Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/06/2017 09:00 AM Senate LABOR & COMMERCE
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| SB62 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 62 | TELECONFERENCED | |
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ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
April 6, 2017
9:08 a.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Kevin Meyer
Senator Gary Stevens
Senator Berta Gardner
MEMBERS ABSENT
Senator Shelley Hughes, Vice Chair
COMMITTEE CALENDAR
SENATE BILL NO. 62
"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 62
SHORT TITLE: REPEAL CERTIFICATE OF NEED PROGRAM
SPONSOR(s): SENATOR(s) WILSON
02/17/17 (S) READ THE FIRST TIME - REFERRALS
02/17/17 (S) L&C, FIN
04/06/17 (S) L&C AT 9:00 AM BELTZ 105 (TSBldg)
WITNESS REGISTER
SENATOR DAVID WILSON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 62.
GARY ZEPP, Staff
Senator David Wilson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided supporting information on SB 62.
JON SHERWOOD, Deputy Commissioner
Department of Health and Social Services (DHSS)
Juneau, Alaska
POSITION STATEMENT: Provided an overview of Certificate of Need
(CON).
THOMAS STRATMANN, Professor of Economics and Law
Senior Research Fellow
Mercatus Center
George Mason University
Arlington, Virginia
POSITION STATEMENT: Testified in support of SB 62.
ACTION NARRATIVE
9:08:54 AM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 9:08 a.m. Present at the call to
order were Senators Stevens, Meyer, Gardner, and Chair Costello.
SB 62-REPEAL CERTIFICATE OF NEED PROGRAM
9:09:15 AM
CHAIR COSTELLO announced the consideration of SB 62. She stated
that the intention is to hear an introduction, take invited
testimony and hold the bill for further consideration. She
explained that this bill would repeal the Certificate of Need
Program.
9:10:06 AM
SENATOR DAVID WILSON, Alaska State Legislature, sponsor of SB 62
said he has an MBA in health care administration and thus is
familiar with this complicated topic. He reported that when he
and his staff were doing research on the bill, they heard from
many individuals who are unwilling to come forward and discuss
the issue out of fear that they would lose their hospital
privileges.
SENATOR WILSON paraphrased the following sponsor statement for
SB 62:
Senate Bill 62 repeals Alaska's certificate of need
(CON) program and provides for a two-year window
before the repeal becomes effective.
The certificate of need programs were first mandated
nationally by the federal government in 1974, then
subsequently repealed in 1987 by the federal
government. Thirteen states have since repealed their
certificate of need programs across the nation;
thirty-four have CON laws, and three don't have a CON
program, but require approval for certain facilities
and services.
Certificate of need programs were originally intended
to reduce healthcare costs, improve access to care,
and regulate and limit the entry and supply of medical
services and facilities. CON programs create internal
subsidies and encourage the use of the economic
profits to cross-subsidize indigent care.
However, the healthcare system has evolved from a fee-
for-service system, which lacked incentives to lower
prices, to a prospective payment system. CON laws over
the last forty years have stifled competition, created
a barrier to new medical facilities and services for
healthcare consumers, and prevented the free market
forces which improve the quality and lower the costs
of healthcare services.
Alaska's certificate of need program poses a
substantial threat to the proper performance of
healthcare markets and services.
9:12:47 AM
SENATOR WILSON paraphrased the following PowerPoint on the
Certificate of Need program:
What is a Certificate of Need Program?
Certificate of Need (CON) programs originated to
regulate the number of beds in hospitals and nursing
homes and to prevent purchasing more equipment than
necessary. The intent was that new or improved
facilities or equipment would be approved based
primarily on a community's genuine need. Statutory
criteria often were created to help planning agencies
decide what was necessary for a given location. By
reviewing the activities and resources of hospitals,
the agencies made judgments about what needed to be
improved. Once need was established, the applicant
organization was granted permission to begin a
project. These approvals generally are known as
Certificates of Need.
Alaska's Certificate of Need Program Overview
· Alaska's Certificate of Need (CON) program was
enacted in 1976 in response to the National Health
Planning and Resources Development Act which tied
federal funding to the enactment of CON laws. These
laws restrict the addition of healthcare facilities
(including expansion) by requiring that persons obtain
state approval for certain projects, which is given
based on calculated need. The rationale is that
controlling supply will help to reduce costs of
healthcare services. Healthcare services are not a
typical economic product because consumers are
generally more restrained in their choices. However,
the federal government repealed its mandate in 1987.
