Legislature(1999 - 2000)
03/10/1999 01:39 PM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE HEALTH, EDUCATION AND SOCIAL SERVICES COMMITTEE March 10, 1999 1:39 p.m. MEMBERS PRESENT Senator Pete Kelly, Vice-Chairman Senator Gary Wilken Senator Drue Pearce Senator Kim Elton MEMBERS ABSENT Senator Mike Miller, Chairman COMMITTEE CALENDAR SENATE BILL NO. 84 "An Act imposing certain requirements relating to cigarette sales in this state by tobacco product manufacturers, including requirements for escrow, payment, and reporting of money from cigarette sales in this state; providing penalties for noncompliance with those requirements; and providing for an effective date." -MOVED SB 84 OUT OF COMMITTEE SENATE JOINT RESOLUTION NO. 7 Relating to prohibiting federal claims against funds obtained by settlement of tobacco litigation. -HEARD AND HELD CS FOR HOUSE JOINT RESOLUTION NO. 12(FIN) Relating to federal claims against funds obtained by settlement of state tobacco litigation. -SCHEDULED BUT NOT HEARD PREVIOUS SENATE COMMITTEE ACTION SB 84 - No previous action to report SJR 7 - No previous action to report CSHJR 12(FIN) - No previous action to report WITNESS REGISTER Mr. Bruce Botelho, Attorney General Department of Law PO Box 110300 Juneau, AK 99811-0300 POSITION STATEMENT: Presented SB 84 Mr. Doug Gardner, Assistant Attorney General Department of Law PO Box 110300 Juneau, AK 99811-0300 POSITION STATEMENT: Commented on SB 84 Mr. Mark Hodgins, Staff Senator Jerry Ward Alaska State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Presented SJR 7 ACTION NARRATIVE TAPE 99-10, SIDE A Number 001 SB 84-CIGARETTE SALES: AGREEMENT/ESCROW SJR 7-TOBACCO LITIGATION SETTLEMENT VICE-CHAIRMAN KELLY called the Senate Health, Education and Social Services (HESS) Committee to order at 1:39 p.m. and announced that Attorney General Bruce Botelho would give a brief overview of the tobacco litigation. Number 014 MR. BRUCE BOTELHO, Attorney General, explained that Alaska first became entangled in the "tobacco wars" just prior to the 1997 legislative session. At that time the tobacco industry filed a lawsuit in federal court to enjoin the potential filing of a lawsuit by the State of Alaska. That industry lawsuit was dismissed by the District Court in Anchorage, appealed to the Ninth Circuit and ultimately dismissed as a result of the settlements that were achieved. Alaska filed a lawsuit in April 1997 and that litigation became part of two national tobacco litigation settlement efforts. In the first effort, on June 20, 1997 federal legislation would have been required for ratification of that settlement, and the settlement was not ratified. As a consequence, the states proceeded to trial. Four states ended up settling at various stages, either immediately before or during trial. Last November, 46 states and the remaining U.S. territories reached a second nationwide settlement, one that did not require congressional action, but accomplished some of the fundamental goals Alaska was seeking. These public health goals sought prohibition against marketing tobacco to children and the establishment of two programs: a national education program against tobacco misuse, and the creation of a foundation to help fund research against the use of tobacco by young people. The second settlement changed a wide variety of industry practices and resulted in monetary payments to the states. For Alaska, payments will total about $670 million over a 25-year period. The first payment will be made before the conclusion of FY 2000 and will consist of two installments of about $8 million and $22 million dollars. MR. BOTELHO said related issues still needing attention have led to today's hearing in HESS on proposed tobacco legislation. The first issue involves claims made by the federal government to recoup some portion of the monies the states negotiated with the tobacco industry. According the federal government, the claims arise out of the Medicaid law that would mandate that as much as $400 million of the $670 million Alaska settlement be paid to the federal government. Not surprisingly, the states have collectively objected to any effort to take that money from them. MR. BOTELHO referred the committee to the materials he provided that outline the rationale for the state's refusal to support this effort. Currently there are bills in Congress that would block efforts to recoup those monies. The U.S. Senate is considering S.R. 346 as part of its supplemental appropriations. It is sponsored by Senator Hutchison of Texas and co-sponsored by Senator Murkowski, among others. If enacted, S.R. 346 would bar the federal government from making these claims. In the House, there is very strong sentiment to block federal efforts, with 90 members co-sponsoring similar legislation. The second issue relates to non-participating tobacco manu- facturers. This legislation is the result of negotiations between the states and the industry, with representation from about 98% of all U.S. tobacco manufacturers. The intent of this legislation is to ensure that "renegade companies" that did not sign on to the deal are not given an unfair advantage in marketing to gain a substantial market share. MR. BOTELHO concluded by saying this is basically the historical context leading to the legislation currently on the committee's agenda. Number 127 VICE-CHAIRMAN KELLY asked if the money the federal government wants Alaska to return would be a strict payment, or would supplant federal funding over the next few years with settlement dollars. MR. BOTELHO replied the strategy in the specific claims has not been made clear. A lawsuit has been asserted, and certain states received letters from the Health Care Finance Administration (HCFA), which runs Medicaid, claiming HCFA is entitled to these payments. The federal government could accomplish payment in either of two ways: simply withhold funds from the states year by year to recapture the monies, and force the states to sue; or sue the states to establish the proposition that the federal government is