Legislature(2001 - 2002)

02/04/2002 01:31 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                    
      SENATE HEALTH, EDUCATION & SOCIAL SERVICES COMMITTEE                                                                    
                        February 4, 2002                                                                                        
                            1:31 p.m.                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Lyda Green, Chair                                                                                                       
Senator Loren Leman, Vice Chair                                                                                                 
Senator Gary Wilken                                                                                                             
Senator Jerry Ward                                                                                                              
Senator Bettye Davis                                                                                                            
MEMBERS ABSENT                                                                                                                
All Members Present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE CONCURRENT RESOLUTION NO. 21                                                                                             
Supporting the development of adequate in-state treatment                                                                       
capacity for severely disturbed children.                                                                                       
     MOVED CSSCR 21(HES) OUT OF COMMITTEE                                                                                       
SENATE BILL NO. 256                                                                                                             
"An Act relating to the certificate of need program; and                                                                        
providing for an effective date."                                                                                               
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
SCR 21 - No previous action to record.                                                                                          
SB 256 - No previous action to record.                                                                                          
WITNESS REGISTER                                                                                                              
Mr. Jerry Burnett                                                                                                               
Staff to Senator Lyda Green                                                                                                     
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Testified for the sponsor of SCR 21 and SB
Mr. Russ Webb, Deputy Commissioner                                                                                              
Department of Health &                                                                                                          
  Social Services                                                                                                               
PO Box 110601                                                                                                                   
Juneau, AK  99801-0601                                                                                                          
POSITION STATEMENT:  Discussed DHSS's activities regarding out-                                                               
of-state placement at residential treatment facilities [SCR 21]                                                                 
Mr. Richard Rainery, Executive Director                                                                                         
Alaska Mental Health Board                                                                                                      
431 N Franklin St., Ste. 201                                                                                                    
Juneau, AK  99801-1121                                                                                                          
POSITION STATEMENT: Discussed the Board's activities regarding                                                                
out-of-state placement at residential treatment facilities [SCR
Ms. Kathy Cronen, CEO                                                                                                           
North Star Behavioral Health Care System                                                                                        
1650 S. Bragaw St.                                                                                                              
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supports SCR  21                                                                                         
Ms. Carey Edney                                                                                                                 
Director of Clinical Services                                                                                                   
North Star Hospital                                                                                                             
1650 S. Bragaw St.                                                                                                              
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supports SCR  21                                                                                         
Mr. James Murphy                                                                                                                
Good Samaritan Counseling Center                                                                                                
4105 Tudor Centre Dr.                                                                                                           
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supports SCR  21                                                                                         
Mr. Dave Sperback                                                                                                               
Chair, Psychologists Licensing Board                                                                                            
POSITION STATEMENT:  Supports SCR  21                                                                                         
Dr. Dov Rappaport                                                                                                               
No address provided                                                                                                             
POSITION STATEMENT:  Supports SCR  21                                                                                         
Mr. Wilfred Cassell                                                                                                             
North Star Hospital                                                                                                             
1650 S. Bragaw St.                                                                                                              
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supports SCR  21                                                                                         
Mr. Tony Lombardo                                                                                                               
Alaska Assn. Of Homes for Children                                                                                              
609 F St.                                                                                                                       
Anchorage, AK  99501                                                                                                            
POSITION STATEMENT:  Supports SCR 21                                                                                          
Mr. Elmer Lindstrom, Deputy Commissioner                                                                                        
Department of Health &                                                                                                          
  Social Services                                                                                                               
PO Box 110601                                                                                                                   
Juneau, AK  99801-0601                                                                                                          
POSITION STATEMENT:  Expressed caution about changing the CON                                                                 
Mr. David Pierce                                                                                                                
Certificate of Need Coordinator                                                                                                 
Department of Health &                                                                                                          
  Social Services                                                                                                               
PO Box 110601                                                                                                                   
Juneau, AK  99801-0601                                                                                                          
POSITION STATEMENT:  Answered questions about the CON process                                                                 
Mr. Brian Slocum, Administrator                                                                                                 
Tanana Valley Clinic                                                                                                            
1001 Noble St.                                                                                                                  
Fairbanks, AK                                                                                                                   
POSITION STATEMENT:  Supports SB 256                                                                                          
Mr. Jerome Selby                                                                                                                
Regional Director, Planning & Development                                                                                       
Providence Hospital                                                                                                             
POSITION STATEMENT:  Opposed to SB 256                                                                                        
Dr. David McGuire                                                                                                               
No address provided                                                                                                             
POSITION STATEMENT:  Prefers repealing the CON program                                                                        
Mr. George Larson                                                                                                               
Valley Hospital                                                                                                                 
950 E Bogard Rd.                                                                                                                
Wasilla, AK  99654                                                                                                              
POSITION STATEMENT:  Supports SB 256                                                                                          
Mr. Rick Katz                                                                                                                   
Health South Corporation                                                                                                        
No address provided                                                                                                             
POSITION STATEMENT:  Supports SB 256                                                                                          
Mr. Robert Gould                                                                                                                
Fairbanks Memorial Hospital                                                                                                     
1650 Cowles St.                                                                                                                 
Fairbanks, AK  99701                                                                                                            
POSITION STATEMENT:  Supports SB 256                                                                                          
Dr. Richard Cobden                                                                                                              
Tanana Clinic                                                                                                                   
1001 Noble St.                                                                                                                  
Fairbanks, AK  99701                                                                                                            
POSITION STATEMENT:  Supports SB 256                                                                                          
Ms. Liz Woodyard                                                                                                                
Fairbanks Memorial Hospital                                                                                                     
1650 Cowles St.                                                                                                                 
Fairbanks, AK  99701                                                                                                            
POSITION STATEMENT:  Supports the CON process                                                                                 
Mr. Mike Powers                                                                                                                 
1650 Cowles St.                                                                                                                 
Fairbanks, AK  99701                                                                                                            
POSITION STATEMENT:  Believes the CON process needs further study                                                             
Mr. Dennis Murray                                                                                                               
Heritage Place Nursing Home                                                                                                     
Kenai, AK                                                                                                                       
POSITION STATEMENT:  Opposed to SB 256                                                                                        
Ms. Larraine Derr                                                                                                               
Alaska State Hospital and Nursing Home Association                                                                              
426 Main St.                                                                                                                    
Juneau, AK  99801                                                                                                               
POSITION STATEMENT:  Opposed to SB 256                                                                                        
Milton Willhide, CFO                                                                                                            
Valdez Regional Health Authority                                                                                                
No address provided                                                                                                             
POSITION STATEMENT:  Opposed to SB 256                                                                                        
ACTION NARRATIVE                                                                                                              
