Legislature(2019 - 2020)BUTROVICH 205

03/27/2019 01:30 PM HEALTH & SOCIAL SERVICES

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Audio Topic
01:31:10 PM Start
01:31:22 PM SB1
02:54:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 1 REPEAL CERTIFICATE OF NEED PROGRAM TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
      SENATE HEALTH AND SOCIAL SERVICES STANDING COMMITTEE                                                                    
                         March 27, 2019                                                                                         
                           1:31 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator David Wilson, Chair                                                                                                     
Senator John Coghill, Vice Chair                                                                                                
Senator Gary Stevens                                                                                                            
Senator Cathy Giessel                                                                                                           
Senator Tom Begich                                                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 1                                                                                                               
"An Act repealing the certificate of need program for health                                                                    
care facilities; making conforming amendments; and providing for                                                                
an effective date."                                                                                                             
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 1                                                                                                                    
SHORT TITLE: REPEAL CERTIFICATE OF NEED PROGRAM                                                                                 
SPONSOR(s): SENATOR(s) WILSON                                                                                                   
                                                                                                                                
01/16/19       (S)       PREFILE RELEASED 1/7/19                                                                                
01/16/19       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/16/19       (S)       HSS, FIN                                                                                               
03/27/19       (S)       HSS AT 1:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
GARY ZEPP, Staff                                                                                                                
Senator David Wilson                                                                                                            
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Presented the sectional analysis of SB 1 on                                                               
behalf of the sponsor.                                                                                                          
                                                                                                                                
DAVID GRABOWSKI, Ph.D., Professor                                                                                               
Department of Health Care Policy                                                                                                
Harvard Medical School                                                                                                          
Boston, Massachusetts                                                                                                           
POSITION STATEMENT:  Testified in favor of  repealing Certificate                                                             
of Need laws.                                                                                                                   
                                                                                                                                
DAN GILMAN, Attorney Advisor                                                                                                    
Office of Policy Planning                                                                                                       
Federal Trade Commission (FTC)                                                                                                  
Washington, D.C.                                                                                                                
POSITION STATEMENT:  Testified in favor of  repealing Certificate                                                             
of Need laws.                                                                                                                   
                                                                                                                                
MATTHEW MITCHELL, Ph.D., Senior Research Fellow                                                                                 
Director of the Equity Initiative                                                                                               
Mercatus Center                                                                                                                 
George Mason University                                                                                                         
Arlington, Virginia                                                                                                             
POSITION STATEMENT:  Testified in favor of  repealing Certificate                                                             
of Need laws.                                                                                                                   
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
                                                                                                                                
1:31:10 PM                                                                                                                    
CHAIR DAVID WILSON  called the Senate Health  and Social Services                                                             
Standing Committee meeting  to order at 1:31 p.m.  Present at the                                                               
call to  order were Senators  Coghill, Giessel,  Begich, Stevens,                                                               
and Chair Wilson.                                                                                                               
                                                                                                                                
            SB 1-REPEAL CERTIFICATE OF NEED PROGRAM                                                                         
                                                                                                                                
1:31:22 PM                                                                                                                    
CHAIR  WILSON  announced the  only  order  of business  would  be                                                               
SENATE  BILL NO.  1, "An  Act repealing  the certificate  of need                                                               
program   for   health   care   facilities;   making   conforming                                                               
amendments; and providing for an effective date."                                                                               
                                                                                                                                
CHAIR WILSON made opening remarks.                                                                                              
                                                                                                                                
1:31:48 PM                                                                                                                    
CHAIR WILSON solicited  a motion to adopt  the proposed committee                                                               
substitute (CS) for SB 1.                                                                                                       
                                                                                                                                
1:31:55 PM                                                                                                                    
SENATOR COGHILL moved to adopt  the Committee Substitute (CS) for                                                               
SB  1,  work order  31-LS0001\M,  Marx,  3/8/19, as  the  working                                                               
document.                                                                                                                       
                                                                                                                                
SENATOR GIESSEL objected for purposes of discussion.                                                                            
                                                                                                                                
1:32:08 PM                                                                                                                    
CHAIR WILSON reviewed the changes made  to SB 1 from Version A to                                                               
Version M:                                                                                                                      
                                                                                                                                
     The changes made in the work draft pertain to the effective                                                                
     date on page 5, line 9:                                                                                                    
                                                                                                                                
        • Section 8 reads: This act takes effect on July 1,                                                                     
          2024.                                                                                                                 
                                                                                                                                
     The change in the effective date from July 1, 2020, to July                                                                
     1, 2024, enables a step-down approach to allow certificate-                                                                
     of-need recipients and newly approved applicants to:                                                                       
                                                                                                                                
        • plan for the change over the course of five years                                                                     
        • re-engineer their business model                                                                                      
        • and re-coup their investment                                                                                          
        • allow the department to revise regulations                                                                            
                                                                                                                                
1:33:01 PM                                                                                                                    
SENATOR BEGICH  asked how existing regulations  would be affected                                                               
if the Certificate of Need  (CON) program was eliminated. He said                                                               
if  the  [department]  spends  four  or  five  years  working  on                                                               
regulations,  what  would  the legislature  need  to  ensure  the                                                               
regulations still  apply and do  not disappear with the  bill. He                                                               
asked  if  the  committee  could  request  a  legal  opinion  for                                                               
clarification.                                                                                                                  
                                                                                                                                
CHAIR WILSON said  the bill would repeal the statute.  He said he                                                               
hoped  the  department  would develop  new  regulations  to  help                                                               
strengthen what  could be  a better process.  He noted  that last                                                               
year  the  committee  heard  from  many  providers  who  were  in                                                               
agreement that the  process was not perfect.  Even the department                                                               
stated that  the process for  applying for a certificate  of need                                                               
(CON) is not a good  one. The [department and stakeholders] would                                                               
like to make  the process better and the bill  will allow them to                                                               
do so without the CON law in effect.                                                                                            
                                                                                                                                
SENATOR  BEGICH  asked  if eliminating  the  statute  would  also                                                               
eliminate the authority for regulation.                                                                                         
                                                                                                                                
CHAIR  WILSON  offered  to  request  a  legal  opinion  from  the                                                               
Legislature Legal Services on the matter.                                                                                       
                                                                                                                                
1:34:54 PM                                                                                                                    
SENATOR GIESSEL removed her objection.                                                                                          
                                                                                                                                
There  being  no  further  objection,  CSSB  1,  Version  M,  was                                                               
adopted.                                                                                                                        
                                                                                                                                
1:35:04 PM                                                                                                                    
CHAIR WILSON explained that SB  1 repeals Alaska's Certificate of                                                               
Need  program  and provides  for  a  five-year delayed  effective                                                               
date.  The CON  programs were  first mandated  nationally by  the                                                               
federal government  in 1974.  Since the  mandate was  repealed by                                                               
the federal  government in  1987, 12  states have  repealed their                                                               
CON laws,  three states have  a regulatory oversight  method, and                                                               
35 states  still have CON  laws and require approval  for certain                                                               
facilities and services.                                                                                                        
                                                                                                                                
CHAIR WILSON said  that CON programs were  originally intended to                                                               
restrain health  care costs  and improve access  to care  for the                                                               
poor and  the underserved populations.  However, four  decades of                                                               
data  and  studies  show  CON laws  have  not  controlled  costs,                                                               
improved quality and outcomes or  increased access to health care                                                               
for the poor or underserved.                                                                                                    
                                                                                                                                
CHAIR WILSON  offered his belief  that CON laws  have established                                                               
health care monopolies.  This has resulted in barriers  to new or                                                               
expanded medical  facilities and  limited health care  choices or                                                               
innovations  for  consumers.  Studies  have shown  that  a  well-                                                               
functioning  health care  market  improves  access, quality,  and                                                               
outcomes.  Further, a  well-functioning health  care market  will                                                               
incentivize innovations from  new entrants and lower  the cost of                                                               
health  care services.  Repealing  Alaska's  Certificate of  Need                                                               
program would  benefit Alaskans by  fostering competition  in the                                                               
health care markets.                                                                                                            
                                                                                                                                
1:36:53 PM                                                                                                                    
GARY   ZEPP,   Staff,   Senator  David   Wilson,   Alaska   State                                                               
Legislature, Juneau,  said that most  of the sections for  CSSB 1                                                               
are conforming. He presented the sectional analysis:                                                                            
                                                                                                                                
     Sections   1-3:  makes   conforming  amendment   to  AS                                                                    
     18.20.400 and  AS 18.20.499 to eliminate  references to                                                                    
     AS 18.07.111,  which is  repealed under  sec. 5  of the                                                                    
     bill.                                                                                                                      
                                                                                                                                
MR.  ZEPP  explained  that  the  conforming  amendments  were  to                                                               
limitations   on  nursing   overtime  under   AS  18.20.400,   to                                                               
definitions  in  AS  18.20.499. It  would  remove  references  to                                                               
definitions in AS 18.07.11, which  is repealed under Section 5 of                                                               
the bill. He reviewed Section 4.                                                                                                
                                                                                                                                
     Section 4: makes conforming  amendments to AS 18.26.220                                                                    
     by removing references to repealed sections of law.                                                                        
                                                                                                                                
MR.  ZEPP  said  these  conforming amendments  were  to  facility                                                               
compliance   with   health   and  safety   laws   and   licensing                                                               
requirements. He continued his sectional analysis.                                                                              
                                                                                                                                
     Section  5: repeals  all of  AS 18.07,  which describes                                                                    
     the  certificate  of  need   program  for  health  care                                                                    
     facilities,     and      AS     21.86.030(c)(1),     AS                                                                    
     44.64.030(a)(18),  and  AS   47.80.140(b),  which  also                                                                    
     relate to the certificate of need program.                                                                                 
                                                                                                                                
     Section 6:  repeals a section  of uncodified  law, sec.                                                                    
     4, ch.  275, SLA 1976,  which provided a  transition to                                                                    
     allow   medical  facilities   in  existence   or  under                                                                    
     construction   before   July    1,   1976   to   obtain                                                                    
     certificates of need.                                                                                                      
                                                                                                                                
MR. ZEPP said  this statute was the original creation  of the CON                                                               
program in Alaska in 1976. He reviewed Section 7.                                                                               
                                                                                                                                
     Section 7:  provides that the Department  of Health and                                                                    
     Social  Services may  not take  any  action to  revoke,                                                                    
     enforce, or  modify a certificate  of need issued  to a                                                                    
     health care  facility before the effective  date of the                                                                    
     Act.                                                                                                                       
                                                                                                                                
     Section 8: provides  that the Act takes  effect July 1,                                                                    
     2020.                                                                                                                      
                                                                                                                                
