Legislature(1999 - 2000)

03/10/1999 01:39 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
            SB  84-CIGARETTE SALES: AGREEMENT/ESCROW                                                                            
              SJR  7-TOBACCO LITIGATION SETTLEMENT                                                                              
VICE-CHAIRMAN KELLY called the Senate Health, Education and                                                                     
Social Services (HESS) Committee to order at 1:39 p.m. and                                                                      
announced that Attorney General Bruce Botelho would give a brief                                                                
overview of the tobacco litigation.                                                                                             
Number 014                                                                                                                      
MR. BRUCE BOTELHO, Attorney General, explained that Alaska first                                                                
became entangled in the "tobacco wars" just prior to the 1997                                                                   
legislative session.  At that time the tobacco industry filed a                                                                 
lawsuit in federal court to enjoin the potential filing of a                                                                    
lawsuit by the State of Alaska.  That industry lawsuit was                                                                      
dismissed by the District Court in Anchorage, appealed to the                                                                   
Ninth Circuit and ultimately dismissed as a result of the                                                                       
settlements that were achieved.  Alaska filed a lawsuit in                                                                      
April 1997 and that litigation became part of two national                                                                      
tobacco litigation settlement efforts. In the first effort, on                                                                  
June 20, 1997 federal legislation would have been required for                                                                  
ratification of that settlement, and the settlement was not                                                                     
ratified.  As a consequence, the states proceeded to trial.                                                                     
Four states ended up settling at various stages, either                                                                         
immediately before or during trial.  Last November, 46 states                                                                   
and the remaining U.S. territories reached a second nationwide                                                                  
settlement, one that did not require congressional action, but                                                                  
accomplished some of the fundamental goals Alaska was seeking.                                                                  
These public health goals sought prohibition against marketing                                                                  
tobacco to children and the establishment of two programs:  a                                                                   
national education program against tobacco misuse, and the                                                                      
creation of a foundation to help fund research against the use of                                                               
tobacco by young people. The second settlement changed a wide                                                                   
variety of industry practices and resulted in monetary payments                                                                 
to the states. For Alaska, payments will total about $670 million                                                               
over a 25-year period.  The first payment will be made before the                                                               
conclusion of FY 2000 and will consist of two installments of                                                                   
about $8 million and $22 million dollars.                                                                                       
MR. BOTELHO said related issues still needing attention have led                                                                
to today's hearing in HESS on  proposed tobacco legislation.  The                                                               
first issue involves claims made by the federal government to                                                                   
recoup some portion of the monies the states negotiated with the                                                                
tobacco industry.  According the federal government, the claims                                                                 
arise out of the Medicaid law that would mandate that as much as                                                                
$400 million of the $670 million Alaska settlement be paid to the                                                               
federal government.  Not surprisingly, the states have                                                                          
collectively objected to any effort to take that money from them.                                                               
MR. BOTELHO referred the committee to the materials he provided                                                                 
that outline the rationale for the state's refusal to support                                                                   
this effort.                                                                                                                    
Currently there are bills in Congress that would block efforts to                                                               
recoup those monies.  The U.S. Senate is considering S.R. 346 as                                                                
part of its supplemental appropriations.  It is sponsored by                                                                    
Senator Hutchison of Texas and co-sponsored by Senator Murkowski,                                                               
among others.  If enacted, S.R. 346 would bar the federal                                                                       
government from making these claims.   In the House, there is                                                                   
very strong sentiment to block federal efforts, with 90 members                                                                 
co-sponsoring similar legislation.                                                                                              
The second issue relates to non-participating tobacco manu-                                                                     
facturers.  This legislation is the result of negotiations                                                                      
between the states and the industry, with representation from                                                                   
about 98% of all U.S. tobacco manufacturers. The intent of this                                                                 
legislation is to ensure that "renegade companies" that did not                                                                 
sign on to the deal are not given an unfair advantage in                                                                        
marketing to gain a substantial market share.                                                                                   
MR. BOTELHO concluded by saying this is basically the historical                                                                
context leading to the legislation currently on the committee's                                                                 
Number 127                                                                                                                      
VICE-CHAIRMAN KELLY asked if the money the federal government                                                                   
wants Alaska to return would be a strict payment, or would                                                                      
supplant federal funding over the next few years with settlement                                                                
MR. BOTELHO replied the strategy in the specific claims has not                                                                 
been made clear.  A lawsuit has been asserted, and certain states                                                               
received letters from the Health Care Finance Administration                                                                    
(HCFA), which runs Medicaid, claiming HCFA is entitled to these                                                                 
The federal government could accomplish payment in either of                                                                    
two ways: simply withhold funds from the states year by year to                                                                 
recapture the monies, and force the states to sue; or sue the                                                                   
states to establish the proposition that the federal government                                                                 
is entitled to those monies.  Most likely, the federal government                                                               
would choose the first option and withhold payments to the state                                                                
under Medicaid as a way to recoup annually, and put the burden on                                                               
the state to litigate.                                                                                                          
Number 153                                                                                                                      
VICE-CHAIRMAN KELLY asked if the federal government were to                                                                     
withhold funds, would it be done administratively or through                                                                    
enacted legislation.                                                                                                            
MR. BOTELHO responded the Clinton Administration's position is                                                                  
that it has administrative power to do this, resulting in the                                                                   
desire by sponsors in both houses of Congress to expressly bar                                                                  
such an effort.  The Clinton Administration has indicated it will                                                               
not act on this during FY 2000, so there would be no attempt to                                                                 
"grab" Alaska's first payment.  There is recognition that this is                                                               
a major issue for the states and that it has widespread and                                                                     
bipartisan support in both chambers.                                                                                            
VICE-CHAIRMAN KELLY asked if the language of the settlement is                                                                  
