HOUSE BILL NO. 511 An Act relating to the certificate of need program for health care facilities; and providing for an effective date. Representative Stoltze MOVED to ADOPT Amendment #1. Co- Chair Williams OBJECTED. Representative Stoltze explained that the area he represents is the most rapidly growing in the State, and he wanted to ensure that there is a full discussion of the amendment. Amendment #1 reads: Page 3, Line 21: Delete: "independent diagnostic testing facility" REPRESENTATIVE RALPH SAMUELS explained that the intent of the bill is to require all groups to do the Certificate of Need (CON.) He said that he is opposed to the amendment because CON is the law, and everyone should follow the same criteria. SAM KORSMO, ALASKA OPEN IMAGING CENTER, WASILLA, read from prepared script as follows: "The department claims that there is not a level playing field between the hospitals and the independent facilities and that 'Providence had to go through the CON process to get approval for a P.E.T. scanner.' This is in fact incorrect. Providence never actually completed their CON application but instead purchased their P.E.T. equipment through their independent subsidiary Providence Imaging Center, which is operating today. In another example, when Providence Imaging Center applied for an additional MRI unit at a total cost of $2.5 million, the department reported in their 2003 annual report on CON activity that 'The MRI will be located adjacent to the inpatient elevators, operating rooms and Heart Center. It was determined that a CON is not required because the facility is not a health care facility as defined by certificate of need regulations.'(Note: This MRI would be located within the hospital itself.)" Mr. Korsmo asked, if the CON has been effective, where is the evidence of lower costs by the Department. The costs at Alaska Open Imaging Center are 25-35% lower than at the major hospitals. Dr. Michael Morrisey of the Lister Hill Center for Health Policy, University of Alabama at Birmingham showed that the states with CONs had hospital costs over 20% higher than those without CONs. Mr. Korsmo voiced opposition to the bill and urged further work until the questions are answered. ROD BETIT, PRESIDENT, ALASKA STATE HOSPITAL & NURSING HOME ASSOCIATION, spoke from talking points (COPY ON FILE.) "Mr. Chairman, my name is Rod Betit, and I am President of the Alaska Hospital & Nursing Home Association representing 10 free standing hospitals, 15 combined hospitals and nursing homes, and 4 free standing hospitals. Let me say that this issue potentially impacts all of our members, not just one or two as has been implied in some earlier testimony. All 29 facility CEOs and their Boards stand united behind CSHB 511 as passed out of House HESS. As further evidence of the level of concern outside of Anchorage and Fairbanks, I have copies of letters to Chairman Williams from Ketchikan General Hospital, Valdez Regional Health Authority, Sitka Community Hospital, Wrangell Medical Center, Petersburg Medical Center, and South Peninsula Hospital expressing their support for HB 511. As committee members know, a number of these hospitals are already struggling and any further dilution of a finite number of medical procedures provided in a community. We are talking about fairness in HB 511, not whether  we should have CON    CON is in place and is an important tool for the Department to manage the health care infrastructure in communities across Alaska. We support CON because of the finite amount of care a community requires, and the adverse impact that over investment in facilities and equipment can have on overall access and cost for the full range of medical services a community expects. Some would have you believe that your consideration of HB 511 is about free market principles and imaging centers being squeezed out of the market. That simply is not the case. Our member hospitals and nursing homes have had to submit justification through a CON application each time they have wanted to add equipment, space or new services that exceed $1 million, including adding, expanding or upgrading imaging centers. In contrast, Alaska Open Imaging has not had to meet  this same requirement As a result they have opened facilities in Wasilla, Anchorage and Soldotna without any review by the Department of Health & Social Services. You have to wonder why there is such strong disagreement over requiring imaging centers to submit to the same review and approval as hospitals must go through. Could it be there are plans to open centers in other communities and the project sponsors do not want the need for these projects reviewed by the Department? In our view, it is only fair that all new independent imaging center projects be required to undergo the same review as currently required of hospital based projects. HB 511 makes this small but critically important change to CON law. Hospitals must provide imaging services even if an  independent center comes on line.  