Legislature(2001 - 2002)
04/23/2002 01:39 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 23, 2002
1:39 PM
TAPE HFC 02 90, Side A
TAPE HFC 02 - 90, Side B
TAPE HFC 02 - 91, Side A
TAPE HFC 02 - 91, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee
meeting to order at 1:39 PM.
MEMBERS PRESENT
Representative Eldon Mulder, Co-Chair
Representative Bill Williams, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative John Davies
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
Representative Jim Whitaker
MEMBERS ABSENT
None
ALSO PRESENT
Representative John Coghill; Representative Lesil McGuire;
Elmer Lindstrom, Special Assistant, Department of Health
and Social Services; Mike Powers, Administrator, Fairbanks
Memorial Hospital; Brian Slocum, Tanana Valley Clinic,
Fairbanks; Jerome Selby, Regional Director, Providence
Kodiak Island Medical Center, Kodiak; Richard Cobden, MD,
Fairbanks; Catherine Reardon, Director, Division of
Occupational Licensing, Department of Community and
Economic Development.
PRESENT VIA TELECONFERENCE
Carolyn Watts, PH.D., Professor, Health Economics,
University of Washington; Jay Kaplan, Vice President,
Emergency Services, Banner Health, Arizona; Thomas R.
Piper, Director, Certificate of Need Program, Missouri
Department Health, Missouri; Dean Montgomery, Staff
Director, Health Systems Agency of Northern Virginia
(HSANV), Virginia; Kim Pickarel, Market Coordinator, Health
South Medical Services Corporation, Anchorage; Dennis
Murray, Heritage Place, Kenai; Harry Porter, Fairbanks
Memorial Hospital, Fairbanks; Susan McLane, Fairbanks
Memorial Hospital, Fairbanks; Karl Sanford, Fairbanks
Memorial Hospital Foundation, Fairbanks.
SUMMARY
HB 350 "An Act relating to terroristic threatening."
CSHB 350 (FIN) was REPORTED out of Committee with
a "do pass" recommendation and with and four
previously published fiscal notes: #1 CRT, #3
LAW, #4 ADM, and #5 COR.
HB 399 "An Act relating to the Uniform Mechanical Code
and other safety codes; annulling certain
regulations adopted by the Department of
Community and Economic Development relating to
the mechanical code that applies to certain
construction contractors and mechanical
administrators; and providing for an effective
date."
HB 407 "An Act relating to the Certificate of Need
program."
HCR 23 Proposing amendments to Uniform Rule 20 of the
Alaska State Legislature; and providing for an
effective date for the amendments.
HCR 23 was REPORTED out of Committee with a "do
pass" recommendation and with a new zero fiscal
note by the Legislative Affairs Agency.
HOUSE CONCURRENT RESOLUTION NO. 23
Proposing amendments to Uniform Rule 20 of the Alaska
State Legislature; and providing for an effective date
for the amendments.
Vice-Chair Bunde, Sponsor, HCR 23 testified in support of
the legislation. He noted that the legislation would amend
the Uniform Rules to create a standing House Education
Committee. It would reconfigure the House Health,
Education, and Social Services Committee to the House
Health and Social Services Committee. He noted that "it is
a full plate" for one committee. He observed that HCR 23
would not change the Senate HESS Committee. The change
would be effective for the next legislative session.
Vice-Chair Bunde noted that it was felt that the Special
Committee on Education has proven to be beneficial to the
legislative process by facilitating focused committee work
on education bills and issues. He noted that while he was
chair, the House Health, Education, and Social Services
Committee often had to meet five days a week in order to
get through the bills before them. He observed that it was
sometimes difficult to get a quorum.
Vice-Chair Bunde emphasized that education issues are
complex and very important. The workload related to
education has become significant and would benefit from the
full attention of a permanent standing committee. He
observed that HCR 23 is supported by the Association of
Alaska School Boards and the Alaska Council of School
Administrators.
nd
Vice-Chair Bunde pointed out that during the 22
Legislature: 119 bills were referred to HESS; 42 bills were
referred to the Special Committee on Education; and 33
bills were referred to both committees.
Representative Harris observed the difficulty of getting a
quorum and questioned if an additional committee would
exacerbate the situation. Vice-Chair Bunde stressed that
the new committee would be able to maintain a regular
three-day a week schedule.
Vice-Chair Bunde MOVED to ADOPT a zero fiscal note. There
being NO OBJECTION, it was so ordered.
Representative Foster MOVED to report HCR 23 out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
HCR 23 was REPORTED out of Committee with a "do pass"
recommendation and with a new zero fiscal note by the
Legislative Affairs Agency.
HOUSE BILL NO. 407
"An Act relating to the Certificate of Need program."
Representative John Coghill, Sponsor, spoke in support of
the legislation. He noted that he was motivated by an open
market system. He stressed that health care needs to cross
over between regulation and the free market economy. He
maintained that the consumer (patient) is often left out of
discussions. Under current statute, a health care delivery
system costing more than $1 million dollars must go through
a Certificate of Need (CON) discovery process and
authorization with the Department of Health and Social
Services. He questioned why government permission should be
required to give health care services in certain population
and if it is the wisest way to go.
Representative Coghill reviewed the legislation by section.
Section 1 provides that a facility may not expend more than
a million dollars under specific conditions: for a skilled
nursing facility or psychiatric hospital; to increase the
bed capacity of a skilled nursing facility; or convert bed
care style.
Section 2. Provides that a facility destroyed on site or
demolished on site could be replaced without having to
acquire a new Certificate of Need and provides that a
facility could move to a new site without a new Certificate
of Need as long as capacity and categories of services do
not change.
Section 3. Requires the department to adopt regulations
to set a time limit for the department to determine that an
application is complete.
Section 4. Requires the department to set a time limit by
which public hearings must be held. It also requires the
department to approve or deny an application within 120
days of the date the department determined the application
was complete.
