Legislature(2001 - 2002)

02/13/2002 01:37 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               SB 256-CERTIFICATE OF NEED PROGRAM                                                                           
MR. DAVID  PIERCE, CON Coordinator  with the Department  of Health                                                              
and Social Services (DHSS), gave  the following explanation of the                                                              
CON application process.   An applicant first submits  a letter of                                                              
intent to DHSS that contains: the  name of the applicant; when and                                                              
where the facility will be, the estimated  cost, and the estimated                                                              
start and completion dates.  A CON  is required if the facility is                                                              
determined to be a health care facility  and the project will cost                                                              
$1  million  or  more.    If  the   project  meets  the  criteria,                                                              
applicants  are sent  a letter notifying  them  that they must  go                                                              
through the CON process.                                                                                                        
CHAIRWOMAN  GREEN  asked  for  the definition  of  a  health  care                                                              
MR.  PIERCE said  a hospital,  nursing  home, ambulatory  surgery,                                                              
kidney dialysis  and a free standing  hospital of some  other type                                                              
meet the definition.                                                                                                            
CHAIRWOMAN  GREEN  asked  if  the nursing  home  moved  into  that                                                              
category in 1996.                                                                                                               
MR. PIERCE  said nursing homes have  always been reviewed  but the                                                              
threshold was changed in 1996.                                                                                                  
CHAIRWOMAN GREEN announced the presence of Senator Davis.                                                                       
MR.  PIERCE  explained  that  CON  regulations  require  a  60-day                                                              
waiting  period  between  receipt  of  the letter  of  intent  and                                                              
receipt  of the  application.   That  gives him  time to  complete                                                              
other applications and prepare.                                                                                                 
CHAIRWOMAN GREEN asked if those who  are planning the facility can                                                              
expend any money during that time.                                                                                              
MR. PIERCE said  they can expend up to $1 million  in the planning                                                              
process but cannot cross the $1 million threshold.                                                                              
CHAIRWOMAN GREEN asked if that applies before they come to him.                                                                 
MR. PIERCE said  it does because the only trigger  is a $1 million                                                              
CHAIRWOMAN GREEN asked Mr. Pierce  what is done with the letter of                                                              
MR. PIERCE said  it is a one or two page document.  He has 20 days                                                              
to review  it but he  can usually make  a determination in  two or                                                              
three days.  If the  project is  a health  care facility  and will                                                              
cost  over $1 million,  he  sends a letter  saying  a CON will  be                                                              
CHAIRWOMAN GREEN  asked if  he speaks with  anyone other  than the                                                              
applicant at that point.                                                                                                        
MR.  PIERCE said  he  does not.  He  explained that  if  a CON  is                                                              
required, he sends an application  packet and offers the applicant                                                              
a pre-application  conference so that he can explain  the process.                                                              
He recommends  to all applicants that  they send in the  letter of                                                              
intent early  as it can be submitted  up to one year  early.  Once                                                              
the CON  is submitted,  he has  20 days  to review it.   If  it is                                                              
declared complete, he has 90 days to finish the review.                                                                         
CHAIRWOMAN GREEN asked  if the information on  the CON application                                                              
is confidential.                                                                                                                
MR. PIERCE said  it is public knowledge.  The  review is announced                                                              
in newspapers and published on the DHSS web page.                                                                               
CHAIRWOMAN GREEN  asked Mr. Pierce  to direct her to  the statutes                                                              
that govern the process.                                                                                                        
1:45 p.m.                                                                                                                       
MR.  PIERCE cited  AS  18.07.010  - .111  but  explained that  the                                                              
regulations  are more  specific to  the application  process.   He                                                              
reviewed the regulations as follows:                                                                                            
   · 7 AAC 07.030 refers to the letter of intent;                                                                               
   · 7 AAC 07.040 says the application must be submitted in                                                                     
CHAIRWOMAN GREEN  asked how the  applicant knows what  is required                                                              
in the submission.                                                                                                              
MR. PIERCE said the information is in the application packet.                                                                   
CHAIRWOMAN GREEN read,  "An applicant shall submit  four copies of                                                              
the  application  to  the  state  agency and  two  copies  to  the                                                              
appropriate  health systems  agency,"  and asked  what the  health                                                              
systems agency would be.                                                                                                        
MR.  PIERCE  replied, "The  health  systems  agencies?   They  are                                                              
agencies that no longer exist.  They were phased out in '98."                                                                   
CHAIRWOMAN  GREEN  asked how  an  applicant  would know  that  the                                                              
regulations have not been corrected.                                                                                            
MR.  PIERCE  said  that  is the  purpose  of  the  pre-application                                                              
CHAIRWOMAN GREEN asked  if the only way to correct  the text is to                                                              
amend the regulations.                                                                                                          
MR. PIERCE said that is correct and  that legislative authority is                                                              
not required.                                                                                                                   
CHAIRWOMAN GREEN  asked if the applicant  must send a copy  to the                                                              
