Legislature(2005 - 2006)CAPITOL 106
03/28/2006 03:00 PM House HEALTH, EDUCATION & SOCIAL SERVICES
| Audio | Topic |
|---|---|
| Start | |
| HB287 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HCR 35 | TELECONFERENCED | |
| *+ | HB 287 | TELECONFERENCED | |
| += | HB 426 | TELECONFERENCED | |
| += | HB 467 | TELECONFERENCED | |
| *+ | HB 468 | TELECONFERENCED | |
| + | HCR 25 | TELECONFERENCED | |
| + | SB 177 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE
March 28, 2006
3:06 p.m.
MEMBERS PRESENT
Representative Paul Seaton, Vice Chair
Representative Tom Anderson
Representative Carl Gatto
Representative Vic Kohring
Representative Sharon Cissna
Representative Berta Gardner
MEMBERS ABSENT
Representative Peggy Wilson, Chair
COMMITTEE CALENDAR
HOUSE BILL NO. 287
"An Act amending the certificate of need requirements to apply
only to health care facilities and nursing homes located in a
borough with a population of not more than 25,000, in the
unorganized borough, or in a community with a critical access
hospital."
- HEARD AND HELD
HOUSE BILL NO. 426
"An Act relating to medical assistance eligibility and coverage
for persons under 21 years of age."
- BILL HEARING POSTPONED TO 3/30/06
HOUSE BILL NO. 467
"An Act relating to the administration of prescribed remedies
and dietary supplements by a nurse."
- BILL HEARING POSTPONED TO 3/30/06
HOUSE BILL NO. 468
"An Act relating to disclosure of employment information on a
medical assistance application and a hospital intake report; and
requiring the Department of Health and Social Services to
prepare and publicize a report pertaining to employers who do
not provide health insurance."
- BILL HEARING POSTPONED TO 3/30/06
CS FOR SENATE BILL NO. 177(HES)
"An Act eliminating the prohibition on the use by certain
licensed professionals of titles or descriptions of services
that incorporate the terms 'psychoanalysis,' 'psychoanalyst,'
'psychotherapy,' 'psychotherapeutic,' or 'psychotherapist.'"
- BILL HEARING POSTPONED TO 4/4/06
HOUSE CONCURRENT RESOLUTION NO. 25
Supporting consistent regulation of district and statewide
correspondence programs; and encouraging the Department of
Education and Early Development to remove student allotment
restrictions on all correspondence students.
- BILL HEARING CANCELED
HOUSE CONCURRENT RESOLUTION NO. 35
Relating to establishing March 2006 as brain injury awareness
month.
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: HB 287
SHORT TITLE: MEDICAL FACILITY CERTIFICATE OF NEED
SPONSOR(s): REPRESENTATIVE(s) LYNN
04/27/05 (H) READ THE FIRST TIME - REFERRALS
04/27/05 (H) HES, L&C, FIN
03/28/06 (H) HES AT 3:00 PM CAPITOL 106
WITNESS REGISTER
REPRESENTATIVE BOB LYNN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the prime sponsor of HB 287.
NANCY MANLY, Staff
to Representative Bob Lynn
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During hearing of HB 287, answered
questions.
REPRESENTATIVE JOHN COGHILL
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as a co-sponsor of HB 287.
JIM LYNCH, Director
Human Resources
Fairbanks Memorial Hospital
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 287.
ROBERT GOULD, Finance Officer
Operations
Fairbanks Memorial Hospital
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 287.
NORMAN STEPHENS, Chief Executive Officer
Mat-Su Regional Medical Center
Palmer, Alaska
POSITION STATEMENT: Testified in opposition to HB 287.
DEBORAH KILEY, Nurse Practitioner (NP)
Anchorage, Alaska
POSITION STATEMENT: Testified that the state would be better
served by allowing a level playing field and fostering
competition by eliminating the subsidy of existing facilities
when new construction isn't allowed.
STEPHEN SUTLEY, Oral Surgeon
Alaska Oral & Maxillofacial Center
Fairbanks, Alaska
POSITION STATEMENT: During hearing of HB 287, testified that
the CON keeps competition out of Alaska and limits the doctors
and services that could come to Alaska.
DON ROBERTS
Kodiak, Alaska
POSITION STATEMENT: Testified in opposition to HB 287.
GREG POLSTON, Physician
Advanced Medical Centers of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 287.
GLENDA SMITH
Eagle River, Alaska
POSITION STATEMENT: Testified in support of HB 287.
JIM TAMAI, Orthopedic Surgeon
Advanced Medical Centers of Alaska
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 287.
THOMAS PIPER, Principal
MacQuest Consulting
Jefferson City, Missouri
POSITION STATEMENT: Testified in opposition to HB 287.
FRED BROWN, Chairman
ASEA/AFSCME Local 52
Health Benefits Trust;
Secretary, Alaska Health Care Cost Management Corporation;
Secretary, Fairbanks Central Labor Council
Fairbanks, Alaska
POSITION STATEMENT: Testified that the Fairbanks Central
Council believes it's time to change the current law regulating
the CON.
ALAN GROSS, Orthopedic Surgeon
Juneau Orthopedics
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 287.
SAM KORSMO, Chief Operating Officer
Alaska Open Imaging Center (AOIC)
Wasilla, Alaska
POSITION STATEMENT: Testified that AIOC's success shows that
doctors and their patients appreciate having the choice to
access quality service and the commitment to [lower] costs.
JEREMY HAYES, Representative
Advanced Medical Centers of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 287.
ACTION NARRATIVE
VICE-CHAIR PAUL SEATON called the House Health, Education and
Social Services Standing Committee meeting to order at 3:06:45
PM. Representatives Gatto, Kohring, Gardner, Cissna, and Seaton
were present at the call to order. Representative Anderson
arrived as the meeting was in progress.
HB 287-MEDICAL FACILITY CERTIFICATE OF NEED
3:07:09 PM
VICE CHAIR SEATON announced that the only order of business
would be HOUSE BILL NO. 287, "An Act amending the certificate of
need requirements to apply only to health care facilities and
nursing homes located in a borough with a population of not more
than 25,000, in the unorganized borough, or in a community with
a critical access hospital."
3:08:16 PM
REPRESENTATIVE BOB LYNN, Alaska State Legislature, as prime
sponsor introduced HB 287 paraphrasing from the following
written statement [original punctuation provided]:
Thank you for hearing HB 287 today. I'm the prime
sponsor of this bill, and Representatives Coghill,
Chenault, and Kohring are co-sponsors. As a matter of
disclosure, I'm also a prime sponsor of an Initiative
on Certificate of Need issues, along with
Representative Kohring and Mr. Paul Fuhs, which has
been certified. The principal difference between the
bill and the initiative, is that the initiative
pertains to every place in Alaska, and my bill
pertains only to places with a population exceeding
25,000. But I want to focus on the bill because that
initiative is not before us, the bill is.
I would ask the committee to consider this bill from
three different, but complementary, viewpoints.
Protect traditional American free enterprise;
Increase availability of medical care; and
Create potential cost savings for patients and
worker's compensation costs, and even administrative
costs to the state.
Personally, I think protecting free enterprise is as
American as apple pie. If we want to go in business
together, we shouldn't have to go "hat in hand" to the
government and beg for a Certificate of Need. It
shouldn't matter whether that Certificate of Need is
for a hot dog stand, a pizza parlor, or a medical
facility. The free market should decide if a health
care facility, or any other business, is needed - not
some self-serving government bureaucracy. A
Certificate of Need, in effect, and for example, gives
Anchorage and Fairbanks hospitals a de facto
government monopoly. We need more competition, not
less. Free enterprise motivates excellence,
encourages lower prices through competition, and in
the long run benefits consumers.
