Legislature(2017 - 2018)CAPITOL 106

02/16/2017 03:00 PM HEALTH & SOCIAL SERVICES

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Audio Topic
03:04:56 PM Start
03:05:28 PM Presentation: Study Overview for Privatization of Alaska Psychiatric Institute
03:31:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued from 2/7/17--
+ Presentation: PCG Report Covering AK TELECONFERENCED
Psychiatric Institute Privatization by Dept. of
Health & Social Services
Presentation will end prior to DHSS
Subcommittee meeting at 3:30 pm
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
      HOUSE HEALTH AND SOCIAL SERVICES STANDING COMMITTEE                                                                     
                       February 16, 2017                                                                                        
                           3:04 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Ivy Spohnholz, Chair                                                                                             
Representative Sam Kito                                                                                                         
Representative Geran Tarr                                                                                                       
Representative Jennifer Johnston                                                                                                
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bryce Edgmon, Vice Chair                                                                                         
Representative David Eastman                                                                                                    
Representative Colleen Sullivan-Leonard                                                                                         
Representative Matt Claman (alternate)                                                                                          
Representative Dan Saddler (alternate)                                                                                          
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION: STUDY OVERVIEW FOR PRIVATIZATION OF ALASKA                                                                        
PSYCHIATRIC INSTITUTE                                                                                                           
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
COY JONES, Consultant                                                                                                           
Project Leader                                                                                                                  
Public Consulting Group (PCG)                                                                                                   
Austin, Texas                                                                                                                   
POSITION   STATEMENT:      Presented   the   PCG   findings   and                                                             
recommendations for privatization of API.                                                                                       
                                                                                                                                
RANDALL BURNS, Director                                                                                                         
Central Office                                                                                                                  
Division of Behavioral Health                                                                                                   
Department of Health and Social Services                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions during the discussion                                                                 
for privatization of Alaska Psychiatric Institute.                                                                              
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:04:56 PM                                                                                                                    
                                                                                                                                
CHAIR IVY SPOHNHOLZ  called the House Health  and Social Services                                                             
Standing   Committee    meeting   to    order   at    3:04   p.m.                                                               
Representatives Spohnholz, Kito, Tarr,  and Johnston were present                                                               
at the call to order.                                                                                                           
                                                                                                                                
^Presentation:  Study   Overview  for  Privatization   of  Alaska                                                             
Psychiatric Institute                                                                                                         
    Presentation: Study Overview for Privatization of Alaska                                                                
                     Psychiatric Institute                                                                                  
                                                                                                                              
3:05:28 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ announced  that the only order  of business would                                                               
be the  conclusion of the  presentation by the  Public Consulting                                                               
Group   regarding  the   privatization   of  Alaska   Psychiatric                                                               
Institute  to  the  House Health  and  Social  Services  Standing                                                               
Committee meeting of February 7.                                                                                                
                                                                                                                                
3:06:17 PM                                                                                                                    
                                                                                                                                
COY JONES,  Consultant, Project  Leader, Public  Consulting Group                                                               
(PCG), returned  attention to the PowerPoint  titled "Feasibility                                                               
Study  for Privatization  of  Alaska  Psychiatric Institute"  and                                                               
directed  attention to  slide 10,  "Staffing  Requirements."   He                                                               
spoke  about  the  reduction  of   full  time  employees  at  the                                                               
administrative level,  and reported that PCG  assumed there would                                                               
be  built-in  efficiencies for  a  private  entity, as  a  larger                                                               
enterprise could  better absorb quality assurance,  IT, and other                                                               
functions.   He  reported  that the  minimum  levels for  nursing                                                               
staff had  been determined  by staff  levels at  comparable small                                                               
peer  hospitals,  as  well  as   industry  recommendations.    He                                                               
reported that  the benchmark  in the  industry was  a ratio  of 1                                                               
registered nurse (RN) for 6 patients,  and that this was close to                                                               
the API  ratio.   He pointed  out that  the PCG  recommended cuts                                                               
were not to  RNs but to psychiatric nursing aides.   He discussed                                                               
the minimum staffing requirements  for the hospital, sharing that                                                               
API required 18.1 nursing staff at  any time in the hospital, and                                                               
that PCG recommended 21.2 nursing staff at any given time.                                                                      
                                                                                                                                