14 states have since repealed their Certificate of
Need laws, despite their controversial nature.
· Persons in favor of Certificate of Need laws
argue that they do limit healthcare costs, and are in
favor of a transparent process allowing for
stakeholder input before large projects are
undertaken. Those in favor of amending or abolishing
Certificate of Need laws argue that they have the
opposite effect on health care costs-increasing rather
than decreasing them by limiting competition; that
they are difficult to administer and not always
addressed consistently; and that these laws give more
control to bigger businesses and those with more
political clout.
· Current Alaska Certificate of Need laws require
persons expending more than $1,500,000 to construct,
remodel, or purchase equipment for a health facility
to obtain a Certificate of Need. The office is
currently staffed by one (busy) individual. The office
is represented by the Department of Law in two civil
lawsuits and two appeals (one before the
administrative appeals office; the other before the
superior court). Staff recommends that the statutes
and regulations be updated to reflect the current
status of the healthcare industry, including an
evaluation of the monetary threshold and the current
methodologies. The statutes could also be amended to
limit the applicability of Certificate of Need laws to
those services, such as skilled nursing facilities,
that are most likely to have a direct increase or
burden on the state budget.
Purpose of Certificate of Need Programs
Certificate of Need laws are state-level regulatory
initiatives that require individuals in the healthcare
industry to obtain permission to make significant capital
expenditures or to construct or expand facilities and
services, based on the theory that controlling the supply
of facilities, equipment, and services is the best method
to restrain rising healthcare costs.
The Certificate of Need laws are state-level regulatory
initiatives that require individuals in the healthcare
industry to obtain permission to make significant capital
expenditures or to construct or expand facilities and
services, based on the theory that controlling the supply
of facilities, equipment, and services is the best method
to restrain rising healthcare costs.
The Certificate of Need laws were created to set up health
planning agencies to control future healthcare expansion
based on need.
Certificate of Need laws are to regulate and evaluate
healthcare facilities and services to prevent the
overbuilding of healthcare facilities and services beyond a
community's capacity.
9:17:05 AM
National History of Certificate of Need
1974: National Health Planning Resources Development
Act (NHPRDA), required states to establish oversight
agencies for the submission of proposals for any major
capital spending on health care reprices (e.g. new
construction, building expansions, new technology).
This required all states seeking federal funding for
health programs implement a Certificate of Need
program.
1974-1982: Health care costs continue to rise
nationwide despite 100 percent state participation in
NHPRDA.
1982: Congress initiates 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: Seven states abandon Certificate of Need
despite NHPRDA is still in effect.
1987: Congress repealed the National Health Planning
Resources Development Act, which required states to
implement a Certificate of Need program. Following the
repeal, 14 states terminated their Certificate of Need
programs.
Alaska's History of Certificate of Need
Alaska's participation in a certificate of need
program started in 1976 and seven pieces of
legislation have been enacted since then.
1976: HB 665 (Ch. 275, SLA 1976), which repealed and
replaced all of AS 18.07 to establish the certificate
of need program and regulation of healthcare
facilities.
1982: HB 591 (Ch. 59, SLA 1982), covers only a
temporary but not an emergency certificate of need for
a health care facility and added a definition of
certificate of need dealing with the issuance of
certificates.
1983: HB 85 (Ch. 95, SLA 1983), added a $1.0 million
floor for requiring a certificate of need.
1990: HB 85 (Ch. 85, SLA 1990), provided authorization
to Department of Health and Social Services to charge
a fee for the certificate of need.
1991: SB 86 (Ch. 21, SLA 1991), 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.
9:32:38 AM
GARY ZEPP, Staff, Senator David Wilson, Alaska State
Legislature, continued the PowerPoint:
U.S. Department of Justice/Antitrust Division and the
Federal Trade Commission's Analysis on Certificate of
Need Programs
· The U.S. Department of Justice Antitrust Division
and the Federal Trade Commission have jointly studied
the effects of Certificate of Need laws across the
country, hearing from 250 panelists, elicited 62
written submissions, and generated almost 6,000 pages
of transcripts over two years. The group also included
attorneys and economists that focused on healthcare
markets. Antitrust economists holding doctorates on
the study of markets and their performance, with a
specialization in healthcare markets.