Secondly, people suffering health problems need more
choice of medical providers, not less. When I get
sick, I want to be able to choose my own caregiver -
and not have the government limit my choices with some
Certificate of Need. When I go shopping for a
computer, things usually turn out better, if I have
several different dealers and models to choose
between. Of course, finding the medical provider with
the best service, and with whom we have the most trust
is infinitely more important, and perhaps even aids
one's successful recovery.
Third, medical costs in Alaska are reaching crisis
levels, and it hurts everybody. Passage of this bill
should help lower the escalating costs of Worker's
Compensation, and the overall costs of medical care
for the state, companies, and families. Typically,
monopolies increase costs. Competition lowers costs.
That's Economics 101.
Lastly, there has been some major differences of
opinion over fiscal notes - what is legitimate to
include, and what is not. For example, the original
fiscal note for the initiative - almost identical to
my bill, except for no population exemption - came in
at an incredible 41 million bucks. When questioned,
we were told that the fiscal note would be about half
that figure - saved $20 million with one question.
Good thing we questioned it. And, as you will hear
from witnesses, that figure is also unrealistic, and
way on the high side. This bill should not be
compromised with unsustainable fiscal notes - that's
inappropriate and not fair.
In summary, please evaluate this bill on its merits.
Those merits pertain to the medical availability,
choice of health provider, legitimate cost savings to
all concerned, and especially the time-honored
principles of American free enterprise. HB 287 is my
designated priority legislation, and your support of
this bill is respectfully requested.
I would ask that you call next upon Mr. Paul Fuhs for
a more in-depth discussion of this bill and especially
fiscal note questions which I am sure you'll be
wanting to hear about.
3:13:34 PM
REPRESENTATIVE GATTO moved to adopt CSHB 287, Version 24-
LS0611\Y, Mischel, 2/13/06, as the working document.
REPRESENTATIVE KOHRING objected, and asked whether the proposed
committee substitute (CS) is acceptable to the sponsor.
REPRESENTATIVE LYNN replied yes.
REPRESENTATIVE KOHRING removed his objection.
VICE CHAIR SEATON, upon hearing no other objection, announced
that CSHB 287, Version Y, was before the committee.
3:14:12 PM
REPRESENTATIVE KOHRING stated support for HB 287, and related
that competition is going to be the key with regard to the cost
[and quality] of medical service. Representative Kohring
expressed concern with regard to the fiscal note, especially
since it suggests that the opponents of the legislation may be
attempting to kill the legislation with a greatly inflated
fiscal note.
REPRESENTATIVE LYNN said that he didn't want to assign
motivation to anyone because the legislation proposed changing
the current situation and change is often uncomfortable for
some. He noted that the committee packet should include
correspondence regarding how the fiscal note was derived.
3:16:35 PM
REPRESENTATIVE GARDNER related her understanding that the issue
addressed in HB 287 is a national issue. She requested that the
sponsor provide some history of the certificate of need (CON).
REPRESENTATIVE LYNN noted that his interest began in April 2004
when he introduced legislation on the issue. With regard to the
specific history of the CON, Representative Lynn deferred to
others present. In further response to Representative Gardner,
Representative Lynn related his understanding that the CON was a
national mandate some years ago and states followed at which
point the federal mandate was removed and the certificate of
need remained in many parts of the country.
3:18:29 PM
REPRESENTATIVE CISSNA mentioned that she has heard comments that
seem to indicate that those in support of this legislation are
good people while those who don't support it aren't. Therefore,
she expressed hope that this legislation would rise or fall on
its own [merits].
3:19:43 PM
REPRESENTATIVE GATTO pointed out that HB 287 doesn't eliminate
CON, but merely amends it. He then inquired as to whether there
are significant differences between the original legislation and
Version Y.
3:20:02 PM
NANCY MANLY, Staff to Representative Bob Lynn, Alaska State
Legislature, explained that Version Y was brought forward in
order to keep the nursing homes and residential psychiatric
treatment centers as part of the CON program. The
aforementioned is part of the initiative. In further response
to Representative Gatto, Ms. Manly specified that Version Y
includes a title change to add the language "residential
psychiatric treatment centers". On page 1, line 7, and on page
2, line 4, the reference to subsection (g) was added. On page
2, line 6, the language "facility under AS 47.32 was added.
Subsection (g) on page 2, lines 13-15, was added as was the
language "and residential psychiatric treatment centers" on page
2, line 29. Finally, on page 3, line 1, the language "except
for nursing homes and residential psychiatric treatment centers"
was added.
3:22:07 PM
VICE CHAIR SEATON pointed out that the committee packet should
include the fiscal note dated 3/16/06 for Version Y.
3:22:24 PM
REPRESENTATIVE GARDNER said if the notion that providing health
care is a business such that marketplace rules should apply and
that competition will lower prices, why would nursing homes and
residential psychiatric centers be exempt from the provisions of
HB 287.
REPRESENTATIVE LYNN related his belief that it's best to move
with what is possible to pass the House and the Senate. He
opined that [Version Y] is a step in the right direction.
3:23:28 PM
REPRESENTATIVE JOHN COGHILL, Alaska State Legislature, speaking
as a co-sponsor of HB 287, informed the committee that the
residential psychiatric treatment facilities are primarily
public pay, which is why it's probably not bad to leave the
government in charge of the number of beds it will make
available. He indicated that it's a similar situation with
nursing homes.
3:24:21 PM
REPRESENTATIVE CISSNA surmised that the sponsor believes that
hospitals should be in the private sector and should be in
competition.
REPRESENTATIVE LYNN said he believes in competition.
REPRESENTATIVE CISSNA highlighted the requirement of hospitals
to be open 24 hours a day and see anyone who walks in. She
asked if anyone providing the same services as hospitals would
be required to do the same.
REPRESENTATIVE LYNN said it would depend on the facility. He
did say that to compete in the marketplace, a facility would
have to offer similar services.
3:26:26 PM
REPRESENTATIVE COGHILL, in further response to Representative
Cissna, acknowledged that emergency rooms are mandated to take
all patients and due to that hospitals receive an extra "bump"
on the Medicaid rate. He informed the committee that there are
other ways that [hospitals can use Medicaid money to a greater
advantage than most other businesses. He acknowledged that
hospitals use different business models, but in Alaska most are
nonprofit.
3:27:31 PM
VICE CHAIR SEATON highlighted that this legislation addresses
expenditures over $1 million.
3:27:36 PM
REPRESENTATIVE CISSNA asked if there are supporting documents
regarding whether the federal funding is cost effective and
actually does cover the expenses such that it's an even playing
field.
REPRESENTATIVE COGHILL said that he could provide the committee
information with regard to the Medicaid rate issues. With
regard to the cost effectiveness, he acknowledged that it's
debatable.
3:28:27 PM
REPRESENTATIVE KOHRING related his understanding that there are
a large number of physicians who support this concept of
eliminating or at least reducing the CON.
REPRESENTATIVE LYNN agreed, and added that the CON is one manner
in which the medical challenges the state faces could be
addressed.
3:29:49 PM
REPRESENTATIVE KOHRING inquired as to what other states are
doing with the CON.
MS. MANLY related that approximately 36 states continue to have
the CON, although there seems to be much movement toward
removing CON programs.
