Legislature(1999 - 2000)
04/17/2000 04:37 PM Senate RLS
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SENATE RULES COMMITTEE
April 17, 2000
4:37 p.m.
MEMBERS PRESENT
Senator Tim Kelly, Chair
Senator Loren Leman, Vice Chair
Senator Mike Miller
Senator Johnny Ellis
MEMBERS ABSENT
Senator Drue Pearce
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 256(FIN)
"An Act relating to allowing physicians to collectively negotiate
with a health benefit plan that has substantial market power."
-HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
SB 256 - See HESS minutes dated 2/21/00 and 2/23/00 and Finance
Report dated 4/7/00.
WITNESS REGISTER
Senator Pete Kelly
Alaska State Capitol
Juneau, AK 99811-1182
POSITION STATEMENT: Sponsor of SB 256.
Mr. Mano Frey
President of Alaska AFL-CIO
Address Not Provided
POSITION STATEMENT: Opposed to CSSB 256(FIN).
Ms. Julia Coster
Assistant Attorney General, Commercial Section
Civil Division
Department of Law
1031 West 4th Avenue, Suite 200
Anchorage, AK 99501
POSITION STATEMENT: Opposed to CSSB 256(FIN).
Mr. Bob Lohr
Director of the Division of Insurance
P.O. Box 110805
Juneau, AK 99811-0805
POSITION STATEMENT: Opposed to CSSB 256(FIN).
Mr. Gordon Evans
Health Insurance Association of America
211 4th Street
Juneau, AK 99801
POSITION STATEMENT: Opposed to CSSB 256(FIN).
Mr. Michael Haugen
Executive Director of Alaska Physicians & Surgeons Association
4120 Laurel Street #206
Anchorage, AK 99501
POSITION STATEMENT: Commented on CSSB 256(FIN).
Mr. Jack McCrae
107 Bell Street
Edmonds, WA 98020
POSITION STATEMENT: Opposed to CSSB 256(FIN).
ACTION NARRATIVE
TAPE 00-11, SIDE A
CHAIRMAN KELLY called the Senate Rules Committee meeting to order
at 4:37 p.m. Present were Senators Tim Kelly, Leman, Miller, and
Ellis. The first order of business to come before the committee
was CSSB 256 (FIN).
SB 256-PHYSICIAN NEGOTIATIONS WITH HEALTH INSURER
MS. JULIA COSTER, Assistant Attorney General for the Commercial
Section, Department of Law (DOL), stated DOL has serious legal and
policy concerns about CSSB 256(FIN). CSSB 256(FIN) may cause
substantial harm to consumers by increasing health care costs and
decreasing health care options. In addition, it is questionable
whether the State active supervision provision in CSSB 256(FIN)
under the State Action Doctrine will be sufficient to immunize
physicians from federal prosecution under federal anti-trust laws.
The proposed reason for the legislation is that an imbalance of
power between health benefit plans and physicians has adversely
affected patient care. DOL has not seen reports or data that
substantiate that Alaska consumers have been adversely affected by
such an imbalance. That raises the question of whether there is a
demonstrable need for CSSB 256(FIN) which would require the state
to override the national policy which favors competition.
The second issue is whether CSSB 256(FIN) provides for sufficient
state supervision to immunize physicians from federal prosecution.
Currently, collective negotiations by physicians on price terms are
considered price fixing. It is a per se violation of federal and
state anti-trust laws. Under the State Action Doctrine, a state
may override the national policy favoring competition by allowing
certain segments of its economy to be governed through regulation
as opposed to free trade. A state may not, however, grant immunity
by fiat; it must replace competition with active and continuous
supervision of the conduct. According to federal court rulings, a
state must exercise independent judgment and control over the
details of the prices and rates so that the terms are the result of
state intervention as opposed to just a meeting of the minds by the
parties. If the state does not set or review the prices, there
will be no state active supervision.
Several aspects of CSSB 256(FIN) raise the question of whether or
not it would meet the State Action Doctrine. For instance, CSSB
256(FIN) requires the Attorney General to review and approve all
proposed negotiations. The independent third party who will
conduct negotiations is not required to provide the Attorney
General with the information that is necessary for the Attorney
General to make a logical determination. CSSB 256(FIN) also
imposes on the Attorney General the requirement that it review and
approve or disapprove all proposed contracts within 30 days of
submission. It does not, however, require the parties to provide
the Attorney General with the information necessary to make that
decision. Furthermore, it does not provide the Attorney General
with the investigative authority to obtain the information from
third parties if necessary and it does not provide the public with
a mechanism to provide any evidence for the arguments related to
the cost and benefits of the proposed contracts. Those
limitations will prevent the Attorney General from exercising
independent judgment and control which is necessary under the State
Action Doctrine. It also prevents the Attorney General from
engaging in a review of the reasonableness of the negotiations.