TAPE 02-5, SIDE A                                                                                                             
Number 001                                                                                                                      
CHAIRMAN LYDA GREEN  called the Senate Health,  Education & Social                                                            
Services Committee  meeting to order at 1:31 p.m.  Senators Leman,                                                              
Davis  and Chairwoman  Green were  present.   The  first order  of                                                              
business to come before the committee was SCR 21.                                                                               
             SCR 21-TREATMENT FOR DISTURBED CHILDREN                                                                        
MR. JERRY BURNETT, staff to Senator Lyda Green, explained that                                                                  
SCR  21  was  introduced  because  there  are  over  300  severely                                                              
emotionally   disturbed  Alaskan   children  currently   receiving                                                              
treatment in residential facilities in other states.  He stated,                                                                
     Families   are    separated,   sometimes    for   years.                                                                   
     Flexibility to  provide an appropriate mix  of treatment                                                                   
     between  residential and  community based  care is  lost                                                                   
     when children  must be sent out-of-state  for treatment.                                                                   
     Millions  of  state dollars  and  hundreds  of jobs  are                                                                   
     being exported from Alaska.   Alaska currently lacks the                                                                   
     necessary  facilities to provide  the full continuum  of                                                                   
     community based  and residential care in Alaska  for the                                                                   
     treatment  of severely  emotionally disturbed  children.                                                                   
     The  largest  gap  in  this continuum  is  the  lack  of                                                                   
     residential   treatment  beds   that  can  provide   the                                                                   
     necessary level of care.  SCR  21 asks the Department of                                                                   
     Health  and  Social Services  to  work with  the  Alaska                                                                   
     Mental  Health Board,  the  Alaska Mental  Health  Trust                                                                   
     Authority,  and other interested  parties to  strengthen                                                                   
     this continuum  of services and to establish  a priority                                                                   
     for the  development of sufficient in-state  residential                                                                   
     care to  serve emotionally disturbed children  who would                                                                   
     otherwise be placed in out-of-state facilities.                                                                            
CHAIRWOMAN  GREEN  noted  that  legislators   have  received  many                                                              
comments over  the years from  concerned family members  who spend                                                              
time  trying   to  figure   out  how   to  manage  long   distance                                                              
relationships  with   their  children  in  residential   treatment                                                              
facilities.   The committee hopes  to address that  by encouraging                                                              
continued care in Alaska.                                                                                                       
MR. RUSS  WEBB, Deputy  Commissioner of  the Department  of Health                                                              
and  Social   Services  (DHSS),   said  that  DHSS,   health  care                                                              
providers,  and child advocates  agree it  is preferable  to serve                                                              
children in-state  as opposed  to out-of-state whenever  possible,                                                              
for a  variety of  reasons.  Over  the last  few years,  a growing                                                              
number  of children  have come  into  DHSS custody  and a  growing                                                              
number of children  are going out-of-state to receive  care.  DHSS                                                              
appreciates  the  legislature's   encouragement  to  address  this                                                              
issue.  DHSS  has been and will  continue to focus on  it and work                                                              
with the Alaska  Mental Health Board, health providers  and family                                                              
advocates.   DHSS  is entering  into a  broad-based initiative  to                                                              
look at  the full  continuum of  care, not  just residential  care                                                              
needs.  The  Division  of  Medical Assistance  will  soon  have  a                                                              
contract in place  to do a review of the children  in out-of-state                                                              
care to  determine why  they are  there and what  it will  take to                                                              
return them to Alaska. DHSS agrees  this is an important matter to                                                              
address and wants  legislators to know it is already  working hard                                                              
on it.                                                                                                                          
MR.  RICHARD RAINERY,  Executive  Director  of the  Alaska  Mental                                                              
Health Board, informed committee  members that the goals stated in                                                              
SCR 21  are goals  the Board has  had at the  top of  its priority                                                              
list.  The  Board has a process  in place to address  these issues                                                              
that brings  in stakeholders  from  across the  state.  While  the                                                              
Board believes  there is inadequate in-state  residential capacity                                                              
for children,  as  it looks  at the ideal  system  of care in  the                                                              
state, it  wants to  also focus  on the  additional pieces  of the                                                              
continuum of care.   It believes that community based  care is the                                                              
best option for  most children and, with adequate  services, could                                                              
avert a lot of residential placements.                                                                                          
CHAIRWOMAN GREEN said that bringing  those children back to Alaska                                                              
will make  any transition  easier and she  hopes that SCR  21 does                                                              
nothing to  negate the  continuum of  care approach  as that  is a                                                              
well-established model.                                                                                                         
MR. RAINERY agreed that returning  those children to Alaska is the                                                              
first step.                                                                                                                     
SENATOR  LEMAN   asked  whether   any  information   is  available                                                              
describing how  many children  are severely emotionally  disturbed                                                              
for a  particular reason,  such as  fetal alcohol syndrome  (FAS).                                                              
He said he believes  many of the problems in Alaska  are caused by                                                              
bad behavior of parents.                                                                                                        
MR.  RAINERY said  he receives  quarterly reports  from DHSS  that                                                              
contain the diagnoses of children placed out-of-state.                                                                          
SENATOR LEMAN asked for a one-page summary of those numbers.                                                                    
CHAIRWOMAN GREEN took public testimony.                                                                                         
MS. KATHY  CRONEN, North Star  Behavioral Health Care  System CEO,                                                              
said  out-of-state  placement  creates  significant  problems  for                                                              
children and the state because:                                                                                                 
   · It provides less than optimal clinical care because of a                                                                   
     lack of involvement by families and support systems;                                                                       
   · It creates difficulties with discharge planning for ongoing                                                                
     care, which diminishes chances for long term success;                                                                      
   · Alaskan jobs are lost to treatment centers outside of the                                                                  
     state - bringing those children back to Alaska will bring a                                                                
     minimum of 450 new jobs;                                                                                                   
   · Youth stay at North Star longer than necessary while                                                                       
     awaiting long term placement, which is much more costly -                                                                  
     the cost of acute care hospitalization for mental health                                                                   
     patients ranges from $560 per day to $1500 per day.                                                                        
MS.  CRONEN  said  the  solution  is  to  build  more  residential                                                              
treatment beds  in the  state.  North  Star has  land on  which to                                                              
build a treatment center in the Mat-Su  Borough, creating both in-                                                              
state treatment  and new  jobs for  Alaskans.   It is critical  to                                                              
bring Alaskan children home and expand the continuum of care.                                                                   
1:45 p.m.                                                                                                                       
MS.  CAREY  EDNEY,  Director  of Clinic  Services  at  North  Star                                                              
Hospital,  informed members  she oversees  discharge planning  and                                                              
placement  of  all patients.    She has  a  lot of  experience  in                                                              
inpatient  services   over  the  years,  and  is   concerned  that                                                              
inpatient utilization has increased  over the last two years.  She                                                              
stated support for SCR 21 and to  provide a wide range of services                                                              
for  children   to  hopefully  reduce   the  number   of  repeated                                                              
admissions  for inpatient  and residential  stays.  She  estimates                                                              
about 15 to  20 percent of the  youth at her clinic are  ready for                                                              
and could  be placed  at a residential  treatment facility  if one                                                              
was available in the state.                                                                                                     
MR. JAMES MURPHY, owner/director  of the Good Samaritan Counseling                                                              
Centers, stated strong support for  SCR 21.  Because Alaska has no                                                              
residential treatment  facilities, many  patients end up  in acute                                                              
care  facilities  when  they would  receive  better  treatment  in                                                              
residential  treatment.  Sending  children and  teenagers  out-of-                                                              
state disrupts family life and treatment.                                                                                       
MR.  DAVE  SPERBECK,   a  forensic  psychologist,   mental  health                                                              
director  for  the Department  of  Corrections  and chair  of  the                                                              
Psychologists'  Licensing   Board,  told  the  committee   he  has                                                              
considerable experience  dealing with very disturbed  children who                                                              
grow up  to become disturbed  adults that  require high  levels of                                                              
institutional and  sometimes incarceration  care.  He  stated that                                                              
Senator Leman's  comments about the  extent to which  children are                                                              
conditioned  to   require  intensive  psychiatric   treatment  are                                                              
accurate.   Children   rarely   are   born   requiring   inpatient                                                              
psychiatric  treatment  and  often  are  abused  or  neglected  by                                                              
families who require  treatment with the child.   It is impossible                                                              
to make a family  healthy when members are separated  by distance.                                                              
It is crucial to bring these children  back to Alaska because they                                                              
will reunite  with their  families.   He stated  full support  for                                                              
more in-patient residential treatment services in Alaska.                                                                       
