Legislature(1999 - 2000)
03/10/1999 01:39 PM Senate HES
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SENATE HEALTH, EDUCATION AND SOCIAL SERVICES COMMITTEE
March 10, 1999
1:39 p.m.
MEMBERS PRESENT
Senator Pete Kelly, Vice-Chairman
Senator Gary Wilken
Senator Drue Pearce
Senator Kim Elton
MEMBERS ABSENT
Senator Mike Miller, Chairman
COMMITTEE CALENDAR
SENATE BILL NO. 84
"An Act imposing certain requirements relating to cigarette sales
in this state by tobacco product manufacturers, including
requirements for escrow, payment, and reporting of money from
cigarette sales in this state; providing penalties for
noncompliance with those requirements; and providing for an
effective date."
-MOVED SB 84 OUT OF COMMITTEE
SENATE JOINT RESOLUTION NO. 7
Relating to prohibiting federal claims against funds obtained by
settlement of tobacco litigation.
-HEARD AND HELD
CS FOR HOUSE JOINT RESOLUTION NO. 12(FIN)
Relating to federal claims against funds obtained by settlement of
state tobacco litigation.
-SCHEDULED BUT NOT HEARD
PREVIOUS SENATE COMMITTEE ACTION
SB 84 - No previous action to report
SJR 7 - No previous action to report
CSHJR 12(FIN) - No previous action to report
WITNESS REGISTER
Mr. Bruce Botelho, Attorney General
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Presented SB 84
Mr. Doug Gardner, Assistant Attorney General
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Commented on SB 84
Mr. Mark Hodgins, Staff
Senator Jerry Ward
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Presented SJR 7
ACTION NARRATIVE
TAPE 99-10, SIDE A
Number 001
SB 84-CIGARETTE SALES: AGREEMENT/ESCROW
SJR 7-TOBACCO LITIGATION SETTLEMENT
VICE-CHAIRMAN KELLY called the Senate Health, Education and
Social Services (HESS) Committee to order at 1:39 p.m. and
announced that Attorney General Bruce Botelho would give a brief
overview of the tobacco litigation.
Number 014
MR. BRUCE BOTELHO, Attorney General, explained that Alaska first
became entangled in the "tobacco wars" just prior to the 1997
legislative session. At that time the tobacco industry filed a
lawsuit in federal court to enjoin the potential filing of a
lawsuit by the State of Alaska. That industry lawsuit was
dismissed by the District Court in Anchorage, appealed to the
Ninth Circuit and ultimately dismissed as a result of the
settlements that were achieved. Alaska filed a lawsuit in
April 1997 and that litigation became part of two national
tobacco litigation settlement efforts. In the first effort, on
June 20, 1997 federal legislation would have been required for
ratification of that settlement, and the settlement was not
ratified. As a consequence, the states proceeded to trial.
Four states ended up settling at various stages, either
immediately before or during trial. Last November, 46 states
and the remaining U.S. territories reached a second nationwide
settlement, one that did not require congressional action, but
accomplished some of the fundamental goals Alaska was seeking.
These public health goals sought prohibition against marketing
tobacco to children and the establishment of two programs: a
national education program against tobacco misuse, and the
creation of a foundation to help fund research against the use of
tobacco by young people. The second settlement changed a wide
variety of industry practices and resulted in monetary payments
to the states. For Alaska, payments will total about $670 million
over a 25-year period. The first payment will be made before the
conclusion of FY 2000 and will consist of two installments of
about $8 million and $22 million dollars.
MR. BOTELHO said related issues still needing attention have led
to today's hearing in HESS on proposed tobacco legislation. The
first issue involves claims made by the federal government to
recoup some portion of the monies the states negotiated with the
tobacco industry. According the federal government, the claims
arise out of the Medicaid law that would mandate that as much as
$400 million of the $670 million Alaska settlement be paid to the
federal government. Not surprisingly, the states have
collectively objected to any effort to take that money from them.
MR. BOTELHO referred the committee to the materials he provided
that outline the rationale for the state's refusal to support
this effort.
Currently there are bills in Congress that would block efforts to
recoup those monies. The U.S. Senate is considering S.R. 346 as
part of its supplemental appropriations. It is sponsored by
Senator Hutchison of Texas and co-sponsored by Senator Murkowski,
among others. If enacted, S.R. 346 would bar the federal
government from making these claims. In the House, there is
very strong sentiment to block federal efforts, with 90 members
co-sponsoring similar legislation.
The second issue relates to non-participating tobacco manu-
facturers. This legislation is the result of negotiations
between the states and the industry, with representation from
about 98% of all U.S. tobacco manufacturers. The intent of this
legislation is to ensure that "renegade companies" that did not
sign on to the deal are not given an unfair advantage in
marketing to gain a substantial market share.
MR. BOTELHO concluded by saying this is basically the historical
context leading to the legislation currently on the committee's
agenda.
Number 127
VICE-CHAIRMAN KELLY asked if the money the federal government
wants Alaska to return would be a strict payment, or would
supplant federal funding over the next few years with settlement
dollars.
MR. BOTELHO replied the strategy in the specific claims has not
been made clear. A lawsuit has been asserted, and certain states
received letters from the Health Care Finance Administration
(HCFA), which runs Medicaid, claiming HCFA is entitled to these
payments.