Alaska State Library.                                                                                                           
MR. PIERCE said he actually does that for the applicant.                                                                        
CHAIRWOMAN  GREEN asked  if  the applicant  is  still required  to                                                              
submit four copies.                                                                                                             
MR. PIERCE said  he often gets requests for more  than four copies                                                              
from people who are in interested in the project.                                                                               
CHAIRWOMAN GREEN asked if an applicant  could be required to share                                                              
proprietary information about future plans with the public.                                                                     
MR. PIERCE said  whatever is submitted to him is  available to the                                                              
CHAIRWOMAN  GREEN asked  if that  is  the point  at which  someone                                                              
could request a copy of the application  and express opposition to                                                              
the project.                                                                                                                    
MR. PIERCE  said it  is not.   DHSS has a  set time period  during                                                              
which public  comments are accepted.   As soon as  the application                                                              
is  declared complete,  he is  required  by regulation  to send  a                                                              
notice  to one statewide  newspaper  and a local  newspaper.   The                                                              
notice  contains a  public comment  period,  which starts  shortly                                                              
after the application is declared complete and runs for 30 days.                                                                
MR.  PIERCE  explained   that  he  has  90  days   to  review  the                                                              
application and a  30-day extension is allowed if  necessary.  The                                                              
review and  recommendations  are then sent  to the  commissioner's                                                              
office.   The  commissioner's   decision  is   published  in   two                                                              
newspapers  and the  applicant and  other  interested parties  are                                                              
notified, along with the right to appeal the decision.                                                                          
CHAIRWOMAN  GREEN   asked  about   the  timeframe  in   which  the                                                              
commissioner operates.                                                                                                          
MR. PIERCE said in his experience,  the commissioner tries to make                                                              
the decision within a few weeks but has no set time limit.                                                                      
CHAIRWOMAN  GREEN asked Mr.  Pierce to  describe the timeframe  of                                                              
the ideal application process.                                                                                                  
MR. PIERCE said the entire process  has been completed in 45 days.                                                              
He explained  that one  area of  the process  that is  problematic                                                              
occurs when  applications  are incomplete  and the applicant  does                                                              
not respond  until the end of  the submittal period (60  days). If                                                              
the applicant  sends back  information that  is still  incomplete,                                                              
the  60-day   submittal  period  begins   again.    He   has  seen                                                              
circumstances in which it has taken  applicants 180 days to submit                                                              
all information.   He stated that when applicants  submit a letter                                                              
of intent  early, the  60-day waiting period  from receipt  of the                                                              
letter  of intent  to the  application  period does  not create  a                                                              
CHAIRWOMAN GREEN asked what the expedited review applies to.                                                                    
MR. PIERCE  said it  applies to  modifications  to the CON,  which                                                              
occur during construction  when cost overruns occur  or plans have                                                              
to be modified.                                                                                                                 
MR. PIERCE  said during  the 60-day public  comment period,  he is                                                              
required  to hold  a public  meeting  in the  community where  the                                                              
project is located if a meeting is requested.                                                                                   
CHAIRWOMAN  GREEN asked why  an applicant  would request  a public                                                              
MR. PIERCE explained that a meeting  can be requested by DHSS, the                                                              
applicant, or a member of the public.   He noted the applicant may                                                              
want to  promote the project to  local people.   Sometimes several                                                              
applicants  are applying  for similar  projects and  they want  to                                                              
show the public how their project stacks up against others.                                                                     
CHAIRWOMAN   GREEN   indicated   there  can   be   competing   CON                                                              
applications. She asked Mr. Pierce to describe his job.                                                                         
MR. PIERCE  said  his job is  to outline  the process  in law  and                                                              
regulation and to  meet the deadlines.  He stated  that he has co-                                                              
workers  but he is  primarily responsible  for  this program.   He                                                              
processes between  three and 10 applications  per year.   About 60                                                              
percent of his  activities include dealing with  letters of intent                                                              
that do not require CONs.                                                                                                       
2:00 p.m.                                                                                                                       
SENATOR  WILKEN   asked  Mr.   Pierce  if   he  makes   an  actual                                                              
recommendation to the Commissioner.                                                                                             
MR. PIERCE said he makes findings and recommendations.                                                                          
CHAIRWOMAN  GREEN  asked  for  a  description  of  the  evaluation                                                              
process  and whether  applicants  are  given that  information  in                                                              
MR. PIERCE  explained that the  criteria for review  are contained                                                              
in the  application packet.   He noted  that the first  criterion:                                                              
"(1) the  relationship of  the health  services being reviewed  to                                                              
the  applicable  health systems  plan"  is  quite important.    He                                                              
explained that there is no current  State of Alaska health systems                                                              
plan but he does look at the plans  of other agencies, such as the                                                              
Division of Senior Services and the  Division of Mental Health and                                                              
