Legislature(1999 - 2000)
02/24/2000 08:10 AM House STA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE
February 24, 2000
8:10 a.m.
MEMBERS PRESENT
Representative Jeannette James, Chair
Representative Jim Whitaker
Representative Bill Hudson
MEMBERS ABSENT
Representative Joe Green
Representative Beth Kerttula
Representative Scott Ogan
Representative Harold Smalley
COMMITTEE CALENDAR
HOUSE BILL NO. 297
"An Act relating to the certificate of need program; and
providing for an effective date."
- HEARD AND HELD; ASSIGNED TO SUBCOMMITTEE
PREVIOUS ACTION
BILL: HB 297
SHORT TITLE: CERTIFICATE OF NEED PROGRAM
Jrn-Date Jrn-Page Action
1/21/00 1961 (H) READ THE FIRST TIME - REFERRALS
1/21/00 1961 (H) HES
2/02/00 2076 (H) COSPONSOR(S): KOTT
2/10/00 (H) HES AT 3:00 PM CAPITOL 106
2/10/00 (H) Heard & Held
2/10/00 (H) MINUTE(HES)
2/11/00 2186 (H) STA REFERRAL ADDED
2/15/00 (H) HES AT 3:00 PM CAPITOL 106
2/15/00 (H) Moved Out of Committee
2/15/00 (H) MINUTE(HES)
2/18/00 2235 (H) HES RPT CS(HES) 4AM
2/18/00 2235 (H) AM: GREEN, DYSON, COGHILL, BRICE
2/18/00 2236 (H) FISCAL NOTE (DHSS)
2/18/00 2236 (H) REFERRED TO STA
2/23/00 2289 (H) COSPONSOR(S): BUNDE
2/24/00 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
DAVID CALDWELL, Senior Financial Analyst
Fairbanks Memorial Hospital
1650 Cowles Street
Fairbanks, Alaska 99701
POSITION STATEMENT: Commented on HB 297.
CHARLES FRANZ, Administrator
South Peninsula Hospital
Homer, Alaska
POSITION STATEMENT: Testified in opposition to HB 297.
BRIAN SLOCUM
Tanana Valley Clinic
560 Yak Road
Fairbanks, Alaska 99709
POSITION STATEMENT: Commented on HB 297.
STEPHEN HENDRICKS
Alaska Orthopedics and Sports Medicine Research Center
4200 Lake Otis, Suite 202
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 297.
WILSON PATTERSON, Vice-President of Finance
Valley Hospital
Palmer, Alaska
POSITION STATEMENT: Testified in opposition to HB 297.
MARTIN RICHMAN, Chief Executive Officer
Peninsula Central Hospital
Kenai, Alaska
POSITION STATEMENT: Commented on HB 297.
JOHN BRINGHURST, Administrator
Petersburg Medical Center
PO Box 816
Petersburg, Alaska 99833
POSITION STATEMENT: Testified in support of HB 297.
JOE FAULHABER, Secretary
Greater Fairbanks Community Hospital Foundation
PO Box 71396
Fairbanks, Alaska 99707
POSITION STATEMENT: Testified in opposition to HB 297.
MIKE POWERS, Administrator
Fairbanks Memorial Hospital
Fairbanks, Alaska 99707
POSITION STATEMENT: Commented on HB 297.
JEFF COOK, Trustee at Large
Greater Fairbanks Community Hospital Foundation
PO Box 71396
Fairbanks, Alaska 99707
POSITION STATEMENT: Commented on HB 297.
HARRY PORTER, Treasurer
Greater Fairbanks Community Hospital Foundation
PO Box 71396
Fairbanks, Alaska 99707
POSITION STATEMENT: Commented on HB 297.
STEVE STEPHENS, President
Greater Fairbanks Community Hospital Foundation
PO Box 71396
Fairbanks, Alaska 99707
POSITION STATEMENT: Commented on HB 297.
DAVE RASLEY, 1st Vice President
Greater Fairbanks Community Hospital Foundation
PO Box 71396
Fairbanks, Alaska 99707
POSITION STATEMENT: Testified in opposition to HB 297.
KAREN PORTER, Business Manager
Greater Fairbanks Community Hospital Foundation
PO Box 71396
Fairbanks, Alaska 99707
POSITION STATEMENT: Commented on HB 297.
HUNTER JUDKINS, Physician
Tanana Valley Clinic
785 Martin Lane
Fairbanks, Alaska 99909
POSITION STATEMENT: Testified in support of HB 297.
ELIZABETH RIPLEY
Valley Hospital
Palmer, Alaska
POSITION STATEMENT: Testified in opposition to HB 297.
LARAINE DERR
Alaska State Hospital and Nursing Home Association
426 Main Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified in opposition to HB 297.
DENNIS MURRAY, Administrator
Harry's Place Nursing Facility
Kenai, Alaska
POSITION STATEMENT: Testified in opposition to HB 297.
ELMER LINDSTROM, Special Assistant
to Commissioner Perdue
Department of Health and Social Services
PO Box 110601
Juneau, Alaska 99811-0601
POSITION STATEMENT: Commented on HB 297.
DAVID PIERCE, CON Coordinator
Department of Health and Social Services
PO Box 110601
Juneau, Alaska 99811-0601
POSITION STATEMENT: Answered questions regarding HB 297.
KARL SANFORD, Nursing Executive
Fairbanks Memorial Hospital
Fairbanks, Alaska
POSITION STATEMENT: Commented on HB 297.
DONNA HERBERT
Financial Consultants of Alaska
3017 Clinton Drive
Juneau, Alaska 99801
POSITION STATEMENT: Commented on HB 297.
LOUISE BJORNSTAD, Manager
All Alaska Health Corporation
4001 Laurel Street
Anchorage, Alaska 99508
POSITION STATEMENT: Commented on HB 297.
JEROME SELBY
Providence Alaska Health Systems
1601 Medfra
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 297.
DAVID MCGUIRE, M.D.
Orthopedic Surgery
4045 Laurel Street Suite 202
Anchorage, Alaska 99508
POSITION STATEMENT: Commented on HB 297.
GORDY LEWIS
Fairbanks, Alaska
POSITION STATEMENT: Commented on HB 297.
BARBARA HUFF-TUCKNESS
Director of Legislative and Governmental Affairs
Teamsters Local 959
520 G Street and 34th Street
Anchorage, Alaska
POSITION STATEMENT: Commented on HB 297.
REBECCA DEAN
Private Consultant
PO Box 10220
Fairbanks, Alaska 99712
POSITION STATEMENT: Commented on HB 297.
ACTION NARRATIVE
TAPE 00-10, SIDE A
Number 0001
CHAIR JEANNETTE JAMES called the House State Affairs Standing
Committee meeting to order at 8:10 a.m. Members present at the
call to order were Representatives James and Whitaker.
Representative Hudson arrived as the meeting was in progress.
Representative Green was absent, Representative Kerttula was
excused and Representative Smalley was ill.
HB 297-CERTIFICATE OF NEED PROGRAM
Number 0164
CHAIR JAMES announced the discussion of HOUSE BILL NO. 297, "An
Act relating to the certificate of need program; and providing
for an effective date." She said HB 297 was heard in the House
Health, Education and Social Services Standing Committee (HES),
and she had requested that HB 297 be referred to the House State
Affairs Standing Committee because it is her bill. She had
promised Representative Dyson that she would make sure HES saw
the final draft to HB 297 before she sent it on to the Chief
Clerk. She noted that she will appoint a subcommittee and is
inviting anyone to be part of a work group and attend the
subcommittee meetings. [Before the committee was CSHB 297(HES).]
Number 0630
DAVID CALDWELL, Senior Financial Analyst, Fairbanks Memorial
Hospital (FMH), testified via teleconference from Fairbanks and
read the following testimony:
The certificate of need (CON) program is not meant to
stop competition, rather, it is meant to reduce
redundant health care facilities. For example, he
added, last summer Fairbanks had three competing CON
applications to add surgical capacity. After careful
evaluation of all three proposals, the Department of
Health and Social Services (DHSS) and the Commissioner,
Karen Perdue, decided that there was no need for
additional surgical capacity here, and denied all three
CON applications. If there had been a need, I am sure
the commissioner would have granted approval to one of
the CON applications, even though it would mean
competition for FMH.
If you think adding redundant surgical capacity to the
Fairbanks area would save Medicaid money, this is
simply not the case. I have been closely involved with
the Medicaid rate setting process for the past thirteen
years, and thus understand it better than most people
in the state. Yes, Medicaid ASC payment rates are
lower than the rates Medicaid pays the hospital. Per
my calculations, using current FMH package pricing and
our year 2000 Medicaid rate of 56.55 percent, the
yearly Medicaid savings would be about $60 K
[thousand]. However, due to the way the Medicaid rate
is set, reducing our revenues by moving hospital
surgeries to a for-profit surgery center would actually
increase our rate, and would end up costing Medicaid an
additional $100 K or so. So, you do the math, 100-
60=$40 K increase in overall Medicaid expenditures!
Lastly, I would like to comment on inflation and
raising the CON threshold to $7 million. By a number
of measures, Medicaid, Medicare, Anchorage consumer
price index (CPI), and overall U.S. CPI, inflation from
1983, when the $1 million threshold was set to now has
been running at about three percent per year. This
would equate to a threshold of anywhere from $1.5 to
$1.7 M [million] now, and I believe, if you are going
to raise the CON threshold that this is the only
justifiable level that can be supported. The $7 M
level in this bill is irresponsible and inconsistent
with Medicaid inflation rates which have been approved
year after year for the past 20 years. Personally, I
think the $1 M threshold needs to be kept as it does
fulfill nicely the original purpose of the CON which
was to cut down on redundant health care facilities.
Number 0910
CHAIR JAMES said she had determined to add to CSHB 297 a $15,000
population base so that smaller communities will not feel
threatened by the bill.
CHARLES FRANZ, Administrator, South Peninsula Hospital (SPH),
testified via teleconference from Homer. He noted that South
Peninsula Hospital is a small rural facility. Although hearing
Chair James talk about adding a population base of 15,000 does
make him feel somewhat better, he still testifies in opposition
to HB 297. He explained that his hospital board had discussed HB
297 at the board meeting, held several discussions with hospital
staff and the boards's conclusion was that they could find any
justification for increasing the CON threshold to $7 million. He
commented that the threshold figure effectively eliminates the
CON program which was established to ensure that proposed new
services measured up to detailed review and justification.
