Legislature(1993 - 1994)
02/24/1993 03:00 PM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE February 24, 1993 3:00 p.m. MEMBERS PRESENT Rep. Cynthia Toohey, Co-Chair Rep. Con Bunde, Co-Chair Rep. Gary Davis, Vice Chair Rep. Al Vezey Rep. Pete Kott Rep. Bettye Davis, arrived later Rep. Irene Nicholia, arrived later MEMBERS ABSENT Rep. Harley Olberg Rep. Tom Brice COMMITTEE CALENDAR HB 66: "An Act relating to municipal property tax exemptions for certain residences and to property tax equivalency payments for certain residents; and providing for an effective date." PASSED OUT OF COMMITTEE *HB 155: "An Act relating to audits of health facilities." HEARD AND HELD (* First public hearing.) WITNESS REGISTER GARREY PESKA, Vice President for Finance Alaska State Hospital & Nursing Home Association P.O. Box 240185 Douglas, Alaska 99824 Phone: (907) 364-2244 Position Statement: Supported HB 155 ELMER LINDSTROM, Special Assistant to the Commissioner Department of Health and Social Services P.O. Box 110601 Juneau, Alaska 99811-0601 Phone: (907) 465-3030 Position Statement: Opposed HB 155 KARL GARBER, Finance Director Our Lady of Compassion Care Center 4900 Eagle St. Anchorage, Alaska 99503 Phone: (907) 762-0237 Position Statement: Supported HB 85 GARTH HAMBLIN, Controller Bartlett Memorial Hospital 3260 Hospital Drive Juneau, Alaska 99801 Phone: (907) 586-2611 Position Statement: Supported HB 85 DONNA HERBERT Financial Consultants of Alaska 105 Municipal Way #304 Juneau, Alaska 99801 Phone: (907) 586-9565 Position Statement: Supported HB 85 GRANT ASAY, Administrator St. Ann's Nursing Home 415 Sixth St. Juneau, Alaska 99801 Phone: (907) Phone: (907) 586-3883 Position Statement: Supported HB 85 MIKE SANDERS, Audit manager Department of Health & Social Services P.O. Box 110602 Juneau, Alaska 99811-0602 Phone: (907) 465-3120 Position Statement: Opposed HB 85 JACK NIELSON, Executive Director Medicaid Rate Advisory Commission 4792 Business Park Blvd., #1 Bldg. F Anchorage, Alaska 99503-7124 Phone: (907) 562-1996 work Phone: (907) 344-9250 home Position Statement: Explained MRAC functions PREVIOUS ACTION BILL: HB 66 SHORT TITLE: MUNICIPAL PROPERTY TAX EXEMPTIONS BILL VERSION: SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR TITLE: "An Act relating to municipal property tax exemptions for certain residences and to property tax equivalency payments for certain residents; and providing for an effective date." JRN-DATE JRN-PG ACTION 01/15/93 84 (H) READ THE FIRST TIME/REFERRAL(S) 01/15/93 84 (H) CRA, HEALTH,EDUCATION&SS, FINANCE 01/15/93 84 (H) -3 ZERO FNS (2-DCRA, ADM) 1/15/93 01/15/93 84 (H) GOVERNOR'S TRANSMITTAL LETTER 02/09/93 (H) CRA AT 01:00 PM CAPITOL 124 02/09/93 (H) MINUTE(CRA) 02/10/93 286 (H) CRA RPT CS(CRA) 3DP 3DNP 1NR 02/10/93 286 (H) DP: OLBERG, BUNDE, TOOHEY 02/10/93 286 (H) DNP: DAVIES, WILLIAMS, WILLIS 02/10/93 286 (H) NR: SANDERS 02/10/93 286 (H) -3 PREVIOUS ZERO FNS(DCRA,DCRA,ADM) 1/15 02/22/93 (H) HES AT 03:00 PM CAPITOL 106 02/23/93 (H) HES AT 03:00 PM CAPITOL 106 02/23/93 (H) MINUTE(HES) BILL: HB 155 SHORT TITLE: MEDICAID RATE AUDIT PROCEDURES BILL VERSION: SPONSOR(S): REPRESENTATIVE(S) G.DAVIS,Brice,Olberg, Nordlund,Hudson,Sitton TITLE: "An Act relating to audits of health facilities." JRN-DATE JRN-PG ACTION 02/15/93 346 (H) READ THE FIRST TIME/REFERRAL(S) 02/15/93 346 (H) HES, FINANCE 02/17/93 373 (H) COSPONSOR(S): HUDSON,SITTON 02/24/93 (H) HES AT 03:00 PM CAPITOL 106 ACTION NARRATIVE TAPE 93-22, SIDE A Number 000 CHAIR TOOHEY called the meeting to order at 3:06 p.m. and noted members present. She also noted artwork on the committee room walls provided by the second through fifth grade students at Turnagain Elementary School in District 13, which she represents. She brought HB 66 to the table and asked for committee discussion, noting that the meeting was being teleconferenced. HB 66: MUNICIPAL PROPERTY TAX EXEMPTIONS Number 028 REP. CON BUNDE said the only change in HB 66 from the version discussed at the meeting on February 23 was a change in the effective date to January 1, 1993, for the convenience of municipalities. He moved passage of HB 66 from the committee with individual recommendations. CHAIR TOOHEY, hearing no objections, declared HB 66 passed from committee with individual recommendations. Number 056 HB 155: MEDICAID RATE AUDIT PROCEDURES CHAIR TOOHEY brought HB 155 to the table and announced the hearing would be teleconferenced, listen-only. (Rep. Nicholia arrived at 3:11 p.m.) Number 073 REP. GARY DAVIS testified as PRIME SPONSOR OF HB 155, saying he had been approached by a constituent connected with a health facility with concerns about audits. He said the bill attempts to simplify a complicated and technical process. Rep. G. Davis then read his sponsor