Legislature(1999 - 2000)
04/04/2000 09:13 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."
This was the third hearing for this bill in the Senate
Finance Committee.
Co-Chair Torgerson noted written testimony dated March 31,
2000, provided by the Department of Community and Economic
Development that included a report entitled, "National Cost
of Physician Anti-Trust Waivers". [Copy on file].
BOB LOHR, Director, Division of Insurance, Department of
Community and Economic Development, testified via
teleconference from Anchorage that he had reviewed the
available cost studies related to this legislation and
found the closest match was the analysis of pending
congressional legislation, HR 1304, which was highly
studied.
Mr. Lohr gave detail on the background of the National Cost
of Physician Anti-Trust Waivers report, which he found to
be the most comprehensive study on the matter of collective
negotiation for health care. He stated that the conclusion
of the study was that there would likely be between $29 to
$95 billion, or a five to 13 percent increase to private
health insurance premiums with the passage of HR 1304. He
noted that this increase is beyond the already dramatic
increases due to the cost of health care.
Mr. Lohr told the Committee that the study analyzed the
impact of collective negotiations on the cost of services
provided. He stated that this would be the primary factor
in the increased premium costs. He said the second effect
would be increased health care utilization, or the
increased use of health services as a result of negotiated
changes in the plan. The third effect, he stated would be
the spillover affect on other health plans besides the
managed care plans. He explained this was using the
assumption that health care providers tend to provide one
level of service rather than different levels of service
according to the payment ability of each patient's
insurance plan.
Mr. Lohr pointed out that the study indicated that during
the early years of the new federal law, the increases would
be at the lower end of the predictions and in subsequent
years, at the higher range.
Senator P. Kelly asked if the witness had studied the cost
analysis done by Penn State University.
Mr. Lohr responded that he had not seen that study.
Senator P. Kelly explained this study found that the
Charles River study was full of unwarranted assumptions and
questionable methodology.
Senator Green noted the first paragraph of the written
testimony stating that the division opposed this bill
because it was thought the bill would significantly
increase health care costs. She wanted to know if the
division would take the same position for all other
potential legislation concerning insurance mandates and
changes to the insurance industry that would impose similar
standards to those proposed in this bill.
Mr. Lohr promised the division would endeavor to assess the
impact on insurance or health care costs of any proposed
legislation. As to predicting a future position on a
hypothetical bill, he said he would be difficult.
Senator Green challenged that a prediction was made on this
bill. She wanted to make sure that the same standard is
applied to any other legislation.
Senator Adams asked how the federal legislation
complemented this bill.
Mr. Lohr gave a background of the congressional
legislation, also known as the Quality Health Care
Coalition Act of 1999 and the Campbell Act after
Representative Thomas Campbell, the sponsor. This bill, he
explained would exempt health care professional from anti-
trust laws when they negotiate with health plans over fees
and other terms of any contract under which they provide
health care items or services. He said the physicians would
therefore be treated as any other group engaged in
concerted action under the National Labor Relations Act.
The physicians would also be exempted from the Sherman
Anti-Trust Act and comparable state statute, he added.
JULIA COSTER, Assistant Attorney General, Commercial
Section, Civil Division, Department of Law, testified via
teleconference from Anchorage referencing Senate Health and
Social Services committee substitute. She stated she would
limit her comments to the collective bargaining issues
proposed in the committee substitute. She said the
department has serious legal and policy concerns with the
collective bargaining because it may result in substantial
harm to consumers in the form of increased health care cost
and reduced health care options.
Ms. Coster also voiced concerns about the level of state
involvement provided in the bill, saying it may not be
sufficient for active state supervision to immunize
physicians from federal anti-trust enforcement.
Ms. Coster stated that the department agrees with previous
testimony given to the Committee by a representative of the
US Federal Trade Commission (FTC) as well as two letter
submitted by the federal agency regarding similar
collective negotiating legislation in the State of Texas
and in Washington DC. [Copies on file.]
She referenced the FTC's prior investigations and
enforcement actions that have found an increase in health
care costs and a possible decrease in health care services
where collective negotiation is allowed as potential harm
to consumers.
Ms. Coster agreed with Mr. Lohr's conclusion that costs
would likely increase in Alaska if this legislation were
passed.
Ms. Coster pointed out that while there are two primary
limits to collective bargaining contained in the bill,
these limits are insufficient to protect consumers from
substantial mark-ups. The first limitation, she said is the
definition of "market share" as 15 percent, with the
provision that any health care plan that has over 15
percent of the market share could be subject to physicians
forming a group for the purpose of collective negotiations.