MR. FRANZ mentioned that SPH had just completed a CON process for
an expansion of the facility. He indicated that the process was
rigorously detailed but fair and it forced SPH to closely examine
the project to ensure it was in the best interests of the
community. He emphasized that raising the threshold to $7
million is completely out of line with inflationary increases and
has no factual basis. However, he acknowledged that an
adjustment for inflation certainly would be reasonable. He
remarked that HB 297, as it is currently written, would allow
special interest groups to "cherry pick" the low-cost, high-
reimbursement cases while community hospitals would be left with
the complex cases and the obligation to provide 24-hour-a-day,
seven-days-a-week coverage for emergencies. He urged the
committee to refrain from passing HB 297.
Number 1130
CHAIR JAMES inquired as to the dollar value of SPH's expansion,
and how it was financed.
MR. FRANZ replied that the dollar value was $9.2 million.
Financing came from out-of-pocket funds derived from tax revenue
reserves received from the Kenai Peninsula Borough and funded
depreciation from hospital operations; in short, hospital
profits and tax support from the community paid for the
expansion.
CHAIR JAMES asked how much extra trouble was required to do a CON
as opposed to doing an internal evaluation or public hearing
within Homer's taxing district.
Number 1202
MR. FRANZ said it took him about three months to collect data and
about two weeks of intensive work to actually write the CON. He
informed the committee that he wrote the CON himself with staff
assistance. He remarked that SPH received CON approval on acute
care expansion in about six months but long term care beds
approval took quite a bit longer in order to demonstrate need for
those beds.
CHAIR JAMES asked if Mr. Franz understood that there should be a
different process allowed for long term care beds as opposed to
regular hospital beds and asked if he saw a difference in the way
that the legislature could address those two issues.
Number 1300
MR. FRANZ commented he did not see a reason to treat long term
care and acute care beds differently but he does understand that
DHSS wants them treated differently because DHSS is concerned
about the aging population growth and potential impact on the
Medicaid budget. He explained that he thinks that DHSS should be
concerned about the unnecessary growth of acute care services
which will increase costs if excess capacity exists and health
facilities would be obliged to spread the fixed costs of facility
maintenance across a smaller population.
Number 1341
CHAIR JAMES said she has read that 20 percent of the hospital
population is covered by Medicaid and Medicaid does include cost
recovery of the facilities. She commented that it seems to her
that folks in Homer should have the right to decide what health
care resources are needed in their area rather than have the
state step in and make that decision. She inquired as to how
Mr. Franz felt about that.
MR. FRANZ answered that the community did support public CON
hearings regarding the SPH expansion project and testimony at
those hearings was unanimously in support of the construction
project. He noted that a public vote was required because a
borough threshold had been surpassed and the vote was four to one
in favor. He commented that it is helpful to have an outside
objective party look at community need and make sure it is valid;
and in the case of a CON, the state is the objective party.
Number 1541
CHAIR JAMES stated that she disagreed because, from her
viewpoint, the legislature is trying to cut the state budget at
the state level. She added that it is her personal opinion that
if people do things at the local government level rather than
look to the state for confirmation then the legislature can cut
the cost of state government. Since she has heard several
testifiers say that the CON does not have anything to do with
competition, she explained that she believes that a CON can be
decided at the local level and does not need state intervention.
MR. FRANZ recognized that competition is an element to be
considered. He cited an example of two general surgeons who
worked at SPH and had become angry with him because of a decision
he had made. As a result, he added, they refused to perform
elective surgeries for about three months and the hospital lost
$1 million in revenue. He mentioned that without the CON process
or with the threshold set high at $7 million certainly
competition is an element to be considered. He recognized that
SPH surgeons could go down the street from the hospital and build
their own ambulatory surgical center.
Number 1736
REPRESENTATIVE HUDSON noted that according to the CON, local
communities must obtain state approval to proceed with health
care expansion or purchase of health care equipment. He asked
Mr. Franz what Mr. Franz thinks is the purpose of a CON and who
does it help.
Number 1802
MR. FRANZ replied that his understanding of the CON process is
that it was intended to improve the quality and availability of
health care in the community. He said health care is different
from business enterprises where competition will drive costs down
and improve quality in many cases. He noted that SPH has to
compete with health care providers in Anchorage for many elective
procedures. He explained that due to competition SPH cuts
expenses for some elective procedures to better serve the
community. However, he commented, if the growth of health care
service providers in the community is not controlled then the
area ends up with three or four laser units, three or four
magnetic resonance imaging machines (MRI), etc. He mentioned
that SPH as sole health care provider in the community is
structured on a cost-based reimbursement system and so the costs
that SPH incurs in providing care are calculated into its
reimbursement.
Number 1928
BRIAN SLOCUM, Tanana Valley Clinic, said he represents a group of
about 35 physicians and providers. He noted that the Tanana
Valley Clinic is probably the largest in the state and has been
serving patients in the Interior for over 40 years. He explained
that when he was in school learning about how to run clinics 25
years ago, students were taught that governmental control over
market functions was the proper way to do things. He commented
that through the years many of those ideas of price and
governmental controls over market functions have been
discredited; the sole exception seems to be health care delivery.
MR. SLOCUM mentioned that the CON was a good idea 25 years ago
but is now archaic. He indicated that last summer the state of
Mississippi was looking at the issue of changing their CON
process and Governor Kirk Fordice published a position statement
from which Mr. Slocum quoted: "Health facilities exist to serve
the public. How is the public served by a virtual monopoly over
this most critical of all public needs? Certificate of Need
laws, born out of an effort to control cost, may actually
increase health care costs by suppressing competition, as noted
by..." a departmental study that was done in Mississippi.
MR. SLOCUM added that Governor Fordice had also cited another
study done in 1993 by independent researchers that said: "These
researchers also found no evidence of increased costs in the
initial twelve states that repealed CON requirements...
Certificates of Need are primarily designed to constrain supply,
not to address quality. Certificates of Need create franchises
and protect existing facilities, regardless of the quality of
care provided."
MR. SLOCUM noted that Governor Fordice's message to his
legislature was that abandoning the CON process would actually
improve pricing in Governor Fordice's state. Mr. Slocum
explained that a similar study had been done by the Federal Trade
Commission (FTC) in 1987 and what they found was quite
illuminating and useful. He quoted from the study as follows:
"Federal Trade Commission Economic Study Finds CON Requirements
Increase Hospital Prices and Costs-- CON requirements which were
intended to control health care costs have actually increased
hospital prices by four percent according to a study issued today
by the Federal Trade Commission's Bureau of Economics. In
addition, the study found hospital expenses are higher in states
that have CON laws. According to the study there is no evidence
that CON laws have resulted in the resource savings that they
were purportedly designed to promote. The study also found that
in areas where there were more independent hospitals, consumers
get higher quality at the same price because of the increased
competition. However, CON laws may be used to reduce the number
of hospitals thereby injuring consumers according to the Bureau
of Economics. Therefore, recent plans and decisions to repeal
CON laws in some states should increase consumer welfare the
study says. According to the FTC chairman, the findings
concerning CON laws provide further support for my belief that
government restrictions on competition are a major source of
consumer injury."
MR. SLOCUM said that quote was the FTC speaking a number years
ago before the market became somewhat more competitive and before
costs increased.
Number 2290
MR. SLOCUM noted that about five years ago when Columbia Hospital
Corporation of America (HCA) acquired a hospital in Anchorage,
the FTC required that Columbia HCA divest itself of one of the
two ambulatory surgery centers that Columbia HCA had acquired
through the purchase. Quoting from the government press release,
Mr. Slocum read: "The agreement would settle FTC charges that
the acquisition by combining the owners of two competing health
facilities in Anchorage that offer outpatient surgery services
could result in higher prices and reduced quality for outpatient
surgery services in the area. Columbia HCA would divest the
Alaska Surgery Center to a new entity that would run it
independently of HCA, thus preserving competition. According to
the FTC complaint detailing the charges in this case, the
acquisition would violate anti-trust laws by substantially
reducing competition for outpatient surgery services in
Anchorage. The market for these services is highly concentrated,
having few competitors and entry by new entities is difficult
because of state CON requirements, the complaint states. Thus,
the FTC alleged it is unlikely that absent divestiture required
by this settlement, a new competitor could establish quickly
enough to deter competitive behavior by Columbia HCA. Moreover,
the acquisition would increase the probability of collusion among
the remaining sources of outpatient surgery in the market and
could therefore deny patients and others the benefits of
competition based on price, quality, and service for outpatient
surgery services in Anchorage."
MR. SLOCUM explained that he has presented three clear cases of
governmental entities at the state and federal level strongly
suggesting that competition in health care services in general
and in outpatient surgery specifically is a good thing. He
commented that governmental entities are saying that competition
does in fact drive down prices and increases quality. He
mentioned that when the state began its CON investigation in
Fairbanks last year, the state hired Medical Services Research
Group (MSRG) out of Memphis, Tennessee. He indicated that the
Medical Services Research Group made the following statements in
one of their reports: "The issue of cost is hotly debated in
Fairbanks. While the hospital claims to be a low-cost provider,
physicians argue that lack of competition keeps prices high.
Generally speaking, ambulatory surgery centers have the potential
for generating significant cost savings....In a rural community,
incentives to reduce cost are typically absent. This is due to a
lack of direct competition for inpatient hospital services.
Without competition, the hospital exerts pressure on payers to
purchase all services from the hospital, thereby deterring niche
providers from entering the market. For example, if a non-
hospital owned ambulatory surgery center opens in Fairbanks, FMH
will likely negotiate with payers to include all outpatient
surgeries in their provider contract. Otherwise, the payer may
be denied access to inpatient services." Mr. Slocum's comment is
that, obviously, lack of competition gives a monopoly player in
the market a lot of power that the consultants note has a
detrimental effect on pricing and competition.
