Legislature(2001 - 2002)
02/04/2002 01:31 PM Senate HES
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 256-CERTIFICATE OF NEED PROGRAM
MR. JERRY BURNETT, staff to Senator Green, sponsor of SB 256,
read the following statement into the record.
SB 256 simply increases the threshold for the
certificate of need (CON) from $1 million, which it
currently is, to $10 million. CON laws were designed
to keep health care costs low by requiring advance
approval by a state agency for most hospital expansions
and major equipment purchases. In 1974, the U.S.
Congress required all states to enact CON laws but had
repealed that requirement by 1986 as Congress found
that the CON process was not effective in controlling
health care costs.
The current $1 million threshold for CON in Alaska has
been in effect since 1983. Over the past 19 years,
construction costs have increased. With the $1 million
threshold, the Department of Health and Social Services
reviews applications for facility expansion and
equipment that should simply be left to the providers
in the marketplace.
Alaska is not facing an oversupply of hospital beds,
health care providers, doctors, or health care workers
in general. In your packet there are statistics from
the Kaiser Family Foundation that show that per 1,000
th
population, Alaska ranks 46 in the number of hospital
st
beds in Alaska, 51 in the number of health care
th
workers as a percentage of the workforce, and 49 in
the number of positions per capita. So, restricting
the supply of health care resources in Alaska may not
be the answer to keeping health care costs down. And,
in fact, easing restrictions on the expansion of
current services is more likely to lower health care
costs through competition.
SENATOR LEMAN asked how much the CON process costs and how long
it takes. He questioned whether the CON process adds
substantially to the cost of a project in the $1 million range.
MR. BURNETT said he has heard numbers that vary from $20,000 to
$300,000 and that a CON can increase the cost of a project
substantially, depending on whether the applicant has to contract
for services or whether the applicant can bury the cost within
other facility planning costs.
CHAIRWOMAN GREEN stated that the CON program has been discussed
repeatedly and came up during the Medicaid discussions last
summer. She continues to be intrigued that the state left this
process in place when even the federal government repealed the
requirement. She pointed out some states use a CON process for
only one type of bed, while others have no process at all. She
believes there is a lot of room for improvement in Alaska's
process so she hopes testimony today will focus on what can be
done to improve the process for all facilities in Alaska and
provide good health care and choice for people.
2:16 p.m.
MR. ELMER LINDSTROM, Deputy Commissioner of the Department of
Health and Social Services (DHSS), said he too has participated
in a number of discussions on the CON process over the last few
years. Those discussions tend to be difficult as the issue is
particularly complex for DHSS because it wears a number of hats
when providing health care and dealing with health facilities.
DHSS operates the CON program; the program consists of one person
who reviews all applications. Many other health care processes
become entangled with the CON process.
MR. LINDSTROM explained that DHSS is a big payer of health care
services through the Medicaid budget. The DHSS fiscal note on
this legislation speaks to the Medicaid budget and the CON, to
the extent that it will or will not impact the number of new
facilities that come on line in Alaska and consequently impact
the Medicaid budget. In the area of long-term care, DHSS pays
well in excess of 80 percent of the costs of those beds.
CHAIRWOMAN GREEN noted that SB 256 has done nothing to change the
nursing home requirement.
TAPE 02-5, SIDE B
MR. LINDSTROM said that it is his impression, after reading the
bill, that SB 256 will raise the threshold for construction of
nursing home beds to the $10 million level as well. He stated he
discussed the issue with committee staff and believes the bill
may contain a technical error.
CHAIRWOMAN GREEN said that it was not her intent to raise the
threshold for construction of nursing home beds and that, to her
recollection, the commissioner of DHSS placed a moratorium on
nursing home beds several years ago.
MR. LINDSTROM clarified that legislation passed several years ago
that differentiated between acute care and long-term care
facilities. It basically gave DHSS a different standard for
review for long-term care facilities by allowing DHSS to take
Medicaid costs into consideration when reviewing the CON. That
same provision does not apply to acute care facilities.
CHAIRWOMAN GREEN asked if Medicaid cost is a factor on all other
CONs.