statement, which is on file in the committee room. In the statement, he said the bill proposes to add elements of clarity, consistency and timeliness now lacking in the Medicaid audit process. The appeals process established when the Medicaid Rate Advisory Commission (MRAC) was created has broken down due to the lack of a well-defined audit process, to the point that 40 rate appeals are outstanding, he said. The bill is designed to establish a schedule for the audits to be competed in a timely fashion, and to address unacceptable departmental delays that lead to situations in which the health care facility's costs have risen while increases in rates remain under question, he said. Number 120 REP. G. DAVIS said he has tried to keep all parties informed about the bill's provisions, to ensure proper debate and agreement. He said he had received a lot of input from the Alaska State Hospital & Nursing Home Association, and invited a representative of the association to testify. Number 125 GARREY PESKA, VICE PRESIDENT FOR FINANCE FOR THE ALASKA STATE HOSPITAL & NURSING HOME ASSOCIATION, testified in Juneau supporting HB 155. He read a statement, which is on file in the committee room, outlining the main features of HB 155. In summary, he said HB 155 would define the department's authority to audit health facility records; determine the accuracy of information used to set Medicaid rates and assure compliance with the law; set deadlines for facilities to file year-end reports; set deadlines for the department to complete preliminary reviews of year-end reports, desk audit reports, field audit reports and preliminary and final audit reports; allow facilities to submit written responses before final audit reports are finalized; specify minimum information to be included in audit reports; allow facilities to request formal administrative hearings on disputed rates; prevent implementation of disputed adjustments before final administrative or judicial hearing is issued; set deadlines for completion of final audit reports; define the process for MRAC staff use of audit reports and rate setting; allow facilities to report errors in rates and provide for resulting adjustments; and specify the process for late audit report adjustments to affect future rates. Number 200 REP. BUNDE asked Mr. Peska and Rep. G. Davis a clarifying question, whether the current auditing process was taking place or not. MR. PESKA answered, saying the audit process was taking place, but that the delays had left most facilities with outstanding audits from at least five years ago. He said facilities feel exposed to risks for those past years for which audits have not been completed. REP. BUNDE asked why the audits have not been completed and why HB 155 requires additional auditors to be hired when there should already be enough auditors to do the work. Number 220 REP. G. DAVIS said each facility must have an independent audit. He said the issue was the additional audits the state must perform under federal Medicaid requirements, for which there are significant backlogs. As the facilities charge fees based on their established rates, which may increase after an audit, any delay in the state audit can mean the facilities cannot charge higher rates. He said the departmental position paper explains the delays in an admittedly complex and intricate audit procedure. Number 250 REP. BUNDE asked whether passage of the bill would simplify the audit procedure or whether additional auditors would resolve the problem. REP. G. DAVIS said the bill attempts to streamline the process. REP. VEZEY said the fiscal notes show staggering costs for the bill and asked for an explanation. MR. PESKA deferred such an explanation to the department, but said the association also found the fiscal notes staggering. He said he did not see how the bill would lead to $4 million in embezzlement or fraudulent costs from the facilities. He said he believed the department's 11 auditors and budget analysts were sufficient to perform audits on 27 facilities. REP. VEZEY asked Mr. Peska whether he believed the bill would allow the audits to be completed quicker. MR. PESKA answered yes. Number 287 ELMER LINDSTROM, SPECIAL ASSISTANT TO THE COMMISSIONER OF THE DEPARTMENT OF HEALTH AND SOCIAL SERVICES (HSS), testified in Juneau supporting HB 155. He presented written comments, which are on file in the committee room. In summary, his testimony indicated that the department adamantly opposes the bill, saying it would impede its ability to perform effective audits of facilities, leading to increased Medicaid facility costs and possible loss of some federal funds for Medicaid programs. He said the issue was a classic conflict between a regulatory agency which must help the state