1:40:28 PM                                                                                                                    
MR. ZEPP  began his  presentation on  CSSB 1  by showing  a video                                                               
from George Washington  University-Mercatus Center explaining the                                                               
Certificate  of  Need  program.  The  video  made  the  following                                                               
points:                                                                                                                         
                                                                                                                                
     Before someone can  open or expand the  operations of a                                                                    
     health care  facility, CON laws  require them  to prove                                                                    
     to  a  regulator that  their  community  needs the  new                                                                    
     services.  The original  goal was  to control  costs by                                                                    
     reducing   spending  on   unnecessary  treatments   and                                                                    
     equipment. The  CON laws  have not  been a  panacea for                                                                    
     controlling costs. Obtaining a CON  is a pain. CON laws                                                                    
     make it hard  for new health care  providers to compete                                                                    
     with  established  ones. Congress  stopped  encouraging                                                                    
     states  to  adopt CON  laws  in  1987. Since  then,  14                                                                    
     states have  repealed them. Repealing  CON laws  is one                                                                    
     of the first steps a state  can take to make its health                                                                    
     care market more competitive.                                                                                              
                                                                                                                                
1:43:53 PM                                                                                                                    
MR. ZEPP said  that the state's CON programs  are administered by                                                               
statutes and  regulations controlling market entry  for regulated                                                               
facilities,  services, and  equipment, hospitals,  nursing homes,                                                               
some free-standing clinics, home  health agencies, and ambulatory                                                               
care service centers.                                                                                                           
                                                                                                                                
He reviewed slide 3 of the PowerPoint  on Senate Bill 1   "An Act                                                               
repealing the Certificate  of Need (CON) program  for health care                                                               
facilities" dated March 27, 2019.                                                                                               
                                                                                                                                
     CON laws  are state-level  statutory laws  that require                                                                    
     healthcare  entities  to   obtain  permission  to  make                                                                    
     significant  expenditures  or  to construct  or  expand                                                                    
     facilities and  services, based  on the  an application                                                                    
     fee  and  the theory  that  controlling  the supply  of                                                                    
     facilities, equipment, and services  is the best method                                                                    
     to restrain  rising healthcare costs and  prevent over-                                                                    
     expansion of healthcare facilities.                                                                                        
                                                                                                                                
     The certificate  of need  laws originally  were created                                                                    
     to contain healthcare costs,  prevent an over-supply of                                                                    
     medical  services   and  infrastructure,   and  improve                                                                    
     access to care  for the indigent or  to the underserved                                                                    
     population.                                                                                                                
                                                                                                                                
     The basic assumption underlying  Certificate of Need is                                                                    
     excess  capacity  stemming  from  the  overbuilding  of                                                                    
     healthcare  facilities  which   results  in  healthcare                                                                    
     price inflation and overcapacity.                                                                                          
                                                                                                                                
                                                                                                                                
MR. ZEPP  reviewed slide 4,  "National History of  Certificate of                                                               
Need."                                                                                                                          
                                                                                                                                
     1974:  National Health  Planning Resources  Development                                                                    
     Act  (NHPRDA)  required   all  states  seeking  federal                                                                    
     funding  for  health  programs to  establish  oversight                                                                    
     agencies for the submission of  proposals for any major                                                                    
     capital spending on health care,  i.e. a Certificate of                                                                    
     Need program.                                                                                                              
                                                                                                                                
     1974-1982:   Health  care   costs   continue  to   rise                                                                    
     nationwide despite  almost 100% state  participation in                                                                    
     NHPRDA.                                                                                                                    
                                                                                                                                
     1982:  Congress initiates  a review  of Certificate  of                                                                    
     Need  programs  and  the  Congressional  Budget  Office                                                                    
     study doesn't  offer a recommendation but  reports that                                                                    
     problems with NHPRDA has  limited the program's success                                                                    
     in  achieving  cost  savings.  1983-1985:  Five  states                                                                    
     abandon  Certificate  of  Need even  though  NHPRDA  is                                                                    
     still in effect.                                                                                                           
                                                                                                                                
     1987-Present:  Congress repeals  NHPRDA. Following  the                                                                    
     U.S.  repeal,  13  states  have  now  terminated  their                                                                    
     Certificate of Need programs.                                                                                              
                                                                                                                                
MR. ZEPP said that in 1974,  if a state did not develop oversight                                                               
agencies  it  would  lose  federal  funding.  By  1987,  the  CON                                                               
programs throughout  the country were  not working. CON  laws did                                                               
not  constrain health-care  costs,  provide  access, or  increase                                                               
indigent care or underserved populations, he said.                                                                              
                                                                                                                                
1:45:21 PM                                                                                                                    
MR.  ZEPP  referred  to  maps  on  slides  5-9  that  showed  the                                                               
evolution  of CON  in the  U.S. in  1974, 1980,  1990, 2000,  and                                                               
2017. By 1980 every state  except Louisiana adopted CON programs.                                                               
From  1990-2017, states  gradually repealed  their CON  programs,                                                               
and by 2017  a total of 15 states had  repealed its CON programs.                                                               
Since then,  Arizona has introduced  a variation of  the program,                                                               
and Indiana  reinstated its program,  although its  state medical                                                               
association does not support the CON laws.                                                                                      
                                                                                                                                
1:46:21 PM                                                                                                                    
MR.  ZEPP reviewed  slide 10,  "Alaska's  Legislative History  of                                                               
Certificate of Need."                                                                                                           
                                                                                                                                
     The following is a past  summary of enacted legislation                                                                    
     passed   by  the   Alaska  Legislature   regarding  the                                                                    
     Certificate of Need program:                                                                                               
                                                                                                                                
     1976: HB  665 (Ch. 275,  SLA 1976), which  repealed and                                                                    
     replaced all of  AS 18.07 to establish  the CON program                                                                    
     and regulation of healthcare facilities.                                                                                   
                                                                                                                                
     1982: HB  591 (Ch. 59,  SLA 1982), covered  a temporary                                                                    
     but non-emergency  CON for a  health care  facility and                                                                    
     added a definition of certificate  of need dealing with                                                                    
     the issuance of certificates.                                                                                              
                                                                                                                                
     1982:  HB  591  (Ch.  25,  SLA  1981),  clarified  that                                                                    
     Pioneer Homes are not subject to CON.                                                                                      
                                                                                                                                
     1983: SB  85 (Ch. 95,  SLA 1983), added a  $1.0 million                                                                    
     floor for requiring a CON.                                                                                                 
                                                                                                                                
     1990: HB 85 (Ch.  85, SLA 1990), provided authorization                                                                    
     to Dept.  of Health &  Social Services to charge  a fee                                                                    
     for the CON.                                                                                                               
                                                                                                                                
     1991: SB  86 (Ch.  21, SLA  1991), deleted  the federal                                                                    
     statutes and changed the title section.                                                                                    
                                                                                                                                
     1996: HB 528  (Ch. 84, SLA 96), Placed  a moratorium on                                                                    
     nursing  home   beds  and  established   a  legislative                                                                    
     working group on long-term care.                                                                                           
                                                                                                                                
     2004:  HB 511  (Ch. 48,  SLA 04),  Included Residential                                                                    
     Psychiatric Treatment Centers.                                                                                             
                                                                                                                                
1:46:43 PM                                                                                                                    
MR. ZEPP briefly reviewed slide 11, "Alaska's Certificate of                                                                    
Need Program." He said he would not read the slide but noted                                                                    
that the program is broad.                                                                                                      
                                                                                                                                
     Certificate of Need approval is  required in Alaska for                                                                    
     any  expenditures  totaling   more  than  $1.5  million                                                                    
     dollars for:                                                                                                               
                                                                                                                                
          Construction of a health care facility;                                                                               
          Alteration of  the bed capacity  of a  health care                                                                    
          facility;  Addition   of  a  category   of  health                                                                    
          services  provided by  the  health care  facility;                                                                    
          and,                                                                                                                  
          Conversion of a building or a part of a building                                                                      
          to a nursing home.                                                                                                    
                                                                                                                                
          Non-Refundable Applications & Fees:                                                                                   
                                                                                                                                
          Activity valued  at $2.5 million dollars  or less,                                                                    
          the cost would be $2,500.00 to apply; and,                                                                            
                                                                                                                                
          Activity valued more than  $2.5 million dollars, a                                                                    
          fee  equal  to  .1%   of  the  estimated  cost  is                                                                    
          applied, up to a maximum of $75,000.00.                                                                               
                                                                                                                                
MR. ZEPP briefly reviewed slide 12, "Alaska's Certificate of                                                                    
Need Program."                                                                                                                  
                                                                                                                                
         Time Standards for review of applications for                                                                          
     Certificate of Need:                                                                                                       
                                                                                                                                
          The  department has  up  to 60  days  to review  a                                                                    
          completed  application  and  to  allow  concurrent                                                                    
          applications/proposals for  a similar  activity in                                                                    
          the same geographic area.                                                                                             
                                                                                                                                
    Proceedings    for   modification,    suspension,   and                                                                     
     revocation:                                                                                                                
          The  department, a  member  of the  public who  is                                                                    
          substantially  affected  by activities  authorized                                                                    
          by  the certificate,  or another  applicant for  a                                                                    
          Certificate  of   Need  may  initiate   a  hearing                                                                    
          conducted   by   the  Office   of   Administrative                                                                    
          Hearings to obtain  a modification, suspension, or                                                                    
          revocation of  an existing Certificate of  Need by                                                                    
          filing   an  accusation,   THE  Commissioner   has                                                                    
          authority  to  do  this  as  prescribed  under  AS                                                                    
          44.62.360.                                                                                                            
                                                                                                                                
     Definition:                                                                                                                
          Health care  facility means a  private, municipal,                                                                    
          state, or federal  hospital, psychiatric hospital,                                                                    
          independent    diagnostic     testing    facility,                                                                    
          residential    psychiatric    treatment    center,                                                                    
          tuberculosis   hospital,   skilled  nursing   home                                                                    
          facility,   kidney   disease   treatment   center,                                                                    
          intermediate   care   facility,   and   ambulatory                                                                    
          surgery facility.                                                                                                     
1:47:31 PM                                                                                                                    
MR. ZEPP reviewed slide 13, "CON Exemptions."                                                                                   
                                                                                                                                
     An operational ambulatory  surgical facility may expend                                                                    
     any amount of money, to  relocate the facility to a new                                                                    
     site within  the same community  without seeking  a CON                                                                    
     approval. As long as the neither the bed capacity nor                                                                      
        the number of categories of health care services                                                                        
     remains the same.                                                                                                          
                                                                                                                                
     Exempt Entities:                                                                                                           
     ? The Alaska Pioneers' Homes                                                                                               
     ? The Alaska Veterans' Home                                                                                                
      ? Offices of private practice physicians or dentists                                                                      
     whether in individual or group practice                                                                                    
     ? US Indian Health Services Facilities                                                                                     
     ? Alaska Tribal Healthcare entities.                                                                                       
                                                                                                                                
