HOUSE BILL NO. 511 An Act relating to the certificate of need program for health care facilities; and providing for an effective date. REPRESENTATIVE RALPH SAMUELS explained that HB 511 has two goals. The first part of the bill is the language on page 2, line 4, "'expenditure' includes the net present value of a lease for space occupied by or the equipment required for a health care facility." He explained that the Certificate of Need (CON) applicant would have had to spend a million dollars before entering the system, but now "expenditure" includes the leased space or the leased equipment. The facility would form a holding company and lease the space and equipment. The goal of this bill is to make the CON fair to all players, and he noted that it doesn't change the CON. TAPE HFC 04 - 70, Side B  Representative Samuels continued, explaining that part 2 of the bill requires that residential psychiatric treatment homes, which will increase and drive the Medicaid budget, be put into the CON process. He pointed out the zero fiscal note. BRIAN SLOCUM, ADMINISTRATOR, TANANA VALLEY CLINIC, VIA TELECONFERENCE, FAIRBANKS, stated that he opposes the bill. He explained that United Bank documented that there are not sufficient healthcare services in Fairbanks to meet the needs of the citizens. The study revealed over the past 1- 1/2 years a consistent one-to-two week backlog in scheduling non-emergency cases for MRIs, CTs, and ultrasounds. Nearly 80% of the patients couldn't get their tests done because there weren't enough services available. He thought that passage of HB 511 would prevent companies from attempting to fill community health care needs. The quantity of healthcare services would decrease and lead a monopoly provider to ignore growing community needs. JANET CLARKE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, stated that the Department supports HB 511, which strikes the right balance of technical corrections as well as making the program work better. She explained that in its pure form, the Certificate of Need program is a health planning function. It provides a mechanism for health facilities to go through a public planning process that requires hearings and public testimony. Ms. Clarke gave a brief sectional review. Section 1 is a technical correction that changes the requirements for ambulatory surgery centers so that space vacated by a center could continue to operate without going through a CON process. Current law presents a hardship for these centers, which this bill would correct. Ms. Clarke explained that Section 2 does two things: it limits the relocation of a healthcare facility without having a CON to one time, and it also closes a loophole in the CON. Currently if a healthcare facility spends $1 million for construction or purchase of a large piece of equipment, it is required to go through CON, whereas if the facility leases the same equipment and pays over time, it is not required. The facility would have to do net present value, and it evens the playing field. Ms. Clarke explained that the Department is most interested in Section 3. Section 3 would add residential psychiatric treatment centers to CON review. The Legislature asked the Department to do cost containment initiatives in its budget development. Residential psychiatric treatment centers have grown from $5 million in FY 1998 to an expected $43 million in 2003. The Department spends Medicaid money for most of these facilities that are out-of-state. The DHSS is beginning an initiative to bring many of the children in these facilities back to Alaska. Ms. Clarke explained that the plan has three components: a gate-keeping mechanism, planned growth (which the CON would facilitate), and ensuring that the Alaska treatment centers be built in various locations rather than one large facility in an urban center. Ms. Clarke noted that Section 4 basically changes the definition and adds residential psychiatric treatment centers and independent diagnostic testing facilities to the definition of a healthcare facility. Section 5 adds a new paragraph defining a residential psychiatric treatment center. She concluded that HB 511 adds a tool to help the Department control the growth of the Medicaid budget, and it addresses needed technical changes and current loopholes in the law. Representative Croft asked why a gatekeeper would be needed, and questioned slowing the process of bringing kids home. Ms. Clarke clarified that a gatekeeper is a mechanism to decide the best course of treatment for the individual child. She said that treatment might include placement in the community, with wraparound intensive services, rather than a high-cost residential placement. Representative Croft wondered if the Department also wants the CON as a gatekeeper for more facilities to open, with input on locations and timing. Ms. Clarke affirmed, saying that the Department would prefer planning that involves local communities, and Native health corporations in order to gain 100% federal Indian Health Service funding, rather than having the General Fund pick up the cost. Representative Croft asked if there are enough people to fill the beds. Ms. Clarke replied that there are over 700 kids, many out of state, with severe emotional problems. Parents or guardians have placed the children, and 75% are kids not in state custody but the Department pays the Medicaid bill for them. Representative Croft had heard arguments in defense of CON that the state doesn't want facilities half full or expensive medical equipment half used. He had expected Ms. Clarke to express that the Department doesn't want the increased cost to the system of several psychiatric treatment facilities that are not filled and he asked for clarification. Ms. Clarke replied that the State