exercise fiscal prudence in purchasing health care for Medicaid clients, and the interests of those being regulated. He said opposition to the bill does not mean hospitals and nursing homes are violating the law. The FY94 budget calls for HSS to pay $114.4 million to health care facilities, a sum exceeding many other government expenditures. Medicaid facility expenditures have risen sharply in the past, and will rise an estimated 5.9 percent in FY94, he said. In the face of such expenses and the need to provide necessary care, the department must contain costs and it needs a credible audit process to do so. (Rep. Bunde left at 3:20 p.m. and returned at 3:25 p.m.) MR. LINDSTROM continued his testimony, saying HB 155 puts all the responsibility for timeliness on the department and none on the facilities; it does not take into account the quality of a facility's response; it sharply limits the time to perform audits; it limits the scope of field audits by requiring notification of the areas to be reviewed; it would require the MRAC to calculate rates twice; it shifts the burden of correct reporting from the facility to the department; and it requires the inclusion into statute of excessively precise provisions, which would not permit enough flexibility to respond to future changes in the regulatory environment. He added that time limitations would bar verification of home office costs for facilities headquartered out of state, and the MRAC would be precluded from performing analysis beyond items noted in an audit exception. MR. LINDSTROM said the Division of Legislative Audit recommends statutory revisions to ensure the department can use audits to identify and recoup inappropriate payments to health care facilities. He said the state may not now recover overpayments to facilities, but must reimburse the federal government for the federal governments's share of the overpayment. He acknowledged concerns with audit delays, but said the department is making progress and anticipates becoming current by the end of FY94. However, HSS does support legislation to streamline audits to help bring the current backlog up to date and to keep them up to date, none of which goals would be accomplished through HB 155, he said. He concluded, repeating the department's opposition to HB 155 and inclination to recommend a gubernatorial veto should the legislature pass it. REP. VEZEY asked for clarification as to the budgetary impact of the bill. MR. LINDSTROM said the state plans to pay $114.4 million under its facilities budget classification, it's half share of Medicaid payments. There is another classification for Medicaid payments, the non-facilities classification, he said. Number 448 REP. VEZEY asked Mr. Lindstrom to comment on the fiscal note showing the expense of $4.5 million to audit expenditures of $114.4 million, which he considered staggering. MR. LINDSTROM said the fiscal note on medical facilities assumes the state would pay out an extra $4 million to medical facilities in the absence of a credible audit process. He said the department can prove audits have saved money in the past, and the lack of an audit process might affect how facilities report expenses. He denied alleging fraud, but said human nature being what it is, charges to the state would probably increase in the absence of thorough audits. The second fiscal note, on the department's audit component, contains the cost for five additional auditors and a data processing technician to do the work required by HB 155. (Rep. B. Davis arrived at 3:35 p.m.) REP. VEZEY asked a clarifying question. MR. LINDSTROM answered that the $400,000 on one fiscal note was for additional state workers, and the $4 million in facilities payments was extra payment to facilities. REP. VEZEY asked why the state would need to add more staff for a reduction in audit control and effectiveness. MR. LINDSTROM said that, while the department would add staff to try to comply with HB 155, ultimately there would not be an effective audit process. REP. VEZEY repeated his question. Number 485 MR. LINDSTROM said the state would have to go through a more elaborate and expensive audit process requiring extra staff, but it would result in a series of audits that were on appeal, incomplete or ineffective, with a decrease in audit control effectiveness and a $4 million increase in facilities costs. Number 500 REP. VEZEY asked if the department was predicting that passage of the bill would bring about an inefficiency in the system. MR. LINDSTROM answered yes. (Rep. Nicholia left at 3:40 p.m.) Number 510 CHAIR TOOHEY asked whether the $4 million would represent overcharges from the facilities. MR. LINDSTROM answered that the fiscal note indicated that. Number 515 REP. G. DAVIS asked