Legislature(2021 - 2022)BELTZ 105 (TSBldg)
04/21/2021 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB26 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 26 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 26-REPEAL CERTIFICATE OF NEED PROGRAM
1:30:56 PM
CHAIR COSTELLO announced the consideration of SENATE BILL NO. 26
"An Act repealing the certificate of need program for health
care facilities; making conforming amendments; and providing for
an effective date."
1:31:33 PM
SENATOR DAVID WILSON, Alaska State Legislature, Juneau, Alaska,
sponsor of SB 26, stated that the healthcare services in Alaska
are the most expensive in the world, but that does not mean that
it has the elite healthcare services one would expect with the
highest costs. He thanked the individuals who were willing to
testify on the bill and acknowledged that some people may be
reluctant to come forward because of the larger players involved
in this issue. This is the fifth year he has introduced
legislation to repeal certificate of need (CON) and his office
has heard from many who fear losing hospital privileges or worry
that it would hurt their relationship with providers that have
CON.
SENATOR WILSON stated that Senate Bill 26 repeals Alaska's
certificate of need (CON) program but delays implementation for
three years to ease the transition. His office has examined the
historical and current arguments for continuing CON but the
evidence heavily favors elimination. Alaska's CON program does
not provide the economic justification to deprive consumers of
the benefits of a more open market. He said healthcare will
always be heavily regulated and it should be to ensure that
doctors are properly trained and licensed.
SENATOR WILSON highlighted that the intent in federally
mandating CON in 1974 was to cut down on inflation-driven
healthcare costs. At the time, reimbursement services were on a
cost-plus basis, which provided strong incentive for providers
to expand their healthcare facilities. When the reimbursement
system shifted to fee for service, the federal government
determined the CON program did not effectively restrain
healthcare costs and mandated its repeal in 1987. Since then,
many states have either repealed their CON programs altogether
or modified them to cover just one or two services. He deferred
further introduction of SB 26 to his staff, Gary Zepp.
1:36:09 PM
GARY ZEPP, Staff, Senator David Wilson, Alaska State
Legislature, Juneau, Alaska, stated that SB 26 seeks to repeal
Alaska's certificate of need program and directs the Department
of Health and Social Services (DHSS) to develop regulations once
the bill is enacted. The bill delays implementation for three
years to allow time for businesses and banks to recoup their
investments in healthcare facilities and services. The passage
of SB 26 will not change the oversight of licensing and
accreditation. Additionally, an entity that has existing CON
activity at the time of repeal would remain subject to CON
conditions. SB 26 has an effective date of July 1, 2024.
MR. ZEPP said SB 26 will not magically fix all of Alaska's
healthcare challenges but it is a large piece of the puzzle. The
reasons to repeal CON include price and quality, allowing new
entrants, encouraging innovation and technology, removing
barriers, allowing healthcare competition, slowing medical
tourism to keep healthcare dollars in the Alaska economy,
increasing employment opportunities in healthcare by allowing a
free market, and providing additional options for healthcare
providers.
He said the current CON provides exemptions for just some
providers and allows healthcare venders to manipulate and
circumvent the process, but opening Alaska for all businesses
would allow opportunities for fair and open competition and a
level playing field.
1:38:38 PM
MR. ZEPP began his PowerPoint presentation giving thanks to the
valued healthcare providers in Alaska's communities. He said SB
26 seeks to repeal Alaska's CON program laws but it does not
intend to disrespect or minimize how important healthcare
providers are to Alaskans. He gave particular thanks for their
work during the COVID-19 pandemic.
MR. ZEPP related his intention to focus on just a few slides in
the presentation to allow time for the invited testimony. These
national experts include healthcare economists, national
researchers, and healthcare providers who have the data and
experience in healthcare to support the repeal of the Alaska
certificate of need. After more than 40 years of study, the
research shows that states that do not have a CON program have
better quality of care, improved healthcare outcomes, increased
access to healthcare providers, and better access to new
technologies compared to states that still have a CON program.
MR. ZEPP highlighted that the states that have repealed their
CON laws entirely, represent over 40 percent of the population
or about 131 million Americans. These states have functioning
healthcare markets and research shows that the cost of CON
exceeds the benefits, particularly for consumers.
1:40:15 PM
MR. ZEPP displayed the map on slide 4 and noted that the topic
of CON laws in Florida and Georgia came up during a hearing in
the previous committee. He clarified that those states have
partially repealed their CON programs. He turned to slide 5 and
explained that it is a summary of the legislative history of
Alaska's CON program. [The first law was enacted in 1976 and the
last was in 2004.]
He paraphrased excerpts of slide 7 about why to repeal Alaska's
CON. The slide read as follows:
The Federal Trade Commission, the Dept. of Justice,
the Mercatus Center, and many other researchers have
studied this issue for over 4 decades and some have
even testified here in our legislature supporting the
repeal of the CON.