Providing imaging services is not an either/or decision for hospitals. Imaging services must be provided to support their emergency departments and surgery services, not to mention a whole host of diagnostic needs for inpatient purposes. Some of this is provided free of charge due to lack of ability to pay. Competition for this finite amount of imaging service seriously impacts a community hospital's ability to accomplish this portion of their mission. • Is CON an effective review mechanism?    Yes. Since 1996 there have been 36 CON applications; 61% were approved as requested, 11% were denied, 11% were partially approved, 6% were withdrawn, and 14% were given special conditions that had to be met. (Taken from March 15, 2004 letter from Janet Clark, Assistant Commissioner to Representative Peggy Wilson] • Is the CON process being circumvented?    Yes. "Most ambulatory surgery centers are able to lease equipment or space in a building and avoid CON. Only 6 CON applications for freestanding ambulatory surgery centers have been received since the inception of the CON program 27 years ago. Fifty percent of these were approved. Independent diagnostic testing facilities are not required to go through the CON process, so no applications have even been received from them". Janet Clark letter dated March 15, 2004] It is vital these loopholes be fixed in the interest of health care providers and consumers alike. • Are hospitals being protected in some way by CON?    Absolutely not. Since 1996 a number of freestanding facilities in Anchorage, Wasilla and Kenai have been built without a CON that would have required a CON if built by a hospital. For example, Alaska Open Imaging has opened facilities in Wasilla, Anchorage and Soldotna without a CON and purchased a PET scanner. Providence had to go through the CON process to get approval for a PET scanner. Anchorage Fracture Clinic purchased an MRI, and several Ambulatory Surgical Clinics in Anchorage were able to develop projects without a CON that hospitals would have to go through the CON process to build of buy the equipment. A private group of physicians built a cardiac cath lab without a CON. Also, if the Department's goal is to protect hospitals from competition, why do hospitals appeal our decisions? [Janet Clark letter dated March 15, 2004]. Clearly it is time to correct these inequities in the CON law and HB 511 does that. We request the Committee move HB 511 out of the Finance Committee without amendment. Thank you for the opportunity to comment." Mr. Betit concluded that the issue is straightforward, and the answer is clear that everyone should abide by the same requirements. Representative Stoltze wondered why staff from Valley Hospital or other hospitals hadn't contacted him. Co-Chair Williams pointed out that Mr. George Larson of Valley Hospital had planned to testify at the last hearing but he had been overlooked, and Mr. Larson was unable to testify today. Mr. Betit offered that Mr. Larson's testimony would have been in support of the bill. Representative Hawker stated that he chaired the Department of Health & Social Services budget subcommittee, which held discussions on the exceptional relief program for endangered hospitals. He asked if these hospitals are truly in danger of not remaining economically viable. Mr. Betit replied that it is no exaggeration, and he noted that one hospital will not make it beyond four months. Others have serious problems that the communities can no longer cover with local contributions, and will form partnerships to stay in business. He said that it is an ongoing problem meeting their daily expenses. Exceptional relief was the long-term mechanism to keep the hospitals going. Representative Hawker asked if this bill would alleviate some of the current difficulties. Mr. Betit replied that HB 511 would bring peace of mind but not any immediate relief. Small facilities that try to provide the expected level of services that communities demand can easily go under financially. Co-Chair Harris asked why Amendment #1 singles out and deletes the independent diagnostic testing facility from the definition of healthcare facilities. Representative Stoltze replied that these facilities in his district are meeting previously unmet demands, with better and more responsive service than the larger and more bureaucratic hospitals. Co-Chair Harris asked if the hospitals don't provide adequate services and if there is a waiting list. Representative Stoltze answered that he's not an expert on healthcare, but he felt that specializing connotes doing a better job, and these facilities also don't carry the administrative overhead of hospitals. In response to a question by Co-Chair Harris, Mr. Korsmo stated that he represents the independent diagnostic testing facilities and he supports Amendment #1. He explained that the testing facilities resulted from a change in Medicare around 1998, and have never been an issue until now. He thought that it is a problem of bureaucracy and the cost of larger medical institutions. He stated that doctors go to the testing facilities because they provide the service, technology and innovation to do the job. Co-Chair Harris questioned if it would drive up the costs that hospitals must charge for their services if these independent facilities were