MR. ZEPP  explained that  Alaska has  three categories  of health                                                               
care providers with  CON. Some on the  forefront with exemptions,                                                               
incumbents in the  middle were existing and  operational, and new                                                               
entrants were those  who are not able to gain  entrance to Alaska                                                               
because of CON laws.                                                                                                            
                                                                                                                                
1:48:40 PM                                                                                                                    
MR. reviewed slide 14, "Healthcare is complicated!"                                                                             
                                                                                                                                
   • Our current healthcare system is a highly fragmented.                                                                      
   • Data is siloed with no sharing, because "proprietary"                                                                      
     patient data can be profitable.                                                                                            
   • Insurance is bought mostly by employers and the                                                                            
     patient is removed from the purchasing process.                                                                            
   • Government laws and regulations require unnecessary                                                                        
     administrative efforts for healthcare providers.                                                                           
   • The government dictates what health care facilities,                                                                       
      providers, and services are allowed and not allowed                                                                       
     into your community.                                                                                                       
   • The freedom of selecting your healthcare services is                                                                       
     dictated and controlled by government.                                                                                     
                                                                                                                                
MR. ZEPP  pointed out that  repealing CON  will not solve  all of                                                               
Alaska's health care  issues, but it is a great  start to open up                                                               
the  markets  for  new  entrants  and  increased  access  to  new                                                               
services, technology, and most importantly, competition.                                                                        
                                                                                                                                
MR. ZEPP  reviewed slide  15, "Repealing Alaska's  CON is  only a                                                               
piece of the puzzle."                                                                                                           
                                                                                                                                
   • Over 100 million Americans in twelve states (31% of                                                                        
     the U.S. population) live without CON.                                                                                     
   • 40 years of studies very clearly show that non-CON                                                                         
     states have better access,  lower costs, higher quality                                                                    
     outcomes, and lower mortality rates than CON states.                                                                       
   • Proponents of CON would have you believe that if CON                                                                       
     was  repealed, there  would chaos  in our  communities:                                                                    
     small  hospitals would  close, Medicaid/Medicare  costs                                                                    
     would rise,  and hospitals would  be unable  to provide                                                                    
     EMTALA for the indigent care                                                                                               
   • CON states and non-CON states have very similar levels                                                                     
     of indigent care,  whether you have a con  or not, this                                                                    
     is based on actual research!                                                                                               
                                                                                                                                
1:49:36 PM                                                                                                                    
MR. ZEPP reviewed slide 16, "Our healthcare providers are                                                                       
cherished and valued members of our communities!"                                                                               
                                                                                                                                
     Attempts  to   repeal  Alaska's  Certificate   of  Need                                                                    
     program  is not  meant in  any way,  shape, or  form to                                                                    
     dishonor,  disrespect, or  minimize  how important  our                                                                    
     healthcare  providers are  to  Alaskans!  They are  our                                                                    
     friends, family members, and neighbors.                                                                                    
                                                                                                                                
He said that [SB 1] is a policy discussion and not an attack on                                                                 
health care providers.                                                                                                          
                                                                                                                                
1:50:02 PM                                                                                                                    
MR. ZEPP reviewed slide 17, "Consequences of CON failures."                                                                     
                                                                                                                                
     We believe Alaska's CON laws have:                                                                                         
   • Stifled competition,    prevented   innovation,   and                                                                      
     prevented new technology;                                                                                                  
   • Failed to increase access for indigent care or the                                                                         
     underserved populations;                                                                                                   
   • Created barriers for new entrants;                                                                                         
   • Protected incumbent hospitals and created monopolies;                                                                      
   • And increased healthcare costs, especially in a                                                                            
     restrained market like Alaska.                                                                                             
                                                                                                                                
     Result:  We have  the highest  healthcare costs  in the                                                                    
     world!                                                                                                                     
                                                                                                                                
1:50:37 PM                                                                                                                    
MR. ZEPP reviewed slide 18, "Why competition is important in                                                                    
health care markets."                                                                                                           
                                                                                                                                
     "Competition is essential to  ensure that providers and                                                                    
     health  plans are  subject to  the  market forces  that                                                                    
     drive  them  to  attract patients  and  subscribers  by                                                                    
     offering low prices and high  quality. If market powers                                                                    
     are  concentrated among  providers or  plans, they  are                                                                    
     insulated from those forces."                                                                                              
                                                                                                                                
     "Material,  lasting   improvement  to   our  healthcare                                                                    
     system  requires harnessing  private sector  innovation                                                                    
     and competition  to benefit of all.  When ingenuity and                                                                    
     capital  are focused  on  what we  most  value, we  see                                                                    
     incredible innovation and  productivity gains. Enabling                                                                    
     competition  requires alignment  of  the incentives  of                                                                    
     all  stakeholders   with  what  we   value:  sufficient                                                                    
     transparency and  appropriate regulations  that further                                                                    
     benefit Alaskans."                                                                                                         
                                                                                                                                
     "Reform must  address the  underlying drivers  of costs                                                                    
     and  cost  increases,  including the  current  lack  of                                                                    
     value-based  competition  in  our  healthcare  delivery                                                                    
     system  (e.g.,  hospitals, medical  service  providers,                                                                    
     and pharmaceuticals."                                                                                                      
                                                                                                                                
1:51:18 PM                                                                                                                    
MR. ZEPP reviewed slide 19, "Why is competition important?"                                                                     
                                                                                                                                
     "Reduced competition  among clinicians leads  to higher                                                                    
     prices  for healthcare  services,  reduces choice,  and                                                                    
     negatively impacts  overall healthcare quality  and the                                                                    
     efficient allocation of resources."                                                                                        
                                                                                                                                
     "State  polices  that   restrict  entry  into  provider                                                                    
     markets can  stifle innovation and  more cost-effective                                                                    
     ways  to   provide  care  while  limiting   choice  and                                                                    
     competition."                                                                                                              
                                                                                                                                
MR.  ZEPP  said  that  the quotations  were  from  "A  Bipartisan                                                               
Blueprint for Improving Our  Nation's Health System Performance,"                                                               
signed by Governors John Hickenlooper,  John Kasich, Bill Walker,                                                               
Tom  Wolf,  and  Brian  Sandoval,   pointing  out  that  Alaska's                                                               
Governor  Bill  Walker  had  been  one  of  the  signees  of  the                                                               
blueprint.                                                                                                                      
                                                                                                                                
1:51:49 PM                                                                                                                    
MR. ZEPP reviewed slide 20, "Competition is Important."                                                                         
                                                                                                                                
     The quotes you see are  from research, studies and data                                                                    
     regarding how CON laws have stifled competition:                                                                           
                                                                                                                                
     "Competition creates  choices for consumers  and raises                                                                    
     quality  standards  as  providers compete  for  patient                                                                    
     loyalty.  A 1993  study found  that  hospitals in  more                                                                    
     competitive markets  had average  costs below  those of                                                                    
     less competitive markets."                                                                                                 
                                                                                                                                
     "Market  competition  in healthcare  delivery  provides                                                                    
     economic   empowerment  to   patients  and   payors  by                                                                    
     providing  access,   encouraging  innovation   and  the                                                                    
     investment   of   capital   in  overall   cost   saving                                                                    
     technologies,  and   creating  choices   for  consumers                                                                    
     which, in  turn, encourages providers to  raise quality                                                                    
     standards  as they  compete for  patient loyalty.  When                                                                    
     patient   choice   is   diminished,   decisions   about                                                                    
     appropriate   pricing/costs,   access,   quality,   and                                                                    
     beneficial  outcomes become  the  sole  purview of  the                                                                    
     elite groups  of oligopoly  decisionmakers who,  in the                                                                    
     absence  of healthy  competition,  are  free to  ignore                                                                    
     market demands and patient  needs. This circumstance is                                                                    
     what drives the acceleration of costs."                                                                                    
                                                                                                                                
     Written  Testimony  to  the  Senate  Labor  &  Commerce                                                                    
     Committee on April  6, 2017   Robert J.  Cimasi (page 7                                                                    
     &  8)  +  "California Providers  Adjust  to  Increasing                                                                    
     Price Controls,  J Zwanziger,  G. Melnick,  A. Bamezai,                                                                    
     Health  Policy Reform    1993  (Pages 241-58);  Written                                                                    
     testimony to  the Senate Labor &  Commerce Committee on                                                                    
     April  6, 2018     Matthew D.  Mitchell, PhD,  Mercatus                                                                    
     Center-George Mason University (page 17).                                                                                  
                                                                                                                                
He said that these studies span over 30 years, but the data                                                                     
trends have not changed.                                                                                                        
                                                                                                                                
1:52:15 PM                                                                                                                    
MR. ZEPP reviewed slides 21-22, two slides stating that CON laws                                                                
prevent innovation and new technologies.                                                                                        
                                                                                                                                
     Example, this applies to Alaska  as well due to our CON                                                                    
     law  restrictions if  you're a  new  entrant and  costs                                                                    
     exceed $1.5 million!                                                                                                       
                                                                                                                                
     Dr.  Singh, of  North Carolina,  cannot purchase  a new                                                                    
     MRI machine because of CON  laws in North Carolina, the                                                                    
     law that applies here.                                                                                                     
                                                                                                                                
     On average, an  MRI at a North  Carolina hospital costs                                                                    
     upwards of  $2,000. Dr. Singh's  charges run  from $500                                                                    
     to $700 but  he has to use a mobile  scanner instead of                                                                    
     a fixed MRI scanner because of the CON laws.                                                                               
                                                                                                                                
     "The answer  lies in the powerful  lessons business has                                                                    
     learned   over  the   past   two   decades  about   the                                                                    
     imperatives   of   competition.   In   industry   after                                                                    
     industry,   the  underlying   dynamic   is  the   same;                                                                    
     competition  compels  companies to  deliver  increasing                                                                    
     value  to customers.  The  fundamental  driver of  this                                                                    
     continuous  quality improvement  and cost  reduction is                                                                    
     innovation.  Without incentives  to sustain  innovation                                                                    
     in health  care, short-term cost  savings will  soon be                                                                    
     overwhelmed by the desire to  widen access, the growing                                                                    
     health   needs  of   an  aging   population,  and   the                                                                    
     unwillingness of Americans to  settle for anything less                                                                    
     that  the best  treatments  available. Inevitably,  the                                                                    
     failure  to  promote  innovation  will  lead  to  lower                                                                    
     quality  or  more  rationing  of  care     two  equally                                                                    
     undesirable results."                                                                                                      
                                                                                                                                
