HB 297-CERTIFICATE OF NEED PROGRAM Number 0121 CHAIR JAMES announced the first order of business is to continue public hearing of HOUSE BILL NO. 297, "An Act relating to the certificate of need program; and providing for an effective date." She said her intent is to continue public testimony and appoint a subcommittee of Representatives Green, Smalley, and herself to further review this issue. She noted that there is a proposed CS before the committee and the change is on page 2(D). Number 0229 REPRESENTATIVE HUDSON made a motion to adopt the proposed CS for HB 297, version 1-LS1301\I, Lauterbach, 2/28/00, as a work draft. REPRESENTATIVE OGAN objected for discussion purposes. He asked Chair James to explain the changes. CHAIR JAMES explained that the changes on page 1(A) and page 2(D) excludes communities with 15,000 or less population from HB 297. REPRESENTATIVE OGAN asked what communities above 15,000 population would be left "in the loop." CHAIR JAMES answered that Fairbanks, Anchorage, and Juneau are above the 15,000 population limit. REPRESENTATIVE OGAN removed his objection. [There being no further objection, the proposed CS for HB 297, version 1- LS1301\I, Lauterbach, 2/28/00 was before the committee as a work draft]. Number 0386 REPRESENTATIVE SMALLEY asked if the 15,000 population limit means the specific community in which the hospital facility is located or does it mean the general population in the area. CHAIR JAMES replied that her intention was to include the location of the hospital. REPRESENTATIVE SMALLEY asked if the 15,000 figure was an arbitrary selection. CHAIR JAMES answered yes. Number 0455 SHARON ANDERSON, Alaska State Hospital and Nursing Home Association (ASHNHA), said she represents ASHNHA. She explained that in reviewing some of the CON literature she had noted that Hawaii is considering a revamp of their CON process. Also, she added, a quote in Modern Health Care magazine stated that "the CON would never win a popularity contest in any hospital association setting." She commented that she thinks that is a true statement. Number 0487 MS. ANDERSON reminded the committee that the CON has been used for 30 years in the health care system. She mentioned that it had been originally designed as a way for the federal health care system to contain health care costs shortly after the Hill-Burton days when money was given for facilities to be built. She indicated that some states started as early as 1964 to use the CON process about the time when diagnostic related groupings (DRG) were introduced into the health care delivery system. She explained that DRG refers to global health care reimbursement and the method by which Medicare pays hospitals. She remarked that when the DRG system was introduced the federal government saw no further need for the CON process to help contain health care costs. MS. ANDERSON observed that cost shifting began in 1983 with the establishment of the Medicare reimbursement system; in other words, the federal government is not paying full cost of health care so excess costs are shifted to other health care payers. About that time too, she added, managed care was introduced and eleven states dropped the CON process because it was no longer required by the federal government. Number 0959 MS. ANDERSON said that in 1987 the State Health Planning and Development Authority was de-funded by the federal government which left states to decide whether they would retain the CON process or not. At that time, she added, she had heard testimony that the state of Alaska had $8 million available for processing CON applications and its CON threshold was $150,000. About that time, she reiterated, most states altered the CON dollar threshold and Alaska did likewise, setting the threshold at $1 million. MS. ANDERSON noted that 38 states and the District of Columbia have some form of CON today. She explained that many states have a CON process for any new service that is introduced into a community regardless of the dollar amount. She concluded that the CON process varies state by state and that CON programs are responding to change thus becoming more flexible tools of public policy. She commented that the CON deserves to be better understood because it can be a flexible tool to assist states in reaching their goal of public accountability as well as cost control. Number 1151 MS. ANDERSON mentioned that the average review threshold for CON is $1.7 million for capital outlays in those states that have a CON process. However, she indicated, Massachusetts' threshold is $9 million for acute care hospitals and $965,000 for non-acute care. She remarked that Hawaii's threshold is $4 million for capital outlays, $1 million for equipment, and any new service must be reviewed. She added that Hawaii's regulatory changes in 1997 have pared application-processing time to as little as three weeks and Hawaii has also rejuvenated strategic planning for health care by rewriting its Health Services and Facilities Plan. MS. ANDERSON observed that in 1999, 30 states had a CON process for ambulatory surgical centers and of those, 23 states have a $2 million threshold or less for the review and 27 states have a CON process for acute care. She stated that in 1996 Michigan initiated a new standard