whether the current law set a 165-day limit. MR. LINDSTROM said it might be best to have other departmental staffers answer more detailed questions on the current law and its provisions. Number 528 KARL GARBER, FINANCE DIRECTOR, OUR LADY OF COMPASSION CARE CENTER in Anchorage, and CHAIR of the ASHNHA COMMITTEE that developed HB 155, testified in Juneau supporting HB 155. He said the bill is aimed at requiring timely auditing and developing a clear methodology of incorporating audit findings into reimbursement rates. Within four months of the end of a fiscal year, he said, facilities must submit year-end reports including a cost report and an audited financial statement, or independent audit. The cost report identifies allowable costs and allocates them to revenue producing cost centers, and divides the allocations between Medicaid and Medicare. Mr. Garber said the state audits those two components of the year-end report to make sure the two agree, and then performs its own compliance audit in accordance with state statutes and regulations. Number 557 MR. GARBER said HB 155 would require the department to issue its final audit report five months after the facility issued its year-end report, which he described as a fair requirement. He disputed the department's claim that the bill would result in $4 million in additional state expense. He said it takes the department much longer than five months to complete its final audit reports, and he distributed a chart (on file in the committee room) showing how long it has taken the state to complete its audits of Our Lady of Compassion, which shows some audit appeals from 1986 are still outstanding. Mr. Garber said even the state testified that the audits need to be done quickly, as the state cannot recoup costs retroactively. He read from his chart on the past-due status of audits from past years and noted some of the problems those delays pose. TAPE 93-22, SIDE B Number 000 MR. GARBER said he believed other facilities have the same problems with audits as does Our Lady of Compassion. But, he believed the current audit chief inherited the problem with late audits, and the auditors were digging themselves out of their hole and they are on the verge of becoming current without having to add extra staff. He said, therefore, that HB 155 did not require extra staff. CHAIR TOOHEY asked Mr. Garber to conclude his remarks as time was limited. (Rep. Nicholia returned at 3:50 p.m) MR. GARBER said HB 155 would also allow the facilities to challenge the department when it incorporated preliminary audit findings into prospective rates without affording the facilities the opportunity to challenge the rates. REP. G. DAVIS said Mr. Garber's testimony demonstrated the need for more timely audits, and referred to a situation in which changes in the way the HSS department classified costs left a particular facility with a projected $390,000 deficiency for 1993 budgeted Medicaid reimbursement. MR. GARBER said that situation was a complicated technical matter concerning how rates are set. He said the current, 1993 rates are set not only on 1991 year costs but also on the costs of other years. It was not that the department disallowed costs, he said, but rather that the department had classified the costs in question as ancillary costs instead of routine costs, as they had previously done. While Mr. Garber said he believed the problem would be resolved once the reclassification was retroactively applied to prior years, he said the discrepancy and the problems it raised demonstrate the need for the remedies contained in HB 155. Number 093 CHAIR TOOHEY asked a clarifying question. She said that Medicaid will pay a certain amount of money for a certain service, which will include the facility's overhead costs. She said it appeared to her that the department believed Our Lady of Compassion was improperly inflating the charges allowable, and thus collecting more than its due from Medicaid. (Rep. Nicholia departed at 3:54 p.m.) MR. GARBER answered Rep. Toohey, saying that was not the case, but the scenario she described was one of a multitude of possibilities. CHAIR TOOHEY said the committee needed to understand the issue if it is to properly consider a bill. She created a hypothetical situation in which the facilities were to include the cost of snowplowing in the overhead element of the cost for a bed bath. She then asked Mr. Garber what would prevent the facility from trying to add that charge in, even if the state found out about it once and disallowed the cost. She asked if there was a list of what elements could properly be included in an allowable charge. (Rep. Nicholia returned at 3:56 p.m.) Number 130 MR. GARBER addressed the hypothetical situation. He said that if