Here are a few points (data & research derived from
the various studies) as to why we should repeal CON:
? CON programs limit the introduction and expansion of
medical services & equipment, rehabilitation centers,
nursing home beds, and medical imaging technologies;
1:41:27 PM
Rural hospital closures: The data and research shows
that the closures are related to Low Patient Volume,
Challenging Payer Mix (Medicare & Medicaid patients,
which pay less), Geographic Isolation (located far
away from population centers), and Workforce
shortages. None of this has to do with whether you
have a CON or not;
High-quality health care: Data and research
indicates that deaths from treatable complications
following surgeries and mortality from heart failure,
pneumonia and heart attacks are significantly higher
in CON states than non-CON states; and,
Charity care: Studies have shown, there is not
evidence that charity care is higher in CON states
than non-CON states.
Racial Disparities: According to research, racial
disparities seems to increase in CON states.
1:41:48 PM
MR. ZEPP mentioned the Emergency Medical Treatment and Active
Labor Act (EMTALA, otherwise known as charity or indigent care.
He said there is no evidence that charity care is higher in CON
states versus non-CON states. According to the American College
of Emergency Room Physicians, emergency care in the U.S. is just
2 percent of all medical costs. He pointed out that the CON
concept from the 1970s is to charge private insurers 2-3 times
the amount for services versus uninsured patients so hospitals
can offset that uncompensated care. In addition, the Department
of Health and Social Services (DHSS) allocates the federal
Disproportionate Share Hospital (DSH) Payments to hospitals
throughout the state to help with uncompensated care. The state
distributed $17.6 million in FY2017, $25 million in FY2019, and
$20.8 million in FY2020.
He said proponents also talk about the increased Medicare and
Medicaid costs if CON is repealed, but there is no evidence to
support that claim. He pointed out that the healthcare markets
for the 131 million Americans living in states that repealed CON
function just fine.
1:43:25 PM
SENATOR WILSON pointed out that Alaska has one of the most
profitable healthcare margins in the world. Average
profitability is about 6.9 percent whereas a hospital in
Anchorage has a 20 percent profit margin and his hospital in
MatSu has a profit margin of over 24 percent. He said the
committee will hear anecdotal data but he can attest that SB 26
is one of the most researched and heavy in empirical data of any
bill in the legislature today. Volumes speak to the importance
of repealing CON, he said.
MR. ZEPP highlighted that the Federal Trade Commission, the
Department of Justice, the Mercatus Center and others have
testified in this committee to support the repeal of CON.
1:44:44 PM
MR. ZEPP paraphrased the text on Slide 8 that read as follows:
Why would Alaska's health care providers not want to
open Alaska to a free market? Here are some data
examples to think about:
head2right Alaska ranks the highest in the nation at $11,064 per
capita in 2014; (Medicaid & Medicare data was last released
in June 2017, which covers 1991-2014. The next release is
scheduled for 2022);
head2right The total Anchorage consumer price index was up 77%
from 1991- through 2017, but the medical care part of
the index was up 210% - Nearly three times faster than
the prices in the overall CPI;
• Hospital margin averages in Alaska run at 15.6%,
Anchorage margins average 20.6%, that's 5% higher
than San Francisco, which is the next highest in
the country;
• Hospital Margins can be as much as 223 % higher
than the lower 48 states; and,
• Medicare Fee Schedule for Diagnostic Radiology
(imaging) in Alaska increased from 491% in 2014
to 533% in 2016 (percentage above the average
reimbursement rate).
MR. ZEPP reported that 25 jurisdictions suspended or loosened
CON requirements during the COVID-19 pandemic. This increased
hospital bed capacity and freed necessary equipment. He pointed
out that CON regulations were suspended from March 31, 2020 to
February 15, 2021. These laws and regulations are touted as
necessary for health and safety but their suspension for more
than 10 months seemed to work just fine. It begs the question of
why are CON laws needed.
1:46:11 PM
MR. ZEPP stated,
We believe in a free market economy where Alaskans
decide which products and services will succeed and
which ones will fail. We believe in private sector
businesses and local control of resources and
property. We believe that Alaskan consumers should
have the choice on selecting a healthcare provider.
This creates competition and assures that businesses
have to compete for your hard-earned dollars.
He asked the committee to consider the increased opportunities
if fewer Alaskans had to seek medical care out of state because
of the high cost of healthcare in the state. He pointed out that
the Alaska economy is losing those dollars. For businesses,
repealing CON will reduce the highest line item on their balance
sheet, healthcare. He said over 40 percent of businesses in
America are self-insured because third-party insurance costs too
much. He emphasized that CON has distorted the healthcare
market, which does not benefit Alaskans or healthcare workers.
He asked the committee to support SB 26 and repeal government
control of healthcare options in Alaska.
1:47:53 PM
CHAIR COSTELLO advised that she would take committee questions
before the invited testimony. She mentioned the legislation to
retroactively continue the disaster declaration and continue it
to December 31, 2021. She said she understood that hospitals
want to continue operating under the disaster declaration status
but Mr. Zepp indicated that the CON laws and regulations were
waived in 2020. She asked the sponsor if that was correct.
SENATOR WILSON confirmed that the CON laws and regulations were
waived for 11 months.
CHAIR COSTELLO summarized that if the disaster declaration is
extended, CON would essentially be repealed, but if the disaster
declaration ended on February 15, 2021 and SB 26 were to pass,
there would be three years to transition to no certificate of
need. She asked the sponsor if he agreed.