The federal government could accomplish payment in either of
two ways: simply withhold funds from the states year by year to
recapture the monies, and force the states to sue; or sue the
states to establish the proposition that the federal government
is entitled to those monies. Most likely, the federal government
would choose the first option and withhold payments to the state
under Medicaid as a way to recoup annually, and put the burden on
the state to litigate.
Number 153
VICE-CHAIRMAN KELLY asked if the federal government were to
withhold funds, would it be done administratively or through
enacted legislation.
MR. BOTELHO responded the Clinton Administration's position is
that it has administrative power to do this, resulting in the
desire by sponsors in both houses of Congress to expressly bar
such an effort. The Clinton Administration has indicated it will
not act on this during FY 2000, so there would be no attempt to
"grab" Alaska's first payment. There is recognition that this is
a major issue for the states and that it has widespread and
bipartisan support in both chambers.
VICE-CHAIRMAN KELLY asked if the language of the settlement is
wide open with no sideboards relating to this issue.
MR. BOTELHO responded there are no sideboards but the states have
taken the position that while the states used Medicaid as a
measure of damages in calculating how much each state should
receive, the claims were not based on Medicaid recoupment but
rather on the on-going antitrust, public nuisance and consumer
protection violations of the last 40 years. In the department's
view, the federal government would not be entitled to any of
these dollars; that's precisely the issue.
Number 181
SENATOR ELTON asked if Mr. Botelho has problems with either SB 84
or SJR 7, and if the Department of Law prefers the House Joint
Resolution or the Senate Joint Resolution.
MR. BOTELHO replied the department is quite supportive of both
pieces of legislation. SB 84 is a direct result of negotiations
between the states and the industry.
The department prefers the House version of the resolution,
though both resolutions accomplish the same objectives. The
objectives are to put the Legislature on record regarding the
state's recoupment, to ask Congress to pass legislation, and to
ask the Clinton Administration to sign that legislation and
refrain from any administrative action. However, in the Attorney
General's view, the advantage of the House version is that it
specifically addresses the Alaska situation and acknowledges that
Alaska never made any Medicaid claim. To the department, the
House version is a more forceful statement of Alaska's position
that could work more to the state's advantage if it litigates
with the federal government in the future.
Number 220
MR. DOUG GARDNER, Assistant Attorney General, stated he has
worked on SB 84 and on tobacco litigation for the Attorney
General. He explained that the department signed the Master
Settlement Agreement with the tobacco industry, and it is
expected that all the states will attempt to pass this model
statute. The model statute is important because its passage
would prevent a "renegade company," a small manufacturer, from
circumventing all the restrictions in the settlement, essentially
dumping cheap cigarettes on the market and enjoying a cost
advantage. Preventing this would be a major advantage from a
public health standpoint and would ensure that everyone is
playing by the same rules.
Secondly, if Alaska didn't pass the model statute and the
industry experienced reductions in its market share as a result
of the settlement, the amount by which the industry would be
entitled to reduce the payments to the states would be spread
over those states not having the statute in place. In other
words, a small number of states would bear the entire burden of
the industry's market share reduction. He explained the model
statute is Exhibit T to the Master Settlement Agreement. MR.
GARDNER said the department worked with the industry and others
to ensure that the statute would work under Alaska law. It was
painstakingly drafted, and Phillip Morris, at least, agrees that
it is a qualifying statute under the terms of the Agreement.
Number 255
SENATOR WILKEN asked Mr. Gardner how much money would be involved
if Alaska didn't pass the model statute to protect itself under
the NPM risk or "Non-Participating Manufacturer Adjustment."
MR. GARDNER replied it's a hard question to answer as it would
depend on hypotheticals, including how many states failed to pass
the model statute and how big the industry's market share is. The
reduction could be sizeable, and could cut Alaska's settlement
dollars in half.
Number 268
VICE-CHAIRMAN KELLY asked the will of the committee regarding SB
84.
SENATOR WILKEN moved to pass SB 84 out of committee with
individual recommendations and the zero fiscal note. Hearing no
objection, it was so ordered.
Number 280
VICE-CHAIRMAN KELLY brought up SJR 7 and asked the sponsor to
read the testimony into the record. He announced the committee
would hold the bill over until Chairman Miller returns.
MR. MARK HODGINS, aide to Senator Ward, explained SJR 7 urges
Congress to enact legislation preventing the U.S. Department of
Health & Social Services from recouping state tobacco settlement
funds as third-party recoverees under the Medicaid law. The
sponsor, Senator Ward, was asked by the National Conference of
State Legislatures to bring forward this model legislation as
part of a nationwide plan to prevent the federal government from
taking states' tobacco industry settlement dollars.
SJR 7 asks Congress and the Clinton Administration to recognize
the state of Alaska's interest in enacting legislation that would
prohibit the federal government from recouping the tobacco
settlement funds.
Number 311
VICE-CHAIRMAN KELLY brought up Attorney General Botelho's
preference that the committee pass the House version, and he
asked Mr. Hodgins how the two resolutions differ.
MR. HODGINS replied the only differences relate to Alaska's
position regarding the Medicaid references, but he was unable to
explain those differences.
VICE-CHAIRMAN KELLY announced that SJR 7 and HJR 12 would be held
over until the next meeting on Monday, March 15. With no further
business before the committee, it was adjourned at 2:10 p.m.
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