Legislature(2003 - 2004)
05/13/2003 04:08 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
May 13, 2003
4:08 PM
TAPE HFC 03 - 90, Side A
TAPE HFC 03 - 90, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 4:08 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Berkowitz
Representative Mike Chenault
Representative Richard Foster
Representative Mike Hawker
Representative Kerttula
Representative Carl Moses
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
No members were absent.
ALSO PRESENT
Representative Lesil McGuire; Joel Gilbertson, Commissioner,
Department of Health & Social Services; Bob Labbe, Deputy
Director, Department of Health and Social Services; Stacy
Kraly, Department of Law; Vern Jones, Chief Procurement
Officer, Department of Administration; Stacy Kraly,
Assistant Attorney General, Department of Law; Scot Hawkins,
Alaska Supply Chain Integrals.
PRESENT VIA TELECONFERENCE
There were no teleconference participants.
SUMMARY
HB 216 "An Act relating to municipal taxation of refined
fuel products."
HB 216 was postponed.
HB 244 "An Act relating to the Code of Criminal
Procedure; relating to defenses, affirmative
defenses, and justifications to certain criminal
acts; relating to rights of prisoners after
arrest; relating to discovery, immunity from
prosecution, notice of defenses, admissibility of
certain evidence, and right to representation in
criminal proceedings; relating to sentencing,
probation, and discretionary parole; amending Rule
16, Alaska Rules of Criminal Procedure, and Rules
404, 412, 609, and 803, Alaska Rules of Evidence;
and providing for an effective date."
HB 244 was postponed.
HB 267 "An Act relating to the Alaska Railroad;
authorizing the Alaska Railroad Corporation to
provide financing for the acquisition,
construction, improvement, maintenance, equipping,
or operation of facilities for the transportation
of natural gas resources within and outside the
state by others; authorizing the Alaska Railroad
Corporation to issue bonds to finance those
facilities; and providing for an effective date."
HB 267 was postponed.
HB 313 "An Act authorizing a pilot program relating to
state procurement and the use of electronic
commerce tools; and providing for an effective
date."
HB 313 was REPORTED out of Committee with no
recommendation and with a new zero fiscal note by
the Department of Administration.
SB 109 "An Act repealing the statute that sets priorities
for the Department of Health and Social Services
to apply to administration of the medical
assistance program when there are insufficient
funds allocated in the state budget for that
program; authorizing the department to make cost
containment decisions that may include decisions
about eligibility of persons and availability of
services under the medical assistance program; and
providing for an effective date."
CSSB 109 (FIN) was REPORTED out of Committee with
a "do pass" recommendation and with previously
published fiscal note: #1 HSS.
CS SB 128(FIN) am
"An Act relating to licensing common carriers to
dispense alcoholic beverages; and providing for an
effective date."
CS SB 128(FIN) am was REPORTED out of Committee
with a "do pass" recommendation and with
previously published fiscal note: #2 REV.
SENATE BILL NO. 109
"An Act repealing the statute that sets priorities for
the Department of Health and Social Services to apply
to administration of the medical assistance program
when there are insufficient funds allocated in the
state budget for that program; authorizing the
department to make cost containment decisions that may
include decisions about eligibility of persons and
availability of services under the medical assistance
program; and providing for an effective date."
Co-Chair Harris MOVED to ADOPT the Committee Substitute,
Work Draft 23-GS1124\H. There being NO OBJECTION, it was
so ordered.
JOEL GILBERTSON, COMMISSIONER, DEPARTMENT OF HEALTH &
SOCIAL SERVICES, spoke in support of the legislation. He
stressed that the legislation is needed for the Department
to move forward in the prudent adoption of cost containment
measures, which would allow it to meet the legislative
mandate for fiscal accountability while minimizing the
impact on Medicaid beneficiaries. Intent language was
modified and is consistent with the Department's intent to
develop a preferred drug list that is responsive to
clinical evidence. It would also develop an authorization
system, which would allow providers to prescribe drugs
outside of the preferred drugs in each drug class. He
observed that the Committee had held hearings on the House
version of the bill.