Number 2444
MR. SLOCUM again quoted from the Medical Services Research Group
report as follows: "The table below presents a comparison of
costs for ambulatory surgery procedures performed in hospital
outpatient centers and ambulatory free-standing surgery centers
provided by HCIA." Mr. Slocum said that the Medical Services
Research Group considers Health Care Investment Analysts (HCIA)
to be a very reliable, nation-wide company. He noted that MSRG
presented a comparison table of 19 procedures and prices that
typically happen in hospital outpatient services and in free-
standing outpatient surgery centers. He commented that in every
single case that MSRG lists in their table there was a
significant price decrease and in some cases there was less than
half cost of the price [charged at the hospital]. He indicated
that MSRG goes on to say that in a typical case, however, it is
reasonable to assume cost savings of at least 20 percent if
utilization targets are met in efficiencies gained. He informed
the committee that MSRG went on to talk about access by asking if
an ambulatory setting would enhance patient's access to surgical
care. He emphasized that MSRG had established that based upon
national utilization it does appear a well-run center can
minimize patient bureaucracy, thereby enhancing overall and
family experience. He remarked that the data presented by MSRG
suggests potential for increased access to care.
MR. SLOCUM acknowledged that the Medical Services Research Group
said the issue of high cost has not been resolved. He added that
MSRG mentions that hospitals claim to be one of the lowest-cost
providers in the state and yet at the same time, surgeries and
procedures performed in ambulatory surgery centers often
demonstrate lower cost. He concluded by saying that the
information contained in the Medical Services Research Group
report was weeded from the final copy which was submitted to the
Commissioner of DHSS.
Number 2505
REPRESENTATIVE HUDSON said he is trying to understand the
relationship of all the information. He asked if it was correct
that Mr. Slocum and some others view the CON as a sanctioned
monopoly by the government. Representative Hudson acknowledged
that competition usually does drive down the price; therefore, he
wonders if all "players would be on the same ball field." For
example, hospitals are required to provide services, even non-
profitable services, to people who walk in from the street
(perhaps homeless people). He asked if a facility outside the
requirements of a CON - or if the state did not require a CON -
would also be required to provide services to all people equally,
regardless of their financial wealth.
Number 2576
MR. SLOCUM replied that based upon his own experience at the
Tanana Valley Clinic, everyone who walks into the clinic is
treated and said the clinic treats Medicaid, Medicare, uninsured,
and self-insured patients. Last year, he added, the clinic
provided $5 million of charity care to the community and it would
be the clinic's intention, as stated in the CON application, to
treat the same cross section of people as the hospital would
treat.
REPRESENTATIVE HUDSON remarked that CSHB 297 should require equal
patient treatment on the part of all health care providers in
order to "level the playing field" while still allowing a spirit
of competition. He asked Mr. Slocum if Mr. Slocum would object
to such a requirement.
Number 2620
MR. SLOCUM replied no. Philosophically, he added, he likes to
let market forces allocate resources and distribute how they are
provided.
STEPHEN HENDRICKS, Alaska Orthopedics and Sports Medicine
Research Center, testified via teleconference from Anchorage. He
said he supports HB 297. He referred back to testimony that had
been received in 1983 when SB 85 and HB 19 were discussed. He
noted that John Mengen from FMH spoke in favor of HB 19 and said
the CON promotes dissimilar treatment of private industry, fails
to save the state money and does not encourage public input into
health care delivery. He explained that during HESS committee
discussion regarding SB 85, the Alaska State Medical Association
supported SB 85 and said there is no saving in any evaluation,
there has been no stoppage of duplication, and it is very
expensive to generate a CON. He commented that he finds it
interesting that the group now opposing the CON threshold
increase back in 1983 all thought that it was a bad idea to have
a CON in the first place. He indicated that his conclusion of
the reason for change in thought is due to monopoly on the part
of those same service providers.
MR. HENDRICKS mentioned that Senator Faiks had called attention
to the fact that the CON program started with a threshold of
$150,000 and seven years later the threshold had increased seven-
fold to $1 million. Seventeen years have passed since that time
and no inflation correction has occurred for the CON.
MR. HENDRICKS informed the committee that the FMH Chief Executive
Officer had stated during the HESS meeting in Anchorage last week
that doctors choose where patients have service delivered so it
does not make any difference if there is competition. Mr.
Hendricks had a personal experience regarding where service was
to be provided when his son needed surgery. He remarked that the
attending physician had assigned Mr. Hendricks' son to Providence
Hospital but Mr. Hendricks requested that his son be assigned to
the Alaska Surgical Center. When the doctor asked why, Mr.
Hendricks said because going to the Alaska Surgical Center would
save Mr. Hendricks $750.
Number 2826
MR. HENDRICKS reminded the committee that there have been
numerous comments about "cherry picking." He observed there are
no examples of this in Alaska because the Alaska Surgery Center
and Alaska Regional Hospital both provide a percentage of their
revenue for indigent care that approximates the same percentage
as Providence or Fairbanks' hospitals.
MR. HENDRICKS added that when discussing reasonable and customary
and co-pay it must be remembered that if a hospital charges more
than an insurance company feels is reasonable and customary, then
the difference is tacked on to a patient's co-pay bill. He
recognized that paying the difference is a subsidy to indigent
care because of the insurance rate and lack of coverage spread.
He observed that people without insurance go to hospital
emergency rooms frequently and this added delivery cost is
expressed in increased service fees and insurance rates. He
reiterated that he also has to subsidize the difference between
what the hospital charges and what the insurance company pays.
He suspected that part of his hospital bill goes to pay for
indigent care and wants to know how does the indigent care bill
vary from one provider to another.
MR. HENDRICKS stated that if his co-pay on insurance (or
Medicaid) is 20 percent and Provider A charges $1000 (cataracts
for example) and Provider B charges $2000, at Provider A he would
be pay $200 out-of-pocket versus Provider B's $400 out-of-pocket
charge. He reiterated that the co-pay charge is in addition to
what has family pays for premiums and individual deductibles. He
said that as of January 2000, rather than pay an increase in
insurance premiums, he chose to increase his [health care
insurance] deductible from $1000 to $1500 per person.
Number 2937
MR. HENDRICKS noted that FMH claims "competitors could provide
services that would take away our ability to perform other
services where the expenses exceed the reimbursement." He asked
if FMH is referring to non Alaskans. He asked if FMH was so
profitable to Lutheran Health Services (LHS) that FMH could
export excess revenue to help pay for other hospitals in the LHS
system that are not as profitable as FMH.
TAPE 00-10, SIDE B
MR. HENDRICKS explained that some have said a CON application
takes three to six months to complete. He emphasized that such a
notion is complete balderdash. He commented that submission of a
CON letter of intent is time zero, at which time the CON
coordinator may declare the letter of intent incomplete,
requiring additional information. He mentioned that the next CON
step is a waiting period of 60 days until the earliest day the
CON application may be submitted and then add 30 days until the
CON coordinator determines if the application is complete
(additional requested information will extend the process). He
indicated that at this point another 60 days must be added to the
CON process until the CON coordinator submits recommendations to
the DHSS commissioner and finally add another 30 days until the
commissioner releases a recommendation. He quoted Senator Faiks,
in testimony during the Senate HESS committee meeting to discuss
SB 85 on February 16, 1983 as saying: "The average length of
time of the application before issuance is about 170 days. You
then have to get a letter of intent, which is an additional 60
days." He informed the committee that a CON really requires one
or two years to complete.
Number 2887
WILSON PATTERSON, Vice-President of Finance, Valley Hospital,
testified via teleconference from the Matanuska-Susitna Valley.
He spoke in opposition to HB 297. He said he is concerned that
hospitals are compelled to provide a certain community benefit
that others potentially not subject to CON would not be compelled
to meet as far as treating of indigents and certain other
uninsured and underinsured individuals. He explained that he is
concerned about "creaming," whether there is evidence of this in
Alaska or not is irrelevant since the CON exists. Therefore, the
opportunity to "cream" has probably not occurred to any great
extent. He noted that he does believe that by maintaining the
CON in its current form with the $1 million threshold it allows
hospitals to generate revenues from paying patients to cover
uncompensated care and provide community benefit.
MR. PATTERSON informed the committee that Valley Hospital paid
$900,000 in charity care last year, carried $2.5 million in bad
debts, and wrote off $13 million on contractual Medicare and
Medicaid patients. He reiterated that the present CON situation
allows Valley Hospital to provide high quality health care to all
Alaskans and he is concerned that if the threshold is increased
to $7 million potential financial hardship caused to the
hospitals may reduce access to health care to Alaskans who do not
have the ability to pay. He admonished the committee to closely
study the CON issue and make sure that competitors all play by
the same set of rules.
Number 2722
CHAIR JAMES asked if Valley Hospital has done any expansion in
the last few years.
MR. PATTERSON answered that renovation and expansion is occurring
now.
CHAIR JAMES asked if the expansion required a CON.
Number 2699
MR. PATTERSON replied in the affirmative.
CHAIR JAMES said she was planning to add a 15,000 population
limit to CSHB 297 and asked if Valley Hospital would be under
that population limit.
MR. PATTERSON answered that the Matanuska-Susitna Borough has a
service area population of about 60,000 so Valley Hospital would
be over the proposed population limit.
CHAIR JAMES explained that her thought was to help small
communities (if "small community" can be defined), of less than
15,000 population that wanted to expand existing [health care]
facilities, skip the horrible CON process. She envisioned that
there would not be competition anyway in small communities
because the market drives where facilities will be built. She
observed that it seems to her as if the CON process now
determined at the state level is unnecessary bureaucracy and
feels that people on the local level can make their own decision
based on their own public hearings.
Number 2641
MR. PATTERSON noted that Valley Hospital had financed their
expansion through a public bond issue in order to receive
favorable interest rates and were able to acquire insurance. He
said he believed that the CON process actually helped Valley
Hospital obtain insurance because the hospital had demonstrated
through the process that there was a need for the work that was
being done and the insurer received comfort from the fact that
the possibility of any significant competitive intrusion was
blocked.
CHAIR JAMES asked if that same public bond process was available
to Valley Hospital without a state law requiring it.
Number 2572
MR. PATTERSON replied that the bond issue process is available to
Valley Hospital without the CON process but the point he was
trying to make is that he believes Valley Hospital was able to
obtain financing in part because the CON process does exist.
REPRESENTATIVE HUDSON asked if Mr. Patterson had said that Valley
Hospital has $15 million of write-off loss.
MR. PATTERSON answered in the affirmative and said that it was
uncompensated care, billed amounts that were uncollectible for
one reason or another.
