Legislature(1999 - 2000)
04/06/1999 06:04 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 106(JUD)
"An Act relating to actions of the Department of
Health and Social Services regarding certain health
facility payments."
This was the first hearing on this bill.
Senator Robin Taylor, sponsor of the bill, testified. He
told the committee SB 106 was an act relating to decisions
regarding certain health care facility payments. It was
meant to correct a problem with the Medicaid rate setting
and appeals process. That problem was one of process
itself.
He referred to a handout showing the Medicaid Rate Advisory
Commission open appeal history. He drew the members'
attention to a couple items. In 1991 the Wesley
Rehabilitation and Care Center appealed. They again
appealed their rates for each year from 1992 through 1997
and 1999. That gave an example of how far back these
problems existed. This one finally got a court decision and
the facility submitted a proposed summary of judgement
order to the Kenai Superior Court. The administrative
appeal was stayed in 1995. These matters were still
pending and the amounts had never been paid to this
facility. He thought the Department of Health and Social
Services was waiting for a final court decision.
He detailed additional administrative appeals filed from
1990 through 1998. Another example was with North Star
Hospital, which had filed bankruptcy since the multiple
appeals were submitted. He didn't know the relationship
between the unpaid claims and the bankruptcy.
He gave a history of the process where the rates used to be
set by a panel made up of gubernatorial appointees from
hospitals across the state. Under the Cowper
Administration, the process was returned to the department
for rate determination.
When the bill was heard in the Senate Judiciary Committee,
Senator Robin Taylor questioned a witness on how the
current procedure was working. He found the response
incredible. It had taken seven years to adopt regulations
to implement the program. That was what the facilities
were up against, he stressed. He anticipated the department
would provide the committee with explanations for the
delays and difficulties in resolving the appeals. What they
were really doing was slow rolling and delaying the
process, so they didn't have to pay the bill, he accessed.
He originally thought the bill would have a $20 million
fiscal note. Instead he was told it would be closer to $10
million. That was in claims that had not been paid to the
hospitals that Alaskans and their families went to. Almost
every hospital in the state had been involved in the
appeals at one time or another. The hospital had to carry
its cost during the proceedings and they charged the
patients because they were not receiving reimbursement from
the state.
He stated that the department was not idly sitting back
waiting for the Legislature to decide in this bill. They
heavily opposed the legislation. The department did not
want the Legislature telling the department that there
should be some finality in the process.
The bill proposed that once the appeal went through the
hearing officer process, if the hearing officer rendered a
decision then the commissioner had thirty days to either
abide by the decision or take other action. The bill also
provided that the appellant also had a right at that point
after the thirty-days had elapsed to take the matter to
court for a final decision.
He referred to a letter from Financial Consultants of
Alaska relating to the audits that were discussed in the
Senate Judiciary Committee. According to the letter, it
should be noted that the audit staff had conveniently timed
the release of Ketchikan General Hospital's 1997 audit on
February 19, 1999 - almost two years later. That audit was
commenced on April 30, 1998. Petersburg Medical Center's
1997 audit was released March 17, 1999 and was commenced on
June 17, 1998, almost a year before. Central Peninsula's
and Cordova Hospital's 1997 audits were released on April
2, 1999. He did not believe staff had just finished the
audits since none of the facilities had any correspondence
for months in this regard. The letter went on to explain
that the facilities had asked for the information, not had
it provided, heard nothing and once the legislation started
moving, the audits were released. Senator Robin Taylor
said the department was punishing the facilities by
nonverbally saying, "if you mess around with us in the
Legislature, we'll mess around with you too," and drop the
audits. This was not an accident and it was not a
coincidence, he emphasized.
He spoke about Bartlett Regional Hospital's MRI machine
reimbursement difficulties. The life span of the machine
was spent and the hospital was purchasing another MRI. Yet,
they never were reimbursed for the first machine purchased
five years ago because the department continued to delay
the process. When the hospitals complained, the department
required audits. The patients had to pay the difference.
He did not feel it should not take seven years to draft the
regulations.
Senator Pete Kelly spoke to a $10 million fiscal note and
didn't see that in the packet. Co-Chair John Torgerson
clarified that there was $10 million in outstanding in
claims although the fiscal notes totaled $507,200. Senator
Robin Taylor wanted the committee to be aware of the
gravity of the problem. He realized the fiscal note was
much smaller than what he anticipated the actual of the
legislation would be. When the appeal reached the court and
judged looked at the hearing officer's decision and if the
judge determined the hearing officer was correct and the
amounts should have been paid, the department would not
only be required to pay the claim, but also interest. He
felt those total claims gave a better idea of what the
total fiscal impact would be. He hesitated to note that
since it would be counterproductive to the passage of the
bill. At the same time, he felt the system needed to be
corrected.
Senator Gary Wilken wanted to understand the structure.