Co-Chair Harris asked if the bill had been discussed with
pharmaceutical companies. The Commissioner did not perform
that duty.
Vice-Chair Meyer referred to line 2 of the intent language
and asked if "all" was appropriate. Commissioner Gilbertson
explained that the section clarifies that the drugs are
Medicaid approved medications. This is a smaller subset
than "all pharmaceutical products available for sale in the
United States". The Medicaid program or Alaska's medical
systems program does not necessarily cover a product simply
because it is an approved pharmaceutical product. It would
also need to be on the national negotiated fee rate system.
Each drug company negotiates with the federal government to
establish a nation drug rebate schedule for states that
participate in the Medicaid Program. The Medicaid program
at a state level does not cover a drug unless it has been
approved at the federal level. He noted that drugs, which
are specifically excluded from the Medicaid program, such
as abortion drugs, which are not under the federally
approved program, cannot be prescribed.
Representative Kerttula MOVED Amendments #1: 23-GS1124\A.2.
Co-Chair Williams OBJECTED. Representative Kerttula
explained that Amendment 1 would address the delegation of
authority issue. The amendment would force the Department
to bring the list to the Governor so that budgetary
decisions could be made. The Department would not be able
to eliminate a group until all optional services were
eliminated. The Legislative Affairs Agency's attorneys
indicated that the bill might over delegate legislative.
Commissioner Gilbert stated that the Administration did not
support the amendment. The amendment allows a new priority
list to be set in statute a year in advance. He stressed
that it would be more responsive to make the decision when
the budget deficit in the Medicaid program is determined. He
maintained that the list should be more ongoing to be more
responsive. He indicated that the list would be created in
response to current deficits, in order to achieve savings
and minimize impacts. He observed that the amendment would
require that all optional services be eliminated before an
optional eligible group could be eliminated. He acknowledged
that eligible individuals should be protected, but pointed
out that the amendment would require that wheel chairs and
prosthetics be eliminated before eligibility guidelines for
higher earning individuals could be affected. He maintained
that this was not feasible and harmful to recipients and
stressed that the system is flawed.
Representative Kerttula noted that the amendment is geared
toward providing the information with enough time to
scrutinize decisions and address the delegation of
authority.
STACY KRALY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW
testified via teleconference. She stated that the
Department of Law did not feel that the bill would create
an indefensible delegation of authority. She noted that
the central issue was whether the legislation would pass
legislative authority on to an agency without any
limitations on the implementation of the authority. She
noted that there were a variety of state and federal
limitations, which govern the Medicaid program. She
concluded that the issues related to the Medicaid program
prevented prioritizing to address budget shortfalls without
addressing statutory and regulatory limitations. The
legislation limits the discretion of the Department in
regards to the implementation of cost containment measures.
She asserted that the legislation is an appropriate
delegation, providing an agency with a vary specific area
of expertise the authority to administer a program.
Representative Kerttula asked if there is any law that
would define the order in which cuts would occur. Ms.
Kraly acknowledged that there is no companion list, but
pointed out that there are limitations regarding the
coverage of optional services. Individual determinations
would occur, rather than a category of services. She
stated that there was no list in federal or state law, but
that there were limitations pertaining to individuals.
A roll call vote was taken on the motion.
IN FAVOR: Berkowitz, Kerttula, Moses
OPPOSED: Chenault, Hawker, Meyer, Harris, Williams
Representatives Foster, Stoltze and Whitaker were absent
from the vote.
The MOTION FAILED (3-5).
Representative Kerttula MOVED Amendment #2. Co-Chair
Williams OBJECTED.
Representative Kerttula stated that the amendment contains
a notice provision, which would require the Department to
notify individuals that are impacted at least 60 days
before coverage would be denied by written notice.