REPRESENTATIVE HUDSON inquired as to what percentage of billed
charges did the uncompensated care figure represent.
Number 2530
MR. PATTERSON replied that uncompensated care represents about 30
percent of Valley Hospital's total billed charges.
REPRESENTATIVE HUDSON understood then that all the other patients
in the hospital had to carry the unpaid bills.
MR. PATTERSON answered that charges are set in such a way that
Valley Hospital generates enough net revenue, or collectible
revenue, to operate the hospital as long as it is operated in an
efficient manner. He stated that governmental payers, Medicare
and Medicaid, are paying at cost or slightly below; insured and
self-paying patients are essentially helping Valley Hospital to
finance care to the indigent and underinsured. He reiterated
that the set charges are not peculiar to Valley Hospital but is a
national situation.
Number 2488
CHAIR JAMES inquired as to how Valley Hospital's 30 percent
uncompensated care compared with other hospitals in the state.
MR. PATTERSON replied he did not know.
MARTIN RICHMAN, Chief Executive Officer, Central Peninsula
General Hospital, testified via teleconference from Kenai. He
said there are some basic questions that need to be considered
and one is whether or not health care is a commodity. He noted
that the reason he raised that question is because government
says health care is not a commodity by virtue of requiring
hospitals to see everyone who comes to the emergency room and
render whatever care is necessary whether or not the patient can
pay. He explained that a playing field has been established and
HB 297 would undermine the franchise that has been granted with
the requirement that hospitals will not refuse anybody. He
commented that even in other basic needs that the populace has,
for example, transportation and food supplies, no one can get a
car or food without paying. He reiterated that only in health
care can a person get service without paying.
MR. RICHMAN asked the committee to question what quality controls
exist in free-standing facilities as opposed to requirements
which are imposed on hospitals, both from state and national
organizations such as the Joint Commission On Accreditation of
Healthcare Organizations and Medicare. He stated he does not
believe quality controls are the same for free-standing
facilities as for hospitals. Finally, he added, the question
needs to be explored as to why individuals and physicians do not
operate hospitals; there must be a reason they do not do so, yet
these same people are interested in operating free-standing
ambulatory centers and similar facilities.
Number 2349
CHAIR JAMES asked if Mr. Richman's hospital would be above or
below the 15,000 population level.
MR. RICHMAN answered that his hospital would be above that level
in its service area.
Number 2286
JOHN BRINGHURST, Administrator, Petersburg Medical Center,
testified via teleconference from Petersburg. He said that
Petersburg is under the 15,000 population limit but he wants to
speak about the industry as a whole. He explained that he has
heard the testimony regarding competition and what it does in the
marketplace. He noted that intuitively competition sounds
correct but he can testify that he recently moved to Petersburg
from a very competitive environment in southern Oregon where a
number of hospitals and other players competed. He observed the
waste that competition produces and said that he had a $1 million
marketing budget in his organization and an entire staff of
people who did nothing but sit around and produce big, glossy
brochures to accommodate the competition. He stated that he has
lived in a community where surgery centers had moved in with
promises to lower costs in the area by providing lower-cost
services. The result was, he stated, that a large number of
high-volume, high-profit procedures went to those surgery
centers. He observed that it was not easy to obtain price
information from the surgery centers but when he could obtain it,
he found those prices to be almost as high, and in some cases
higher, than what was charged in the hospital. Therefore, he
added, the claim that prices would be lower was never realized.
He reiterated that profits were re-distributed into the hands of
private interests away from full-service providers who had been
using those same profits to provide emergency services,
obstetrics, and other lose-money services.
MR. BRINGHURST stated that raising the CON threshold to $7
million works to the advantage of special interest groups and to
the disadvantage of long-haul providers. He envisioned that
special interest groups would come into a community and provide
services for only a limited period of time and accept only those
patients in whom they were interested. As a result, he added,
average cost of care would increase for those providers that
remain in the community. He emphasized that he would not like to
see duplication of services as he saw in southern Oregon which
made all of those services operate inefficiently. He said he
would rather see the CON dismantled entirely rather than see it
dismantled piecemeal and believes that the CON does eliminate the
proliferation of unnecessary health care services. He observed
that the present CON threshold seems to work and he would support
leaving it as is.
Number 2068
CHAIR JAMES asked if southern Oregon health care providers were
also competing with health maintenance organizations (HMOs).
MR. BRINGHURST replied in the affirmative.
CHAIR JAMES inquired as to what effect an HMO had on competition.
MR. BRINGHURST answered that the effect was many service
discounts and increase in rates to accommodate the discounts.
Number 2060
CHAIR JAMES asked if there was competition from insurance
preferred providers.
MR. BRINGHURST replied in the affirmative.
CHAIR JAMES said she is concerned about the premium that she pays
for her insurance and she is not sure that an insurance preferred
provider is the best deal. She recognized that there is
competition among the payers but if there is no competition among
the providers there is a missing ingredient to market-based
competition. She observed that true competition is competition
among sellers and purchasers so that there is a balanced mix.
She mentioned that Alaska does not have HMOs and, therefore, she
was curious as to what effect an HMO would have on other
providers.
JOE FAULHABER, Secretary, Greater Fairbanks Community Hospital
Foundation, testified via teleconference from Fairbanks in
opposition to HB 297. He said he wanted to address the issue of
free enterprise and observed he is pro-enterprise, for smaller
government, and against parking meters. He noted that most
physicians attended publicly-funded schools, often with the help
of government loans. He explained that, nationally, 60 percent
of all medical costs in the United States are paid by the
government in one form or another but he thinks that in Fairbanks
the percentage is 50 percent.
Number 1798
MR. FAULHABER indicated that if HB 297 passes, physicians who are
credentialed at Fairbanks Community Hospital will perform
profitable procedures at their own clinics or surgery centers.
He envisioned that "loser" procedures will be done at Fairbanks
Memorial Hospital and the community will have to absorb the cost.
He remarked that if the committee believed that free-standing
surgery centers will not turn anyone away based upon ability to
pay, he wants to talk to that legislator about a real estate
deal. He added that the concept of different testimony regarding
the CON process in 1983 is based upon a totally different
economic environment given the fact that medicine had functioned
on a cost-plus basis prior to 1983. He recognized that then
physicians could charge what they wanted and liked working in a
free hospital that was provided by the community. He reminded
the committee that HB 297 is not about patient care, it is about
revenue enhancement.
Number 1744
MIKE POWERS, Administrator, Fairbanks Memorial Hospital (FMH),
testified via teleconference from Fairbanks. He said he does not
believe that the committee can understand ramifications of HB 297
in even four weeks of study. He asked the committee to remember
that the CON process has been in place for almost 30 years and to
dismantle it in a week study or a month study is irresponsible.
MR. POWERS noted that he wanted to discuss the issue of markets.
He expressed disagreement with Mr. Slocum's testimony because Mr.
Powers thinks the market of Fairbanks is much like the market of
25 years ago. He explained that there are four requirements for
competition: 1) well informed buyers, 2) numerous buyers and
sellers, 3) buyers and sellers independent from each other, and
4) easy access and exit from the market. He commented that not
one of those conditions is true in Alaska.
MR. POWERS mentioned that someone had cited the Medical Services
Research Group report (MSRG). He also cited from the MSRG report
as follows: "There is no need for additional surgery in the
Fairbanks community until the year 2004. Without any real price
pressure from insurers, given the hospital status as a sole-
community provider, the hospital is monitoring national trends
and maintaining competitive pricing structure. This is
encouraging since it ultimately benefits the community.
Fairbanks Memorial Hospital is responsive to community needs
despite competitive pressure. Clearly, the hospital compares to
national averages. Competition does not always lower costs in a
rural community. The net gain from a free-standing ambulatory
surgery center may not be realized when the overall cost
structure is considered. Cost savings and ambulatory surgery
centers may never materialize in this environment." The Health
System Agency of northern Virginia which reviewed the MSRG report
said: "Free-standing surgery centers do not necessarily result
in economic savings, lower costs, or lower aggregate community
spending on surgery. Efficient use of existing surgery capacity
for both inpatient and outpatient tends to be more economical
than developing additional redundant dedicated ambulatory surgery
capacity." He added that a third review of the MSRG study said:
"Costs can be reasonable when there is a sole provider..." He
recognized that it is a very complex issue.
MR. POWERS cited another article dated August 5, 1999 from the
New England Journal of Medicine entitled "When Money is the
Mission" and quoted as follows: "The competitive free market
described in textbooks does not and cannot exist in health care
for several reasons. First, roughly half of Americans live in
areas too sparsely populated to support medical competition.
Second, an informed choice by consumers which results in
efficiency according to market theory is a mirage in health care.
Many patients cannot comparison shop, reduce their demand for
services when suppliers raise prices, or accurately appraise
quality. Third, purchasers cannot accurately appraise a product;
they cannot determine whether a price is fair. Efforts to
evaluate care are no match for profit-driven schemes to
misrepresent it. Finally, neither patients nor employers pay for
most of the cost of health care; government does. It is an odd
free market that relies largely on public dollars. Health care
cost is too precious, intimate, and corruptible to entrust to the
theory of a perfect market."
MR. POWERS asked for a full labor impact analysis to the labor
market. He asked the committee to consider what happens when a
group comes in and essentially raids precious labor dollars in
very sensitive areas such as ultrasound, MRI, surgery and
pharmacy. He reminded the committee that it is the hospital who
recruits for specialized labor to fulfill sensitive duties.
MR. POWERS said the $7 million threshold does not make sense. He
added that he is curious about the 15,000 population limit and
inquired as to how the committee defines the service area; does
it include the military and native patients. He noted that in
Fairbanks, military physicians are credentialed at FMH and the
native clinic is attached to the hospital thereby resulting in
lower health care cost to the community.
Number 1345
CHAIR JAMES inquired as to what advantage there was for the
Hospital Foundation in building the oncology center without a
CON.
MR. POWERS replied that two physicians from outside the area had
purchased land and started to build a center which FMH did not
feel met the needs of the community. He added that in FMH
estimation that center was the beginning of "cherry picking"
imaging and lab services upon which FMH balances its hospital
revenues. He said that FMH has 30 years' experience in providing
health care service and radiation therapy. He acknowledged that
Chair James had highlighted a perfect example to prove that the
CON needs some tweaking and provision of a level playing field.
