Legislature(1999 - 2000)

04/13/1999 03:04 PM House HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 168 - HEALTH FACILITY PAYMENT DECISIONS                                                                                      
Number 2176                                                                                                                     
CO-CHAIRMAN COGHILL announced the next order of business as House                                                               
Bill No. 168, "An Act relating to actions of the Department of                                                                  
Health and Social Services regarding certain health facility                                                                    
Number 2164                                                                                                                     
JEFF LOGAN, Legislative Assistant for Representative Green,                                                                     
presented the sponsor statement for HB 168.  He explained that the                                                              
legislature has issued expressions of support for small and large                                                               
businesses in the state.  One way they did that a few years ago,                                                                
was to provide a clear time line in which the state was supposed to                                                             
pay businesses for services and goods that were rendered to the                                                                 
state.  There was much discussion then that paying the state's                                                                  
bills on time was important.  This bill is about paying the state's                                                             
bills to health care providers, who are reimbursed for services                                                                 
covered under Medicaid.  The issue is the reimbursement and the                                                                 
reimbursement rate, and specifically how to appeal that rate, if                                                                
the business doesn't think it covers their expenses.                                                                            
MR. LOGAN explained that HB 168 accelerates the process through                                                                 
which providers appeal those reimbursement rates.  This issue has                                                               
been around for ten years.  In March 1989 then-Governor Cowper                                                                  
issued Executive Order 72, which moved the rate setting and appeals                                                             
process into the Department of Health and Social Services (DHSS).                                                               
There was a bill in the legislature which tried to clarify what the                                                             
governor had said and further specify what some of the timeliness                                                               
were.  The legislation was SB 431 in 1990.  This has been a topic                                                               
of discussion since then.                                                                                                       
MR. LOGAN told them that currently the process is that rate is                                                                  
appealed to a hearing officer, and the hearing officer renders a                                                                
decision to the commissioner.  He directed their attention to page                                                              
2, line 5 of the bill which is capitalized and says:  THE                                                                       
COMMISSIONER MUST, WITHIN 30 DAYS AFTER RECEIVING THE                                                                           
RECOMMENDATION OF THE HEARING OFFICER, EITHER RENDER A DECISION IN                                                              
THE CASE OR REFER THE CASE BACK TO A HEARING OFFICER FOR ADDITIONAL                                                             
FINDINGS.  The crux of HB 168 is found on page 2 on line 16 at (c)                                                              
where it changes the capitalized language to: "The commissioner                                                                 
shall, within 30 days after receiving the recommendation of the                                                                 
hearing officer, render a final administrative decision in the                                                                  
case.  If after 30 days the commissioner does not render a final                                                                
administrative decision, the hearing officer's recommendation                                                                   
becomes the final administrative decision."  There is no provision                                                              
for the commissioner to send it back to the hearing officer.  The                                                               
commissioner has to make a decision in 30 days or the hearing                                                                   
officer's decision stands.  That decision can then be further                                                                   
appealed to the superior court.  The people who are providing these                                                             
services came to the sponsor and said they needed some help.  They                                                              
are not getting their money back for the services they provide.  It                                                             
was agreed that providing some finality might be the way to take                                                                
care of this.                                                                                                                   
Number 1999                                                                                                                     
REPRESENTATIVE WHITAKER wondered if the rather large fiscal note                                                                
attached to this bill was reasonable.                                                                                           
REPRESENTATIVE GREEN explained that a couple of years ago he had a                                                              
bill to adjust the procedure by which tax appeals were rendered.                                                                
To set up two Administrative Law Judges, an office manager and a                                                                
new office, the total would be $284,000 a year, as opposed to these                                                             
people looking at $367,000.  He submits it does seem                                                                            
REPRESENTATIVE WHITAKER concurred and said this isn't the first                                                                 
time in this committee that they have seen this sort of fiscal                                                                  
note.  He commented that when he sees this sort of thing, it                                                                    
certainly jades his decision making process.  In the future, those                                                              
that do this should be aware of that.                                                                                           
REPRESENTATIVE BRICE asked if the changes reflect strictly back on                                                              
the Medicaid rate establishment.                                                                                                
MR. LOGAN answered that is correct.  It is the administrative                                                                   
procedure under AS 47.07.075 which deals with the reimbursement                                                                 