Commissioner Gilbertson agreed that there should be notice
provisions, but pointed out that there are already a host
of notice requirements under the Medicaid program. There is
a minimum 30 days public notice period and a minimum 30-day
waiting period before the regulation change can occur. He
estimated that it already takes 90 to 120 days for a change
[in regulations] to occur. He stated that under federal
law, participants have to receive a 10 ten day notice on
adverse actions if service is denied, terminated, reduced
or required. He concluded that federal law and state
regulations addressed notice for changes in service.
Representative Berkowitz clarified that a 10-day notice is
required [for the denial of service] and asked if there was
a reason not to give more notice.
BOB LABBE, DEPUTY DIRECTOR, DEPARTMENT OF HEALTH AND SOCIAL
SERVICES, pointed out that the participants would probably
receive two notices. Individual case actions typically
required a ten-day notice, but broad category changes
generally received a longer notice. He reiterated the ten-
day minimum under federal law.
Representative Berkowitz asserted that, in a rural state,
ten days was not adequate. He stressed that people might
not be contacted in time to make alternative arrangements.
He proposed that the state of Alaska be more courteous than
the requirements under federal law
Commissioner Gilbertson responded that there are ample
notice requirements under federal law and state
regulations. The regulation process would take longer than
sixty days. He pointed out that larger changes would
require longer notice.
Representative Berkowitz asked the time frame for notifying
impacted individuals. Mr. Labbe stated that individual
cases were given a 10-day notice. General changes would
have a minimum thirty-day notice. He added that regulation
changes would be necessary. He speculated that a longer
process might require [the Department to institute] larger
reductions due to delay [in savings] and a lack of
efficiency.
Representative Kerttula pointed out that a regulation
notice was very different than a notice to the participant
that they are losing a benefit. She observed that there
was little information about the nature of notice received
by individuals. She suggested that a written notice was
easy enough, and maintained that a written notice would not
be onerous.
A roll call vote was taken on the motion.
IN FAVOR: Berkowitz, Kerttula, Moses
OPPOSED: Foster, Stoltze, Hawker, Meyer, Harris,
Williams
Representatives Chenault and Whitaker were absent from the
vote.
The MOTION FAILED (3-6).
Co-Chair Harris MOVED to report CSSB 109 (FIN) out of
Committee with the accompanying fiscal note.
Representative Kerttula OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Berkowitz, Kerttula, Moses
OPPOSED: Foster, Stoltze, Hawker, Meyer, Harris,
Williams
Representatives Chenault and Whitaker were absent from the
vote.
CSSB 109 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with previously published fiscal
note: #1 HSS.
HOUSE BILL NO. 313
"An Act authorizing a pilot program relating to state
procurement and the use of electronic commerce tools;
and providing for an effective date."
REPRESENTATIVE LESIL MCGUIRE, SPONSOR spoke in support of HB
313. The legislation would look at the state of Alaska's
procurement process. This is the overhead portion of
government: buy and selling. The legislation would
streamline procurement through e-commerce tools.
Vice-Chair Meyer asked the potential savings. Representative
McGuire estimated that there would be between $5 and $20
million dollars in overall savings. The pilot program would
start with two distinct departments and two distinct areas
to see if the savings can be proved over a three-year
period. She felt that the savings would be closer to $20
million.
In response to a question by Vice-Chair Meyer,
Representative McGuire stated that there is an Alaskan
company, which is very advanced in procurement, particularly
in the North Slope. She noted a Alaskan preference.
Vice-Chair Meyer expressed his support of the bill. He
asked if the bill would follow Alaskan guidelines for
hiring, for example in hiring veterans, etc. Representative
McGuire responded that the selection of the out source
company would be implemented under the existing procurement
code. There is an exception for the pilot program to allow
the commissioner of Administration as much flexibility as
possible using the principle set out in the procurement
code. She noted that British Petroleum (BP) has similar
procurement policies. An on-line action was created [for BP]
with their procurement policies.
