HB 211-MANAGED HEALTH CARE INSURANCE CHAIRMAN ROKEBERG announced the first order of business would be HOUSE BILL NO. 211, "An Act relating to liability for providing managed care services, to regulation of managed care insurance plans, and to patient rights and prohibited practices under health insurance; and providing for an effective date." CHAIRMAN ROKEBERG indicated he would like to hear public testimony on HB 211, recess to take up another bill, then reconvene to hear further testimony on HB 211. It is not his intention to move HB 211 from the committee today. There is a good deal of interest in the bill, which has certain controversial elements. Number 0167 REPRESENTATIVE HALCRO made a motion to adopt the proposed committee substitute (CS) for HB 211 [Version H, 1-LS0472\H, Ford, 2/14/00]. CHAIRMAN ROKEBERG asked if there were any objections. There being none, Version H was adopted as a working draft. JANET SEITZ, Staff to House Labor and Commerce Standing Committee, came forward to explain the changes in HB 211, Version H. She noted there is an amendment to the title referencing Alaska Rules of Appellate Procedure. This title change is necessitated by a change in the bill that sets a limit on when a suit may be filed after the final decision of the external appeal agency. The next change is on page 3, line 10, which is the same as in Version G that added working to describe days and some binding arbitration provisions. MS. SEITZ indicated that in the original bill there was a split subsection 5, which included subparagraphs (A) and (B). She said provision (A), dealing with utilization review, was added back into Version H. In this provision, the time was changed from three days to 72 hours. Working days do not include Saturdays, Sundays or holidays. She explained that the medical necessity language and "clinical trial" were reinserted. On page 6, the language "including specific exclusions" was reinserted, and language was added to update the formulary guide annually. In Sec. 21.07.030, subsection (e), paragraphs 1 and 2, definitions for "appropriate referral procedures" and "specialty care" were added. MS. SEITZ stated that Sec. 21.07.040 on page 8, lines 8 through 15, is identical to Version G. This section has two subsections; one relates to confidentiality and the other relates to the adoption of regulations by the director. Page 12, lines 4 through 5, includes language pertaining to the time limit on the filing of an appeal of a final decision of an external appeal agency. MS. SEITZ explained that this is why the court rule exists in the title. A new section is added (Sec. 21.07.060) on pages 12 through 14, relating to the qualifications of external appeal agencies. This section adds that the director of the Division of Insurance, Department of Commerce and Economic Development, will provide a process for certification and periodic recertification. It also adds that the director may establish fees for certifying these external appeal agencies. MS. SEITZ explained that in Sec. 21.07.250, beginning on page 12, relating to definitions, the definitions of "clinical peer" and "clinical trial" were added. Sec. 21.42.390, beginning on page 16, relating to required health insurance coverage provisions, reinserts language from the original version of the bill that lists what a health care insurance contract may not include in a plan and that a health care insurer may deny health care payments because a service is not medically necessary unless determined otherwise by a licensed health care provider trained in that specialty or subspecialty. This section also includes language which states that an insurance company may not take action against the insured when the insured asserts any rights provided for in this legislation. In addition, a covered person may bring civil action against the insurer to enforce the person's rights. Definitions for "health care provider" and "health care services" are also provided in this section. MS. SEITZ noted that Section 5, page 17, lines 13 through 18, is a new section providing for an indirect court rule amendment. Section 6 on page 17 is a conditional effect; it only applies if the court rule change passes. The effective date in the bill is July 1, 2000, which is the same as in the original bill. REPRESENTATIVE HALCRO asked who requested this bill. CHAIRMAN ROKEBERG replied that it was requested by the Alaska State Medical Association. Number 0701 JIM JORDAN, Executive Director, Alaska State Medical Association, came forward to testify on HB 211, Version H. He indicated he had previously provided to Chairman Rokeberg a side-by-side analysis between the original HB 211 and Version H. He noted that the Alaska State Medical Association (ASMA) is pleased with Version H for the most part. He said there are recommendations contained in the comparison with respect to amendatory language. He would not go into details, given the time limit and number of testifiers. With him today is Mike Haugen, Executive Director, Alaska Physicians & Surgeons, Incorporated. CHAIRMAN ROKEBERG asked which letter is the comparison letter. MR. JORDAN referred to a letter dated February 11, 2000, included in the bill packet. He said: I anticipate that you are going to hear some testimony today in [regard] to what the costs impacts may be of adopting some version of HB 211. There have been a number of studies done regarding what the potential costs impacts could be. And they frankly go all over the ballpark. Last year in the original hearing we provided testimony that included some of the evidence from those studies. I believe that one study which was done in [regard] to the Texas version of this measure, which was passed in 1997, which is relatively similar to this, was estimated to cost about 34 cents per month per insured. I don't think that's a significant cost. Another aspect that will no doubt be testified on is the potential adverse impact in [regard] to the section of the bill that allows managed care entities to be sued. Again, I will refer to Texas. Their law became effective in 1997. To date there have been five lawsuits filed. And in a jurisdiction the size of Texas I don't think that's a great number. And, frankly, if there are entities that are making medical decisions, it is the medical association's opinion and most physicians' opinions in general that as physicians are responsible for the medical decisions that they make, so should these entities be responsible for the decisions that they make. This particular measure would allow these suits to take place in state court. I would like to mention that I think that this would be preferable to some of the other venues for such lawsuits. As you may be aware of, there have been class-action lawsuits filed against various segments of the insurance industry. And these are lawsuits that are essentially dealing with very novel theories of liability that in essence would circumvent all of the tort reforms that we've enacted in this state. And it's a result that I wouldn't like to see. MIKE HAUGEN, Executive Director, Alaska Physicians & Surgeons, Incorporated, came forward to testify on HB 211, Version H. He explained that Alaska Physicians & Surgeons, Incorporated (APS) is an association of 165 physicians in the Anchorage area. They are an independent practice association (IPA). APS provides different services to doctors, one of which is to act as an intermediary between insurance companies and the physicians. He commented: I'd just like to thank you for the opportunity to provide this testimony in support of HB 211. At any given time, APS, my association, is