not covered under CON procedure. Mr. Korsmo expressed that Medicare/Medicaid is on a collision course, and the third party payments are hurting the system. He pointed out that the testing facilities haven't heard the cost analysis of CON, when the Medicaid expenditures have almost tripled in eight years. Mr. Betit commented that hospitals would have to keep their revenue at a level to cover costs, and if the hospitals don't get it from this legislation, charges would have to increase in another area. Services that aren't profitable are threatened and might not be offered in the community, forcing individuals to go elsewhere. The Department has preliminary information on the substantial cost savings through CON. There is no data on imaging because these facilities have not been required to submit a CON. If the treatment centers submit creditable data as requested, Mr. Betit said that the Department would approve them. In response to a question by Representative Croft, Mr. Korsmo responded that neither the Alaska Open Imaging Center nor Providence Imaging Center fall under the CON process. He maintained that the point is how the Department of Health and Social Services would know the level of need, and asked the definitions that would be used in order to be fair. Representative Stoltze pointed out that the treatment centers pay property taxes and income taxes. Co-Chair Harris noted that city and state hospitals do not pay income tax, but other regional and Native hospitals pay taxes. He questioned the incentive to build a private hospital that would have to pay taxes and compete with existing state or local institutions. Mr. Korsmo recalled a physician who lost all his money trying to build a private hospital across from Providence Hospital. He did not think that there was a need to compete in Anchorage or Fairbanks where there are large existing institutions. Co-Chair Harris noted that there has been interest in building in Valdez. He observed that CONs are not required if the cost is under $1 million. A roll call vote was taken on the motion. IN FAVOR: Moses, Stoltze, Foster OPPOSED: Meyer, Chenault, Croft, Fate, Hawker, Joule, Williams, Harris The MOTION FAILED (3-8). Amendment #1 was not adopted. Representative Stoltze MOVED to ADOPT Amendment 2: Amendment #2 reads: Page 4, following line 16: Insert a new bill section to read: "*Sec.7. The uncodified law of the State of Alaska is amended to read: APPLICABILITY. To the extent that secs. 3 and 4 of this Act relate to residential psychiatric treatment centers, as defined in sec. 5 of this Act, secs. 3 and 4 of this Act apply to a residential psychiatric treatment center that has not been substantially initiated before the effective date of this Act through either an investment commitment of at least 50 percent of the construction costs or acquisition of a building permit for that facility. Renumber the following bill section accordingly. SARA NIELSEN, STAFF TO REPRESENTATIVE SAMUELS, observed that the amendment would address residential psychiatric treatment centers. It would affect the Department's process in bringing the children back to Alaska. Representative Stoltze asked that Ms. Clarke address how the amendment would affect other facilities. JANET CLARKE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, clarified that the amendment has an immediate effective date. The provision would not be retroactive, so that new facilities would be covered while existing facilities would not. Representative Fate questioned how a solid commitment to implement could be obtained from Amendment #2. Ms. Clarke agreed that the language seems vague. TAPE HFC 04 - 73, Side A  Ms. Clarke stressed that Amendment #2 would be hard to enforce. Representative Stoltze WITHDREW Amendment #2. Co-Chair Harris questioned if there were currently any residential psychiatric treatment facilities being planned. Ms. Clarke observed that recently there were two letters of intent submitted for facilities that were less than $1 million and clearly not covered by the CON. She has not seen anything in writing regarding the building of a larger facility. In response to a question by Co-Chair Harris, Ms. Clarke observed that the House HESS Committee had discussed increasing the threshold to $2.5 million, which would include equipment. She explained that the Department opposed the proposal because of concerns on the number of Medicaid beds that could be built at that level. She felt that costs would increase in those areas. Ms. Clarke observed that the CON program over 28 years has avoided construction of 518 nursing home beds, 468 acute hospital beds, 9 ambulatory surgery suites, 144 substance abuse beds and 60 psychiatric beds, and 30 rehab beds. It has also avoided nearly $200 million in construction costs and millions in annual operating costs. She stated that the extra 518 nursing home beds would have cost $45.8 million in 2003. Representative Hawker MOVED to report CSHB 511 (HES) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 511 (HES) was REPORTED out of Committee with a "do pass" recommendation and with previously published fiscal impact notes #1 and #2.