Section 5. Places all Certificate of Need applications
under the same standards of review that currently exist for
nursing home beds.
Sections 6 and 7 addresses issuance and the rights of a
temporary Certificate of Need.
Section 8 addresses the suspension of a Certificate of
Need.
Section 11 provides for the development of a comprehensive
health plan.
Representative Coghill observed that limitations to the
health plan were placed in section 13:
(1) is not intended by the legislature to be updated
periodically;
(2) shall be prepared by the Department of Health and
Social Services by January 1, 2003, and a copy of
it shall be given by the department to the
legislature by that date; and
(3) shall be prepared by using staff and other
resources of the department that are generally
available to perform the duties of the department
without an additional appropriation specifically
designated for preparation of the plan or without
an additional appropriation to fund the indirect
effect on existing personnel or resources.
Representative Coghill maintained that populations of
55,000 or more should be open to a freer market. He
acknowledged that the size is arbitrary. He emphasized that
the non-profit organization world is over-running the for
profit world. He inferred that non-profits could indulge in
price fixing and that it leaves room for discussions of
impropriety. He stated that he would not be opposed to the
elimination of section 11.
Vice-Chair Bunde clarified that the high fiscal costs are
associated with section 11.
CAROLYN WATTS, PH.D., PROFESSOR, HEALTH ECONOMICS,
UNIVERSITY OF WASHINGTON, testified via teleconference in
opposition to the legislation. She has done research and
taught in the area of health economics and health policy
for the past 26 years. She has also written widely on
issues involving the organization of health care markets,
including several pieces on Certificate of Need, one for
the Washington State Legislature.
Ms. Watts urged the Committee to proceed with extreme
caution. She maintained that the stakes are very high, both
for Alaska's Medicaid budget and for access to basic
services such as obstetrics and prenatal care for the
populations, particularly the low-income populations,
served by sole community hospitals.
As an economist, I believe in competition. However,
competition delivers good results in markets that can
support many buyers and sellers where all consumers
can afford to pay their way. Competition at its best
does a good job of catering to the desires of buyers
with money. It does nothing for people without the
ability to pay. This is not the situation in single
hospital communities. Here patients have no
alternative if the only hospital cannot survive
financially because another provider has entered the
market to do only the profitable services.
Competition can lower prices in some markets. However,
the only prices that get lowered are for those
consumers and services the sellers want to serve (at a
profit). Sellers won't compete to serve Medicaid or
charity patients but competition will erode the
ability of charitable hospitals to serve these
patients if they take away the potential for cross
subsidization.
The Alaska State budget is in trouble. Medicaid funds
are in trouble. Cross subsidization of Medicaid and
charity services with insurance funds paid for
profitable services essentially allows the state to
shift some of the financial burden of its Medicaid
obligation to the private sector. Competition that
lowers the prices of profitable services to insured
patients benefits insurance companies at the expense
of the state Medicaid budget. The hospital's financial
obligations around basic services such as obstetrics
and prenatal care to low income Medicaid or uninsured
patients will not be reduced as outpatient surgery
centers and other niche providers enter the market. In
the absence of funds generated through cross
subsidization, the hospital will either have to raise
its prices to Medicaid or fail financially, resulting
in major access dilemmas not just for Medicaid
patients but for all the residents of the community.
Finally, Certificate of Need does not prohibit
competition. It simply provides a structure and a
public process through which competition can be
monitored, guided, and shaped to be constructive
rather than destructive. The free market, after all,
brought us Enron.
Ms. Watts urged legislators to study the issue carefully
before they dismantled the public process that supports the
health care infrastructure of Alaskan communities and
maintained that Certificate of Needs does not inhibit
competition.
Co-Chair Mulder questioned if the state of Washington has a
Certificate of Need process and whether it had changed over
the last decade. Ms. Watts affirmed and noted that the
process has changed, but the process of the Certificate of
Need has remained allowing public discussion around what
the community's infrastructure would look like.
Co-Chair Mulder noted that there is a closed opportunity
into the Alaskan market, which has caused frustration. He
questioned if it is easier in the state of Washington. Ms.
Watts observed that the idea behind the process is not as a
prohibition, but as a careful introduction into the market.
Proposals that provide choice and are good for the market
without harming the basic infrastructure go through without
a lot of discussion. Certificate of Need allows for
alteration of projects. It provides a forum for public
discussion. Without a Certificate of Need process there is
no way to monitor or assure promises are kept. There is a
process by which the product can be monitored and shaped.
Co-Chair Mulder summarized that the process is open and
occurs in the public discussion. Ms. Watts agreed.
Vice-Chair Bunde clarified that Ms. Watts is a paid witness
through the Fairbanks Memorial Hospital.
In response to a question by Representative Whitaker, Ms.
Watts noted that market forces cater well to the people who
have resources but not to those that cannot pay or are
represented by agencies like Medicaid that cannot pay
market rates. The competition is around the profitable
patients and services. No one wants patients that cannot
pay or that come with less than market rates, as do
Medicaid patients in most states.
JAY KAPLAN, VICE PRESIDENT, EMERGENCY SERVICES, BANNER
HEALTH, ARIZONA, testified via teleconference in opposition
to the legislation. Mr. Kaplan practiced emergency medicine
for 21 years [in New Jersey] and in the state of Arizona
for the past year. He referred to the Certificate of Need
process in New Jersey, which was implemented to prevent
duplication of services and increased costs. The hospital
in which he worked was not allowed to initiate an open-
heart program because of the affect on nearby urban inner
city hospitals. Another suburban hospital was allowed to
open due to political maneuverings. A major urban area
hospital in the vicinity of the new open-heart clinic now
has a $40 million dollar shortfall and increased
uncompensated reimbursements.
