Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/07/2017 09:00 AM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB80 | |
| SB95 | |
| Confirmation Hearings | |
| SB62 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 95 | TELECONFERENCED | |
| += | SB 80 | TELECONFERENCED | |
| += | SB 62 | TELECONFERENCED | |
SB 62-REPEAL CERTIFICATE OF NEED PROGRAM
10:24:48 AM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 62. She stated that this is the second
hearing and the intention is to conclude invited testimony, take
members' questions, and hold the bill in committee for further
review.
10:25:31 AM
DAVID MORGAN, Economic Director, Alaskan Institute for Economic
Growth, stated that he lives in Anchorage, was chair of the
municipal health care commission for six years, and served on
the state health care commission for 4.5 years representing
primary care clinics. He is completing his doctoral thesis on
cost drivers, was a contributor to the Commonwealth North study
on the budget for 2017, and a principal on the health care
assessment.
MR. MORGAN said that his testimony today would detail the
economic impacts of Certificate of Need. He noted that he
provided a document from the Federal Trade Commission that
includes studies looking at cost drivers and costs. He noted
that markets in several states equate Certificate of Need with
added costs for new construction and new equipment. It also adds
time whenever entities that hold CONs try to stop competition
from coming into their area.
He said the history that Senator Wilson provided yesterday did
not include the Hill-Burton Act of 1946. That legislation
provided money for hospital construction and paid it off by
giving charity care at cost. This changed in 1974 and it became
unnecessary for the federal government to provide money to build
the hospitals.
MR. MORGAN reviewed the number of states that do and do not have
a CON program and said that Puerto Rico, the U.S. Virgin
Islands, and the District of Columbia should also be included in
the count. He advised that one of the addendums to the report he
submitted from the National Governors Association details each
CON program in each state. He added, "so there's no need to go
into 50 programs, we're talking about Alaska."
CHAIR COSTELLO said the committee has the document you provided.
MR. MORGAN said what we've really found, especially with the
advent of the Affordable Care Act is that a lot of what happens
with Certificate of Need is a duplicate process that has
increased costs. With changes in the Medicare payment system,
outpatient ancillary services have made the issue of building
facilities that sit empty a thing of the past. "The sheer cost
and process and the market itself has made redundancy
uneconomical and financially unviable."
He posited that decisions on building new facilities or buying
new equipment should be left to the economics of each
institution rather than subject to a state view. The Bureau of
Economics of the Federal Trade Commission has detailed that
restricting new construction, adding to the price, and time
delays has reduced price competition between facilities and
helped keep prices high. It's a barrier, and that's why
organizations like the Alaska Association of Health Underwriters
are sending non-emergency cases (especially surgery) out of
state. Even with the cost of travel and accommodations, they can
get services at less than half the price at quality institutions
like the Cleveland Clinic, major institutions in Seattle, and
the Mayo Clinic.
MR. MORGAN said that virtually every step in the building
process (especially in Anchorage) public hearings are required
to get any kind of licensing, permitting, and zoning so the
public does have input.
He pointed out that the interests of the community oftentimes do
not consider outside factors like transportation, marketing, or
institutional prestige. He cited an anecdotal example of the
speed of ambulance service in midtown Anchorage and highlighted
that a Certificate of Need was denied for a small emergency
center intended to stabilize patients before transferring them
to a facility on the other side of town.
MR. MORGAN advised that included with his written testimony, he
provided 84 documents from the Federal Trade Commission and a
list he compiled of all the other programs
Addressing the question Senator Stevens posed yesterday, he said
he found a study that compares states that have Certificate of
Need or don't have it and whether they have a public utility
review commission to review hospitals and ancillary care rates
and payer mix. What's interesting, he said, is that in 2016 just
Indiana had an individual insurance premium rate change that was
negative three percent without the CON.
CHAIR COSTELLO asked him to send the document to her office and
she would share it with the committee. She asked the members to
submit any questions in writing and her office would get the
responses from Mr. Morgan.