3:31:28 PM
JIM LYNCH, Director, Human Resources, Fairbanks Memorial
Hospital, began by stating that he, too, believes that
capitalism and strong economic competition are positive and
strong economic theories. However, he opined that the
aforementioned theories don't work perfectly nor should they be
applied blindly in every situation. Mr. Lynch then related his
strong opposition to HB 287 for several reasons. First, it's a
flawed assumption to believe that competition in the health care
industry [will decrease costs]. The health care industry is an
environment in which the economics aren't normal because there
is heavy government subsidy. He opined that in many situations
these costs [at hospitals] will increase and wages are likely to
increase for technically trained staff that are in short supply
within the state, which would inflate the cost of a hospital as
well as a stand-alone surgical center. Moreover, it's likely
that community hospitals will have to compensate for lost
surgical revenue by increasing prices for other services it
offers, and thereby resulting in higher overall health care
costs for the community. Mr. Lynch highlighted that hospitals
see all patients regardless of the patient's ability to pay. On
the other hand, surgical centers are likely to only see patients
with the ability to pay and the facilities are likely to only
provide procedures for which the maximum reimbursement is
received from the government or private insurers.
MR. LYNCH then brought forth the issue of self-referral. He
informed the committee that historically, hospitals and stand-
alone surgical centers are the facilities that sell surgical
services while physicians sell their services related to the
delivery of health care. The economic relationship between the
two groups is complimentary with the hospitals providing the
facility services needed by the physicians and the physicians
providing the patient referral volume the facility needs.
However, the entire relationship will shift when a referring
physician acquires personal financial ownership in the free-
standing health care facility that competes with the hospital
facility. The aforementioned is particularly troublesome in a
situation in which the referring physician investor is faced
with referring a patient to the hospital facility that he/she
doesn't own or the stand-alone surgical center in which he/she
has an economic investment. Lastly, Mr. Lynch expressed concern
with regard to the small size of the community, 25,000
population base, proposed in HB 287. If one looks nationally,
it takes a minimum of about 300,000 people to have an open
economic model that can sustain competition, he opined.
3:36:29 PM
REPRESENTATIVE GARDNER related her understanding then that if a
physician has ownership in a stand-alone facility and that
physician makes a referral to his/her own facility or the
hospital, the physician has a conflict of interest that can
influence the aforementioned decision.
MR. LYNCH replied yes, adding that the issue is the potential
increased gain by referring to a facility in which the physician
has an investment.
3:37:12 PM
ROBERT GOULD, Finance Officer, Operations, Fairbanks Memorial
Hospital, began by stating his opposition to HB 287. He noted
that over the last four or five years he has testified a number
of times regarding the impact that elimination or weakening of
the CON would have on a community hospital, particularly in
Fairbanks. Mr. Gould informed the committee that there are only
fours areas in health care that continue to make money for
facilities, and therefore as a business model the only areas of
the hospital that are profitable and competitive are surgery,
radiology, pharmacy, and labs. However, the hospitals provide
much broader services than just the aforementioned four services
and in fact, those services actually pay for the rest of the
services the hospital offers.
MR. GOULD related his understanding that the assertion of HB 287
is that by elimination of the CON in communities with a
population over 25,000, competition will increase while
decreasing the cost. However, he disagreed and pointed out that
there is data that supports the hospitals' position that the
elimination of the CON will increase the cost of care. He noted
that as of February 22, 2006, he performed a survey of two top
magnetic resonance imaging (MRIs) [facilities] in Fairbanks in
competition with Fairbanks Memorial Hospital. Over the years,
each entity has testified that if they were allowed in the
market, they would decrease costs. However, of the private MRI
[providers] one charges about $1,700 and the other about $1,900
for a MRI spine without contrast while the same costs about
$1,400 at the hospital. The aforementioned is the number one
procedure in Fairbanks. The second most common procedure is MRI
of the brain without contrast. Again, the private providers are
higher than the local hospital. Because of the referral pattern
and because it's not a pure free market, patients are being
driven to facilities with higher costs due to the lack of
understanding of the costs and exams. In conclusion, Mr. Gould
suggested that if there was a comparison of charges, one will
find that in the not-for-profit community hospitals the charges
are more than likely much lower than those in the for-profit,
privately owned facilities. If HB 287 is passed or the CON is
weakened, hospitals and communities in Alaska will be
drastically harmed, he opined.
3:43:02 PM
MR. GOULD, in response to Representative Gardner, explained that
under the current reimbursement system facilities are paid the
most for surgery, radiology, pharmacy, and labs. That is for
those services, the reimbursement is well beyond the cost of the
service while for other services there is a much lower
reimbursement. The aforementioned is why people want to
eliminate the CON and enter the market for the four money-making
services. He pointed out that someone won't put in an in-
patient mental health unit, an emergency room, or home health
care for chronic inebriants or diabetics.
3:44:05 PM
REPRESENTATIVE GARDNER asked if a facility only provided the
four money-making services, could it reduce the rates for those
services.
MR. GOULD answered yes, in theory. In fact, the [private
providers of the four money-making services] ought to be able to
offer the services at a lower cost, especially since these
private facilities, unlike hospitals, don't have to be open 24
hours a day, 7 days a week, 365 days a year, which means that
they don't have to pay a shift differential, overtime, or
additional staffing requirements. However, because of the
ability to steer patients [and the profit motive], the facility
can charge what it desires.
3:45:14 PM
REPRESENTATIVE GARDNER posed a situation in which a self-pay
patient in Fairbanks chooses to have his/her radiology procedure
performed at Fairbanks Memorial Hospital. She surmised that
such a patient is subsidizing other parts of the hospital
because the patient is paying a higher cost than the hospital
would otherwise have to charge because the charges for the
services are set at a level that allows the subsidization of
other procedures.
MR. GOULD said that's an accurate statement, but clarified that
Medicare and Medicaid set rates for the hospitals. Regardless
as to whether it's insurance, private pay, et cetera, the fees
are based primarily on what Medicare and Medicaid pay or their
regulations. He reiterated that Medicare and Medicaid pay
extremely well in the four areas mentioned earlier and extremely
poor in all other areas. "In effect, we're doing exactly what
the government has asked us to do, which is charge more because
you're going to get paid more in these areas," he pointed out.
3:46:25 PM
MR. GOULD, in further response to Representative Gardner, said
that he does have data indicating that removing the CON may
increase costs and could provide it to the committee. He noted
that this same debate is occurring across the nation in relation
to specialty hospitals. Currently, the federal government has a
moratorium on specialty hospitals because studies show that they
have increased costs and physician-owned hospitals see a reduced
number of government patients and more of the commercial
insurance payers, which results in an increase in government
patients in community hospitals.
3:49:55 PM
NORMAN STEPHENS, Chief Executive Officer, Mat-Su Regional
Medical Center, recalled the sponsor's comment that this
legislation is Economics 101 and respectfully disagreed because
it's not Health Care Economics 101. He informed the committee
that he has a master's degree in health care administration and
has studied health care financing, which is quite different than
traditional financing. Mr. Stephens pointed out that hospitals
are a people-oriented business and the product is to hire people
to take care of others in a very intensive format. Hospitals
are different than manufacturing in which mass production
techniques or outsourcing labor drives the costs down. In
hospitals, the economics are inherently cost-based. He related
that what a hospital charges doesn't make that much difference
because the cost structure is really what determines whether the
hospital is effective and sustainable. Mr. Stephens highlighted
that there is a finite number of people who are being served in
an area and adding a second facility to provide some of the
services of the hospital doesn't reduce the cost to the
community but rather doubles the costs in some respects.
Furthermore, since there are tremendous staff shortages, the
[private facilities] that don't have to work the hours of a
hospital employee cause the hospital to increase its salaries in
order to remain competitive. A vicious cycle is created that
threatens the stability of a community hospital, and therefore
he opposed HB 287 which he said is based on flawed logic and
economic theory that hasn't been examined thoroughly. Mr.
Stephens informed the committee that he lived through something
similar in Corpus Christi, Texas, where the CON was eliminated
and the for-profit corporations came in, which resulted in a
number of hospitals closing. Alaska, a relatively small state,
is more vulnerable and probably couldn't tolerate the
elimination of the CON.