· This group has studied markets across the country
involving hospitals, physicians, ambulatory surgery
centers, stand-alone radiology programs, medical
equipment, pharmaceuticals and other healthcare
products.
· Through this work, the group understands the
competitive forces that drive innovation in and
contain the cost of healthcare. The goal is to ensure
a competitive marketplace in which consumers will have
the benefit of high quality, cost-effective healthcare
and a wide range of choices. The mission is to
preserve and promote competition, rather than preserve
any particular marketplace rival or group of rivals.
· The nine antitrust principals were derived from
their work over many years including: Importance of
Competition and the Harm Caused by Regulatory Barriers
to Entry.
· Healthcare services are different than other
sectors of the economy but the basic truth should not
be lost-market forces improve the quality and lower
costs of healthcare services. Increased competition in
healthcare does not require us to choose between the
benefits of competition or the delivery of high-
quality healthcare.
· Certificate of Need Laws Create Barriers to
Beneficial Competition:
· Certificate of Need laws are a classic
government-erected barrier. When the federal
government enacted Certificate of Need laws,
private insurance reimbursed healthcare expenses
predominantly on a "cost-plus basis." The desired
effect of the "cost-plus basis" was to
incentivize over investment. Certificate of Need
laws were adopted because excessive capital
investments, spurred by the then-current cost-
plus-basis method of reimbursement, were driving
up healthcare costs.
· Protecting Revenues of Incumbents Does Not Justify
Certificate of Need Laws.
· The rational for keeping the Certificate of Need
laws is that incumbent hospitals should be protected
against competition so that they can use their profits
to cross-subsidize care for the uninsured or under-
insured patients. If new competitors were to enter the
market, community hospitals could not continue to
exploit their existing market power over consumers.
There are other methods to explore for legislators so
they won't have to choose between covering the
healthcare for the indigent without impeding the
proper function of the healthcare markets.
· MedPAC (a clinical research organization based in
Cincinnati, Ohio) found that community hospitals
responded to the competition by improving
efficiencies, adjusting their prices, and expanding
profitable lines of business.
· Certificate of Need laws Impose Other Costs and
May Facilitate Anti-Competitive Behavior:
· Competitors at times go farther and enter
into agreements not required by Certificate of
Need laws but nonetheless facilitated by them.
· West Virginia hospital used the threat of objection
during a Certificate of Need process, and delayed and
increased costs, to induce a hospital seeking a Certificate
of Need not to apply for the Certificate of Need that would
have well served Charleston and provided greater
competition for business.
· Vermont home health agencies entered into territorial
market allocations, using the protection of Certificate of
Need laws, to gain exclusive geographic markets. The U.S.
Department of Justice-Antitrust Division and the Federal
Trade Commission found that Vermont consumers were paying
higher prices than consumers where home health agencies
competed against each other.
The American free market system is built on the
premise that open competition and consumer choice
maximize consumer welfare - even when complex products
and services such as healthcare are involved. The
Federal Trade Commission and the Department of Justice
play an important role in safeguarding the free-market
system from anticompetitive conduct by bringing
enforcement actions against parties that violate
antitrust and consumer protection laws.
9:38:28 AM
How is Alaska's Certificate of Need program working
today?
· Is Alaska's Certificate of Need program working
effectively to reduce healthcare costs to consumers
within the state? Why are healthcare costs still on
the rise?
· Alaska's Certificate of Need laws have led
healthcare providers to sell state of the art medical
equipment and buy lessor, lessor quality priced
medical equipment to remain under the Certificate of
Need $1.5 million threshold. Wouldn't those dollars
better serve Alaskans if they were invested in
healthcare facilities and services?
· Alaska's Certificate of Need laws result in
territorial disputes and legal costs between
healthcare providers because one healthcare provider
objects to another healthcare provider's plans to add
healthcare services. Does this improve or provide
better quality healthcare to Alaskans?
9:39:18 AM
Pennsylvania Healthcare Entities Support Repealing
Virginia's Certificate of Need
· Pennsylvania repealed their Certificate of Need
laws and the Pennsylvania Hospital Association
testified at a Virginia Legislative hearing where
Virginia is trying to repeal their Certificate of Need
laws.
· Pennsylvania Hospital Association stated,
"Reinstating an administratively cumbersome and costly
process will result in unintended consequences,
including stifling innovation in health care delivery
in hospital settings and potentially preventing the
appropriate availability of services within
communities."