that allows a surgical service and/or one or more operating rooms to be relocated within the replacement zone (i.e. 10-mile radius in a non-rural county and 20-mile radius within a rural county). She said that the new standard still had to meet specific requirements of minimum volumes. MS. ANDERSON noted that in 1997 Nebraska reduced CON scope to only include ambulatory surgical centers, long term care, and rehabilitation. She commented that Maryland also did a major revision to streamline their CON process (threshold is $1.25 million) in 1997 and included changes for ambulatory surgical services. She mentioned that in 1985 Wisconsin left only long term care subject to the CON process but in 1992 they added capital expenditure review of $500,000 back into the CON because they had experienced steep increases in costs and capacity. Number 1384 MS. ANDERSON reminded the committee that Alaska is a large payer for health care services since 20 percent of patients are Medicaid participants and 30 percent are Medicare participants. She added that another large segment of patients (17 percent) are state employees, active and retired, and federal employees. She recognized that because Medicaid and Medicare payers are involved, there is a tie-in between the CON process and the Medicaid reimbursement system. She reiterated that having CON approval will assure that costs can be rolled into the Medicaid cost base when the Medicaid rate is being set. She said that maintaining the balance between all regulatory aspects of health care is extremely important and it must be considered in the entire picture. CHAIR JAMES asked if ambulatory surgery centers and hospitals had a different rate structure. She said she understood that Medicaid rate structures only applied to hospitals and associated services. Number 1511 MS. ANDERSON replied that ambulatory surgery centers are paid through the Medicaid global fee system that is set under the Medicare system. REPRESENTATIVE GREEN inquired as to what evidence exists to prove that the CON has stopped unreasonable projects. MS. ANDERSON answered that Rhode Island in 1996 commissioned KPMG-Pete Marwick to do a review of Rhode Island's whole CON process and that study published a definitive statement that the CON process had helped Rhode Island reduce health care expenditures. She informed the committee that in 1997 the Illinois Health Facilities Planning Board had stated, "Since the Planning Act was implemented, substantial savings have been realized in restraining health care costs by preventing unnecessary construction or modification of health care facilities." She emphasized that other studies indicated that CON has served to limit the diffusion of services and technology; a Lewin-VHI, Inc. study completed in 1995 for Georgia did not recommend repeal of CON. Number 1757 CHAIR JAMES said that it is not known if unnecessary construction referred to by the Illinois Health Facilities Planning Board was a CON submitted by an existing hospital or whether the CON was submitted by a private entity. MS. ANDERSON replied that Chair James' statement was correct. CHAIR JAMES commented that it is not easy to match "apples to apples" in this discussion. MS. ANDERSON informed the committee that to her knowledge there has been no national study of CON programs since 1993. Number 1862 REPRESENTATIVE GREEN asked if the Lewin study recommended keeping CON or did they just not want to recommend anything. MS. ANDERSON answered that the Lewin study did not actually recommend keeping CON but they did not recommend repealing it either. MS. ANDERSON said she wanted to briefly mention the Federal Trade Commission (FTC) because it had been mentioned in regard to the Anchorage situation as it related to the ambulatory surgical center. She noted that in 1994 Columbia Hospital Corporation of America (HCA) purchased a national company called Med-Care America. She explained that Med-Care America owns the Anchorage Surgery Center (ASC) and the FTC ruled that Columbia had to divest itself of ASC. She reminded the committee that the FTC changes its interpretation of different scenarios and has done so in California and Missouri. MS. ANDERSON recognized that the CON is a labyrinth of bureaucracy in Alaska and the average time frame for a completed CON is 120 days if there are no delays. She observed that other states had instituted expedited reviews to make the CON process go faster. She stated that the CON does provide for a level playing field in that all providers of like services are subject to review. Also, she added, CON review allows for any price advantage individual consumers may obtain to be weighed against increased cost to the entire community. She reiterated that there is a challenge for all entities to facilitate the development of a responsible marketplace, one in which the desired benefits of competition and real value in health care are realized. Number 2160 MS. ANDERSON stated that it was her understanding that the $7 million threshold was based on inflation. She said that ASHNHA had checked with the Department of Labor and had been told that $1 million in 1983 would be worth $1.5 million in 1999. CHAIR JAMES said she had heard testimony that inflationary cost of medical procedure