Legislature(2017 - 2018)CAPITOL 106
02/07/2017 03:00 PM House HEALTH & SOCIAL SERVICES
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Study Overview for Privatization of Psychiatric Institute | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE HEALTH AND SOCIAL SERVICES STANDING COMMITTEE
February 7, 2017
3:02 p.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Sam Kito
Representative David Eastman
Representative Jennifer Johnston
Representative Colleen Sullivan-Leonard
MEMBERS ABSENT
Representative Bryce Edgmon, Vice Chair
Representative Geran Tarr
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.
ACTION NARRATIVE
3:02:47 PM
CHAIR IVY SPOHNHOLZ called the House Health and Social Services
Standing Committee meeting to order at 3:02 p.m.
Representatives Spohnholz, Sullivan-Leonard, Johnston, Eastman,
and Kito were present at the call to order.
^Presentation: Study Overview for Privatization of Psychiatric
Institute
Presentation: Study Overview for Privatization of Alaska
Psychiatric Institute
3:03:19 PM
CHAIR SPOHNHOLZ announced that the only order of business would
be a presentation by the Public Consulting Group regarding the
privatization of Alaska Psychiatric Institute.
3:04:32 PM
COY JONES, Consultant, Project Leader, Public Consulting Group
(PCG), presented a PowerPoint titled "Feasibility Study for the
Privatization of Alaska Psychiatric Institute." He relayed
that, although the report "drills down [to] pretty deep levels,"
the presentation would be a very high level overview for the
findings and recommendations. He directed attention to slide 4,
"Stakeholder Feedback," and listed the areas and the groups PCG
spoke with, which included stakeholders in both government and
the private sector, as well as former patients and employees at
Alaska Psychiatric Institute (API). He relayed that PCG spoke
with behavioral health providers in both the communities and the
hospitals, who worked closely with API. He added that they had
spoken with two of the three labor unions, as well as the trade
associations in Alaska. He explained that there were also
extensive studies and literature reviews detailing lessons
learned and best practices with privatization efforts in other
states during the past ten years. He moved on to slide 5,
"Privatization Options," and highlighted the following options,
pointing out that the State of Alaska would retain ownership of
the property and the facility: (1) full privatization for all
the operational aspects with either a lease or as property
manager; (2) a joint operating agreement between the state and
private partners, possibly as a hybrid public corporation; (3)
continued state management with new efficiencies and improved
processes as an alternative to privatization; and, (4) component
outsourcing which would privatize pieces of the operations. He
stated that although options 1 and 2 were not that different,
there was a different legal status. He reported that Option 3
was not a real privatization, while option 4 privatized pieces
of API. Discussing Option 4, he listed various outsourcing
options, which included: the communication center, which
include reception and security functions; the facility and
materials management; the physician services, including
psychiatrists and the medical services; and, the nursing staff
and their support staff. He declared that the final option
would be a comprehensive outsourcing of everything except the
basic administration and management. He moved on to slide 6,
"Financial Assumptions," which addressed the various financial
and service delivery assumptions for the cost - benefit analysis
of the privatization models. He addressed the capital costs,
which assumed that these would remain the same under any
privatization option. He shared the assumption that the for-
profit groups would have an expectation of an 8 percent profit
margin, which had been determined from various Requests for
Proposals from for-profit entities to similar operations;
whereas, non-profit groups would have an expectation of a 4
percent profit margin. He spoke about the salary and benefit
benchmarks, reporting that "common knowledge is that there's
savings to be gained from privatization, it's usually because
the compensation looks significantly different under a private
entity than it does a public entity." He shared that although
employee salaries would increase with privatization about by
13.7 percent, the benefits would decrease from the current value
of 36 percent of total compensation to about 22 percent under a
private employer. He added that the legal expenses for a
private employer would be about 0.369 percent of the total
contract. He estimated some reduction in overtime with
privatization, comparing the current 1950 annual work hours by a
full time state employee with 2080 annual work hours by a
private full time employee.
3:17:40 PM
MR. JONES addressed slide 7, "Financial Assumptions," and
explained that there would also be some specific transition cost
assumptions, which included a necessary IT upgrade of the API
electronic medical records system as it was almost out of
compliance. He estimated that this IT upgrade would cost the
state about $2.1 million, whereas a private entity should
already have a system which would not require an upgrade. He
reported that there would be some additional liability to the
retirement fund with privatization and, using similar analysis
with other state hospitals, the projection was for a cost of $2
million in termination liability. He added that there would
also be some contract monitoring costs to ensure the proper
delivery by a private entity. He allowed that this amount could
be difficult to quantify, although it was estimated to be about
14 - 20 percent, and was also listed as an additional cost for
privatization. He discussed the revenue assumptions, noting
that the sources for revenue to API included private insurance
and Medicaid claims, with the projected five-year total revenue
being the same under private or public entity.