1:54 p.m.                                                                                                                       
MR. DOV  RAPPAPORT, a medical doctor,  stated support for  SCR 21.                                                              
He  suggested creating  a  formal  body made  up  of providers  to                                                              
provide an adequate continuum of  care and benefit Alaskans and so                                                              
that providers can share information.                                                                                           
MR.  WILFRED  CASSELL,   previous  head  of  the   childrens'  and                                                              
adolescents' psychiatric ward at  the Alaska Psychiatric Institute                                                              
and current  president of  medical staff  at North Star  Hospital,                                                              
said it is obvious that to uproot  a person from a rural community                                                              
to Anchorage for  psychiatric treatment is a  traumatic experience                                                              
but Anchorage  staff is  able to  handle it  well because  of good                                                              
communication with  rural caregivers. That problem  is exacerbated                                                              
when rural  patients are transferred  out-of-state because  of the                                                              
cultural gap. He likened it to moving  the Aleuts during World War                                                              
II.   He   said   that  many   patients   have   ongoing   medical                                                              
complications. A break in the continuity  of medical providers can                                                              
be detrimental.  Regarding the issue  of discharge  and follow-up,                                                              
it is  much easier for  physicians in  Alaska to communicate  with                                                              
the  mental health  providers in  the community.  He told  members                                                              
that North Star  is experimenting with telemedicine  and other new                                                              
techniques to improve services.                                                                                                 
MR.  TONY  LOMBARDO,  Director of  Advocacy  for  Convenant  House                                                              
Alaska, said he is testifying on  behalf of the Alaska Association                                                              
of Homes  for Children  (AAHC).  The  AAHC strongly advocates  for                                                              
community based  services in which  the family can  participate in                                                              
the treatment  of their children  and support the call  to develop                                                              
sufficient instate  residential care facilities to  meet the needs                                                              
of Alaska's children.  He stated  appreciation for acknowledgement                                                              
in  SCR  21  that  residential  treatment   beds  are  a  critical                                                              
component  in  a  continuum  of   care  for  severely  emotionally                                                              
disturbed  children.    He  strongly   advocates  for  an  instate                                                              
residential facility to lower the recidivism rate for children.                                                                 
CHAIRWOMAN  GREEN   noted  that   a  constituent  recommended   an                                                              
amendment that makes the following changes.                                                                                     
Page 1,  line 15  would read:  "involvement of  a child's  family,                                                              
     members of the child's support system and involved community                                                               
Page 1, line  16 would read:  "and leading to better  outcomes and                                                              
     long-term success and improved client satisfaction; and                                                                    
Page 2,  line 3 would  read: achieved  when a child  is discharged                                                              
     from an in-state residential treatment facility, focusing on                                                               
     transition and a variety of local, community-based services                                                                
     in the child's home of origin; and                                                                                         
Page 2,  line 9 would read:  interested parties to  strengthen the                                                              
     full continuum of residential and community-based care to                                                                  
     work in a coordinated, cooperative, collaborative and                                                                      
     partnering manner towards integration of services.                                                                         
CHAIRWOMAN GREEN explained the purpose  of the amendment is not to                                                              
undo or  undermine anything  that is already  in place.   That new                                                              
language would  be added  to reinforce  to community members  that                                                              
they will continue to be involved.                                                                                              
SENATOR  LEMAN  moved  to  adopt  Amendment 1.    There  being  no                                                              
objection, the motion carried.                                                                                                  
SENATOR  LEMAN  said the  sponsor  statement  refers to  over  300                                                              
severely  emotionally disturbed  children  while information  from                                                              
the Division of Family and Youth  Services refers to 423 children.                                                              
He asked for clarification.                                                                                                     
DEPUTY COMMISSIONER  WEBB  explained that  423 is an  unduplicated                                                              
count of  children who  received care  in out-of-state  facilities                                                              
during  FY  01 that  were  funded  by Medicaid.    The  300 is  an                                                              
approximate number  who may be receiving  care at any  given point                                                              
in  time.   He  noted  the number  of  children who  are  in-state                                                              
custody and  in out-of-state  care at any  given point in  time is                                                              
about 50.                                                                                                                       
SENATOR WARD asked if Medicaid pays for travel.                                                                                 
DEPUTY COMMISSIONER WEBB said it does.                                                                                          
SENATOR WARD asked  if the travel costs were included  in the base                                                              
CHAIRWOMAN GREEN thought it was included in the total amount.                                                                   
SENATOR WARD asked if someone must escort the patient.                                                                          
DEPUTY COMMISSIONER WEBB said yes.                                                                                              
SENATOR  DAVIS asked  what DHSS's  timeline  is to  bring some  of                                                              
these children back to Alaska.                                                                                                  
2:08 p.m.                                                                                                                       
DEPUTY COMMISSIONER WEBB said that  private facilities are already                                                              
under  development  and the  Division  of Medical  Assistance  has                                                              
already entered into a contract to  look at the needs and the full                                                              
continuum of  care.   He said the  Division will  have to  look at                                                              
what  impediments exist  as to  the  development to  the kinds  of                                                              
resources  we  need  in  the  state,  such  as  capital  costs  or                                                              
regulatory issues.                                                                                                              
CHAIRWOMAN  GREEN  asked if  DHSS  is  looking at  constructing  a                                                              
DEPUTY  COMMISSIONER WEBB  said DHSS  does not  plan to build  any                                                              
facilities; it  buys care from  private non-profit  and for-profit                                                              
SENATOR  DAVIS  asked  for  ongoing  reports  from  DHSS  on  this                                                              
SENATOR WARD  asked if  the 300 children  who are in  out-of-state                                                              
facilities are in similar types of facilities.                                                                                  
DEPUTY COMMISSIONER WEBB said the  commonality of those facilities                                                              
is the level or type of care being provided.                                                                                    
CHAIRWOMAN  GREEN   said  it  is   her  intention  to   move  this                                                              
legislation out of committee today.                                                                                             
SENATOR LEMAN moved  CSSCR 21(TRA) from committee  with individual                                                              
recommendations.  There being no objection, the motion carried.                                                                 
The committee then took up SB 256.                                                                                              
               SB 256-CERTIFICATE OF NEED PROGRAM                                                                           
MR. JERRY  BURNETT,  staff to Senator  Green,  sponsor of SB  256,                                                              
read the following statement into the record.                                                                                   
     SB   256  simply   increases  the   threshold  for   the                                                                   
     certificate  of need  (CON)  from $1  million, which  it                                                                   
     currently is,  to $10 million.   CON laws  were designed                                                                   
     to  keep health  care  costs  low by  requiring  advance                                                                   
     approval by a state agency for  most hospital expansions                                                                   
     and  major  equipment  purchases.   In  1974,  the  U.S.                                                                   
     Congress required  all states to enact CON  laws but had                                                                   
     repealed  that requirement  by  1986  as Congress  found                                                                   
     that the  CON process was  not effective in  controlling                                                                   
     health care costs.                                                                                                         
     The current $1  million threshold for CON  in Alaska has                                                                   
     been  in effect  since  1983. Over  the  past 19  years,                                                                   
     construction costs have increased.   With the $1 million                                                                   
     threshold, the Department of  Health and Social Services                                                                   
     reviews   applications   for  facility   expansion   and                                                                   
     equipment that  should simply  be left to the  providers                                                                   
     in the marketplace.                                                                                                        
     Alaska  is not facing  an oversupply  of hospital  beds,                                                                   
     health care  providers, doctors, or health  care workers                                                                   
     in general.   In your  packet there are statistics  from                                                                   
     the Kaiser  Family Foundation  that show that  per 1,000                                                                   
     population, Alaska  ranks 46  in the number  of hospital                                                                   
     beds  in  Alaska,  51   in  the number  of  health  care                                                                   
     workers  as a percentage  of the workforce,  and 49   in                                                                   
     the  number of positions  per capita.   So,  restricting                                                                   
     the supply  of health care  resources in Alaska  may not                                                                   
     be the answer  to keeping health care costs  down.  And,                                                                   
     in  fact,  easing  restrictions   on  the  expansion  of                                                                   
     current  services is  more likely to  lower health  care                                                                   
     costs through competition.                                                                                                 
SENATOR LEMAN  asked how much the  CON process costs and  how long                                                              
it  takes.     He   questioned  whether   the  CON  process   adds                                                              
substantially to the cost of a project in the $1 million range.                                                                 
MR. BURNETT  said he has heard  numbers that vary from  $20,000 to                                                              
$300,000  and  that a  CON  can increase  the  cost  of a  project                                                              
substantially, depending on whether  the applicant has to contract                                                              