Ultimately, he noted, the two competitors mentioned earlier
collaborated with FMH to provide health care at a lower cost.
Number 1253
CHAIR JAMES inquired as to what assets the Hospital Foundation
has in its portfolio; does the Foundation own the land and the
buildings of FMH.
MR. POWERS answered in the affirmative. He said the Hospital
Foundation is the owner of the land and buildings and they have
ultimate responsibility for financial stewardship of the
community hospital.
CHAIR JAMES asked who owned equipment and assets of the oncology
cancer treatment center.
MR. POWERS replied that it is all Foundation owned.
Number 1210
CHAIR JAMES commented that now the Foundation owns equipment
besides the land and buildings.
MR. POWERS answered that the Foundation has owned equipment for
30 years.
CHAIR JAMES asked if all the equipment in FMH belongs to the
Foundation.
MR. POWERS replied in the affirmative.
CHAIR JAMES said she is asking these questions because she had
read in something from DHSS that the Foundation was not
considered a health care facility because the balance sheet of
the hospital belonged to the Lutheran Hospital Society (LHS).
Number 1151
MR. POWERS answered in the affirmative.
CHAIR JAMES inquired as to what is on the LHS balance sheet. She
understood that fixed assets are not on the FMH balance sheet.
MR. POWERS replied that assets are reflected on the Foundation
financial sheets, they are not on the LHS balance sheet.
CHAIR JAMES asked if the cancer treatment center was going to be
managed by the doctors.
MR. POWERS answered that it is his hope that it would be managed
by FMH by Banner Health Systems, formerly LHS, in that the
physicians would provide medical oversight similar to what exists
now in the emergency room, anesthesia, and radiology.
Number 1125
CHAIR JAMES said she understood that the cancer center will be
managed by FMH.
MR. POWERS replied administratively yes, medically no.
CHAIR JAMES said she is having a problem separating those things.
If for example, she added, the hospital wanted to build some
other facilities on Foundation property, FMH probably would not
have to apply for a CON according to the current ruling by DHSS.
MR. POWERS answered that FMH would have to apply for a CON; the
Foundation would not.
CHAIR JAMES stated that the Foundation does everything; FMH does
not own any land and buildings or even equipment.
Number 1057
MR. POWERS replied that FMH operates the facility under a lease
arrangement. Just to recap, he added, there has been a CON on
Denali Center, on FMH outpatient center, on the south tower, on
an MRI and large capital equipment; the one exception was a
radiation therapy center.
CHAIR JAMES stated she does not know why FMH did a CON for the
other projects and did not apply for a CON for the radiation
therapy center.
Number 1019
MR. POWERS replied that from a practical standpoint, land was
purchased, building had started, and FMH was afraid of what two
competing Anchorage doctors were going to do to our community.
CHAIR JAMES concluded then that FMH wanted to skip the CON
process because of time constraint.
MR. POWERS answered in the affirmative.
Number 0994
JEFF COOK, Trustee at Large, Greater Fairbanks Community Hospital
Foundation, testified via teleconference from Fairbanks. He said
that the Hospital Foundation Executive Committee is the operating
board for FMH and also reviews contractual agreements with the
doctors at the cancer center. He agreed that the issue of CON
needs study and if the threshold is to be raised, that requires
very careful review. He stated that HB 297 should be deferred to
a future legislative session after the review and study are
completed.
Number 0933
HARRY PORTER, Treasurer, Greater Fairbanks Community Hospital
Foundation, testified via teleconference from Fairbanks. He said
he has been a member of the board since it was created 30 years
ago. He reminded the committee that FMH is not on any tax roll
and never has been; it is owned strictly by the Foundation and
operated by lease for the Foundation, thus keeping money in the
community. He noted that medical care is not the same as regular
business enterprises. As already testified, he added, no one can
go into a grocery store, pick up groceries and walk out; the same
is true of a clothing store or a car dealer. On the other hand,
he explained, FMH does take everyone who walks in through the
front door which is open 24 hours a day and has been open for 30
years. He commented that a hospital is the only facility that he
knows of that is built and financed for the benefit of the people
who work in it. A hospital, he added, is built and paid by
others for the benefit of the people who operate within it; no
one else does that.
MR. PORTER seconded Chair James' opinion that there should be
sellers and providers in a true competitive market but he said
there is another element in a hospital health situation over
which the hospital has no control and that element is the
professional component. He informed the committee that the
professional component is not addressed in the CON and not
addressed in any manner of which he is aware. He mentioned that
the hospital has no bonding authority and no taxing authority so
the hospital has to live on income from people who use the
hospital. It is true, he added, that some people who use the
hospital are paid for by the state but anything else is paid for
by third party payers in the form of an insurance company, an
employer, or by the individual himself.
MR. PORTER stated that it is the Foundation's sacred
responsibility to see that good medical care is provided to the
Fairbanks community, yet done in such a way as to keep the
hospital financially viable. So far, he remarked, the Foundation
has been able to do that but fears "cherry picking." He reminded
the committee that no one else has stepped forward to take on
money-losing operations such as mental health patients. He
observed that the Foundation just spent several million dollars
on a mental health facility to benefit mental health patients but
no one came forward to help on that project, there was no state
money put in it, and no one was arguing about providing the
service. He reiterated that it is sad but no one ever steps
forward to take on a money-losing project.
Number 0605
CHAIR JAMES reminded the committee and audience that there are
many volunteers in Fairbanks who dedicate thousands of hours for
the betterment of the community.
Number 0485
STEVE STEPHENS, President, Greater Fairbanks Community Hospital
Foundation, testified via teleconference from Fairbanks. He
stated that issues involving the CON need to be studied in depth
and analyzed thoroughly because proposed changes could have a
tremendous impact on the delivery of health care costs in Alaskan
communities. He noted that 75 percent of states require some
form of CON to ensure accountability and responsible stewardship
of community resources. He explained that the CON promotes
community scrutiny, public debate, accountability, discourages
"cherry picking," levels the playing field, and is consistent
with 75 percent of other states. He urged the committee to leave
the CON process as it is presently written.
Number 0371
DAVE RASLEY, 1st Vice President, Greater Fairbanks Community
Hospital Foundation, testified via teleconference from Fairbanks
in opposition to HB 297. He said that whether the legislature
passed HB 297 with a limit of $7 million or repealed the CON as
now written, the result will be the same. He noted that those
hospitals which provide a full range of services under present
CON statutes will be forced to cut back marginal services in
regard to payment. The following, he added, are only some of
services that will not be provided: adolescent psychological
care, mental health, home care, neo-natal care, inebriate care,
and radiation therapy. He reminded the committee that in any
given area there are just so many patients and he envisioned that
many paying patients will go to the new service units, thus
drawing money away from community infrastructure. He recognized
that under the present system, FMH is able to provide the above
mentioned services because they are supported by imaging,
outpatient surgery, and other lucrative services. If those
services, he added, are "cherry picked" away, the hospital will
not be able to provide the services on a sustainable basis.
Number 0165
KAREN PORTER, Business Manager, Greater Fairbanks Community
Hospital Foundation, testified via teleconference from Fairbanks.
She said that the CON process required much study and may need
some revision but is definitely still needed as a control. In
1997, she added, Nebraska reduced CON scope to only include
ambulatory surgery centers, long term care, and rehabilitation.
She noted that the state of Maryland did a major revision to
streamline their CON process in 1997 and included changes for
ambulatory surgery services. Their threshold, she commented, is
$1.25 million. She remarked that approximately 38 states and the
District of Columbia have some of form of CON and they have
relied on the American Health Planning Associations's data as the
best available.
TAPE 00-11, SIDE A
Number 0109
HUNTER JUDKINS, Physician, Tanana Valley Clinic, Fairbanks,
testified in favor of HB 297. He said the restraints caused by a
CON are currently relatively arbitrary and are inhibiting the
Tanana Valley Clinic from bringing additional value, convenience,
improved access, and innovation to Fairbanks. He noted that a
CON does not only limit facilities but also other services, some
of which the clinic is already sharing with the hospital. He
commented that in these days of more technology-dependent
medicine, the cost of providing technological services is
increasing. He mentioned that Tanana Valley Clinic had
investigated bringing a new piece of technological equipment
called an open MRI scanner which is not presently available in
Fairbanks. He informed the committee that the price for this
equipment is $1 million and it is not considered exotic anymore
because many clinics and hospitals nationwide have it. He
acknowledged that he has patients who refuse to be put in the
tunnel MRI so they leave town, go to Seattle and pay money to
have their MRIs done there.
MR. JUDKINS observed that when a community only has one player
who is able because of present constraints to bring new services
and technology it is a problem. He stated that patients in the
community suffer but this is not meant to be a doctor versus
hospital issue. He acknowledged that doctors work in the
hospitals and provide much service. He recognized that hospitals
are not the only entities who care for the indigent, but
physicians many times attend to patients who cannot pay for
services; physicians may see them in the clinic or in the
hospital. He stated that he is called to attend emergency room
patients all the time. He explained that he does not ask what
insurance they have but responds to the can and cares for them.
ELIZABETH RIPLEY, Valley Hospital, testified via teleconference
from Palmer in opposition to HB 297. She said Valley Hospital is
a private, free-standing, not-for-profit community hospital that
serves the Matanuska-Susitna (Mat-Su) Valley which has a
population of 60,000 spread across an area the size of the state
of West Virginia. She noted that the facility is located in the
core area of Palmer and Wasilla but Valley Hospital directly
competes with Anchorage hospitals for market share. She stated
she is unequivocally against HB 297. She explained that in her
community Valley Hospital provides many mission-oriented programs
to meet the specific needs of the Mat-Su population. She
commented that staff and board members of Valley Hospital strive
to balance fiscal responsibility and mission in the community
while competing with hospitals in Anchorage.
MS. RIPLEY said if HB 297 were to pass, it would eliminate the
level playing field for hospitals. She mentioned that hospitals
are required to accept any patient that enters the door. She
remarked that if the CON were altered as proposed, private,
profit-centered enterprises such as ambulatory surgery centers
would be created and these centers could decide who can utilize
their services. In other words, she added, the surgery centers
can limit clientele to third-party insurance payers. She said
that she believes firmly in the benefits of competition and that
hospitals should be efficient in their operation but a level
playing field is needed. She emphasized that hospitals need
accountability to maintain health care institution [standards]
and the CON process, while not perfect, provides for that
accountability.