MR. JONES  moved on  to slide 12,  "Benefits and  Drawbacks: Full                                                               
Privatization,"  and  recounted  the   options  to  include  full                                                               
privatization, joint  operating agreement  between the  state and                                                               
the   private  entity,   current   state   management  with   new                                                               
efficiencies, and component outsourcing.   He discussed Option 1,                                                               
Full  Privatization,   and  shared  a  high   level  cost-benefit                                                               
analysis.   The  benefits  for full  privatization  included:   a                                                               
private contractor  would provide  more flexible  compensation to                                                               
improve  recruitment and  retention of  qualified employees;  the                                                               
Division   of  Behavioral   Health  would   act  as   a  contract                                                               
administrator and no longer provide  acute inpatient care and day                                                               
to day  management duties; and,  a private contractor  would have                                                               
the autonomy  to implement  necessary changes,  improvements, and                                                               
efficiencies at API.                                                                                                            
                                                                                                                                
MR.  JONES  detailed  the  drawbacks  to  full  privatization  to                                                               
include:   it  would   be  cost   prohibitive,  even   under  the                                                               
recommended staffing scenario,  and would not save  money for the                                                               
State of  Alaska; there would  be termination liability  costs to                                                               
the retirement  fund; it would  be necessary to minimize  some of                                                               
the  contract  monitoring  costs,  or not  build  in  the  strong                                                               
safeguards to  ensure safe levels  of staffing; and, it  would be                                                               
necessary to cut corners that were not safe to cut.                                                                             
                                                                                                                                
3:16:07 PM                                                                                                                    
                                                                                                                                
MR.  JONES  directed attention  to  slide  13, which  depicted  a                                                               
thumbs down  for Option 1,  declaring that this option  would not                                                               
produce the necessary savings.                                                                                                  
                                                                                                                                
3:16:28 PM                                                                                                                    
                                                                                                                                
MR.  JONES addressed  slide 14,  "Benefits  and Drawbacks:  State                                                               
Management," and  discussed "Option 3: State  Management with New                                                               
Efficiencies."  He stated that  most of the efficiencies were not                                                               
dependent on  a private operator.   He spoke about  the benefits,                                                               
which included:  an opportunity  for the  state to  maintain full                                                               
control and  accountability of this service;  no additional costs                                                               
related to contract administration;  the greatest amount of value                                                               
and  cost   savings  to  the   state  if  the   service  delivery                                                               
recommendations   were  implemented;   and  minimal   termination                                                               
liability costs.                                                                                                                
                                                                                                                                
MR.  JONES shared  that the  drawbacks included:  higher staffing                                                               
expenditures  with public  employees; more  administrative burden                                                               
with  implementing the  recommended changes;  and a  question for                                                               
successful improvements under the public entity.                                                                                
                                                                                                                                
MR. JONES shared  slide 15 which depicted a thumbs  up for Option                                                               
3 as the most recommended.                                                                                                      
                                                                                                                                
3:19:46 PM                                                                                                                    
                                                                                                                                
MR. JONES reported  on slide 16, "Benefits  and Drawbacks: Center                                                               
Outsourcing," and  stated that four options  had been identified,                                                               
which   included:   privatize   security   and   reception,   the                                                               
communication  centers;   and,  privatize  the   maintenance  and                                                               
environmental  services.   He reported  that there  was potential                                                               
for significant savings  to both of these cost  centers, and that                                                               
there were not any strong drawbacks to either of these.                                                                         
                                                                                                                                
MR.   JONES  presented   slide  20,   "Benefits  and   Drawbacks:                                                               
Psychiatry  and Medical  Services  Outsourcing," which  described                                                               
the option to privatize the  physician component of the hospital.                                                               
He declared  that this option was  not feasible, as it  would not                                                               
reduce  costs, slide  21.   He  suggested that  costs could  even                                                               
increase, as  salaries and benefits  could increase in  an effort                                                               
to improve retention.                                                                                                           
                                                                                                                                
3:22:13 PM                                                                                                                    
                                                                                                                                
MR.  JONES  shared slide  22,  "Benefits  and Drawbacks:  Nursing                                                               
Staff Outsourcing."  He stated that  PCG did not recommend yes or                                                               
no, as this  could only be feasible under  a non-profit operator,                                                               
and it  was not clear who  the vendor for nursing  staffing would                                                               
be in  Alaska.   He stated that  PCG recommended  strong caution,                                                               
slide 23.                                                                                                                       
                                                                                                                                