is the primary payer for nursing homes' long-term care and psychiatric services. The Department would pay for overcapacity of psychiatric treatment centers, but it wants to ensure that it builds the service array for the least restrictive and closest to home environment to treat the children. The residential psychiatric treatment costs are about $300 per day in Alaska, and in-patient psychiatric services are about $700 per day. LAURIE HERMAN, DIRECTOR OF GOVERNMENT AFFAIRS, PROVIDENCE HOSPITAL, VIA TELECONFERENCE, ANCHORAGE, expressed support for HB 511, and spoke to the part of the bill that addresses leases. She explained that when a provider leases equipment, the $1 million threshold requiring a CON is often not reached. The entire CON process is avoided, creating a significant loophole in statute prohibiting the state from performing a vital service. If the CON process is avoided, the State is unaware of the additional services being provided and it cannot assess the impact to the community or the state. Leasing is now being used to avoid the CON, and she stated that the lease exemption might lead to a corrosion of Alaska's healthcare system by undermining the Department's efforts to control costs and improve quality for all communities. Passage of HB 511 would serve to level the playing field, and she encouraged the committee's support. ROB GOULD, ASSISTANT ADMINISTRATOR FOR FINANCE AND OPERATIONS, FAIRBANKS MEMORIAL HOSPITAL, spoke in support of HB 511. He stated that it strengthens the current CON statute and levels the playing field. Current regulations help to hold down costs by minimizing excess capacity and redundancy. Mr. Gould discussed how the bill closes two significant loopholes in the regulations by including imaging centers and rental equipment. ROD BETIT, PRESIDENT, ALASKA STATE HOSPITAL & NURSING HOME ASSOCIATION, referred to his letter (copy on file.) and stated that the organization members are in support of HB 511 with its technical improvements. He expressed that the CON is a good tool and it does not keep people out of the marketplace. The Department reviews the CON application in an unbiased way and if compelling information is given, the proposal moves forward. The Association is asking for the review standard to be applied to everyone equally, which this bill would accomplish. SAM KORSMO, ALASKA OPEN IMAGING CENTER, WASILLA, read from prepared testimony as follows: Good Afternoon Mr. Chairman and members of the Committee. I am Sam Korsmo, a partner in Alaska Open Imaging Center in Wasilla, Alaska. We provide diagnostic imaging and professional reading services to Alaskans. I am here to provide you with information that hopefully cause you to seek additional information of the effects of this bill on Alaskans and on your long term budget considerations before you move it out of this Committee. I believe that if you consider all the ramifications of this new and unwarranted intrusion of government into the private sector provision of critical medical services to Alaskans you will see why you should not move this bill from Committee or why you should amend the bill to remove independent diagnostic testing facilities (IDTF's) from the bill. In the first case, the department has not provided you with any information showing how certificate of need has resulted in any cost savings for patients or the state in their existing jurisdiction over medical facilities. Accordingly. there is no justification for expanding their bureaucratic control over other facilities such as IDTF's. I believe it is a legitimate concern that this bill is a move to restrain trade and competition by the major hospitals in Alaska. The bill's sponsor said as much in a television interview which I have recorded on this CD. This is similar to the legislation you see each year in which the telecommunications companies try to use government laws and regulations to seek a competitive advantage over each other. When this happens, it is the consumer that is always hurt. In our own facilities, our prices are regularly 25 to 30% lower than those provided by the largest hospitals in Alaska, our business model is predicated on a global billing method which saves money. Our services are also better in that we use an open imaging technology, we can accommodate larger patients so they do not have to be shipped outside, saving them money. These cost savings have ramifications for your budgeting process in that the higher costs of medical care for Medicaid patients are paid for by general fund dollars. I am aware of the struggle you have had in meeting these increased Medicaid costs. The department should be required to provide with an estimate of the impact this bill will have on future Medicaid payment by the State of Alaska. The Department claims in its fiscal note that vastly expanding the certificate of need program as proposed in this bill will not cost the department any more money. To do a real analysis of whether new services are required and what impact they will have on quality of outcomes and costs would require substantial analysis. If it is just to be done on a cursory level, it confirms out worst fears that this could be a politically driven process, which I am sure all of you would agree would lead to bad outcomes. If they have the time to do these analyses, which I seriously doubt, you have to ask yourself what they are supposed to be doing in their current jobs. [End of Mr. Korsmo's testimony] Representative Croft asked if the bill would affect Mr. Korsmo's current facility by revoking its license. Mr. Korsmo replied that the bill would require a CON on the replacement of equipment. He asserted that there is no level playing field. HB 511 was heard and HELD in Committee for further consideration.