in discussions with between six to eight insurance carriers that would like to do business in the state of Alaska. We have heard rumors that one of the results of the passage of this legislation may be that some of the larger carriers in the state might decide to pull up shop and leave, but they could not economically afford to do business in this state. Number 1033 I'm here to tell you that I talk to carriers every day who would love to do business in this state, but because of the economics of trying to penetrate this market, it's prohibitively expensive for them at this time to do so. The best way to address some of the specific provisions of HB 211 is answer to the question of why it's important is to ask some questions. Among them are: Isn't the patient's best interest of managed care contracts contain things like gag clauses which bar physicians from informing patients about better treatment options or a different type of health plan that may cover a medical service that they need? Is it in the patient's best interest to deny a patient a point-of-service option whereby a patient could seek a physician outside of the network, provided that patient will one day pay the extra cost? Is it in the patient's best interest to deny the use of a prudent lay person standard for emergency room services? I've heard anecdotal stories of these types of contracts containing provisions that define emergency whereby unless a patient is admitted to the hospital it's not considered an emergency service. And I've heard stories of doctors describing patients coming in with, say ,a bone stuck in their throat. They're choking to death. Well, the emergency people remove the bone, the patient is discharged, and under that kind of contract, that's not considered an emergency service. Those are just ridiculous types of provisions in contracts. A lay person standard would identify an emergency as anything you or I consider to be an emergency. If we had a child that was hurt and brought it in to the emergency room, that's the lay person standard. Is it in the patient's best interest to deny a timely internal and neutral external appeals process for denied claims based on medical necessity determinations? And finally, who's in a better position to determine what is medically necessary? Is it a physician or a non-physician? In some of these contracts, non-physicians make the determination. And the list goes on. HB 211, in our opinion, would standardize the contracting process with third-party payers and remove many of the most contentious contracting issues. It would protect patients. It would give physicians a feeling of operating on a much more level playing field. And we feel that's just good public policy. CHAIRMAN ROKEBERG asked if Mr. Haugen's organization, as an IPA, would be considered a managed care organization and be subject to the provisions of the bill. MR. HAUGEN replied no. He explained that the contracts he receives are predominately preferred provider organizations (PPOs). If the bill is passed, the bill would require that the language in those contracts include the provisions in the bill. He would take the contracts and give them to his members. His members would decide individually whether or not they want to sign those contracts. CHAIRMAN ROKEBERG wondered, "Your form of organization would be in many jurisdictions besides Alaska?" MR. HAUGEN stated that Alaska is unique. He noted that many IPAs across the country administer capitated contracts whereby they receive lump sums of money to handle a given population because there are no health care management organizations (HMOs) in Alaska. Number 1238 REPRESENTATIVE HALCRO commented: Mr. Jordan, you talked about there being an unsure negligible cost incurred if this legislation's passed. There's a letter in our packet that references [letter dated 02/02/2000, from Jack McRae, Blue Cross/Blue Shield of Alaska] a study done by Milliman & Robertson with [regard] to the pending federal legislation and some potential Washington State legislation. It says that studies show that it has the opportunity to increase premiums as much as 4 percent. In addition, this would be on top of the 12 percent that the ... Alaska state's health benefit consulting firm of Watson Wyatt has projected. So that's a 16 percent increase, conservatively, for the State of Alaska in health care costs. Do you have any numbers that would refute that or any opinion on that? Number 1280 MR. JORDAN indicated he was not familiar with the studies. He wondered if this was a study of the federal legislation. REPRESENTATIVE HALCRO replied yes. He added, "In Washington State. In addition, it seems that the state has retained a consulting firm to look at their potential health cost exposure on this." MR. JORDAN responded: First of all, there was a study done by William and Mercer (ph), and that was provided you last year in the State Medical Association's testimony. And I believe that the range of costs in that were about 1.8 percent to 2 percent. I believe also the Milliman and Robertson study, I think, was somewhat predicated on the federal Office of Budget and Management study. I believe that one of the major assumptions made in that study had to do with the cost associated with the additional number of lawsuits expected under that particular element that would allow managed care entities to be sued for the medical decisions that they make. I believe ... - and I don't have this with me, but I can get this information to you - that based upon what the experience has been - for example, in Texas, as I cited earlier, there were five cases - it would appear that that assumption was greatly overstated. Number 1370 REPRESENTATIVE HALCRO noted that Version H is similar to legislation considered last year (HB 121) which eliminated PPO options for dental coverage. He stated: And part of the concern during the testimony at that hearing was there wasn't really a problem. I mean, this was a solution looking for a problem. Are you telling me, with this comprehensive legislation, that there are these specific problems existing now in Alaska - with our people being denied coverage and having not as good of quality of care, not being able to sue when they've been misdiagnosed - are you telling me that those currently exist here in the state of Alaska? MR. JORDAN responded that the problems exist in Alaska to a certain extent. He explained that it varies. Managed care is a continuum ranging from full-blown HMOs that own their own hospitals to insurance contracts that include elements of managed care. Some of the elements addressed in the bill have not been experienced in this state. He thinks it needs to be viewed, to some degree, as preventative medicine. Number 1473 REPRESENTATIVE HALCRO referred to Mr. Jordan's comments regarding the impenetrability of the market. He wondered if Mr. Jordan was aware that over the last six years there has been a 53 percent increase in the amount of licensed physicians. He noted there has been a tremendous swelling in the pool of physicians, but there has not been a corresponding increase in the amount of health care providers. He is curious why people are not getting quality health care. MR. HAUGEN said he is not quite sure and asked Representative Halcro to rephrase the question. REPRESENTATIVE HALCRO said there are 20 pages of patients' bills of rights and more doctors than ever. He imagines that health care is not only available but readily available, and there should not be any problems whatsoever. He does not understand why the market is impenetrable when there is a huge base of 100,000 people