Legislature(1999 - 2000)
03/02/2000 09:03 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 256(HES)
"An Act relating to regulation of managed health care
and allowing physicians to collectively negotiate with
a health benefit plan that has substantial market
power."
Senator P. Kelly told the Committee he introduced this bill
to address any inequities starting to grow out of the
rapidly changing health care industry. He stated that many
of the mergers of the past few years were changing the
rules for health care providers. He gave an example of the
severity of the problem, saying that since 1994 the leading
18 insurance companies has been reduced to only six and
that more mergers were projected. He asserted that the
bargaining power of the insurance companies has increased
while the bargaining power of the health care providers has
not.
Senator P. Kelly attested that this bill contains a
mechanism called a "state action doctrine" to address the
problem. He shared that this doctrine came out of a US
Supreme Court case and that it allows the states to allow
health care providers to form groups for the purpose of
negotiating with health care companies without being
subject to some anti-trust laws. He noted the groups are
still overseen by the state and must still adhere to other
anti-trust laws.
Senator Phillips declared a conflict of interest due to his
employment with Providence Medical Center.
Co-Chair Torgerson noted the bill has two substantive
sections, one being the patient and health care provider
protection and the other the authority to negotiate with
health care providers. He asked what the first section
accomplishes.
Senator P. Kelly explained it is part of the necessary
structure to enable the negotiation provision.
After receiving verification that there were no Health
Maintenance Organizations (HMO) operating in Alaska,
Senator Green asked if the definition of a "managed care
entity" in the bill applies to a self insured group or a
preferred provider. She wanted to know if the definition
included anything else.
Senator P. Kelly responded that there could be a number of
additional companies that would fall under the definition
of "managed care entity." He deferred to the Anchorage
Independent Physicians organization provide further detail.
SIGNE ANDERSON, Assistant Attorney General, Fair Business
Practices Section, Civil Division, Department of Law
testified via teleconference from Anchorage to answer
questions on the anti-trust issue.
Co-Chair Torgerson asked why there is an antitrust
question.
JULIA COSTER, Assistant Attorney General, Commercial
Section, Civil Division, Department of Law, testified via
teleconference from Anchorage to explain that the
legislation would involve the Federal Trade Commission's
(FTC) enforcement of federal laws.
Ms. Anderson added that there is another legal concern
regarding the Employment, Retirement, Income and Security
Act of 1974 (ERISA) Premption and that she was available to
answer questions on that matter as well. She stated that
this concern was implicated in Sections 2 and 3 of the
bill.
RICHARD FEINSTEIN, Assistant Director, Bureau of
Competition, Federal Trade Commission, testified via
teleconference from Washington DC and clarified that he was
authorized by the Commission to offer views on the
legislation but that the Commission was not taking an
official position nor was he speaking for the Commission.
Co-Chair Torgerson referred to congressional legislation,
HR 1304, the Quality Health Care Coalition Act of 1999
sponsored by Congressman Thomas Campbell, and asked if the
bill was still pending or if it had been enacted.
Mr. Feinstein answered the legislation was still pending.
Co-Chair Torgerson noted that his information claimed that
this US House of Representatives bill would be the "fix of
all fixes" if it were adopted into law. He asked if the
witness shared that view.
Mr. Feinstein replied that while the bill was a "fix in one
sense," the Commission has formally opposed it as detailed
in the written testimony presented before congress by
Chairman Robert Pitofsky. [Copy on file] Mr. Feinstein
clarified that if HR 1304 were passed at the federal level,
it would preempt any effort by a state to address
collective negotiations by physicians and health plans in
any other way.
Mr. Feinstein qualified that he only recently received the
latest version of SB 256 but that this bill was a variation
of a theme seen at the federal level to facilitate
collective bargaining by physicians in their dealings with
health plans. He stressed that several other states are
also considering similar measures.
Mr. Feinstein emphasized that the focus of the FTC is
whether these proposals are in the best interest of
consumers. He understood that there are many concerns about
managed care and how it delivers health care and health
insurance services. However, he said the Commission had
serious questions about whether anti-trust immunity for
providers was the best way to address those concerns.