3:54:36 PM
VICE CHAIR SEATON inquired as the size of community that would
support a competitive model or a situation in which there is no
CON.
MR. STEPHENS said that Corpus Christi, Texas, to which he
referred earlier had a population of about 379,000. Once there
is a population of 300,000 or over, any one player becomes less
vulnerable. In the Mat-Su Valley, he pointed out that the
original Valley Hospital Association, a not-for-profit entity
that has taken care of the Mat-Su Valley's needs for 70 years,
has stacked everything on the new [medical center]. In fact,
$101 million has been spent to build this hospital in the Mat-Su
where there is a lot at risk. He noted that there are niche
providers hovering to pick off the profitable product lines and
programs that the hospital depends upon to make its living. The
only way to keep the hospital breaking even or on margin would
be to review other areas of the hospital not being provided
elsewhere and try to recover the cost in those areas. Mr.
Stephens then informed the committee that the Health Care
Advisory Board is a nonprofit think-tank group that recently
gave a presentation entitled "Overcoming A Ruinous Competition."
The presentation highlighted those who are profit-seekers who
focus on the lucrative niche markets within the health care
industry.
3:57:39 PM
REPRESENTATIVE CISSNA recalled an economics class she attended
in which externalities was discussed. She requested that Mr.
Stephens discuss externalities in [the health care industry].
MR. STEPHENS said that he didn't know what externalities are.
REPRESENTATIVE CISSNA explained that externalities are what
happen when market systems don't work perfectly.
VICE CHAIR SEATON said that the aforementioned could be
addressed during committee discussion.
4:00:31 PM
REPRESENTATIVE GATTO related his understanding that the Mat-Su
Regional Medical Center, Fairbanks Memorial Hospital, and the
Alaska Regional Hospital are all for-profit hospitals as opposed
to government/community hospitals such as Providence Medical
Center and Bartlett Regional Hospital. He asked if whether a
hospital is for-profit or not-for-profit would change the
outlook in relation to CON.
MR. STEPHENS replied no. Although the difference in ownership
has to do with what happens to the reserves over revenue, a for-
profit hospital provides the same amount of uncompensated and
charity care as [nonprofit hospitals]. In fact, Mat-Su Regional
Medical Center's charity care is 2.5 percent of gross, which has
increased since the company has taken over the hospital. Mr.
Stephens said:
We're dealing with the same rules and regulations that
pertain to a for-profit hospital, the market pressures
are the same; we have the same laws that require us to
not ask people whether they have the means to pay.
And ... because of being a for-profit hospital, it's
even more critically sensitive in a community where
we're trying to maintain a good reputation and ensure
that we get business from our community. We've got to
be very careful about our approach toward being a for-
profit and it doesn't change that at all.
MR. STEPHENS, in further response to Representative Gatto,
opined that HB 287 does the reverse of leveling the playing
field. The legislation allows niche providers who do not have
the same obligation to the community to operate freely.
Therefore, the constraints of a hospital aren't removed either
legally or morally because a facility couldn't maintain itself
as a hospital without operating an emergency room all night
long. Furthermore, to place hospitals in competition with the
8:00 a.m. to 5:00 p.m. niche operators is not a leveling of the
playing field.
4:03:44 PM
REPRESENTATIVE GARDNER inquired as to how the health care costs
in Corpus Christi, Texas, compare to costs in other communities
of comparable size with or without the CON.
MR. STEPHENS expressed the need to research that, but offered
that the costs continue to rise, which he characterized as a
national emergency. However, he pointed out that costs in
health care are costs that health care sustains; those costs are
incurred as the hospital operates and are largely labor and
technology costs.
4:05:33 PM
REPRESENTATIVE GARDNER opined that it's generally understood
that when new businesses come to town, there's a shakeup from
which some survive and some don't. Therefore, she expressed
interest in any data about what actually happens with health
care costs in a community after the removal of CON.
4:06:09 PM
DEBORAH KILEY, Nurse Practitioner (NP), specified that she is
speaking on her own behalf as a nurse, although she is an
employee for the Advanced Medical Centers of Alaska. She
informed the committee that she has been a nurse for over 30
years and a NP for over 20 years during which quite a number of
things have changed. When the CON process was introduced in
1972, it was designed to control costs by stopping the
proliferation of all types of medical facilities by requiring
review for projects costing over $100,000. However, restricting
building didn't control the cost of health care. "The CON
concept has no more application to life in 2006 than $100,000
medical facility budget will buy today," she said. In fact, the
federal government and 20 states have revoked the CON
requirements, which she asked the committee to take the first
step in doing so as well. Ms. Kiley refuted the myth that only
hospitals and community health centers provide for the
underserved because in the private sector physicians, physical
therapists, nurse practitioners, and other clinicians donate
many hours and resources to patients with no or inadequate
resources. Therefore, rather than placing artificial barriers
before private citizens who have the vision to build and create,
the state would be better served by allowing a level playing
field and fostering competition by eliminating the subsidy of
existing facilities when new construction isn't allowed. "With
competition, providers can attract patients by improving their
quality of care, improving service to the patient, and/or
decreasing costs to payers," she opined. She further opined
that patients deserve a choice as to where they receive
services.
4:10:49 PM
REPRESENTATIVE CISSNA asked if Ms. Kiley could provide examples
of why the CON would cause costs in the health care industry to
increase.
MS. KILEY clarified that her testimony was that costs would
decrease if more facilities were available.
4:12:29 PM
STEPHEN SUTLEY, Oral Surgeon, Alaska Oral & Maxillofacial
Center, opined that the majority of the elderly patients and
medically compromised patients that "we" treat at the hospital
could be safely be treated in a surgery center for a lower cost.
He pointed out that many of these patients receive Medicare and
Medicaid and thus treatment in a surgery center versus a
hospital would decrease the cost to the patient as well as the
state. Furthermore, a number of the patients that require
facial reconstruction surgery or orthognathic surgery elect
either to not have the surgery at all or to go to Seattle or
Portland because of the escalated costs at the local hospital.
Many of these patients could be treated at a surgical center.
Moreover, facial trauma with fairly simple fractures to the face
requiring treatment at the hospital operating room could also be
treated safely in a surgery center. Many of these patients have
Medicaid or no insurance at all, and therefore face extremely
high bills when they are discharged from the hospital. In
summary, the CON needs to be repealed, he said. The CON, he
opined, keeps competition out of Alaska and limits the doctors
and services that could come to Alaska. Congress recognized the
problem and has repealed the CON as have many states.
Economically, it's costly to maintain the status quo for
patients in Alaska. Dr. Sutley explained that the CON increases
the cost throughout the state. In fact, the CON, he opined, is
only important for those special interest groups who desire it
to remain.
4:16:58 PM
VICE CHAIR SEATON inquired as to whether the [Alaska Oral &
Maxillofacial Center] takes Medicaid patients. He also asked if
the [center] limits the number of Medicaid patients.
DR. SUTLEY answered that he does accept Medicaid patients and
has no limits on the number that [the center] takes. He echoed
earlier testimony that hospitals are not the only facilities
that give away free care. In fact, Dr. Sutley informed the
committee that he [Alaska Oral & Maxillofacial Center] gives
away several hundred thousand dollars worth of care every year
whether the patient is on Medicaid or merely can't pay his/her
bills.
4:17:42 PM
REPRESENTATIVE GARDNER asked if Dr. Sutley works at a surgical
center and has privileges at Fairbanks Memorial Hospital.
DR. SUTLEY explained that his business and practice is the
Alaska Oral & Maxillofacial Center with which he has one
partner. He specified that the Alaska Oral & Maxillofacial
Center isn't a surgical center. He also specified that he has
full privileges at the Fairbanks Memorial Hospital.