being served. MR. HAUGEN explained that when a new company comes into the market, it incurs substantial marketing costs because it is selling a product. In starting from scratch, it is like any other business. If there are entrenched, well-established carriers in Alaska who dominate a market, there has to be a mechanism for the new carriers to feel that they can make a go of it. He commented, "Under the current set of rules we're operating under, and under the lack of provisions contained in HB 211, it is very difficult for these new carriers to get a foothold in this state." Number 1599 MR. JORDAN directed his comments to Representative Halcro: You know, you said there was a 53 percent increase in the number of physicians. Now, that could presume that ... before the 53 percent increase that there was a sufficient number of physicians in this state. And I don't know that that's the case. There may have been a 53 percent increase, and I don't doubt your statistics at all, but it may be that that increase of physicians was necessary in order to serve the population of this state. REPRESENTATIVE HALCRO said he understands that. He still questions why a sweeping regulation is needed when there are more doctors satisfying the demand. He stated: Nobody is being excluded from coverage. That's what I'm saying. And it seems to me that - ... as we discussed earlier this afternoon - if you have employers, ... their only means of providing coverage for their employees is based on the ability to negotiate with a carrier, thereby extending some discount to the employer to allow them; it seems to me that you would want that and you would want to foster that, ... especially with more physicians than ever practicing in this state. And it's kind of at odds. ... I would understand if we had a smaller pool of doctors and you wanted to increase access for folks who needed quality care, but there seems to be a sufficient amount of doctors, as referenced by the occupational licensing department, and so I'm curious with all this supply out there and the demand to obviously go along with it, why do we need this? CHAIRMAN ROKEBERG said the issue relates to the choice of the consumer and not the number of doctors in the state. REPRESENTATIVE HALCRO said he understands that. He explained: But it gets back to the root of my question, whereby similar to the dentist bill, if you have a company or mental health parry that we discussed last year, if you have a company that can barely afford coverage for their employees, as we discussed, 86 percent of the businesses in this state are 20 or fewer employees. So, if you have an employer who's barely hanging on and can offer a health care package to their employees, why would we not want to foster the ability to go out and negotiate contracts, negotiate these PPOs, to at least provide something for their employees? That's the question. Number 1725 MR. HAUGEN said he does not understand how Representative Halcro thinks this bill would inhibit the ability to negotiate contracts. REPRESENTATIVE HALCRO said he thinks the bill is a cost driver to the private-pay market. He is concerned about putting small employers in a position where they will have to forego coverage for their employees or eat the cost increase. Number 1750 MR. JORDAN commented: You have to understand that physicians are not the only player in the health care market. The percentage of the health care expenditures attributed to physician's charges is about 16 percent, I believe. There are a lot of other factors that drive the cost in the health care market, technology being one. Would you want to outlaw new technology because it may increase the cost? I would venture the answer to that question is "No." There are also brand-new pharmaceuticals that are coming on the marketplace. Last year I believe there were 166 new drugs that came online. The cost of putting a new drug online is between $400 and $800 million, another driver in the market place. Another driver in the market place, I'm a prime example. Look at my gray hair. I'm part of that bulge in the python, and as we age, we need more health services.... I can personally attest to that, having had five surgeries in the last year. So, I think there are a lot of other drivers to the cost of health care that go beyond what this bill may provide for, that are much more significant, that we would not want to outlaw. CHAIRMAN ROKEBERG said the issue revolves around the point of the service option being a cost-driver per se. He indicated Representative Halcro had brought up an interesting question that elicits a need for an answer. He stated: When you're talking about a presumed 1.8 to 2 percent increase because of the bill generically, on one hand, and then another party saying it could be as much as 4 percent, there's a difference there, 2 percent, which is a substantial 200 basis points and the distinction between what component of the point-of-service option drives versus the amount of litigation, because you made a distinction, Mr. Jordan, between the amount of litigation and its resulting cost, and the amount of point-of-service options or the choice provision in the bill within a PPO. I would say that I believe the 12 percent increase that Representative Halcro is talking about is the medical inflation cost, which is a push; it's notwithstanding this bill or not, so this bill is not going to cost 16 percent more. I mean, is that how you took it, Representative Halcro? REPRESENTATIVE HALCRO replied yes. CHAIRMAN ROKEBERG said there is clearly some cost driver that would be driven by this bill. He is curious about it and thinks it is one of the key issues here. He explained that he would not be sponsoring this bill if he thought it would drive costs up and hurt small businesses. MR. JORDAN referred to the point-of-service issue and stated that the bill very clearly allows any additional costs required to be paid by the insured patient. This would not necessarily directly flow through the employer. CHAIRMAN ROKEBERG answered, "That's everybody's Pollyanna that it's going to cost more, and that's the issue. Having a point- of-service option menu, does that really drive up costs?" Number 1980 JACK MCRAE, Senior Vice President, Premera Blue Cross, testified via teleconference from Seattle, Washington, regarding HB 211, Version H. He noted that Premera Blue Cross is the holding company for Blue Cross/Blue Shield of Alaska. He handles government relations for the organization. He indicated that his organization is not opposed to a patients' bill of rights concept. He stated: But we are very concerned about the language that's in it and how it's drafted, and a lot of the concepts that are in this bill. A prudent lay person, for example, we support. The gag rule we support. Through the National Committee for Quality Assurance (NSQA) and through Blue Cross/Blue Shield association licensing requirements, we support timely and accurately appeals processes. So, there's a lot of this bill that we do support. Our concern about this piece of legislation is we want to make sure that what does pass adds value to the health care system and just doesn't add additional cost ... As you know, nationally the uninsured number is going up substantially. It's over 50 million now. I know in Alaska it's over the national average, but that's a quirk, I believe, because you've got some unique things in Alaska, but I think it is over the national average. And the other thing we're seeing throughout the whole nation - and I assume it's paralleled itself in Alaska - is more and more employers are dropping insurance because the