3:23:13 PM                                                                                                                    
                                                                                                                                
MR.  JONES   directed  attention  to  slide   24,  "Benefits  and                                                               
Drawbacks:  Comprehensive   Outsourcing,"  which   discussed  the                                                               
option for privatizing  all the direct services,  and leaving the                                                               
state as  the administrator  of the hospital.   He  reported that                                                               
this was  found not to be  feasible, mainly due to  the increased                                                               
cost  of the  physician  staff.   There  would  not  be any  cost                                                               
savings to  the state,  slide 25.   He  said that  this concluded                                                               
PCGs findings and recommendations.                                                                                              
                                                                                                                                
3:23:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSTON asked if  API was currently fully staffed                                                               
for medical providers.                                                                                                          
                                                                                                                                
MR.  JONES offered  his belief  that it  was fully  staffed.   He                                                               
reported that in recent years there  had been a heavy reliance on                                                               
locum tenens for substitute positions,  and that API was only one                                                               
or two positions away from going back to locum tenens.                                                                          
                                                                                                                                
3:24:51 PM                                                                                                                    
                                                                                                                                
RANDALL BURNS,  Director, Central Office, Division  of Behavioral                                                               
Health, Department  of Health and Social  Services, expressed his                                                               
agreement  that  it  was  a  fragile  system  and  that,  as  one                                                               
psychiatrist  had  just  given  notice,   API  was  "now  down  a                                                               
psychiatrist."                                                                                                                  
                                                                                                                                
REPRESENTATIVE JOHNSTON  asked if API  moved back and  forth from                                                               
being fully staffed to the use of "more transient providers."                                                                   
                                                                                                                                
MR.  BURNS  replied  that  this  was correct.    In  response  to                                                               
Representative   Johnston,  he   expressed  agreement   that  the                                                               
staffing was "a hybrid."                                                                                                        
                                                                                                                                
3:25:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSTON   asked  about  termination   costs  and                                                               
studies.                                                                                                                        
                                                                                                                                
MR.  JONES   replied  that  this   cost  estimate  was   a  rough                                                               
approximation,   and    it   came   from   the    Department   of                                                               
Administration.   He  acknowledged that,  as PCG  had not  done a                                                               
termination study, the closest way  to approximate was to look at                                                               
past cases and similar studies.   He reported that PCG had used a                                                               
public hospital  of similar size,  and its  termination liability                                                               
had been  $2 million.   They used this assumption  although costs                                                               
might   have  increased,   as  the   benefit   package  was   now                                                               
significantly different.                                                                                                        
                                                                                                                                
REPRESENTATIVE JOHNSTON  asked if,  as termination costs  were an                                                               
issue, it should be dropped.                                                                                                    
                                                                                                                                
MR. JONES replied that PCG had  wanted to represent the scale for                                                               
the likelihood of  the liability "without trying to  make it look                                                               
more concrete than it is."                                                                                                      
                                                                                                                                
3:27:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  asked how  to  deal  with sensitive  health                                                               
information when an outsourced call center was used.                                                                            
                                                                                                                                
MR. JONES replied  that PCG was really describing  the front desk                                                               
at API, which included the  reception and security functions.  He                                                               
shared  that  these  functions were  often  privatized,  although                                                               
within API,  these were employees  of the hospital.   He reported                                                               
that  these functions  could be  done significantly  cheaper than                                                               
the current costs.                                                                                                              
                                                                                                                                
3:29:36 PM                                                                                                                    
                                                                                                                                
MR.  BURNS added  that  API had  other  contracts, including  for                                                               
transportation of patients, and  that confidentiality was managed                                                               
as  long  as there  were  business  agreements under  the  Health                                                               
Insurance Portability and Accountability Act.                                                                                   
                                                                                                                                
3:30:07 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ   asked  about  the  amount   determined  to  be                                                               
significant   savings    under   private   management    of   the                                                               
communications center.                                                                                                          
                                                                                                                                
MR.  JONES replied  that  this was  significant  relative to  the                                                               
total  cost  of the  communication  center,  a savings  of  about                                                               
$233,000 annually, or  a 62 percent savings to  the current cost.                                                               
He acknowledged that this was a  small part of the total hospital                                                               
costs.                                                                                                                          
                                                                                                                                
3:31:26 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Health  and  Social  Services   Standing  Committee  meeting  was                                                               
adjourned at 3:31 p.m.                                                                                                          

Document Name Date/Time Subjects
API Privatization Presentation_02_07_2017_FINAL.pdf HHSS 2/16/2017 3:00:00 PM
API Privatization