· Also opposed to Certificate of Need laws is the
Pennsylvania Medical Society. They opposed Certificate
of Need laws because, "Certificate of Need laws
politicize the healthcare approval process and are not
effective at holding down costs. Pennsylvania's
experience how a free market has done a better job of
ensuring that citizens have access to care. They
repealed their Certificate of Need program many years
ago.
9:40:27 AM
SENATOR WILSON displayed the following articles on repealing
certificate of need:
Articles on Repealing Certificate of Need
Federal Trade Commission (FTC) and Department of
Justice (DOJ) Joint report
Consumers want high-quality, affordable, accessible
health care, vigorous competition promotes the
delivery of high-quality, cost-effective health care.
US Department of Justice, Antitrust Division (Vol. 30
No. 1 Fall 2015): Original Certificate of Need laws
cost-savings rationale fails to deliver - Certificate
of Need laws are simply output restrictions mandated
by government. Normally, if you want the price to
decline, creating an artificial shortage of it isn't
the way to achieve that. Output restrictions restrain
the social benefits of free market competition.
Certificate of Need laws inhibit competition -
Certificate of Need laws help to insulate incumbent
providers from competition. Powerful economic reasons
drive incumbents to oppose an applicant from providing
similar healthcare services. Certificate of Need laws
insulate politically powerful incumbents from market
forces. Limited exemption from competition in a non-
transparent way to achieve indigent care is not good
public policy, because the cost of Certificate of Need
laws is never disclosed or even evaluated.
Certificate of Need laws and indigent care: Some
providers do a poor job of indigent care and benefit
from Certificate of Need laws, while others do an
excellent job and gain little to nothing.
National Conference of State Legislators: Unintended
Consequences: Decrease competition; reduce access to
healthcare; barriers to new competition, may increase
healthcare costs.
Mercatus Center - George Mason University: Certificate
of Need states have 13 percent fewer beds; decrease of
4.7 hospital beds per 100,000; decreases in CT scan,
MRI services, and optical and virtual colonoscopy
services.
National Institute for Healthcare Care Reform (2011):
Certificate of Need applicants experience "being
caught in the competitive crossfire during review and
process (appeals, public hearings, court battles);
existing competitors are more often involved in
contesting approval of competitors' applications
causing delays and costing money; hospitals use
Certificate of Need process to protect existing market
share and block competitors; smaller community
hospitals tend to view Certificate of Need process as
uneven due to the lack of financial resources to go
through lengthy court battles with larger hospitals;
physicians support repeal due to market barrier;
Certificate of Need laws can be a barrier to new
technologies and innovation due to lengthy process and
cost.
Despite hospitals love-hate view of Certificate of
Need regulations, a consultant concluded that
hospitals believe they are better off with regulations
in place than without them. One state hospital
association respondent said member hospitals initially
had mixed views about the benefits of Certificate of
Need but banded together to support the process after
realizing it was a valuable tool to block new
physician owned facilities.
9:40:35 AM
SENATOR WILSON summarized that relaxing the Certificate of Need
regulation will increase provider competition, help force
downward pressure on costs, and, importantly, increase patient
choice. He said that most major medical insurers have developed
a travel agency within their insurance pool because patients are
opting for healthcare tourism. He related his preference to keep
those healthcare dollars in Alaska.
He said Certificate of Need ultimately chooses who gets to
compete in the healthcare sector. Reforming the law won't
untangle the entire healthcare issue, but lawmakers in this
state ought to capitalize on the opportunity to make this highly
regulated industry a little more patient friendly, he said.
SENATOR WILSON offered to go through a sectional analysis.
9:42:36 AM
SENATOR MEYER asked if healthcare costs have gone down in the
states that have repealed their CON programs.
SENATOR WILSON said it's mixed. Some states that have repealed
the laws have higher costs and some have lower costs. He offered
to follow up with a better analysis.
SENATOR MEYER asked if Alaska's CON program has helped to get
more rehab beds in Anchorage and other communities.
SENATOR WILSON replied it depends on the type of facility, its
size, the equipment involved and whether it meets the $1.5
million threshold.
9:43:54 AM
SENATOR GARDNER said she is interested in getting information
on: 1) the lawsuits that have been filed in Alaska related to
the CON program; 2) data on cost savings or increases in Alaska;
and 3) impacts on access to new equipment and technology -
selling high-quality equipment and buying a less expensive model
to keep from exceeding the $1.5 million threshold.