any local plans.                                                                                                                
CHAIRWOMAN GREEN  asked for clarification of an  applicable health                                                              
system plan.                                                                                                                    
MR. PIERCE  said the  applicable  plan for a  CON application  for                                                              
psychiatric  beds would  be the  mental health  plan; for  nursing                                                              
home plans,  DHSS would look at  the Division of  Senior Services'                                                              
plan.   He  noted  DHSS does  not  have plans  for  every area  so                                                              
sometimes it looks at the applicant's long-range plan.                                                                          
CHAIRWOMAN GREEN asked  how that criterion ties to  the statute or                                                              
MR. PIERCE  said that  criterion  has been in  the application  as                                                              
long as he has been with the program, which is nine years.                                                                      
CHAIRWOMAN  GREEN  noted  the  CON  program  has  undergone  major                                                              
changes  since  its  inception.    At  one  time  it  had  several                                                              
employees.  She asked how the federal  appeal impacted the state's                                                              
CON program.                                                                                                                    
MR. PIERCE  replied that an annual  health fiscal plan used  to be                                                              
published until the federal money went away.                                                                                    
CHAIRWOMAN  GREEN asked  if the application  packet could  contain                                                              
references to activities that no longer occur or are required.                                                                  
MR. PIERCE said  that is correct, i.e., any reference  to a health                                                              
systems agency in the regulations is no longer applicable.                                                                      
CHAIRWOMAN GREEN asked  if it is possible that  an applicant would                                                              
not know that.                                                                                                                  
MR. PIERCE  answered that  is the  reason for the  pre-application                                                              
CHAIRWOMAN GREEN asked if a conference  is held so that Mr. Pierce                                                              
can tell the applicant what in the packet can be ignored.                                                                       
MR. PIERCE replied there is not a lot in the book to ignore.                                                                    
CHAIRWOMAN GREEN asked if any HMOs exist in Alaska.                                                                             
MR.  PIERCE  said no  and  that  is  something  he would  tell  an                                                              
applicant to ignore.                                                                                                            
SENATOR   WILKEN   asked   if  a   component   of   Mr.   Pierce's                                                              
recommendation  to the commissioner  is a  fiscal analysis  of the                                                              
project on the state budget.                                                                                                    
MR. PIERCE  said he tries  to estimate what  it will cost  but the                                                              
decision for acute care cannot be based on that information.                                                                    
SENATOR  WILKEN referred  to item  5 in the  "Certificate of  Need                                                              
Review Criteria," which reads,                                                                                                  
     (5) The  immediate and  long-term financial  feasibility                                                                   
     of the proposal,  as well as the probable  impact of the                                                                   
     proposal  on  the costs  of  and charges  for  providing                                                                   
     health  services   by  the  person  proposing   the  new                                                                   
     institutional health services.                                                                                             
He asked  Mr. Pierce what (5)  means in his recommendation  to the                                                              
Commissioner vis-à-vis the state budget.                                                                                        
MR. PIERCE replied  that if the applicant does not  have a plan to                                                              
find financial funding for the project,  he would note that but it                                                              
would not be  a factor in denying  the project because  of the way                                                              
the statute  is written for  acute care.   It can be a  factor for                                                              
denial for long  term care with the new law.   He referred members                                                              
to AS 18.07.041 and .043 for the standards he can use.                                                                          
CHAIRWOMAN GREEN maintained that .041 pertains to need.                                                                         
MR. PIERCE agreed  and said that .043 includes  costs and pertains                                                              
to nursing home costs.                                                                                                          
CHAIRWOMAN  GREEN  asked if  (5)  speaks  to  whether or  not  the                                                              
applicant has obtained  financial backing for the  construction of                                                              
the project - not to whether the applicant will make a profit.                                                                  
MR. PIERCE said that is correct.                                                                                                
SENATOR WILKEN said he is struggling  with the fact that a private                                                              
business is willing to gamble, for  example, $5 million to build a                                                              
facility but  by law, that business  must get permission  from the                                                              
state.  He maintained  that the purpose of DHSS is  not to look at                                                              
that company's  business plan because  it is the  business's risk,                                                              
talent  and  money   that  will  determine  whether   it  will  be                                                              
successful.   He then asked,  if it is  DHSS's purpose  to protect                                                              
the public interest  and the public monies involved,  the question                                                              
should be what is  the impact on the people's money  - the general                                                              
fund.  However,  it does not sound like DHSS does  that.  He noted                                                              
it  sounds  like  Mr. Pierce  organizes,  distills,  and  makes  a                                                              
recommendation but that process has  nothing to do with validating                                                              
the impact on the state budget.                                                                                                 
MR. PIERCE said  his hands are tied because he  is prohibited from                                                              
doing so by law.                                                                                                                
MS.  JANET  CLARKE, Director  of  Administrative  Services,  DHSS,                                                              
clarified  that as  part  of the  application  review, Mr.  Pierce                                                              