rates for those Medicaid procedures the state covers.                                                                           
Number 1879                                                                                                                     
DAN HOUGHTON, Chief Financial Officer, Alaska Regional Hospital,                                                                
testified via teleconference from Anchorage in support of HB 168.                                                               
They need a timely appeals process in place that allows them to                                                                 
bring to the table issues that have either not been resolved or                                                                 
disputed in the informal rate hearing process.  In the appeals                                                                  
process, when the hearing officer renders a decision that the                                                                   
commissioner still does not feel comfortable with, the facility                                                                 
will have legal judicial review in place that they can appeal to a                                                              
body outside the [DHSS].  He urged the committee to support HB 168.                                                             
CO-CHAIRMAN DYSON asked what the time lag is between when they                                                                  
submit a bill to the time they get paid.                                                                                        
Number 1808                                                                                                                     
MR. HOUGHTON answered that an interim payment on a current year                                                                 
bill is averaging 70 to 75 days per payment.  In the appeals                                                                    
process, they are most concerned about when they do not agree with                                                              
the rate that has been given, and they do not feel that their costs                                                             
are being covered, they need to have a timely process in place to                                                               
resolve the issues.                                                                                                             
CO-CHAIRMAN DYSON asked if they get paid during an appeal or are                                                                
the rates suspended.                                                                                                            
MR. HOUGHTON replied if the hearing officer rules in their favor                                                                
and the commissioner agrees, the rate will be adjusted per that                                                                 
decision back to whatever year they are actually appealing, and                                                                 
there is an incremental payment given to the facility.  Or vice                                                                 
versa, there would be a money withheld from future payments to that                                                             
Number 1688                                                                                                                     
LARRAINE DERR, President, Alaska State Hospital and Nursing Home                                                                
Association (ASHNHA), came forward to testify.  The association                                                                 
supports this legislation.  There are appeals outstanding from                                                                  
1994, and there is any where from $10 to $25 million dollars in the                                                             
pipeline.  It has been a problem for some time.  She had a letter                                                               
dated October 3, 1994 that Representative Gary Davis sent to the                                                                
DHSS from which she quoted:                                                                                                     
     It is my understanding that imposing a deadline on the                                                                     
     hearing officer's proposed decision was the legislature's                                                                  
     intent when it passed Senate Bill 431 in 1990.  It seems                                                                   
     one of the concerns addressed by SB 431 was the backlog                                                                    
     of medicaid appeals.  In several cases, health facilities                                                                  
     have waited, or are waiting, for more than two years for                                                                   
     a decision to be proposed.  Again, this does not seem to                                                                   
     be fulfilling the legislation's intent.                                                                                    
     I hope the department will consider the inclusion of a                                                                     
     deadline for a proposed decision within these proposed                                                                     
MS. DERR noted five years ago they were talking about some sort of                                                              
a deadline to give some finality to the process.                                                                                
Number 1598                                                                                                                     
GARTH HAMMOND, Chief Financial Officer, Bartlett Regional Hospital                                                              
(BRH), shared their experience related to a current appeal.  In                                                                 
December 1993, BRH installed a magnetic resonance imager (MRI).                                                                 
Eighteen months later in June 1995, the department conducted an                                                                 
audit and concluded, among other things, to disallow costs                                                                      
associated with the MRI; there were other issues in that audit.                                                                 
Twelve months later, the hearing officer of the department issued                                                               
a decision that was partly in their favor relating to the MRI.                                                                  
They had not, in fact, exceeded the cost up to the threshold to be                                                              
allowed.  In December of 1997, the commissioner sent the appeal                                                                 
back to the hearing officer with instructions to require more                                                                   
information about this Certificate of Need.  Eight months later in                                                              
August 1998, a decision was issued by the hearing officer on the                                                                
Certificate of Need issue; and they still don't have a resolution                                                               
to that question.  The MRI was installed in December 1993.  Now it                                                              
is 1999, and there has been no decision on that issue.  The                                                                     
department takes a long time.  The fact that the decisions take too                                                             
long costs money, as they have consultants and attorneys involved.                                                              
Since they have an open appeal rated to their fiscal year 1994                                                                  
audit, their 1996 rate; then it has become necessary for them to                                                                