Who paid for the hearing examiner? Senator Robin Taylor
answered the hearing officer was a member of the department
and that was another problem he was trying to address
through other legislation. He quantified that he thought
the hearing officers did a good job, but they were under
pressures from within their own department to follow
policy. Senator Gary Wilken asked who sat on the Medicaid
Rate Advisory Commission. Senator Robin Taylor said the
commissioner appointed them. He was unsure who the members
were, but thought they were primarily in-house. They were
present at this meeting.
Senator Al Adams looked for a solution to the lengthily
open appeals.
Tape: SFC - 99 #79, Side B 6:51 PM
Senator Al Adams noted the bill suggested hiring more
hearing officers as one option. He wondered if the sponsor
had considered establishing a rate-setting process for all
facilities in the state.
Senator Robin Taylor replied that it was the department
that claimed they would need more hearing officers. He felt
they would actually need fewer, since the process would be
shortened.
Senator Robin Taylor commented on Senator Al Adams's
proposed solution. He had been working with the co-chair on
this and suggested Senator Gary Wilken might have
experience to offer. He was willing to continue to work
with members of the committee to find a solution. He saw
this bill as a narrow, partial answer to the problems. He
was not attempting to solve the entire rate setting process
because it was very complex.
Co-Chair John Torgerson added that he supported the intent
of the bill, but he wanted to get to the core of the
problem. He had not determined how much could be solved
with this bill alone. He wanted to see change in the way
the rates were set. He detailed some of the potential
conflicts that could arise ask this task was addressed.
JAY LIVEY, Deputy Commissioner, Department of Health and
Social Services, testified. He agreed with the base of the
legislation stating that the rate setting process and the
appeals process needed to be improved. He knew there were
many frustrations by administrators, Legislators and
himself. The system was too complicated. The system
generated many appeals simply by the nature of the process.
Appeals took much too long to work through the system as
shown in the material provided to the committee. The system
also became too expensive to operate for both the
facilities and the state.
He wanted to point out the importance of the rate-setting
and appeals system. Forty-percent of the current Medicaid
budget went to Medicaid facilities, the hospitals and
nursing homes. That was almost $140 million out of a $340
million budget. To the department, the integrity of the
appeals and rates system obviously was a critical issue in
controlling the cost for the Medicaid program
He explained the relationship between the rate setting
system and the appeals process. The department established
a reimbursement rate for hospital or nursing home every
year. That rate essentially defined and established how
much the department paid that hospital or nursing home on
behalf of Medicaid patients. The rate varied considerably
across hospitals and across nursing homes between a low
rate of $187 per day at one nursing home and high rate of
approximately $600 per day in another nursing home. That
was because the department set an individual rate for each
facility. That rate was based on that particular facility's
cost structure. The facility would send the department a
cost report that defined and clarified what their costs
were.
The department audited those cost reports because they
wanted to make sure that all the costs listed in the report
were legitimate. For example, a hospital may have 15-
percent of its patients as Medicaid eligible. The
department wanted to make sure that in the cost report, the
facility only charged the state 15-percent of their total
cost, in proportion to the Medicaid patients.
Those cost reports then became the basis for the Medicaid
rate. If the department could not do a good job of auditing
those cost reports, they would not have control over the
expenditures to the facilities.
Many of the appeals happened because the facilities
questioned the audit of the cost report. The audits
approved or disallowed each line item. By doing that for
each facility every year, many appeals were generated. He
spoke to the multiple appeals submitted by the same
facilities. He clarified that the appeals were for
different issues. A new cost basis was set each year and
the facilities appealed that basis.
Co-Chair John Torgerson asked for an example of the
different audits. If the department was looking at
different things every year, how many things were there to
look at, personnel costs, building costs, operating costs,
etc.? Jay Lively added some facilities were part of chains
and had home office costs and he detailed.
Co-Chair John Torgerson asked if it was a federal
requirement to audit. Jay Lively said it had been under
the Warren Amendment. Co-Chair John Torgerson said that
since that provision was gone he wanted to know why
certified private accountants weren't used. Jay Lively
explained that there was a specific cost structure that was
based on Medicare costs. That provided for the audit
structure that the department used and prevented the state
from needing to define all the facility did and eliminated
the need for separate books for Medicare and Medicaid.
Co-Chair John Torgerson asked how many auditors were
employed in the department. An unknown speaker answered
approximately 12. Jay Lively added that the department also
contracted auditing firms to do some of the audits.
Co-Chair John Torgerson restated that a certified public
accountant should be doing the audits.
Co-Chair John Torgerson asked the total number of claims
this bill would address. Jay Lively referred to a Summary
of Appeals Activity handout showing 40 appeals outstanding
with a total of $10 - 12 million in claims.