provides  information to  the commissioner  on the  impact on  the                                                              
Medicaid budget.  To determine the  impact on the Medicaid budget,                                                              
the information  on cost is  considered from the  perspective that                                                              
Medicaid  clients may  compromise  20 percent  of their  business.                                                              
For long-term care,  the Medicaid amount may be 90  percent.  That                                                              
information  is  provided  to the  commissioner  even  though  the                                                              
overriding  determination criteria  for a  CON is  whether a  need                                                              
CHAIRWOMAN  GREEN  stated  that Ms.  Clarke's  response  does  not                                                              
comport with information received from DHSS at the last meeting.                                                                
SENATOR WILKEN  asked, in the  case of the Fairbanks  application,                                                              
the recommendation  to  the commissioner  would have included  the                                                              
impact to the general fund.                                                                                                     
MS. CLARKE said  that is correct.  She stated it  is a little more                                                              
complex than  that but that the  review demonstrated there  was no                                                              
need for additional beds.                                                                                                       
CHAIRWOMAN GREEN  asked what regulation contains  the authority to                                                              
use cost in the recommendation to the commissioner.                                                                             
MS. CLARKE replied,                                                                                                             
     Senator  Green,  I hope  I  didn't  confuse you.    Cost                                                                   
     cannot  be a factor  in the  determination of whether  a                                                                   
     Certificate of  Need will be granted.  But I'm  just - I                                                                   
     wanted to  clarify that we  do provide that  information                                                                   
     because  everyone is interested  if the Medicaid  budget                                                                   
     is going  to go up because  of Certificate of Need.   It                                                                   
     cannot  be   used  as  a  determination  of   whether  a                                                                   
     Certificate of Need is granted.                                                                                            
CHAIRWOMAN GREEN  repeated that  explanation is very  inconsistent                                                              
with a previous explanation given by DHSS.                                                                                      
MR.  ELMER  LINDSTROM,  Deputy  Commissioner   of  DHSS,  said  he                                                              
recalled  the confusion  on this  point when he  testified  at the                                                              
last hearing.  He said he would try to explain again and stated:                                                                
     If  you're   the  commissioner  of  Health   and  Social                                                                   
     Services, you are responsible  for the entire agency and                                                                   
     in that agency is a variety  of divisions, including the                                                                   
     Division of Medical  Assistance.  When you  are making a                                                                   
     decision  about the  Certificate  of Need,  it does  not                                                                   
     allow you  to base  your decision on  the impact  to the                                                                   
     Medicaid budget or to the department.   However, you are                                                                   
     the commissioner of the Department  of Health and Social                                                                   
     Services,   you   oversee  the   Division   of   Medical                                                                   
     Assistance   and  you  certainly   want  to  know   that                                                                   
     information and  see it in front of you.   Perhaps it is                                                                   
     not a  satisfactory explanation  but that's the  reality                                                                   
     of  the commissioner  wearing  these  multiple hats  and                                                                   
     circumstance  and,  not infrequently,  the  legislature,                                                                   
     too, is very much interested  in what new facilities are                                                                   
     coming  on line  -  is there  any cost  in  that and  so                                                                   
     forth?  So, the information  is provided but, again, the                                                                   
     statute  does not  allow for  the  determination on  the                                                                   
     granting or not  granting of the Certificate  of Need to                                                                   
     be made on  the basis of that information,  although the                                                                   
     information is there.                                                                                                      
SENATOR WILKEN asked,  referring to the Fairbanks  example, if the                                                              
private  firm is willing  to gamble  its resources  and the  state                                                              
doesn't really care  about the impact on the budget,  why a CON is                                                              
needed if the  private firm has established  de facto a  need?  He                                                              
repeated that he is struggling with  the question of why DHSS does                                                              
not care about the state budget.                                                                                                
DEPUTY COMMISSIONER  LINDSTROM indicated that the  draft committee                                                              
substitute contains  language that is an effort  to put explicitly                                                              
in statute  that cost to the  budget be considered  when reviewing                                                              
an acute care Certificate of Need.  DHSS supports that language.                                                                
CHAIRWOMAN  GREEN asked  how an  applicant  would know  that is  a                                                              
factor  if it  is  not  listed in  the  criteria.   She  expressed                                                              
frustration  that DHSS has  not recommended  that this  program be                                                              
reviewed  and  cleaned  up  and that  the  committee  has  had  to                                                              
initiate  action.  She  asked how  much of  the other  information                                                              
provided to applicants in the application  packet is inappropriate                                                              
and inapplicable,  and what the applicant should  consider that is                                                              
not included in the packet.                                                                                                     
2:20 p.m.                                                                                                                       
DEPUTY COMMISSIONER LINDSTROM responded  that proposed regulations                                                              
that would  clean up a lot of  the outdated language were  out for                                                              
public comment last  spring.  Those regulations have  not yet been                                                              