Mr. Feinstein referred to a list of issues proposed in SB
256 that directly targeted the concerns articulated about
the managed care. He quoted Section 2 (8), "protects the
ability of a health care provider to communicate openly
with a covered person about all appropriate diagnostic
testing and treatment options." He surmised this subsection
was intended to address what was sometimes referred to as a
"gag clause" and that a number of states had already passed
legislation to address this issue. He suggested that if
there were specific concerns about the operations of
managed care organizations, those concerns should be
addressed directly rather than indirectly by creating
circumstances in which groups of providers may be able to
exercise market power in ways that don't benefit consumers.
Mr. Feinstein assured that he completely respected the
states' authority to address the issues in the manner they
felt most appropriate and in the best interest of its
citizens. He stressed that it was not his job to take a
bottom line position on whether or not this is good
legislation, but was more to give advice on the anti-trust
analysis.
Mr. Feinstein pointed out that one provision of the bill is
the notion where health plans, health insurers and managed
care organizations, have at least 15 percent of the market,
there is a presumption that that constitutes considerable
market power. In these instances, he continued, the bill
gives authorization for collective negotiation with those
parties that made up the 15 percent. He warned that this is
only a useful measure if there is clear understanding of
what the percentage of the market is; and in looking at the
geographic or product market in Alaska, he did not think it
was clear. He inferred that a determination of the
percentage of the market could not be done without a
definition of what that would be. He predicted that this
legislation could result in some health plans that have a
relatively small share of the market would find themselves
negotiating with a group that represented 100 percent of
the providers.
Mr. Feinstein spoke about the general boycotts, strikes and
concerted action provisions in the bill as another area
that should be reviewed. He quoted the findings in the
bill; "the collective bargaining will benefit competition
so long as the physicians don't engage in expressed or
implied threat of retaliatory collective action including
boycotts or strikes." Elsewhere in the language, he read,
"competing physicians may not engage in a boycott related
to these terms and conditions." He stated that those terms
are somewhat ambiguous. He gave a scenario of an attempt at
collective negotiations between providers in a given area
and the health plan, which did not lead to a satisfactory
contract. He said a situation could then arise where the
bargaining group would not have contracts, they would
withhold their services to the plan and the patients would
have to pay for the services out of pocket. He noted the
bill did not require health plans to participate in
negotiations.
Tape: SFC - 00 #43, Side B 9:50 AM
Mr. Feinstein next addressed the state action doctrine on
anti-trust, which he felt was relevant to the Committee's
analysis of the bill. He said there were two "prongs" to
the doctrine, first was the need a clearly articulated
policy of the state to displace competition in the sector
that is being regulated and to replace it with regulation.
He did not think there was any question that this bill
would satisfy that requirement. The second "prong" was the
requirement under federal anti-trust law that there be
active supervision by the state of the private parties who
were hoping to benefit from the state action exemption, and
according to Mr. Feinstein, could be more problematic. He
stated that it was unclear whether the regulatory apparatus
in the bill would meet test of active supervision.
Senator Wilken wanted to know how other states have
provided the active supervision.
Mr. Feinstein replied that it was probably too early to
tell since no other state had such a process implemented as
of yet. He told of similar legislation passed the previous
year in Texas and that the attorney general's office in
that state was in the process of adopting regulations to
oversee the private conduct of the bargaining groups.
Co-Chair Torgerson requested the witness submit his
comments as written testimony.
Mr. Feinstein referred to written testimony presented on
behalf of the Commission to address the federal bill plus
two letters written by the Bureau of Competition. One
letter he said related to the Texas legislation and the
other was sent to the District of Columbia. [Copies on
file.]
BOB LOHR, Director, Division of Insurance, Department of
Community and Economic Development, testified via
teleconference from Anchorage focusing on the public cost
of the legislation. He stated that identifying what the
cost would be was difficult, partly because no other state
had established a system that could be used as a model. He
stressed that any factor that might provide more equity or
address an imbalance in bargaining power could also have
the affect of raising consumer prices.