1:53:00 PM                                                                                                                    
MR. ZEPP reviewed slide 22, "How CON Laws Prevent Innovation and                                                                
New Technologies."                                                                                                              
                                                                                                                                
     "The  misguided  assumption   underlying  much  of  the                                                                    
     debate about  health care reform is  that technology is                                                                    
     the  enemy.  By  assuming  that  technology  drives  up                                                                    
     costs,  reformers  neglect  the central  importance  of                                                                    
     innovation or, worse yet, attempt  to slow its pace. In                                                                    
     fact, innovation driven by  rigorous competition is the                                                                    
     key  to  successful  reform. Although  health  care  is                                                                    
     unique  in  some  ways,  in  this  respect,  it  is  no                                                                    
     different than any other industry."                                                                                        
                                                                                                                                
     "CON  repeal would  remove  unnecessary and  irrational                                                                    
     constraints   and   costly   regulatory   barriers   to                                                                    
     innovation;  to  investment  in  new  technologies;  to                                                                    
     quality services; and,  to cost-effective improvements,                                                                    
     which as  the technology  advances, offer the  true and                                                                    
     valid  opportunity  to provide  cost-effective  quality                                                                    
     healthcare to Alaska's citizens."                                                                                          
                                                                                                                                
     "Systematically  review  and  rationalize  federal  and                                                                    
     state  regulations  that  may  inhibit  innovation  and                                                                    
     competition (e.g., credentialing,  clinical trials, and                                                                    
     prescription drug import regulations)."                                                                                    
                                                                                                                                
1:53:39 PM                                                                                                                    
MR. ZEPP reviewed slide 22, "CON laws create barriers for new                                                                   
entrants."                                                                                                                      
                                                                                                                                
     "Government-erected barriers to entry  that can lead to                                                                    
     a highly-concentrated and inefficient market."                                                                             
                                                                                                                                
     "Under  normal market  conditions,  high prices  and/or                                                                    
     high profit margins attract  new producers and sellers.                                                                    
     This increased supply leads to  lower prices and higher                                                                    
     quality  over  time.  Without the  possibility  of  new                                                                    
     entrants  and   real  competition,   however,  existing                                                                    
     producers can use market power  to keep prices high and                                                                    
     quality low."                                                                                                              
                                                                                                                                
     "Denial of patient  choice in Alaska is  because of the                                                                    
     barrier to  entry posed by CON.  New Medical providers,                                                                    
     no  matter how  efficiently and  creatively they  might                                                                    
     contribute   to   higher   quality,   more   beneficial                                                                    
     outcomes,  and  lower  overall healthcare  costs,  must                                                                    
     receive permission and can  be challenged by incumbents                                                                    
     and  this limits  competition  for  Alaskans and  their                                                                    
     families."                                                                                                                 
                                                                                                                                
     "On  average, application  fees  are $32,000;  however,                                                                    
     total  costs  associated  with the  process  to  obtain                                                                    
     regulatory permission  to provide the  medical services                                                                    
     requested   can  exceed   $5  million   for  a   single                                                                    
     application  (Conley and  Valone  2011), which  exceeds                                                                    
     the  average  price  of a  magnetic  resonance  imaging                                                                    
     (MRI)  machine. The  costs include  consulting fees  as                                                                    
     well as  review and  appeal fees,  and the  process can                                                                    
     take up to three years."                                                                                                   
                                                                                                                                
1:54:13 PM                                                                                                                    
MR. ZEPP reviewed slide 23, What About EMTALA?"                                                                                 
                                                                                                                                
     EMTALA  is  a  federal   law  that  requires  Medicare-                                                                    
     participating hospitals  with emergency  departments to                                                                    
     medically  screen  every  patient who  seeks  emergency                                                                    
     care and  to stabilize  or transfer those  with medical                                                                    
     emergencies, regardless  of health insurance  status or                                                                    
     ability to  pay--this law has been  an unfunded mandate                                                                    
     since it was enacted in 1986.                                                                                              
                                                                                                                                
     CON laws  have failed  to increase access  for indigent                                                                    
     care or the underserved populations.                                                                                       
                                                                                                                                
He said he wanted to  bring Emergency Medical Treatment and Labor                                                               
Act (EMTALA) because  it has come up the last  several years when                                                               
discussing CON in committee.                                                                                                    
                                                                                                                                
1:54:54 PM                                                                                                                    
MR. ZEPP  reviewed slide 24,  "Is EMTALA-related care  the driver                                                               
of Rising Healthcare Costs.                                                                                                     
                                                                                                                                
     Emergency  care in  America is  just 2  percent of  all                                                                    
     U.S. medical costs.                                                                                                        
                                                                                                                                
He  said he  would  say  no, because  according  to the  American                                                               
College  of Emergency  Physicians, emergency  care in  America is                                                               
just two percent  of all U.S. medical costs.  He reminded members                                                               
that  CON has  been  in  effect for  over  four  decades and  the                                                               
effectiveness  and burdens  of CON  regulatory  policy have  been                                                               
studied extensively  by federal  and state  governments, academic                                                               
institutions, and other researchers and organizations.                                                                          
                                                                                                                                
1:55:32 PM                                                                                                                    
MR. ZEPP reviewed slide 26, which contained quotes:                                                                             
                                                                                                                                
     "Although advocates  of CON laws might  seek to promote                                                                    
     indigent  care, the  evidence does  not  show that  CON                                                                    
     laws advance that goal."                                                                                                   
                                                                                                                                
     "Most noticeable  in all  of the results  is a  lack of                                                                    
     any  statistically significant  evidence for  the cross                                                                    
     subsidization   hypothesis.   The  data   provides   no                                                                    
     statistically   significant  evidence   that  increased                                                                    
     competition leads  to reductions  in charity  care. The                                                                    
     claim that hospitals will use  market power to increase                                                                    
     services  to the  poor is  largely unsupported  by this                                                                    
     data."                                                                                                                     
                                                                                                                                
He said  that by limiting  competition, CON laws  allow incumbent                                                               
healthcare providers  to earn greater profits  by charging higher                                                               
prices for private health insurance  and financing indigent care.                                                               
It is  cross-subsidization. That  is the  concept behind  CON, he                                                               
said.                                                                                                                           
                                                                                                                                
1:56:08 PM                                                                                                                    
MR. ZEPP reviewed slide 27, "Contemplate the Following."                                                                        
                                                                                                                                
     "The huge  enterprises that U.S. hospitals  have become                                                                    
     are largely  unaccountable for  the amounts  of revenue                                                                    
     they raise  or the uses  to which they put  that money.                                                                    
     Indeed,  they  are  major contributors  to  ever-rising                                                                    
     healthcare costs."                                                                                                         
                                                                                                                                
     "Competition  is the  best way  both to  limit dominant                                                                    
     hospitals' claims  on gross domestic product  (GDP) and                                                                    
     to restore  voters and their representatives  the power                                                                    
     to decide just what extras are worth paying for."                                                                          
                                                                                                                                
     "Early analysis of the Medicare  Care Report data shows                                                                    
     national declines in  uncompensated care, especially in                                                                    
     expansion  states,  although  the data  do  not  permit                                                                    
     reliable  estimates  of   trends  in  Medicaid  payment                                                                    
     amounts."                                                                                                                  
                                                                                                                                
     "Almost  all  states   make  Medicaid  Disproportionate                                                                    
     Share  Hospital (DHS)  payment  are  made to  hospitals                                                                    
     serving  high  proportions  of Medicaid  or  low-income                                                                    
     patients."                                                                                                                 
                                                                                                                                
     What is Disproportional Share Hospital payments?                                                                           
     Federal law requires that  state Medicaid programs make                                                                    
     Disproportionate  Share  Hospital   (DSH)  payments  to                                                                    
     qualifying  hospitals  that  serve a  large  number  of                                                                    
     Medicaid   and  uninsured   individuals.  Approximately                                                                    
     3,109 hospitals receive this adjustment.                                                                                   
                                                                                                                                
1:56:41 PM                                                                                                                    
MR. ZEPP reviewed slide 28, "Medicaid Disproportionate Share                                                                    
Hospital (DSH) payments in 2018 for Alaska."                                                                                    
                                                                                                                                
     Who  or  where was  the  funding  distributed to?  What                                                                    
     healthcare entities/facilities?                                                                                            
                                                                                                                                
     4  Hospitals  have  had  ongoing  agreements  with  the                                                                    
     department to receive DSH for many years.                                                                                  
                                                                                                                                
   • Alaska Psychiatric Institute (by regulation API                                                                            
     receives their  facility specific maximum  allowable by                                                                    
     law)                                                                                                                       
        • FY2018-$14.7 million                                                                                                  
        • FY2017-$14.6 million                                                                                                  
        • FY2016-$14.1 million                                                                                                  
   • Fairbanks Memorial   Hospital-   note   the   decline                                                                      
     resulting from falling uncompensated care                                                                                  
     o FY2018-$258.9 thousand                                                                                                   
     o FY2017-$660.5 thousand                                                                                                   
     • FY2016-$1.3 million                                                                                                      
   • Bartlett Regional Hospital      note the decline                                                                           
     resulting from falling uncompensated care                                                                                  
     o FY2018-$302.5 thousand                                                                                                   
     o FY2017-$274.5 thousand                                                                                                   
     o FY2016-$1.8 million                                                                                                      
   • Providence Alaska   Medical   Center   -   $2,531,019                                                                      
     annually.                                                                                                                  
     o  FY2018-$2.5 million                                                                                                     
     o  FY2017-$2.5 million                                                                                                     
     o  FY2016-$2.5 million                                                                                                     
                                                                                                                                
1:57:07 PM                                                                                                                    
MR. ZEPP reviewed slide 29, "Final Considerations on EMTALA."                                                                   
                                                                                                                                
     How do other states deal with EMTALA?                                                                                      
                                                                                                                                
     Example:   New  Jersey   requires  Ambulatory   Surgery                                                                    
     Centers not  owned by a hospital  to pay a 3.5%  tax of                                                                    
     up to $200,000 on  the facility's annual gross revenue.                                                                    
     The tax  helps fund the uncompensated  care through the                                                                    
     Health Care Subsidy Fund.                                                                                                  
                                                                                                                                
     There  are  methodologies  to help  level  the  playing                                                                    
     field  for  EMTALA  in   Alaska  for  those  healthcare                                                                    
     providers who are mandated to  provide EMTALA. It's not                                                                    
     an  all  or nothing  proposition  and  certainly not  a                                                                    
     reason to retain CON laws in Alaska.                                                                                       
                                                                                                                                