For these reasons, physicians may be prosecuted under federal anti-
trust laws.
The proposed purpose of CSSB 256(FIN) is to level the playing field
between health benefit plans and physicians. CSSB 256(FIN)
creates an imbalance in favor of physicians that will allow
physicians to exercise market power and raise prices above
competitive levels. A proposed amendment by the sponsor might
increase the imbalance of power even more.
[SENATOR PETE KELLY'S proposed amendment (1-LS 1291\K.1) reads as
follows.]
A M E N D M E N T
OFFERED IN THE SENATE BY SENATOR PETE KELLY
TO: CSSB 256(FIN)
Page 4, lines 10 - 11:
Delete ", or a particular physician type or specialty"
Page 4, line 15:
Delete "and"
Insert a new paragraph to read:
"(7) the attorney general may limit the percentage
of practicing physicians represented by an authorized third
party; however, the limitation may not be less than 30 percent
of the market of practicing physicians in the geographic
service area or proposed geographic service area; when
determining whether to impose a limitation described under
this paragraph, the attorney general shall consider the
provisions described under (h), (i), and (j) of this section;
this paragraph does not apply if the market of practicing
physicians in the geographic service area or proposed
geographic service area consists of 40 or fewer individuals;
and"
Renumber the following paragraph accordingly.
CHAIRMAN KELLY asked Ms. Coster how she would propose to fix the
amendment.
MS. COSTER stated the legislation contains no limit on the number
of physicians who can negotiate with the health care plan that has
five percent or more of the market share. That could result in a
scenario where 100 percent of the physicians in a geographic
service area could negotiate against a plan that only has five
percent of the market share, and that create a true imbalance in
power.
Senator Pete Kelly's proposed amendment allows the Attorney General
to impose a limit on the number of physicians who can negotiate
with a health benefit plan, but it limits the number to 30 percent.
This does not resolve the problem. The amendment does not allow
the Attorney General to impose a limit on particular physician
types or specialties. A physician group may comply with the 30
percent limit, but within the 30 percent limit it may contain 100
percent of specialty groups (cardiologists, vascular surgeons,
etc.). Substantial market power will give the group the ability to
raise prices above the competitive level and that could be
potentially harmful to the consumer.
To fix the amendment, DOL would retain, on line 2, "or a particular
physician type of specialty" so that requirement would remain in
the bill. In addition, the phrase "in a particular physician type
or specialty" should be inserted after the word "physicians" on
line 7. This would allow the Attorney General to limit the size of
a specialty group of physicians to the 30 percent level.
CHAIRMAN KELLY asked Ms. Coster to put that language in writing to
be used as another proposed amendment.
MS. COSTER agreed and added that another aspect of Senator Pete
Kelly's amendment creates a problem and that is the that the limit
exemption does not apply to geographic service areas where there
are fewer than 40 physicians. In rural areas such as Sitka,
Ketchikan, Kenai or Barrow, 100 percent of the physicians could be
a part of negotiations against health plans that are 5 percent or
larger, creating an imbalance of power.
CHAIRMAN KELLY asked if that provision is part of Senator Pete
Kelly's amendment.
MS. COSTER said it is and it begins on line 11.
CHAIRMAN KELLY asked Ms. Coster to put in writing what DOL would do
with the proposed amendment as opposed to the entire bill.
MS. COSTER agreed.
MR. MANO FREY, President of the Alaska AFL-CIO, and the business
manager of the Anchorage laborers union, said in his business
manager capacity he served as a trustee for the laborers union
health care plan. He noted that Ed Bergen (ph), the laborers union
consultant for its health care plan, communicated with Senator Pete
Kelly specific language necessary to meet the union's concern. He
said, as a health care fund trustee for 18 years, he has been
waiting for the situation to arise in which physicians or dentists
felt the union was browbeating them. He has not yet seen that. He
is also involved with the Health Care Coalition of several trust
funds and health care plans who have had tough negotiations with
two major hospitals in Anchorage. He has had different kinds of
negotiations between competing physicians' groups. He stated, for
the record, that he strongly believes that physicians need to get
together and collectively bargain and be represented. Some groups
have gotten together across the nation and are now represented by
the AFL-CIO and he applauds and encourages that action but he does
not see the need for this legislation in Alaska. He has heard of
no horror stories coming out of the physicians' community that show
a need for this bill.