Speaking to the impact on the division, Mr. Lohr referred
to the fiscal note that reflects the addition of one fiscal
analyst position to analyze the estimated number of
contracts that would result from the legislation. He
directed the Committee's attention to Section 3 of the bill
saying that it stipulates, "It is the responsibility of the
division to approve, in advance, the contracts submitted as
having the required elements, in the form that is required
and not having the prohibited elements." He clarified the
amount requested in the fiscal note is very conservative
and is based on the likelihood that the participating
negotiating parties will customize the contracts. These
customized contracts, he stated, would require more
analysis since each one would contain detailed provision
and there would also be time pressure for the division to
make a determination.
Co-Chair Torgerson requested written testimony from all
testifiers, noting the helpful points raised.
Senator P. Kelly asked how many contracts the division
currently reviews.
KATY CAMPBELL, Actuary on Life and Health Issues, Division
of Insurance, Department of Community and Economic
Development replied only two and that they were required
filings from Blue Cross. She explained these were standard
provision contracts and were not specific to the health
plans each employer purchased.
Senator P. Kelly asked if the witness thought the number of
contracts the division would review would change
dramatically if this bill passed into law.
Ms. Campbell referred to the provisions in the legislation
stating that the health care services would be required to
be detailed in the contract, which were complex and
individualized for the groups that were covered. She spoke
of the many variations in health plans such as different
vision and dental services.
Senator P. Kelly thought the fiscal note seemed high and
asked if the division anticipated any standardization of
the new contracts.
Ms. Campbell responded that there would be a significant
increase in the workload because the contracts currently
reviewed by the division do not contain the details for
each individual services package.
JEROME SELBY, Providence Health Systems testified via
teleconference from Anchorage saying he was present to
answer questions.
Ms Coster reiterated her earlier comments that the
Department of Law thought that the definition of "benefit
plan" in Section 3 of the bill would be in conflict with
ERISA.
GARY SWARTZ testified via teleconference from Fairbanks
that because the Alaska Healthcare Network has been under
investigation by the FTC for over a year, they are unable
to enter contracts, etc. and had become dysfunctional. He
noted the network had spent over $100,000 on the
investigation saying there was no merit to the accusations
and no finding of fact. He shared that he had many
discussions with the FTC and that he disagreed with Mr.
Feinstein.
Co-Chair Torgerson noted the Committee did not have the
written testimony Mr. Schwartz had referred to.
DR. MICHAEL CARROLL, Board Member, Alaska Healthcare
Network, testified via teleconference from Fairbanks on
behalf of both physicians and consumers. He spoke to the
uniqueness of Fairbanks in that it has more than one
hospital in the community. He believed if physicians were
prevented from addressing the health care plans in an
organized manner, the consumer is going to suffer. He gave
and example of the question of how to define an emergency
room visit and emergency room care. He was not interested
in interfering with how much money doctors are paid he
stressed that he only wanted physicians to be part of the
process.
PAUL SMITH, Attorney, testified via teleconference from San
Francisco, California as legal council for the Alaska
Healthcare Network. He noted the area of physicians in
collective bargaining groups was "fought with practical
difficulty" because the anti-trust guidelines were not
always clear. He gave an example the discretion between
price related terms and non-price-related terms, which was
difficult to make. He advised that this legislation would
be helpful because it does make that classification.
Mr. Smith then drew attention to the correspondence
submitted by the FTC claiming that under existing anti-
trust laws physicians can comment and express opinions on
proposed contracts, which he thought was a fair statement.
However, he said that in practice, the boundary between
expressing an opinion and engaging in a negotiation was
difficult to recognize. He stated that by setting forth a
regulated procedure that defines the scope of acceptable
conduct, it would provide practical help to physicians and
physician organizations who need to engage in these kind of
activities.
HELEN JAMISON testified via teleconference from Chicago
that she wished to listen and would be available if
something came up needing clarification.
DWIGHT PERKINS, Deputy Commissioner, Department of Labor
and Workforce Development testified that the department has
no expertise to handle such anti-trust matters. He had
heard that because the federal legislation was stalled,
interested parties were attempting to pass new laws in each
state and that to date, they were only successful in Texas.