for services  or whether  the applicant can  bury the  cost within                                                              
other facility planning costs.                                                                                                  
CHAIRWOMAN GREEN  stated that the  CON program has  been discussed                                                              
repeatedly  and  came  up during  the  Medicaid  discussions  last                                                              
summer.   She continues to be  intrigued that the state  left this                                                              
process in  place when  even the  federal government repealed  the                                                              
requirement.   She pointed out some  states use a CON  process for                                                              
only one  type of bed,  while others have  no process at  all. She                                                              
believes  there is  a  lot of  room  for improvement  in  Alaska's                                                              
process so  she hopes testimony  today will  focus on what  can be                                                              
done  to improve  the process  for  all facilities  in Alaska  and                                                              
provide good health care and choice for people.                                                                                 
2:16 p.m.                                                                                                                       
MR.  ELMER LINDSTROM,  Deputy Commissioner  of  the Department  of                                                              
Health and  Social Services (DHSS),  said he too  has participated                                                              
in a number  of discussions on the  CON process over the  last few                                                              
years.   Those discussions  tend to be  difficult as the  issue is                                                              
particularly complex  for DHSS because  it wears a number  of hats                                                              
when providing  health  care and dealing  with health  facilities.                                                              
DHSS operates the CON program; the  program consists of one person                                                              
who reviews  all applications.  Many other  health care  processes                                                              
become entangled with the CON process.                                                                                          
MR. LINDSTROM  explained that DHSS is  a big payer of  health care                                                              
services through  the Medicaid  budget.  The  DHSS fiscal  note on                                                              
this legislation  speaks to  the Medicaid budget  and the  CON, to                                                              
the extent  that  it will or  will not  impact the  number of  new                                                              
facilities  that come on  line in  Alaska and consequently  impact                                                              
the Medicaid  budget.  In  the area of  long-term care,  DHSS pays                                                              
well in excess of 80 percent of the costs of those beds.                                                                        
CHAIRWOMAN GREEN noted that SB 256  has done nothing to change the                                                              
nursing home requirement.                                                                                                       
TAPE 02-5, SIDE B                                                                                                               
MR. LINDSTROM  said that it is  his impression, after  reading the                                                              
bill, that  SB 256 will  raise the  threshold for construction  of                                                              
nursing home beds to the $10 million  level as well.  He stated he                                                              
discussed the  issue with  committee staff  and believes  the bill                                                              
may contain a technical error.                                                                                                  
CHAIRWOMAN  GREEN said that  it was  not her  intent to  raise the                                                              
threshold for construction  of nursing home beds and  that, to her                                                              
recollection,  the commissioner  of  DHSS placed  a moratorium  on                                                              
nursing home beds several years ago.                                                                                            
MR. LINDSTROM clarified that legislation  passed several years ago                                                              
that  differentiated   between  acute  care  and   long-term  care                                                              
facilities.   It  basically  gave DHSS  a  different standard  for                                                              
review  for long-term  care facilities  by allowing  DHSS to  take                                                              
Medicaid  costs into consideration  when  reviewing the CON.  That                                                              
same provision does not apply to acute care facilities.                                                                         
CHAIRWOMAN GREEN asked  if Medicaid cost is a factor  on all other                                                              
MR. LINDSTROM said cost is not a  factor in terms of reviewing the                                                              
CON  for approval  or disapproval.    However, the  fact that  new                                                              
facilities  are built  will  be a  factor  in  what Medicaid  will                                                              
ultimately pay.                                                                                                                 
CHAIRWOMAN   GREEN  asked   where   that  is   stated  in   DHSS's                                                              
MR. LINDSTROM replied,                                                                                                          
     Madam Chair, that would not  be in regs, it's simply the                                                                   
     fact that if  new facilities come on line  and there are                                                                   
     Medicaid folks  going into those beds, we  believe there                                                                   
     would be an  additional cost to Medicaid but  it's not a                                                                   
     criteria for review through the CON process.                                                                               
CHAIRWOMAN  GREEN  asked  if  DHSS   uses  that  as  a  basis  for                                                              
evaluating a facility, as to what the cost will be.                                                                             
MR. LINDSTROM explained that it is  not a criteria for review of a                                                              
CON application for  acute care beds but it is now  a criteria for                                                              
review for  long term care  facilities under the  legislation that                                                              
passed several years ago.                                                                                                       
CHAIRWOMAN GREEN asked  if all other hospital  beds are considered                                                              
to be acute care beds.                                                                                                          
MR.  LINDSTROM said,  "In  terms  of the  cost  analysis, ...  our                                                              
ability to consider  cost only relates to the long  term care beds                                                              
- the nursing home  beds and everything else subject  to the CON -                                                              
it would not be a factor."                                                                                                      
CHAIRWOMAN  GREEN asked  for clarification  because Mr.  Lindstrom                                                              
previously  said that  cost  was a  consideration  for acute  care                                                              
MR. LINDSTROM replied:                                                                                                          
     Madam Chair,  the difference  is - what  do we think  we                                                                   
     will  ultimately  pay  on  Medicaid?    We  have  to  be                                                                   
     cognizant of  what new facilities may be  coming on line                                                                   
     and if there are additional  facilities that may come on                                                                   
     line  by operation  of this legislation  and we  believe                                                                   
     that is likely the case, we  believe then there would be                                                                   
     an increased cost on Medicaid.   But, that is not saying                                                                   
     the same thing  as we consider that cost as  part of the                                                                   
     CON application.                                                                                                           
CHAIRWOMAN  GREEN  asked  Mr.  Lindstrom  to direct  her  to  that                                                              
statute and regulation.                                                                                                         
MR. LINDSTROM agreed to provide information to staff.                                                                           
2:24 p.m.                                                                                                                       
SENATOR LEMAN  referred to  a DHSS document  that states  (page 3)                                                              
"Medicaid pays 86  percent of long term care and  about 20 percent                                                              
of acute care costs," and said he  is surprised that Medicaid pays                                                              
such a high  percentage of long term  care costs.  He  asked which                                                              
facilities are excluded, besides Pioneer Homes.                                                                                 
MR.  LINDSTROM  explained  that  long  term  care  beds,  in  this                                                              
context, read nursing homes.                                                                                                    
SENATOR WILKEN said  he would like clarification of  the cause and                                                              
effect  in  relation  to  [Medicaid]  costs.    He  presented  the                                                              
following  example:  if  Alaska  had one  hospital  and  100  sick                                                              
people, those people  would go to that hospital and  be billed the                                                              
appropriate  [Medicaid]  rate and  the  state  would pick  up  its                                                              
corresponding share.  But, if the  state had five hospitals and 20                                                              
people went to each, the state's  costs would be higher because it                                                              
has the same number of patients but more hospitals.                                                                             
MR. LINDSTROM  said the short answer  is yes.  When  talking about                                                              
reimbursement   for  hospitals,  hospitals   fall  under   a  very                                                              
complicated  rate setting  mechanism in  Medicaid.  The  governing                                                              
federal law  requires the state to  pay a fair  reimbursement rate                                                              
for an  efficiently run  facility.  The  rate includes all  of the                                                              
hospital's fixed costs  that it must pay to stay  in business.  He                                                              
said if  the state had  five hospitals  with 20 patients  each, it                                                              
would  be paying  a  premium  for the  luxury  of having  so  many                                                              
facilities  because  they would  all  have  fixed costs  that  get                                                              
rolled into the  rate setting system.  The cost per  unit would be                                                              
less if there was one facility that had the economies of scale.                                                                 
CHAIRWOMAN GREEN  asked how that  would change with  two hospitals                                                              
with 50 patients each.                                                                                                          
MR. LINDSTROM  said Chairwoman Green  is getting to the  "nuts and                                                              
bolts" of the  CON process to determine what level  of capacity is                                                              
needed  in a  community  to have  a reasonably  efficient  patient                                                              
CHAIRWOMAN GREEN  said the  purpose behind the  CON program  is to                                                              
determine  the need  and establish  capacity.   She said she  sees                                                              
nothing  that  speaks  to  cost,   which  is  what  she  wants  to                                                              
MR. LINDSTROM said what has plagued  DHSS in discussions about the                                                              
CON program  is the  tendency to  go from  the 100,000 foot  level                                                              
down to  the specifics of a  particular CON, either  past, present                                                              
or  future and  miss  all of  the complexities  that  fall in  the                                                              
middle.  He stated,                                                                                                             
      At the 100,000 foot level, the notion of letting the                                                                      
      market operate as it will, and that that will really                                                                      
     give  you, over  time, the  most  efficient -  and by  I                                                                   
     think would  say most cost  effective system,  you know,                                                                   
     is  probably kind  of  a truism  and  something that  we                                                                   
     agree  to  but the  next  level  down  you have  to  ask                                                                   