Mr. Kaplan noted that the state of Arizona is seeing a rise
in specialty hospitals and boutique health care services
that are planned and developed by for profit groups to
attract paying, insured patients, especially those
requiring surgical procedures, which have a higher profit
margin. He noted that Arizona has a serious medical problem
with overcrowded emergency departments: with a lack of
access and 8 - 10 hour weights. It is difficult to get on-
call physicians to care for Medicaid and uninsured
patients. He argued that eliminating the Certificate of
Need process would not increase access and competition or
lead to reductions in cost. Not for profit hospitals have a
mandated social responsibility to care for all patients. He
argued that Medicaid patients are not accepted at for
profit hospitals. He maintained that elimination of the
Certificate of Need process would threaten the viability of
the safety net [for low income patients] and begin a health
care arms race with the elimination. Studies have shown
that the unbridled ability of services result in
unnecessary procedures and surgeries, which increase cost.
He stressed that health care premiums would be raised,
leading to more people that cannot afford insurance and
maintained that the Medicaid and uninsured population would
swell. More facilities would also strain the shortage of
nurses and technicians, which would lead to increased labor
costs. He concluded that elimination of the Certificate of
Need process would not lower costs or help physicians.
THOMAS R. PIPER, DIRECTOR, CERTIFICATE OF NEED PROGRAM,
MISSOURI DEPARTMENT HEALTH, MISSOURI, testified via
teleconference in opposition to the legislation. He is the
director of the Missouri Certificate of Need program. He
reviewed changes in the Missouri system since 1979. The
Missouri program has evolve and change in many ways:
1979 - Original Certificate of Need law passed. 1983
Establishment of the Nursing Home Moratorium
established.
1988 - Expenditure minimums raised, but Federal
funding discontinued.
1991 - Parking facilities, utility systems and others
waived from review.
1996 - Acute care sunset passed by Legislature
effective 12/31/01.
1999 - Long-term care replacements and purchase of
beds established.
2001 - The sunset took affect and acute care review
ended except for new hospitals. Ambulatory centers
have not been reviewed; long term care, residential
care and major medical equipment over $1 million
dollars in any location have continued to be reviewed.
2002 - Two bills have been introduced that, HB1717 and
SB 1087, which would restore and strengthen acute care
review.
Mr. Piper observed that hospitals were split for many
years, but are now united with the intent to reform the
Certificate of Need process. Proposed bills would cover
both acute and long-term care with zero thresholds for
first-time services, but broaden flexibility for service
expansion and replacement. The basic rationale is to
protect established community services while restraining
double-digit inflation in health care premiums and Medicaid
costs. The impact of deregulation has been jolting in the
number of new ambulatory surgery and diagnostic imaging
centers, plus major hospital expansions. He argued that the
fiscal impact cannot yet be measured accurately, but
emphasized that it could not come at a worse time with
state budget cuts of over $500 million dollars and federal
limitations on reimbursement. Mr. Piper observed that:
Such funding problems are being experienced everywhere
in our country. As I have monitored CON activities
nationally over the last 13 years, and watched the
demise of managed care, we have seen CON stabilize in
36 states and the District of Columbia. Missouri has
streamlined their Certificate of Need process; many
other states that repealed their Certificate of Need
programs subsequently reenacted them, such as Indiana,
Minnesota, Wisconsin. Louisiana started a Certificate
of Need program in 1991. Pennsylvania reformed their
program and continues the activities under licensure.
There have been efforts in Texas and Kansas to restore
Certificate of Need programs.
Mr. Piper emphasized that state oversight of health care
persists because public funds pay for over two-thirds of
the health care services, and maintained that competition
doesn't work in health care; health care is part of the
caring community, not a commodity. He stressed that
public/private partnerships with community health planning
and oversight continues to be the best investment. He
reiterated that competition does not work in health care
and that state oversight is important.
Co-Chair Mulder questioned Mr. Piper's statement that
public funds pay for over two-thirds of health care
services. Mr. Piper clarified that his statistics were
based the national number: 68 percent.
Chair Mulder noted that his biggest concern is the impact
on the state's Medicaid budget. Mr. Piper thought that
there would be an impact on the state of Alaska Medicaid
system. He suggested that there would be a rapid expansion
of surgery centers and nursing homes. Medicaid would be
impacted because patients would be divided between
providers.
Co-Chair Mulder noted that proponents justify the
legislation based on the anticipated growth of population
in the state of Alaska; in five years there would be an
additional 55,000 in population; and more facilities would
translate into more opportunity.
Mr. Piper pointed out that the planning component must
occur to look at the expanding population and determine
where and which services should be provided. Planning is
needed along with regulation.
Co-Chair Mulder asked if there were comparisons with
Montana or other states with similar demographics to
Alaska. Mr. Piper did not have information on states with
similar demographics to Alaska.
Vice-Chair Bunde asked who is the ultimate arbitrator in
Missouri. Mr. Piper explained that there is a health
facilities review committee, which is a 9-member panel
appointed by the governor and legislature. There are 4
legislators on the body. The committee prepares and
analyzes information consistent with a set of regulations
that help to plan for what is needed and then compare for
feasibility. He observed that acute care review in Missouri
is poised to pass, which would strengthen the Certificate
of Need process in Missouri.
Vice-Chair Bunde maintained that Certificate of Need
regulations in Alaska have been handled arbitrarily. Mr.
Piper noted that a Certificate of Need technical advisory
committee with 73 members helped the state to streamline
and rewrite their rules. They have been able to reduce
times and costs by 20 40 percent.
Representative Coghill noted that the legislation tightens
up Certificate of Need requirements for a school nursing
facility, psychiatric hospital or nursing and psychiatric
facility. These facilities would be under the Certificate
of Need requirements in communities under 55,000.
DEAN MONTGOMERY, STAFF DIRECTOR, HEALTH SYSTEMS AGENCY OF
NORTHERN VIRGINIA (HSANV), VIRGINIA, testified in
opposition to the legislation. He noted that HSANV is a
private non-profit corporation, which does health services
research and planning, under contract, for both public and
private entities. They have conducted a number of CON and
related planning studies in Virginia and elsewhere over the
last two decades. He noted that he has more than 25 years
experience in this field.