4:18:38 PM
REPRESENTATIVE GARDNER related her understanding that there are
some hospitals that don't allow surgeons to perform surgery at
the hospital if they perform surgery at a private surgical
center.
DR. SUTLEY said that he wasn't familiar with such a scenario.
4:19:14 PM
DON ROBERTS began by stating his opposition to HB 287. He
opined that health care services aren't best delivered on a
competitive basis because competition results in winners and
losers. In such a situation what happens with all the losers,
he asked. "Basically, I think it ultimately reduces the
availability of quality health care services and sacrifices
effective services on the alter of administrative efficiency,"
he opined. However, if the desire is to control health care
costs, one must determine where hospitals are spending their
money. Therefore, he suggested that the committee consider
including the state's version of the federal form 990 and a
socioeconomic report. He also expressed the need for there to
be some commitment from the community as to how agencies could
incorporate the resources of other physicians and facilities to
offset the costs of service and include the viability of
service. He expressed concern with regard to the references to
"health care service" because it doesn't explain whether it's a
health care service that keeps one healthy or a crisis,
treatment, or recovery service. Furthermore, there is no
knowledge as to how much of "this" would be in the
administrative costs. Even more troubling is the definition of
"person" as per 7 AAC 7.07.900(a)(14) includes the following:
health maintenance organizations (HMOs), foundations, trusts,
estates, the state, political subdivisions or other legal
entities, as well AS 01.10.060(8), which specifies that a
"person" includes corporations, companies, partnerships, firms,
associations, organizations, businesses, trusts as well as a
natural person. He opined that there are philosophical and
moral problems when a government creates entities and gives them
the same authority of the entities that created [government].
4:23:36 PM
GREG POLSTON, Physician, Advanced Medical Centers of Alaska,
stated support for HB 287. He opined that by removing the CON,
access to health care will increase in Alaska for Alaskans and
costs will decrease. He informed the committee that currently
he sits on the state Medicaid committee, on both the drug
utilization review committee as well as the pharmacy and
therapeutics committee. In working with those two committees,
Dr. Polston said that he has reviewed the cost and attempted to
maximize care. With regard to the testimony that niche
physicians are trying to push this legislation through, he
strongly disagreed. In fact, in the 21 states that have
eliminated the CON, health care costs haven't been impacted and
competition has allowed competition such that hospitals aren't
in monopoly situations. He informed the committee that he has a
report from the commissioner of DHSS that discusses a number of
projects [that would be considered] if the CON was removed from
the state. In reviewing the list, Dr. Polston said he became
very excited with regard to the various new facilities [and
services] that would be provided in the state. He related that
it appears that over 200 beds could be provided, a cardiac
hospital, and a substance abuse hospital. Furthermore, the
economics of building these centers, in terms of jobs provided,
would also make the state a stronger place in which to work and
live.
4:26:56 PM
DR. POLSTON, in response to Vice Chair Seaton, specified that
Advanced Medical Centers has facilities located in Anchorage,
Fairbanks, and the Mat-Su Valley. He noted that he has also
done work in the Kodiak hospital in the past.
4:27:21 PM
REPRESENTATIVE GARDNER asked if Dr. Polston has any
documentation to support his statement that in the 21 states
that have eliminated the CON, health care costs haven't been
impacted.
DR. POLSTON related that the committee packet should contain a
report from the Washington Policy Center, which was prepared by
Mr. Barnes who should be on-line to testify. Additionally, he
said that he has a report that was prepared by the Florida State
University Law Review "stating some of those questions that you
have."
4:28:24 PM
GLENDA SMITH, speaking as a patient advocate and mother of a
special needs child, began by relating that over the years
attempts to lower the cost of health care have resulted in cuts
to the much-needed services for those with disabilities.
Furthermore, she said that she has seen much documentation
relating that the CON hasn't been successful in containing
health care costs and thus she questioned why the CON would
continue to exist. She highlighted that Alaskans don't have
access in this state to the specialists that are needed, which
costs the state a lot of money to send patients out of state for
treatment. Ms. Smith opined that [HB 287] is a way to improve
the rising costs of health care in the state and help many in
the process rather than filling the pockets of a few. She
concluded by noting her appreciation in regard to what the
committee can do to move HB 287 forward.
4:31:59 PM
JIM TAMAI, Orthopedic Surgeon, Advanced Medical Centers of
Alaska, informed the committee that during his 14 years as a
practicing physician in Fairbanks he has had the opportunity to
become familiar with the health care structure in the Interior.
One of the weaknesses in the Interior, he opined, is that there
is only one specific health care facility that offers a broad
range of services, including inpatient and outpatient care as
well as surgical services. The aforementioned is Fairbanks
Memorial Hospital, which is a strong hospital. However, the
community could benefit by opening up opportunities for
alternative access to health care, in particular in the form of
outpatient ambulatory surgical center services. Having more
than one facility, he highlighted, [is of importance] since the
terrorist attacks of September 11, 2001. Dr. Tamai then related
his firm belief in a free market economy and his support in HB
287. He then indicated the need for there to be alternative
facilities.
4:35:26 PM
VICE CHAIR SEATON asked if Dr. Tamai had any information with
regard to the population level necessary to support a general
hospital that provides 24 hour service, outpatient surgery, and
imaging services.
DR. TAMAI replied no, but related his belief that it would
depend upon the size of the hospital and the number of full-time
employees. In further response to Vice Chair Seaton, Dr. Tamai
related his belief that if Fairbanks' population was one-quarter
the size of its current population, it could possibly support a
hospital, imaging center, and an ambulatory surgical center. He
explained that he believes it would be possible because
Fairbanks, even a smaller Fairbanks, would be the closest
regional hospital in the Interior area outside the Fairbanks
North Star Borough.
4:37:31 PM
REPRESENTATIVE GATTO posed a situation in which there is no
facility, and inquired as to whether it would be in the
community's best interest to not have the CON or to protect one
good facility.
DR. TAMAI maintained his belief that the community would still
be served best with competition and choices for patients.
4:39:35 PM
REPRESENTATIVE GATTO pointed out that the government does
provide for monopolies, such as an electric company. However,
the government regulates the company. Representative Gatto
opined that the CON was similar, in that the regulation for the
single service was the CON. Therefore, he inquired as to
whether monopolies can work so long as they are regulated by
government.
DR. TAMAI maintained that competition makes everyone work
harder, better, and more efficient. He expressed concern that
complacency may breed where monopolies exist.
4:42:01 PM
THOMAS PIPER, Principal, MacQuest Consulting, informed the
committee that he has been the director of the CON in Missouri
for over 21 years and is currently working with the Department
of Health in Seattle, Washington. He noted his opposition to HB
287. He then directed the committee's attention to the
PowerPoint entitled, "National CON Perspective and Experience
Impact Report of Deregulation", which is included in the
committee packet. He then referred to the slide entitled, "The
CON Matrix of 2005 Relative Scope and Review Thresholds: CON
Regulated Services by State" and pointed out that although
Alaska has one of the broadest programs, it ranks near the top.
However, were HB 287 to pass, Alaska's rank would fall with only
long-term care.
MR. PIPER then turned to the situation in Ohio, which is a state
for which there is the best information with regard to what
happened immediately after deregulation of CON. He informed the
committee that the Ohio General Assembly started the three-year
repeal of the CON in 1995 after having a CON for 20 years for
most services. All facilities, services, beds, capital, and
equipment save long-term care were taken out of review. Over
the three-year phase out, 17 services, in total, were taken out
of the CON process. He pointed out that Ohio is one of the few
states that doesn't have hospital licensure, but rather the
services are all handled under joint commission surveys and
national reviews, except the psychiatric and obstetrical
services. He pointed out that there are free-standing services
in Ohio, most of which are licensed and have quality review.