3:20:54 PM
MR. JONES pointed to slide 8, "Service Delivery Assumptions,"
and posed the questions for the number of staff necessary to
maintain decent service delivery and whether API was currently
understaffed or overstaffed. He listed stakeholder comments and
recent clinical reviews from outside consultants as sources of
information to determine answers to the aforementioned
questions. He stated that there were also industry best
practice guidelines for staff ratios. He reported that the
consulting group had reviewed comparable hospitals in other
states, and, although API did not have any true peer, there were
some similarities.
CHAIR SPOHNHOLZ pointed out that another meeting was scheduled
to begin shortly and asked that any remaining slides be
discussed at the next House Health and Social Services Standing
Committee meeting.
3:23:46 PM
MR. JONES directed attention to slide 9, "Staffing
Requirements," and discussed the various staffing ratios. He
directed attention to the API baseline for staffing, which more
closely reflected a small peer group hospital than a large peer
group hospital, although API had a higher staff to patient ratio
in almost all the categories. He suggested that API might
potentially be over staffed in some areas, and that cuts were
plausible. He directed attention to the recommended privatized
staffing which projected reductions to API, and pointed out that
this more closely mirrored a small peer group hospital.
3:26:15 PM
MR. JONES moved on to slide 10, "Staffing Requirements," which
presented suggested reductions. Public Consulting Group (PCG)
suggested reductions under a private entity of administrative
costs in IT, as a corporate enterprise would absorb many of
these costs, as well as a reduction of full time administrative
staffing to the ratio of other small hospitals or lower. PCG
suggested that API operate with nursing staff levels comparable
to small peer hospitals, although acknowledging that different
parts of API required different staffing levels dependent on the
severity of the patient diagnosis. He reported that it was
possible to review the yearly API data for "close observation
status", and then determine the necessary extra nursing staff.
He suggested that, at any given time, it was necessary to have
18.1 nursing staff on the floor, although the PCG recommendation
was for 21.2 nursing staff to be on the floor at all times. He
pointed out that this model had been tasked to predict what a
contractor would do, not necessarily what a contractor should
do. He added that the staffing recommended by PCG was
considered safe, although not necessarily considered optimal, as
a private provider may only ensure safe staffing, but not
necessarily optimize staffing.
3:28:44 PM
REPRESENTATIVE JOHNSTON asked about the managed competition
model.
MR. JONES replied that he was not familiar with this model.
REPRESENTATIVE JOHNSTON reflected that the PCG scenario for
efficiencies could be augmented by a managed competition bid for
certain services. She allowed that this bid process would often
allow the current service to become more efficient as it
prepared a bid.
3:29:53 PM
REPRESENTATIVE SULLIVAN-LEONARD asked if there was a dollar
savings to the state for privatization of API.
MR. JONES replied that there was a detailed cost - benefit
analyses for each of the option models, although it was not
presented in the PowerPoint.
CHAIR SPOHNHOLZ relayed that the full report had been sent out
to all the members of the committee.
CHAIR SPOHNHOLZ asked for more detail to the difference between
large peer groups and small peer groups.
MR. JONES, in response, explained that many hospitals had about
200 beds, while some had 800 beds. He pointed out that these
larger hospitals allowed a much smaller administrative staff
ratio to beds. He noted that, as the IT system cost the same
regardless of the number of beds, it was a more significant cost
to a smaller hospital. He added that there were economies of
scale with direct care, as well. He reported that a small
hospital had a higher administrative overhead, and would often
focus on a very specialized service or acute emergency services.
He stated that a large hospital would have a range of services
for the care of many patients, many of which were not nearly as
intensive or acute as API. This was reflected in the staffing
ratios, hence the separation of small hospitals and large
hospitals in the presentation.
3:33:18 PM
ADJOURNMENT
There being no further business before the committee, the House
Health and Social Services Standing Committee meeting was
adjourned at 3:33 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| API Privatization Presentation_02_07_2017_FINAL.pdf |
HHSS 2/7/2017 3:00:00 PM |
API Privatization |