Number 0657
LARAINE DERR, Alaska State Hospital and Nursing Home Association
(ASHNHA), testified in opposition to HB 297.
DENNIS MURRAY, Administrator, Harry's Place Nursing Facility,
testified via teleconference from Kenai in opposition to HB 297.
He said that the committee has heard testimony that the CON
process does provide a public discussion debate regarding the
allocation of limited health resources. He commented that part
of the logic for raising the CON threshold is perhaps the
assumption that there are unlimited resources and, therefore, if
unlimited resources were available there would be no need for the
CON process. He noted that it has been suggested that
eliminating the CON statute would stimulate competition and the
consumer public would benefit. Again, he added, the committee
heard testimony that competition works in most industries but
health care is somewhat unique in its partnership between
community, government, employers, and individuals.
Number 0909
MR. MURRAY emphasized that health care is a complicated
relationship and he urged the committee to spend more time
examining the issue. He explained that health care is a complex
relationship in any given community between the laws of supply
and demand, volumes, and critical access. He remarked that the
committee had heard testimony that those things are very
delicately balanced; therefore, where the committee may think
they are helping the system, it may be found that solving one
problem actually diminishes the ability of the community in
another area. He recognized that no one jumps to provide
critical service for mental health and yet it is a support
service that must be provided for those citizens who need it. He
observed that there is no willingness on the part of the broader
society in the case of mental health to pay what is necessary and
appropriate to provide that service in a community.
MR. MURRAY stated that creating niche markets as suggested
earlier can provide competition but it must be remembered that
Alaska is the second smallest populated state in the Union.
Consequently, niche markets may function well in the Lower 48 but
not necessarily in Alaska because Alaska has a dispersed
population relying on sole providers (outside of Anchorage) in
terms of a health network.
MR. MURRAY suggested that eliminating or raising the threshold of
the CON will further fragment a system that, at best, is
fragmented already. He urged the committee to fully examine HB
297 as to the implications of changing the laws that currently
exist.
Number 0994
ELMER LINDSTROM, Special Assistant to Commissioner Perdue,
Department of Health and Social Services, reiterated the interest
of the department regarding the CON law. He said the department
historically has been most concerned with the CON process as it
relates to the long term care system, specifically for
construction of nursing home beds. He noted that last year there
was a proposal adopted by the legislature that laid out new and
much improved standards for the review of CONs for long term care
beds. He explained that the department's interest in that area
is driven by financial exposure (about 85 percent) since the
department is the dominant payer of nursing home costs to the
state.
MR. LINDSTROM commented that acute care beds also are subject to
CON and the department represents about 20 percent of the market,
which is a significant player but certainly not a dominant
player; and, therefore, the department's interest in the CON
process on the acute-care side is less. He indicated that the
department is not taking a position on HB 297 primarily due to
its inability to give a credible estimate of either the cost or
the saving associated with HB 297. He read the analysis from the
fiscal note as follows:
CSHB 297 will increase the financial threshold for
requiring a certificate of need for acute care health
facilities and medical equipment from $1,000,000 to
$7,000,000.
The $7,000,000 threshold will assure that major health
care projects, e.g., replacement of a community
hospital, will continue to be subject to the
certificate of need requirement.
Smaller projects, e.g., many pieces of major medical
equipment or construction of some outpatient facilities
will no longer require a certificate of need.
To the extent that the higher threshold results in the
construction of health care facilities which create
excess health care capacity in a community, the
Medicaid program would likely incur additional costs
which would not otherwise be incurred. The impact on
the Medicaid budget will depend on the location, cost,
and date new projects are brought online. The
department lacks sufficient detailed information about
the universe of possible projects to provide a credible
and concrete estimate of these potential costs.
The longer-term fiscal impacts of increased health care
competition in a community are extremely difficult to
predict. Excess capacity, where it exists, may be
absorbed by population increases over time. Increased
competition may result in other cost efficiencies
within the community health system. The results of
increased competition will likely result in different
outcomes in different communities over time. Again,
the department lacks sufficient community-specific
information to determine the fiscal impact of these
longer-term impacts on the Medicaid budget.
Number 1229
MR. LINDSTROM said that 20 years ago the department maintained
considerable infrastructure in health planning but that
infrastructure no longer exists and all that remains is the CON
program. He remarked that what the department believes, given
its inability to provide concrete and credible information as to
cost and saving, is that individual committee members and the
legislature as a whole are better equipped to decide what the
likely impact of HB 297 will be on individual communities.
Number 1382
CHAIR JAMES asked if Mr. Lindstrom knew what the dollar value was
of the contracts that were let to do the CONs in Fairbanks last
year.
DAVID PIERCE, CON Coordinator, Department of Health and Social
Services, noted that CONs vary considerably because of the cost
to hire a consultant. He explained that the lowest amount he had
heard was $5,000 for a consultant and the highest amount could be
up to $50,000. He commented that the subject under discussion is
the difference in project costs from a $1 million to $80 million.
He mentioned that many hospitals do not pay any additional cost
for consultants because they use in-house staff.
Number 1498
CHAIR JAMES indicated that she is bothered by the manner in which
the CON process has been applied in the case of FMH. She
informed the committee that given the information as heard in
testimony she now understands that all property and equipment
used at FMH belongs to the Foundation. She observed that it was
determined [by DHSS] that the Foundation was not required to do a
CON because they were not considered a health care facility and
that the cancer center was a stand-alone project to be managed by
doctors, not FMH. She asked if the [DHSS] determination meant
that at anytime in the future when FMH wants to build more
facilities FMH does not ever have to obtain a CON.
Number 1590
MR. LINDSTROM replied that he was unable to reconcile the
testimony today with departmental understanding of the Fairbanks
documentation so he asked if he could defer an answer in order to
speak to the Fairbanks folks.
CHAIR JAMES reiterated that she can see the levels that were
present in the Fairbanks documentation. She stated that it is
obvious to her that the Foundation has property all around FMH
and the Foundation can build at any time without a CON. She
remarked that she does not think FMH has done anything wrong but
it is engaged in competition with the public. She observed that
when Dr. Odom started the CON process for a $3.5 million surgery
center, it was denied. Subsequently, she added, the next time he
applied, it was denied again because by that time FMH had built a
$9 million expansion, thus rendering Dr. Odom's application null
and void because there did not appear to be any need as
determined by a CON for a surgery center. Further, she
reiterated, she had read in FMH literature that FMH could not
support the expansion because there was not enough business. She
emphasized that in the whole scheme of things if FMH is able to
build whenever they please, whether a CON process exists or not,
FMH will repeat past procedure and block any competition that
comes in to Fairbanks.
Number 1764
CHAIR JAMES said she understands the [business entity] separation
between the Foundation and FMH but also understands that the two
entities think they have found an open door whereby they really
do not have to apply for a CON again. She noted that their
exemption from the CON process is because technically FMH is not
doing the expansion, the Foundation is doing the expansion.
MR. LINDSTROM recognized over time and in different communities
there can be good and bad effects from HB 297.
CHAIR JAMES said that as she listens to testimony, she hears fear
in the voices of those who oppose HB 297. She commented that it
is almost as if opposing testifiers are personally being
threatened. She recognized that many opposing testifiers work in
the medical field and are dedicated to giving patient care; they
would not be in the medical profession if they were not
dedicated. She explained that she does not want to cause fear
with HB 297 but she is not happy with the way the CON process
functions.
Number 1975
KARL SANFORD, Nursing Executive, Fairbanks Memorial Hospital,
testified via teleconference from Fairbanks. He said he wanted
to share his experiences working in Yakima and the Tri-Cities
area of the Pacific Northwest. He noted that what he saw happen
in health care there is deja vu as he observes what is happening
in Alaska. He explained that many health care facilities that he
worked for and with had a similar experience to Alaska's where
outside entities came into communities and built CT scanners
facilities, radiology centers, and installed MRI. Essentially,
he added, the effect was delusion on the part of limited pool
providers because despite reassurances given to hospitals and
city/state officials, the promises never materialized. He
emphasized that failure to deliver as promised is a significant
occurrence that happens time after time in situations like HB
297.
MR. SANFORD urged the committee to thoroughly explore the impact
to communities that would be affected by the 15,000 population
limit. He remarked that Fairbanks, Mat-Su, Kenai, and Juneau
would feel significant economic impact as a result of HB 297. He
reminded the committee that employment impact would result as
well. He reiterated that his experience in Washington was that
because of "cherry picking," hospitals ended up with limited
resources and subsequently could not provide funding for non
insured or underinsured individuals.
MR. SANFORD mentioned that he wanted to cite an example of what
happened in Fairbanks as a possible motive for supporters of HB
297. He explained that in 1999 he had worked with Mr. Pierce
[DHSS] to develop a CON for expansion of the mental health
facility at FMH. He observed that no one came forward to compete
with FMH in providing inpatient mental health services, the
reason being that such services are not lucrative or profitable.
He asked the committee to be careful not to confuse competition
with exploitation. He recognized that passage of HB 297 will
indeed change the landscape of health care in the state and the
impact should not be underestimated.
Number 2183
CHAIR JAMES asked whether or not the state should be involved
regarding the issue of expansion of existing facilities in small
communities. She asked Mr. Sanford if local government should
make the decision for its community.
MR. SANFORD said there is no motivation for an outside entity to
come into a small community.
CHAIR JAMES said what she really wants to know is if Homer, for
example, wanted to expand, why does Homer have to request
permission of the state to expand Homer's health care facilities.
Number 2308
MR. SANFORD replied that the state requires a health care
facility to thoroughly review the cost and benefit of providing
expansion. He said he does not see state involvement as
obtaining permission but demonstrating that a thorough review was
done.
CHAIR JAMES emphasized that she could not believe that a health
care facility would not do a thorough review anyway without
having to go to the state. She explained that she does not
understand the need for extra state bureaucracy and she would
like to give almost all government control back to the local
level. One of the reasons, she added, that state government
costs so much to operate is because the state provides services
to little communities, instead of allowing little communities to
make their own decisions. She envisioned that the more little
communities were allowed to stand on their own and make their own
decisions, the state would be better off. She mentioned that if
little communities are funding their own health care facilities
she does not think that the state needs to be involved. There
might be some inspection quality control and health issues, she
added, in which the state should be involved but it is a separate
issue from HB 297. She reiterated that requiring a community to
go through the state CON process for a local need is superfluous.