adopted by the commissioner  due to the fact that  DHSS has a one-                                                              
person   CON  program   and  those   regulations   are  also   his                                                              
responsibility.   He commented  that he is  not proud of  the fact                                                              
that the regulations are out-of-date.                                                                                           
SENATOR WILKEN  said it would  be helpful to  see an example  of a                                                              
page that suggests to the commissioner  the range of impact on the                                                              
state budget.                                                                                                                   
DEPUTY COMMISSIONER LINDSTROM agreed to provide that.                                                                           
CHAIRWOMAN  GREEN stated  that she  finds  it very  unsatisfactory                                                              
that the applicant  may not be told about the  requirements in the                                                              
application  packet that  are  not longer  applicable  or that  an                                                              
applicant may not know to ask and do a lot of extra work.                                                                       
DEPUTY  COMMISSIONER LINDSTROM  said  as a  practical matter,  the                                                              
pre-conference tends to satisfy most of those concerns.                                                                         
MR. PIERCE added that he also meets  with any hospital or facility                                                              
administrator  interested  in  the  process  for  the  purpose  of                                                              
providing education.                                                                                                            
CHAIRWOMAN  GREEN  asked  for a  side-by-side  comparison  of  the                                                              
requirements in state  law and/or regulations and  what Mr. Pierce                                                              
DEPUTY  COMMISSIONER LINDSTROM  asked  if she  is  looking for  an                                                              
analysis  of how the  criteria are  derived from  the statute  and                                                              
CHAIRWOMAN GREEN said she wants to  find out how an application is                                                              
evaluated and whether  a point system is used.  She  said she does                                                              
not  understand  how  a completed  application  gets  approved  or                                                              
disapproved and what questions are asked.  She stated:                                                                          
       Are those questions that the board of a large multi-                                                                     
     million  corporation have already  asked themselves  and                                                                   
     determined  and the  Washington methodology  - how  does                                                                   
     that equate  to what  happens in Alaska?   Where  is the                                                                   
     line item  and the answer,  the position and  the answer                                                                   
     and  how it's  evaluated or  devaluated?   So  that -  I                                                                   
     think that  there are those  who want to know  that this                                                                   
     is a  fair system  and if  we're going  to have it  that                                                                   
     it's thorough  but that it's  fair and that  people know                                                                   
     going in -  I mean it's like anything else you  do on an                                                                   
     application  - you  go  get your  packet,  you get  your                                                                   
     instruction  booklet  and you  don't  say,  oh, but  you                                                                   
     ignore line 3, line 7 and you  don't have to worry about                                                                   
     page 2.  That doesn't make sense.                                                                                          
TAPE 02-8, SIDE B                                                                                                               
SENATOR DAVIS commented  that she does not believe  the businesses                                                              
that  were denied  a  CON are  present  because  they believe  the                                                              
regulations  are faulty; they  are here  because they were  denied                                                              
the certificate they  need to go forward.  She asked  if it is the                                                              
purpose of the  CON coordinator to establish whether  the need for                                                              
another facility exists.                                                                                                        
MR. PIERCE said that is what he does.                                                                                           
SENATOR  DAVIS asked  Mr. Pierce  to  provide her  with the  exact                                                              
information  and process he  uses when  an application  is denied.                                                              
She noted  when an application is  denied, the process is  cut off                                                              
because no  need has been found.   The private firm can  come back                                                              
within the  confines of  the $1  million figure,  it can  drop the                                                              
project or it can continue to test  the water to find out if there                                                              
truly is a need.                                                                                                                
MR. PIERCE said  that is correct.  He explained  the applicant can                                                              
resubmit  an application  at any  time  and an  appeal process  is                                                              
SENATOR DAVIS  said that Mr. Pierce  is the person  who determines                                                              
whether the application can go forward  because a need exists and,                                                              
if so, it is the commissioner who  decides whether to grant a CON.                                                              
She asked  Mr. Pierce to describe  how he determines how  the need                                                              
exists and to  provide the committee with information  on how many                                                              
applicants have appealed and why.                                                                                               
DEPUTY  COMMISSIONER  LINDSTROM  stated  that  in  the  case  that                                                              
members are familiar  with, the applicant did  appeal but withdrew                                                              
it so a hearing officer never made a determination.                                                                             
SENATOR DAVIS asked about the track record of appeals.                                                                          
MR. PIERCE  said three  or four decisions  were appealed  over the                                                              
last nine years.                                                                                                                
CHAIRWOMAN  GREEN  asked  for  the  record  of  the  applications,                                                              
appeals  and final  decisions and  noted that  the review  process                                                              
must be clarified otherwise it can  change from one application to                                                              
the next.  She then took public testimony.                                                                                      
2:29 p.m.                                                                                                                       
MS.  KATHY CRONEN,  CEO of  North Star  Behavioral Health  System,                                                              