Representative Hawker asked whether the sponsor would object
to a friendly amendment requiring an annual report by the
vendor. Representative McGuire stated that she would not
object.
SCOT HAWKINS, ALASKA SUPPLY CHAIN INTEGRALS responded that
the intention is to prove the concept and be able to expand
it and demonstrate its value. A report would be inherent in
the intent.
Representative Kerttula noted that the procurement did not
actually fall under the Alaskan procurement code and asked
why not. Representative McGuire noted discussions with the
Administration about ways to provide the most flexibility,
including purchase orders.
VERN JONESS, CHIEF PROCUREMENT OFFICER, DEPARTMENT OF
ADMINSTRATION clarified that the selection of the original
contractor, that would run the pilot, would be subject to
the procurement code. The contractors in the pilot would
not be subject to the code.
Representative Kerttula asked why the contractors in the
pilot would not fall under the code. Mr. Jones stated that
there was a recognition that the state procurement code was
not designed with efficiency in mind. Parts of the
procurement code are inefficient, entailing timelines that
the private sector could not follow. He speculate that the
intent of the bill was to take advantage of the
efficiencies of the private sector and technologies and not
to saddle the pilot with the inefficient and time consuming
process of government.
Representative McGuire emphasized that e-commerce allows
the financial authority to commit and revise purchase
orders as an agent of the state. She maintained that for
the pilot program to succeed, it must have the required
flexibility. She stated that the challenge was to rewrite
the entire procurement code or to allow a pilot program in
a small area to go forward to see if it can work. She
suggested that this may precipitate a change to the
procurement code.
Representative Chenault observed that the fiscal note was
zero and asked about the potential cost.
Mr. Jones noted that the note was zero since it involves an
element of privatization. The idea is that the private
sector is able to use cheaper labor, run a cheaper process
and obtain cheaper goods and services. He noted that if
the pilot did not result in a savings, it would be a
failure.
Representative Chenault maintained that there would be some
cost involved in putting on the program and asked to know
what it is. Mr. Jones noted that there are a number of
steps before the pilot can be implemented. The mix of goods
and services purchased by various state agencies would have
to be studied, along with current bids to select a study. A
feasibility study would have to be conducted, per union
bargaining agreements. He noted that that the feasibility
study would enlighten the potential costs. He acknowledged
that there would be a fee involved for the procurement, but
stated that unless the program generated a savings, it
would not be undertaken. Representative Chenault stressed
that it would cost something to initiate a pilot program,
whether or not the program was successful.
Mr. Hawkins noted experience in the private sector, and
observed that companies generally worked within the
existing budget for a department and demonstrated their
ability to reduce the budget for that activity. Regarding
start up costs, he stated, that these costs would be
integrated within the department's budget. He maintained
that the funding was found within the savings. He noted
that if savings were not realized, then the business would
not be undertaken. In response to a question by
Representative Chenault, Mr. Hawkins confirmed that if
savings are not demonstrated, costs would not incurred.
Vice-Chair Meyer observed that the intent is to use Alaskan
services where possible. Mr. Hawkins agreed.
Representative Berkowitz spoke in support of the
legislation. He observed that the two departments in which
the pilot program would occur could be quite large, such as
the Department of Transportation and Public Facilities or
the Department of Health and Social Services. He suggested
that if it were a pilot program it would be a C5
[procurement]. Representative McGuire responded that the
chief procurement officer is working closely with the
commissioner of Administration. They would examine the
potential costs and determine where savings would be
realized. She stated that the intent was to implement a
mechanism for a feasibility study.
Mr. Jones stressed that there had not been any studies to
target any agencies and noted that a division or office
could be targeted. Organizational structures must be
analyzed. He expressed the hope that a self-contained unit
could be found to use as a test case.