SENATOR WILSON answered yes, but if the disaster declaration
bill that is currently in the Senate Rules Committee were to
pass, either the commissioner or governor would need to waive
the CON regulations again.
CHAIR COSTELLO asked if waiving the CON regulations for 11
months had any negative effects.
SENATOR WILSON said he was aware of just one application during
that timeframe and it went through the regular process. His
research found that businesses that had the opportunity to come
to Alaska during that 11 month period did not come when the CON
regulations were waived.
CHAIR COSTELLO referenced his statement that the federal
government mandated states repeal their CON laws and asked if
that was done through legislation, resolution, or some other
format.
1:51:27 PM
SENATOR WILSON said CON was mandated in 1974 in the [National
Health Planning and Resources Development Act] and then repealed
in 1987.
SENATOR GRAY-JACKSON summarized that the federal government
mandated that all states have CON programs before 1987.
SENATOR WILSON agreed.
SENATOR GRAY-JACKSON asked if it was a state's decision whether
or not to continue their CON program.
SENATOR WILSON answered yes.
MR. ZEPP added that when the CON law was enacted, the federal
government tied federal funding to states to the passage of CON
laws. This resulted in every state but Louisiana passing a
certificate of need law.
SENATOR GRAY-JACKSON summarized that states that wanted to
receive federal funds had to pass a CON law.
MR. ZEPP replied that is correct.
SENATOR GRAY-JACKSON asked for a one sentence explanation of how
a CON program contributes to higher health care costs.
MR. ZEPP suggested that she imagine what the price of groceries
would be if the government mandated that the greater Juneau area
could have just one grocery store. The principle is that
limiting supply causes costs to rise.
SENATOR GRAY-JACKSON commented that it's supply and demand.
1:53:31 PM
SENATOR MICCICHE said he appreciates the bill and discussion but
he believes there should be some discussion about the reason for
a certificate of need program. He posited that CON was
particularly important in Alaska when it passed initially
because it encouraged construction of a facility and ensured
there were not too many competing interests. He cited the
example of the hospital in his community evaluating whether or
not to expand. He said this may have been more important when
Alaska was much younger, but he would like to hear about the
history, purpose, and value of CON as initially envisioned.
SENATOR WILSON said he would not go into the history, but he
would point out that hospitals do not make money from their
emergency departments because they are required to treat EMTALA
or indigent care patients. They rely on their other surgery or
ambulatory services to offset those losses and they fear losing
those profit margins to competing facilities. He also pointed
out the loopholes in CON that allow ambulatory surgery centers
under a dollar threshold that are privately owned through
physician funding or the exempt Indian Health Service (IHS). To
Senator Micciche's example about the benefit of CON to a
hospital in his community looking at expanding, he highlighted
that today a hospital in Anchorage could spend $2 million to
fight that CON effort because they may want to expand into that
community. He said that is not how the open market should work
here in Alaska.
1:58:35 PM
MR. ZEPP added that healthcare providers will say they do not
like CON if they cannot open facilities, but they do like it
when it blocks new facilities and protects the incumbents. He
said it should be like any other industry where the economics
drive the free market.
CHAIR COSTELLO turned to invited testimony. She introduced Dr.
Matthew Mitchell from the Mercatus Center and asked him to
describe the Center and who provides its backing.
2:00:01 PM
DR. MATTHEW MITCHELL, Economist and Senior Research Fellow,
Mercatus Center, George Mason University, Fairfax, VA, stated
that the Center is a nonprofit research center that is funded
primarily by donations from individuals and foundations and
about one percent from corporations. The research and funding
arms of the Center are separated by design so he does not have
many details about the funding. This allows the researchers to
select their own topics and come to their own conclusions.
He said the federal government at one time encouraged states to
adopt CON laws through federal matching funds. The effort
started in 1974 with the National Health Planning and Resources
Development Act, but when evidence showed that CON laws were
failing to achieve their goals, a bipartisan Congress repealed
the federal mandate. Since then about 15 states have repealed
their CON programs and several others partially repealed the
law. Currently, about 40 percent of Americans live in a
diversity of states that have no certificate of need for
healthcare. Health economists for several decades have tracked
outcomes in these non-CON states and compared them to CON states
like Alaska. Controlling for observable and nonobservable
factors, the research concluded that CON laws do not achieve
their stated goals. In fact, they seem to make matters worse. In
states that have repealed their CON laws, patients enjoy greater
access to care, higher quality of care, and lower cost care.
2:02:57 PM
DR. MITCHELL described the data on access as overwhelming. In
non-CON states, controlling for other factors, there are more
hospitals per capita, more surgery centers per capita, more
rural hospitals, more rural ambulatory surgery centers per
capita, and more hospital beds, even during the pandemic. They
found that states that had repealed their CON laws a while ago
were in a better position to handle the pandemic than those
states that temporarily suspended their CON laws. Non-CON states
have more dialysis clinics, patients do not have to travel as
far to obtain care, and there are smaller disparities in the
provision of care to communities of color.