wide open with no sideboards relating to this issue.                                                                            
MR. BOTELHO responded there are no sideboards but the states have                                                               
taken the position that while the states used Medicaid as a                                                                     
measure of damages in calculating how much each state should                                                                    
receive, the claims were not based on Medicaid recoupment but                                                                   
rather on the on-going antitrust, public nuisance and consumer                                                                  
protection violations of the last 40 years.  In the department's                                                                
view, the federal government would not be entitled to any of                                                                    
these dollars; that's precisely the issue.                                                                                      
Number 181                                                                                                                      
SENATOR ELTON asked if Mr. Botelho has problems with either SB 84                                                               
or SJR 7, and if the Department of Law prefers the House Joint                                                                  
Resolution or the Senate Joint Resolution.                                                                                      
MR. BOTELHO replied the department is quite supportive of both                                                                  
pieces of legislation.  SB 84 is a direct result of negotiations                                                                
between the states and the industry.                                                                                            
The department prefers the House version of the resolution,                                                                     
though both resolutions accomplish the same objectives. The                                                                     
objectives are to put the Legislature on record regarding the                                                                   
state's recoupment, to ask Congress to pass legislation, and to                                                                 
ask the Clinton Administration to sign that legislation and                                                                     
refrain from any administrative action.  However, in the Attorney                                                               
General's view, the advantage of the House version is that it                                                                   
specifically addresses the Alaska situation and acknowledges that                                                               
Alaska never made any Medicaid claim.  To the department, the                                                                   
House version is a more forceful statement of Alaska's position                                                                 
that could work  more to the state's advantage if it litigates                                                                  
with the federal government in the future.                                                                                      
Number 220                                                                                                                      
MR. DOUG GARDNER, Assistant Attorney General, stated he has                                                                     
worked on SB 84 and on tobacco litigation for the Attorney                                                                      
General.  He explained that  the department signed the Master                                                                   
Settlement Agreement with the tobacco industry, and it is                                                                       
expected that all the states will attempt to pass this model                                                                    
statute.  The model statute is important because its passage                                                                    
would prevent a "renegade company," a small manufacturer, from                                                                  
circumventing all the restrictions in the settlement, essentially                                                               
dumping cheap cigarettes on the market and enjoying a cost                                                                      
advantage.  Preventing this would be a major advantage from a                                                                   
public health standpoint and would ensure that everyone is                                                                      
playing by the same rules.                                                                                                      
Secondly, if Alaska didn't pass the model statute and the                                                                       
industry experienced reductions in its market share as a result                                                                 
of the settlement, the amount by which the industry would be                                                                    
entitled to reduce the payments to the states would be spread                                                                   
over those states not having the statute in place. In other                                                                     
words, a small number of states would bear the entire burden of                                                                 
the industry's market share reduction.  He explained the model                                                                  
statute is Exhibit T to the Master Settlement Agreement.  MR.                                                                   
GARDNER said the department worked with the industry and others                                                                 
to ensure that the statute would work under Alaska law. It was                                                                  
painstakingly drafted, and Phillip Morris, at least, agrees that                                                                
it is a qualifying statute under the terms of the Agreement.                                                                    
Number 255                                                                                                                      
SENATOR WILKEN asked Mr. Gardner how much money would be involved                                                               
if Alaska didn't pass the model statute to protect itself under                                                                 
the NPM risk  or "Non-Participating Manufacturer Adjustment."                                                                   
MR. GARDNER replied it's a hard question to answer as it would                                                                  
depend on hypotheticals, including how many states failed to pass                                                               
the model statute and how big the industry's market share is. The                                                               
reduction could be sizeable, and could cut Alaska's settlement                                                                  
dollars in half.                                                                                                                
Number 268                                                                                                                      
VICE-CHAIRMAN KELLY asked the will of the committee regarding SB
SENATOR WILKEN moved to pass SB 84 out of committee with                                                                        
individual recommendations and the zero fiscal note.  Hearing no                                                                
objection, it was so ordered.                                                                                                   
Number 280                                                                                                                      
VICE-CHAIRMAN KELLY brought up SJR 7 and asked the sponsor to                                                                   
read the testimony into the record.  He announced the committee                                                                 
would hold the bill over until Chairman Miller returns.                                                                         
MR. MARK HODGINS, aide to Senator Ward, explained SJR 7 urges                                                                   
Congress to enact legislation preventing the U.S. Department of                                                                 
Health & Social Services from recouping state tobacco settlement                                                                
funds as third-party recoverees under the Medicaid law.  The                                                                    
sponsor, Senator Ward, was asked by the National Conference of                                                                  
State Legislatures to bring forward this model legislation as                                                                   
part of a nationwide plan to prevent the federal government from                                                                
taking states' tobacco industry settlement dollars.                                                                             
SJR 7 asks Congress and the Clinton Administration to recognize                                                                 
the state of Alaska's interest in enacting legislation that would                                                               
prohibit the federal government from recouping the tobacco                                                                      
settlement funds.                                                                                                               
Number 311                                                                                                                      
VICE-CHAIRMAN KELLY brought up Attorney General Botelho's                                                                       
preference that the committee pass the House version, and he                                                                    
asked Mr. Hodgins how the two resolutions differ.                                                                               
MR. HODGINS replied the only differences relate to Alaska's                                                                     
position regarding the Medicaid references, but he was unable to                                                                
explain those differences.                                                                                                      
VICE-CHAIRMAN KELLY announced that SJR 7 and HJR 12 would be held                                                               
over until the next meeting on Monday, March 15.  With no further                                                               
business before the committee, it was adjourned at 2:10 p.m.                                                                    

Document Name Date/Time Subjects