costs are just going up. So, what we're concerned about is that anything that does pass ... adds value to the health care system and doesn't layer more administrative or more costs on the system without bringing better health care to the consumer ... There's a lot of parallel between this and what they call the Norwood-Dingell Bill in Washington, D.C. There's both a Senate and a House bill, and there's a lot of overlap between; the language is similar. And we were talking a minute ago about costs, and I agree with Mr. Jordan that cost figures are all over the place when it comes to legislation like this. But the Congressional Budget Office just came out six days ago with some cost estimates pertaining to both the Senate bill and the House bill in Washington, D.C. Like I said, the House bill is very similar to your Alaska drafted bill, and they say the estimate they have for the costs for the federal bill is 4.1 percent increase in health care costs. And the Senate bill, which doesn't have liability, it's not as expensive as the House bill in Washington, D.C. It's a 1.3 percent increase. But whether it's 1.3 or it's 4 or it's 2, there's no doubt about it that this will drive the cost of health care up, and that's what our real concern is, without getting a beneficial return to the consumer in all cases. CHAIRMAN ROKEBERG asked, "What do you attribute even the Senate 1.32 [percent]? Is that a point-of-service option also?" MR. MCRAE replied: Well, no, most of that ... is in two areas. Mainly I use liability, liabilities of mean cost drivers. And they've put a fairly high number on the external appeal process and what that will cost to health care. Now, Blue Cross/Blue Shield of Alaska, we are going to be implementing an external review appeal system effective the end of March. We're in the process of implementing it down here. What it will allow is a consumer that is denied a claim to appeal a claim and to go to an outside external review organization, and we will bind the decision on what the external review organization says. We will not second-guess that external review organization. Now, you have similar language to this in your legislation, in HB 211, but we have committed to do this already. We're going to do it, and we don't see the cost driver that strong in the external review processes as we do in a liability process. A couple other things, and you know we do polling quite a bit, and we've done it in Alaska, and we're seeing very strong numbers pertaining to whether people are pleased with their health care system and whether they're pleased with their insurance; and most people are. But when we ask the question about higher premiums, ... 57 percent of the respondents said they would not be willing to pay a higher premium in order to have an appeals decided by people not associated with health insurance. So, as we tailor this appeal process, I think it's very important that we try to keep the cost as low as we can in that appeal process. When we started talking about costs, I'm not sure if it was my letter that was quoted, ... we've seen that steady increase in Alaska in health care costs, and we don't have the distinct figures to know whether the employers are dropping insurance.... We don't have the figures to really take a good close look at that. We know that the uninsured rate is higher than the national average. The other thing we're concerned about is that uninsured number. Like I said earlier, the uniqueness of Alaska is that I think, because [of] the Indian health care system, there are some numbers that I don't think are exactly accurate in Alaska. I think the uninsured number is probably lower than what is really reflected in the Census Bureau numbers. But we do know that anytime you increase costs, those small employers out there of 10, 20, 5 employees, they have to make that decision on whether they can continue to provide health insurance for their employees. So, we're very concerned that any cost driver will take the small employer, which is the most fragile part of the market, along with the individual market and people who just say, "I just can't afford insurance. I'm going to have to pay that heat bill instead of paying for the insurance." A number of my comments went to the bill directly and to different portions of it, and I'm not sure this is - over the phone like this - would be appropriate. It might be if I was there, but I'm not sure going through each section of the bill with some areas would be appropriate over the phone like this.... We will support Patients' Bill of Rights. We are concerned about the drafting of it and the different aspects of it, but I don't want to leave the impression at all that it isn't something that we'd be receptive to. A concern we do have, like I said, is the cost driver. And right now we're in the middle of a federal bill.... They were going to go to conference committee last week on the federal bill, and that was postponed. It will be going to conference by the 28th, I believe it is, and we could end up with a system where, for example, if we take the appeals procedure, it could be a different appeals procedure in Alaska than what would be required by the federal system, so you'd have, say, 60 percent of the ERISA [Employee Retirement Income Security Act] covered. Subscribers in Alaska have a different appeals system.... So, we would like to ask that consideration be given to taking a look at what the federal government will do before laws are passed in Alaska, because I think it will be confusing to a consumer. ... We'll have to keep two different systems working.... The other area of concern in this bill: it's my understanding ... that it does not include all areas in Alaska. All it includes is the insured market. So, it really wouldn't include the ERISA plans. My understanding is it wouldn't include state employees. It wouldn't include the Native network. So, there are some areas that I think, if Alaska is going to look at doing something in the area of Patients' Bill of Rights, that they need to make sure that they cover as many individuals in Alaska as possible. ... They have to look at who's really being covered by this piece of legislation. CHAIRMAN ROKEBERG asked Mr. McRae what he estimates to be the cost of the utilization review appeal process that is being implemented in March. Number 2383 MR. MCRAE said that was an excellent question, but he did not have any figures in front of him. CHAIRMAN ROKEBERG asked Mr. McRae to get back to him with the figures. MR. MCRAE indicated it would cost $600 per review done. The cost would be borne by Blue Cross/Blue Shield of Alaska and would not be a subscriber cost. CHAIRMAN ROKEBERG wondered what the incidence of actual appeals would be that would reach that point. MR. MCRAE said he would find out that information. Number 2410 CHAIRMAN ROKEBERG pointed out that last year the committee passed legislation requiring accountability and reporting of the health insurance in the state, to try and determine the number of covered lives that are in non-ERISA substitute mandates and ERISA-type plans, and to determine the number of uninsureds in the state. He said he was meeting tomorrow with the Department of Health and Social Services and the Department of Community and Economic Development regarding those numbers. He noted that these numbers are being pulled together so that people in Alaska can understand what can happen and who is affected. He asked Mr. McRae to explain the distinction between an ERISA plan and a non- ERISA plan. He offered his impression that there are limitations with the federal law. MR. MCRAE said