Number 2389
DONNA HERBERT, Financial Consultants of Alaska, said she
represents 16 of 22 hospitals, nursing homes, and other health
care entities in Alaska in the health care reimbursement arena
with Medicare and Medicaid. She noted that she had assisted
several facilities in going through the CON process. She
commented that everyone knows the health care system is very
complex and has become convoluted. She mentioned that Alaska is
even more so because of its huge size, small population, and sole
community providers.
MS. HERBERT reminded the committee that hospitals and physicians
do care for many indigents but it must be admitted that most
indigents are seen in emergency rooms. She remarked that
national health care statistics indicate that the age of Alaska
health care facilities is far behind the national norm which
means that in the next few years facilities must look at building
new facilities or major renovation. She added that Alaska is
behind in all national statistics regarding technology but Alaska
should be trying to keep up to a certain standard.
MS. HERBERT recognized that small to mid-size communities face
access-to-care problems. For example, if a patient needs an MRI
and there is none available in the community and the weather is
so bad that the patient cannot be flown to Anchorage, the patient
could die for lack of latest technology and medical expertise.
She observed that there just is not enough revenue base in small
communities to keep prices down; therefore, she sees competition
as being very different in Alaska than in the Lower 48. She
concluded that some of those factors need to be studied.
Number 2697
MS. HERBERT stated that the cost of replacing or updating an
existing facility is different in this state than the Lower 48.
She noted that approximately 72 percent of states still have some
kind of CON process in place in order to preclude duplication of
services. She added that it is also important to study the CON
threshold but $7 million does not seem right to her. She
explained that market basket indices need to be compared to
inflation factors and then the legislature needs to take that
information into account when setting a CON threshold. She
commented that if sole provider hospitals lose the higher-paying
services and at the same time have to provide non-paying
services, their small profit, if any, drops considerably and she
thinks that should be considered carefully by the legislature.
Number 2740
CHAIR JAMES commented she is thinking of the different kinds of
surgery. She explained that she does not understand why some
people refer to surgery as "cherry picking" and why some
surgeries are considered lucrative when in fact some surgeries
are not expensive. She mentioned that most of a hospital's
revenue seems to come from inpatient stay and not from surgery.
She asked Ms. Herbert to explain why Ms. Herbert believes that
outpatient services support the hospital.
MS. HERBERT replied that outpatient services are some of the
services that help raise the hospital's bottom financial line.
She noted that whereas an outpatient clinic stays open only eight
hours a day and sends patients with complications to the
hospital, hospitals must stay open 24 hours a day, seven days a
week. Therefore, she added, this method of taking patients with
easier surgeries on a regular schedule is what is referred to by
the term "cherry picking."
Number 2830
CHAIR JAMES said that if she were a patient she would prefer
going to an eight-hour facility and go home as opposed to going
to a hospital. She asked if anyone is concerned about what the
patient really wants.
MS. HERBERT answered in the affirmative and said that is why she
is not against possibly raising the CON threshold, however, she
thinks jumping from $1 million to $7 million is unreasonable.
CHAIR JAMES noted that she had received information about
legislation in the state of Illinois regarding raising the CON
threshold from $1 million to $7 million. She commented that she
was happy to see that another state thought along the same lines
as Alaska.
Number 2883
MS. HERBERT mentioned that she does not think patients would be
against outpatient surgery centers, she just thinks that there is
a very delicate balance regarding access to health care in
Alaska.
Number 2917
CHAIR JAMES recognized that people really resist change even
after they find that the change was in their benefit. She said
she understands the fear of disruption that people have and
recognized that sometimes their thought process limits their view
of potential that might be good. She observed that it takes time
to convince people to really try to understand and look for
advantages in considering change.
MS. HERBERT stated that she thinks sometimes local people have
trouble being objective.
TAPE 00-11, SIDE B
Number 2981
LOUISE BJORNSTAD, Manager, All Alaska Health Corporation, said
that the Alaska Surgery Center (ASC) would like to expand because
there are new standards to which ASC must comply and as has been
previously testified, Alaska is behind on some technology
standards. She agreed with a former testifier that cost of
construction is extremely different in Alaska than in the Lower
48 as is the cost of shipping major medical equipment.
MS. BJORNSTAD noted that the ASC started their first cases in
February of 1977. She objected to previous comments that care
would be fragmented and dilute it because the ASC has been there
all along. She explained that ASC was started in response to a
need within the community. She commented that in 1992 ASC
applied for its first CON to replace the old facility, which was
a modified 35,000 square foot office building that did not meet
standards. She mentioned that because the building had been
built for office condominiums only 60 percent of the 35,000
square feet could actually be used by ASC for clinic purposes.
MS. BJORNSTAD stated that ASC cannot build outside the footplate
of the original building in order to comply with needed
additional storage requirements because of new parking
regulations enacted by the Municipality of Anchorage. Therefore,
she said, ASC must relocate in order to meet new standards but
because ASC is already an existing facility, to again go through
the whole process of CON seems rather redundant.
Number 2813
MS. BJORNSTAD reminded the committee that ASC started the
construction process back in 1983. She noted that Alaska
Regional Hospital and Providence Hospital were applying for a CON
at the same time to add more beds to their facilities also. She
commented that she would have liked to have shown to the
committee the additions that have occurred at Providence and
Alaska Regional campuses in the same time frame as ASC which has
remained as originally constructed. She asked the committee to
remember that on the Alaska Regional campus in 1982 there was a
main office building, the hospital, and the teamsters building.
She explained that later Alaska Regional remodeled the main
building, the emergency room, day surgery, regular surgery and
last year they applied for a CON to add a heart trauma/pump room
combination onto the operating room. She added that Alaska
Regional has also added two medical office buildings, a parking
structure, and the Veteran's Affairs complex.
MS. BJORNSTAD asked the committee to take into account what
Providence Hospital has added. She stated that since 1983
Providence Hospital has added a neo-natal unit, a new emergency
room, the east and west wings, a maternity center, expanded and
remodeled the cancer treatment center, the imaging center, three
parking garages, classrooms and auditorium, Providence House, a
day care center, a new cafeteria, the Rose Room Cafe, the
heliport, and has changed portions of the administrative area.
She noted that off campus Providence Hospital acquired Our Lady
of Compassion, which is now their extended care facility, added
the Mary Conrad Center, purchased a rehabilitation center, own
Horizon House, purchased majority interest in an office building
at Laurel Street and 42nd Street, bought an office building
located at 36th and LaTouche, own a suite within a professional
office building at 3650 LaTouche, purchased a private practice in
Girdwood, and has even co-signed notes for physicians who are
starting other facilities.
Number 2658
CHAIR JAMES asked if a CON was required for any of those
extensions.
Number 2647
MS. BJORNSTAD answered in the affirmative. She said that the
Anchorage community recognizes that Providence Hospital is
constantly expanding and building. She wondered where the money
for expansion comes from since Providence Hospital claims to be a
non-profit hospital.
CHAIR JAMES asked Ms. Bjornstad if Ms. Bjornstad thinks
Providence Hospital should be required to apply for a CON or
should they be able to build without a CON.
MS. BJORNSTAD replied that she does not believe that a CON limits
what someone can do. She noted that Providence Hospital has used
the CON to expand what they already have because they want to be
the major health care provider for the entire state of Alaska.
Number 2549
CHAIR JAMES asked how many people from around the state go to
Providence Hospital as opposed to going to their local hospital.
Her question is "where do all the extra people come from, the
Anchorage area or from the rest of the state."
MS. BJORNSTAD answered that not all small facilities have a heart
program so people must go to a major population area which is
either Seattle or Anchorage. She observed that ASC is a for
profit business and pays corporate tax, federal tax, state
corporate tax, business property tax, and property tax. She
reminded the committee that businesses who pay taxes help the
government in turn pay the majority of cost for health care which
supports the non-profit hospitals.
Number 2480
CHAIR JAMES said she understood that Alaska Regional Hospital
also pays the various taxes.
MS. BJORNSTAD replied in the affirmative. She added that the
most commonly performed procedure at ASC is cataract extraction
with lens implant that is paid by Medicare 90 percent of the
time. She observed that ASC does more cataract operations due to
efficiency than both Providence and Alaska Regional combined.
Number 2424
JEROME SELBY, Providence Alaska Health Systems, testified in
opposition to HB 297 as written. He said he would have no
objection to HB 297 if there was intent to bump the $1 million
threshold up to $1.5 million to adjust for a reasonable inflation
number.
CHAIR JAMES asked if Mr. Selby minded applying for a CON.
MR. SELBY answered yes, he does mind. He noted that he had just
finished a CON application to upgrade an surgery suites and an
emergency room for Providence Hospital. He explained that it
seems unfair to bring in competitors from within Alaska and
potentially outside who are exempt from the CON process. He
commented that if Providence Hospital must apply for a CON and
competitors do not, then the playing field is not level. He
reiterated that the CON process is about capacity, facilities,
and cost of those facilities. He mentioned that the CON does not
do anything for competition because competition already exists in
Anchorage and in fact he is not concerned about competition.
However, he indicated he is concerned about what the overall cost
of overbuilding many new facilities will do to the cost of health
care for all of us in Alaska because we will all end up paying
the tab. He added that all Alaskans will pay through Medicaid,
Medicare, and private insurance premiums that will increase if
too many unnecessary facilities are built in the state.
Number 2336
CHAIR JAMES observed that it seems to her that a private, for-
profit corporation would not invest in a huge facility if there
is not enough business out there to expect a return on
investment. She commented that patients seem to like and need
surgery centers; therefore, private business naturally seeks to
fill a market niche.
Number 2286
MR. SELBY mentioned that there are two levels of activity; the
small community and the large community. He stated that smaller
communities express great concern regarding the CON. He
indicated that those folks are operating on a very thin margin
and for anyone to come in and take away some of the small
facility's business places the small facility in a dire
situation. Either the community, he added, has to cough up more
taxes or some other way has to be found to offset revenue loss to
the small facility.
MR. SELBY remarked that larger communities, such as Anchorage,
already have competition so the CON is not a competition issue.