On average and controlling for other factors, he said patients
tend to receive higher quality of care in non-CON states. For
example, one study found that nursing home patients were less
likely to be physically restrained and more likely to benefit
from higher staffing ratios. Another study found that patients
in non-CON states experienced lower mortality rates after heart
attacks, heart failure, and pneumonia. Readmission after heart
attacks and heart failures were lower and patients were less
likely to die from post-surgery complications. Yet another study
found that all-cause mortality is about 5 percent lower in non-
CON states. He highlighted that payers also spend less per
procedure and per patient in non-CON states.
DR. MITCHELL stated that the best option in terms of access,
quality, and cost seems to be to eliminate the CON program
altogether. Short of full repeal, he suggested Alaska consider
reforms that other states have adopted. For example, the state
might eliminate CONS that restrict access to services used by
vulnerable populations such as psychiatric services, less used
services such as renal failure and radiation therapy, or to low
cost modes of care such as ambulatory surgery centers.
2:05:32 PM
He mentioned the options to ease the administrative burden of
CON laws. For example, Alaska might reduce fees in the
application process or require incumbents to pay the cost of the
application if they are unsuccessful in challenging an entrant's
application. He said it is the incumbent's role to block a new
entrant's CON application and in part is why CON laws are so
suspect for economists and antitrust authorities in the U.S.
Department of Justice and the Federal Trade Commission. For
decades, those agencies have taken the position that CON laws
are anti-competitive and harmful to consumers.
2:06:21 PM
DR. MITCHELL suggested that the CON criteria could also be
changed. For example, a CON application should not be rejected
to prevent duplicative services because that essentially
guarantees a monopoly of the local market. Finally, policy
makers could consider options that would increase the
transparency of the CON program and make legislative oversight
easier. For example, the board could be required to regularly
disclose its CON approval rates and the share of applications
opposed by competitors. Or the board could be required to ask
applicants to estimate their costs to apply for a CON and then
regularly report the numbers to the public.
2:06:58 PM
DR. MITCHELL emphasized that the bulk of evidence conducted over
several decades by medical economists suggest that the best
option in terms of access, quality, and cost would be full
repeal. This is based on the experience of the 40 percent who
work, live, and seek care in states that do not require a
certificate of need for healthcare.
SENATOR STEVENS asked him to talk about states that have fully
repealed their CON laws and those that adopted a partial or
stepped approach to repeal.
DR MITCHELL replied the most common stepped approach to appeal
is to eliminate specific CONs. For example, West Virginia,
Florida, Indiana, and Ohio retained a few versions of CON for
things like nursing homes. Another popular approach is to do a
full repeal over a specific time. Indiana did that through a
stepped approach over five years. Another possibility would be
to direct the CON board to approve an increasing number of CON
applications each year. He said he was not aware of a state that
had done that but it would seem to be a way to remove some
hesitancy about a full repeal.
CHAIR COSTELLO invited Dr. Bryan to provide her testimony.
2:09:51 PM
DR. DARCY BRYAN, Practicing Physician; Senior Affiliated
Scholar, Mercatus Center George Mason University, Fairfax, VA,
stated agreement with the previous testimony that a diversity of
states have repealed their CON laws since 1987. She said the
main purpose of certificate of need has nothing to do with
quality or diversity of choice for patients or healthcare
providers. Rather, it is about a committee determining whether a
healthcare service is economically valuable.
2:10:50 PM
DR. BRYAN advised that her testimony would mostly be from the
perspective of a practicing physician who works with hospitals
and surgery centers. She said there is strong evidence that
states without CON have 30 percent more hospitals per capita, 14
percent more ambulatory surgery centers, and more hospice and
dialysis centers. There is also good evidence that quality
improves through competition and diversity of options for
patients.
DR BRYAN said she has practiced in states that either
significantly reduced or eliminated their CON laws entirely so
she can testify that she has had the ability to direct her
patients to the surgery center or hospital that she thought
would provide the best level of care for their surgery or
condition. She has held multiple hospital privileges, which
provided flexibility in her decision-making and enabled her to
have a significant voice in medical staff meetings. She said
healthcare administrators are primarily business men and women
whose job is to advocate for the success of the institution for
which they work. Physicians are granted permission to work in
their facility and in turn the facilities reach out to
physicians hoping that they will bring their patient population
to the facility for healthcare and referrals. In turn, providers
wish to practice in a facility that will provide quality and
patient satisfaction. This reflects well on them professionally
and their ability to make certain their patients are well cared
for.
DR. BRYAN offered her perspective that practicing in a region
with a monopoly generally leads to an administration that is
resistant to change in investing in terms of quality and care.
She said you can imagine if you're the only surgery center and a
provider wants you to buy a particular piece of expensive
operative equipment that is shown to have better outcomes
surgically but is less "cost effective" than a cheaper piece of
equipment. The surgery center can refuse and the provider has
nowhere else to go. She said she has seen doctors advocate for
new equipment purchases with the ability to say they would not
operate in a surgery center or hospital that was not amenable or
responsive to what the doctor recommended. She offered her
perspective that advocacy is an empowerment for physicians and
much more effective in a competitive environment in terms of
purchasing new equipment to improve operating room nurse
staffing ratios and quality metrics.