SENATOR LEMAN commented that he shares Mr. Frey's belief that there
is a lack of urgency for these groups to organize.
MR. FREY responded that this bill sticks the Attorney General's
nose into this issue and he does not understand why the state
should be involved.
Number 285
MR. BOB LOHR, Director of the Division of Insurance (DOI), stated
the primary issue DOI looked at is the cost to the public of
collective negotiations by physicians. At the national level,
comparable legislation is pending (HR 1304). Mr. Lohr referred to
the Charles River Associate Study for the Health Insurance Industry
Association (HIAA). It estimated that the cost of giving
physicians the ability to collectively negotiate with health
insurance companies would equal 5 to 13 percent of premiums. The
U.S. congressional budget office also estimated that passage of HR
1304 would increase the cost to the federal government and to
private health plans, resulting in higher private health insurance
premiums as well. As in the case of any important legislation,
there are experts on both sides of the issue. Mr. Lohr referred to
a study sponsored by the American Medical Association which
concluded that costs would increase, but it came up with a
significantly lower percentage figure than the Charles River
Associate study predicted. The American Medical Association's
study is full of errors; the Charles River Associate Study is more
accurate and is considered at the federal level to be the best
analysis.
The sponsor of HR 1304, Representative Thomas Campbell, considered
that the bill would increase health care premiums and concluded
that the increase should come out of the profits of health
insurance companies. That is not a ready source, however, and
nationally speaking, HMOs are going under daily, one reason being
that their profit margins are so low. It defies conventional
economic theory that a significant gain in physicians' rates can be
taken from the profits of health insurance companies. Typically,
50 percent of the total cost of providing health services is the
cost of the health professionals.
In Alaska, health insurance premiums have increased significantly
over the last several years because of increases in cost and health
care utilization. These increases have led employees to drop
coverage, increasing the number of uninsured Alaskans. CSSB
256(FIN) would increase health care costs for Alaskan consumers and
further increase the number of uninsured Alaskans.
CSSB 256(FIN) contains a five year sunset provision but the bill
can be reversed if it is not working. Trying to reverse the
effects of CSSB 256 would be very difficult, if not impossible, to
accomplish. Rolling back gains is unlikely. At best, the rate of
increases might be controlled.
SENATOR ELLIS asked what the impact would be on small health care
providers in Alaska.
MR. LOHR replied specific assessments by group have not been
conducted. The market for individuals for health care costs has
increased the most dramatically. It depends on the market power
which defines the relevant markets according to the physicians'
groups interested in negotiating. That would depend on the
percentages for a given specialization negotiating with a health
care program with respect to how much those groups would be able to
obtain at the table when negotiating. The assessments will be case
by case. The purpose of CSSB 256(FIN) is to provide physicians
with more clout at the table and, if it succeeds, it will increase
costs, some of which will be passed through to customers.
SENATOR ELLIS remarked that this bill leads to higher premiums and
as premiums go up people will drop coverage. He asked Mr. Lohr if
he knows of any way to ameliorate those negative affects.
MR. LOHR said he believes there are many schemes dealing with
government regulation on nationalization of health care that would
make many more problems than they will solve.
Number 375
MR. GORDON EVANS, HIAA, stated HIAA opposes CSSB 256(FIN) for two
reasons. First, giving physicians an anti-trust waiver would deny
consumers a choice, quality, and affordability. Second, health
care costs would increase significantly for the public and private
sectors. Significant debate at both the federal and state levels
has occurred about physician collective bargaining or physician
anti-trust waivers in the past. HIAA believes the argument is
based on poor facts that are incontrovertible. Quality is not the
driving force behind collective bargaining for physicians, it is
economics. Despite the physicians' claims that it is about giving
physicians some leverage to prevent the intrusion of a giant third
party into the sacred physician-patient relationship, HIAA believes
the relationship may be sacred, but physicians do not turn down
payments from third parties. Legitimate mechanisms already exist
within the boundaries of current anti-trust law under which health
care providers can and do collaborate and negotiate with health
plans and patients. Consolidation among health plans has been
subject to rigorous anti-trust scrutiny at state and federal
levels. HIAA believes that anti-trust waiver legislation is anti-
competitive and would raise costs for health care programs. Total
annual personal health care spending nationally could rise to
approximately $80 billion. These added health care costs would be
paid by consumers, employers, and tax payers without any
improvement in the quality of health care. Physicians are already
among the nation's highest paid professionals, and they are among
the least likely Americans to need the benefits of unionization.
Over the last decade, as managed care has grown, physician incomes
have increased more than 77 percent for a median net income in
Alaska in 1997 of $250,000.
