Legislature(1993 - 1994)

02/24/1993 03:00 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                                
  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,                        
  01/15/93        84    (H)   -3 ZERO FNS (2-DCRA, ADM)                        
  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,                          
  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                                                                   
  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                       
  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                                                                   
  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                    
  (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                      
  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                     
  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                 
  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                    
  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                                                                   
  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                        
  (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                     
  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                       
  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                      
  Number 285                                                                   
  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                                                                   
  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                                                                   
  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                 
  (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                    
  Number 034                                                                   
  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                    
  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                 
  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                      
  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                     
  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                                                                   
  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.                                                      

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