has raised the cost to $6 million in today's dollars. Number 2262 MS. ANDERSON replied that her numbers resulted in an inflationary figure of $2.8 million. She noted that all Alaska facilities desire a CON process that is stable, rational, and predictable with as little interference as possible with the day to day operation of the facility. She encouraged the committee to work in a collaborative spirit to update the State Health Plan by developing revised standards, redefining in regulation such things as "routine replacements," redefining in regulation a list of services not covered under CON, considering replacement zones similar to what was done in Michigan, revamping the review criteria, developing an expedited review process, and ensuring by data collection that CON approval goes to projects that meet demonstrated need. Number 2435 LINDA SMITH, registered nurse, testified via teleconference from Fairbanks. She said she would like to talk about actual effects that she sees if the CON process were to be changed. She asked the committee to consider some of the implications that additional surgery centers would have in the Fairbanks community. She acknowledged that the Fairbanks Memorial Hospital (FMH) is experiencing tremendous shortage of nurses, particularly surgery nurses, operating room technicians, as well as radiology technicians. She observed that about five years ago, FMH began to see a severe shortage of nurses, particularly nurses with advanced skills and training in the intensive critical care unit (ICU), the emergency room, and in the operating room. She added that the shortage continues and believes that the shortage will continue for the long haul because young people are not choosing nursing as a career since it involves hard work. She noted that she did not think this trend would reverse but rather, each year seems to get worse. MS. SMITH explained that FMH advertises [for nurses] on eight Internet recruitment sites, in state and national publications for operating nurses, and at colleges and high schools, and at employment fairs. In fact, she commented, FMH has gone to Canada to recruit nurses. She mentioned that it is very expensive to advertise in a national journal as it costs $1500 per ad and is taking FMH six to eighteen months to fill open positions. She indicated that FMH has had to resort to using agency or traveling nurses to fill some of the openings and to allow FMH staff to take vacations. She informed the committee that FMH must pay traveling nurses twice the hourly salary of regular nurses and when FMH does find nurses willing to relocate permanently FMH pays a large sign-on bonus, relocation costs, and an extremely competitive wage. She acknowledged that this is affecting the cost of health care. MS. SMITH remarked that if a surgery center opens in Fairbanks, her fear is that the surgery center will handpick FMH nurses because FMH nurses must work weekends, holidays, and be on call whereas a surgery center only works Monday through Friday. CHAIR JAMES acknowledged that shortage of nurses and teachers is a national issue and, though it is not related to the CON process, she understands Ms. Smith's concern regarding the shortage. Number 2739 JANE GRIFFITH said she represents Providence Health Systems in Alaska and opposed HB 297. She noted she had participated in many CON applications over the past 20 years which were submitted to DHSS by Providence Hospital and she thinks the process has become less cumbersome. She commented that raising the threshold from $1 million to $7 million eliminates the CON. She explained that Providence has been helping Seward build their new hospital at a cost of less than $7 million, consequently, she thinks that anyone could build whatever they wanted for that price. MS. GRIFFITH encouraged the committee to review health care and cost of living indices with Mr. Neilsen of the Medicaid Rate Commission (MRC). She mentioned that the MRC publishes their recommendation each year for health care inflation, specifically regarding the Medicaid program. She remarked that the inflation figure is significantly less than $7 million. MS. GRIFFITH reminded the committee that earlier testimony had indicated that some administrators in 1983 as well as the State Hospital Association were supportive of eliminating the CON process. She stated that she was part of that group and can remember the specifics of why they had wanted to eliminate the CON. First of all, she explained, back in 1982 and 1983 Medicare and Medicaid actually paid hospital costs. She added managed care did not exist and hospitals then were not limited to some fee schedule or other arbitrary reduction in reimbursement other than hospital cost and managed care did not exist. She reiterated that insurance companies were not telling hospitals or physicians how a patient had to be treated, either on an inpatient or outpatient basis. She said that at that time hospitals were very close to being a free market; a true free market allows a price to be determined by people who pay for it of their own free choice. Number 2914 MS. GRIFFITH acknowledged that just as Ms. Anderson had testified previously, hospitals in Alaska are at least 50 percent dependent upon government funding. Therefore, she