He asked that the Committee take time to consider this
legislation and that the department had not submitted a
fiscal note because of the uncertainty of the actual affect
on the department. Stated that he met with group that would
be testifying.
Co-Chair Torgerson stated that the department's request to
be excused from this legislation was odd, since this
legislation addresses a labor issue.
Senator Leman stated that he readily agreed with the
witness's testimony saying he did not think it was
appropriate for the department to review the legislation.
MIKE HAUGEN, Executive Director, Alaska Physician and
Surgeons testified that the organization was on the front
lines of dealing with the contracts. He stressed that the
provisions in this legislation were completely voluntary
for all parties. He suggested that if the state, the payers
or the physicians felt uncomfortable about the process,
negotiations would be over. He added that the legislation
requires active state oversight. On the merits of bill, he
stressed physicians would be able to communicate amongst
themselves without a threat of the FTC.
GEORGE RHYNEER, Cardiologist, President, Alaska Physicians
and Surgeons testified that he was available to answer
questions.
Co-Chair Parnell asked Mr. Haugen what would be the benefit
to consumers regarding the availability and affordability
of health care if this legislation passed. He noted that
those opposed to the bill argued that this would drive up
the cost of health care.
Mr. Haugen responded that this bill would allow physicians
to get together and discuss issues such as medical
necessity and who determines what is medically necessary.
He lamented that these decisions were often left up to a
clerk in the insurance company looking at a "cookbook" when
a doctor calls for pre-authorization. His organization felt
these decisions should be made by a physician and that
there should be peer review. Another example he gave was
how to define emergency services and the frustrations of
trying to deal with an insurance company at the time of an
emergency. He concluded that the bill would solve a number
of patient protection and physician issues.
Co-Chair Parnell wanted to know how the witness could
address the concerns of increased costs saying that when
physicians organized, they would talk about their own best
interests.
Mr. Haugen assured that because of the state's oversight,
if the costs got to high, the Division of Insurance could
step in on behalf of the public's best interest. He also
told of "point of service options," which allow a patient
to go outside an established network for services but must
pay the difference. This would not cost the employer but
would give another choice to the consumer.
Mr. Haugen next addressed the concern that the bill will
drive up litigation. He used the Texas legislation of an
example of how this would probably not happen. Although the
new law in Texas includes the right to sue health plans, he
pointed out that in three years there have only been five
lawsuits filed. Because of this and because of the larger
Texas population, he thought the litigation expenses in
Alaska would be minimal.
Co-Chair Parnell thought one benefit to the bill would be
to bring in competition.
Senator P. Kelly asked for an explanation of how the bill
would bring other health care companies into the state. He
also asked the witness to respond to the concern raised by
the FTC representative regarding active state supervision.
Mr. Haugen shared that the State of Pennsylvania drafted
good language to address what is required of the state. He
responded to Senator P. Kelly's first question saying that
it is cost prohibitive for new healthcare carriers to enter
the Alaska market due to the population base and the
established relationships of existing carriers with local
physicians. He stated that if potential carriers could deal
with an organization of physicians, without fear of action
by the FTC, "new players" could come into the market.
Senator P. Kelly wanted to know if Mr. Haugen was confident
that the adoption of the state action doctrine would allow
groups of physicians to enter these discussions without the
threat of being sued by the FTC.
Mr. Haugen was.
JIM JORDAN, Executive Director, Alaska State Medical
Association deferred to written testimony he submitted to
the Committee. [Copy on File.]
NANCY WELLER, Division of Medical Assistance, Department of
Health and Social Services testified that her concern was
the affects this bill could have on the Medicaid program.
However, the division believed the program was exempted
from the bill because it was already heavily regulated by
the federal government.
Co-Chair Torgerson clarified that the division did not
oppose the bill since the division was not involved.
GORDON EVANS, Health Insurance Association of America noted
he had submitted written testimony. [Copy on file.] He
stated that although the previous witnesses did respond to
some of his earlier comments, he felt the responses were
self-serving. He surmised that the physicians in support of
the bill dispute the association's claim that the issue is
economics rather than quality of care. He stated that
stated that this argument gave the physicians leverage to
"prevent the intrusion of a giant third party into the
sacred physician-patient relationship." While Mr. Evans
agreed that this relationship is sacred, he hadn't heard
any physicians turning down insurance payments from this
"giant third party."