10:38:00 AM
At ease
10:38:16 AM
CHAIR COSTELLO reconvened the meeting and invited Ms. Hultberg
to testify.
10:38:44 AM
BECKY HULTBERG, President/CEO, Alaska State Hospital and Nursing
Home Association, stated that ASHANHA does not support a full
repeal of Certificate of Need, but does support a review of the
CON program to determine if it is accomplishing its intent, if
it is adequately enforced, and if changes are warranted. The
process should be collaborative and informed by data. She is not
aware of any provider group that would oppose such a review.
Referring to testimony yesterday that implied that hospitals
would revoke privileges if a provider supported the repeal of
the CON program, she clarified that hospital administrators do
not grant medical privileges. She explained that privileges are
granted or revoked through a physician-led process that focuses
on qualifications, work performance, and education of the
applicant.
10:40:42 AM
MS. HULTBERG delivered a PowerPoint presentation on Certificate
of Need. She displayed the following list of six key questions
that should be answered through the CON process: 1) What problem
are we trying to solve; 2) Will repealing CON address this
problem; 3) What critical purpose does CON serve; 4) What
happens to our health care system and to our state budget if we
get CON wrong; 5) Given other factors in the market, is now the
time to repeal CON; and 6) What information would we need to
make this decision? She said the forgoing questions need to be
factored in as we work our way through the complicated but
important issue for our health care infrastructure.
She displayed a U.S. map showing which states have experienced
rural hospital closures since 2010. She said Alaska is fortunate
that it has not had any small hospital closures but there is
always that potential. She advised that comments about the
profitability of hospitals in Alaska are frequently referring to
hospitals in the Railbelt, whereas the majority of ASHANHA's
membership are small rural hospitals, some of which are tribal.
Hospitals in Kodiak, Seward, Valdez, Homer, Petersburg,
Wrangell, Ketchikan, and Cordova are small non-tribal, critical-
access hospitals that have fewer than 25 beds. Those hospitals
are most at risk for closure in the current reimbursement
environment. They have thin margins and a less than great payer
mix. She highlighted that most hospitals in Alaska are owned by
the community they serve. She reported that just four hospitals
in Alaska are owned by an outside entity, and one of those has a
significant investor presence by the local foundation.
10:42:16 AM
MS. HULTBERG said the challenges local hospitals face include:
lower inpatient volumes; Medicare cuts, and Medicaid cuts. She
displayed a chart showing $856 million in cuts to Medicare
reimbursement for Alaska hospitals over 15 years. She reminded
members that to keep the budget flat, the administration is
reducing Medicaid rates by five percent, starting July 1, 2017.
Addressing Medicaid reimbursement, she explained that ASHANHA's
hospitals and nursing homes are reimbursed based on cost. The
forthcoming reductions place providers that have a high
percentage of Medicaid patients in the position of operating in
a cost minus environment, which is not sustainable.
She said the goal of the Certificate of Need program is to
restrain the growth of health care costs. The methodology is
that competition reduces prices which will lower overall costs
in the health care market. Increasing competition through the
repeal of CON will lower prices and restrain costs. But what
must also be analyzed, she said, is the impact of CON on
quality, access to care for underserved populations, and the use
of CON as a tool for public accountability and transparency. She
said the current CON process provides a level of visibility on
costs and facility growth that would not be available otherwise.
10:44:35 AM
CHAIR COSTELLO asked if she is aware of any of the methods to
cover indigent populations that the previous testimony
mentioned, should CON be scaled back or repealed.
MS. HULTBERG said typically it would be a direct subsidy to a
hospital or facility that sees a high percentage of underserved.
"That would be like the Medicare or Medicaid DSH
[Disproportionate Share Hospital] funds or those types of
payments."