However, licensure nor quality review were barriers to market
entry to establish new services or the expansion of such
services.
MR. PIPER then drew the committee's attention to "Ohio Hospitals
Closed since Deregulation", which relates that before 1997 there
were 214 licensed hospitals. However, after deregulation, the
number of hospitals dropped to 206 with a commensurate loss,
almost 7,000, in the number of beds. The next slide, "Detail of
Hospitals Opened since Deregulation" relates that 19 new
hospitals were established for a total of 829 beds. Overall,
there was a decline as evidenced in the slide entitled "Hospital
Bed Decline since Deregulation." Still, cardiac catheterization
increased since deregulation, although per state law it can only
be performed in a hospital setting. An increase in [facilities
offering] open heart surgery also occurred after deregulation.
With regard to imaging services, in 1995 there were 23 mobile or
free-standing MRIs, which increased to 126 new MRI units in 1999
while 65 more intended to come on-line. In 1995 there were 35
hospitals with in-house MRIs and after 1999 almost all hospitals
had a MRI. Mr. Piper then highlighted the increase in radiation
therapy facilities since deregulation as was the case with
ambulatory surgery facilities and outpatient dialysis centers.
4:50:51 PM
MR. PIPER identified the main characteristics of deregulation in
Ohio as follows: a significant loss of inner city hospitals; a
substantial increase in ambulatory surgery facilities and other
freestanding facilities; and more competitive hospitals. He
then pointed out that the elimination of the CON is in sharp
contrast to those areas where work is going forward to improve
the CON, such as in Washington, Maine, and North Carolina.
Turning attention to the slide entitled, "Balance Regulation and
Competition: Protect Community Interests", he informed the
committee that over 50 percent of the money going into health
care comes from public sources such as Medicare, Medicaid, and
other third-party sources. He opined that it might be a much
better situation if pricing and quality information were
available for patients. However, the price of individual health
care services isn't available. Furthermore, often the patient
isn't the person purchasing the services because the physician
is making the decisions and the employer/government is actually
purchasing the health insurance for the employee if the
individual is even covered. Therefore, it's necessary to have
better community-oriented health services and facility plans,
pricing and quality information to consumers, and maintenance of
a public forum for a broad range of services. The goal isn't to
reduce the scope of services to long-term health care only, he
stated. Mr. Piper concluded by relating that there is good
reason to maintain the current system in Alaska, which he
characterized as a system that really works.
4:54:35 PM
VICE CHAIR SEATON highlighted that the slides illustrate a
decrease in the number of hospital beds, but a general increase
in the number of hospitals that provide various treatments. He
asked if Mr. Piper has any information with regard to the cost
of procedures when the CON was in place and after it was
eliminated.
MR. PIPER answered that recent reports from Ohio relate that
costs have escalated steeply, although there has been no
reporting of the real costs. In fact, it has been almost
impossible to determine the impact of the elimination of the CON
versus other changes.
4:55:47 PM
VICE CHAIR SEATON requested that Mr. Piper provide the committee
with any information he receives in relation to the costs
associated with the elimination of the CON.
4:56:14 PM
REPRESENTATIVE ANDERSON inquired as to who is paying Mr. Piper
to testify today.
MR. PIPER answered that he has testified voluntarily, although
he noted that last year he was under contract with DHSS to help
improve the CON program.
4:57:05 PM
REPRESENTATIVE ANDERSON asked, "Do you find that this balance,
this swaying of public policy occurs in all the states where the
CON arises in legislation?"
MR. PIPER replied that it does in the vast majority of states
because the value of the CON has been repeatedly questioned. He
emphasized the difficulty with health care, which is expensive
and doesn't play by the same rules as other services and goods
since it isn't a commodity. Furthermore, Alaska is unique in
many ways with several large population centers and areas in
which a hospital is barely [remaining open]. At the same time,
CONs or similar programs don't stop competition, he said.
Moreover, Alaska's new regulations are based on excellence in
performance so that if a new applicant/entrant to the market can
meet the performance expectations, that applicant/entrant will
be approved. He said that Alaska's system is based on very
competitive values, and therefore he opined that Alaska has
taken steps to make Alaska's CON more responsive although he
acknowledged that it's not perfect.
5:00:18 PM
VICE CHAIR SEATON inquired as to whether Mr. Piper had any data
with regard to the size of population under which the CON
wouldn't fulfill its purpose and the system would more easily
lend itself to a more competitive model.
MR. PIPER responded that he knows of no such model. He related
that in practice he has seen that the larger the population, the
greater the need for an oversight into the market in order to
ensure quality entrants and achievement among the participants.
In the health care industry it's well known that the more that's
done, the better the quality and thus there need to be minimum
utilization standards for excellence and to hold down the
mortality figures.
5:02:08 PM
REPRESENTATIVE CISSNA returned to the Ohio example, and inquired
as to how many, if any, medical school hospitals or county
hospitals there were and the outcome of those [after the
elimination of the CON]. She then inquired as to whether there
is any transparency in Ohio with regard to the costs of health
care, before and after the elimination of the CON.
MR. PIPER, in response to the first question, said that he would
contact folks in Ohio for that information. With regard to
transparency, he related his belief that there are new efforts
to improve the situation in Ohio with regard to the transparency
of costs. He indicated that the Ohio Office for Health Policy
appears to have published some data on the hospitals.
5:04:05 PM
REPRESENTATIVE GARDNER, referring to the number of hospitals
that have closed in Ohio since deregulation, asked if it's
possible that the CON was an artificial support for hospitals
that weren't needed, and therefore the decrease in hospitals was
the result was a natural consequence of removing the artificial
environment.
MR. PIPER opined that the CON has been referred to as an
enfranchiser of services that are currently in existence, which
he said he believed to be the case in Ohio. However, one must
keep in mind that the CON doesn't protect those hospitals
because the hospitals have to "pass muster" to ensure that they
had a certificate to provide those services. Mr. Piper related
that he was told that some of the hospitals were on the verge of
closure [before the elimination of the CON], and therefore the
closures were probably a combination of factors. Health care is
not cleanly dissected with regard to regulation and fee changes
and thus overlaps are difficult to differentiate.
5:06:05 PM
REPRESENTATIVE GARDNER surmised from the slides of the Ohio
situation that more facilities opened up with the elimination of
the CON. However, the data presented doesn't speak to the
reason for competition, which is its impact on quality and price
of services.
5:07:19 PM
FRED BROWN, Chairman, ASEA/AFSCME Local 52, Health Benefits
Trust; Secretary, Alaska Health Care Cost Management Corporation
("The Coalition"); Secretary, Fairbanks Central Labor Council,
provided testimony on HB 287, paraphrasing from the following
prepared statement [original punctuation provided]:
I am making this statement on behalf of the Fairbanks
Central Labor Council, which has taken the position
that the current state law requiring a Certificate of
Need from the Alaska Department of Health and Social
Services, before expending more than $1,000,000
towards improving or building a health care facility,
is counter-productive to providing cost effective
health care for Alaskans. It is also inconsistent
with the cherished American principles of competition
and free enterprise.
The Fairbanks Labor Council is affiliated with
eighteen unions representing approximately 5,500 union
members in Interior Alaska. These union members work
in the public and the private sectors, in construction
and in the service industries, and on large government
contracts as well as for small business owners. Many
of these members are married and have families. All
have an interest in maintaining access to affordable
health care.
Alaska's Union Health plans have struggled to continue
providing valuable health benefits despite the
increasing cost of health care. In communities with
only one health care provider, the lack of competition
has kept health care costs significantly higher than
in communities where competition exists. The State
has encouraged monopolistic activities by sole source
health care facilities, by creating significant
barriers to entry to competitive facilities.