2:14:24 PM
DR. BRYAN highlighted that the relatively new phenomena of
hospitals purchasing physician practices increased 128 percent
from 2012 to 2018. This makes it unlikely that a physician in a
community that has just one hospital would challenge the
hospital's quality metrics, staffing, or equipment purchases.
Leaving town is a more likely option. She offered her belief
that it disempowers healthcare providers to have just one
hospital or surgery center in a community.
DR. BRYAN said her last point is that the COVID-19 pandemic was
completely predictable but nobody did predict it in terms of
setting up adequate ICUs or hospital beds. It is clear that the
US lacks flexibility in healthcare supply to respond to a
disaster. She believes more pandemics should be expected and
healthcare providers should have more freedom at the community
level to make decisions about what they need in terms of ICU
beds, ventilators, hospital beds. Having to run these decisions
through an administrative bureaucracy before moving forward
hinders a quick and flexible response to patient care. She said
she is essentially saying that CON laws are an impediment to
physicians striving to provide the highest quality of care for
their patients at affordable prices. CON laws also lead to an
inability and lack of flexibility to respond to impending
healthcare disasters.
2:16:56 PM
CHAIR COSTELLO noted that she mentioned that healthcare quality
improves without certificate of need laws and asked how she
measures quality.
DR. BRYAN replied the metrics are the morbidity and mortality
rates. For example, preventative post-operative deaths.
Statistically, surgery has a recognized mortality rate and you
can compare those rates across hospitals to see how one patient
population performs post-operatively in a certain hospital
versus another. In the field of obstetrics, she has seen high
cesarean section rates versus other hospitals that have lower
rates of operative deliveries, blood loss, loss of life through
pre-eclampsia, or other preventable problems.
SENATOR STEVENS asked if it is possible to compare morbidity in
CON hospitals versus non-CON hospitals during the COVID-19
pandemic.
DR. BRYAN said she knows of studies that show that states with
CON laws have statistically higher mortality rates. She deferred
further comment to Dr. Mitchell.
2:19:06 PM
DR. MITCHELL reported that three healthcare economists conducted
a study called the "Certificate of Need Laws and Healthcare
Utilization during the COVID-19 Pandemic." They found that
during the pandemic, there were higher rates of septicemia,
diabetes, chronic lower respiratory disease, influenza,
pneumonia, and Alzheimer's disease in CON states versus non-CON
states. The states with CON laws also had higher COVID-19 deaths
during the pandemic.
CHAIR COSTELLO asked him to send the study or point to where the
committee could find it.
SENATOR MICCICHE expressed interest in seeing the data that Dr.
Mitchell and Dr. Bryan referenced and restated his original
question. Why was there CON originally?
CHAIR COSTELLO invited Dr. Singer to testify and to explain what
the Cato Institute is and how it receives its funding.
2:21:48 PM
DR. JEFFREY SINGER, Senior Fellow in Health Policy Studies, Cato
Institute, Washington, DC, stated that the Institute is a
nonpartisan public policy research institute that receives no
government funding. The majority of its funding comes from
individual donors. He added that he is also a general surgeon in
private practice in Phoenix, Arizona.
2:22:21 PM
DR. SINGER said he appreciates the opportunity to offer his
perspective on certificate of need laws. Responding to an
earlier question, he related that in the early 1970s,
Connecticut and New York experimented with CON laws with the
idea that reducing healthcare facilities would help reduce
overall healthcare costs. In 1974, the federal government passed
a law to incentivize states to adopt CON laws by providing
funding. It has been more than three decades since Congress
repealed incentive, but CON laws still exist to varying degrees
in 38 states.
2:23:13 PM
DR. SINGER described CON laws as a classic example of central
planning that is heavily influenced by incumbent healthcare
providers. State healthcare systems are unable to adjust their
infrastructure rapidly to meet the changing demands of public
health emergencies. Despite being ineffective, states still have
a variety of CON laws on the books. For example, Ohio restricts
only long-term care services while Kentucky restricts more than
24 different types of healthcare facilities. Arizona, where he
resides and practices medicine, repealed all its CON laws except
for ambulance services in 1990. The Arizona Hospital Association
supported that action and Arizona healthcare providers have not
regretted the repeal.
2:24:10 PM
DR. SINGER said by 1990, California, Colorado, Idaho, Kansas,
Minnesota, New Mexico, South Dakota, Texas, Utah, Wisconsin, and
Wyoming all repealed there certificate of need laws. He agreed
with previous testimony that these laws essentially give
monopoly privileges to existing hospitals and facilities.
Further, established providers are invited to give testimony
when a new provider petitions for a certificate. This means some
healthcare practices can openly challenge the right to exist of
any practice that may hurt their bottom line. Indeed, hospital
administrators openly admit that protection against competition
due to CON laws has become an integral part of their business
model. He said they argue that CON laws allow the hospital to
generate enough revenue to provide 24-hour emergency services
and uncompensated care, but physicians also provide 24-hour
emergency services and uncompensated care yet state professional
organizations do not argue in favor of creating a CON
requirement before allowing more doctors, nurses,
psychotherapists, physical therapists and others to set up
practices in a state. And they would and should be publicly
derided if they did so. New healthcare practitioners entering a
state may provide competition to incumbent healthcare
practitioners but this has not stunted the growth of the
healthcare profession, he said. Instead, it has benefited
healthcare consumers by increasing choice and access.