     yourself  what about  the  thing -  what  market are  we                                                                   
     talking  about.   We really  don't  believe that  health                                                                   
     care is like soap or like washing machines.                                                                                
He went on to  say that health care is a matter  of life and death                                                              
for many people.  In this country for many decades  there has been                                                              
a great deal  of statutory and regulatory oversight  of the health                                                              
care  industry   in  general.  If  economic  efficiency   was  the                                                              
paramount issue,  relative to health  care, our system  would look                                                              
very different than it does today.  Many small community hospitals                                                              
probably would  not exist. In many  states in the Lower  48, small                                                              
hospitals  have been  closing. He  asked legislators  to not  lose                                                              
sight of the unique nature of health  care.  DHSS does not want to                                                              
do anything  that would have the  unintended result of  closing or                                                              
the  diminution of  services  and  access to  health  care in  the                                                              
CHAIRWOMAN  GREEN expressed  concern  that the  level of  scrutiny                                                              
applied in  the CON process by  DHSS is not described  anywhere in                                                              
statute or regulation.  She said  she does not know how anyone can                                                              
bring  a CON  application through  the  process if  DHSS uses  the                                                              
criteria  described by  Mr.  Lindstrom when  the  only place  that                                                              
criteria is  to be  used is for  nursing home  beds.  She  advised                                                              
that if the statute needs to be changed,  that should be done, but                                                              
no one should sit  with a monster in the room  and pretend that it                                                              
doesn't  exist.     She  maintained  that  businesses   are  being                                                              
disenfranchised  when having  to  spend hundreds  of thousands  of                                                              
dollars on a  needs application, which she finds  abominable.  She                                                              
cautioned the  need to  get past this  primary discussion  of what                                                              
the current  role is, when  that role  cannot be found  in statute                                                              
and  that  it  is  imperative  to   not  place  on  applicants  an                                                              
artificial  requirement.   She also  expressed  concern about  the                                                              
cost  of the  CON application  process.   She noted  that she  has                                                              
heard  complaints  from people  who  are  not willing  to  testify                                                              
because they have CON applications  pending approval.  She pointed                                                              
out that  the legislation that passed  in 1983 required  a CON for                                                              
projects  costing $1,000,000  or more  and that  costs have  risen                                                              
substantially.   She added that according to  national statistics,                                                              
Alaska ranks very  low in its number of physicians  and beds.  She                                                              
questioned whether the CON program could be deterring growth.                                                                   
2:35 p.m.                                                                                                                       
SENATOR LEMAN  said that although he  does not want to  see health                                                              
care facilities  in smaller communities  close, the  same argument                                                              
made  by Mr.  Lindstrom was  made  in 1989  during hearings  about                                                              
competition in the  telephone market.  At that  time, opponents to                                                              
competition cautioned  that costs would  be driven up by  the need                                                              
for double plants and other expenses.   He argued against that and                                                              
believed it would  stimulate services and drive  costs down, which                                                              
is what has  happened.  He asked  Mr. Lindstrom to describe  why a                                                              
competitive model cannot be applied to the CON process.                                                                         
CHAIRWOMAN GREEN took a brief-at-ease.                                                                                          
SENATOR DAVIS commented  that this issue would  benefit from joint                                                              
committee work or the appointment of a subcommittee.                                                                            
CHAIRWOMAN GREEN said she hopes that  problems are brought forward                                                              
today and  to take the  discussion forward  from there.   She said                                                              
she wants everyone to know that the  intent of this bill is not to                                                              
bash anyone  but rather  to find  ways to  improve health  care in                                                              
Alaska.  She wants to make sure that  the statutes and regulations                                                              
in place  do what the legislature  originally intended.   She also                                                              
noted the need for a conversation  about why Congress, which never                                                              
repeals anything, repealed the CON requirement.                                                                                 
2:40 p.m.                                                                                                                       
MR.  DAVID PIERCE,  DHSS Planner,  informed the  committee he  was                                                              
available to answer questions about the CON program.                                                                            
CHAIRWOMAN  GREEN asked  Mr. Pierce to  provide committee  members                                                              
with the number  of CON applications under review  and an overview                                                              
of all  certificates of  need - the average  cost, time  period of                                                              
approvals,  denials, withdrawals,  and appeals  since the  program                                                              
began.  She said  she wants to know what the  dollar amounts were.                                                              
She asked Mr. Pierce  to be prepared to discuss how  much time was                                                              
spent  on the  certificates  of need  for  the Alaska  Psychiatric                                                              
Institute (API)  and why  DHSS needed to  go through  that process                                                              
after it  was requested by the  DHSS Commissioner and  approved by                                                              
the Legislature.                                                                                                                
SENATOR LEMAN asked  Mr. Pierce to address his  previous questions                                                              
about the cost of CONs and how long the process takes.                                                                          
MR. PIERCE explained  that he has 90 days, once  an application is                                                              
declared   complete,   to   submit   a   recommendation   to   the                                                              
commissioner.   He is allowed a  30-day extension if he  runs into                                                              
difficulties,  for  example  if  he is  reviewing  more  than  one                                                              
application or if  an issue arises for an applicant  that requires                                                              
a change.                                                                                                                       
SENATOR  LEMAN asked  if applications  are returned  on a  routine                                                              
basis because they are incomplete.                                                                                              
MR. PIERCE said  that he has 20 days from the  time an application                                                              
comes in  to declare  it incomplete.   After  that it is  declared                                                              
complete and the 90-day clock begins.                                                                                           
CHAIRWOMAN GREEN  asked if the  Fairbanks Renal Care  facility CON                                                              
has been approved.                                                                                                              
MR.  PIERCE  said  the  application  has  not  yet  been  declared                                                              
complete but will be in a day or two.                                                                                           
CHAIRWOMAN  GREEN  asked  how long  the  "hasn't  been  completed"                                                              
process can last.                                                                                                               
MR. PIERCE  said that is where  applicants can run  into problems.                                                              
If something  is missing  from an application,  which could  be as                                                              
simple as  a signature,  the applicant has  60 days to  respond to                                                              
the  request  for  the missing  information.    If  the  applicant                                                              
doesn't respond  quickly, the  process can take  up to  another 60                                                              
CHAIRWOMAN  GREEN asked  for an  update on  the Providence  60-bed                                                              
facility application.                                                                                                           
MR. PIERCE said that is due to be completed next Tuesday.                                                                       
CHAIRWOMAN GREEN asked  about the North Tower  application and the                                                              
Valdez Community Hospital application.                                                                                          
MR. PIERCE  said they are  both awaiting  a final decision  by the                                                              
CHAIRWOMAN GREEN  asked Mr. Pierce  to provide the start  dates of                                                              
the  projects on  the updated  list and  whether the  applications                                                              
were  approved  or denied  and  that  he  be available  to  answer                                                              
questions at future meetings.                                                                                                   
SENATOR WARD  asked Mr.  Pierce to bring  the committee a  list of                                                              
the  states  with a  position  similar  to  that of  Alaska's  CON                                                              
Coordinator.   He said he wants  to find out whether  other states                                                              
use a similar procedure.                                                                                                        
MR. PIERCE agreed.                                                                                                              
CHAIRWOMAN GREEN then called the next person to testify.                                                                        
MR.  BRIAN SLOCUM,  administrator  of  the Tanana  Valley  Clinic,                                                              
stated support for SB 256.  In response  to previous questions, he                                                              
cited an  article written  by Michael  Turner  from the CATO  (ph)                                                              
Institute,  in   which  Mr.  Turner   quoted  the   Federal  Trade                                                              
Commission  as saying that  CON regulations  increase the  cost of                                                              
hospital  care  nationwide  by  more  than  $1.3  billion  dollars                                                              
annually.    So,  on a  nationwide  basis,  regulation  compliance                                                              
diverts $1.3 billion  out of the health care treatment  stream and                                                              
into the  paperwork  stream.  Mr.  Slocum said  another quote,  by                                                              
Roberta Ross in  an article called Certificate of  Need for Health                                                            
Care  Facilities: A  Time  for Re-examination,  says  the cost  of                                                            
applying  for  a  certificate  of need  ranges  from  $100,000  to                                                              
$300,000 per application. He said  DHSS listed 22 CON applications                                                              
over the  last year on its  website; that amounts to  between $2.2                                                              
and $6.6  million.  That  does not include  the amount  of dollars                                                              
spent by the  state to deal with  the applications or the  cost of                                                              
applicants who withdrew their applications.                                                                                     
SENATOR DAVIS  asked how much the  Tanana Valley Clinic  has spent                                                              
on CON application fees.                                                                                                        
MR. SLOCUM  said he does not  have a precise number  but estimated                                                              
it at well over $200,000 since it began the process.                                                                            