Mr. Montgomery stated that:
The merits, and necessity of CON and related planning
have been debated in Virginia, with varying degrees of
intensity, every year since 1986. The Virginia
experience may be instructive and of use as you
consider changes to Alaska's program. After years of
debate, most covered service in Virginia was
deregulated in 1989. Among acute care services,
planning controls were kept on only hospital beds,
operating rooms and open-heart surgery. Following
deregulation, there was an immediate proliferation of
new services (notably, CT, MRI, radiation therapy,
cardiac catheterization). The resulting increase in
capital expenditures, and the sharp decrease in
average program use/volumes and the associated revenue
loss at established programs. led the state
legislature to reimpose planning controls three years
later, in 1992. Controls were reimposed on all of the
services that had been deregulated in 1989. It took
between 7 and 8 years for average program volumes to
return to 1989 levels. Virginia has been a rapidly
growing state during the last decade: 2 percent a
year. Were this not the case, the negative effects of
deregulation would have been even greater and longer
lasting.
This experience notwithstanding, CON has been debated
annually (during each general assembly Session), since
the re-imposition of controls in 1992. To date there
has been no significant change in the program.
Although there is a strong lobby in favor of the
deregulation, particularly of surgery centers,
diagnostic-imaging services, specialized cardiac
services, cancer treatment Centers, and similar
services that can be operated profitably outside of
community hospitals.
The CON' debate has centered on three broad issues:
(1) on the economic effects of deregulation,
particularly for community hospitals, (2) on the
access to care implications, especially l hr the
medically indigent and Medicaid patients, and (3) on
the quality implications, notably for specialized
surgical and other tertiary care services.
To date (the 2002 general assembly session ended
recently), the legislature has not deregulated again
because the evidence and testimony indicate that:
Community hospitals would lose critical revenue
from the loss of a large percentage of the
services on which they make a profit (e.g.,
ambulatory surgery, diagnostic imaging, cardiac
catheterization) and use to subsidize losses in
necessary hut unprofitable services;
TAPE HFC 02 - 90, Side B
In some cases, and perhaps in many, the loss of
this revenue would undercut the economic viability
of the hospital upon which a community, or a
specific population, is dependent;
Many community hospitals would he unable, or less
able, to provide necessary emergency services and
services to the medically indigent and to Medicaid
patients, without a substantial increase in
Medicaid payments;
Cost of deregulation to community hospitals is
estimated, at minimum, to be tens of millions of
dollars annually, and perhaps several hundred
million, depending on the categories of services
removed from regulation; and
Although there have been sustained negotiations
over several years, to date the legislature has
been unwilling or unable to appropriate monies or
to increase Medicaid payments to offset a
significant part of these losses to essential
community hospitals, or to otherwise level the
playing field to offset the inherent advantages in
proprietary ambulatory surgery centers and other
diagnostic and treatment centers, if they were
deregulated.
Mr. Montgomery concluded that:
Virginia hospitals are highly dependent on ambulatory
surgery and diagnostic imaging revenues to offset
losses in a number 01' essential but unprofitable
services they are required to provide. The same is
true of most essential community hospitals elsewhere,
Deregulation should occur, only after careful study of
the economic and service implications, particularly the
cost to community hospitals.
In response to a question by Vice-Chair Bunde, Mr.
Montgomery acknowledged that some services performed by
hospitals are profitable. These services are used to
subsidize services that do not make money.
KIM PICKAREL, MARKET COORDINATOR, HEALTH SOUTH MEDICAL
SERVICES CORPORATION, ANCHORAGE, testified via
teleconference in support of the legislation. She observed
that Medicaid patients seen in an ambulatory surgery center
are charged an average of $310 dollars less for the same
surgery done in an acute care facility. She observed that
they are able to offer 23-hour service for patients that
need an extended stay. Very rarely are these patients sent
to the acute care facility. She argued that out patient
surgery would be done by teams that specialize in out
patient surgery. She maintained that this would improve
patient outcome, reduce time under anesthesia, reduce risk
and lessen time in the operating room. She emphasized that
competition is needed in the state of Alaska.
Co-Chair Mulder question whether the Medicaid budget would
be affected. Ms. Pickarel acknowledged that there may be an
affect but maintained that it would balance out. She
pointed out that non-profits that do not pay taxes provide
indigent care.
In response to a question by Co-Chair Mulder, Ms. Pickarel
explained that patients could remain up to 23 hours. They
could not care for the patient beyond 23 hours because they
are not an acute care facility.
Representative Hudson noted that it has been a community
goal to have a broad base hospital with as many specialties
as possible. He questioned the impact on hospital services.
Ms. Pickarel explained that out patience care allows the
surgery to be completed, cost and time efficiently. She
maintained that patients and physicians would not be bumped
by emergency needs. There are many facets of acute care
facilities that would not be compromised.
Co-Chair Mulder observed that there is a frustration with
the process among those that are attempting to enter the
market through the Certificate of Need process. Ms.
Pickarel agreed. Co-Chair Mulder questioned why they have
not advocated for streamlining the process. Ms. Pickarel
observed that discussions have occurred regarding the
building of a data site to compare data.
Co-Chair Mulder stressed that a more open process would
resolve some of the issues. Ms. Pickarel agreed.
Representative Foster observed that Valley Hospital is
legally and ethically bound to cover any patient that comes
to them. He observed that Valley Hospital had unreimbursed
care of $4 - $5.5 million dollars. Ms. Pickarel noted that
12 percent of their care was to indigents.
ELMER LINDSTROM, SPECIAL ASSISTANT, DEPARTMENT OF HEALTH
AND SOCIAL SERVICES, provided information on the
legislation. He observed that the department is a payer of
health care through the Medicaid program: 1 of 6 Alaskans.