In sum, the Fairbanks Central Council believes the
current law regulating Certificates of Need does not
well serve the needs of our union members and their
families, nor does it serve the needs of many other
Alaskans who seek affordable health care. It is time
to change that law.
5:10:52 PM
MR. BROWN, in response to Vice Chair Seaton, related his
experience that generally the cost of hospitalization and
hospital treatment in Anchorage is substantially less expensive
than in Fairbanks. He offered to provide specific data with
regard to specific procedures.
5:12:18 PM
REPRESENTATIVE GARDNER asked if Mr. Brown's references to the
cost of the CON program referred to administering the program.
MR. BROWN clarified that he meant that when there is
competition, the Health Benefits Trust is able to contract for
much less expensive coverage because of the ability to commit
the volume of patients that allows a volume discount. However,
that opportunity doesn't exist in Fairbanks and thus the [Health
Benefits Trust] supports competition as occurs in Anchorage.
5:13:08 PM
ALAN GROSS, Orthopedic Surgeon, Juneau Orthopedics, stated
support for HB 287 and relayed that the vast majority of the
local medical providers support eliminating the CON. He
characterized the CON as outdated and said that it's a protector
of large hospitals and doesn't protect or enhance the quality of
care. Frequently, physicians in Juneau lose patients to Seattle
for quality of care and cost reasons. Dr. Gross informed the
committee that he and other physicians attempted to create a
single-room procedure center for patients with minor procedures.
The aforementioned would be cheaper than the hospital and would
be convenient for patients and physicians alike. However, the
existing CON law caused the facility to be denied, specifically
because the net present value of the lease was included in the
$1 million cap. With the current definition and interpretation,
it's difficult to build much more than an "out house." Dr.
Gross then informed the committee that there is a plastic
surgeon in town who can't compete with the facilities in Seattle
because of the hospital's refusal to create a package deal,
which is done for aesthetics in hospitals in the Lower 48. With
regard to providing care to the indigent, Dr. Gross opined that
it doesn't make a difference whether the care is provided at the
surgical center or the hospital, it will be provided. He
related that time and again, he has come across quality issues
at Bartlett Regional Hospital that he believes could be solved
if there were a small procedure center for orthopedics and other
certain fields. One of our desires for a facility of this type
was to provide quality, which the CON stymies. Therefore, he
strongly urged the committee to pass HB 287.
5:18:01 PM
REPRESENTATIVE COGHILL asked whether a small surgical center
would be considered a niche provider. He further inquired as to
how a surgical center in Juneau would work with the local
hospital.
DR. GROSS said that even with a [surgical center], at least half
of his practice would done through the hospital in its operating
room. He related that he would see a surgical center as for
minor outpatient procedures. He recalled a medical staff
meeting last year when the issue of economic credentialing
arose. Economic credentialing is a situation in which a
hospital can sanction a physician for being in competition with
a hospital. The medical staff resoundingly passed a resolution
against supporting the aforementioned while a member of the
hospital board argued that competition would be good for the
hospital to keep it honest and provide quality care, although it
would hurt Bartlett Regional Hospital economically at first.
5:20:26 PM
DR. GROSS, in response to Vice Chair Seaton, said that he
absolutely believes the competitive model works in a community
with a base population of 30,000. He noted that the catchment
in Juneau would be closer to 50,000. In further response to
Vice Chair Seaton, he related his belief that no one would
attempt to form a surgical center in a town such as Petersburg
where surgery is only performed once every two months.
Therefore, he said he supports the capitalistic approach in
which the market [determines what it can bear].
5:21:22 PM
SAM KORSMO, Chief Operating Officer, Alaska Open Imaging Center
(AOIC), paraphrased from the following written statement
[original punctuation provided]:
Thank you for allowing me to speak to this committee.
My name is Samuel J. Korsmo. I am the Chief Operating
Officer of Alaska Open Imaging Center with locations
in Wasilla, Anchorage, Soldotna and Fairbanks. Today
we have 4 Doctors, 54 employees in 4 imaging centers.
As a physicians group in the radiology profession, our
business has prospered on the core value of SERVICE.
We bring referring physicians alternatives in the
outpatient imaging needs that place care and
compassion to their patients. We have introduced new
technologies that are saving Alaskan lives such as
open imaging, web-based imaging services and positron
emission tomography (PET). Responding to our
leadership, other providers also finally made these
services available.
We have been in operation in Anchorage, Wasilla and
Kenai for the past few years and in all these areas,
the local hospitals have embarked on major expansion
projects, showing that we were not a detriment to
their operations. Our success shows that doctors and
their patients appreciate having the choice to access
our quality service and our commitment to costs
reduction.
We recently opened a facility in Fairbanks and have
achieved the same level of support and appreciation
from the community. Unfortunately, after two rulings
by Commissioner Jackson that Alaska Open Imaging
Center is a physicians' group not covered by Alaska's
CON laws, Banner Health Corporation through Fairbanks
Memorial Hospital has filed a lawsuit against the
department and AOIC seeking to shut down our operation
and to restrict Fairbanks consumer access to quality,
affordable health care services.
This is just another example of how Alaska's CON laws
are being abused to the detriment of Alaskans and why
it should be done away with. We do not use public
money to build our facilities and when state funds are
spent on Medicaid Services at AOIC the charges are
substantially less than hospital charges for the same
procedure.
MR. KORSMO added that AOIC doesn't self-refer and thus it
totally competes with other entities. "We have no way of self-
referral," he stated. He continued to paraphrase from the
following written testimony [original punctuation provided]:
The hospitals say they need monopoly pricing because
they take low income patients thru no pay/low pay
charity and such. I am here to tell you we provide
more than our fair share at 18% of gross revenues in
2005 and preceding in 2004 at 15%. I believe that
this may be even higher than those services provided
by hospitals.
Thank you and I will be glad to answer any questions.
5:24:53 PM
REPRESENTATIVE COGHILL asked if there is a level of pay that
AOIC receives that may be better or worse than that of
hospitals.
MR. KORSMO informed the committee that AOIC will service any
patient [from] any referring physician, even after hours and on
weekends. With regard to the pay difference, Mr. Korsmo said
that there is a structure that's completely different from what
AOIC receives in reimbursements from Medicaid and Medicare. He
explained that hospitals receive facility charges, which are a
contracted amount to the state that's received in addition to
the flat fee that's set by the department or the Centers of
Medicaid and Medicare Services (CMS). The hospitals would
receive four charges in addition to the flat charge whereas for
an ambulatory or surgical center only the flat fee applies.
5:26:39 PM
REPRESENTATIVE COGHILL surmised then that AOIC wouldn't have
physicians or technicians that work with AOIC and a local
hospital at the same time.
MR. KORSMO said that actually that has occurred. He pointed out
that AOIC's physicians are credentialed in two other hospitals
in the state.
5:27:28 PM
MR. KORSMO, in response to Vice Chair Seaton, said that AOIC has
no desire to enter small communities because it makes more sense
for those people to travel for the services. Mr. Korsmo said
that he, too, believes in the capitalistic, competitive markets,
but he indicated that dismantling the CON will be a process that
may include protecting the small communities.
5:28:50 PM
JEREMY HAYES, Representative, Advanced Medical Centers of
Alaska, stated support for HB 287 and paraphrased from the
following written statement [original punctuation provided]:
In 1982, less than 8 years after the Federal CON
mandate, the Federal Government acknowledged the
failure of its Certificate of Need laws to reduce
health care costs and repealed the mandate altogether.