MR. LINDSTROM said cost is not a factor in terms of reviewing the
CON for approval or disapproval. However, the fact that new
facilities are built will be a factor in what Medicaid will
ultimately pay.
CHAIRWOMAN GREEN asked where that is stated in DHSS's
regulations.
MR. LINDSTROM replied,
Madam Chair, that would not be in regs, it's simply the
fact that if new facilities come on line and there are
Medicaid folks going into those beds, we believe there
would be an additional cost to Medicaid but it's not a
criteria for review through the CON process.
CHAIRWOMAN GREEN asked if DHSS uses that as a basis for
evaluating a facility, as to what the cost will be.
MR. LINDSTROM explained that it is not a criteria for review of a
CON application for acute care beds but it is now a criteria for
review for long term care facilities under the legislation that
passed several years ago.
CHAIRWOMAN GREEN asked if all other hospital beds are considered
to be acute care beds.
MR. LINDSTROM said, "In terms of the cost analysis, ... our
ability to consider cost only relates to the long term care beds
- the nursing home beds and everything else subject to the CON -
it would not be a factor."
CHAIRWOMAN GREEN asked for clarification because Mr. Lindstrom
previously said that cost was a consideration for acute care
beds.
MR. LINDSTROM replied:
Madam Chair, the difference is - what do we think we
will ultimately pay on Medicaid? We have to be
cognizant of what new facilities may be coming on line
and if there are additional facilities that may come on
line by operation of this legislation and we believe
that is likely the case, we believe then there would be
an increased cost on Medicaid. But, that is not saying
the same thing as we consider that cost as part of the
CON application.
CHAIRWOMAN GREEN asked Mr. Lindstrom to direct her to that
statute and regulation.
MR. LINDSTROM agreed to provide information to staff.
2:24 p.m.
SENATOR LEMAN referred to a DHSS document that states (page 3)
"Medicaid pays 86 percent of long term care and about 20 percent
of acute care costs," and said he is surprised that Medicaid pays
such a high percentage of long term care costs. He asked which
facilities are excluded, besides Pioneer Homes.
MR. LINDSTROM explained that long term care beds, in this
context, read nursing homes.
SENATOR WILKEN said he would like clarification of the cause and
effect in relation to [Medicaid] costs. He presented the
following example: if Alaska had one hospital and 100 sick
people, those people would go to that hospital and be billed the
appropriate [Medicaid] rate and the state would pick up its
corresponding share. But, if the state had five hospitals and 20
people went to each, the state's costs would be higher because it
has the same number of patients but more hospitals.
MR. LINDSTROM said the short answer is yes. When talking about
reimbursement for hospitals, hospitals fall under a very
complicated rate setting mechanism in Medicaid. The governing
federal law requires the state to pay a fair reimbursement rate
for an efficiently run facility. The rate includes all of the
hospital's fixed costs that it must pay to stay in business. He
said if the state had five hospitals with 20 patients each, it
would be paying a premium for the luxury of having so many
facilities because they would all have fixed costs that get
rolled into the rate setting system. The cost per unit would be
less if there was one facility that had the economies of scale.
CHAIRWOMAN GREEN asked how that would change with two hospitals
with 50 patients each.
MR. LINDSTROM said Chairwoman Green is getting to the "nuts and
bolts" of the CON process to determine what level of capacity is
needed in a community to have a reasonably efficient patient
setting.
CHAIRWOMAN GREEN said the purpose behind the CON program is to
determine the need and establish capacity. She said she sees
nothing that speaks to cost, which is what she wants to
understand.
MR. LINDSTROM said what has plagued DHSS in discussions about the
CON program is the tendency to go from the 100,000 foot level
down to the specifics of a particular CON, either past, present
or future and miss all of the complexities that fall in the
middle. He stated,
At the 100,000 foot level, the notion of letting the
market operate as it will, and that that will really
give you, over time, the most efficient - and by I
think would say most cost effective system, you know,
is probably kind of a truism and something that we
agree to but the next level down you have to ask
yourself what about the thing - what market are we
talking about. We really don't believe that health
care is like soap or like washing machines.