Co-Chair John Torgerson wanted to know if once the rates
were set if this would be a yearly cost. Jay Lively
answered yes because this would go into the base cost of
the facility and therefore would be paid every year. Co-
Chair John Torgerson then asked how much of that would be
federally funded. Jay Lively replied that for these
facilities it would be 60-percent federal, 40-percent state
on average.
Co-Chair John Torgerson asked for comment to Senator Robin
Taylor's allegations that the department did excessive
audits in retaliation to the appeals. Jay Lively responded
that within the department's auditing regulations, was a
calendar, which set out the process for setting the rates.
As part of that calendar, there was a date of June 30 by
which the department had to release all the audits that
would apply to the rates that were set for the next fiscal
year. The date for the release of those audits had just
past so they were released as part of the normal rate
setting process. It happened during this time in the Spring
and again in November for the rates that were set in
December.
Jay Lively also noted that on the Summary of Appeals
Activity sheet, there were 15 facilities that currently had
no appeals and so the system was working for them. Out of
the 40 appeals, 21 were stayed at the request of the
facilities. They were generally appeals that were awaiting
some kind of court action. There was a similar issue before
the court and these appeals would wait until that decision
was written. The court decisions generally addressed the
use of audits to set rates. Two years ago, the Legislature
adopted legislation that clarified the department could use
audits to set rates. That had previously been in question
because of the way the statutes were written. The court
cases were a result of appeals of audits performed prior to
the statute change. That was a multimillion-dollar issue
and Jay Lively assumed it would go on to the Supreme Court.
The pending appeals would be stayed until after that
Supreme Court decision was made.
Co-Chair John Torgerson wanted to know if when a decision
was stayed, if the department paid a portion of the cost or
waited until they lost the court case and pay
retroactively. Jay Lively explained that when the
department set the rates, they set the reimbursement rate
based on the allowable cost. Co-Chair John Torgerson asked
if that was the amount the department allowed through the
audit. Jay Lively confirmed and continued that those costs
that were not included in the allowable costs and
subsequently challenged were not included in the facilities
base and not paid. If the department lost the appeal, they
would have to go back and pay the claims. In that sense,
the $10 million was a potential liability to the state. On
the other hand, had the department conceded on all the
points at the time they came up, the department would be
paying that money year after year in the base without ever
having the possibility of having them excluded.
Co-Chair John Torgerson did not consider this a liability
if the state lost the court case. He felt the department
went through the process.
Senator Al Adams also asked about the audit procedure. If
the department disagreed with the rate, set by the
facility. For example, if there was a $10 discrepancy on a
$500 per day hospital bill, did the department hold payment
on the entire amount or just the $10 discrepancy? Jay
Lively answered the latter. The department paid the
allowable amount as determined by the audit.
Senator Al Adams then wanted to know if most of the appeals
were for the amounts that fell out of that reimbursement
rate schedule. Jay Lively replied that was correct.
Jay Lively returned to the topic of the appeals process.
There had been some information that the appeals were being
remanded multiple times. He disagreed and explained the
remand process. When a hearing officer wrote a decision, it
was submitted to the commissioner who had two choices. The
commissioner could either accept the decision as written,
which gave the facility the opportunity to challenge the
decision in Superior Court, or the commissioner could
remand the decision back to the hearing officer.
When a decision was remanded to the hearing officer it
could be for several reasons. One reason could be that the
decision went against department policy. Another reason
would be that the department believed that more evidence
was needed. He noted that the commissioner had not remanded
the same decision more than once.
He wanted to clear up misinformation regarding a Valley
Hospital appeal remanded multiple times. He explained that
the appeal was still at the hearing officer level and there
had not been a decision issued to the department for the
commissioner to review.
He concluded by commenting on the issue raised about the
multiple year rates. The facility had the ability to appeal
each year's rate or any of the audit adjustments associated
with that rate. Concluding one appeal did not necessarily
have anything to do with the next year's appeal. Each year
stood alone based on that year's audit.
Co-Chair John Torgerson understood but knew there was a
problem or this legislation would not be before the
committee. He was committed to trying to fix the problems.
He realized major changes could not be immediately
implemented.
Senator Al Adams asked what was the Wesley litigation and
how did it trigger the other appeals. Jay Lively explained
it was the case that dealt with the matter of using audits
to set rates. Many other appeals were stayed pending the
outcome of the court determination. If the Superior Court
ruled that the department could not use audits to set
rates, that would affect the other appeals.
Senator Al Adams asked for further clarification. Jay
Lively explained that the department audited the facility's
cost report, which became the basis for the reimbursement
rate. The Wesley Rehabilitation and Care Center and several
other facilities were claiming that the department did not
have the statutory authority to audit those cost reports.
The department claimed it did have the authority and came
to the Legislature two years ago with clarifying
legislation to support and clarify that. The court case and
related pending appeals were for audits done prior to the
adoption of the legislation.