the facility had thought it was acting properly by including the cost of snowplowing in the charge for a bed bath, and continued to do so after the charge was disallowed by the state, then such an action would be fraudulent according to federal regulations. CHAIR TOOHEY asked whether there was a list of allowable expenses. MR. GARBER answered that the regulations are not quite so specific on every issue and there is room for interpretation of regulations. He said the audit bill would allow for the state to take notice, through audits, of such possible fraud. Number 153 REP. VEZEY expressed concern that the bill would require new staff, as he felt the government should not be expanding its work force. He asked how much it would cost the facilities to have a private auditing or accounting firm perform the audits required under state regulations. MR. GARBER answered that the cost would depend on the facility and on the scope and rigor of the audit. With the experience of eight years as a certified public accountant, and assuming an auditor relied on audited financial statements provided to him, Mr. Garber made a very rough guess that such audits could be performed for $20,000. REP. VEZEY asked how that figure compared to the current cost of performing such audits. MR. GARBER said the facility now pays $27,000 per year for full audits by outside auditors as required by state regulations and statutes. REP. VEZEY asked if such audits were acceptable for the other audit purpose. MR. GARBER said no, because the audits do not study allowable costs in detail. The federal government requires states to have an additional audit of the cost report, a document different from the financial statement. The validity and reasonability of costs are explained by the financial statement. The financial statement is then tied to the cost report to have a common starting point, he said. Then the auditors must audit how costs are classified on the cost report, he said. Number 213 REP. VEZEY asked why timeliness of audits is important. MR. GARBER responded, "Well, I do believe that the Cordova case (the 1990 Alaska Supreme Court decision in Cordova v. State of Alaska) has established that if the department continues to audit retroactively and so late, that they will never be able to recoup dollars back. They could take those and put 'em into future years' rates. I believe that it is therefore in, in the department's best interest to audit timely. This bill would require that timely audit. It would also, some of the things that would happen, wouldn't be coming in right at the end of the year. They would have to come in within five months. And I could plan on that, that they were going to be here in that time. I could then respond to their questions timely. Knowing what the ground rules are, we can then manage to those. But right now there aren't any ground rules, and it's more hit and miss." REP. VEZEY asked if he would be willing to pay the $20,000 to have a timely audit. MR. GARBER answered that it would depend on what he would get for the money, which was just an estimated cost. REP. VEZEY asked what was the value of the audit. Number 224 MR. GARBER said the value of the audit is that it helps protect public funds and ensures they are being spent in accordance with statutes and regulations. Timely audits, such as are provided for in HB 155, would allow the department to collect all due them, he said. Number 255 REP. VEZEY asked if Mr. Garber advocated the additional expenditure of $400,000 for more auditors. MR. GARBER answered no, he did not believe the state needed more auditors to remain current. He said he believed the state auditors have progressed in cleaning up the backlog of work, and that, once they have, would be able to remain current. Number 285 GARTH HAMBLIN, CONTROLLER FOR BARTLETT MEMORIAL HOSPITAL in Juneau, testified in Juneau supporting HB 155. He supported establishing procedures to ensure timely audits. He said having audits outstanding is frustrating. He noted he has spent lots of his time answering questions on past years' audits. He said he is dealing with cost reports written years ago by long-gone staffers. He said his hospital is subject to independent audits, and to audits for Medicaid and Medicare. Though Medicaid pays for only 10 percent of his business, he spends a tremendous amount of time dealing with past audits, he said. CHAIR TOOHEY asked who sets limits on allowable costs. MR. HAMBLIN said there is no list, but Medicare sets allowable costs for specific services, and tradition and practice also help determine allowable costs. Medicare does not consider televisions allowable costs. CHAIR TOOHEY asked whether much confusion could be alleviated by the presence of such a list. MR. HAMBLIN