DR. SINGER said one of the original purposes of CON laws was to
encourage hospital substitutes but 28 states now have
restrictions on ambulatory care services, which are a common
hospital substitute that compete with traditional hospitals.
Long-term care and hospice care can be offered either in nursing
homes or through home healthcare services. Comparisons between
states with CON laws and those with no CON laws shows that
hospice expenditures in states with CON laws are dominated by
more costly nursing homes rather than alternatives like home
healthcare. Incumbents often claim CON laws reduce healthcare
expenditures. But this claim runs counter to economic theory,
which would predict that a supply restriction will increase
prices. While some may argue that the increase in prices will
reduce healthcare consumption, the third-party payer system
insulates consumers from the impact of price increases thus
having little impact on utilization. With healthcare consumers
largely insulated from price affects, reductions in healthcare
expenditures can only be achieved by reducing the availability
to access to healthcare.
2:26:52 PM
DR. SINGER confirmed Dr. Mitchell's report that a Mercatus
Center review of 20 academic studies found that CON laws largely
failed to achieve the goal of reducing healthcare costs and
concluded that the overwhelming evidence was that CON laws are
associated with higher per unit costs and higher expenditures.
He said governments that embrace central planning, fall victim
to what economists call the "Knowledge Problem." It is
impossible to predict how many healthcare facilities and
services will be needed to serve a growing and dynamic
population. Markets are the most accurate and efficient way of
evaluating goods and services. With the advent of the COVID-19
pandemic, many states realized that their CON laws left them
unprepared for a sudden surge in demand for critical care and
other healthcare services and 20 states, including Alaska,
suspended their CON laws. He said this was a tacit admission
that CON laws impede the rapid response of the healthcare system
to changes in society. He suggested that Alaska lawmakers heed
the lessons the public health crises provided and act to repeal
CON laws and rid the state's healthcare system of discredited
central planning reminiscent of a bygone era.
CHAIR COSTELLO asked the testifiers to provide their testimony
and materials in writing.
2:28:47 PM
CHAIR COSTELLO opened public testimony on SB 26.
DAVID BALAT, Director, Right on Healthcare Initiative, Texas
Public Policy Foundation, Austin, Texas , stated that despite
CON's underlying assumption that excess capacity of healthcare
facilities results in inflated healthcare prices, the findings
on average are that this regulation does the exact opposite. He
pointed out that it is next to impossible for a patient to see a
list of prices for services a hospital offers even though a 2020
national study found that nine out of ten people believe all
healthcare prices should be disclosed. Despite a federal law
that requires hospitals to post their negotiated rates, the rate
of compliance for hospitals in Alaska is 21 percent, which is
among the lowest in the nation. The message clearly is that they
do not want patients to know the prices they negotiated with
insurers and that the negotiated rates directly attributed to
the regulation that protects them from competition. He pointed
out that Alaska and 24 other states suspended CON laws in the
wake of the COVID-19 pandemic and emphasized that maintaining
this restrictive law will continue to artificially limit the
number of providers by requiring businesses to prove their
services are needed. This is contrary to a market-based economy
where the customer provides that feedback, not the existing
competitors.
MR. BALAT concluded his comments highlighting that despite
Alaska approving all recent CON applications, none of the
terrible things the hospital association said would happen has
happened. He asked the committee to look favorably on SB 26.
2:31:25 PM
ED MARTIN, representing self, Sterling, Alaska, testified in
support of SB 26. He said quality and profit do not always go
hand-in-hand, free enterprise and capitalism is what America is
about, and healthcare costs will go down with more competition.
He noted that the evidence shows that centralization and
planning has been expensive. He did not believe the state should
fear more free enterprise and that it was not necessary to go
back to 1965 and figure out why healthcare costs have risen so
dramatically. He concluded his testimony by suggesting the
committee move on and get the business done.
2:33:21 PM
PATRICK SHIER, Alaska Membership Representative, Pacific Health
Coalition, Wasilla, Alaska, stated that PHC assists a coalition
of more than 50 self-funded health plans to find the best price
and value in quality healthcare. By leveraging competitive
principles, these member plans saved more than $500 million in
2019. He stated support for SB 26 and measures that enlist the
power of free markets in the pursuit of better healthcare and
pricing. He reminded the members of the 2019 PHC-sponsored Lunch
and Learn that featured the authors of the book "Overcharged:
Why Americans Pay Too Much For Healthcare." The authors made a
compelling case that distortions of market forces almost always
result in negative outcomes. He cited the example of the federal
measure prohibiting the reimportation of insulation in 1998. The
effect was a tenfold increase in price. While government
intervention is sometimes warranted, he said certificate of need
has outlived its usefulness and created monopolistic barriers to
entry in an industry that is critically valuable to Alaskans. He
concluded that repealing CON is a necessary step in unraveling
the many distortions in the healthcare industry and helping all
stakeholders take a fresh look at proving high quality cost-
effective healthcare delivery in Alaska. He urged passage of SB
26.