appeal subsequent rates, and they pile up.                                                                                      
MR. HAMMOND noted that in July 1998, they made their final payment                                                              
on the MRI.  Now they are considering whether they need to upgrade                                                              
or replace that equipment since technology changes so quickly.                                                                  
They are still waiting for a decision from the state as to whether                                                              
they will pay them for the services provided to all patients,                                                                   
including Medicaid patients, which they pay for since the time the                                                              
equipment was installed.  There will be times when they will                                                                    
disagree, but there is no way to get resolution and move on in the                                                              
process.  The hearing is hung up waiting for whatever is next.                                                                  
REPRESENTATIVE BRICE asked what the level of complexity is involved                                                             
in the issues at Bartlett.                                                                                                      
Number 1440                                                                                                                     
MR. HAMMOND replied that the Medicaid rate system is a complex                                                                  
system, but the hearing officer moved along in making                                                                           
recommendations on it.  They went through a two week hearing, and                                                               
he has a box of paper; attorneys and consultants were involved on                                                               
both sides.  The hearing officer has made a recommended decision a                                                              
couple of different times on the issues.  The issues are complex,                                                               
but five or six years is a long time.                                                                                           
REPRESENTATIVE GREEN asked if there would have been a quicker                                                                   
resolve had there been some impartial way or fact that could say                                                                
the MRI charges are valid or not, and then allow them to get on                                                                 
with the process.  Since they are in limbo, they have no recourse,                                                              
except to try and get it rendered before they can go beyond that.                                                               
Number 1381                                                                                                                     
MR. HAMMOND commented that it could look like the hearing officer                                                               
is not impartial since she works for the department, but she has                                                                
ruled in their favor, and they still cannot get a decision out of                                                               
the department.                                                                                                                 
REPRESENTATIVE GREEN noted that Ms. Derr was commissioner of the                                                                
Department of Revenue at one time and asked her if, at that time,                                                               
there was an intermediary in tax appeal cases.                                                                                  
MS. DERR concurred there was a mediation step.                                                                                  
REPRESENTATIVE GREEN asked her if she thought something like that                                                               
would be helpful in this case.                                                                                                  
Number 1325                                                                                                                     
MS. DERR agreed there has got to be something better.                                                                           
CO-CHAIRMAN DYSON asked Mr. Hammond if they borrow against their                                                                
accounts receivable.                                                                                                            
MR. HAMMOND answered no they do not.                                                                                            
CO-CHAIRMAN DYSON asked what it costs them to have outstanding                                                                  
money due them.                                                                                                                 
Number 1291                                                                                                                     
MR. HAMMOND said BRH is in reasonable financial shape.  They                                                                    
borrowed on the MRI at about 5 percent; they earn 5 to 6 percent on                                                             
their investments.  There are hundreds of thousands of dollars for                                                              
them each year these appeals are outstanding.  Each year there is                                                               
the opportunity cost of not having that money for operations.  The                                                              
back interest is not paid so they don't have the money, and there                                                               
is no interest coming when there is a settlement.                                                                               
CO-CHAIRMAN COGHILL asked for clarification on the process of                                                                   
MR. HAMMOND explained that a rate is established, which in the                                                                  
hospital's case is a percent of charges.  When there is a dispute                                                               
or disagreement about that rate being too low, they appeal that                                                                 
rate.  If the department sets a rate at 65 percent of charges, they                                                             
are paid at that rate, and what is in dispute is the other 10                                                                   
percent the hospital thinks it should be.  The hospital is paid at                                                              
the lower rate; that is the cash they receive.  They appeal and,                                                                
pending a settlement, then the additional 10 percent will be                                                                    
computed and forwarded on.                                                                                                      
CO-CHAIRMAN COGHILL asked about the nature of the disputes and the                                                              
reason they are declined.                                                                                                       
Number 1164                                                                                                                     
MR. HAMMOND explained it is a complex issue.  The kinds of appeals                                                              
are varied.  In their case, the appeal on the MRI was that they had                                                             
signed a contract for the unit to be installed for less than $1                                                                 