it would be hard to explain. There are different portions of both the [federal] Senate and House bills. Some of the portions will only cover ERISA, and other portions will cover all insured products. The external appeal procedure in the [federal] House bill covers all insured products. There are other portions in the [federal] Senate bill that do not cover all insured products. Under Version H [of HB 211], he stated that 60 percent of the market would not be covered, along with the cities and boroughs. CHAIRMAN ROKEBERG surmised that the actual percentage right now is about 25 percent. He wondered if the federal legislation would cover self-insureds. MR. MCRAE replied yes. TAPE 00-12, SIDE B Number 0048 JEROME SELBY, Providence Health Systems of Alaska, came forward to testify on HB 211, Version H. He stated: We have some concerns about this bill. Let me speak to them first of all as an employer of close to 3,000 people, because it really gets at the cost issue, I think, because, again, we've heard all sorts of numbers, too, about ... what this does to insurance. And we struggle with covering 3,000 employees with health insurance benefits, not unlike a lot of other people in the state, because, as we all know, it is a serious cost for any employer in the state of Alaska as well as in the United States. So, the cost issue is a very important issue. Now, it's important to us for a couple of other reasons. First of all, we are also very concerned, then, about the number of people of uninsured people. And if, in fact, this bill creates a retrenchment, if you will, and more people becoming uninsured, that's a very serious impact on us financially as an organization, because that number is growing for us. In the last three years, I believe it is, our red ink that we (indisc.) has gone up from about $12 million to $25 million a year that we're writing off for uninsured and uncollectible kinds of care. That's a fairly heft jump in just a three-year time period, and, needless to say, it's gotten our attention and we were very (indisc.). Let's make sure that this bill doesn't have an adverse effect on all of us that is not intended here and resulting in even more people becoming uninsured in Alaska. CHAIRMAN ROKEBERG interjected to say the bill will not move if that occurs. MR. SELBY continued: But we just want you to know that we have a concern there, and so, please, let's look very carefully at this. Then the third thing, of course, is that we don't want to become part of the problem, because if those things continue to escalate for us, obviously we've got to get that money from somewhere. And as a health care provider, ultimately, where we're going to go get it is from our charges out to folks who are seeking health care. We don't want to do that, and we don't want that to be an unintended result of trying to do something here that we all can support and laud, and that's patients' rights, obviously. Nobody in their right mind is going to be opposed to trying to do something positive about making sure that patients' rights are protected and treated as they appropriately should be, but let's be careful that we don't have some unintended side results here is our concern with it. Now, with regard to the bill itself, we've got some specifics. I'll just tick through a couple of these quickly, Mr. Chairman, just so that you folks can take a look at them. First of all, on page 2, line 7, we feel you need to put some definition on the failure to provide that's listed there kind of casually about what that really means, because as we all know, that can lead to a lot of litigation, and different attorneys are going to have a lot of different opinions about what a failure to provide means, and it's not included in the definitions.... It would seem that there's a little bit of an inconsistency on the bottom of page 2 and the top of page 3 on line 3, where a prospective and current review of a proposed medical treatment is defined in this bill as a treatment decision. And we think there is a little inconsistency that a proposed treatment where nothing's been done yet is defined as a treatment decision. Again, we think that there may be some real issues, that that needs to be looked at. Further down on page 3, on item 4, line 18, this rate thing I think we need to take a look at, in terms of what you're doing here, requiring that all the compensation rates each provider be clearly stated; we don't know what that means in terms of some of the federal anti-trust laws and the potential of some information that you could lead to collusion charges and all that kind of stuff. And, again, that's not my area of expertise, but when you start talking about putting all these things out there, we do need to be aware that federal anti-trust laws really are fairly stringent on some of these thing, and just would suggest that that be reviewed before it be completed in the bill. CHAIRMAN ROKEBERG asked whether Mr. Shelby suggests that the federal government would prohibit the posting of an actual price to the consumer so he/she knew what was being paid for . MR. SELBY indicated that would not be inconsistent with the federal government. He said that needs to be clarified so that the bill doesn't run into problems with the federal government right off the bat. He stated: On page 5, line 25, we just suggest some clarification on item 3, there, where copayment requirements that are uniform between different types of health care providers -- I'm not sure what that means myself, Mr. Chairman, because on the one hand I don't think it's good business if, in fact, you're saying that you're going to lump primary care and specialty care and everything together so there's one uniform rate. Because I don't think one size necessarily fits all care. What that normally has done - and I'd defer to the insurance folks [Division of Insurance, Department of Community and Economic Development] and some of the other folks that know a lot more about that - ... but normally I'd think you'd ... compare primary care stuff and then specialty care stuff and not necessarily be trying to make one size fit all, because I think that runs into some problems with that. At the bottom of page 5, there on line 27, item 4, this one is fairly troubling for me for Alaska because it appears that if you can't provide the covered health care service in the community, I would assume that it implies you're not going to provide the coverage. And that troubles me because -- let me take a case of very bad burn victims: we don't have a capacity in Alaska, really, treating those folks, and we basically fly them all out of state. I don't think your intention here, Mr. Chairman, was that bad burns (indisc.). CHAIRMAN ROKEBERG said that was not the intention. MR. SELBY further stated: So, I think just to be careful about how this is stated because I think ... what we don't want to do is have some important coverages, some of which can be very expensive, such as burns, dropped out of all of our insurance plans in Alaska because of, again, something that was well intended, but when we look at how it's applied, we don't want to, in fact, lose that coverage for the people in Alaska. Again, on page 6, line 24, item 9, a provision that describes the covered service area -- and we weren't sure what the purpose of having to describe the covered service area, because in Alaska, as we all know, it kind of is, in many cases, a statewide service area, depending on a particular specialty; and so I'm not sure if we really want to say you have to define -- which would tend to exclude people, not include them