The state is the major payer for long-term nursing home
care (85 percent) and psychiatric care. The state pays
about 20 percent for other types of acute care. The state
is interested in assuring that Alaskans have access to
primary care and in preserving and expanding health care.
Alaska has worked to maintain rural facilities. The
Certificate of Need program is in administered by the
Department of Health and Social Services and operated by
one person. He referred to the state health plan compiled
in 1984 and noted that it has not been updated. He observed
the lack of available information.
Representative Hudson questioned if the Certificate of Need
application covers the cost of their review. Mr. Lindstrom
did not know if there was a charge. Representative Hudson
spoke in support of a fee.
Co-Chair Mulder noted that there are frustrations
surrounding the openness of the program. He questioned if
the department would consider revamping the process. Mr.
Lindstrom indicated that the department would be open to
discussion. He observed that the process is similar to the
regulatory process, which allows public hearings and public
testimony.
Vice-Chair Bunde suggested that it is a large
responsibility to place on a single person. He asked for
further information regarding section 11.
Mr. Lindstrom reviewed the legislation. Section one repeals
and reenacts existing law to make a distinction between
communities with populations below and above 50,000. He
noted that the department is not comfortable with the
approach and pointed to the lack of data. He acknowledged
that the market in Anchorage is different than in smaller
communities, but emphasized that they do not have data to
indicate the affect of unbridled competition in Fairbanks,
Mat-Su or other areas that make the cut-off. They do not
endorse the cut-off provision. He explained that the intent
is to treat psychiatric beds similarly to long-term care
beds. Long-term beds cannot be built, remodeled or
converted without a CON. The state is the [primary] payer
for these facilities. The department supports this
provision.
Mr. Lindstrom reviewed section 2, which relates to the
replacement of health care facilities. He observed that
many small facilities in small communities are hanging on.
The CON process requires communities to ask what sort of
health facilities are needed and what can be afforded. He
suggested that the legislature look at the issue of long-
term care beds, nursing home beds, and psychiatric beds
where the state is the primary payer.
Mr. Lindstrom continued his review of the legislation. He
observed that the department is comfortable with section 3,
time limits. Section 4 provides technical cleanup. Section
5 provides new standards of review for Certificates of
Need. The Department supports the approach contained in the
legislation, which applies nursing home standards to all
types. He stressed that nursing home standards are better
and more objective.
Mr. Lindstrom observed that section 11 was an amendment
offered in the House Health and Social Services Committee,
which would direct the department to prepare a state health
plan. The department is not capable of doing the facility
piece of the plan. Section 11 was later modified by section
13, which would suspended the provision for periodic
updates, place a January 2003 deadline, and require the
work to be done without any additional resources. He
stressed that the department would update the plan without
additional resources if they could. The department needs
additional resources to implement [the legislative intent].
The department's fiscal note for the plan was not carried
forward. The remaining $4 - $5 million dollar fiscal note
reflects the cost to the Medicaid program if facilities
were built without going through the Certificate of Needs
process. He observed that the fiscal note is the
department's best estimate, which is based on assumptions
that would be made by private business outside of the
department.
MIKE POWERS, ADMINISTRATOR, FAIRBANKS MEMORIAL HOSPITAL,
testified in opposition to the legislation. He observed
that patients do not decide where they will be emitted. The
physician makes the choice. He observed that 93 percent of
Alaskans are covered by some type of insurance. Government
generally pays for 45 percent of a patient's hospital stay:
15% Medicaid and 30% Medicare. He maintained that
entrepreneurs will say "no" to programs like: homecare,
trauma, chemical dependency, neonates and chronic
inebriates. He asserted that entrepreneurs would say "yes"
to imaging and surgery and entrepreneurs in the lower 48
would say "yes" to cardiology, imaging and surgery.
Hospitals are required by law and mission to handle all
comers, at all times. If a patient calls their physician
after hours they are told to go to the hospital. He pointed
out that every Alaskan town but Anchorage is a one-hospital
town. This does not add choice. He pointed out that
technicians that move to outpatient care would use the
equipment. He emphasized that the healthcare "choice" is
largely the producer's, not the consumer's. The physician,
not the patient, wrestles with the question: "Do I admit to
hospital where I am not a shareholder; or Do I admit to a
surgery center where I am a shareholder?"
Mr. Powers responded to testimony that surgery centers are
20% less expensive. He observed that the Alaska Surgery
Center in Anchorage charges $600 dollars more per cataract,
$400 dollars more for carpal tunnel procedure, and other
surgeries.
Representative Davies questioned if Mr. Powers was
comparing "apples to apples". Mr. Powers explained that the
comparison was to the technical component. A professional
charge would be additional. He assumed that the surgical
charge would be the same.
Mr. Power concluded that "deregulation" sounds great, but
that it does not lead to healthcare competition because the
physician maintains their "state-licensed monopoly on
admitting privileges." He emphasized that Alaska is facing
double-digit health inflation, small businesses are seeing
health premium increases of 20% to 30%; surgical volumes
are flat in Fairbanks and Juneau. He stated that it is
ironic that the state would consider eliminating one of the
cost control mechanisms available. He suggested the
formation of an "honest" study group to include the best
elements of "competition" where appropriate and the best
protection of regulation.
Co-Chair Mulder questioned if Mr. Powers would support a
new formula that is more open. Mr. Powers stated that he
would. He emphasized that there needs to be a solution. He
estimated that it costs them $10 thousand dollars to do a
CON. He stated that he would support a study group.
Representative Hudson stressed the need for an updated
health plan.
BRIAN SLOCUM, ADMINISTRATOR, TANANA VALLEY CLINIC,
FAIRBANKS, testified in Juneau. He disagreed with
statements by Mr. Power that the prices in ambulatory
surgery centers are higher than in hospitals. He explained
that the federal government says that an ambulatory surgery
center has to charge the patient one of eight different
charges. The dollars that can be charged for services at an
ambulatory surgery center range from a low of $242 dollars
to a high of $962 dollars. The doctor's charges are added
to the base. The hospital bills from a more expansive
menu, but cannot charge for the doctor. In an ambulatory
surgery center the whole bill is lumped together. He noted
that the federal government stated in the November 11, 1999
federal register that the use of ambulatory surgery centers
nationwide, since 1982, has saved hundreds of millions of
dollars in Medicare and Medicaid charges. The law prevents
charges at ambulatory surgery centers from being more than
at a hospital.