2:35:43 PM
WENDY SCHRAG, Fresenius Kidney Care, Juneau, Alaska, Testified
in opposition to SB 26. She advised that FKC provides dialysis
services to about 325 patients in 11 clinics in Alaska. They
support CON laws, which have established a long history of
stability for reputable dialysis providers and investments in
their clinics and equipment. Responding to previous testimony
that non-CON states have more dialysis clinics, she said she
lives in a non-CON state and the two dialysis clinics near her
house operate at 50 percent capacity and are open just three
days a week. They are closed the rest of the week. She also
noted that FKC had to close a new dialysis clinic in a nearby
community when a third dialysis provider moved in. She explained
that dialysis clinics remain solvent by balancing the current
population of needs with the expected growth of needs. She
highlighted that CON supports access to care in outlying areas
but warned that rural clinics in Alaska could potentially close
or not open in the first place without CON. The dialysis clinic
in Juneau for example has just 19 dialysis patients but FKC
knows it will maintain that patient base because of CON laws.
The home dialysis training in Juneau had to close however
because of low patient numbers. She noted that the Soldotna
clinic is in the same situation. She warned that without CON
laws, providers may be reluctant to enter outlying areas. She
reiterated support for CON laws and opposition to SB 26.
2:38:39 PM
BETHANY MARCUM, Alaska Policy Forum, Anchorage, Alaska, stated
that the Alaska legislature and 23 other states suspended
requirements for some certificates of need during the COVID-19
pandemic. She described it as the government getting out of the
way to allow the timely delivery of essential healthcare
services. She said this policy should be extended and the
requirements for burdensome CONs should be repealed in Alaska.
Requiring entrepreneurs to prove their services are needed
instead of allowing the free market to work makes it difficult
and expensive to open new healthcare facilities. She said that
is hard to swallow in a state like Alaska where there are
significant issues associated with healthcare access. Less
access means fewer facilities and providers, which prevents
people from getting the care they need and it drives up costs.
She said CON requirements also stifle innovation and competition
by establishing a system of central planning and cronyism.
Patients are left with higher costs, lower quality care, and
fewer options. Furthermore, allowing existing providers to give
input on their potential competition is not in the best interest
of consumers. Patients, providers, and the free market should
instead determine what new medical facilities will open in an
area. She said it is time for Alaska to join the 15 other states
that have removed their CON requirements. There is support for
this among Alaska voters. She concluded that Alaska has some of
the most challenging access and most expensive healthcare in the
country and it is up to the legislature to alleviate this
situation.
2:40:50 PM
DR. ALICIA PLEMMONS, representing self, Edwardsville, Illinois,
related that she is an assistant professor at Southern Illinois
University Edwardsville and a research affiliate of the Knee
Center for the Study of Occupational Regulation at Saint Francis
University. She advised that she is the author of the study
mentioned earlier about how CON laws affected mortality during
the COVID-19 pandemic. She said she would not go into the
background of CON laws but did want to remind the committee that
CON laws affect all aspects of healthcare, down to the number of
beds in an ICU. She noted that previous testimony did not
include the point that in Alaska, purchases requiring approval
through CON laws takes from 60 to 180 days and the fees range
from $2,500 to nearly $75,000. Anytime during this process,
competitive healthcare providers can intervene to have the
application denied. In 2019, 35 states and the District of
Columbia had versions of CON laws. During the COVID-19 pandemic,
Alaska was one of the states that recognized the need to let
healthcare purchase and move beds very quickly. She and her co-
authors analyzed the legal changes using CDC mortality files and
found that states such as Alaska that suspended CON laws that
restricted hospital beds, saw a significant reduction in deaths
from not only coronavirus but also from other diseases using
similar medical equipment. This included septicemia, diabetes,
chronic lower respiratory disease, influenza, pneumonia, and
advanced Alzheimer's disease. She said these legal changes saved
about 26 lives per week from March to the end of June.
DR. PLEMMONS said her testimony has three points. First, CON
laws affected purchasing during the pandemic and restricted
healthcare facilities nationwide from responding to the demand.
Second, Alaska saved lives by temporarily suspending CON laws.
Third, repealing CON laws can avoid these emergencies in the
future by allowing hospitals and healthcare providers to prepare
for these emergencies before they happen. She highlighted that
there has been extensive research on CON laws over the past
decade and that dozens of data-driven, peer-reviewed studies in
academic journals have consistently found that CON laws have
fallen short of their goal to protect access to high quality
care in rural and underserved communities by preventing
competition that would otherwise keep quality high and prices
low. She concluded that SB 26 offers an opportunity to do better
and put the lives of Alaskans first in the fight for better
healthcare.
CHAIR COSTELLO asked her to send her research to the committee.
2:44:23 PM
YVONNE ITO, representing self, Glenallen, Alaska, stated that
she is a Doctor of Social Work at Crossroad Medical Center in
Glenallen and she was speaking in support of SB 26. She pointed
out that it is already difficult to obtain services in rural
Alaska and the CON laws make it worse. She urged the committee
to think about access to care and to do what is sensible and
repeal CON laws.