SENATOR WILSON said his office has had difficulty getting data
from the Department of Health and Social Services and disagrees
with some of the information in the fiscal note. He hopes to be
able to address some of the financial costs by the time the bill
reaches the Finance Committee.
SENATOR GARDNER said it's important to have that information in
this committee as well because it's a policy question that will
be informed by the costs. She stated that notwithstanding the
cover letter stamped "Confidential," the testimony from Health
Capital Consultants is not confidential once the committee has
it and it's distributed to the public.
SENATOR WILSON agreed.
9:46:29 AM
SENATOR STEVENS asked him to address the concern that repealing
CON would put hospitals at a competitive disadvantage because
small practices and clinics can cherry pick, but hospitals are
required to accept everyone who comes in for treatment, whether
they can pay or not.
SENATOR WILSON said there will always be folks who will target a
market because it is more profitable. He reported that in 2008
Alaska was one of four states that had higher rates for Medicaid
than Medicare. The industry is booming because of the
reimbursement system, he said. He also pointed out that there
are always people who have procedures done out of state because
of the cost, and that tribal entities do not need to have a
certificate of need process to open a surgery center.
9:49:39 AM
At ease
9:53:30 AM
CHAIR COSTELLO reconvened the meeting and welcomed Mr. Sherwood
to offer testimony.
9:53:46 AM
JON SHERWOOD, Deputy Commissioner, Department of Health and
Social Services (DHSS), explained that a Certificate of Need
program is a state review process for health facilities that
requires providers to get the certificate before they can build
certain kinds of facilities. It is intended to help ensure a
consistent application of resources in the development of health
care. It involves a significant role for public participation in
the decisions.
A requirement for a Certificate of Need is triggered depending
on the type of health care facility. These include hospitals,
nursing homes, ambulatory surgical centers, diagnostic
facilities, residential psychiatric treatment centers, and
kidney dialysis facilities. The monetary trigger is that
projects must be equal to or above the $1.5 million Certificate
of Need threshold. All nursing facility conversions must apply
regardless of the cost.
9:55:41 AM
MR. SHERWOOD said that providers can engage in the Certificate
of Need process by: submitting a request for determination of
whether a CON is needed; submitting an application if the
provider knows a CON is required; or submitting a letter of
intent for concurrent review if an entity wants to compete for a
CON with an existing applicant. For the latter, the window for
submitting the application is 30 days after which the concurrent
process starts. Basically, DHSS looks at both (or multiple)
applications at the same time. He noted that Providence Alaska
Medical Center and Alaska Regional Hospital recently submitted
concurrent applications for emergency services in the Anchorage
area.
The fee for the Certificate of Need process for activities that
are less than $2.5 million is $2,500. The fee for larger
projects is one-tenth of one percent of the estimated cost of
the project, up to a maximum of $75,000. Once DHSS receives the
applications, staff reviews the answers to questions that are
part of the application process. They look at both the general
standards for all applications and the specific standards for
the type of facility. A determination of need is made using step
methodologies and public comments. Staff then prepares a written
analysis for a recommendation to the commissioner. The three
choices the commissioner can make are: approve the Certificate
of Need; not approve the Certificate of Need; or approve the
Certificate of Need with specific conditions.
9:59:10 AM
MR. SHERWOOD said the general review standard of the CON
application includes: documented need, relationship to community
and statewide health plans, stakeholder participation, looking
at different alternatives for meeting the needs, impacts to the
existing system, and patient access. He highlighted that the
hurtle that must always be met is the documented need. Earlier
comments about stakeholder participation and consideration of
alternatives depending on the type of facility may be more or
less involved based on the particular situation.
10:00:04 AM
He displayed slide 9 that lists the service-specific review
standards for different services. He described the list as
"comment sense" with review of specific criteria depending on
the type of provider. For example, certain standards for
hospital labs or emergency departments would not be used for
long-term nursing care or diagnostic imaging. He reiterated that
there is public participation in the Certificate of Need
process.
Once the application is determined complete, the public has 30
days to comment and a meeting is scheduled no sooner than 15
days and no later than 30 days after the notice. He highlighted
that in some instances, this may be the only opportunity for the
public to comment on a project it will use and pay for. He said
the foregoing is to align the decision-making process to ensure
that relevant applications are considered at the same time on
the same schedule. This provides a certain level of equity to
providers.