10:45:20 AM
MS. HULTBERG discussed the existing competition in the current
CON program. She said that in most markets, small outpatient
imaging or surgery centers already have significant competition
due to the physician office exemption, lax enforcement, and the
ability to move facilities. CON has limited high-cost, capital
intensive surgery centers, expensive hospital expansions, and
has limited the development of skilled nursing facilities. "To
imply that there is not competition right now, is a significant
misunderstanding of the market," she said.
SENATOR HUGHES asked for an explanation of the physician office
exemption.
MS. HULTBERG said a private physician's office is exempt from
the Certificate of Need requirements. For example, a physician
could put an MRI machine in their private office.
SENATOR HUGHES asked if the exemption applies even if the cost
of the machine reaches or exceeds the dollar threshold.
MS. HULTBERG said she would follow up with information to
clarify that.
10:46:59 AM
MS. HULTBERG addressed the question of whether the repeal of CON
addresses cost problems. She displayed a list of seven primary
factors driving health care costs from Mack, M. (2016). What
drives rising health care costs? Government Finance Review. 26-
32. 1) Fee-for-service system, which rewards volume of
procedures, incentivizing overtreatment; 2) prescription drugs;
3) new medical technology, and our use of new medical
technology; 4) aging population; 5) unhealthy lifestyles; 6)
high administrative costs; and 7) service provider consolidation
(not much of a factor in Alaska). She said Certificate of Need
is not on the list because the things driving health care costs
are primarily related to the fee for service structure of the
system. What should be on the list, she said, is the third-party
payment system. The consumer isn't purchasing the service and
thus is disconnected from the cost of the service. She
highlighted that lack of competition in the health care market
is not commonly cited as a driver of health care costs. Findings
from Elhauge, E. (2010). "The Fragmentation of U.S. Healthcare:
Causes and Solutions" underscores that, she said.
MS. HULTBERG said the Commonwealth Fund looked at the
differences between U.S. health care costs and other countries
and found that high U.S. health care costs are directly related
to the fee-for-service system, the third-party payer system, and
the use of high-priced medical technology. She agreed with the
testimony from the person from the Mercatus Center that
increasing competition will result in more hospitals, surgery
centers, and MRI machines in Alaska. However, we need to ask if
more is better because physical infrastructure must be paid for
by someone, she said. She pointed to a chart showing the number
of sophisticated diagnostic imaging machines per million
population and the number of exams per 1,000 population for the
U.S. and other countries. She noted that the U.S. is only behind
the technologically advanced country of Japan. She noted that
Canada has 8.8 MRI machines per million population, whereas the
U.S. has 35.5. Clearly the U.S. utilizes expensive technology at
a far greater rate than Canada, she said.
10:49:33 AM
MS. HULTBERG displayed a chart titled "Health care vs. a normal
market" that demonstrates from an economic perspective why
health care does not behave like a normal market. It has
different assumptions and yields different outcomes than a
normal market.
She displayed a supply demand graph that shows what happens when
the supply (of surgery centers for example) increases in a
market. Price often falls but quantity increases which creates
the Starbucks phenomenon. When there is a Starbucks on every
corner, you drink a lot more coffee and spend more money, even
if the per unit price for coffee is a little less.
10:50:24 AM
MS. HULTBERG said that because health care is not a normal
market, competition can sometimes increase both volume and
price, leading to higher costs for the individual and the health
care system. She displayed a graph that demonstrates this
circumstance. The supply of surgery centers increased, and the
demand curve moved too so the price went up and the quantity
consumed also went up. In this scenario the total cost almost
doubled. She noted that the source for this graph is in a
subsequent slide. She reiterated that it's important to think
about whether traditional assumptions hold true in the health
care market.