million, which is the ceiling threshold on a Certificate of Need.                                                               
There were some unforeseen costs, and the bill was over $1 million,                                                             
so then the department disallowed all costs for that, saying BRH                                                                
should have obtained a Certificate of Need.  There is a complicated                                                             
year-end conformance calculation; there are allowances or                                                                       
disallowances disputes over whether certain kinds of costs should                                                               
be allowed or not.                                                                                                              
MR. HAMMOND cited an example in the Medicare program.  They make an                                                             
adjustment each time that disallows the cost of a telephone or                                                                  
television in a patient's room.  Most people take those things for                                                              
granted, but the Medicare program doesn't allow those costs.  It is                                                             
disputes over what kinds of costs are allowable and the kinds of                                                                
adjustments that are made to allowable costs to compute the payment                                                             
rate in the facility.                                                                                                           
Number 1001                                                                                                                     
JAY LIVEY, Deputy Commissioner, Department of Health and Social                                                                 
Services, came forward to testify.  He explained that DHSS is                                                                   
concerned about this bill because they believe it directly affects                                                              
their ability to control the Medicaid budget.  The facility's                                                                   
portion of the Medicaid budget is about 40 percent of total                                                                     
expenditures.  The primary method they have to control facility                                                                 
costs is how they set the reimbursement rate.  In hospitals, they                                                               
set up a percentage of charges, and in nursing homes they set a per                                                             
day rate.  That rate is set once a year for each facility.  That                                                                
rate is challengeable by the facilities, and that becomes the                                                                   
nature of the appeals.                                                                                                          
MR. LIVEY explained that every bill they get from BRH, they pay at                                                              
65 percent (or whatever the rate is), and that rate applies for the                                                             
rest of that year.  The nursing homes are paid a per day rate, and                                                              
hospitals are paid a per procedure rate, which includes supplies,                                                               
drugs, lab tests, x-rays, and so on.                                                                                            
CO-CHAIRMAN DYSON asked Mr. Livey what the hospital would be                                                                    
Number 0754                                                                                                                     
MR. LIVEY explained the way the rate system works is:  The                                                                      
department pays the facilities based on their cost of providing                                                                 
service to Medicaid patients.  The facilities fill out a cost                                                                   
report, which tells the department what all their costs are, and                                                                
the department audits the cost report.  Then they will say there is                                                             
a misallocation of square footage to Medicaid.  When the hospital                                                               
submits the bill to the department, they don't take the cost of                                                                 
televisions for Medicaid patients out of their bill, but the                                                                    
department takes them out.  Once those costs are taken out, then                                                                
the cost basis left becomes what the rate is calculated on.  They                                                               
are arguing about the costs that the department has taken out of                                                                
the bill, but the department pays the facilities the rate                                                                       
percentage of each bill throughout the year.  They set up the rate                                                              
at the beginning of the year; every time the hospital submits a                                                                 
bill on behalf of a Medicaid patient, they pay that rate.                                                                       
CO-CHAIRMAN COGHILL asked if it is true during the appeals process                                                              
that the department pays in the 70 to 80 day period.                                                                            
Number 0485                                                                                                                     
MR. LIVEY replied that that is what the gentleman from Alaska                                                                   
Regional Hospital testified, and he was actually surprised; he                                                                  
thought they paid the bills faster.  In the Medicaid program, they                                                              
pay bills electronically, and he believes they pay almost all of                                                                
their bills within ten days.  Hospital bills must be treated                                                                    
differently, he is not questioning Mr. Houghton, but they pay on a                                                              
regular schedule.  The percentage that BRH gets goes into the                                                                   
computer when the bill comes in, and the bill is cleared, then they                                                             
just pay it.  They don't have to argue over every bill that comes                                                               
CO-CHAIRMAN COGHILL asked if their auditing process happens after                                                               
the fact.                                                                                                                       
MR. LIVEY answered yes.  When they are ready to set a rate for a                                                                
facility, and if the facility has a July 1 fiscal year, they will                                                               
set a rate that starts their new fiscal year on July 1, 1999.  They                                                             
will have taken a look at all of their expenditures in their fiscal                                                             
year 1996.  The facility does a cost report for the DHSS; they tell                                                             