He recognized that the concern is about overbuilding facilities
to the point that costs are driven up indirectly for everybody.
He reiterated that if overbuilding occurred, Providence Hospital
would either have to cut services, stop paying charity cases, or
raise prices because there is no magic money. He observed that
money has to come into the system. Meanwhile, he added, the cost
to Providence Hospital for charity care has gone from $12 million
to $25 million in the space of three years so the trend does not
look good for the future. He stated that the only place that
extra cost can be absorbed is Medicare, Medicaid, and increased
health insurance premiums for everybody in the state.
Number 2024
CHAIR JAMES commented that many people would go to surgery
centers so her insurance rates will go down.
MR. SELBY replied that insurance companies will love the surgery
centers because it will result in savings for insurance companies
but Mr. Selby said he is talking about truly expensive inpatient
surgeries. He envisioned that costs for inpatient care at
hospitals will skyrocket. He acknowledged that surgery centers
are a relatively small piece of health care so some money will
be saved on a small piece but costs are driven up on large pieces
because infrastructure costs of Providence do not just go away.
He said HB 297 is far reaching and a great impact to the health
care system so he asked the committee to take a close look at the
CON issue.
Number 1942
DAVID MCGUIRE, M.D., Orthopedic Surgery, said he had an
opportunity to give testimony at the DHSS committee hearing some
time ago. At that time, he added, he had made a statement that
he was proud that no patient had ever gone away from his office
needing medical care and not getting it because of their
inability to pay. He noted that last year he saw 80 patients on
Medicare and 89 patients on Medicaid which numbers comprised 10
percent of his practice. He observed that the number of patients
on Medicare and Medicaid has been rising year by year.
DR. MCGUIRE noted that the CON process is a proven failure not
because he says so but because the FTC says so and it has not
been demonstrated to work anywhere. He reminded the committee
that testimony had been heard earlier that where the CON is in
place it may well inflate costs. He reiterated that the CON is a
proven failure because the system is arbitrary and limits entry,
but once an entity entry there is no control over any medical
costs from then on. He offered to cite some specific examples of
CONs that are major expenditures of money and that did not go
through the CON process at all. He asked the committee to bear
in mind that the money used in these expenditures came from the
community and was alleged to be regulated by the CON but was
completely exempt from regulation.
DR. MCGUIRE explained that the committee had already heard
testimony regarding the June 3, 1998 determination that the
Fairbanks hospital did not need a CON for what was then described
as a 3,000 square foot facility and linear accelerator to cost
$2.5 million. Well, he added, it turned out to cost $9.5
million.
DR. MCGUIRE cited an example of Providence Hospital, July 14,
1998, which submitted a letter of intent to construct a new
employee parking structure costing $8.2 million and a
determination was made that the project did not require a
certificate of need. He cited another example of Providence
Hospital submitting a letter of intent in July 1997 to upgrade
cooling plant capacity at a cost of $2.1 million and again not
required to apply for a CON.
DR. MCGUIRE said that the Pacific Cataract and Laser Institute
(PCLI) leased 6,400 square feet in a facility and because they
leased the space it was not included in the CON. He noted that
their project was said to have cost $902,000 which brought the
project in under the $1 million CON level; therefore, they did
not need to apply for a CON. He reminded the committee that it
would be very difficult to buy an excimer laser [a piece of
equipment that PCLI had purchased for the leased facility], equip
two surgery suites for cataract surgery and provide the facility
for less than $1 million but because PCLI leased the facility
they were not required to apply for a CON.
DR. MCGUIRE stated that when the Alaska Regional Hospital
replaced plumbing in March 12, 1998 it cost over $6 million but
no CON was required because it was determined to be routine
maintenance.
DR. MCGUIRE cited another example of Providence Hospital when
Providence submitted a letter of intent on June 8, 1999 to build
an outpatient clinic for the Alaska Family Practice. He said he
does not know how much money was spent but it was determined not
to be a health care facility and, therefore, it did not need to
be included in a CON.
DR. MCGUIRE explained that his point is that when it comes to the
delivery of health care, arguments such as "cherry picking" and
non caring are defamatory and not accurate. He commented that
physicians take care of patients and somebody present here should
start advocating for patients. He mentioned that patients should
be able to obtain the best possible service for the least
possible price and the institution as a whole should figure out
how to provide that care. He reminded the committee that he
provides a lot of charity care and so does the surgery center but
they are not non profit. He acknowledged that non profits do not
pay taxes which represent about 30 percent of a business' bottom
line. He reiterated that the committee ought to focus its
efforts on evaluating the system and ascertain whether or not the
system has done any good rather than hurling untrue charges
against the opposition.
Number 1617
GORDY LEWIS testified via teleconference from Fairbanks and
reminded the committee that Alaska is not Mississippi, Fairbanks
is not Anchorage, and the FTC is not Alaska state government. He
said he supported Alaska challenges and Alaska solutions. He
noted that he spoke to the committee as someone who has 20 years'
health care experience, particularly in managing limited
resources in the delivery of health care. He commented that he
had watched with much interest, as a member of the Fairbanks
community, the most recent CON proposals and has read them all.
He applauded DHSS's right decision because what was in the CON
proposals only considered the Fairbanks population and
disregarded the 21,000 Department of Defense beneficiaries who
live in Fairbanks and North Pole. He noted that 88 percent of
Department of Defense personnel obtain their health care through
the health care delivery system provided by the Bassett Army
Community Hospital.
MR. LEWIS mentioned that he is a little offended that now, after
30 years since the CON has been in place, someone comes in and
makes an "end run" on the system; in fact, language in HB 297
says that changed policy about CONs is even retroactive to
pending CON proposals. He indicated that a fundamental rule of
law is "stare decisis" (stand by the decision) and a sound CON
law is in place. He emphasized that the reason for CON laws is
to preclude the rampant expansion of health care costs. He
informed the committee that he had checked on the Internet and
found that the last time the state CON law was reviewed was in
1993. He recognized that if the national consumer price index
(CPI) is used in order to arrive at $7 million, someone would
have to refer back to 1949 with a $1 million, move it forward to
2000 and there would still be $260,000 left over. Therefore, he
stated, he thinks the CON threshold is too high and he believes
the state does have a duty to provide over watch in such a large
area of the economy.
Number 1326
MR. LEWIS reiterated that the CON process already provides for
emergency grants of CON. He said that if there really was an
interest to look at access quality and cost of care then he urged
the committee to determine needs and impacts on all Alaskans,
from rural to urban to Bush. He noted that deliberate planning
needs to happen. He commented that there is an assumption that
competition reduces costs but in fact the unbridled growth and
expansion of health care services was the initial driving force
behind the start of CONs in the first place. He reiterated that
the issue is open to public debate and he, for one, is convinced
that the CON process has its place, especially within a
geographically dispersed population. He mentioned that he thinks
the current law provides due process, sets the appropriate
economic threshold, and in fact works at reducing unnecessary
overuse of services. He indicated that he thinks the CON creates
a reasonable check and balance between parochial self interest
and community public interest. He emphasized that he thinks it
ensures the best choice for all and effectively precludes
unabated health care costs.
Number 1253
BARBARA HUFF-TUCKNESS, Director of Legislative and Governmental
Affairs, Teamsters Local 959, testified that she represented
approximately 7,000 members around the state of Alaska and within
the health care field the Teamsters represents about 500 people.
She recognized that one of the CON issues under discussion is the
ability to relocate an already established facility. She also
acknowledged that the CON is a very time-consuming process and
her ultimate reaction was "get rid of the whole program;" that
will really level the playing field for everybody.
MS. HUFF recognized that the Teamsters major concern is with
surgery nurses and Teamsters members that perform lab services.
She remarked that the Teamsters has a preferred provider
agreement with Providence Hospital but there is no preferred
provider agreement for outpatient service. She reiterated that
the health care delivery system is maintained on a delicate
balance but to de-regulate the industry on a local level is
desirable. However, she expressed concern about the impact that
HB 297 will have on Teamster employees.
Number 0411
CHAIR JAMES asked if medical services (hospitals and facilities)
is an industry. She said she believed medical services is an
industry. For example, she added, pharmaceuticals is an industry
to such an extent that they have stock in their companies
published on the stock market. As an industry, she added, should
it be allowed to proceed on its own. She explained that the
medical industry should be allowed to proceed as long as the
patients are being served. Another issue to be discussed, she
noted, is government as the major health care payer. She
inquired as to whether the state wants to amass all the activity
in non profits. She reminded the committee that non profits do
not pay local or federal taxes and it is amazes her that non
profits are allowed to compete with for profits who must pay
taxes. She observed that non profits are continually expanding
and making money; probably they are expanding on taxes paid for
by for profits as testified by Ms. Bjornstad. She asked if that
was a level playing field and recognized that it is a deep
subject.
Number 0253
MS. HUFF commented that the Teamsters had wanted to publish for
their members a list of what doctors charge so that member
consumers could choose which doctor the member wanted to go to.
She observed that price information should be available to
consumers, yet the Teamsters were told that the information was
not available.
[Due to recorder malfunction, remaining minutes are reconstructed
from log notes and written testimony]
REBECCA DEAN, Private Consultant, testified that she is an
independent health care consultant in Fairbanks. She read the
following testimony:
Thank for your insight and recognition of the need to
scrutinize our state certificate of need process.
As many have testified, it is a very complex process.
In respect of time restraints and duplication of
comments, I strongly urge the legislature to amend the
threshold now and develop a process review to
investigate parity and maneuverability (wiggle room)
within the regulatory guidelines and revise the CON
process itself to become an equal playing field during
the process.
Number 0176
CHAIR JAMES asked where is the level playing field when a non
profit is competing with a for profit. She said it seems to her
like handicap bowling, "you have to give the other team a few
extra starting points." She observed that Dr. Judkins from the
Tanana Valley Clinic testified that they had wanted to purchase
an open MRI and the decision to do so was based on service to
patient needs. She reminded the committee that Dr. Judkins had
testified that some patients cannot tolerate the tunnel MRI. She
added that FMH does not have an open MRI so now maybe they will
get one just to keep up with competition. She closed testimony
and appointed a subcommittee for HB 297 composed of
Representatives Green, Smalley and herself. [HB 297 was held
over.]
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 11:25
a.m.
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