CHAIRWOMAN GREEN  asked if that implies  that the cost of  the CON                                                              
is in relation to the size of the project.                                                                                      
MR. SLOCUM  said the quote  he has suggests  that a  major project                                                              
costs  between  $100,000 and  $300,000.    He said  regarding  the                                                              
question about the intent of the  CON laws, the DHSS handout lists                                                              
nine goals, none of which are listed  in the legislation.  He then                                                              
quoted  Mark Kaplan,  who did  an economic  analysis of  Florida's                                                              
hospital CON  program in the  Florida State University  Law Review                                                              
in 1991.  Mr. Kaplan said,                                                                                                      
     One may  question the wisdom  of continuing any  form of                                                                   
     state  regulation  that failed  to produce  its  desired                                                                   
     goal  when implemented  nationwide... As  the review  of                                                                   
     Congress's  intent indicates,  the  certificate of  need                                                                   
     had one goal: to save money.   However, in those states,                                                                   
     which  retain their  CON laws, the  retention was  often                                                                   
     supported  by new and  creative justifications,  many of                                                                   
     which were  unrelated to saving money.  Commentators, in                                                                   
     their traditional role of explaining  the reasons behind                                                                   
     events,  have set forth  many justifications  explaining                                                                   
     why states  have kept the same  old CON laws.  All these                                                                   
     justifications,   however,  are   the  crafty  work   of                                                                   
     commentators,   and   not  the   motivation   of   state                                                                   
     legislatures. No  state legislature has codified  any of                                                                   
     these new  justifications as legislative intent.   These                                                                   
     justifications should  therefore carry little  weight in                                                                   
     a proper analysis.                                                                                                         
CHAIRWOMAN GREEN  suggested extending  the explanation  on statute                                                              
and regulation to the CON goals outlined by DHSS in its handout.                                                                
MR.  SLOCUM  told  members  the  Tanana  Valley  Clinic  had  been                                                              
applying for a CON  for a number of years and  was denied in 1999,                                                              
along with  a number of  applicants.   As a result,  he researched                                                              
the CON program to try to work through  it.  He discovered that 30                                                              
years of academic and scholarly analysis  of the CON program finds                                                              
zero  support  for  its  effectiveness.   In  fact,  the  research                                                              
suggests that  the CON program did  not and does not work  and has                                                              
driven   the   cost   of   health   care   higher   by   promoting                                                              
inefficiencies,  generating  application   costs,  and  sheltering                                                              
inefficient monopolies  and preventing  them from competing  in an                                                              
open  marketplace.  29  states  have  either  eliminated  the  CON                                                              
program entirely or  have done what SB 256 proposes  to do.  Other                                                              
information  in  the packet  suggests  when  states do  remove  or                                                              
modify CON laws, no subsequent rise in health care costs occurs.                                                                
CHAIRWOMAN GREEN asked if the Tanana  Valley Clinic treats clients                                                              
who cannot pay.                                                                                                                 
MR. SLOCUM  replied the  nature of its  position in the  community                                                              
makes it critical  that it do so.   The Tanana Valley  Clinic is a                                                              
37 provider, multi-specialty group  - the largest medical group in                                                              
the state.   It  has been operating  for 43  years and  has always                                                              
taken care of anyone  who shows up.  It is a  private business but                                                              
plays  something of  a quasi-public  role.   It  has provided  $11                                                              
million in unreimbursed care in the last two years.                                                                             
CHAIRWOMAN GREEN asked if the Tanana Valley Clinic pays taxes.                                                                  
MR. SLOCUM  said the Tanana Valley  Clinic is the  largest locally                                                              
owned  property  tax  payer  in   the  Borough  and  the  City  of                                                              
Fairbanks.   Both  mayors support  the concept  of having  another                                                              
ambulatory surgical  center in the  community because it  would be                                                              
consistent  with  its  economic   development  policy  to  promote                                                              
business and simplify governmental  restrictions.  The project the                                                              
Tanana  Valley  Clinic has  looked  at  would generate  almost  $1                                                              
million in property  taxes over the next 20 years  versus having a                                                              
not-for-profit institution, which would not pay those taxes.                                                                    
CHAIRWOMAN GREEN asked  if most hospitals have  a 501(c)(3) status                                                              
so do not pay property taxes.                                                                                                   
MR. SLOCUM said that is correct.                                                                                                
2:59 p.m.                                                                                                                       
SENATOR WILKEN asked  Mr. Slocum to comment on  his question about                                                              
the  efficiency of  one  facility versus  two  facilities and  the                                                              
effect on the Medicaid match dollar in Alaska.                                                                                  
MR. SLOCUM  said that  is a  good question.  He believes  there is                                                              
truth to the  fact that we are  not just looking at  pure economic                                                              
efficiency  when talking  about health  care,  but one  has to  be                                                              
careful in  that analysis.  The logical extension  of that  way of                                                              
thinking is that  having only be one institution  in any community                                                              
would  be  the  most  efficient.  However, that  is  not  what  is                                                              
normally done  because there are  benefits of competition.   While                                                              
there may  be some efficiencies gained  by limiting the  number of                                                              
entrants to the  market, the competitive fight to  reduce the cost                                                              
of services  and improve  the quality  of care is  given up.   The                                                              
federal government  wrestled with that  problem a number  of years                                                              
ago and came up  with a plan in the late 1980s  that removed those                                                              
kinds  of  supports   from  the  federal   reimbursement  program.                                                              
Typically, 20 or  30 years ago, it used a  cost-plus reimbursement                                                              
basis,  which meant  the higher the  costs, the  more states  were                                                              
reimbursed,  resulting  in  more  campuses. The  cost  to  deliver                                                              
health  care  continued to  rise  unchecked  so it  established  a                                                              
prospective payment  system that little  by little moved  toward a                                                              
payment  mechanism  that paid  upfront  to promote  efficiency  of                                                              
services.   He suggested the state  may need to address  that same                                                              
question of balancing efficiency with competition.                                                                              
MR. JEROME SELBY,  Regional Director for Planning  and Development                                                              
at Providence  Health Systems  in Alaska,  urged the committee  to                                                              
take a  hard look at what  appears on the  surface to be  a simple                                                              
bill.  SB 256  proposes a major shift in-state health  policy.  It                                                              
has huge  implications far  beyond just cost  control in  areas of                                                              
quality  of health  care and  manpower  shortages as  well as  any                                                              
control of costs to the state regarding  the Medicare and Medicaid                                                              
programs.  SB 256 would accomplish five things:                                                                                 
   · It would shift dollars that now pay for low income and                                                                     
     uninsured clients to private banks accounts, most likely in                                                                
     the Lower 48;                                                                                                              
   · It would allow unneeded facilities to be built;                                                                            
   · It would drive up health care costs in general and will take                                                               
     money away from critically needed facilities in Alaska, in                                                                 
     particular tertiary care and special need care facilities;                                                                 
   · It would increase the state's health care budget;                                                                          
   · It will significantly increase manpower shortages already                                                                  
     causing problems in Alaska's health care system.                                                                           
CHAIRWOMAN  GREEN  maintained  that  Providence  is  probably  the                                                              
greatest offender  of increasing the need for  more nurses because                                                              
it has  requested the  greatest number  of dollars for  expansion.                                                              
She questioned whether the manpower argument holds.                                                                             
MR. SELBY said it  is a huge concern for Providence  because it is                                                              
already having  difficulty getting  enough nurses.   Spreading the                                                              
number of available nurses across  more facilities will exacerbate                                                              
the  problem. While  Providence  has not  had  to divert  patients                                                              
because of a shortage of nurses,  it is diverting patients because                                                              
of  bed  shortages.   Other  Anchorage  hospitals   are  diverting                                                              
patients  because  of  a  shortage   of  nurses.  He  agreed  that                                                              
Providence most  likely uses the  CON program more than  any other                                                              
facility in  the state but it has  not found the program  to be so                                                              
onerous  that  it  needs  major adjustment.  He  believes  the  $1                                                              
million threshold  works fine because  the cost of  the technology                                                              
has decreased,  i.e. CAT  scanners. He  noted Providence  does not                                                              
separate CON costs of projects but  it has spent considerably less                                                              
than $100,000  preparing each of  its CON applications.   He urged                                                              
committee members  to consider  maintaining the  CON program  as a                                                              
good public policy process that causes  businesses to ask the hard                                                              
questions.  Those  questions  may be  uncomfortable,  but  several                                                              
times  during   the  process  Providence  has  amended   its  plan                                                              
internally after  those questions forced  it to improve  its plan.                                                              
He suggested this bill needs careful analysis.                                                                                  