He went on to say that health care is a matter of life and death
for many people. In this country for many decades there has been
a great deal of statutory and regulatory oversight of the health
care industry in general. If economic efficiency was the
paramount issue, relative to health care, our system would look
very different than it does today. Many small community hospitals
probably would not exist. In many states in the Lower 48, small
hospitals have been closing. He asked legislators to not lose
sight of the unique nature of health care. DHSS does not want to
do anything that would have the unintended result of closing or
the diminution of services and access to health care in the
state.
CHAIRWOMAN GREEN expressed concern that the level of scrutiny
applied in the CON process by DHSS is not described anywhere in
statute or regulation. She said she does not know how anyone can
bring a CON application through the process if DHSS uses the
criteria described by Mr. Lindstrom when the only place that
criteria is to be used is for nursing home beds. She advised
that if the statute needs to be changed, that should be done, but
no one should sit with a monster in the room and pretend that it
doesn't exist. She maintained that businesses are being
disenfranchised when having to spend hundreds of thousands of
dollars on a needs application, which she finds abominable. She
cautioned the need to get past this primary discussion of what
the current role is, when that role cannot be found in statute
and that it is imperative to not place on applicants an
artificial requirement. She also expressed concern about the
cost of the CON application process. She noted that she has
heard complaints from people who are not willing to testify
because they have CON applications pending approval. She pointed
out that the legislation that passed in 1983 required a CON for
projects costing $1,000,000 or more and that costs have risen
substantially. She added that according to national statistics,
Alaska ranks very low in its number of physicians and beds. She
questioned whether the CON program could be deterring growth.
2:35 p.m.
SENATOR LEMAN said that although he does not want to see health
care facilities in smaller communities close, the same argument
made by Mr. Lindstrom was made in 1989 during hearings about
competition in the telephone market. At that time, opponents to
competition cautioned that costs would be driven up by the need
for double plants and other expenses. He argued against that and
believed it would stimulate services and drive costs down, which
is what has happened. He asked Mr. Lindstrom to describe why a
competitive model cannot be applied to the CON process.
CHAIRWOMAN GREEN took a brief-at-ease.
SENATOR DAVIS commented that this issue would benefit from joint
committee work or the appointment of a subcommittee.
CHAIRWOMAN GREEN said she hopes that problems are brought forward
today and to take the discussion forward from there. She said
she wants everyone to know that the intent of this bill is not to
bash anyone but rather to find ways to improve health care in
Alaska. She wants to make sure that the statutes and regulations
in place do what the legislature originally intended. She also
noted the need for a conversation about why Congress, which never
repeals anything, repealed the CON requirement.
2:40 p.m.
MR. DAVID PIERCE, DHSS Planner, informed the committee he was
available to answer questions about the CON program.
CHAIRWOMAN GREEN asked Mr. Pierce to provide committee members
with the number of CON applications under review and an overview
of all certificates of need - the average cost, time period of
approvals, denials, withdrawals, and appeals since the program
began. She said she wants to know what the dollar amounts were.
She asked Mr. Pierce to be prepared to discuss how much time was
spent on the certificates of need for the Alaska Psychiatric
Institute (API) and why DHSS needed to go through that process
after it was requested by the DHSS Commissioner and approved by
the Legislature.
SENATOR LEMAN asked Mr. Pierce to address his previous questions
about the cost of CONs and how long the process takes.
MR. PIERCE explained that he has 90 days, once an application is
declared complete, to submit a recommendation to the
commissioner. He is allowed a 30-day extension if he runs into
difficulties, for example if he is reviewing more than one
application or if an issue arises for an applicant that requires
a change.
SENATOR LEMAN asked if applications are returned on a routine
basis because they are incomplete.
MR. PIERCE said that he has 20 days from the time an application
comes in to declare it incomplete. After that it is declared
complete and the 90-day clock begins.
CHAIRWOMAN GREEN asked if the Fairbanks Renal Care facility CON
has been approved.
MR. PIERCE said the application has not yet been declared
complete but will be in a day or two.
CHAIRWOMAN GREEN asked how long the "hasn't been completed"
process can last.
MR. PIERCE said that is where applicants can run into problems.
If something is missing from an application, which could be as
simple as a signature, the applicant has 60 days to respond to
the request for the missing information. If the applicant
doesn't respond quickly, the process can take up to another 60
days.