Almost 25 years later and with a health care
environment completely different than that of the
original CON era, Alaska's Certificate of Need remains
and is as ineffective as it was more than 2 decades
ago. But rather than repeal or scale back our CON
regulations like many states, Alaska has made them
nd
even more stringent. In 2006, Alaska is the 2 most
regulated health care state in the country and has
costs that are 40% higher than the national average.
We support repealing our CON laws as Alaska continues
to see some of the most expensive health care in the
country continue to rise. The rising cost of medical
care in Alaska is hurting our families, raising
workers compensation costs, putting health care
insurance out of economic range for individuals and
companies, and raising Medicaid costs in our state.
While the Certificate of Need process was initially
implemented with the intent to control health care
costs and prevent duplication of services, it has
failed in that regard while instead driving prices up,
restricting consumer's medical choices, and protecting
hospitals from potential competitors who could
accomplish the very goal the CON program strives for …
lower health care costs.
Alaska's CON program no longer serves the public's
interest, if indeed it ever did. The stated purpose
of the program is to foster a health care system that
controls costs and meets changing conditions. Yet to
succeed such a system requires the very flexibility
the CON is designed to prevent. In a state
experiencing growth and demographic change, the CON
law prevents providers from adapting to the changing
needs of the community effectively.
This Bill, if passed, would have a tremendous economic
effect on the residents of Alaska in the form of huge
health care savings. We feel its time that Alaskan's
are given an answer to their quest for affordable
health care?
Cost
Since the 1980's when states were released of their
obligation from the federal government to maintain CON
laws, numerous studies have examined the change in
health care costs as states eliminated those laws.
*If Certificate of Need laws were "working" as
advertised, then one would expect to see a rise in
costs in states where CON laws were eliminated. But
in fact this is not the case. One of the most widely
referenced studies was written by Duke University
professors Christopher Conover & Frank Sloan and was
published in the Journal of Health Politics, Policy,
and Law. They found that output restrictions which
resulted from CON laws led to higher not lower costs,
and higher profits for the hospitals. The authors
point out that CON laws resulted in higher costs per
day and per admission in states with CON regulations,
along with higher hospital profits. So, in states
where CON laws remain, patients are charged more
money, more often than in states that repealed the
law. Simply put, the result of repealing CON
regulations is lower health care costs for the people
of that state.
Studies throughout the US have arrived at similar
conclusions: the data indicates that a program
designed to reduce costs, improve quality, and promote
access has not achieved any of these goals. *In
addition, the 14 states with no CON laws (which are
home to more than 1/3 of Americans), show no higher
rate of health care costs or spending due to lack of
such laws.
In states with less restrictive Certificate of Need
programs, hospitals are increasingly facing
competition from ambulatory surgery centers which
offer miner surgical procedures that do not require an
overnight stay. These facilities offer the same
surgery as a hospital but at a significantly lower
price. It is one of the ways the market is adjusting
to make health care delivery more efficient and cost
effective. Established hospitals in heavily regulated
CON states like Alaska however, use the CON law to
prevent such facilities from opening in their city,
thus blocking access to health care choice and lower
costs to the consumer.
The Certificate of Need program's chief goal is to
reduce health care costs, something it has not been
successful in accomplishing. There has been no
evidence that CON regulation lowers the cost of health
care in Alaska; a fact which alone should be
sufficient reason to repeal a law specifically
designed with that aim in mind.
Competition
There is possibly no proposition in economics that is
more accepted than the idea that if you want to reduce
the cost of something, you foster an environment that
encourages open competition and entrepreneurship while
discouraging monopolistic practices. It is as faulty
to think that limiting the supply of health care
facilities can reduce health care costs as it would be
to think that oil prices could be lowered by producing
less oil.
Competition brings lower prices, more convenience,
better quality, and new technology and innovations.
Hospitals with CON protection have a franchise
monopoly which provides no incentive for it to
exercise cost control or better services. The owners
of these existing facilities can charge inflated
prices for their services which continues to raise
costs by restricting the entry of cost-effective
providers into the market.
Facility duplication is at the heart of competition.
Indeed, the very definition of a monopoly market is
one where there is no duplication. And this is why
consumers in monopoly markets lose; they are denied
the option of turning to others who are providing
"duplicated" services when monopoly providers act like
monopolists.
Market forces generally allocate society's resources
far better than government planning. Everyday
experience shows that when the market is free to
operate under minimal government control, the result
is abundant, quality service at a low price.
Conclusion
In reality, the continuation of CON regulations cannot
be justified either theoretically or empirically. In
fact, from the perspective of sound economics, the
reverse is true. If one desired to devise a policy
for any market whose purpose would be to reduce
efficiency, raise costs and prices, and reduce
quality, Alaska's existing CON program would be highly
recommended.
In researching countless journals and published
articles, one is hard pressed to find even one article
that asserts that CON laws succeed in lowering health
care costs. One thing CON studies have done is
elicited a remarkable evaluative consensus … that they
don't work.
Over the last 2 decades, the Federal Trade Commission
has done several studies on the impact of CON laws
both nationally and for specific states. The FTC's
consistent conclusion can be summarized in its most
recent study released jointly with the Department of
Justice in July 2004. The agencies believe that CON
programs can pose serious competitive concerns. They
found that where CON programs are intended to control
health care costs, there is considerable evidence that
they actually drive prices up by fostering anti-
competitive barriers to entry. Their report goes on
to say that evidence does not support the view that
CON regulations reduce the costs of providing health
care services and urges states to consider whether
such programs best serve their citizens health care
needs.
There's a reason Congress repealed state CON
requirements just a few years after mandating them.
There's a reason 14 states which make up over 1/3 of
our countries population have completely repealed
their CON laws.
And there's a reason why 6 additional states have
repealed every part of their CON regulations save for
long-term care facilities…
They don't work at controlling health care costs! If
they did we wouldn't have some of the costliest health
care in the nation.
5:37:24 PM
MR. HAYES, regarding Mr. Lynch's concerns about self-referrals,
said that worse than a facility that does self-referrals is a
facility that has a monopoly. A facility with a monopoly
doesn't have to self-refer because it already receives the
business/referral. With regard to Mr. Gould's testimony that
costs would rise with the elimination of the CON, per a sampling
he did of various facilities, such a tactic could be used by the
supporters of this bill in the same way and does not really
serve to prove anything, Mr. Hayes said. In fact, DHSS's fiscal
note relates that the cost of surgical centers is lower than the
cost of hospitals. With regard to Mr. Stephens' notion that
elimination of the CON would only work in states with large
populations, he pointed out that the states of Idaho, Kansas,
New Mexico, North Dakota, South Dakota, Utah, Wyoming, and
others have been successful at repealing CON laws. With regard
to charity care, Mr. Hayes agreed with earlier testimony that
it's provided by many providers in each service area. The
difference is that besides hospitals, those facilities that
provide charity care aren't subsidized "to the tune of $25
million a year by the government." Moreover, if surgery centers
were paid for charity care and received additional federal
funding from Medicare, they could afford to operate the same
hours as hospitals.
5:40:33 PM
MR. HAYES, in response to Representative Coghill, agreed to
provide the study by Duke University to the committee. In
further response to Representative Coghill, Mr. Hayes said that
he doesn't work with a hospital. He then turned to
Representative Gardner's comment regarding some physicians being
denied access to hospital privileges because they attempted to
open their own surgical facilities, but were denied. He said
that in Fairbanks Dr. Nancy Cross has been denied privileges in
such a situation.
5:42:21 PM
VICE CHAIR SEATON suggested that he would appreciate Dr. Cross
addressing that herself.
[HB 287 was held over.]
5:42:42 PM
ADJOURNMENT
There being no further business before the committee, the House
Health, Education and Social Services Standing Committee meeting
was adjourned at 5:43:37 PM.
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