1:57:59 PM                                                                                                                    
SENATOR BEGICH  referred to [slide 28]  on Disproportionate Share                                                               
Hospital   (DSH)  payments.   He  noted   the  API   numbers  are                                                               
significantly higher than  others and read, "by    regulation API                                                               
receives  their  facility  specific maximum  allowable  by  law."                                                               
Under  EMTALA API  receives the  Medicaid disproportionate  share                                                               
funds.  He  asked  if  the state  privatizes  API,  whether  that                                                               
regulation would still apply.                                                                                                   
                                                                                                                                
MR. ZEPP answered that he did not know.                                                                                         
                                                                                                                                
SENATOR  BEGICH said  that he  would like  the committee  to look                                                               
into that at some point.                                                                                                        
                                                                                                                                
1:58:59 PM                                                                                                                    
MR. ZEPP reviewed the quote on slide 30.                                                                                        
                                                                                                                                
     "Let's examine  the data of  Alaska's high  health care                                                                    
     costs."                                                                                                                    
                                                                                                                                
MR.  ZEPP   reviewed  slide   31,  "Inflation   vs.  Skyrocketing                                                               
Healthcare Prices."                                                                                                             
                                                                                                                                
     The  average overall  rate of  inflation in  Alaska was                                                                    
     1.22% from 2013  2017.                                                                                                     
                                                                                                                                
     Healthcare had  a rate of  inflation of 10.0%  over the                                                                    
     same five-year period.                                                                                                     
                                                                                                                                
MR. ZEPP  said to remember that  in 1974, one of  the main points                                                               
was  that  health care  costs  were  rising  rapidly with  an  11                                                               
percent inflation rate that year.  According to the Department of                                                               
Labor's data, Alaska's health care  costs are anywhere from 45 to                                                               
53 percent higher than the U.S. average for health care.                                                                        
                                                                                                                                
1:59:46 PM                                                                                                                    
MR. ZEPP  reviewed slide 33,"Milliman reports."  He presented the                                                               
key conclusions from 2011:                                                                                                      
                                                                                                                                
   • Hospital operating margins in Alaska were 13.4% on                                                                         
     average in 2010, compared with  5.7% for the comparison                                                                    
     states (or in other  words, average hospital margins in                                                                    
     Alaska  are 233%  of those  in  the comparison  states)                                                                    
     Margins for  hospitals in rural  areas were  similar to                                                                    
     the comparison  states. Margins for hospitals  in urban                                                                    
     areas  were 16.2%,  driven largely  by high  margins in                                                                    
     two for-profit hospitals.                                                                                                  
   • Commercial hospital reimbursement is approximately                                                                         
     137% of the average in the comparison states.                                                                              
   • Average hospital costs are approximately 138% of the                                                                       
     average in comparison states.                                                                                              
   • Overall health care utilization rates for Medicare                                                                         
     patients are similar to the comparison states.                                                                             
                                                                                                                                
2:00:36 PM                                                                                                                    
SENATOR  BEGICH asked  how the  repeal of  CON laws  would impact                                                               
this.                                                                                                                           
                                                                                                                                
MR. ZEPP explained  the process he used to  make the conclusions,                                                               
including using 22 studies to  prepare this presentation, that he                                                               
reviewed many  other studies  in the last  three years,  and held                                                               
numerous discussions with people nationwide.                                                                                    
                                                                                                                                
He reiterated that CON was  created to contain health care costs,                                                               
prevent  an oversupply  of medical  services and  infrastructure,                                                               
and   improve   access   for  indigent   care   and   underserved                                                               
populations. He gave an example  to illustrate how a new provider                                                               
of  dialysis, cannot  work in  Alaska unless  the state  of gives                                                               
permission, but a sole incumbent  provider could get involved and                                                               
help prevent another company from working in Alaska.                                                                            
                                                                                                                                
SENATOR BEGICH expressed an interest  in knowing the expectations                                                               
if  the legislature  eliminates the  CON laws.  Referring to  his                                                               
example, he said that the assumption  is that a company holds the                                                               
price at  a certain point and  because of the barriers  to entry,                                                               
other entities cannot  offer that same product at  a lower price.                                                               
He asked if that was the fundamental theory.                                                                                    
                                                                                                                                
2:02:45 PM                                                                                                                    
CHAIR WILSON  said that he will  discuss the goals later  on. The                                                               
slide reviewed  the original reasons  for CON laws, which  was to                                                               
help  contain and  control health  care  costs and  expenditures.                                                               
However, Alaska  is still paying  the same inflation rates  as it                                                               
did the 70s, he said. It has not changed.                                                                                       
                                                                                                                                
SENATOR BEGICH  said his point  was that identifying  the figures                                                               
on the  slide does not indicate  causation. He would like  to see                                                               
how the two are related and connect.                                                                                            
                                                                                                                                
2:03:43 PM                                                                                                                    
SENATOR GIESSEL said  that the Milliman reports,  which were done                                                               
for the  Health Care Commission  are very helpful. She  said that                                                               
one recommendation by Milliman was to repeal CON laws.                                                                          
                                                                                                                                
She related  a scenario  to illustrate how  CON works.  Two years                                                               
ago, one Eagle  River hospital requested permission  for a stand-                                                               
alone emergency  room. This community  serves a  large population                                                               
and is  about a  30 minute  drive from  Anchorage and  45 minutes                                                               
from the Mat-Su Valley. The  commissioner of Department of Health                                                               
and  Social  Services  (DHSS),  the  person  who  makes  the  CON                                                               
decision, denied  the CON even  though the  stand-alone emergency                                                               
room  in Eagle  River would  serve a  large population.  Instead,                                                               
emergency  room facility  increases were  approved at  Providence                                                               
Hospital in Anchorage.                                                                                                          
                                                                                                                                
She offered  her belief  that the  rationale was  non-existent in                                                               
this  decision. Not  only did  it increase  costs by  suppressing                                                               
competition,  it  limits access  to  health  care. She  expressed                                                               
frustration  that even  though more  people reside  in the  Eagle                                                               
River area  than in  Bethel, this community  was denied  a stand-                                                               
alone emergency room.                                                                                                           
                                                                                                                                
2:05:24 PM                                                                                                                    
SENATOR  BEGICH said  that the  two  scenarios get  right to  the                                                               
point of  connecting the figures on  the slide, which is  what he                                                               
sought.                                                                                                                         
                                                                                                                                
MR. ZEPP reviewed  slide 33, "Data from the  Milliman Report from                                                               
November 2016,  which included a  bar chart that  showed hospital                                                               
margins  by area  from FY  2012  to FY  2014, comparing  hospital                                                               
margins in Alaska  to other locations in the  nation. It included                                                               
these statements:                                                                                                               
                                                                                                                                
     Hospital margins  in Alaska  are generally  higher than                                                                    
     those  in  the  rest  of the  country.  Within  Alaska,                                                                    
     hospital margins  in Anchorage are the  highest. Figure                                                                    
     10  sows the  Alaska average  at 15.6%  comes in  about                                                                    
     five  points higher  than San  Francisco, which  is the                                                                    
     highest  of the  comparison areas  at 10.3%.  Anchorage                                                                    
     facilities  lead the  pack  with  20.3% margin.  Alaska                                                                    
     hospitals outside of Anchorage  are consistent with the                                                                    
     high end of the comparison areas.                                                                                          
                                                                                                                                
MR. ZEPP  said that  when health care  markets have  a restrained                                                               
market, the incumbents create monopolies and control prices.                                                                    
                                                                                                                                
2:06:33 PM                                                                                                                    
SENATOR STEVENS  asked why the  chart shows the  hospital margins                                                               
in Fairbanks as so low.                                                                                                         
                                                                                                                                
MR. ZEPP  related his understanding  that Fairbanks is  a smaller                                                               
hospital.  He offered  to research  it  and respond  back to  the                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR  STEVENS  commented  that  it  was  remarkable  that  the                                                               
Fairbanks hospital has the same margins as Vermont.                                                                             
                                                                                                                                
2:07:05 PM                                                                                                                    
SENATOR GIESSEL  said another  factor is  who owns  the hospital.                                                               
This slide  refers to  hospital margins or  profits and  it would                                                               
include  the  Providence Medical  Center  complex,  which is  the                                                               
highest margin  facility in the Providence  network. She reminded                                                               
members that  Providence Medical  covers most  of the  West Coast                                                               
and  noted   that  the  Anchorage  Providence   hospital  has  an                                                               
extremely high margin of profitability.                                                                                         
                                                                                                                                
2:07:48 PM                                                                                                                    
MR.  ZEPP reviewed  slide 34,  "An Example  - Milliman  Report on                                                               
Colonoscopy from November 2016," which  consisted of a graph that                                                               
showed  the  average unit  cost  for  physician colonoscopy  with                                                               
biopsy.  He said  that Anchorage  costs are  significantly higher                                                               
than the other  eight cities listed. This is  consistent with the                                                               
data throughout the  Milliman report. He concluded  that with CON                                                               
laws, prices are set by  the competitors. This is especially true                                                               
in  Alaska because  it has  a small  population and  a restrained                                                               
market, he said.                                                                                                                
                                                                                                                                
                                                                                                                                
MR.  ZEPP reviewed  slide 35,  "Milliman Reports  Key Findings  -                                                               
2016."                                                                                                                          
                                                                                                                                
   • Commercial provider payment levels in Alaska are 76%                                                                       
     higher than levels nationwide;                                                                                             
   • Physician payment levels are 148% higher in Alaska;                                                                        
   • Hospital payment levels are 56% higher;                                                                                    
   • Commercial provider payment levels have grown faster                                                                       
     in Alaska than  in comparison areas over  the last five                                                                    
     years, with the Alaska  physician payment level growing                                                                    
     by an excess of 15%  and the hospital payment levels by                                                                    
     an  excess  of  6%.   Combined,  this  resulted  in  an                                                                    
     additional  10% medical  cost growth  in Alaska  versus                                                                    
     the comparison areas over the five-year period;                                                                            
   • Hospital margins in Anchorage, at 20.6% are high                                                                           
     relative to the nationwide average at 6.9%/                                                                                
                                                                                                                                
2:08:58 PM                                                                                                                    
MR. ZEPP reviewed slide 36,  "Alaska's high health care costs are                                                               
driving citizens out of the state for medical care."                                                                            
                                                                                                                                
     Companies  such  as  the   state  of  Alaska,  Premera,                                                                    
     General  Communication,  Inc.  (GCI),  and  the  Mat-Su                                                                    
     Borough  have programs  that send  employees south  for                                                                    
     medical care  because of the  high healthcare  costs in                                                                    
     Alaska.                                                                                                                    
                                                                                                                                