TAPE HFC 03 - 90, Side B
Representative Berkowitz asked if it was possible to model
the program. He asked if one could simply complete a
comparison for the entire state procurement, rather than
for two departments. Mr. Jones stated that the idea was to
examine smaller portions of the administration, since there
were great complexities and a wide variety of goods and
services. He stated that a test case was desired before
taking broad action. He pointed out that private firms had
lower labor costs, and life cycle costs. He stressed that
while a model would reflect potential benefit, it might not
reflect a complete picture.
Representative Berkowitz referred to the procurement code,
and pointed out that there were reasons that the government
did not operate in the manner of the private sector. He
expressed concern with deviations from the procurement
code, and questioned if policy problems were considered in
abandoning the code. Mr. Jones responded that this was the
reason for a pilot program, to prevent widespread out-
sourcing. Policies and procedures for contractors need to
be developed; these may be more than that needed for
private sector clients. There is a lot of due process. The
intent is not to end up with a private sector contractor,
which is operating in the same manner as the state.
Representative McGuire reiterated the commitment to Alaskan
business. She recounted her experience with the Alaska
Supply Company, and pointed out that procurement
requirements could be programmed into the process. She
emphasized that parts of the state procurement code would
remain unchanged and could be programmed in.
Mr. Hawkins explained that the procurement code requires
three quotes. He noted that the company could set up a mini
marketplace of providers to create a "smart catalogue" of
suppliers, chosen to compete on a regular basis. When
procuring, the electronic system provides the best price
from those providers on any given day. The electronic
process would replace the need to get three quotes by
telephone or mail. He pointed out that the code did not
allow the same process to realize these savings. He noted
that his company would not advocate choosing too large a
pilot program. It is important that the pilot be
successful and not overreach. The challenge is to right
size the program.
Representative Stoltze referred to the current procurement
code and the number of changes to it that have been
necessary. He noted the advantage of technological
advances.
Representative Berkowitz asked if any consideration was
given to allowing state procurement offices to compete in
the bidding process. Mr. Jones stated that this was not
the intent of the bill, but the process did allow for
counter proposals as part of the union bargaining process.
Representative Kerttula expressed concern with the
potential amount to be expended without any sidebars. She
asked how preferences of the procurement code might be
maintained.
Mr. Jones speculated that any policies and procedures
developed would be contained in a contract, which the
contractor would be required to adhere to. The presumption
of the bill is that the private sector can achieve savings,
if it is not encumbered with governmental procedures. He
acknowledged that there were many preferences that would be
difficult to administer. He did not envision writing
requirements substantially equivalent to the state system
into the contract.
Representative Moses expressed concern that legislation was
required to implement the pilot program. Representative
McGuire noted that in discussions with the Administration,
it was decided that this was the proper avenue, since it
proposed potentially large policy changes. She felt that,
in a few years, they would be able to view preferences
contained in the contract.
Representative Berkowitz MOVED to AMEND Page 2 line 8 of
the bill to delete "with a person from the private sector".
Vice-Chair Meyer OBJECTED. Representative McGuire observed
that [using the private sector] is the would of the bill.
She clarified that partnerships would be included.
Representative Berkowitz explained that the private sector
would not be precluded, but that it would allow cities and
other entities to participate. Representative Moses
suggested the use of "entity". Representative McGuire
expressed opposition to the amendment.
Co-Chair Williams OBJECTED to the amendment.
A roll call vote was taken on the motion.
IN FAVOR: Berkowitz, Kerttula
OPPOSED: Chenault, Foster, Meyer, Moses, Stoltze,
Whitaker, Williams
Co-Chair Harris was absent from the vote.
The MOTION FAILED (2-8).
Representative Foster MOVED to report HB 313 out of
Committee with the accompanying fiscal note NO OBJECTIONS
HB 313 was REPORTED out of Committee with no recommendation
and with a new zero fiscal note by the Department of
Administration.
ADJOURNMENT
The meeting was adjourned at 5:19 PM
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