MR. JACK MCCRAE, Senior Vice President of Premier/Blue Cross
Insurance, stated CSSB 256(FIN) will not improve health care or the
confidence of people in their health care systems. CSSB 256(FIN)
has the potential to be the most costly bill in Alaska, in terms of
rate increases, and a need for the bill has not been shown. If
physicians negotiate in one block, insurance companies will not
have a choice and will be forced into paying that fee.
MR. MCCRAE pointed out that Alaska has higher rates for health care
than any other state that Blue Cross deals with. He highlighted a
study conducted by the Alaska Department of Health & Social
Services. Alaska's Medicaid program reimbursement rates for
physician services averages 245 percent higher than Oregon's
Medicaid rate, 230 percent higher than Washington's Medicaid rate,
and 190 percent higher than Idaho's Medicaid rate. The specialty
classes in Alaska show a 315 percent higher rate than the average
in Region 10. CSSB 256(FIN) will put pressure on physicians to
raise rates; this bill is strictly a rate issue.
MR. MIKE HAUGEN, Executive Director of the Alaska Physicians and
Surgeons Association (APSA), stated the issue of cost has raised a
concern, as well as the fact that the whole process would be
voluntary. The State oversight function requires that the Attorney
General look into the reasonableness of the prices. It is not the
intention of the physicians that belong to APSA to raise rates.
What led to CSSB 256 was an investigation by the Federal Trade
Commission (FTC) of a group of Fairbanks' physicians who were
talking to specific carriers of health insurance. The FTC was
alerted that the physicians involved were trying to boycott or
price fix. CSSB 256 is a mechanism for physicians to discuss, as
a group, financial and non-financial items with a carrier without
triggering an FTC investigation. CSSB 256 would level the playing
field between health care carriers and physicians, and APSA
supports CSSB 256 (FIN).
SENATOR LEMAN pointed out that the rates quoted by Mr. McCrae about
Alaska Medicaid rates are incorrect, for example, Alaska's rates
are 2.30 percent higher than Washington's, not 230 percent.
SENATOR PETE KELLY, sponsor of SB 256 and the proposed amendment,
stated that DOL" concerns about CSSB 256, expressed throughout the
legislative process, were addressed by the Division of Legal
Services. DOL sent him a memo outlining its concerns which he
asked the Division of Legal Services to respond to. The Division
of Legal Services essentially answered DOL's questions and surmised
that the "sky was not falling" as DOL had claimed. Regarding
statements made about the Charles River study and its conclusion
that this type of legislation will result in price increases, the
Charles River Study was specific to a national bill. In addition,
the methodology of that study is in question.
SENATOR PETE KELLY said the problem the bill intends to address is
as follows. First, nationally, insurance companies are getting
larger and fewer which will put Alaskan physicians in a difficult
situation. That was foreseen by the U.S. Supreme Court and is the
reason the State Action Doctrine was brought forth. The State
Action Doctrine is somewhat of a preemptive strike. Physicians may
not be browbeaten now but they will be in the future. The first
glimpse of that occurred in Fairbanks when the Independent
Physicians Association (IPA) tried to get together to talk solely
about quality issues, not prices. That group received a letter
from the FTC telling it to stop. To the FTC, quality issues and
fee items are the same. Eventually, physicians will need to
discuss quality terms and economic terms, and the State will need
oversight when that time comes.
TAPE 00-10, SIDE B
SENATOR PETE KELLY continued. Another issue is that physicians
should not be put in a position of having to choose between the
requirements that a large insurance company may put on them and
their ethics. Currently, Alaska has no "Gag Rule" but other states
do, and the physicians don't want that to happen in Alaska.
Senator Kelly stated other states have enacted the same bill
because they see this as a potential problem. There may not be a
problem in Alaska now, but CSSB 256(FIN) will prevent the
possibility of it arising. Senator Kelly referred to the Charles
River Study and noted the doctors who are forcing the price
increases are primarily dentists.
CHAIRMAN KELLY stated major concerns have been expressed about CSSB
256. He noted it is the intent of the committee to move a bill to
the Senate floor this year for a vote. Chairman Kelly asked Ms.
Coster to submit her proposed amendment in writing the following
morning so that the committee will have the option of choosing
which proposal it wants to adopt.
SENATOR LEMAN asked Senator Pete Kelly if he would work with Ms.
Coster to address her concerns.
SENATOR PETE KELLY agreed.
CHAIRMAN KELLY stated the Senate Rules Committee will make a
decision on CSSB 256 the following day after the DOL proposal has
been submitted.
There being no further business to come before the committee,
CHAIRMAN KELLY adjourned the meeting at 5:10 p.m.
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