10:01:59 AM
MR. SHERWOOD displayed slide 11 and opined that Senator Wilson
did a fine job when he gave an overview of the history of
Certificate of Need. He noted that states without Certificate of
Need laws typically use other mechanisms such as moratoria and
strict licensing standards to regulate costs and avoid
duplication of services.
10:02:47 AM
He stated that the last major change to Alaska's Certificate of
Need standards was in 2005. The public notice requirements were
expanded; methods and standards were revised; the application
fee was implemented; there was clarification that ambulatory
surgical centers did not require a Certificate of Need to change
locations within a service area if services were not expanded;
and residential psychiatric treatment centers (largely for
children) were added.
10:03:38 AM
He said that slide 13 shows that most Certificate of Need
activity in the last three years relates to the determination of
whether a Certificate of Need is needed. He reported that the
number of Certificate of Need applications each year is
relatively small. There were two applications in each 2014 and
2016 and one in 2015. There was an appeal each of those years.
10:04:22 AM
MR. SHERWOOD reported that Alaska Medicaid accounts for about
one-quarter of hospital use and over 80 percent of nursing home
use. Recent statistics indicate that Medicaid is used in half
the nursing homes in the state at a 90 percent or higher rate.
He explained that the Medicaid program is statutorily required
to reimburse hospitals and nursing homes on a reasonable cost
basis. Because newer facilities cost more and thus charge more
for services, DHSS looks at that aspect when it reviews an
application.
10:05:43 AM
He directed attention to slide 15 that shows the fiscal impact
of some denied or partially denied applications in the last few
years. He noted that the Alaska Regional free-standing emergency
room was denied, and applications were recently partially denied
for two proposed nursing facilities in the MatSu area. He said
it's difficult to say what DHSS would spend if there wasn't a
Certificate of Need program. We don't know how many applications
would still get proposed in that environment and we don't know
the kind of applications that aren't submitted because a
prospective applicant may think the need is already met, he
said.
10:07:23 AM
MR. SHERWOOD said that some of the general considerations for
policymakers include: whether the Certificate of Need program
reflects current healthcare science and technology; whether the
program looks at the right things; whether the dollar thresholds
are still working; and whether the health care facilities
subject to Certificate of Need are the most likely to impact the
state budget.
He displayed slide 17 that lists Certificate of Need resources;
statutory and regulatory citations; the DHSS Certificate of Need
website; and the National Conference of State Legislatures
website that has information about Certificate of Need laws.
10:09:03 AM
SENATOR STEVENS directed attention to slide 3 and asked why DHSS
isn't policing potential scams that keep the cost of a new
healthcare center under the $1.5 million threshold so it's not
necessary to apply for a Certificate of Need.
MR. SHERWOOD said it's challenging but the department tries to
police that by staying abreast of fair market prices for
equipment that an entity might list. Other safeguards include
policing by industry competitors and the fact that Alaska has
relatively few applications. He cited an example where the
department disallowed the cost of a transaction that was not
arm's length, which resulted in the entity losing its
Certificate of Need.
SENATOR STEVENS observed that there is no punishment for
something that he views as illegal.
MR. SHERWOOD advised that when the department becomes aware of
false information the punishment is the denial of the
Certificate of Need.
10:13:42 AM
THOMAS STRATMANN, Professor of Economics and Law, and Senior
Research Fellow, Mercatus Center, George Mason University,
Arlington, Virginia, stated that in four data-driven studies he
and his co-authors used economic and health measures to examine
the impact of Certificate of Need laws. These measures were
compared between the 35 states that have Certificate of Need
laws and those states that do not have these laws. He noted that
he included these four peer-reviewed studies with his written
testimony. He said the findings are consistent, although
unfortunate. "Across the board, CON laws have failed."
The first finding is that Certificate of Need laws harm patients
by reducing the quality of health care. Finding two is that CON
laws harm patients by reducing access to health care. Finding
three is that CON laws harm patients by reducing medical
equipment that helps to diagnose illnesses and prevent premature
deaths. He said that these findings are consistent with the
Federal Trade Commission and the Department of Justice positions
that CON laws fail to meet stated goals and are harmful to
patients because they: reduce the availability of medical care,
make it difficult for providers to offer services, and do not
save costs. He said these harmful effects are enhanced in Alaska
that is geographically distant from the Lower 48. He opined that
it is cost-prohibitive for most residents to travel to the Lower
48 to access medical services not provided in the state.