entitled to those monies. Most likely, the federal government would choose the first option and withhold payments to the state under Medicaid as a way to recoup annually, and put the burden on the state to litigate. Number 153 VICE-CHAIRMAN KELLY asked if the federal government were to withhold funds, would it be done administratively or through enacted legislation. MR. BOTELHO responded the Clinton Administration's position is that it has administrative power to do this, resulting in the desire by sponsors in both houses of Congress to expressly bar such an effort. The Clinton Administration has indicated it will not act on this during FY 2000, so there would be no attempt to "grab" Alaska's first payment. There is recognition that this is a major issue for the states and that it has widespread and bipartisan support in both chambers. VICE-CHAIRMAN KELLY asked if the language of the settlement is wide open with no sideboards relating to this issue. MR. BOTELHO responded there are no sideboards but the states have taken the position that while the states used Medicaid as a measure of damages in calculating how much each state should receive, the claims were not based on Medicaid recoupment but rather on the on-going antitrust, public nuisance and consumer protection violations of the last 40 years. In the department's view, the federal government would not be entitled to any of these dollars; that's precisely the issue. Number 181 SENATOR ELTON asked if Mr. Botelho has problems with either SB 84 or SJR 7, and if the Department of Law prefers the House Joint Resolution or the Senate Joint Resolution. MR. BOTELHO replied the department is quite supportive of both pieces of legislation. SB 84 is a direct result of negotiations between the states and the industry. The department prefers the House version of the resolution, though both resolutions accomplish the same objectives. The objectives are to put the Legislature on record regarding the state's recoupment, to ask Congress to pass legislation, and to ask the Clinton Administration to sign that legislation and refrain from any administrative action. However, in the Attorney General's view, the advantage of the House version is that it specifically addresses the Alaska situation and acknowledges that Alaska never made any Medicaid claim. To the department, the House version is a more forceful statement of Alaska's position that could work more to the state's advantage if it litigates with the federal government in the future. Number 220 MR. DOUG GARDNER, Assistant Attorney General, stated he has worked on SB 84 and on tobacco litigation for the Attorney General. He explained that the department signed the Master Settlement Agreement with the tobacco industry, and it is expected that all the states will attempt to pass this model statute. The model statute is important because its passage would prevent a "renegade company," a small manufacturer, from circumventing all the restrictions in the settlement, essentially dumping cheap cigarettes on the market and enjoying a cost advantage. Preventing this would be a major advantage from a public health standpoint and would ensure that everyone is playing by the same rules. Secondly, if Alaska didn't pass the model statute and the industry experienced reductions in its market share as a result of the settlement, the amount by which the industry would be entitled to reduce the payments to the states would be spread over those states not having the statute in place. In other words, a small number of states would bear the entire burden of the industry's market share reduction. He explained the model statute is Exhibit T to the Master Settlement Agreement. MR. GARDNER said the department worked with the industry and others to ensure that the statute would work under Alaska law. It was painstakingly drafted, and Phillip Morris, at least, agrees that it is a qualifying statute under the terms of the Agreement. Number 255 SENATOR WILKEN asked Mr. Gardner how much money would be involved if Alaska didn't pass the model statute to protect itself under the NPM risk or "Non-Participating Manufacturer Adjustment." MR. GARDNER replied it's a hard question to answer as it would depend on hypotheticals, including how many states failed to pass the model statute and how big the industry's market share is. The reduction could be sizeable, and could cut Alaska's settlement dollars in half. Number 268 VICE-CHAIRMAN KELLY asked the will of the committee regarding SB 84. SENATOR WILKEN moved to pass SB 84 out of committee with individual recommendations and the zero fiscal note. Hearing no objection, it was so ordered. Number 280 VICE-CHAIRMAN KELLY brought up SJR 7 and asked the sponsor to read the testimony into the record. He announced the committee would hold the bill over until Chairman Miller returns. MR. MARK HODGINS, aide to Senator Ward, explained SJR 7 urges Congress to enact legislation preventing the U.S. Department of Health & Social Services from recouping state tobacco settlement funds as third-party recoverees under the Medicaid law. The sponsor, Senator Ward, was asked by the National Conference of State Legislatures to bring forward this model legislation as part of a nationwide plan to prevent the federal government from taking states' tobacco industry settlement dollars. SJR 7 asks Congress and the Clinton Administration to recognize the state of Alaska's interest in enacting legislation that would prohibit the federal government from recouping the tobacco settlement funds. Number 311 VICE-CHAIRMAN KELLY brought up Attorney General Botelho's preference that the committee pass the House version, and he asked Mr. Hodgins how the two resolutions differ. MR. HODGINS replied the only differences relate to Alaska's position regarding the Medicaid references, but he was unable to explain those differences. VICE-CHAIRMAN KELLY announced that SJR 7 and HJR 12 would be held over until the next meeting on Monday, March 15. With no further business before the committee, it was adjourned at 2:10 p.m.