CHAIRWOMAN GREEN asked for an update on the Providence 60-bed
facility application.
MR. PIERCE said that is due to be completed next Tuesday.
CHAIRWOMAN GREEN asked about the North Tower application and the
Valdez Community Hospital application.
MR. PIERCE said they are both awaiting a final decision by the
commissioner.
CHAIRWOMAN GREEN asked Mr. Pierce to provide the start dates of
the projects on the updated list and whether the applications
were approved or denied and that he be available to answer
questions at future meetings.
SENATOR WARD asked Mr. Pierce to bring the committee a list of
the states with a position similar to that of Alaska's CON
Coordinator. He said he wants to find out whether other states
use a similar procedure.
MR. PIERCE agreed.
CHAIRWOMAN GREEN then called the next person to testify.
MR. BRIAN SLOCUM, administrator of the Tanana Valley Clinic,
stated support for SB 256. In response to previous questions, he
cited an article written by Michael Turner from the CATO (ph)
Institute, in which Mr. Turner quoted the Federal Trade
Commission as saying that CON regulations increase the cost of
hospital care nationwide by more than $1.3 billion dollars
annually. So, on a nationwide basis, regulation compliance
diverts $1.3 billion out of the health care treatment stream and
into the paperwork stream. Mr. Slocum said another quote, by
Roberta Ross in an article called Certificate of Need for Health
Care Facilities: A Time for Re-examination, says the cost of
applying for a certificate of need ranges from $100,000 to
$300,000 per application. He said DHSS listed 22 CON applications
over the last year on its website; that amounts to between $2.2
and $6.6 million. That does not include the amount of dollars
spent by the state to deal with the applications or the cost of
applicants who withdrew their applications.
SENATOR DAVIS asked how much the Tanana Valley Clinic has spent
on CON application fees.
MR. SLOCUM said he does not have a precise number but estimated
it at well over $200,000 since it began the process.
CHAIRWOMAN GREEN asked if that implies that the cost of the CON
is in relation to the size of the project.
MR. SLOCUM said the quote he has suggests that a major project
costs between $100,000 and $300,000. He said regarding the
question about the intent of the CON laws, the DHSS handout lists
nine goals, none of which are listed in the legislation. He then
quoted Mark Kaplan, who did an economic analysis of Florida's
hospital CON program in the Florida State University Law Review
in 1991. Mr. Kaplan said,
One may question the wisdom of continuing any form of
state regulation that failed to produce its desired
goal when implemented nationwide... As the review of
Congress's intent indicates, the certificate of need
had one goal: to save money. However, in those states,
which retain their CON laws, the retention was often
supported by new and creative justifications, many of
which were unrelated to saving money. Commentators, in
their traditional role of explaining the reasons behind
events, have set forth many justifications explaining
why states have kept the same old CON laws. All these
justifications, however, are the crafty work of
commentators, and not the motivation of state
legislatures. No state legislature has codified any of
these new justifications as legislative intent. These
justifications should therefore carry little weight in
a proper analysis.
CHAIRWOMAN GREEN suggested extending the explanation on statute
and regulation to the CON goals outlined by DHSS in its handout.
MR. SLOCUM told members the Tanana Valley Clinic had been
applying for a CON for a number of years and was denied in 1999,
along with a number of applicants. As a result, he researched
the CON program to try to work through it. He discovered that 30
years of academic and scholarly analysis of the CON program finds
zero support for its effectiveness. In fact, the research
suggests that the CON program did not and does not work and has
driven the cost of health care higher by promoting
inefficiencies, generating application costs, and sheltering
inefficient monopolies and preventing them from competing in an
open marketplace. 29 states have either eliminated the CON
program entirely or have done what SB 256 proposes to do. Other
information in the packet suggests when states do remove or
modify CON laws, no subsequent rise in health care costs occurs.
CHAIRWOMAN GREEN asked if the Tanana Valley Clinic treats clients
who cannot pay.