because, again, Mr. Chairman, I'm reading this bill on the intention that you want to be inclusive of folks, not excluding folks out, and so this one may have, again, a reverse result from what we're after if we aren't careful about what we're doing with it...I think the big issue is the cost issue for most of us and for the health care system here in Alaska. Number 0367 CHAIRMAN ROKEBERG said he appreciated Mr. Selby's testimony. He would appreciate Providence's input on the bill and any suggestions. He asked if Providence has an opinion on the emergency room provisions with respect to the layman standard of care issue. MR. SELBY informed the committee that it is not an issue for Providence. RICHARD BLOCK, Christian Science Committee on Publication for the State of Alaska, testified via teleconference from California. He had been asked by the Christian Science churches in Alaska to keep an eye on the environment in which Christian Scientists practice their religion, which includes a reliance on prayer for healing. He commented: The reason that we are interested in this bill is that historically Christian Scientists, of course, do not utilize physicians, generally speaking, or hospitals. And it's put them in kind of an usual position when they are an employee at a company that provides a health care benefit plan, oftentimes in lieu of a certain portion of their salary, maybe, and where the Christian Scientist is not really able to take advantage of that health care plan because they don't utilize its benefits. And typically what has happened in the past, particularly under indemnity plans, is that the health insurer has willingly allowed the Christian Scientists to receive a benefit for payment of a Christian Science practitioner, whereas others would be indemnified for their physicians' costs and to indemnify Christian Scientist, who may go to a Christian Science nursing facility, where others would be indemnified for others costs at a hospital. There hasn't been a great deal of problem with that, and no need for legislative recognition of it, because it's been a matter of contract and accommodation in comity with the employer [and] with the health insurer. Number 0522 But as was mentioned, I believe by Mr. Jordan in his testimony, there has been in the last several years a fee change in the way in which health care is provided and the cost thereof is paid -- to situations -- there is a rather complex regime established or even determining entitlement to benefits including requiring a physical examination, ongoing monitoring by the health care provider, and a whole lot of other things that are very different in this managed care regime than it was under the older system, where the payment was simply indemnified and the benefits provided. What HB 211 is doing is introducing a new chapter into the insurance code that begins to outline, with some specificity, how a managed care plan is to be structured, what the language in the contract is supposed to look like, and providing, as it seems to be the essence of this, a variety of protections for ... the person who is to be benefited by the health care plan. It is our view that, if there's going to be this kind of specific regulatory regime established in the insurance code, what we would like to do is to see that there is language included that at least recognizes the permission of the health insurer, the managed care plan provider and the other entities that make up this new method of providing the care, that allows them to provide care to those that rely exclusively on prayer for healing by recognizing what we call the religious non-medical facility, and recognizes that because they are a religious approach, a prayerful approach, to healing and a non-medical approach, that a lot of the accouterments that are part of the normal managed care plan would be irrelevant and not really practical to include in the way that the benefit is provided. About a week or so ago, I sent to your staff person, Janet Seitz, a proposed amendment and a letter going into more detail about how this would work and what it would do. Janet informs me that the proposed amendment is on the desk of the committee members. And I am really not sure whether the letter went with it. The letter kind of, I think, says everything that I would choose to say and rather than take time at this point, I would all the letter to stand as my testimony. [The letter may be found in the bill packet for HB 211.] Number 0660 CHAIRMAN ROKEBERG indicated that all the committee members have of copy of Mr. Block's letter and proposed amendment. REPRESENTATIVE HALCRO asked, "Does this absolve them of any liability?" MR. BLOCK said his amendment does not speak to the issue of liability and, therefore, there would be not an absolving from liability. CHAIRMAN ROKEBERG recessed the hearing on HB 211, Version H, in order to hear testimony on a different bill. HB 211-MANAGED HEALTH CARE INSURANCE CHAIRMAN ROKEBERG resumed the hearing on HB 211, Version H, which had begun earlier in the meeting. JOE KENNEDY, Physical Therapist for Dr. John Bursell, came forward to testify on HB 211, Version H. He stated: I'm here to do my best to represent the American Physical Therapy Association as well as the state chapter of the American Physical Therapy Association. And you'll have to excuse me, I kind of got nominated for this kind of late. I've looked through the most current working draft. I'm not really familiar with all of the legislation to this point. What I would like to do is to thank you Representative Rokeberg for sponsoring this bill and also for adding back in the peer review process. I guess at one time that was considered to be taken out and has been added back in, is my understanding. Number 1411 The other thing I'd like to do is point out that the Alaska chapter of the American Physical Therapy Association [APTA] has established four guidelines that they are trying to promote around the country in different state bills as far as the structure of bills such as patient right bills; one of them being the point of service and the non-network option in this bill definitely does satisfy what APTA is looking at. The gag rule elimination is another thing that the APTA supports as well as accountability and promotion of the advocacy of the treating health care provider. Those four concepts are well established in HB 211. And we would like to support that. One thing I would like to add is that on page 15, line 10, the section involving preventative treatments, is very forward thinking, and I'd like to thank the committee for taking on any bill that promotes preventative treatment; especially as a physical therapist, you see that a lot with patients who really need to have that as part of their health care plan. It's very important. I did come up with some concerns. On page 8, line 26, the $25 filing fee for external review: although the amount is very small and refundable, it may still serve as a barrier for some folks even if they're not considered indigenous as stated in the bill. And I'd like to see all barriers lifted that would keep people from being able to appeal, or make an appeal on a denied case. I guess it can be argued how significant $25 is for a filing fee. Number 1534 The other question I have is page 5, line 15, the definition of a health care provider. And more so, there I have a question as far as what exactly it means for a person to be licensed in the state of Alaska or in any other state in the United States - why that bears significance where that person in licensed and why it's not just dealing with Alaska licensed health care