TAPE 02-06, SIDE A                                                                                                              
SENATOR WILKEN  asked Mr. Selby to  clarify how SB 256  will shift                                                              
money to bank accounts in the Lower 48.                                                                                         
MR. SELBY  explained it  will allow the  stock options  (?????) in                                                              
the Lower 48 to come to Alaska and  skim off the surgi-center type                                                              
business, which  is the  profitable part.   That money will  go to                                                              
the bank account  where the center of operations  is located, most                                                              
likely in  the Lower 48.   Last year  Providence shouldered  a $25                                                              
million  absorption   of  underinsured  and   Medicare  write-offs                                                              
because it  has some profitable services,  such as surgery.   That                                                              
profit is shifted  over to pay for services that  do not pay their                                                              
own way.                                                                                                                        
SENATOR  WILKEN  asked  if Mr.  Selby  is  saying  that if  a  new                                                              
facility  for  which a  CON  facility  was  granted was  owned  by                                                              
Alaskans,  it would  shift  money  into Alaskans'  bank  accounts.                                                              
MR. SELBY said  it would but it  would still take money  away from                                                              
helping to pay for low-income and uninsured patients.                                                                           
SENATOR  WILKEN  noted Mr.  Selby  suggested that  increasing  the                                                              
threshold to $10 million will increase  the state budget and asked                                                              
for an explanation.                                                                                                             
MR. SELBY said  the state will be paying for  overhead in multiple                                                              
facilities and the billings will  be higher to recover the cost of                                                              
constructing the facilities.  Providence  is concerned because its                                                              
overhead costs  do not change whether  it is full or has  30 empty                                                              
CHAIRWOMAN  GREEN said  she totaled  up the  cost of  Providence's                                                              
expansions  over   the  past  five   years  and   its  anticipated                                                              
expansions under review  and came up with $80 million.   She asked                                                              
where Providence Hospital's home office is located.                                                                             
MR.  SELBY  said the  regional  office  is  in Anchorage  but  the                                                              
Providence  Health System  operates in four  states:   Washington,                                                              
Oregon,  Alaska and  California.    Each state  is  a region  unto                                                              
CHAIRWOMAN  GREEN asked  if any of  the money  made at  Providence                                                              
Hospital goes out-of-state.                                                                                                     
MR. SELBY  replied that  basically everything  it makes  goes back                                                              
into the state.   It has some shared costs that  it helps pay for,                                                              
such as legal counsel.  He added  that most advertising is done in                                                              
CHAIRWOMAN  GREEN  asked  if  she looked  at  Providence  and  the                                                              
organizations of some of the large  hospitals, she would find that                                                              
aside from  the profit-center discussion,  the money  stays within                                                              
the state.                                                                                                                      
MR.  SELBY  pointed  out  that  Providence   is  a  not-for-profit                                                              
organization so it  does not pay shareholders and  does not have a                                                              
lot  of  overhead. Virtually  all  of  the  money goes  back  into                                                              
providing health care and expansion.                                                                                            
3:14 p.m.                                                                                                                       
MR.  RICK  KATZ, representing  Health  South  Corporation,  stated                                                              
support for  changing the  threshold and CON  criteria as  it will                                                              
allow better access to ambulatory  care.  Health South Corporation                                                              
has found on a national basis that  the trend is to modify the CON                                                              
criteria to allow  for more access to ambulatory  care, which is a                                                              
lower-cost alternative in a majority  of situations.  For example,                                                              
in other states where Health South  operates an acute facility and                                                              
an  ambulatory-surgi facility,  the  cost of  an arthroscopy  (ph)                                                              
procedure in  an ambulatory  facility may be  $400 while  the same                                                              
procedure will  cost $5,000 in an  acute care facility.   He noted                                                              
in  one community  of  100,000  on the  West  Coast  that had  one                                                              
hospital, Health  South opened an ambulatory-surgi  facility.  The                                                              
hospital  administrator  commented  four  months  later  that  the                                                              
opening of  the facility  raised the  bar in  terms of quality  of                                                              
service in  the community by  adding an alternative  and providing                                                              
MR. KATZ  offered to  provide committee members  with any  type of                                                              
assistance  or  information  regarding   CON  processes  in  other                                                              
states.  He added that Health South  Corporation provides about 12                                                              
percent of its care free-of-charge annually.                                                                                    
MR. GEORGE  LARSON, CEO of Valley  Hospital in the  Mat-Su Valley,                                                              
stated support for increasing the  CON threshold to $10 million or                                                              
eliminating the program altogether.   He asked members to consider                                                              
the  need to  require  all health  care  "boutiques" to  eliminate                                                              
cherry  picking  of  patients  to level  the  playing  field  with                                                              
hospitals.   He suggested that if  the CON threshold  is increased                                                              
to $10 million,  renovations could be  done faster.  A  $1 million                                                              
threshold  will  allow  the  boutiques  to move  in  while  Valley                                                              
Hospital  is  going   through  the  CON  process   for  the  major                                                              
renovations it needs to do.                                                                                                     
3:20 p.m.                                                                                                                       
DR.  DAVID MCGUIRE  said the  original intent  of the  CON was  to                                                              
reduce the cost  of health care.  The federal  government repealed                                                              
the requirement  in  1987 because  it didn't work;  it only  added                                                              
another  layer  of  bureaucracy  and  was  anti-competitive.    He                                                              
prefers an outright repeal but supports  any legislation that will                                                              
level  the playing  field.   He  expressed  concern  that the  $10                                                              
million threshold  will still  require an  application to  DHSS to                                                              
verify that the proposed project  will cost less than $10 million.                                                              
That very process  will be burdensome.  He urged  the committee to                                                              
consider  requiring applicants  to complete  a simplified  form or                                                              
submit  a simple  statement verifying  the fact  that the  project                                                              
will cost less than $10 million.   An alternative is to repeal the                                                              
CON for everything but nursing homes in some geographic areas.                                                                  
MR. ROBERT GOULD, assistant administrator  of finance at Fairbanks                                                              
Memorial Hospital,  stated opposition to SB 256  for the following                                                              
reasons.  First, the CON program  prevents duplication of services                                                              
where there  is no need,  thereby reducing  capital costs  to both                                                              
the  state   and  consumers.     Second,  it  prevents   selective                                                              
competition   for   selected   services   where   the   government                                                              
reimbursement  system appears favorable  at this  time.   One area                                                              
that has experienced  changes in Fairbanks in the  last year is in                                                              
home health care services.  Years  ago there were a number of home                                                              
health care agencies in the community.  When Medicare and Medicaid                                                              
changed their reimbursement  systems for home health,  every other                                                              
enterprise  left  the  market  in  Fairbanks.  Fairbanks  Memorial                                                              
Hospital is the only one left to  carry on that service as part of                                                              
its mission  even though  it is not  a profitable service.  Third,                                                              
the CON program preserves quality.  With a limited population, the                                                              
volume for many services is insufficient  to maintain proficiency.                                                              
Fourth,  the CON program  protects  consumers that  do not  have a                                                              
choice  about  their  insurance.   Employers  make  choices  about                                                              
insurance providers.  Insurance companies negotiate  contracts and                                                              
decide who the consumer gets to see.                                                                                            
MR.  GOULD said  the  difference between  the  phone industry  and                                                              
health care  industry is  that people  can change their  telephone                                                              
company  but unless  they are  willing to  change their  employer,                                                              
they do  not get the  choice on their  insurance.  He  offered the                                                              
following suggestions to streamline the CON process.                                                                            
   · No CON should be required for relocation of a facility                                                                     
     within a community.                                                                                                        
   · No CON should be required for remodeling when no new                                                                       
     services will be added.                                                                                                    
   · The process should be modified to expedite areas where there                                                               
     are emergent needs.                                                                                                        
   · The focus should be on the key medical services in a                                                                       
     community that need to be protected and reviewed from the                                                                  
     standpoint of quality, cost and capital rather than on a $10                                                               
     million threshold.                                                                                                         
CHAIRWOMAN GREEN  asked Mr. Gould  to transmit his  suggestions to                                                              
the committee in writing.                                                                                                       
DR.  RICHARD COBDEN,  a  physician at  the  Tanana Valley  Clinic,                                                              
stated  support for  SB 256  because it  makes good  sense from  a                                                              
patient's viewpoint.  He said his  patients appreciate  access and                                                              
availability of services  at an affordable price.   He agrees with                                                              
Deputy  Commissioner Lindstrom  that  the key  to  CON success  is                                                              
access  but he  disagrees  with  his interpretation.  He  believes                                                              
access is  most determined by one's  ability to pay  for services.                                                              