reiterated, hospitals no longer operate on a free market basis and must submit to CON to protect the government's investment in the facilities that they have helped with their support through the Medicare and Medicaid system. She observed that if Alaskan hospitals want to return to a free market then she sees that both sides of the equation must be considered; eliminate the CON but on the other hand pay for hospital costs. She emphasized that those who believe that competition truly reduces cost can eliminate the CON; those who do not believe in competition want to keep the CON regulation. TAPE 00-12, SIDE B Number 2971 MS. GRIFFITH said that no one was disputing that ambulatory surgery centers can provide services. However, she reminded the committee that physicians, the State Licensing Board, and the Joint Commission on Accreditation of Healthcare Organizations are the ones who set policy regarding how many X-rays are needed, etc. so she wonders if the question of differences in practices is applicable to the CON discussion. When dealing with applications of Medicaid and Medicare cost reimbursement, she added, hospitals are not allowed to carve out a piece of business and say "this particular center has only these characteristics or costs and, therefore, we can price them separately." MS. GRIFFITH acknowledged that many cost structures in an acute care setting are driven by those things that a hospital has to have to operate as an acute care hospital, for example, emergency room services and surgical services. She explained that if a patient in an ambulatory surgery center becomes critical that patient is transferred to an acute care hospital. Therefore, she added, the hospital must maintain physicians and nurses on standby to accept those patients whether or not the patient is on the physician schedule. She reminded the committee that maintaining staff on call is a tremendous cost factor for the hospital. She reiterated that hospital laboratory and radiology units are open 24 hours a day, seven days a week to respond to physicians' requests. She observed that costs are different between an acute care hospital and an ambulatory surgery center because of the expensive 24/7 requirement placed upon hospitals. Number 2865 CHAIR JAMES said she understood that Ms. Griffith had stated that ambulatory surgery centers definitely can charge less and yet Chair James is hearing from testimony that the opposition does not want ambulatory surgery centers to have an opportunity to be installed unless they apply for a CON. Chair James commented that she sees the lesser charge as a point in favor of ambulatory surgery centers. Also, she mentioned that she does not understand why a small community like Seward needs to apply for a CON since there is no competition to provide service in that community. MS. GRIFFITH replied that Providence Hospital can charge similarly for the same services as an ambulatory surgery center. Nevertheless, she added, ambulatory surgery centers are "cherry picking" because they do not have to provide the same level of service as a hospital; therefore, ambulatory surgery centers are not on the same playing field as hospitals. Number 2752 CHAIR JAMES agreed with Ms. Griffith because ambulatory surgery centers can only accept ambulatory cases; they do not accept all surgeries. Chair James asked again if Seward needed the CON process as excess baggage in their endeavors to build a new hospital or does the CON serve a purpose. MS. GRIFFITH replied that when small communities replace or build a facility, the CON process defines what kinds of services are appropriate for that area and is an integral part of the evaluation. She explained that a structured process is necessary for reviewing and assessing outside the emotion of the people involved. She added that she thinks that is what the CON provides. She commented that it is her understanding that a physician can build an ambulatory surgery center without a CON if he/she so desires but then they cannot tap into Medicaid funds by attending to Medicaid or Medicare patients. She reiterated that special interest groups want access to Medicare and Medicaid funding; at present it is only available to entities who apply for a CON. She added that no health care facility, with or without CON, can be successful unless they have support of Medicare and Medicaid funds. Number 2517 REPRESENTATIVE HUDSON said that after hearing her testimony, it was the first time that he had associated the CON with a federal requirement (Medicare and Medicaid). He asked if the CON was a state regulation because federal Medicaid and Medicare programs require a CON program before any funds will be released to the state. MS. GRIFFITH replied no. She acknowledged that it used to be the case some years ago but currently if the CON were eliminated the state would still be in compliance with Medicare because the federal government repealed the need for a CON in 1982. However, she added, regulation states that if a CON is active in a state, then Medicare will accept that as a condition of participation. Number 2467 REPRESENTATIVE HUDSON asked if the converse were true and the state did not have a CON law, then the federal government would not require a CON as a condition