MR. SLOCUM replied the nature of its position in the community
makes it critical that it do so. The Tanana Valley Clinic is a
37 provider, multi-specialty group - the largest medical group in
the state. It has been operating for 43 years and has always
taken care of anyone who shows up. It is a private business but
plays something of a quasi-public role. It has provided $11
million in unreimbursed care in the last two years.
CHAIRWOMAN GREEN asked if the Tanana Valley Clinic pays taxes.
MR. SLOCUM said the Tanana Valley Clinic is the largest locally
owned property tax payer in the Borough and the City of
Fairbanks. Both mayors support the concept of having another
ambulatory surgical center in the community because it would be
consistent with its economic development policy to promote
business and simplify governmental restrictions. The project the
Tanana Valley Clinic has looked at would generate almost $1
million in property taxes over the next 20 years versus having a
not-for-profit institution, which would not pay those taxes.
CHAIRWOMAN GREEN asked if most hospitals have a 501(c)(3) status
so do not pay property taxes.
MR. SLOCUM said that is correct.
2:59 p.m.
SENATOR WILKEN asked Mr. Slocum to comment on his question about
the efficiency of one facility versus two facilities and the
effect on the Medicaid match dollar in Alaska.
MR. SLOCUM said that is a good question. He believes there is
truth to the fact that we are not just looking at pure economic
efficiency when talking about health care, but one has to be
careful in that analysis. The logical extension of that way of
thinking is that having only be one institution in any community
would be the most efficient. However, that is not what is
normally done because there are benefits of competition. While
there may be some efficiencies gained by limiting the number of
entrants to the market, the competitive fight to reduce the cost
of services and improve the quality of care is given up. The
federal government wrestled with that problem a number of years
ago and came up with a plan in the late 1980s that removed those
kinds of supports from the federal reimbursement program.
Typically, 20 or 30 years ago, it used a cost-plus reimbursement
basis, which meant the higher the costs, the more states were
reimbursed, resulting in more campuses. The cost to deliver
health care continued to rise unchecked so it established a
prospective payment system that little by little moved toward a
payment mechanism that paid upfront to promote efficiency of
services. He suggested the state may need to address that same
question of balancing efficiency with competition.
MR. JEROME SELBY, Regional Director for Planning and Development
at Providence Health Systems in Alaska, urged the committee to
take a hard look at what appears on the surface to be a simple
bill. SB 256 proposes a major shift in-state health policy. It
has huge implications far beyond just cost control in areas of
quality of health care and manpower shortages as well as any
control of costs to the state regarding the Medicare and Medicaid
programs. SB 256 would accomplish five things:
· It would shift dollars that now pay for low income and
uninsured clients to private banks accounts, most likely in
the Lower 48;
· It would allow unneeded facilities to be built;
· It would drive up health care costs in general and will take
money away from critically needed facilities in Alaska, in
particular tertiary care and special need care facilities;
· It would increase the state's health care budget;
· It will significantly increase manpower shortages already
causing problems in Alaska's health care system.
CHAIRWOMAN GREEN maintained that Providence is probably the
greatest offender of increasing the need for more nurses because
it has requested the greatest number of dollars for expansion.
She questioned whether the manpower argument holds.
MR. SELBY said it is a huge concern for Providence because it is
already having difficulty getting enough nurses. Spreading the
number of available nurses across more facilities will exacerbate
the problem. While Providence has not had to divert patients
because of a shortage of nurses, it is diverting patients because
of bed shortages. Other Anchorage hospitals are diverting
patients because of a shortage of nurses. He agreed that
Providence most likely uses the CON program more than any other
facility in the state but it has not found the program to be so
onerous that it needs major adjustment. He believes the $1
million threshold works fine because the cost of the technology
has decreased, i.e. CAT scanners. He noted Providence does not
separate CON costs of projects but it has spent considerably less
than $100,000 preparing each of its CON applications. He urged
committee members to consider maintaining the CON program as a
good public policy process that causes businesses to ask the hard
questions. Those questions may be uncomfortable, but several
times during the process Providence has amended its plan
internally after those questions forced it to improve its plan.
He suggested this bill needs careful analysis.
TAPE 02-06, SIDE A
SENATOR WILKEN asked Mr. Selby to clarify how SB 256 will shift
money to bank accounts in the Lower 48.