10:17:35 AM
MR. STRATMANN stated that Certificate of Need laws require state
agency approval before a licensed health care provider can
either expand or establish a new health care facility. CON laws
require permission from a state regulator to provide medical
services or to produce medical equipment. New York became the
fourth state to pass CON laws in 1964 and 25 other states
followed over the next 10 years. In 1974 Congress passed the
National Health Planning and Resources Development Act that
required states to implement CON requirements to receive funding
for certain federal programs. Congress repealed the CON mandate
in 1986 and many states began to retire the program.
He emphasized that CON laws are designed to restrict
competition. He said he's aware of no other industry where a
competitor can oppose the application of another entity simply
by claiming that there is no need for that additional service.
"In my view this is akin to a McDonald's having to get
permission from Burger King to open a restaurant in Alaska."
Medical providers in Alaska are required to get government
permission to compete for 20 medical services. There is a CON
for adding hospital beds, to open a new hospital, to purchase an
MRI machine or a CT scanner or a PET scanner. Permission is even
required to open a neo-natal care unit in Alaska.
MR. STRATMANN stated that the primary goals of Certificate of
Need laws are to: ensure an adequate supply of health care
resources, protect access to rural and underserved communities,
promote higher quality care, support charity care, and control
costs. He said that while the laws were introduced with good
intentions, their effectiveness is measured by their outcomes.
His research looking at whether the express goals of Certificate
of Need are being achieved used measures such as number of
hospitals, number of hospital beds, and number of ambulatory
surgery centers. The data unambiguously show that states without
CON laws have more than 30 percent more hospitals than states
with CON laws. Alaska had about 25 hospitals in 2011, whereas a
comparable state without CON laws had 35 hospitals. This
suggests that CON reduces access to medical care, particularly
in rural areas. Another finding is that states without CON have
more beds per capita. This is important because patients are
less likely to be turned away from a hospital and hospitals are
closer to patients' residences. Another finding is that without
CON Alaska would have had 25 ambulatory surgery centers instead
of the 17 it currently has.
He said the negative effects of CON on medical supplies is not
just restricted to facilities. Medical input is also affected
because Alaska has CONs that require permission to purchase
imaging equipment. The data shows that Alaska residents receive
about 6,000 MRI scans, but he estimates that residents in
statistically similar states but without CON receive about 8,000
scans or 30 percent more. Similarly, residents in states without
CON have 30 percent more CT scans than Alaska residents.
In states without CON laws, hospitals have an incentive to
compete to attract patients. However, hospitals cannot compete
that well on prices as most competitors do because many of their
patients are Medicare and Medicaid and the prices hospitals can
charge for these patients are pretty much fixed. Therefore,
hospitals will compete on different margins so there is a strong
incentive in states without CON to compete for patients by
providing better quality medical services. However, this
incentive does not exist to the same extent in states that have
a CON law because in these states hospitals are shielded by law
from competition.
MR. STRATMANN said that in contrast to this line of reasoning,
some proponents of CON claim that it is good to have fewer
hospital providers. The argument is that physicians have more
experience in performing operations because they have more
volume which translates to more experience in operating and thus
higher quality of medical services.
To analyze which of these competing views is correct, he used
data from the Centers for Medicare and Medicaid Services on the
quality of medical services delivered by hospitals. He found CON
does not improve the quality of medical care. In fact, states
without a CON law have lower quality of services as measured by
the hospital mortality rates and readmission rates. There are
also higher mortality rates for surgery patients with serious
complications in states with CON laws. This includes Alaska, he
said.
10:26:14 AM
MR. STRATMANN said that one of the claims of CON proponents is
that CON increases charity care, but the data do not show any
additional services for the poor. The takeaway is that CON laws
are bad for Alaska residents, he said. They reduce access to
facilities, particularly in rural areas. They reduce access to
equipment and services like MRIs and most importantly CON
decreases quality of services and increases mortality rates of
residents. Alaska would be better off joining the 15 states that
do not have CON laws, he concluded.
CHAIR COSTELLO advised members get questions to her office and
they would be distributed to today's presenters.
[CHAIR COSTELLO held SB 62 in committee.]
10:27:59 AM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 10:27 a.m.