She explained the second limitation as where a health care
plan has less than five percent of the market share, the
physician group may not exceed 30 percent of the market in
that service area.
Ms. Coster said these limitations are not based on accepted
concepts of market power. For instance, she stated that a
15 percent of the market is not ordinarily presumed to
constitute market power. She also stressed that the
limitation of physicians groups to 30 percent of the
providers would not affect the group's ability to raise
prices. She said these two factors could result in 100
percent of physicians located within a geographic service
area negotiating with a health care plan that is only five
percent of the market share. She also talked about the
impact a physicians group could have on a small health care
provider.
Ms. Coster next addressed the prohibition on boycotts and
concerted actions by physicians saying that when
negotiating on price terms, there is no affective
prohibition on boycotting. She was unsure if the omitting
of such a stipulation was an oversight or a deliberate
action. She admitted that the bill does contain a provision
for concerted actions, but was unsure if it was sufficient.
Ms. Coster stated that another area of concern is the
provision in the bill that relates to community issues
under the State Action Doctrine. In order to obtain
immunity from federal prosecution, she said, state
officials must actively supervise the process and ensure
competitive conduct. She cautioned that the courts have set
high standards for this activity. She explained that the
courts have ruled that the state agency must have and
exercise ultimate control over the challenge conduct and to
exercise sufficient independent judgement and control so
that the details of the rates and prices have been
established and is the product of deliberate state
intervention. An agreement by the parties is not sufficient
to prevent anti-trust actions, she stressed. She went into
more detail about the requirements of the state to oversee
the negotiation process. She added that the legislation
fails to place the burden of proof on the parties that
propose a contract but instead on the Attorney General's
Office. However, she admonished, the time frame allotted
for state review was not adequate and the legislation does
not provide the Department of Law with any of the
information necessary to make an analysis nor any
investigative authority to obtain that information.
Co-Chair Torgerson stated his intent to adopt a proposed
committee substitute as a working draft.
Senator P. Kelly suggested taking from the previous
testimony, all the warnings of potential problems and
instead to focus on the actual detriments to constituents.
He compared the statements to the tort reform arguments
heard during a previous legislative session when that
matter was being considered.
Senator P. Kelly returned to his earlier reference to the
Penn State University study that questioned the findings of
the study cited by the Division of Insurance. He then
clarified that the FTC as an agency, did not testify on
this bill but rather an individual who works at the
commission gave testimony. Therefore, Senator P. Kelly
surmised that the FTC has not stated a pro or con position
on the legislation.
Senator P. Kelly pointed out letter from the Department of
Law, which listed concerns with the bill. [Copy on file.]
He also noted letter from the Division of Legislative Legal
and Research Services that disputes many of the claims of
the Department of Law. [Copy on file.]
Senator P. Kelly suggested simply placing a sunset clause
on this legislation to see what would actually happen. He
warned of the results of the mergers of many large
insurance companies. He felt that doctors should be allowed
to speak out for the benefit of their patients and should
not have to chose between salary and their ethics oath. He
asserted that every argument made against this bill is
refuted in some way.
Senator Adams agreed with the suggestion of a sunset
clause. He asked if this bill would change the services or
goods delivered to consumers in Alaska by federal medical
programs. He stressed that it was difficult for him to
understand the effect this legislation would have on
Alaskans as well as the amount of funds needed from the
state.
Mr. Lohr responded that the bill would change the price of
goods and services delivered in Alaska. If the prices did
not increase, he wondered what the point of the bill would
be with regards to increased market leverage.
Senator Adams asked what impact this bill would have on
federal programs.
Mr. Lohr said he would have to research before offering an
assessment. He said he would provide that information to
the Committee.
Senator P. Kelly asked for a direct assessment on general
cost increases as well. He noted the claim that the costs
would rise was based on a study that has been found to be
at fault.
Mr. Lohr thought the Charles River study did provide a
clear statement on its assumptions and methodology, which
allows it to be criticized. He said that other testimony
presented to the Committee regarding cross-impacts was
based on non-germane studies and provided no information
about the studies themselves or the methods employed.
Therefore, he said those claims were more difficult to
assess.
Co-Chair Torgerson asked if the witness had the Penn State
University study.
Mr. Lohr did not, but would obtain a copy.
Co-Chair Torgerson asked if the proposed committee
substitute, LS-1291\I, incorporated all previously
submitted amendments except for Amendment #1.