Mr. Slocum observed that Certificate of Need comes from a
central planning area of the 1970's when it was felt that
one person or a team of people could allocate all the
health care resources over the entire state of Alaska. He
maintained that there have not been any studies that
indicate that the Certificate of Need process works. The
Certificate of Need process was intended to control costs
by eliminating new facilities and services. He asserted
that the CON process is associated with a 20.6 percent
increase in hospitals and 9 percent increase in other
healthcare according to a 1998 study. The increases are the
result of erecting barriers to entry. Less expensive
methods of delivery cannot occur.
TAPE HFC 02 - 91, Side A
Mr. Slocum emphasized that they would not be testifying if
the Certificate of Need process worked. He stressed that
they have tried to streamline the process. He maintained
that the CON program is the "lap dog of the healthcare
industry" in Alaska and it keeps people who have a better
way of doing business out of the community. He noted that
hospitals have never been turned down (19 applications have
been approved), but that no entities in competition with
hospitals have been granted a Certificate of Need. Twenty-
nine states currently have eliminated their CON programs or
scaled them back to an extent that it would not cover
ambulatory surgery. Alaska is the only state, of the
smaller populated states, with a Certificate of Need
program. He stressed that there have been lots of studies,
which show that nothing bad happens when CON programs are
discontinued. A 1999 study, Certificate of Need Revisited,
concluded that there was no evidence of increasing costs in
the 12 states that repealed their CON programs. In 1988,
the Duke University Center of Health Policy and Politics
performed a study with 16 years of federal data. The study
concluded that states that lifted CON did not experience a
rise in spending on hospital and physicians' services
relative to those that retained it. He emphasized that more
facilities were generated in others states that repealed
their CON programs, but the total cost to the community
stays the same as people "vote with their feet". He noted
that hospital profits do not decrease when CON programs are
deleted. He added that if hospital profits do not go down
then there is no reason for charity care to go down. A
study showed that there was no linkage between stringent
CON laws and charity care increases. The states that have
made the change have found it to be beneficial. He
challenged the hospital industry to bring data
demonstrating that the deletion of the CON program would
make a difference. He estimated that there would be a 20
percent reduction if an ambulatory surgery center were
built in Fairbanks.
Co-Chair Mulder observed that Mr. Slocum's testimony
conflicted with the previous five speakers. Mr. Slocum
acknowledged that the number of facilities would rise if
the CON program were eliminated, but emphasized that it did
not mean that the total amount spent by health care
consumers would rise. Co-Chair Mulder argued that the cost
to the state would increase. Discussion ensued regarding
the cost to the state. Mr. Slocum stated that a study by
Information Insights in Anchorage (Brian Rogers) showed
that it would take 5 years for the impact to be felt. The
study showed that a decrease in prices could occur in the
first and second years as people prepare for competition.
There was a range of possibilities for the third year
depending on assumptions: a $20 thousand dollar decrease to
the state to a $190 thousand dollar increase. During the
fourth, fifth and subsequent years, competition and the
opportunity for a new less expensive service would decrease
price. The total five-year estimate was a decreasing cost
to the state for all operations.
Vice-Chair Bunde questioned if Mr. Slocum had experience
applying for a Certificate of Need. Mr. Slocum gave
examples of problems within the existing Certificate of
Need program. Applicants are told to send four copies of
the proposal to a health systems agency that does not
exist. Proposals must be consistent with the health care
plan, published in 1984, which has pages out of order.
There are conflicting directions.
Representative Hudson noted that the Valley Hospital is
legally and ethically bound to help all patients that come
through their door and questioned if the same applied to
Mr. Slocum. Mr. Slocum clarified that there is no legal
requirement, but they feel that they are ethically
[required to help those that come to them]. They have
provided approximately $17.7 million dollars in
unreimbursed care in the last three years. Forty-four
percent of one doctor's practice is made up of Medicare
patients, which pays .27 cents on a dollar.
Representative John Davies asked if costs were being
transferred. He summarized that ambulatory surgery centers
and hospitals are dealing with the same basic economic
problems. He asked if the Medicaid reimbursement rate was
the same. Mr. Slocum explained that hospitals operate under
a different reimbursement scenario. Hospitals are not
capped in the same fashion as an ambulatory center. The
intent of the federal government's decision to pay
ambulatory surgery centers for Medicare in 1982 was to
control those costs. Anything an ambulatory surgery center
can do must go into one of eight different cost charges;
these are capped at a maximum rate. Hospitals have more
options. He pointed out that hospitals could appear to be
cheaper: "you may go in and look at a $10 dollar steak in
the hospital, but you don't realize you are going to spend
$5 dollars for the potato and $7 dollars of the salad."
RICHARD COBDEN, M.D., TANANA VALLEY CLINIC, FAIRBANKS,
testified that he did not like what is happening because of
the Medicare practices. Over the last 30 years, there has
been a gradual disenfranchisement of patients that cannot
pay or are under government programs. This year Medicare
will pay approximately one-third of what was paid for the
same procedure seven years ago. He noted that his Medicare
practice had grown from 5% to 36% because many of his
colleagues are giving up Medicare and Medicaid patients.
The Tanana Clinic has never refused a patient. As the
population shifts away from private practice it is going to
come to the large clinics and hospitals. If patients cannot
be seen, by a doctor and is told to go to the emergency
room, they will pay more. The same treatment for a urinary
infection cost $900 dollars at the emergency room and $36
dollars in a doctor's office. Cost shifts when physicians
stop seeing certain type of patients. The impact on the
state's budget, if doctors refuse to see Medicare and
Medicaid patients, would be enormous because patients will
start going to the hospital.