Mr. Evans addressed the statements that this legislation
would establish a voluntary arrangement, which any party
could withdraw from if not satisfied. He asked why the bill
was needed saying that if the physicians currently thought
they provide quality care, the insurance companies would
not refuse to work with them. He surmised the answer was to
give physicians leverage, noting that three years ago, the
average income of an Alaskan doctor was $250,000 and that
this bill would only seek to increase their income at the
expense of the consumers.
JEFF DAVIS, Executive Director, Blue Cross-Blue Shield of
Alaska testified about previous testimony given before the
Senate Health, Education and Social Services Committee. He
summarized that the company's perspective was that there is
not an imbalance of market power based on the limited
success in trying to contract with physicians. He stated
that the company has contracts with 700 of the total of
1800 physicians practicing in the state. Aetna, he said,
had approximately 100 contracts and that other carriers had
no contracts.
Mr. Davis qualified that the bill contained some patient's
rights provisions that the company does support, such as
the "gag clause". He stressed that they never have had this
clause. However, he noted that other provisions in the bill
were confusing and unnecessarily costly. He stated that no
carrier in Alaska prohibited patients from obtaining
services from physicians outside of the network of
contracted physicians although the cost to the patient was
higher when he or she did so.
Mr. Davis disagreed with the claim that this bill would
bring more carriers into the market because the true
limitations were economies of scale and distance.
He stressed that the issue with this legislation would
increase costs both regulatory and administrative and that
there was a potential that physician costs would increase.
He noted that FTC regulations already allow physicians to
come to carriers in fairly large blocks to discuss patient
care.
LEN SORRIN, Assistant General Council, Blue Cross-Blue
Shield of Alaska, focused his comments on the collective
bargaining/anti-trust provisions of the bill. He stressed
that the provisions were certain to increase costs to
Alaskan consumers. He pointed out that those provisions are
unrelated to the patient protection issues in the bill and
that there was no consumer benefit to collective
bargaining. He stated that physicians do have the right
under federal guidelines to collectively talk about issues
related to patient care, but also to negotiate prices with
carriers. He admitted that there are some limitations on
the physicians' ability to do so but said consumers deserve
a substantial quid pro quo from those parties to ensure
increased efficiency to the marketplace and improved
delivery of health care.
Mr. Sorrin asserted that the provisions related to market
share were unprecedented in the realm of anti-trust law. He
did not know of any case in the health care services
industry where 15 percent was determined to be a
significant market share. In fact, he added, the US
Department of Justice guidelines established a "two-tier
safe harbor" of 30 percent for physicians grouping
together. He stressed that it makes no economic or legal
sense to impose the negotiating provisions for those
carriers that only have 15 percent of the marketplace.
Tape: SFC - 00 #44, Side A 10:37 AM
Mr. Sorrin continued saying that under the Justice
Department's guidelines, no carrier in the state would fall
under the bill's terms.
Mr. Sorrin concluded that there was no problem and that
this legislation did not offer a solution. He stated that
the regulations being drafted in Texas had generated a
"firestorm of controversy" and suggested that "we
underestimate the regulatory complications that this bill
will bring to everyone's life." He added that problems
would reemerge each time the contracts were up for
negotiation.
Senator P. Kelly rebutted the claim that doctors currently
are allowed to get together and negotiate for both terms
and conditions and price. He said the FTC had ordered the
North Lake Tahoe Medical Group and the Mesa County
Physicians Independent Practice Association, Inc. to cease
an desist from these activities. He read definition
language from one of the two consent decrees, "exchanging
or facilitating the exchange of information among
physicians concerning the terms and conditions including
reimbursement on which any physicians are willing to deal
with payers." [Copies on file.] He said while he had not
been able to find any information to substantiate the claim
that physicians were allowed to gather; he was able to find
information that showed where the FTC did not allow the
activities.
Co-Chair Torgerson ordered the bill HELD in Committee.
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