SENATOR MICCICHE thanked her for her concise testimony and
perspective.
CHAIR COSTELLO expressed particular appreciation to the Alaskans
who were testifying.
2:46:16 PM
SARAH HETEMI, representing self, Anchorage, Alaska, stated that
during the COVID-19 pandemic, Alaska was one of 20 states that
suspended portions of their CON laws to allow providers to act
quickly to respond to the pandemic. She questioned the reason
for not allowing this same flexibility year around for various
services. She said quality healthcare should matter regardless
of the healthcare issue. She cited a Mercatus Center study
mentioned earlier that that found that CON laws are associated
with fewer services, less access to services, and greater racial
disparity in the provision of care. She concluded that she
believes that repealing CON laws would help improve healthcare
for all Alaskans, which is why she supports SB 26.
2:48:41 PM
JARED KOSIN, President and CEO, Alaska State Hospital and
Nursing Home Association (ASHNA), Anchorage, Alaska, stated that
ASHNA opposes SB 26. They agree that problems exist with the
current CON program but a wholesale repeal is not the answer. He
said it is impossible to respond to the assertions that have
been made in just two minutes. He pointed out that CON
regulations were waived during the pandemic, but ordinary
capital projects received government review. He emphasized that
no providers are asking to keep the hospital beds that were
freed up to remain available on a permanent basis. Regarding the
free market argument for repeal, he said healthcare really is
not a free market. Hospitals are required to maintain an
emergency department, they have a duty to treat all patients
regardless of ability to pay, and they must be open 24 hours per
day, 365 days per year. By contrast, ambulatory surgery centers
do not have a duty to treat and their hours of operation are
discretional. The point is that customers are choosing between
two totally different products and only one is subject to a host
of expensive requirements.
MR. KOSIN said ASHNA urges the committee to look at the
regulatory framework of CON instead of full repeal.
CHAIR COSTELLO urged him and other testifiers to send written
comments if they would like to respond more fully.
2:51:01 PM
KAREN PERDUE, Volunteer Foundation Trustee, Foundation Health
Partners (FHP), Greater Fairbanks Community Hospital Foundation,
Fairbanks, Alaska, urged the committee to slow down and listen
to some broader perspectives on the issue of certificate of
need. She said most states still have a CON program and Alaska
needs one because it is so rural it does not have the volume to
control costs. She cited the community of Fairbanks trying to
support a hospital system with a population of 100,000. She
highlighted that the robust surgery center in Fairbanks gained
its status through the CON process. That shows that the CON
process works, but the center has diminished surgeries at the
hospital by about 30 percent and the concern is that other niche
providers will take other specialized high-profit services from
the hospital.
2:52:59 PM
MS. PERDUE questioned the reason for the indeterminant fiscal
note and suggested it might be because the cost would be so very
high. She related her understanding that it takes the cap off
long term care. She explained that the state pays about 80
percent of skilled nursing costs through Medicaid and adding
long term care beds automatically adds to that program. When she
was DHSS commissioner and a long term care certificate of need
was authorized, it automatically added several million dollars
to the state budget. She acknowledged that there is a shortage
of long term beds in Alaska but noted that a long term policy
has been to try to have those services in the community. In
response to the expert testimony about consequences of CON, she
noted that the state has the least restrictive use of restraints
in the country.
2:53:52 PM
MS. PERDUE refuted the material in the bill packet from the
Mercatus Center that talks about the additional facilities
Alaska would have without CON. She pointed out that rural
hospitals are just hanging on and questioned where hospitals
might be added. She said CON has done what it was intended to do
in managing healthcare infrastructure. She suggested the
committee ask the department what it would cost, including
licensing and managing, to add eight new hospitals and up to 400
long term care beds.
MS. PERDUE said her final point is that this is a tough
conversation to listen to when hospitals performed so well
during the COVID-19 pandemic. She assured the committee that it
would not have been possible to manage the pandemic in Fairbanks
without a functioning and vital hospital system. She emphasized
that Foundation Health Partners (FHP) provided the medical
leadership and boots-on-the-ground. It is a large part of the
public health infrastructure in the community and now is not the
time to talk about weakening capacity. The conversation should
instead be about how to strengthen the system. She urged the
committee to hold SB 26 and do more research about the benefits
of keeping CON.
CHAIR COSTELLO advised people who were unable to testify today
to call on Friday or provide their comments in writing.
2:57:28 PM
RYAN MCKEE, State Director, Americans for Prosperity-Alaska
(AFP-AK), Wasilla, Alaska, testified in support of SB 26. He
said the COVID-19 pandemic showed that preparation is necessary
and that much of the state was not prepared and had to shut
down. He said the effects of not being prepared were large and
if repealing CON laws adds to preparedness that will have a
positive affect throughout the state and not just in the
healthcare sector. He also pointed out the potential for
monopolies with CON laws. He said many Alaskans are forced to
seek healthcare treatment outside the state where services are
more affordable, but it should not be that way. Healthcare
should be affordable for all Alaskans. He encouraged the
committee to support SB 26.
CHAIR COSTELLO stated that she would hold SB 26 in committee
with public testimony open.