providers. And the other questions I had have already been answered in previous testimony. Another thing I would like to see the committee consider is to not allow in these health care contracts arbitrary limits on either dollarwise or number of visits annually for services such as physical therapy, occupational therapy, speech therapy, what's considered the allied health, because that is the case in some PPO and HMO contracts I'm aware of, and that's often very detrimental to the quality of patient care without having any significant scientific support for having such limits. But that should be between the health care provider, be it the allied health practitioner and the referring physician, I think should have more of a bearing on limits and what is medically necessary versus what is written in a contract. Number 1628 Something I would like to respond to, a question that Representative Halcro mentioned earlier about, and it's been brought up many times, cost drivers and the effects that this might have. As a provider myself and an employee of a small practice and also being relatively new to the state, I'd just like to say that if a health care provider feels that they can work outside of the restrictions of some of these managed care contracts, then they can provide high quality care, that that could attract more health care providers to the state, thus increasing the competition that you mentioned earlier, helping to overall lower the costs of providing care if one feels that they can work in the state without arbitrary restrictions. And that really concludes my testimony. REPRESENTATIVE HALCRO asked how long Mr. Kennedy has been in Alaska. MR. KENNEDY said he has been in Juneau, Alaska, for 18 months. CHAIRMAN ROKEBERG asked if he came from an area that had managed care and HMOs. MR. KENNEDY explained that he was trained in Nebraska, one of the highest managed care states. He lived and worked in Texas for one year, where there was also highly managed care. He said a high majority of his patients are covered under workers' compensation insurance. He also has a fair number of self- insured patients as well as people who are just on a Blue Cross- type plan. Number 1799 BOB LOHR, Director, Division of Insurance, Department of Community and Economic Development, came to forward to explain the fiscal note for HB 211, Version H. He stated: The bill makes multiple references to regulations the director is required to develop to implement the Patient Bill of Rights and those are specified. They're set out in the text at the bottom of the fiscal note, so I won't repeat that unless you'd like (indisc.-coughing), but basically there's various provisions that require or authorize regulations by the division. And it is our view that establishing these regs will be complex and controversial. For example, the requirement to do regulations concerning confidentiality, actually to development the provisions for authorized access to otherwise confidential patient information to make the system work. That's one of the requirements. We found that the federal government, Congress, was unable with a three-year time line to develop its own bill dealing with this subject, and instead the Administration came in and proposed 600 pages of regulations that deal with only a portion of that assignment. I'm by no means suggesting that that's any sort of mark to attempt to imitate, but it is a complex area. We know this also because under the Gramm-Leach-Bliley Act, the financial services modernization legislation last November, has a requirement that federal agencies develop privacy regulations by May 12. And those have just been promulgated in draft form for comment, and states also will have responsibility in that area, but this is by no means a slam-dunk set of regs where you simply go and find a model and adopt them. I think it would involve extensive public comment much along the lines of what you're seeing on the merits of the (indisc.) itself. That's one example. I won't go into each one with that same degree of specificity. But, bottom line, what we're ... requesting is a paralegal, range 16 position, to be a regulations specialist for the division, [to] develop the draft regulations that are needed, to draft the language, and to conduct the public hearings necessary under the Administrative [Procedure] Act. We recognize that once those regs are adopted, the ongoing responsibility of the division is quite limited. It would deal primarily with certifications and recertifications of these independent appellate tribunals. But there's quite a bit of detail required in that exercise, also, to do the audit sampling, to determine their fairness, their lack of bias and so forth. Those provisions will require some ongoing responsibility by the division, which we believe we can absorb. And so the ... salient thing is the range 16 paralegal specialist for two years, and then phased out halfway in the year, three part-time positions and finally going to zero in year four. CHAIRMAN ROKEBERG asked Mr. Lohr to look over the bill and give the committee a heads-up where costs might be reduced by taking the regulatory component out of the loop. He said he would not like to give up the confidentiality provisions. He referred to the external appeals situation and asked if that burden could not have been placed in statute so that provider are required to have that form of appeal. MR. LOHR indicated that would be one approach. Another approach that has been considered is the possibility of using the procurement process to get some of the requirements that are specified. He said: For example, finding a contractor without a conflict of interest or a bias is a quite typical requirement of many RFPs [Request for Proposals], and we could also consider these in that process to make sure that they have adequate staff capability to meet the timeliness requirements of the independent reviews. So, we will explore options like that to try to recommend ways to bring the costs down of doing this. I don't know if it's going to be possible to get to zero because some of the places where you talk about standards in here, my understanding from what the attorneys tell me, is that would require us to do regulations. We can't do it as policy if it affects the public. Number 2196 REPRESENTATIVE MURKOWSKI wondered if passage of federal legislation would provide some parameters or guidelines, and would perhaps bring costs down somewhat. MR. LOHR said he thinks that is a possibility. If they followed the lead of federal agencies in this area, they could benefit from their drafting and pick up where they start. In his experience in these areas, there are still too many unfunded federal mandates out there. This would likely be another one where states would not be funded to do the kind of regulations that might be required to avoid federal preemption. TAPE 00-13, SIDE A Number 0006 JIM JORDAN, Executive Director, Alaska State Medical Association, came forward to testify on HB 211, Version H. He stated that one of the major differences between the version of the Patients' Bill of Rights that the U.S. House passed versus the U.S. Senate's version, has to do with impact on what is in place in the various states. This is because there was some discussion about having to duplicate systems. The U.S. House version [HR 2990] does not provide for preemption of what the various states do. He does not know that there would necessarily be duplication, but it would provide a floor level of patient protection that the states could build above, and would not remove those that some of the other states have