He  explained  that these  entities  use  third-party vendors  to                                                               
schedule  appointments. The  covered  costs  usually include  the                                                               
airfare, hotel, per diem, for  the patients and their spouses and                                                               
the  program still  save tens  of  thousands of  dollars. A  2018                                                               
report for  the state of Alaska  shows that the carrier  rate for                                                               
repairing  a hernia  was $17,434.  The cost  to have  the surgery                                                               
performed  in Seattle,  using SurgeryPlus,  a third-party  vendor                                                               
that provides travel arrangements, was  $9,558. This results in a                                                               
savings of $7,876 or 45.2  percent, including the travel costs of                                                               
$2,000, he said.                                                                                                                
                                                                                                                                
SENATOR   GIESSEL  said   that  the   Teamsters  also   send  its                                                               
beneficiaries to the  Lower 48 as do many  school districts since                                                               
the  districts can  no longer  afford  to have  care provided  in                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR.  ZEPP said  that the  point of  the slide  is that  the state                                                               
needs competition CON prevents competition.                                                                                     
                                                                                                                                
MR. ZEPP said  that 12 states have repealed their  CON laws. Over                                                               
100  million  Americans,   or  about  31  percent   of  the  U.S.                                                               
population,  live   without  CON  programs.  Theses   still  have                                                               
licensing and regulation, but the states have open competition.                                                                 
                                                                                                                                
2:11:05 PM                                                                                                                    
MR.   ZEPP  presented   the  slide   37,  "Why   repeal  Alaska's                                                               
Certificate of Need?"                                                                                                           
                                                                                                                                
     Four decades of research show that CON Laws Have:                                                                          
   • Prevented Access;                                                                                                          
   • Not increased the levels of indigent care in CON                                                                           
     states versus Non-CON states;                                                                                              
   • Created barriers to new entrants;                                                                                          
   • Enriched incumbent healthcare providers;                                                                                   
   • Contributed to high healthcare costs in Alaska;                                                                            
                                                                                                                                
      Alaskans are paying the highest healthcare prices in                                                                      
     the world and they continue to increase!                                                                                   
                                                                                                                                
      Repealing Alaska's CON program will provide Alaskans                                                                      
     with choice and spur competition.                                                                                          
                                                                                                                                
2:11:42 PM                                                                                                                    
MR. ZEPP presented  slide 39, "No better time  to repeal Alaska's                                                               
CON program."                                                                                                                   
                                                                                                                                
     The  fundamental   premise  of  our  systems   is  that                                                                    
     consumer welfare  is maximized by open  competition and                                                                    
     consumer choice! Healthcare  development should be left                                                                    
       to the economics of a well-functioning healthcare                                                                        
     system for Alaskans.                                                                                                       
                                                                                                                                
     Alaska's  CON  law  remains  a  major  hurdle  for  new                                                                    
     entrants,   existing  providers   seeking  to   expand,                                                                    
     modernize  or reshape  their service  capabilities. Now                                                                    
     is the right time!                                                                                                         
                                                                                                                                
      Alaskans are paying the highest healthcare prices in                                                                      
     the world!                                                                                                                 
                                                                                                                                
MR.  ZEPP  said that  with  a  delayed, five-year  implementation                                                               
date,  the  repeal  provides  Alaska  health  care  providers  an                                                               
opportunity  to  prepare  and  the state  of  Alaska  to  develop                                                               
meaningful regulations.                                                                                                         
                                                                                                                                
2:12:17 PM                                                                                                                    
MR. ZEPP presented slide 40, "Healthcare is multifaceted."                                                                      
                                                                                                                                
     Healthcare markets contain many elements that are in need                                                                  
     of review, including:                                                                                                      
        • Escalating costs and care provider shortages;                                                                         
        • Public health and various payer programs;                                                                             
        • Lack of accurate and reliable cost information to                                                                     
          consumers;                                                                                                            
      • Medicaid reforms and implementation challenges;                                                                         
                                                                                                                                
     "When healthcare markets  operate properly, competition will                                                               
     determine the  appropriate prices for medical  services, the                                                               
     appropriate  organizational forms  for healthcare  financing                                                               
     and delivery, and the appropriate  range and availability of                                                               
     cost/quality/service trade-offs."                                                                                          
                                                                                                                                
MR. ZEPP concluded saying the  sponsor believes that based on the                                                               
research and studies  spanning over 30 years, that  31 percent of                                                               
Americans  live without  CON laws.  These  states thrive  because                                                               
competition is  good for consumers  in all  industries, including                                                               
health  care.   He  urged  the   committee  to  open   Alaska  to                                                               
competition.                                                                                                                    
                                                                                                                                
2:13:28 PM                                                                                                                    
SENATOR  STEVENS said  that this  is a  complex issue.  He stated                                                               
that he is  the only committee member from rural  Alaska. He said                                                               
he  feels fortunate  that  Kodiak has  a  wonderful hospital  and                                                               
emergency room. He expressed concern  about what this this really                                                               
means.  He said  he understands  that the  sponsor believes  that                                                               
repealing CON  laws will spur competition.  However, he expressed                                                               
concern that  the Kodiak hospital  might not survive. He  said he                                                               
will cautiously  consider this measure.  He pointed out  that the                                                               
legislature  has considered  repealing the  CON statutes,  but it                                                               
lacked support to do so.                                                                                                        
                                                                                                                                
MR.  ZEPP  responded  that  no  one wants  to  see  small,  rural                                                               
hospitals close. He referred members  to three different studies,                                                               
including one  from the federal  U.S. General  Accounting Office,                                                               
the  Chartis group,  and  from the  North  Carolina Rural  Health                                                               
Commission. All  of these entities  studied small  rural hospital                                                               
closures and determined hospitals close  due to economics and not                                                               
competition.  The  Mercatus Center  studies  have  shown that  in                                                               
states that  repealed CON statutes,  it has had little  effect on                                                               
hospitals. In 2017 and 2018,  rural hospital closures occurred in                                                               
17 of 22  states with CON laws  and in five without  CON laws. He                                                               
offered  his  belief that  the  extensive  research concludes  it                                                               
these closures did  not have anything to do  with the certificate                                                               
of need requirements.                                                                                                           
                                                                                                                                
2:16:02 PM                                                                                                                    
SENATOR STEVENS  said that  his district  has small  hospitals in                                                               
Kodiak, Cordova,  and Homer.  The Cordova  hospital is  always on                                                               
the  verge of  closing,  he  said. He  expressed  an interest  in                                                               
hearing from  the hospital administrators for  their perspective.                                                               
He estimated that  approximately one-third of the  health care in                                                               
his community  is covered by  the Kodiak Area  Native Association                                                               
(KANA).  The KANA  is  a nonprofit  corporation  exempt from  CON                                                               
requirements since  the KANA  has an  exemption from  the federal                                                               
rules.                                                                                                                          
                                                                                                                                
CHAIR WILSON said,  in terms of profitability  margins, the small                                                               
hospitals  in Seward  and Kodiak  are  owned by  a large  entity,                                                               
[Providence  Health  &  Services].  He offered  his  belief  that                                                               
Providence Health  & Services  seems to send  its profits  out of                                                               
state instead  of investing in  Alaska infrastructure  and needs.                                                               
For  example,  it  added  a  large  California  hospital  to  its                                                               
portfolio.  That group  suggests  that the  CON  laws stifle  new                                                               
hospital  beds, which  are  always based  on  cost. However,  the                                                               
department  {DHSS) says  that CON  laws  do not  account for  the                                                               
specific acuity of Alaskan  situations. Prior committee testimony                                                               
about  the need  for more  nursing home  beds indicates  that CON                                                               
laws are  not the  issue. Today,  the [DHSS]  deputy commissioner                                                               
said that  skilled nursing home facilities  need more ventilator-                                                               
type  systems. However,  only St.  Elias [Specialty]  Hospital in                                                               
Anchorage  operates  ventilator  systems for  patients  who  need                                                               
specialized skilled nursing level care.  He said that current CON                                                               
laws do  not allow new  entrants into  the market because  of the                                                               
type of facility, not based on  the needs of Alaskans who suffer.                                                               
This is  one example of how  CON laws have stifled  treatment for                                                               
vulnerable populations in Alaska.                                                                                               
                                                                                                                                
SENATOR STEVENS  stated that the  Kodiak Island Borough  owns the                                                               
Kodiak Island  Medical Center and  building and every  five years                                                               
the borough  contracts for services.  He noted that he  served on                                                               
the KIB Assembly when the bid went to Providence Health.                                                                        
                                                                                                                                
2:19:12 PM                                                                                                                    
SENATOR GIESSEL  offered her  belief that  the supply  and demand                                                               
concept has  worked for coffee  and bagels  and it will  work for                                                               
health care.  The health care  system will respond to  the demand                                                               
if it  is allowed  to do  so. She  referred to  the slide  in the                                                               
PowerPoint that  showed the states  without any  CON requirements                                                               
and to the  Milliman report that compared Idaho  and North Dakota                                                               
to  Alaska. The  Milliman  report showed  these  two states  have                                                               
significantly lower  health care costs than  Alaska. These states                                                               
are also rural states with  small communities, she said. While it                                                               
could be  argued that  North Dakota and  Idaho have  road systems                                                               
and  Kodiak  does  not,  those  two  states  repealed  their  CON                                                               
requirements  and allowed  competition to  work. She  offered her                                                               
belief that  the CON  statutes suppress  innovation, particularly                                                               
in stand-alone surgery  centers and in orthopedics.  She has held                                                               
discussions  with   many  surgeons  who  would   like  access  to                                                               
innovative facilities that can  provide lower-cost care. However,                                                               
new clinics  cannot open  due to  government restrictions  on the                                                               
market, she said.                                                                                                               
                                                                                                                                
2:21:40 PM                                                                                                                    
DAVID  GRABOWSKI, Ph.D.,  Professor,  Department  of Health  Care                                                               
Policy, Harvard Medical  School, Boston, Massachusetts, testified                                                               
in  favor of  repealing certificate  of  need laws.  He said  his                                                               
research has  focused on  nursing home CON,  so his  remarks will                                                               
address that area. He asked  members to imagine if Alaska limited                                                               
the  number  of hotels  in  communities.  Instead of  the  market                                                               
dictating the number  of hotel beds, a regulatory  body would set                                                               
the number  of hotel beds.  He explained that this  would quickly                                                               
distort competition. As demand grew,  new hotels could not easily                                                               
open,  which would  result in  higher hotel  occupancy and  fewer                                                               
available beds. Hotels would not  need to provide good service or                                                               
invest in  capital improvements since customers  would pay higher                                                               
prices for limited hotel bed.  Yet many other states have similar                                                               
rules for nursing homes in the  form of certificate of need laws.                                                               
These  laws  constrain  nursing  home bed  growth  in  Alaska  by                                                               
employing a  needs-based evaluation  of all applications  for new                                                               
construction.                                                                                                                   
                                                                                                                                
[Connection with Dr. Grabowski was lost.]                                                                                       
                                                                                                                                