said such a list would help, and there was work being done on the reimbursement system, possibly to link it more closely to the Medicare system. Number 330 REP. VEZEY asked what would happen if HB 155 did not pass, if the state hired no additional auditors, and the auditors could not meet the required audit schedules and deadlines. MR. HAMBLIN answered that he believed most audits have been done in a timely manner; the problem lies more in the department's inherited backlog of work, and the existing staff could keep up with its current work. But, he said, if the auditors cannot keep up, then the facilities would continue to face contingent liabilities in the form of uncompleted audits. REP. VEZEY asked the reason for HB 155, if the health care facilities felt the current auditing staff could keep up with its work, excluding the backlog. MR. HAMBLIN said the backlogs remain and there is a need to have timely audits. REP. VEZEY commented that it is the backlogged audits, not the current audits, that are the problem. MR. HAMBLIN agreed. REP. VEZEY said that addressing the backlogs would eliminate the problem. Number 350 MR. HAMBLIN said it was important to establish timeliness in regulation to prevent or warn of future backlogs. REP. VEZEY repeated his earlier question of what would happen if the department put a new schedule into law but did not fund extra staffers. MR. HAMBLIN said that was a tough question, but it would lead to backlogs. REP. VEZEY asked if that would create the same situation as currently exists. MR. HAMBLIN said audits in recent years have been handled in a more timely manner. Number 369 DONNA HERBERT, OF FINANCIAL CONSULTANTS OF ALASKA, testified in Juneau supporting HB 155. She read a statement, a copy of which is on file in the committee room. In summary, the statement said the facilities she represents want the audit procedure set in statute, as Medicaid regulations concerning reimbursement are vague, and interpreted differently each year. Many facilities' current Medicaid reimbursement rates were cut based on audits they had never seen, which they believe is illegal, she said. Adjustments need to be made before rates are reduced, she said, to avoid lengthy appeals and the difficulty of correcting simple human errors. Each of the 11 facilities she represents has five or six years of outstanding audits, none on appeals, she said. Even if the department gets caught up in the next year, there are no bars to the auditors again falling behind, she said. The facilities face penalties for being late, but the department does not. The facilities believe a new statute must establish deadlines, define audit process and protocol, allow adequate response to audit adjustments, outline the financial impact of adjustments, establish time lines for proper notification and response time, and limit adjustment of rates until after final audits are completed. Number 421 REP. VEZEY said it seemed to him that most of Ms. Herbert's testimony did not concern this bill. MS. HERBERT disagreed, saying her testimony addressed the audit procedures, including audit deadlines, notification and response deadlines, the requirement for published audit protocol, and the bar on rate reductions before completion of final audits, which she called the most important provision of HB 155. Number 437 REP. VEZEY asked what the consequences of the bill would be if the state did not have the resources to comply with the time lines. MS. HERBERT said it is necessary to consider how many auditors the state needs to deal with 27 facilities, some of them quite small facilities. Once the audit staff overcame its backlog, she said, they should be able to keep up with their workload. If they could not do the work, they would need more auditors. Number 458 REP. VEZEY asked what happens if the state did not have the money to hire more auditors. Testimony had indicated the auditors were behind but were making progress, and he questioned whether a little more money for staff would solve the problem. MS. HERBERT said HB 155 would bind both the state auditors and the facilities to clear timelines, which would clarify and simplify the procedure. She said the current regulations require an audit but set no deadline, leading inevitably to backlogs. Number 477 GRANT ASAY, ADMINISTRATOR AT ST. ANN'S NURSING HOME in Juneau, testified in Juneau supporting HB 155. He read a prepared statement, which is on file at the committee room. In summary, the statement said that the facility, which receives 90 percent of its funding through Medicaid, received its last finalized Medicaid audit for FY85, and all subsequent audits are preliminary. He said the current backlog interferes with his facility's ability to set budgets and rates in a