MR. SELBY explained it will allow the stock options (?????) in
the Lower 48 to come to Alaska and skim off the surgi-center type
business, which is the profitable part. That money will go to
the bank account where the center of operations is located, most
likely in the Lower 48. Last year Providence shouldered a $25
million absorption of underinsured and Medicare write-offs
because it has some profitable services, such as surgery. That
profit is shifted over to pay for services that do not pay their
own way.
SENATOR WILKEN asked if Mr. Selby is saying that if a new
facility for which a CON facility was granted was owned by
Alaskans, it would shift money into Alaskans' bank accounts.
MR. SELBY said it would but it would still take money away from
helping to pay for low-income and uninsured patients.
SENATOR WILKEN noted Mr. Selby suggested that increasing the
threshold to $10 million will increase the state budget and asked
for an explanation.
MR. SELBY said the state will be paying for overhead in multiple
facilities and the billings will be higher to recover the cost of
constructing the facilities. Providence is concerned because its
overhead costs do not change whether it is full or has 30 empty
beds.
CHAIRWOMAN GREEN said she totaled up the cost of Providence's
expansions over the past five years and its anticipated
expansions under review and came up with $80 million. She asked
where Providence Hospital's home office is located.
MR. SELBY said the regional office is in Anchorage but the
Providence Health System operates in four states: Washington,
Oregon, Alaska and California. Each state is a region unto
itself.
CHAIRWOMAN GREEN asked if any of the money made at Providence
Hospital goes out-of-state.
MR. SELBY replied that basically everything it makes goes back
into the state. It has some shared costs that it helps pay for,
such as legal counsel. He added that most advertising is done in
Alaska.
CHAIRWOMAN GREEN asked if she looked at Providence and the
organizations of some of the large hospitals, she would find that
aside from the profit-center discussion, the money stays within
the state.
MR. SELBY pointed out that Providence is a not-for-profit
organization so it does not pay shareholders and does not have a
lot of overhead. Virtually all of the money goes back into
providing health care and expansion.
3:14 p.m.
MR. RICK KATZ, representing Health South Corporation, stated
support for changing the threshold and CON criteria as it will
allow better access to ambulatory care. Health South Corporation
has found on a national basis that the trend is to modify the CON
criteria to allow for more access to ambulatory care, which is a
lower-cost alternative in a majority of situations. For example,
in other states where Health South operates an acute facility and
an ambulatory-surgi facility, the cost of an arthroscopy (ph)
procedure in an ambulatory facility may be $400 while the same
procedure will cost $5,000 in an acute care facility. He noted
in one community of 100,000 on the West Coast that had one
hospital, Health South opened an ambulatory-surgi facility. The
hospital administrator commented four months later that the
opening of the facility raised the bar in terms of quality of
service in the community by adding an alternative and providing
competition.
MR. KATZ offered to provide committee members with any type of
assistance or information regarding CON processes in other
states. He added that Health South Corporation provides about 12
percent of its care free-of-charge annually.
MR. GEORGE LARSON, CEO of Valley Hospital in the Mat-Su Valley,
stated support for increasing the CON threshold to $10 million or
eliminating the program altogether. He asked members to consider
the need to require all health care "boutiques" to eliminate
cherry picking of patients to level the playing field with
hospitals. He suggested that if the CON threshold is increased
to $10 million, renovations could be done faster. A $1 million
threshold will allow the boutiques to move in while Valley
Hospital is going through the CON process for the major
renovations it needs to do.
3:20 p.m.
DR. DAVID MCGUIRE said the original intent of the CON was to
reduce the cost of health care. The federal government repealed
the requirement in 1987 because it didn't work; it only added
another layer of bureaucracy and was anti-competitive. He
prefers an outright repeal but supports any legislation that will
level the playing field. He expressed concern that the $10
million threshold will still require an application to DHSS to
verify that the proposed project will cost less than $10 million.
That very process will be burdensome. He urged the committee to
consider requiring applicants to complete a simplified form or
submit a simple statement verifying the fact that the project
will cost less than $10 million. An alternative is to repeal the
CON for everything but nursing homes in some geographic areas.