10:51:48 AM
She offered to provide copies and suggested members read the
study the Lewin Group conducted when Illinois looked at
eliminating its Certificate of Need program. She read the
following from the study:
"The traditional arguments for CON are empirically
weak… However, given the potential for harm to
specific critical elements of the health care system,
we would advise the Illinois legislature to move
forward with an abundance of caution. Nontraditional
arguments for maintaining CON deserve consideration,
until the evidence on the impact that specialty
hospitals and ambulatory surgery centers may have on
safety net providers can be better quantified." (p.
iii)
MS. HULTBERG displayed the following list of benefits of CON: 1)
promotes and ensures access for underserved populations; 2) may
prevent oversupply of services, equipment and facilities; 3) may
restrain oversupply of facilities, which can lead to overuse of
services (supply-induced demand); 4) may protect high-volume
procedures that affect quality (e.g. NICU); 5) provides a
vehicle for health care cost transparency and public input into
the health planning process; and 6) manages major capital
expenditures, protecting the Medicaid budget
10:52:41 AM
She stated that there is government interest in the public
involvement through the CON process because of the role of the
government as a payer. She highlighted that the State of Alaska
has a fiscal interest in this issue and the fiscal note is large
because the state will pay for the capital and operating costs-
through the Medicaid program-of any new facility that is
constructed.
MS. HULTBERG said the Emergency Medical Treatment and Active
Labor Act (EMTALA) mandates that hospitals treat anyone who
comes to an emergency room, regardless of their ability to pay.
That is why Alaska hospitals have such high figures for
uncompensated care. [The slide shows the following for
uncompensated care: 2011: $85,047,723; 2012: $90,025,771; 2013:
$94,475,540; 2014: $89,001,149; 2015: $72,594,126]
She said she found the McDonald's Burger King example from
yesterday somewhat amusing. The testifier pointed out how
ridiculous it would be if McDonald's had to get a CON to compete
with Burger King. But, she asked, what would the competitive
market look like if the federal government required Burger King
to give away its hamburgers for free, but didn't require the
same of McDonald's? That is basically the impact of EMTALA in
the health care market, she said.
She pointed out that hospitals subsidize many services that do
not generate revenue or do not cover costs. Examples include:
sexual assault response (forensic nursing); subspecialty
services for children; homeless services (medical respite);
primary care (Mountain View, senior clinics); community health
(school programs, etc.) She said a lot of the critical services
that a community takes for granted are paid for by hospitals.
Hospitals also must maintain infrastructure and staffing for 24-
hour emergency services. These services are provided because
hospitals have positive margins on other services. CON repeal-
and loopholes in the CON statute-allows profitable services and
payers to migrate outside of the hospital, leaving hospitals
with fewer resources to provide needed community services.
10:54:47 AM
MS. HULTBERG said it's really about what we value. What is the
value of the community services that are provided? What is the
value of having certain specialty services in the community that
are subsidized by hospitals? What services do you want available
in your hospital in the event of a medical emergency? What is
the value of rural hospitals to their communities? These are the
things that are at risk if the CON program is changed. She said
it's also about who gets care. CON laws protect access to care
for: the poor; the very sick; those without commercial insurance
(Medicare, Medicaid, uninsured); rural areas; and urban
neighborhoods with high populations of uninsured.
She listed the following six key questions about CON: 1) what
problem are we trying to solve; 2) will CON repeal address this
problem; 3) what critical purpose does CON serve; 4) what
happens to our health care system and our state budget if we get
CON wrong; 5) given other factors in the market, is now the time
to repeal CON; and 6) what information would we need to make
this decision?
10:56:05 AM
MS. HULTBERG concluded her comments stating that loopholes and
the lack of enforcement in the current CON law are very
dissatisfying for many ASHANHA members. We think it is
appropriate to have a conversation about whether the law is
working as intended and how it could be strengthened or changed,
she said. ASHANHA does not support a full repeal of the CON
program. Alaska's unique provider environment and its unique
rural communities must be part of the conversation. The
conversation should be informed by data and the issue should be
addressed with a stakeholder group to ensure that all
perspectives are heard and that there is a thorough
understanding of any unintended consequences of the decision.
CHAIR COSTELLO thanked Ms. Hultberg and held SB 62 in committee.