2:23:40 PM                                                                                                                    
DAN GILMAN, Attorney Advisor, Office  of Policy Planning, Federal                                                               
Trade Commission  (FTC), Washington, D.C., testified  in favor of                                                               
repealing  Alaska's certificate  of need  (CON) laws.  He pointed                                                               
out that  he also  submitted prepared  remarks that  reviewed the                                                               
effects  of   CON  laws  issued   jointly  by  the   two  federal                                                               
competition authorities,  the FTC  and the Antitrust  Division of                                                               
the  U.S.  Department  of  Justice (DOJ),  referred  to  as  "the                                                               
agencies".  In April  2017, these  agencies  commented on  Senate                                                               
Bill  62, discussing  their general  views  on CON  laws and  the                                                               
likely impact of  that bill on Alaska's  health care competition.                                                               
In February 2018, the agencies  summarized those comments and the                                                               
FTC's  continued  concerns about  CON  to  the Senate  Labor  and                                                               
Commerce Committee. The FTC has  continued to follow the economic                                                               
and policy  related to CON  laws and remains concerned  about the                                                               
impact of  CON laws  on health care  competition and  health care                                                               
consumers. These  agencies have extensive experience  with health                                                               
care competition,  including several decades of  law enforcement,                                                               
research,   and  policy   regarding  the   effects  of   provider                                                               
concentration  and  CON  laws.   However,  his  comments  do  not                                                               
necessarily  reflect  the  views   of  the  FTC,  any  individual                                                               
commissioner, or the Department of Justice (DOJ), he said.                                                                      
                                                                                                                                
2:25:39 PM                                                                                                                    
MR. GILMAN  offered his belief  that initial goal  of certificate                                                               
of need laws  was to reduce health care costs  and improve access                                                               
to care.  However, it has  become apparent  that CON laws  do not                                                               
provide these benefits.  In fact, CON laws can  undermine some of                                                               
the very  policy goals the  laws originally intended  to advance.                                                               
The empirical  data from numerous  studies do not  generally find                                                               
that  CON laws  have  succeeded in  controlling costs,  improving                                                               
quality, or increasing access to health care, he said.                                                                          
                                                                                                                                
MR.  GILMAN  said  he  has  identified  at  least  three  serious                                                               
problems with CON laws. First,  CON laws create barriers to entry                                                               
and expansion, which can increase  prices, limit consumer choice,                                                               
and stifle innovation.  Second, incumbent firms can  use CON laws                                                               
to thwart or  delay market entry or expansion by  new or existing                                                               
competitors. Third,  as illustrated  by the FTC's  own experience                                                               
in  the  Supreme  Court [Federal  Trade  Commission  vs.]  Phoebe                                                               
Putney, CON laws  can deny consumers the benefit  of an effective                                                               
remedy following  the consummation of an  anticompetitive merger.                                                               
For these reasons,  last year he suggested Alaska  repeal its CON                                                               
laws, which he still maintains, he said.                                                                                        
                                                                                                                                
MR. GILMAN said CON laws  create barriers to entry and expansion,                                                               
potentially depriving  consumers of  the benefits of  health care                                                               
competition.  CON  laws,  including  Alaska's  law,  require  new                                                               
entrants and incumbent providers  to obtain state-issued approval                                                               
before  constructing new  facilities or  offering certain  health                                                               
care  services. These  aren't basic  health and  safety standards                                                               
but  are entry  requirements. By  interfering with  market forces                                                               
that normally  determine the supply  of services  and facilities,                                                               
CON  laws  can  suppress  increases  in  supply  and  misallocate                                                               
resources, he said.  These CON laws also  shield incumbent health                                                               
care providers  from competition by new  entrants and innovations                                                               
in  health  care  delivery,  which  means  consumers  lose  these                                                               
benefits. He  urged the committee  to consider all the  ways that                                                               
CON  laws may  harm health  care  consumers and  to consider  how                                                               
patients  and public  and  private payers  might  benefit if  new                                                               
facilities and  services could enter  the market more  easily. He                                                               
suggested that  the credible threat  of entry or  expansion alone                                                               
typically  restrains  health  care prices,  improves  quality  of                                                               
care, incentivizes innovation, and improves access to care.                                                                     
                                                                                                                                
MR. GILMAN said that entry  restrictions tends to raise costs and                                                               
prices  and limit  opportunities  for providers  to compete,  not                                                               
just on  price, but also  on non-price aspects, like  quality and                                                               
convenience  for patients.  Impeding new  entry into  health care                                                               
markets can be  especially harmful in rural  or other underserved                                                               
areas  since CON  laws  may  delay or  block  the development  of                                                               
facilities and  services in areas  services are needed  most. CON                                                               
laws potentially reinforce market  power that incumbent providers                                                               
may enjoy in already concentrated areas, he said.                                                                               
                                                                                                                                
MR.  GILMAN  said that  incumbent  providers  may exacerbate  the                                                               
competitive harm  from these entry  barriers by  taking advantage                                                               
of the CON  process to protect their revenues.  The strategic use                                                               
of the  CON process  by competitors  can divert  scarce resources                                                               
away  from  health  care innovation  and  delivery  as  potential                                                               
entrants  incur legal,  consulting,  and  lobbying expenses.  The                                                               
FTC's found in  FTC vs. Phoebe Putney that CON  laws can entrench                                                               
anticompetitive  mergers by  limiting  the  ability of  antitrust                                                               
enforcers   to  implement   effective   structural  remedies   to                                                               
consummated transactions.                                                                                                       
                                                                                                                                
MR. GILMAN  said that empirical  evidence does not show  that CON                                                               
laws  have achieved  their goals.  States originally  adopted CON                                                               
law programs  over 40 years ago  as a way to  control health care                                                               
costs and mitigate  the incentives created by  a cost-plus health                                                               
care reimbursement  system. Although  this type  of reimbursement                                                               
has disappeared, CON laws remain in  force in a number of states.                                                               
The  CON  proponents   continue  to  raise  cost   control  as  a                                                               
justification, arguing that CON  laws improve health care quality                                                               
while  increasing access.  The  evidence  suggests otherwise,  he                                                               
said. Empirical  evidence on competition  in health  care markets                                                               
generally has  demonstrated that more competition  leads to lower                                                               
prices. FTC  scrutiny of hospital  mergers has  been particularly                                                               
useful   in  understanding   concentrated-provider  markets   and                                                               
retrospective  studies of  provider-consolidation by  FTC's staff                                                               
and  independent  researchers.  He  quoted from  "The  Impact  of                                                               
Hospital Consolidation"  by economists  Martin Gaynor  and Robert                                                               
Town  that "increases  in hospital  market concentration  lead to                                                               
increases  in  the  price  of hospital  care."  All  sources  and                                                               
citations of his empirical points can  be found in the 2017 joint                                                               
statement by FTC and DOJ, he said.                                                                                              
                                                                                                                                
2:31:49 PM                                                                                                                    
MR. GILMAN  said that the  best empirical evidence  also suggests                                                               
that greater  competition incentivizes  providers to  become more                                                               
efficient. Recent  work shows  that hospitals  faced with  a more                                                               
competitive  environment  have  better management  practices  and                                                               
also that narrowing or repealing  CON laws can reduce per patient                                                               
cost of health care.                                                                                                            
                                                                                                                                
2:32:10 PM                                                                                                                    
MR. GILMAN said he has found  no empirical evidence that CON laws                                                               
have successfully  restricted so-called overinvestment.  CON laws                                                               
can, however,  limit investments  that would  lower costs  in the                                                               
long  run.  Several  studies  directly  analyzed  the  impact  of                                                               
changes in CON  laws on health care outcomes. The  weight of this                                                               
research  has  found that  repealing  or  narrowing CON  laws  is                                                               
unlikely to lower  quality. It may, in fact,  improve the quality                                                               
of certain types of care.                                                                                                       
                                                                                                                                
MR. GILMAN said  that CON proponents concede that  CON laws allow                                                               
incumbent providers  to earn greater  profits that  the providers                                                               
would  in  a  competitive   environment.  Proponents  argue  that                                                               
incumbents  could  use  those extra  profits  to  cross-subsidize                                                               
charity  care.   He  acknowledged   providing  charity   care  is                                                               
important.  However,  he urged  the  committee  to consider  less                                                               
costly and  more effective ways  to provide it. The  charity care                                                               
rationale is  at odds with  the cost control rationale,  he said.                                                               
If  the idea  is  that CON-protected  incumbents  will use  their                                                               
market power  and profits to  cross-subsidize charity  care, that                                                               
implies that providers will charge  more for non-charity care, he                                                               
said. Such  pricing can  harm Alaska's  health care  consumer and                                                               
hurt low-income  or underinsured patients who  are ineligible for                                                               
charity  care.  Also,  because  CON  programs  impede  entry  and                                                               
expansion,  these   programs  impede  access  to   care  for  all                                                               
patients, including the indigent and other low-income patients.                                                                 
                                                                                                                                
MR. GILMAN  said that although  advocates of CON laws  might seek                                                               
to promote charity  care, the evidence simply does  not show that                                                               
CON  laws advance  that goal.  In  fact, there  is some  research                                                               
suggesting   that  safety-net   hospitals  are   not  financially                                                               
stronger in  CON states  than in  non-CON states.  Moreover, some                                                               
empirical   evidence  contradicts   the   notion  that   dominant                                                               
providers  use  their  market power  to  cross-subsidize  charity                                                               
care.  A   paper  from  Professor  Christopher   Garmon  found  a                                                               
"complete   lack   of   support   for   the   cross-subsidization                                                               
hypothesis," he said.  The FTC recognizes that  states must weigh                                                               
a  variety  of policy  objectives  when  considering health  care                                                               
legislation,   but  CON   laws  raise   considerable  competitive                                                               
concerns and  do not  appear to  achieve their  intended benefits                                                               
for health  care consumers. CON  laws have failed  to demonstrate                                                               
success at  delivering on any  of their  policy goals in  over 40                                                               
years.  He  respectfully  asked  that  the  legislature  consider                                                               
whether Alaskan citizens are well served  by CON laws and if not,                                                               
whether Alaskans would benefit from the repeal of those laws.                                                                   
                                                                                                                                