MR. ROBERT GOULD, assistant administrator of finance at Fairbanks
Memorial Hospital, stated opposition to SB 256 for the following
reasons. First, the CON program prevents duplication of services
where there is no need, thereby reducing capital costs to both
the state and consumers. Second, it prevents selective
competition for selected services where the government
reimbursement system appears favorable at this time. One area
that has experienced changes in Fairbanks in the last year is in
home health care services. Years ago there were a number of home
health care agencies in the community. When Medicare and Medicaid
changed their reimbursement systems for home health, every other
enterprise left the market in Fairbanks. Fairbanks Memorial
Hospital is the only one left to carry on that service as part of
its mission even though it is not a profitable service. Third,
the CON program preserves quality. With a limited population, the
volume for many services is insufficient to maintain proficiency.
Fourth, the CON program protects consumers that do not have a
choice about their insurance. Employers make choices about
insurance providers. Insurance companies negotiate contracts and
decide who the consumer gets to see.
MR. GOULD said the difference between the phone industry and
health care industry is that people can change their telephone
company but unless they are willing to change their employer,
they do not get the choice on their insurance. He offered the
following suggestions to streamline the CON process.
· No CON should be required for relocation of a facility
within a community.
· No CON should be required for remodeling when no new
services will be added.
· The process should be modified to expedite areas where there
are emergent needs.
· The focus should be on the key medical services in a
community that need to be protected and reviewed from the
standpoint of quality, cost and capital rather than on a $10
million threshold.
CHAIRWOMAN GREEN asked Mr. Gould to transmit his suggestions to
the committee in writing.
DR. RICHARD COBDEN, a physician at the Tanana Valley Clinic,
stated support for SB 256 because it makes good sense from a
patient's viewpoint. He said his patients appreciate access and
availability of services at an affordable price. He agrees with
Deputy Commissioner Lindstrom that the key to CON success is
access but he disagrees with his interpretation. He believes
access is most determined by one's ability to pay for services.
He informed the committee that he believes Fairbanks Memorial
Hospital offers the best services of any hospital he has ever
worked in but it is expensive. He scheduled a patient for surgery
but two emergencies occurred so the operating room was not
available at that time. Unfortunately the patient's insurance
expired at midnight and he was unable to extend it. Consequently
he was unable to have the surgery. He noted that is an example
of the need for access in its most acute form. Having a facility
in a community is great unless people cannot afford the services
at that facility. He believes some patients do not have access to
care when they have no alternatives.
MS. LIZ WOODYARD, an administrator at Fairbanks Memorial Hospital
in charge of performance improvement and education, informed
members that she previously worked for the State of Missouri with
the CON process. She said the CON process helps serve the needs
of the public and is important in looking at quality and volume
of services provided. Missouri, like Alaska, has many rural
areas. The CON program ensures the public that quality health
care is being provided and that need is clearly defined and
viable for a community, which also applies to education and
workforce development issues.
MR. MIKE POWERS, administrator of the Fairbanks Memorial
Hospital, stated that the hearing has brought forth a great deal
of information to sort through - some accurate, some not. He
noted regarding a competitive model, in a classic business or
economic model, one is good, two is better, three is best but, in
sole community hospitals, when dealing with health care the
classic supply and demand curves do not work. In the classic
conditions, buyers are well informed. In health care, buyers make
infrequent decisions and are unsure of treatments, risks and
outcomes. Government payers cover more than 50 percent of the
typical bill. Buyers and sellers are not independent because
insurance desensitizes people to the cost of care. He emphasized
that sole community hospitals have a mission and simply cannot
stop a service.
MR. DENNIS MURRAY, administrator at Heritage Place Nursing Home,
informed members that he recently put an addition on Heritage
Place after the moratorium was lifted and spent less than $1
million because he did not want to go through the CON process.
He was able to increase capacity by 12 beds at a cost of $58,000
per bed. He suggested that the $1 million threshold had a
positive impact on his community because Heritage Place is the
most cost-effective facility in Alaska right now. He opposes any
change to the existing CON threshold.
SENATOR WILKEN asked Mr. Murray what his incentive would have
been to design an addition for a lower cost if there was no CON
program.