stated   support  for   SB  256,  regarding   the  moratorium   on                                                              
psychiatric   beds.  She  informed   members  that   she  recently                                                              
testified in  support of  SCR 21, which  would bring home  the 400                                                              
children  currently in  residential treatment  centers outside  of                                                              
Alaska.  SCR  21   passed  the  Senate  with   unanimous  support:                                                              
testimony on the  Senate floor emphasized the need  to examine the                                                              
entire problem of in-state care and  that this needs to be a major                                                              
project - administratively, legislatively,  programmatically, with                                                              
a focus on  the budget impact.   SB 256 provides the  two critical                                                              
elements  needed in  order to reach  the goal  articulated  by the                                                              
Senate  to bring these  children  home for treatment.   First,  it                                                              
provides an  avenue for  adequate planning.   Second, it  provides                                                              
the statutory language necessary  to consider the fiscal impact of                                                              
adding  more  psychiatric  beds.   The  moratorium  on  in-patient                                                              
psychiatric  beds will  provide  a  period of  time  for DHSS  and                                                              
others  to  examine  the  existing   continuum  of  mental  health                                                              
services - both  inpatient, outpatient, community  based services,                                                              
foster  care  and  residential  care.     SB  256  is  similar  to                                                              
legislation  enacted in 1996,  which created  a moratorium  on new                                                              
nursing home beds and established  a work group to study the long-                                                              
term  care problem.   The  recommendations made  by the  workgroup                                                              
were adopted  and changed the way  DHSS reviewed and  approved new                                                              
nursing  homes  beds: DHSS  was  allowed  to consider  the  fiscal                                                              
CHAIRWOMAN  GREEN  noted  the  language  in  the  draft  committee                                                              
substitute is very similar to the 1996 legislation.                                                                             
MS. CRONEN continued.  SB 256 provides a brief period  of time for                                                              
a work  group to analyze  whether more inpatient  psychiatric beds                                                              
are needed  in Alaska.  It is  her belief that the state  does not                                                              
need more  acute care  beds. It needs  more long-term  residential                                                              
treatment  beds to  take  care of  those  children  who are  being                                                              
treated outside  of Alaska.   She  stated her  belief is  based on                                                              
both the clinical  needs of the patients and the  fiscal impact to                                                              
the state. The fiscal impact of adding  more inpatient psychiatric                                                              
beds  is  staggering  and  makes  no sense  as  it  is  much  more                                                              
intensive and costly than residential  treatment.  She pointed out                                                              
that Medicaid pays for 85 percent  of inpatient psychiatric stays.                                                              
The cost  of inpatient psychiatric  care ranges from $562  per day                                                              
at North  Star Hospital to $1,584  at other facilities.   The cost                                                              
of residential treatment is $325  per day.  She noted the draft CS                                                              
before  the committee  does  not impact  the  replacement beds  at                                                              
Alaska Psychiatric Institute (API).                                                                                             
The committee took a brief at-ease.                                                                                             
CHAIRWOMAN GREEN took teleconference testimony.                                                                                 
MR.  JOHN DUFFY,  Mat-Su Borough  manager, stated  support of  the                                                              
committee's effort  to look at the  CON process and support  of SB
256, which places a temporary moratorium  on psychiatric beds.  He                                                              
suggested   that  a   moratorium   is  necessary   to   facilitate                                                              
discussion, better  planning, more appropriate  patient placement,                                                              
additional   placement  choice   and   encourage  less   intensive                                                              
residential  treatment.  He  also supports  consideration  of  the                                                              
fiscal impact in the CON process.                                                                                               
MR. CHARLES FRANZ stated opposition  to the proposed CS to SB 256.                                                              
Raising the CON threshold to $10  million effectively guts the CON                                                              
process.  Regarding Senator Wilken's  question about why a private                                                              
firm that is willing to gamble its  money should not be allowed to                                                              
go forward,  he responded  that under the  current CON  process, a                                                              
private  firm, in  most cases,  would not  be considered  to be  a                                                              
health care  facility and  would not  be required  to have  a CON.                                                              
Those in  the health  care business  need a  level playing  field.                                                              
DHSS must  make sure  that Alaska  has a  sustainable health  care                                                              
infrastructure  in  small  communities   around  the  state.    He                                                              
believes the  CON process is very  important, just as  the limited                                                              
entry  permit system  is  for the  fishing  industry  in order  to                                                              
maintain  the  resource  and  infrastructure.    The  CON  process                                                              
ensures that rapid  overbuilding does not occur  and that unneeded                                                              
services  are not  created.  He maintained  that  the current  CON                                                              
process could  be significantly improved  by clearly  defining the                                                              
evaluation criteria.                                                                                                            
2:47 p.m.                                                                                                                       
MR. STEVE FOSTER, Financial Services  Administrator at Providence-                                                              
Kodiak  Island  Medical  Center,  stated  opposition  to  SB  256.                                                              
Increasing  the threshold  to $10  million would  have an  adverse                                                              
impact  on a  community such  as  Kodiak where  an outside  entity                                                              
could come in and  build a small facility for that  amount.  Also,                                                              
health  care  providers  are  experiencing  a  staffing  shortage.                                                              