Dr. Cobden pointed out that the state of Alaska cannot make
Congress raise Medicare and Medicaid rates. He stressed
that ancillary services help to support non-paying patients
in hospitals. He questioned why the same cost shifting
option to pay their overhead is being denied in ambulatory
surgery centers. If the Tanana Valley Clinic could no
longer cost shift it would result in a discontinuation of
services. He maintained that there is a catastrophe coming.
Representative Croft questioned if there would be a problem
with applying an exemption to the Certificate of Need to
those that take all patients.
JEROME SELBY, REGIONAL DIRECTOR, PROVIDENCE KODIAK ISLAND
MEDICAL CENTER, KODIAK, testified via teleconference. He
asserted that the 55,000-population clause is a showstopper
in terms of negative impact on health care for Alaskans. He
stressed that the population orientation would say that
competition is good in Fairbanks, Mat-Su and Anchorage but
nowhere else in the state. This provision would foster
competition in the three medical markets that are the most
competitive. Anchorage is already the most competitive
medical market in Alaska. He disagreed that the bill
addressed competition and maintained that the legislation
would shift economic advantage to surgery centers that want
to provide only profitable services. Non-profitable
services would be left to hospitals. He stressed that
quality of care must be a major consideration. He referred
to a study, which stated that patient risk of death was 21
percent higher in 18 states that did not have Certificate
of Need. He did not think that the level of care was
comparable. He maintained that a surgery center, which is
staffed from 8 am to 5 pm, cannot be compared to a hospital
with a larger staff and emergency services. Hospital
services require approximately 3.7 staff to each physician.
Surgery centers should be able to provide the same level of
care at 30 percent less than a hospital. He maintained that
a limit on charges by surgery centers of 30 percent of the
prevailing cost for hospital services would level the
field. The legislation would shift money away from
hospitals, which would "hammer" Anchorage Providence and
Alaska Regional hospitals. He asserted that Providence
Hospital would lose the ability to continue development of
high level health care for Alaskans, such as: neonatal
intensive care unit, children's hospital, advanced cancer
care, and advanced heart care. There are a number of
services that lose money, such as Life Guard, which flies
around the state and picks up sick babies and others. He
questioned if the state of Alaska would pick up the service
if Providence Hospital were no longer able to afford the
service. He stressed that the playing field should be
equitable if it is changed. The current Certificate of Need
program as written is closer to a level playing field than
the proposed legislation.
Mr. Selby pointed out that persons that use the facility
are going to have pay for the facilities and the state of
Alaska and federal government are the biggest payers. He
felt that the $4 million dollar estimated impact on the
state budget was low. He noted that discussions on costs
centered on developed services, not on the remaining
services that are not covered at surgery centers. He
emphasized that quality is important to make sure that
staff is competent. The neonatal unit at Providence, which
receives sick babies from around the state, only sees
enough cases to barely meet the national standards to keep
their staff qualified and certified. A second neonatal unit
would probably result in insufficient numbers at either
unit to meet national standards. He summarized that removal
of the CON program would be extremely detrimental.
HB 407 was heard and HELD in Committee for further
consideration.
HOUSE BILL NO. 350
An Act relating to terroristic threatening.
Representative John Davies MOVED to ADOPT Amendment #1:
Sec. 11.56.807. Terroristic threatening in the first
degree.
(a) A person commits the crime of terroristic
threatening in the first degree if the person sends or
delivers a bacteriological, biological, chemical, or
radiological substance, or radiological substance with
intent to
(1) place a person in fear of physical injury to
any person;
(2) cause evacuation of a building, public place
or area, business premises, or mode of public
transportation; or
(3) cause serious public inconvenience.
(b) In this section,
(1) "bacteriological, biological, chemical, or
radiological substance" means a material that is
capable of causing serious physical injury;
(2) "imitation bacteriological, biological,
chemical, or radiological substance" means a
material that by its appearance would lead a
reasonable person to believe that it is capable of
causing serious physical injury.
REPRESENTATIVE LESIL MCGUIRE recommended that "or an
imitation bacteriological or chemical" be added.
Representative John Davies MOVED to Amend Amendment #1 to:
"or an imitation bacteriological, biological, chemical".
There being NO OBJECTION, #1 was adopted.
Representative John Davies WITHDREW Amendment #2.
Representative John Davies MOVED to ADOPT #3: delete lines
26 and 27 on page 9. Representative McGuire did not object
to the amendment. There being NO OBJECTION, it was so
ordered.
Representative Foster MOVED to report CS HB 350 (FIN) out
of Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTION, it
was so ordered.
CSHB 350 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with and four previously published
fiscal notes: #1 CRT, #3 LAW, #4 ADM, and #5 COR.
HOUSE BILL NO. 399
An Act relating to the Uniform Mechanical Code and
other safety codes; annulling certain regulations
adopted by the Department of Community and Economic
Development relating to the mechanical code that
applies to certain construction contractors and
mechanical administrators; and providing for an
effective date.
REPRESENTATIVE LESIL MCGUIRE, SPONSOR, spoke in support of
the legislation. She observed that the Committee could
adopt a proposed committee substitute, which would return
the legislation to its original form or adopt the House
Labor and Commerce version of the legislation. The House
Labor and Commerce version is the product of a compromise.
House Bill 399 was created to correct a separation of
powers violation. She noted that as the chairman of the
Administrative Regulation Review Committee she has reviewed
at least 25 issues questioning if the regulations comport
with the original intent of the legislation. She noted that
HB 399 was the first bill that she has introduced to annul
regulations. There are three statutes that reference the
Uniform Mechanical Code, which is a trademark proprietary
document.
Representative McGuire referred to AS 8.40.270(3) governing
the examination of a mechanical contractor applicant.