Senator Gary Wilken repeated his question of the
composition of the Medicaid Rate Advisory Commission, how
they were appointed and the length of terms. Jay Lively
answered the commission had five members appointed by the
Governor. One member was a hospital administrator, one
member was a physician, one was a CPA, one was a consumer
representative and one was a representative of either the
Department of Administration or the Department of Health
and Social Services. He believed their terms of office were
three years, but was not positive.
Senator Dave Donley noted the earlier testimony that the
timing of the audit's release was coincidental. He asked
why the South Peninsula Hospital independent audit report
was dated July 31, 1998 and only released by the department
recently. Why did the department hold onto the report 236
days after it was completed? Jay Lively was unsure of the
specific instance but said the normal process of the audit
system was to send a draft to the facility for comment two
months prior to setting the rate. Senator Dave Donley
wanted to know why the audit wasn't given to the facility
earlier to allow them additional time to comment. Jay
Lively said the audits were normally released as soon as
they were complete. He would look into the matter of the
long delays.
Co-Chair John Torgerson directed him to supply that
information to the committee.
GARTH HAMMOND, Chief Financial Officer, Bartlett Regional
Hospital, testified. He reviewed information with the
committee regarding the MRI equipment situation. He listed
the dates of installation (December 1993), the Department
of Health and Social Services audit for the fiscal year
ending June 30, 1994 (issued June 1995), denial for
reimbursement and the appeal. The hearing officer decision
ruled partly in the hospital's favor (issued January 1997),
remand back to the hearing officer by the commissioner
(December 1997), the second hearing officer decision in the
hospital's favor (August 1998). The appeal was in a current
stalemate with the hospital understanding that the
department planned another, more formal appeal.
He told the committee that the delay cost the hospital time
and therefore, money. The MRI issue was looked at a number
of times in a number of different ways. He spoke to his
large box containing the files related to this appeal.
Since there was an open appeal on the 1996 rates based on
the 1994 audit, the staff had continued to make adjustments
each year to disallow appreciation and interest expenses on
the MRI. These adjustments resulted in the appeal of
subsequent year's rates. He anticipated the hospital would
also appeal the 1999 rates.
He spoke about the issue that the hearing officer was an
employee of the Department. That could be a concern that
it may create a situation for a bias against the facility.
He noted that the hospital financed the purchase of the
MRI, which had outlived its useful life. July 1998, the
hospital made the final payment on the machine without
having received any compensation from Medicaid. The
hospital provided the MRI service to anyone who needed it
including Medicaid patients. They were in the process of
purchasing a new machine.
Co-Chair John Torgerson asked for suggestions to
structurally change the statutes to improve the rate-
setting process. Garth Hammond did not have any on hand.
Co-Chair John Torgerson requested he give it some thought.
Senator Al Adams asked if when the department released the
rate schedule did the hospital notice the omission of the
MRI. Garth Hammond said they had noticed and said it was
obvious the department did not agree the costs of the MRI
should be included. Senator Al Adams asked if the
department stated it would be disallowed before the
hospital had incurred the cost of the MRI. Garth Hammond
answered no.
Senator Robin Taylor returned to the table to rebut the
department's testimony. He challenged the $10 million
annual figure. He did not think the amount would increase
by $10 million for each year. Instead he speculated the
total would be spread out over no more than five or six
years in accumulated claims. Co-Chair John Torgerson
understood.
Senator Robin Taylor noted another letter he just received
that he wished to be distributed to the committee. He
granted that he was probably speaking off the cuff on the
issue related to the Valley Hospital. However, it was
interesting to him that of the 13 decisions issued since
1994, 12 were in the facilities favor and every one was
remanded. Only one decision was not remanded and that was
against the facility.
He had spoken to a hearing officer. He read her statement
from the report regarding the Valley Hospital appeal into
the record. "Affidavit lacks credibility (referring to the
state's affidavit.) Affidavit established a pattern by the
agency of preparation and filing of inaccurate and
incorrect exhibits illustrating a lack of candor and
apparent inability to competently perform the calculation.
Exhibits submitted by the state has been shown to be
inaccurate, unreliable and to contain unsupported changes
in the treatment of source data. The state made
misrepresentations about exhibits in its opposition to
Valley's motion. Representations made were untrue." These
were damning comments especially coming from an employee of
the department he stressed. There was a serious problem
that needed to be resolved. He felt Valley Hospital was
treated poorly.
He continued saying the audits were not released simply
because of the time of year. The auditing process was
completed in July and the department was supposed to send
the reports to the hospitals. Instead, the department held
the audits until the end of the year, dropped them on the
facilities allowing forty days for comment while they were
faced with the current year's deadlines to meet. This
process resulted in further appeals since the facilities
had to appeal the rate for the following year because it
couldn't be resolved the previous year.
Co-Chair John Torgerson ordered the bill held in committee.
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