Senator P. Kelly explained that the committee substitute
does incorporate the amendments but that it does not
provide for a sunset date. He detailed the changes
beginning with Section 2, which was removed in the
committee substitute. He noted this language was present in
a similar House bill that addressed contracts between
doctors and insurance providers.
Senator P. Kelly stated that throughout the committee
substitute, references to the commissioner of the
Department of Natural Resources was changed to the
Department of Law.
Senator P. Kelly continued that a new subsection was added
to provide for active state oversight of the contract
negotiations as required by the States Action Doctrine.
Senator P. Kelly pointed out that a cleanup was made in
last page of the bill, which he said was not germane to the
legislation. He did not detail what language was removed.
Senator P. Kelly next stated the committee substitute added
clarification to the description of the substantial market
power within the geographic service area. This allows the
legislation to more individualize the grouping of
physicians into their own service area to the market power
of the insurance companies within that area, he explained.
He said this was to avoid grouping of all physicians in the
state into one large group.
Senator P. Kelly relayed that there was some question over
the covered lives and the total population in the
geographical service area. He said language was inserted
in the committee substitute on page three, lines 20 and 24,
to give a more defined number.
Senator P. Kelly concluded with a comment about the sunset
clause. [Indiscernible]
Senator P. Kelly commented that the biggest concerns
addressed in the committee substitute were switching the
contract portion to the Department of Law and the matter of
the geographic service areas.
Senator P. Kelly moved to adopt the committee substitute,
LS-1291\I, as a work draft.
Senator Adams would not object to adoption but asked for
time to review the committee substitute before reporting
from Committee. He said he preferred a sunset clause of two
or three years rather than five years to give the
legislature a chance to review impacts on consumers and, if
necessary, take action at an earlier time.
Senator P. Kelly commented that the next legislature has
the ability to repeal this law if it were shown to be
detrimental. Secondly, he stated the health care market is
evolving. He stressed that Health Management Organizations
(HMO) could begin doing business in the state in the next
few years and if the sunset clause were enacted before the
arrival of HMOs the problem of payment to physicians could
arise again.
Senator Leman asked if the committee substitute adequately
addressed the concerns about market share raised by the
Department of Law.
Senator P. Kelly asserted that he thought the matter of
market share was adequately addressed in the committee
substitute. He commented that he felt that the entire
state could be considered one market share. However, he
said the committee substitute narrowed the scope to the
area within the market that the physicians actually
practicing. He qualified that for some specialties, such as
cardiology, the practicing area for a physician could
encompass the whole state, but that that issue was
addressed in the committee substitute.
There was no objection and the committee substitute,
Version "I" was adopted as a workdraft.
Senator P. Kelly verified that the proposed amendments #1
through #5 were included in the committee substitute.
AT EASE 10:43 AM / 10:46 AM
Co-Chair Torgerson noted remaining bills scheduled on the
day's agenda, SB 289 and SB 290, would not be heard at this
meeting.
Co-Chair Torgerson noted a new fiscal note for SB 290 was
distributed to members to fund pupil transportation at the
full amount requested of $5,079,900.
Debate resumed on SB 256.
Senator P. Kelly told the Committee that Becky Cerney,
Director of State Legislation, American Medical Association
was available on teleconference from Chicago, Illinois to
address any of the questions raised.
AT EASE 10:47 AM
Amendment #6: This amendment deletes "geographic"
everywhere it appears in the committee substitute. The
term, "geographic service area" now reads, "service area".
Senator P. Kelly moved for adoption and explained the
amendment is to address concerns voiced by the Department
of Law and the Division of Legal and Research Services.
Without objection, the amendment was ADOPTED.
Co-Chair Torgerson stated his intent to allow members a
couple of days to review the committee substitute before
the Committee takes further action.
Senator Adams requested information on how the states of
Washington and Oregon handle collective negotiating by
physicians. He wanted to know what fees could be negotiated
under the other's provisions.
Senator P. Kelly clarified there is a difference between
collective bargaining, which applies to labor unions and
collective negotiating. He stated that the physicians under
this legislation would not be allowed to engage in the same
activities as collective bargaining units. He suggested
that members mentally replace "collective negotiating"
whenever they hear "collective bargaining" in discussions
about this bill.
Co-Chair Torgerson ordered the bill HELD in Committee.
ADJOURNED
Senator Torgerson adjourned the meeting at 10:51 AM.
SFC-00 (7) 04/03/00
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