fair and timely manner. He said the bill establishes fair, workable timelines to allow appropriate responses to prevent long delays in audits and the problems they bring. Number 516 CHAIR TOOHEY asked several clarifying questions concerning the process of rate adjustment or cost disallowance in a specific case. MR. ASAY answered that in the specific case, the facility was given a rate of $208 per day. After the audit adjustments were sent to the rate-setting agency, the daily rate was lowered to $168 per day. He attempted to answer the question Rep. Vezey had put to several other witnesses, which was, what would happen if the legislature passed HB 155 but did not fund extra positions. Mr. Asay said he would then recommend the auditors devote more of their time to larger facilities and to those facilities which depended more on Medicaid for funding. REP. VEZEY asked why representatives of the health care industry brought forth HB 155 in the face of vigorous opposition from the Department of Health and Social Services, with which they operate in partnership and which has the power of veto. MR. ASAY answered that he was not on the technical committee that produced the proposal that led to HB 155, but said the industry believed there had to be some improvement in the audit procedure and came up with the bill as a means to that end. (Rep. Bunde left at 4:32 p.m.) TAPE 93-23, SIDE A Number 000 MR. LINDSTROM said much of the testimony referred to the backlog of work on audits. He stated several witnesses said the backlog itself was the problem and suggested that if he could convince the committee that the department was addressing the backlog, then the need for HB 155 might be obviated. Number 034 MIKE SANDERS, AUDIT MANAGER FOR THE DEPARTMENT OF HEALTH & SOCIAL SERVICES, testified in Juneau and gave background information on the backlog in audit work and answered questions. He said there were no audits at all under the prospective payment system, which started in the mid-1980s. He said the federal government later began requiring such audits, and the state has not yet caught up. A few years ago, the state began contracting some audits out, and now employs Peat Marwick, KPMG, as a contract auditor, though the state is still reviewing most of the audits and cannot yet issue them to the providers. The Cordova case bars the state from recovering funds from facilities based on audits that were not done prospectively, and the facilities should suffer no fiscal impacts for the back audits, he said. However, the federal government requires that it be compensated for overcharges revealed by late audits. Answering Rep. Vezey's earlier question about what would happen if the state could not get its audits up to date, MR. SANDERS said the federal government would demand the return of its 50 percent contribution to Medicaid for any audit findings that were not done on a current basis, according to the Cordova case. He said the department would encourage legislation to address that problem. Number 089 MR. SANDERS acknowledged the complexity of the issue. He referred to the $4 million fiscal note and said he has never seen evidence of fraud or abuse in cost reports from facilities, though there are differences of interpretation. He stated the $4 million represents money the state could not collect from facilities if the state did not get the audits done in time and the federal government demanded money back. The $4 million would all come from state general funds, he said. Mr. Sanders said two of his five current auditors work full time on the HSS grant program, and three work only on Medicaid audits. He said the staff can perform its work without the extra burdens imposed HB 155, but would need five additional audit staffers if the bill became law. REP. G. DAVIS asked the total amount of the state contract with Peat Marwick, and asked the per-audit charge. Number 140 MR. SANDERS answered that the total contract was approximately $180,000, and the company had performed 55 audits, most of them desk audits. He said the state had not yet received the last 10 audits dealing with years before 1989. REP. G. DAVIS asked Mr. Sanders if the auditors would be able to remain current with their audit work once they achieved their stated goal of getting current in the next year, and whether the department would need the five extra staffers to remain current. MR. SANDERS answered that the department expected to be current within a year, and to remain current thereafter with its current staff, though it would take a lot of effort. He defined currency as having audited the base periods to be used in the next rate-setting cycle. For example, they would be current if they had audited FY92, necessary to establish a base period