Finally,  SB  256 could  also  increase  the state's  health  care                                                              
budget.  He agreed that some type  of change should be made to the                                                              
CON process  but that change should  be done to level  the playing                                                              
MR. JOHN  VOWEL (ph) of Cordova  stated that most of  his concerns                                                              
have been  addressed in  previous testimony.  He believes  the CON                                                              
process  is  what needs  to  be  changed.   The  existing  process                                                              
contains a lot  of room for arbitrary decisions that  can be made.                                                              
The only  opportunity to  address arbitrary  decisions is  through                                                              
the  appeal process,  which  is costly  and  time  consuming.   He                                                              
expressed   concern  about   the  lack   of  a   process  once   a                                                              
recommendation  is   sent  to  the  commissioner's   office.    He                                                              
commented  that  competition can  have  an adversarial  effect  on                                                              
operations in small communities.                                                                                                
MR. DAN KELLY, Mat-Su Borough, informed  members the Borough would                                                              
like to  have a  residential treatment  center located  within it.                                                              
The Borough's  population has  increased 3.5  percent per  annum -                                                              
the fastest  increase in  the state.   The  Borough would  like to                                                              
improve  psychiatric care  for its  growing  number of  residents.                                                              
Recognizing  the importance  of a  CON  with a  limited amount  of                                                              
state Medicaid dollars,  the actions taken by  the legislature are                                                              
likely to  have a direct  bearing on  the number of  children that                                                              
can be treated  and where.  The Borough believes  the state should                                                              
review  the mental  health system  in  total. It  believes that  a                                                              
moratorium  on the addition  of psychiatric  beds will  facilitate                                                              
actions  to  provide  a  more  balanced  system  of  care,  better                                                              
placement  of  children  and  avoid  acute  inpatient  costs.  The                                                              
Borough believes  the $10  million threshold  is a reasonable  cap                                                              
for the  CON program  since the  $1 million  threshold was  set 19                                                              
years ago.  He stated support for SB 256.                                                                                       
MR.  MICHAEL JANECEK,  Meadow Lakes  Community Council  President,                                                              
stated  support for  SB  256.   Meadow  Lakes  residents are  very                                                              
supportive  of the  residential youth  psychiatric care  facility,                                                              
currently  planned and  negotiated.  Keeping  youth within  Alaska                                                              
would benefit treatment  by enabling family members  to be nearby.                                                              
Medical  treatment in Alaska  would also  save considerable  funds                                                              
and generate economic development.   If an imbalance between acute                                                              
care  and  other   psychiatric  care  exists,  the   Meadow  Lakes                                                              
Community Council would support a  moratorium on the establishment                                                              
of acute care beds.                                                                                                             
MS. LINDA  SMITH, a registered  nurse and assistant  administrator                                                              
for the Denali  Center in Fairbanks, stated opposition  to SB 256,                                                              
in particular  to the threshold increase  to $10 million.   SB 256                                                              
would seriously impact the ability  of Fairbanks Memorial Hospital                                                              
to  meet its  mission, which  is to  provide health  care to  all,                                                              
regardless of  ability to  pay.  The  hospital has worked  hard to                                                              
provide services in the community  that do not pay for themselves.                                                              
Increasing the  threshold to  $10 million will  allow a  few, for-                                                              
profit  entrepreneurial businesses  to provide  services and  take                                                              
away the hospital's "bread and butter."                                                                                         
MR. DAVID HOPSON,  senior financial analyst at  Fairbanks Memorial                                                              
Hospital, stated  opposition to SB  256 based on the  premise that                                                              
the CON  program works.   He stated the  existing threshold  of $1                                                              
million keeps redundant facilities  out of a location, it does not                                                              
stop competition.   He  stated, regarding  a new  ambulatory-surgi                                                              
center in Fairbanks, Fairbanks has  plenty of capacity already. He                                                              
pointed out  that Medicaid only  pays Fairbanks Memorial  Hospital                                                              
55 cents on the dollar.                                                                                                         
MR.  JIM  MURPHY,   Executive  Director  of  the   Good  Samaritan                                                              
Counseling Center,  testified in support  of the moratorium  in SB
256.    Good  Samaritan  is  the   largest  outpatient  counseling                                                              
practice in  Alaska; it serves  several hundred clients  per week.                                                              
He expressed  concern about  the future of  mental health  care in                                                              
Alaska.  All reports he has read  indicate that Alaska is facing a                                                              
serious  financial shortage,  therefore it  is only reasonable  to                                                              
carefully evaluate  and plan the  best mental health  services for                                                              
residents.    He  is  quite  disturbed   that  DHSS  is  presently                                                              
considering a CON for additional  acute psychiatric care beds.  An                                                              
additional 30  beds will  cost the state  $16 million  of Medicaid                                                              
funds.  He questioned  how the general fund can  absorb that cost.                                                              
He  is  further  concerned  with  how  that  expense  will  impact                                                              
Alaska's financial ability to serve clients with other services.                                                                
2:58 p.m.                                                                                                                       
MR.  JOHN BURNS  informed  members  that he  is  an attorney  from                                                              
Fairbanks who represented the Tanana  Valley Clinic during the CON                                                              