the department all their expenditures related to Medicaid for the                                                               
year 1996.  The DHSS then audits those 1996 costs; they inflate                                                                 
those costs by two years, because there are two years in between,                                                               
and that becomes their 1999 rate.  They are arguing over the cost                                                               
that is located in the cost report.  If the DHSS doesn't take those                                                             
costs out, then they will roll into 1999 and into future years.                                                                 
Being able to audit those cost reports is critical.                                                                             
CO-CHAIRMAN COGHILL asked if the time frame on those might require                                                              
a history search of two years.                                                                                                  
MR. LIVEY answered any appeal that is filed, for example, if they                                                               
set a facility rate in July 1999, that rate will be appealing the                                                               
1996 audit.  There is a history then of going back and reviewing                                                                
the costs, and the cost report that went into setting that 1999                                                                 
Number 0295                                                                                                                     
CO-CHAIRMAN COGHILL asked how long the hearing officer has to                                                                   
review that before forwarding it on, and if there is a time frame                                                               
for the hearing officer.                                                                                                        
Number 0285                                                                                                                     
MR. LIVEY answered there is language in AS 47.070.075 that the                                                                  
hearing officer has to schedule a hearing within 120 days, unless                                                               
there is good cause for her not to do that.  In the past, they have                                                             
assumed that good cause meant that they couldn't get hearings                                                                   
scheduled.  They have one hearing officer and limited attorneys on                                                              
the state side to do this work.  There are a couple of attorneys on                                                             
the facility's side that do most of this work, and so the reality                                                               
is, it takes a year and a half to even schedule a hearing.  In one                                                              
proposed decision from the hearing officer for the DHSS to review,                                                              
the decision itself was 200 pages.  The transcripts that they were                                                              
sent to review in that case had 1,500 pages, and that didn't                                                                    
include all the depositions.  These are very complicated cases.                                                                 
CO-CHAIRMAN COGHILL agreed all that paperwork would take a long                                                                 
time to go over, but also there should be some finality.  He                                                                    
wondered if they put more than a 30-day limit would that give the                                                               
department more latitude.                                                                                                       
Number 0074                                                                                                                     
MR. LIVEY agreed a longer period of time would make them feel                                                                   
comfortable.  He agrees that it takes too long to do appeals.  He                                                               
thought Ms. Derr's suggestion of setting up a mediation process is                                                              
a good idea.  Once they get in to the appeal, and they are under                                                                
the Administrative Procedures Act, then they are into depositions                                                               
and evidence and formal hearings, post hearing briefs, and so                                                                   
forth, which takes a lot of time and costs money.  They need to set                                                             
up a process to short circuit the appeals, or reduce the number of                                                              
issues that go forward.                                                                                                         
TAPE 99-36, SIDE A                                                                                                              
[Due to recording malfunction, the following testimony was                                                                      
reconstructed from log notes.]                                                                                                  
CO-CHAIRMAN DYSON asked Mr. Livey why the department hasn't done                                                                
anything about this problem sooner.                                                                                             
MR. LIVEY answered that they have had other things take priority                                                                
for their time and money.  It hasn't been at the top of their list,                                                             
but now it is.                                                                                                                  
CO-CHAIRMAN DYSON asked if it was because they don't have enough                                                                
MR. LIVEY answered that they only have one hearing officer.                                                                     
CO-CHAIRMAN DYSON asked if there has been any discussion on paying                                                              
MR. LIVEY would have to check on that; it may be a legal issue.                                                                 
CO-CHAIRMAN DYSON asked how long would it take them to improve the                                                              
MR. LIVEY answered it will take time to find the resources, but he                                                              
believes it will take at least a year to see a reduction in time.                                                               
CO-CHAIRMAN DYSON asked him if they could work out the mediation                                                                
MR. LIVEY agreed they could work on that.                                                                                       
REPRESENTATIVE GREEN hopes they can find a real workable solution                                                               
and he is amenable to that by next Thursday.  Time is of the                                                                    
essence for the businesses, and he hopes they can move toward a                                                                 
resolution that represents both sides.                                                                                          
CO-CHAIRMAN COGHILL announced they will take this up again a week                                                               
from Thursday.  [HB 168 is held over.]                                                                                          

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