MR. MURRAY said that he got no reimbursement for the $58,000 per
bed cost because it did not meet the minimum threshold. He
suggested, "Where there are no thresholds, the cost does go up
because ultimately you will pay in increased Medicaid
reimbursement."
3:40 p.m.
MS. LARRAINE DERR, President of the Alaska State Hospital and
Nursing Home Association, stated opposition to SB 256. She
informed committee members that she did a brief survey of
hospitals in the state who have had recent CONs and came up with
the following costs:
· Bartlett Hospital - $20,000 on a CON for its $40 million
rebuild;
· Wildflower Court - 44 beds plus 11 assisted living beds -
designed entire facility and completed the CON for $83,169;
· Ambulatory-surgi center in Anchorage - between $50,000 and
$75,000 for the CON application and preliminary planning.
MS. DERR pointed out that Ohio has 15 fewer hospitals today than
it had in 1997, when Ohio's CON deregulation took effect.
However, over the same period there has been a large increase in
the number of diagnostic imaging centers (from 27 to 229) and
ambulatory-surgi centers (from 27 to 179). She cautioned that
there will be a proliferation of profitable services in Alaska
when the CON is removed. The challenge for the state is to
protect essential health services while ensuring quality of care
in all practice settings.
MR. MILTON WILLHIDE (ph), CFO of the Valdez Regional Health
Authority, stated that his organization has a CON pending in the
Commissioner's office. Although the process was expensive - over
$100,000 and a year's time and labor - the Authority feels the
process had great value in helping it to gather the financial
information necessary to determine the feasibility of its
project. He believes the CON requirement should be maintained and
that the threshold should not be raised to $10 million because
that would remove a barrier to the entry into the market in sole
community hospitals, such as Valdez. Those hospitals would be
hardest hit by entities from the Lower 48 who could easily build
many types of facilities for less than $10 million. He stated
support for the existing CON process with minor modifications.
CHAIRWOMAN GREEN asked Mr. Burnett to describe the proposed
committee substitute (CS). She noted she did not intend to take
action on it today.
MR. JERRY BURNETT, staff to Senator Green, explained the changes
made in the CS as follows.
Section 1 of the CS is the same as the original bill, which
increases the threshold for a CON to $10 million.
Section 2 of the CS allows for the relocation of any health care
facility within a community without a CON provided the facility
does not increase the number of beds or categories of services.
The current statute only allows ambulatory-surgi facilities to
relocate without a CON.
Section 3 adds two new requirements to the standard of review for
non-nursing home beds: financial feasibility and long term
viability of the project, and the forecast of the probable
financial effect of the project on consumers and the state's
fiscal condition. He stated that according to previous testimony,
that is not currently reviewed but "it kind of, sort of is." He
explained that all facilities that require a CON would be
reviewed with standards similar to those for nursing homes.
Section 4 provides for a temporary moratorium on CONs for
psychiatric beds until July 1, 2003.
Section 5 establishes a 6-member working group appointed by the
Governor to analyze issues regarding psychiatric care services in
Alaska and requires a report be completed by next year's
legislative session.
Sections 6 and 7 contain effective dates.
MR. BURNETT said when the moratorium was placed on long-term care
and nursing home beds, the testimony showed that 85 percent of
nursing home care and acute juvenile psychiatric care was paid by
Medicaid. That issue needs further study. The working group in
Section 5 is modeled after 1995 legislation that set up a working
group to study long-term care.
CHAIRWOMAN GREEN noted she anticipates a vast expansion of
Medicaid dollars going to that area.
MR. BURNETT stated that any facilities with acute juvenile
psychiatric care will be primarily funded by Medicaid through the
state budget.
CHAIRWOMAN GREEN asked how that is formulated.
MR. BURNETT said that a person testifying on SCR 21 stated that
acute psychiatric services can cost $1500 per day so a 60-bed
facility, such as the one at Providence, would amount to $30
million per year.
CHAIRWOMAN GREEN announced that she will take SB 256 up on
February 13 along with another bill. She noted that she will
take further public testimony at the next meeting. With no
further business to come before the committee, she adjourned the
meeting at 3:52 p.m.
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