appeal  process.   He stated  there is  no question  that the  CON                                                              
process  is flawed.   Applicants  have little  criteria to  follow                                                              
regarding what is  or is not included in the  methodology by which                                                              
the criteria  are evaluated.   Need is  based on surgical  minutes                                                              
but there is no  definition of what is involved in  a surgery.  He                                                              
explained that, all things being  equal, the same hernia procedure                                                              
is counted  if done  in a surgery  room but not  counted if  it is                                                              
done in a  procedure room.  He  stated the absurdity of  that kind                                                              
of analysis when determining need  is obvious.  He maintained that                                                              
the law as  currently exists is repressive,  promotes inefficiency                                                              
and is  in no  way aimed at  promoting quality  health care.   The                                                              
national trend, as  recognized and admitted to by  Mr. Pierce, the                                                              
CON coordinator,  is toward outpatient  centers for  the following                                                              
reasons:  patient  choice,  patient   access,  and  patient  cost.                                                              
Ambulatory-surgi   care  has   provided  a   20  percent   savings                                                              
MR.  BURNS said  that  DHSS has  said a  lot  about the  potential                                                              
impact  on the  state  via Medicaid  if the  CON  is abolished  or                                                              
modified.   He contended that argument  is in large  measure smoke                                                              
in  mirrors,  particularly  from   the  standpoint  of  a  private                                                              
provider.   The simple economics  are that no  one will go  into a                                                              
market  at  $5 or  $10  million  without  doing a  serious  market                                                              
analysis.  And,  if they can't support it, that  is their problem.                                                              
To  focus  on Medicaid  costs  also  ignores  the savings  to  the                                                              
private  payers -  Blue Cross,  Blue Shield,  etc. The  nationwide                                                              
trend that  shows a  20 percent  savings refers  to real  dollars,                                                              
including savings  to the  State of Alaska  on its employees.   He                                                              
said it  is easy to  say that opening  up competition will  have a                                                              
negative  impact.    He  asserted the  national  data  shows  that                                                              
communities that have eliminated  the CON have not shown increased                                                              
expenses.  The   CON  process  is   an  example   of  inefficient,                                                              
counterproductive  regulations and, in  a time when  government is                                                              
seeking  to run  more efficiently,  it  should be  modified to  at                                                              
least raise the threshold.  He stated support for SB 256.                                                                       
MR.  BRIAN SLOCUM,  Administrator  of  the Tanana  Valley  Clinic,                                                              
commented about the issue of services  that subsidize money-losing                                                              
services at existing  hospitals.  He cited a report  entitled, The                                                            
Effects of Certificate  of Need and Its Possible  Repeal, done for                                                            
the State  of Washington  in 1999 by  its Joint Legislative  Audit                                                              
and Review Committee, and read:                                                                                                 
     Proponents  of  CON  argue that  it  provides  financial                                                                   
     stability  to  existing  providers,   allowing  them  to                                                                   
     extend  access  to  populations that  are  expensive  to                                                                   
     serve.     While  the  arguments  regarding   such  cost                                                                   
     shifting seem plausible, no  studies have been completed                                                                   
     to show that  CON or its absence has a  direct effect on                                                                   
     the ability  of facilities to cross subsidize  expensive                                                                   
     or  unreimbursed   care...We   found  no  studies   that                                                                   
     directly link CON with higher levels of charity care.                                                                      
MR. SLOCUM  said that  as a person  who has  been through  the CON                                                              
process in recent  years, he would not be before  the committee if                                                              
the law was applied evenly and fairly.  The process was confusing,                                                              
ambiguous   and   disorganized.   He   was   given   contradictory                                                              
instructions and  the rules changed  on multiple occasions.   Some                                                              
of the  instructions given  had to be  ignored. He followed  other                                                              
instructions  believing the  application would  be judged  on them                                                              
but they  were not.  He was  unaware that  one of  the items  that                                                              
would be  judged was  the profitability  of another applicant  for                                                              
the same  CON. Nor was he  aware that the utilization  measures to                                                              
determine need  would change  throughout the  process or  that the                                                              
definition  of surgical  services was being  changed and  differed                                                              
from the  federally-mandated  definition.   Because there  were no                                                              
rules or  standards, he had no  way to challenge the  process when                                                              
it seemed to go  awry.  Mr. Slocum said that 30  years of academic                                                              
research suggests  that CON  programs do not  reduce cost  and, in                                                              
fact, in  many cases increases costs.  It also erects  barriers to                                                              
entry  for   new  and  more   efficient  providers  of   care.  He                                                              
recommended opening up health care to the forces of competition.                                                                
SENATOR DAVIS asked Mr. Slocum for a copy of that report.                                                                       
SENATOR WARD  asked that  the committee find  out if an  audit has                                                              
ever been done by the Division of  Legislative Budget and Audit on                                                              
Alaska's CON program.                                                                                                           
CHAIRWOMAN  GREEN agreed  to do  so  and then  announced that  the                                                              
hearing on  SB 256 would terminate  for the day.  She  asked Sandy                                                              
Hoback  to present  the  American  Institute for  Full  Employment                                                              

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