Applicants must be familiar with the following codes:
Uniform Plumbing Code, Uniform Swimming Pool, Spa, and Hot
Tub Code, and Uniform Solar Energy Code, and the Uniform
Mechanical Code. There is a four-year code cycle. In
September 2002, the Department of Public Safety made a move
to adopt regulations that would implement the International
Mechanical Code. She noted that the Division of
Occupational Licensing intended to follow suit.
Representative McGuire pointed out that when the
legislature chooses a technical term, as they have with the
Uniform Mechanical Code, that those terms are presumed to
have the technical meaning. She maintained that a
department has decided to make a policy issue based on the
actions of another department, which is in violation of
law. She pointed out that the Division of Occupational
Licensing opted to change their regulations in direct
violation to what the legislature placed in statute. She
stressed that she indicated to the division that she was
willing to work with them and cautioned that there would be
an clear issue of the separation of powers and that any
change should come through legislation. There are severe
arguments regarding the merits of International Code versus
Uniform Mechanical Code. She pointed out that people are
going to be passionate about what they do and their
livelihood.
TAPE HFC 02 - 91, Side B
Representative McGuire stressed that the legislature guides
policy and maintained that the change is being spearheaded
by one major urban area. The entire state is under the
Uniform Mechanical Code. There are people in the business
that know the code, which has been changed "overnight"
through a regulation.
Representative McGuire noted that the first version would
repeal the regulations. She pointed out that the
Municipality of Anchorage has postponed the adoption of the
th
International Mechanical Code until May 10. The second
version recognizes that there may be a move to adopt the
International Mechanical Code and would test under both.
Representative McGuire discussed the Department of
Community and Economic Development's fiscal note for $40
thousand dollars. The department noted in their proposed
fiscal note that the state Fire Marshal currently uses the
International Code, which would be superceded by the
legislation and require new licensing tests that would need
to be rewritten. She argued that the bill specifically
allows the 1997 test to be given.
Representative McGuire stressed that it would be a bad
precedent to allow a department to adopt regulations on the
basis of regulations adopted by another department, in
direct contrast to statute adopted by the legislature. She
maintained that the issue is black and white. There is a
law on the books that specifies mechanical code that should
not be changed until the legislature adopts a change.
Representative Harris questioned which version of the
legislation she supports. Representative McGuire responded
that although there is a move to go to the International
Mechanical Code, all the participants have not been at the
table. She observed that the "little guys" weren't at the
table. She supports continuation of the Uniform Mechanical
Code until the process has been followed (House Finance
Committee proposed committee substitute 22-LS1461\O). She
observed that the O version carries no fiscal note.
CATHERINE REARDON, DIRECTOR, DIVISION OF OCCUPATIONAL
LICENSING, DEPARTMENT OF COMMUNITY AND ECONOMIC
DEVELOPMENT, spoke to the fiscal note. She explained that
she submitted a zero fiscal note to the House Labor and
Commerce [the fiscal note was not adopted by the House
Labor and Commerce Committee].
HB 399 was heard and HELD in Committee for further
consideration.
HOUSE BILL NO. 407
An Act relating to the Certificate of Need program.
DENNIS MURRAY, ADMINISTRATOR, HERITAGE PLACE NURSING
FACILITY, KENAI, testified via teleconference in opposition
of the legislation. He maintained that Alaska should retain
mechanisms to evaluate the cost/benefit relationships
between the construction of health facilities. He felt that
the current threshold was appropriate given the state's
role in financing services. He argued that there are no
concrete examples where elimination of the CON process in
Alaska has resulted in consumer/community benefit. He drew
an analogy to public school construction and concluded that
more capacity does not necessary generate better pricing
and availability. He observed, as a member of the Kodiak
Borough Assembly, that parties were brought together
through the Certificate of Need process to prevent an
adverse impact on the viability of the Kodiak Hospital by
another facility.
HARRY PORTER, FAIRBANKS MEMORIAL HOSPITAL FOUNDATION,
FAIRBANKS, testified via teleconference in opposition of
the legislation. [Teleconference difficulty occurred;
written testimony is included].
The movement in the state government to change the CON
rules alarms me. We have operated as they are
presently on the books since we began our community
hospital. Reflect for a moment where we came from:
1967 flood, departure of the Sisters of Providence,
creation of the Greater Fairbanks Community Hospital
Foundationvarious fund drives, constant building arid
1
changes to deliver the best hospital care at the least
possible cost. We have done and are continuing to do
the job for the Fairbanks community without cost to
the state government. We are not receiving an
appropriation from the state in 2002. We are not a
part of any Senate or House appropriation bill.
Some legislators have expressed the feeling that they
do not understand the hospital business. Give us
credit for 30+ years of involvement on a daily basis
at no cost to anyone gives us an understanding of our
local hospital and healthcare needs. Kill those
unwarranted CON bills.
Mr. Porter maintained that he has seen first hand what
competition can do. He noted that it took 35 years to build
the Fairbanks Memorial Hospital.
SUSAN MCLANE, FAIRBANKS MEMORIAL HOSPITAL FOUNDATION,
FAIRBANKS, testified via teleconference in opposition to
the legislation. She suggested that a working group be
appointed to address the Certificate of Need issue. She
observed that there is a shortage of nurses; additional
facilities would dilute the workforce.
KARL SANFORD, DIRECTOR OF NURSING, FAIRBANKS MEMORIAL
HOSPITAL FOUNDATION, FAIRBANKS, testified via
teleconference in opposition to the legislation. He noted
that the hospital has reinvested, back into the community,
$4 million dollars into mental health services over the
last two years. He stressed that there is no competition in
regards to mental health services because it is not
profitable. Competition is focused on the high cost and low
cost services. The impacts of removing these services from
the hospital would tremendous. Two other homecare providers
disappeared from the Fairbanks community due to a decrease
in revenue and an increase of federal scrutiny for Medicare
fraud. He questioned if for profit providers were knowingly
performing charity care.
HB 407 was heard and HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 4:30 PM
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