He  informed the  committee that  he  believes Fairbanks  Memorial                                                              
Hospital  offers the  best services  of any hospital  he has  ever                                                              
worked in but it is expensive. He  scheduled a patient for surgery                                                              
but  two  emergencies  occurred  so the  operating  room  was  not                                                              
available  at that  time.  Unfortunately the  patient's  insurance                                                              
expired at midnight and he was unable  to extend it.  Consequently                                                              
he was unable  to have the surgery.   He noted that is  an example                                                              
of the need for access in its most  acute form.  Having a facility                                                              
in a community  is great unless people cannot  afford the services                                                              
at that facility. He believes some  patients do not have access to                                                              
care when they have no alternatives.                                                                                            
MS. LIZ WOODYARD, an administrator  at Fairbanks Memorial Hospital                                                              
in  charge  of performance  improvement  and  education,  informed                                                              
members that she previously worked  for the State of Missouri with                                                              
the CON process.   She said the CON process helps  serve the needs                                                              
of the public  and is important  in looking at quality  and volume                                                              
of  services provided.    Missouri, like  Alaska,  has many  rural                                                              
areas.   The CON program  ensures the  public that quality  health                                                              
care  is being  provided  and that  need  is clearly  defined  and                                                              
viable  for  a community,  which  also  applies to  education  and                                                              
workforce development issues.                                                                                                   
MR.  MIKE   POWERS,  administrator   of  the  Fairbanks   Memorial                                                              
Hospital, stated that  the hearing has brought forth  a great deal                                                              
of information  to sort  through -  some accurate,  some not.   He                                                              
noted  regarding a  competitive model,  in a  classic business  or                                                              
economic model, one is good, two  is better, three is best but, in                                                              
sole  community  hospitals,  when  dealing with  health  care  the                                                              
classic  supply and  demand curves  do  not work.  In the  classic                                                              
conditions, buyers are well informed.  In health care, buyers make                                                              
infrequent  decisions  and are  unsure  of treatments,  risks  and                                                              
outcomes.  Government payers  cover more  than 50  percent of  the                                                              
typical  bill.  Buyers and  sellers  are not  independent  because                                                              
insurance desensitizes people to  the cost of care.  He emphasized                                                              
that sole  community hospitals  have a  mission and simply  cannot                                                              
stop a service.                                                                                                                 
MR. DENNIS MURRAY,  administrator at Heritage Place  Nursing Home,                                                              
informed  members that  he recently  put an  addition on  Heritage                                                              
Place  after the  moratorium was  lifted  and spent  less than  $1                                                              
million because  he did  not want to  go through the  CON process.                                                              
He was able to  increase capacity by 12 beds at  a cost of $58,000                                                              
per  bed.  He  suggested  that the  $1  million  threshold  had  a                                                              
positive impact  on his  community because  Heritage Place  is the                                                              
most cost-effective facility in Alaska  right now.  He opposes any                                                              
change to the existing CON threshold.                                                                                           
SENATOR  WILKEN asked  Mr. Murray  what his  incentive would  have                                                              
been to design  an addition for a  lower cost if there  was no CON                                                              
MR. MURRAY said  that he got no reimbursement for  the $58,000 per                                                              
bed  cost because  it  did not  meet the  minimum  threshold.   He                                                              
suggested, "Where  there are  no thresholds, the  cost does  go up                                                              
because   ultimately   you   will  pay   in   increased   Medicaid                                                              
3:40 p.m.                                                                                                                       
MS.  LARRAINE DERR,  President of  the Alaska  State Hospital  and                                                              
Nursing  Home  Association, stated  opposition  to  SB  256.   She                                                              
informed  committee  members  that  she  did  a  brief  survey  of                                                              
hospitals in the  state who have had recent CONs  and came up with                                                              
the following costs:                                                                                                            
   · Bartlett Hospital - $20,000 on a CON for its $40 million                                                                   
   · Wildflower Court - 44 beds plus 11 assisted living beds -                                                                  
     designed entire facility and completed the CON for $83,169;                                                                
   · Ambulatory-surgi center in Anchorage - between $50,000 and                                                                 
     $75,000 for the CON application and preliminary planning.                                                                  
MS. DERR pointed  out that Ohio has 15 fewer  hospitals today than                                                              
it  had  in  1997,  when  Ohio's  CON  deregulation  took  effect.                                                              
However, over the  same period there has been a  large increase in                                                              
the number  of diagnostic  imaging  centers (from  27 to 229)  and                                                              
ambulatory-surgi  centers (from 27  to 179).   She cautioned  that                                                              
there will  be a  proliferation of  profitable services  in Alaska                                                              
when  the CON  is removed.   The  challenge  for the  state is  to                                                              
protect essential  health services while ensuring  quality of care                                                              
in all practice settings.                                                                                                       
MR.  MILTON  WILLHIDE (ph),  CFO  of  the Valdez  Regional  Health                                                              
Authority, stated that  his organization has a CON  pending in the                                                              
Commissioner's office.  Although  the process was expensive - over                                                              
$100,000 and  a year's time  and labor  - the Authority  feels the                                                              
process  had great value  in helping  it to  gather the  financial                                                              
information  necessary   to  determine  the  feasibility   of  its                                                              
project. He believes the CON requirement  should be maintained and                                                              
that the  threshold should  not be raised  to $10 million  because                                                              
that would remove  a barrier to the entry into the  market in sole                                                              
community  hospitals, such  as Valdez.  Those  hospitals would  be                                                              
hardest hit by  entities from the Lower 48 who  could easily build                                                              
many types  of facilities  for less than  $10 million.   He stated                                                              
support for the existing CON process with minor modifications.                                                                  
CHAIRWOMAN  GREEN  asked  Mr. Burnett  to  describe  the  proposed                                                              
committee substitute  (CS). She noted  she did not intend  to take                                                              
action on it today.                                                                                                             
MR. JERRY BURNETT,  staff to Senator Green, explained  the changes                                                              
made in the CS as follows.                                                                                                      
Section  1 of  the CS  is the  same  as the  original bill,  which                                                              
increases the threshold for a CON to $10 million.                                                                               
Section 2 of the  CS allows for the relocation of  any health care                                                              
facility within  a community without  a CON provided  the facility                                                              
does not  increase the number of  beds or categories  of services.                                                              
The  current statute  only allows  ambulatory-surgi facilities  to                                                              
relocate without a CON.                                                                                                         
Section 3 adds two new requirements  to the standard of review for                                                              
non-nursing  home  beds:  financial   feasibility  and  long  term                                                              
viability  of  the  project,  and the  forecast  of  the  probable                                                              
financial  effect of  the  project on  consumers  and the  state's                                                              
fiscal condition. He stated that  according to previous testimony,                                                              
that is not currently  reviewed but "it kind of, sort  of is."  He                                                              
explained  that  all  facilities  that  require  a  CON  would  be                                                              
reviewed with standards similar to those for nursing homes.                                                                     
Section  4  provides  for  a  temporary  moratorium  on  CONs  for                                                              
psychiatric beds until July 1, 2003.                                                                                            
Section 5  establishes a 6-member  working group appointed  by the                                                              
Governor to analyze issues regarding  psychiatric care services in                                                              
Alaska  and  requires  a  report   be  completed  by  next  year's                                                              
legislative session.                                                                                                            
Sections 6 and 7 contain effective dates.                                                                                       
MR. BURNETT said when the moratorium  was placed on long-term care                                                              
and nursing  home beds,  the testimony showed  that 85  percent of                                                              
nursing home care and acute juvenile  psychiatric care was paid by                                                              
Medicaid.  That  issue needs further study.  The  working group in                                                              
Section 5 is modeled after 1995 legislation  that set up a working                                                              
group to study long-term care.                                                                                                  
CHAIRWOMAN  GREEN  noted  she  anticipates  a  vast  expansion  of                                                              
Medicaid dollars going to that area.                                                                                            
MR.  BURNETT  stated  that  any  facilities  with  acute  juvenile                                                              
psychiatric care will be primarily  funded by Medicaid through the                                                              
state budget.                                                                                                                   
CHAIRWOMAN GREEN asked how that is formulated.                                                                                  
MR. BURNETT  said that a person  testifying on SCR 21  stated that                                                              
acute psychiatric  services  can cost  $1500 per  day so a  60-bed                                                              
facility,  such as  the one  at Providence,  would  amount to  $30                                                              
million per year.                                                                                                               
CHAIRWOMAN  GREEN  announced  that she  will  take  SB 256  up  on                                                              
February  13 along with  another bill.   She  noted that  she will                                                              
take  further public  testimony  at  the next  meeting.   With  no                                                              
further business to  come before the committee,  she adjourned the                                                              
meeting at 3:52 p.m.                                                                                                            

Document Name Date/Time Subjects