already enacted. He believes the U.S. Senate version does do some preemption. He further commented: There was some question as to applicability of this particular bill to ERISA plans versus non-ERISA plans, if I may use that simplistic distinction. This bill might apply to ERISA plans. I say "might" because what has happened is that ERISA plans have essentially been preempted from being regulated by the various states under ERISA. However, what has occurred in the last several years is that preemption has been found to be less and less certain. And I am greatly simplifying this. This involves some very complex legal arguments that are way beyond me. But, to put it simplistically, what the federal courts have been finding is that increasingly the states have been allowed to regulate aspects of ERISA health and welfare plans that deal with quality of care. They are maintaining the ERISA preemption of state regulations for those aspects of ERISA health and welfare plans that deal with quantity or the administration of those plans. So, it may be that there are further impacts of this bill than just the non-ERISA plans, ... but this is a very complex issue and it's a moving target. CHAIRMAN ROKEBERG stated: Frankly, the Alaska State Medical Association and its supporters are going to have to justify the point-of- service ... option provisions of the bill and their survivability within the legislation as to what its true cost impacts are, and also breaking out the litigation aspects and any other cost drivers that might presumed to be in the bill. I think it's incumbent upon you and your people to look at the legislation in that regard and bring back to this committee contra arguments to some of these cost issues because I'm not entirely convinced.... The charge that by providing a point of service option within the PPO type plan with a closed panel actually drives costs up.... Nobody has come up with anything like empirically demonstrating that. It's a little hard for me to see that. With what I know about health, on the face of it, you'd think it would, but when it's given as an option, when you underwrite for this, requires, the way it's drafted, that the insurance underwriter be paid more or less for -- the consumer has to make up the difference.... The only thing that I think would come into play would be like contractual bargaining between the providers and the insurance underwriter when they're putting together the whole package for a particular group and/or individuals in the case of Blue Cross which I think does sell individually a PPO plan. MR. JORDAN said he believes it also includes point of service. CHAIRMAN ROKEBERG added that it is ironic that Blue Cross and Aetna have implemented an internal review appeal process already. He asked Mr. Haugen to provide him with a list of insurers in Alaska. MIKE HAUGEN, Executive Director, Alaska Physicians & Surgeons, Incorporated, came forward to testify on HB 211, Version H. He stated that his organization is currently speaking with ADMAR, Principal Life, First Choice Health, First Health, Blue Cross, Great Western, Aetna, GAIA (ph), and Private Health Care Systems. CHAIRMAN ROKEBERG wondered if Aetna is writing private coverage in the Anchorage area. Number 0535 MR. HAUGEN replied that his organization has not spoken with Aetna in about a year. He said, "But my predecessor, the one who was actually talking to them, had." CHAIRMAN ROKEBERG stated, "You gave the committee the impression that these people weren't here. Are they not in the state?" MR. HAUGEN answered that to a greater or lesser extent they have insured folks in Alaska. For example, ADMAR is about to start a fairly extensive marketing campaign in Alaska to build their network out. There are several others who would love to penetrate the market in Fairbanks. CHAIRMAN ROKEBERG asked Mr. Haugen to clarify whether or not ADMAR would is about to start marketing. Number 0621 MR. HAUGEN said he believes they currently have a contract with Providence Hospital and are building their network in Alaska. CHAIRMAN ROKEBERG wondered if it would be a PPO style closed panel. MR. HAUGEN said he was not sure if it will be a closed panel at this point, but they are working on building as big of physician network as possible. CHAIRMAN ROKEBERG asked, "As an IPA that you work with, how do they interrelate with the PPO plans?" MR. HAUGEN stated that his organization operates under a messenger model. Because all of their physicians are independent, they are prohibited by anti-trust law from actually negotiating on their behalf. They act as an intermediary between the physicians in the group and the carriers. Through a series of surveys conducted, they gather and aggregate the opinions of the physicians about different contract provisions. The information is given to carriers and the carriers then modify their contracts however they want. He sends those back to his physicians and they individually decide whether or not they want to participate. We're trying, with some legislation in the Senate, to allow for direct negotiations, but it's a very cumbersome process at this point. And, quite frankly, it's really stifling. It's really limited the number of other new carrier's ability to come up here and to really compete with the established third-party payers up here. It's difficult to build a panel when you have to deal with this kind of process. CHAIRMAN ROKEBERG said it is astounding that that can be done. He asked, "Your organization is based on what a premises and other operating cost type efficiencies you can get by working together.... How do you exist and why?" Number 0756 MR. HAUGEN answered that it is possible because his organization is also a purchaser of services. They have contracts with group purchasing organizations and can provide substantial discounts to their doctors for things such as pharmaceutical supplies and medical supplies. This is how they justify their existence on a cost basis, but they also have a legislative and lobbying component. The primary service is to provide services to members. REPRESENTATIVE HALCRO stated: I am incredibly nervous when we go, especially in a state where, as I said, 86 percent of all the businesses are under 20 employees, and we start dictating how they can buy or procure coverage for their employees or what kind of coverage. And my point was that the great HMO debate, and the complaints have been around seven, eight years, and in the same time where people have been crying for changes in the Lower 48, if you will, due to HMO and managed care, we've seen a significant increase in the number of physicians. These folks like Mr. Kennedy who testified earlier who've just been here 18 months obviously must have seen a good environment to open a practice, a good place to do business, and so now we have the market saturated, if you will, if you can call it that, but we have a significant increase in the number physicians. And now we're, I don't want to get into a situation if this is in fact where it is, where we're trying to break down existing walls because there are so many physicians out there and they take, maybe they have issues with the fact that certain people can negotiate PPOs or certain coverages. The bottom line is I don't care about health insurance companies, I care about patients and I care about small employers who provide coverage for their employees and that's my biggest concern. CHAIRMAN ROKEBERG reiterated that he has not been shown that the point-of-service option is really that much of a cost driver. He would like this demonstrated to him if it is. [HB 211 was held over.]