for the FY94 rate-setting cycle. Number 182 REP. G. DAVIS asked Mr. Sanders to differentiate between a desk audit and a field audit. MR. SANDERS said a desk audit is a less thorough audit which relies on information provided from the facility, and which the auditors use to generate questions to the facility to make sure the costs are properly allocated. A field audit is a more thorough audit, done less frequently, which requires a physical visit to the site of the facility and more thorough examinations. Number 209 REP. VEZEY asked if the department's operating schedule was stated in the Code of Federal Regulations. MR. SANDERS answered that this is basically correct, but the schedule is also influenced by the Cordova case. He said he did not know how other states operated, but said a statute of limitations is built into the statutes; that, along with the Cordova decision, means that if adjustments are not proposed by the time of rate calculation, the state cannot recover costs based on those adjustments. (Rep. Bunde departed at 4:45 p.m.) (Rep. Bunde returned at 4:46 p.m.) REP. VEZEY asked about the different schedules. He said there is the seven-year schedule set by the federal government. He then asked about the schedule set under the Cordova decision. MR. SANDERS replied that this decision gives the state auditors until the prospective rate is calculated for the forthcoming year, which occurs about 30 days before the start of the year. That is, when FY94 starts, the state must have audited adjustments on the table before the rate calculation is done. If the audited adjustments are not done by that time, and it is determined that the state overpaid the facility, the federal government requires it be repaid their half-share of the overpayment. Because the Cordova case requires that the facility be held harmless for such adjustments, the state must make up the payment to the federal government, he said. Number 245 REP. VEZEY asked whether the Cordova case gave the state until 11 months after the end of a fiscal year to conduct an audit and have its reports done. MR. SANDERS said yes. REP. VEZEY stated he had difficulty following the schedules in HB 155, and he asked Mr. Sanders to explain how the bill would change the timeliness. MR. SANDERS said he did not like the bill because it had so many schedules and trip wires. He expressed fear that the bill's complexity would make it difficult to discuss in the committee meeting. He said some elements of the bill could become decent regulation with a lot of work. The department might not necessarily support legislation allowing recovery of these costs and establishment of a reasonable statute of limitations to address the concerns raised by the Cordova case, he noted. Number 266 REP. G. DAVIS asked Mr. Sanders whether HB 155 would restrict the HSS department to such a strict audit schedule that it would miss some costs that would otherwise have been disallowed. MR. SANDERS answered yes. REP. G. DAVIS asked about the role of the Medicaid Rate Advisory Commission (MRAC). CHAIR TOOHEY announced the committee meeting would continue past 5:00 p.m. REP. B. DAVIS announced she had to leave at 5:00 p.m. CHAIR TOOHEY asked when the prospective payment program started. MR. SANDERS answered that the program started in 1983, and was phased in over a few years, taking full effect in 1985. Number 292 CHAIR TOOHEY asked whether one year would be sufficient to clear up the backlog. She said spending $4 million to clean up a mess that could have been alleviated from the beginning is a waste of money. She asked if it was possible to give the department a year to eliminate the backlog and then consider the bill again in a year if the backlog was not eliminated. MR. SANDERS said he was committed to cleaning up the backlog in a year, and the cleanup process and the long delays had generated problems on its own. Number 325 REP. G. DAVIS asked a rhetorical question on the need for HB 155, if the problem with the backlogs was being solved. He answered that the bill is needed to prevent or warn of such backlogs, so that a contract auditor could be hired to help prevent the backlog. Number 335 JACK NIELSON, EXECUTIVE DIRECTOR OF THE MEDICAID RATE ADVISORY COMMISSION, testified in Juneau, explaining the MRAC's role in the rate-setting process. He gave a detailed presentation on the MRAC, background information on which is on file in the committee room. (Rep. B. Davis departed at 4:54 p.m.) (Rep. Vezey departed at 4:59 p.m.) Number 438 CHAIR TOOHEY announced that, since the meeting was running late, and since several members of the committee had left, the committee would take up HB 155 again at the next available day. She then ADJOURNED the meeting at approximately 5:05 p.m.