2:35:30 PM                                                                                                                    
MATTHEW MITCHELL, Ph.D., Senior  Research Fellow, Director of the                                                               
Equity  Initiative,  Mercatus  Center, George  Mason  University,                                                               
Arlington,  Virginia,   testified  in  favor  of   repealing  the                                                               
certificate of  need (CON)  statutes. He said  that for  the last                                                               
several years he and his  colleagues have been studying CON laws.                                                               
He highlighted some misconceptions about  CON laws, such that CON                                                               
laws are not quality gates.  CON laws require permission from the                                                               
state to  open or expand a  health care facility, add  a hospital                                                               
bed or  offer a  neonatal intensive care  unit. The  process does                                                               
not   asses   the   provider's    quality,   safety   record   or                                                               
certifications, which is addressed  by other regulatory measures.                                                               
Instead,  the CON  process assesses  whether the  community needs                                                               
the  services,   which  is  typically  decided   by  the  market.                                                               
Economists  tend  to  view  CON  laws  as  being  anticompetitive                                                               
restrictions  to supply,  which is  why antitrust  authorities at                                                               
the FTC and the DOJ are skeptical of them, he said.                                                                             
                                                                                                                                
DR.  MITCHELL said  that the  1974 National  Health Planning  and                                                               
Resources Development Act  mandated that states pass  CON laws in                                                               
order  to receive  matching funds.  This federal  law laid  out a                                                               
number  of rationales  for CON  laws. Since  then 15  states have                                                               
repealed CON laws and 38 percent  of the U.S. population lives in                                                               
one of those  states. Alaska can predict the  effect of repealing                                                               
its CON  laws from  the experiences of  the other  states. Alaska                                                               
can  also use  sophisticated  econometric  techniques to  examine                                                               
differences in  outcomes in  CON and  non-CON states  and control                                                               
for other factors, such as  demographics and underlying economics                                                               
of the community.                                                                                                               
                                                                                                                                
DR.  MITCHELL  said  that substantial  research  focuses  on  the                                                               
rationales offered in the National  Health Planning and Resources                                                               
Development  Act  in  1974,  including  the  goal  to  ensure  an                                                               
adequate  supply of  health  care. However,  the  CON laws  place                                                               
restrictions on  supply. Research finds that  relative to non-CON                                                               
states,  CON  states offer  a  more  limited supply  of  dialysis                                                               
clinics, hospice care,  fewer hospitals per capita,  and beds per                                                               
capita. CON  states also have  fewer hospitals offering  MRIs and                                                               
fewer CT, MRI,  PET scans. Patients in CON states  seek more out-                                                               
of-county and  out-of-state care  as compared  to ones  in states                                                               
without  CON.  Based  on  his   research  of  other  states  that                                                               
eliminated  CON laws,  he estimated  that  Alaska's 25  hospitals                                                               
would increase to approximately 36 hospitals.                                                                                   
                                                                                                                                
DR.  MITCHELL said  the  second goal  of the  federal  law is  to                                                               
ensure rural access  to care. However, states with  CON laws have                                                               
30  percent fewer  rural hospitals  and fewer  hospitals overall.                                                               
Rural areas have  less access to hospice  care, experience longer                                                               
travel distances in order to obtain  care, and are more likely to                                                               
seek out-of-county care.  He and his colleagues  estimate that if                                                               
Alaska  repealed  the  CON  statutes,  it  would  have  25  rural                                                               
hospitals instead of 17 rural hospitals.                                                                                        
                                                                                                                                
2:41:32 PM                                                                                                                    
DR.  MITCHELL reiterated  that the  CON process  itself does  not                                                               
attempt to  assess quality. Under  the CON process,  states would                                                               
have fewer  hospitals and doctors would  perform more procedures,                                                               
so  these doctors  should become  more skilled.  However, quality                                                               
tends to rise  with competition. Research suggests  that CON laws                                                               
do not  achieve this  goal. In  fact, states  with CON  laws have                                                               
higher mortality  rates following  heart failure,  pneumonia, and                                                               
heart attacks. Hospitals  in these states also  have higher rates                                                               
of  postsurgery   complications  and  lower  levels   of  patient                                                               
satisfaction,  he said.  He and  his colleague  estimated patient                                                               
satisfaction  in   Alaska  would   be  4.8  percent   higher  and                                                               
postsurgery  complications  would  be  about  5.6  percent  lower                                                               
without CON laws.                                                                                                               
                                                                                                                                
2:43:00 PM                                                                                                                    
DR. MITCHELL said the next goal  of the CON process is to promote                                                               
charity  care.  He and  his  colleagues  reviewed the  levels  of                                                               
uncompensated care or indigent care  in CON versus non-CON states                                                               
and did  not find  any evidence that  charity care  increased. He                                                               
and his  colleagues also  found greater  racial disparity  in the                                                               
provision of care in CON states relative to non-CON states.                                                                     
                                                                                                                                
The final goal  of the federal law requiring the  CON process was                                                               
to  promote  hospital substitutes.  However,  under  CON laws  18                                                               
states, including  Alaska, limit  any hospital  substitutes, such                                                               
as ambulatory surgery  centers. He and his  colleagues found that                                                               
these states  have fewer hospitals  and approximately  14 percent                                                               
fewer  ambulatory  surgery  centers.  While CON  laws  limit  new                                                               
hospitals and  nonhospital providers, these  laws do not  seem to                                                               
limit  existing providers.  He  recalled  earlier testimony  that                                                               
indicated an  existing provider was  awarded a CON whereas  a new                                                               
entrant was not,  which is consistent with  the broader evidence.                                                               
It also  helps explain  why CON laws  persist because  these laws                                                               
provide protection to incumbent  providers. He and his colleagues                                                               
estimated that Alaska would have  more ambulatory surgery centers                                                               
than it currently does if it repealed its CON laws.                                                                             
                                                                                                                                
2:43:29 PM                                                                                                                    
DR. MITCHELL said  the final goal for the advocates  of CON is to                                                               
restrict cost.  However, the evidence shows  that restrictions on                                                               
supply  tend  to raise  prices.  He  said  he surveyed  20  peer-                                                               
reviewed  academic  studies  and the  preponderance  of  evidence                                                               
supported this. However,  he and his colleagues did  not find any                                                               
evidence to  show that CON  laws reduce per unit  costs. Instead,                                                               
CON laws  increased per unit  costs and increase  overall patient                                                               
spending, he  said. He highly  recommended Dr.  Grabowski's study                                                               
to the committee.                                                                                                               
                                                                                                                                
2:45:52 PM                                                                                                                    
SENATOR BEGICH  asked if  Idaho and North  Dakota lost  any rural                                                               
hospitals when these rural states repealed their CON laws.                                                                      
                                                                                                                                
DR.  MITCHELL  said he  was  unsure.  After reviewing  all  rural                                                               
communities with  and without  CON laws,  he found  evidence that                                                               
CON  laws are  associated with  fewer rural  hospitals. His  home                                                               
state  is New  Mexico, which  is a  low-income, rural  state that                                                               
does  not have  a CON  law. However,  it has  decent measures  of                                                               
access of care, he said.                                                                                                        
                                                                                                                                
SENATOR BEGICH said  that type of information  can help alleviate                                                               
some  of   Senator  Steven's  concerns.  He   asked  why  Indiana                                                               
reinstated its CON law last year.                                                                                               
                                                                                                                                
DR. MITCHELL replied  that he was unsure. Those  who benefit from                                                               
CON are the  incumbent providers who tend to  be very politically                                                               
organized.  Many  patients  often  are  often  unaware  that  CON                                                               
exists. He surmised that providers  hoping to start up facilities                                                               
and apply  via the  certificate of  need process  tend not  to be                                                               
very politically organized.                                                                                                     
                                                                                                                                
2:48:34 PM                                                                                                                    
At ease.                                                                                                                        
                                                                                                                                
2:48:38 PM                                                                                                                    
CHAIR WILSON said the committee  must examine the many studies to                                                               
answer questions that arose during  public testimony. He said the                                                               
topic of  certificate of need  laws has been analyzed  by federal                                                               
administrations    under   four    presidents.   These    federal                                                               
administrations  concluded  the  certificate  of  need  laws  are                                                               
ineffective and recommended that  states seek other methodologies                                                               
to regulate  their health  care facilities.  He remarked  that he                                                               
studied  CONs when  he worked  to obtain  his master's  degree in                                                               
health service administration.                                                                                                  
                                                                                                                                
CHAIR WILSON encouraged the committee  and the public to research                                                               
whether  certificate of  need  laws  work. He  said  that it  was                                                               
difficult to  find studies  by proponents of  CON laws  that were                                                               
not written by hospital associations  or other hospital entities.                                                               
His office has  boxes of empirical data and research,  but he has                                                               
tried to provide the most  relevant research to the committee. He                                                               
has worked to  educate the public on more  innovative health care                                                               
systems for the  state of Alaska. He reiterated  the problems his                                                               
district   faced  when   an  Anchorage   clinic  applied   for  a                                                               
certificate  of need  to  open  an office  in  the Mat-Su,  which                                                               
resulted in a lawsuit that has adversely affected his community.                                                                
                                                                                                                                
CHAIR  WILSON offered  his belief  that the  public testimony  in                                                               
opposition  to  certificate of  need  (CON)  applicants are  most                                                               
likely  to   come  from  their  competitors.   He  remarked  that                                                               
significant funds  are spent on  opposing changes to CON  laws in                                                               
Alaska, which  would be  better spent on  indigent care.  That is                                                               
the reason this bill is so important, he said.                                                                                  
                                                                                                                                
[CHAIR WILSON held SB 1 in committee.]                                                                                          
                                                                                                                                
2:54:34 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair  Wilson adjourned  the Senate  Health  and Social  Services                                                               
Standing Committee at 2:54 p.m.                                                                                                 

Document Name Date/Time Subjects
SB 1 - Repealing CON - 31-LS0001 A.PDF SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - Work Draft 31-LS0001_M - 3.11.19.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
Senate Bill 1 - Summary of Changes, ver A to M.pdf SHSS 3/27/2019 1:30:00 PM
SB 1
Senate Bill 1 - Sponsor Statement.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 Repealing Alaska's CON - Sectional Analysis.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 Fiscal Note DHSS Health Care Services.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 Fiscal Note DHSS Medicaid.pdf SHSS 3/27/2019 1:30:00 PM
SB 1
SB 1 - Federal Rpt - Reforming Americas Healthcare System Through Choice and Competition - 2018.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - John Locke Foundation - Spotlight-468-The-Case-Against-CON-A-law-that-prevents-health-care-innovation.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - National Institute for Health Care_Research_Brief_No._4.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - Mercatus Center - Do Certificate-of-Need Laws Increase Indigent Care.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - News Story - Florida lawmakers lurch ahead with certificate-of-need repeal.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - Reforming Americas Healthcare System Through Choice and Competition - NOvember 2018.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - News Story - Mark-CON-paper-web.pdf SHSS 3/27/2019 1:30:00 PM
SB 1
SB 1 - US Department of Justice - Competition in Healthcare and Certificates of Need.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1
SB 1 - CON Power Point - SHSS 3.27.19.pdf SHSS 3/27/2019 1:30:00 PM
SHSS 4/1/2019 1:30:00 PM
SB 1