know its status.
Co-Chair Thompson asked if the state was still accessing
damages against Xerox. Ms. Brodie replied that the state
had been withholding payments from Xerox and applying them
to the liquidated damages.
Ms. Brodie continued to slide 27: "Items 18 and 19:
Mandates and Regulation:
Affidavit: Concern Xerox system would hamper State's
capacity to comply with Medicaid mandates and
regulation projects
Current Status: Capacity has improved and we are
addressing the mandates and regulation projects:
ICD-10 is on schedule.
Xerox provided T-MSIS proposal currently
negotiating
HIPAA Operating Rules is in progress.
Mandates were prioritized and the remaining will
follow completion of the above.
Early and Periodic Screening, Diagnostic, and
Treatment (EPSDT) in progress.
Free Standing Birth Center in progress.
New Waiver Regulations in progress.
Last EPSDT regulations in progress.
Ms. Brodie explained that the items listed on the slide
were all of the things listed in the affidavit that the
state had not addressed. Since the affidavit had been
written some items had been addressed including the ICD-10
which was on schedule. She indicated that progress had been
made on most of the items on the list since February 2015.
Prior to February no work had been done on the items.
4:54:05 PM
Ms. Brodie turned to slide 28: "Item Number 21: Future
Costs":
Affidavit: Built-in system problems may create more
costly maintenance.
Current Status: Xerox and the state are taking steps
to work cooperatively to reduce costs as much as
possible.
Ms. Brodie believed that some things were built into core
that belonged in relational tables. She relayed that Xerox
had agreed to review the items and make the necessary
adjustments. She was hoping to mitigate increased costs
going forward.
Ms. Brodie pointed to the last slide 29: "Reprocessing":
230,371 claims to be reprocessed that will result in a
payout
Have been prioritized and work is on-going
Can reprocess approximately 20,000 claims an hour
226,000 claims to be reprocessed that will result in
recoupment
Letters went out to these providers on May 1st
5,436 claims to be reprocessed no financial impact
Ms. Brodie concluded that the amount of work that remained
in cleaning up the system was significant. However, much
progress had been made since October 2014 and particularly
from February 2, 2015 when she filed the affidavit. She
admitted that the system was not perfect, there were still
items to resolve, and issues could result from the audit.
She expressed surprise about the results of the PERM audit
indicating a small number of claims with small dollar
amounts that had problems. She stated that she had been
shocked at the results.
Co-Chair Thompson asked the director to come back the
following day to answer further questions.
Representative Gara wondered, after all of the fixes, if
the system was processing claims at a better rate than the
state's old system. Ms. Brodie answered positively. She
furthered that the system could actually process more
claims than the previous system. The legacy system was
limited to a number of claims that it was able to process
each week.
Co-Chair Thompson asked the age of the previous system. Ms.
Brodie stated that the system was 30 years old.
Representative Gara asked if the system was processing
claims more accurately. Ms. Brodie responded that the
system was not necessarily processing claims more
accurately. However, the system was processing claims at
higher-than-historical levels. The state was aware that the
accuracy was greater than 90 percent.
Representative Gara asked about the $1.2 million of federal
reimbursement mentioned in the affidavit and the error in
payments. He asked how the error rate compare to the amount
Representative Saddler asked you about currently versus
prior to January 2014 when the administration took over.
Ms. Brodie stated that the error rate that the department
had seen had declined from October 2014 to the present. In
the course of correcting the claims processing, the
payment, the pricing, and the processing had been reduced
significantly.
4:58:12 PM
Representative Wilson wanted to know if the state was
forward funding providers as a result of errors. Ms. Brodie
stated that the department had one or two providers that
the state had issued advances to in the previous two weeks.
These providers had specific issues associated with their
claims which were being address to expedite their
processing.
Representative Wilson wanted to hear more about advances to
providers due to errors. She also wanted to address the
topic of lost providers resulting from issues with the
MMIS.
Vice-Chair Saddler remarked that the new system was not
more accurate than the previous system. He stated that she
had testified earlier that the error rate was twice the
national average and that it was up to 10 times the
accuracy of the previous system. He concluded that the new
system was not processing claims more accurately than the
old system and asked her if he was correct. Ms. Brodie
contended that currently the system was paying claims with
approximately 95 percent accuracy. She clarified that she
was reporting over 90 percent until she could verify the
percentage. She continued to respond that the accuracy
rates were similar from the legacy system at 96.4 percent
to the new system.
Vice-Chair Saddler commented that his math was off because
he had seen an error rate of .47 and now an error rate of
between 5 percent and 8 percent. Ms. Brodie explained that
the numbers were from letters that she had received
regarding the PERM audit to-date. More information was
forthcoming. It appeared from the information she had
received through the current day the state's error rate
would be lower than originally anticipated. Mr. Sherwood
clarified that the rate he was referring to was for federal
FY 14 which was October 2013 through September 2014 and not
the current period of time being addressed
Vice-Chair Saddler stated that at a rate of 95 percent
accuracy the state had an inaccuracy rate of 5 percent. Mr.
Sherwood responded that Representative Saddler was correct.
The PERM not only looked at the accuracy of the claims
payment system but assessed all possible errors that
occurred from the delivery of the service through the
payment of the service. Perm auditors also considered
whether a service was actually delivered, the service was
delivered in an appropriate way, whether there was adequate
documentation for the service, and whether the claim was
processed and paid correctly in the system after
submission.
HB 148 was HEARD and HELD in committee for further
consideration.
5:01:23 PM
Co-Chair Thompson reviewed the agenda for the following
day.
ADJOURNMENT
5:01:48 PM
The meeting was adjourned at 5:01 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 148 Affidavit of Margaret Brodie.pdf |
HFIN 5/11/2015 3:00:00 PM |
HB 148 |
| HB 148 HFIN Questions to HESS.pdf |
HFIN 5/11/2015 3:00:00 PM |
HB 148 |
| HB 148 HFIN Additional Questions 5 11 15 docx.pdf |
HFIN 5/11/2015 3:00:00 PM |
HB 148 |
| HB 148 Payment System.pdf |
HFIN 5/11/2015 3:00:00 PM |
HB 148 |
| HB 148 Provider Taxes.pdf |
HFIN 5/11/2015 3:00:00 PM |
HB 148 |
| HB 148 MMIS status.final ke.pdf |
HFIN 5/11/2015 3:00:00 PM |
HB 148 |
| HB 148 House Finance- Health Care Services - 5.11.pdf |
HFIN 5/11/2015 3:00:00 PM |
HB 148 |