of participation. MS. GRIFFITH answered yes. Number 2457 CHAIR JAMES said that the committee can find a corroborative answer when the committee meets with Jack Neilsen from the Medicaid Rate Commission on March 1, 2000. At this time she announced the proposed CS will be set aside for a minute while the committee discusses HCR 19. However, discussion of the proposed CS continued because Representative Davies was not present. REPRESENTATIVE OGAN asked if it was Chair James' intention to put the proposed CS in subcommittee. CHAIR JAMES answered yes. Number 2407 WALTER MAJOROS, Executive Director, Alaska Mental Health Board (AMHB), said his agency is an advocate for people with serious mental illness, both children and adults. He explained that his board has serious concerns about the potential and perhaps totally unintended negative impact that HB 297 might have on consumers of mental health services. He added that his board is particularly concerned about funding for community-based mental health services. He commented that he wanted to introduce the concept of least restrictive care and the obligation to provide services to people in the area of mental health. MR. MAJOROS mentioned that the board's main concern with HB 297, particularly in view of the economic and political environment, is that HB 297 will drive limited Medicaid dollars away from community-based care for mental health type services toward more expensive, high-level care. He indicated that there is a current squeeze on the Medicaid program since the House Finance Committee is discussing Medicaid right now and there could be cutbacks. He emphasized that the important thing to recognize is that Medicaid is a significant source of funds through the Medicaid options list for community-based mental health services. He acknowledged that some services under Medicaid are mandatory while those on the options list are not; mental health rehabilitation services are on the options list. He remarked that institutional services, hospital services, and services that are subject to the CON process are funded first in the Medicaid program; if enough money is left over then optional services are funded. As a result, he added, when more emphasis and funding is put toward institutional-based services (which includes hospitals), the less money there will be for community-based services. He reminded the committee that by raising the CON threshold to $7 million services will be impacted and moved toward institutional care. Number 2202 MR. MAJOROS stated that an exemption could be made for mental health care services under HB 297. He reiterated that if the exemption existed, the CON would require institutional providers of mental health care to demonstrate that there are not other more appropriate community-based alternatives such as crisis respite care. He explained that crisis respite care means acute care emergency services for someone in a mental health crisis, which type of care is substantially less expensive than providing that same care in a hospital environment. Number 2166 MR. MAJOROS emphasized that even an exemption would not solve the movement of limited Medicaid funding away from lower-level community-based services into hospital/institutional-based care. He reiterated that his board would not be so concerned with Medicaid money flow if the current economic and political environment was not seeking to reduce overall Medicaid budget, which places all services under the Medicaid options list in jeopardy. He stated that his board believes that HB 297 would place community-based mental health care services in greater jeopardy. Therefore, he added, the question is "where do we want to concentrate our limited resources for mental health, at the highest, most restricted level or at the lower level, less restrictive, and less expensive care that can be received in communities." Number 2121 CHAIR JAMES stated for the record that she is interested in reducing the cost of Medicaid. She announced that the committee will take a break from the proposed CS and discuss HCR 19. HB 297-CERTIFICATE OF NEED PROGRAM Number 1832 CHAIR JAMES announced the committee will return to discussion of the proposed CS for HB 297. BARBARA FLEMING, Secretary, Providence Health System of Alaska Board of Directors, testified via teleconference from Seward in opposition to HB 297. She read the following testimony: Superficially, it [HB 297] seems simple; however, it has far-reaching impacts across the state. I do wear many hats here in Seward. I am a member of the Healthy Communities Task Force, a member of the Providence Seward Health Council, and Secretary of the Providence Health System of Alaska Board of Directors. For the record, I do oppose HB 297. Many administrators and health care professionals have been giving you all the history and dates regarding the CON. Where I am concerned is the impact on communities across this state. There is really a very delicate balance in health care. The changes in the CON legislation to only affect communities greater than 15,000 is really a mistake because in truth, it will affect communities with less than 15,000 populace. Through my association with Providence Health System, I have been able to witness first hand their benevolence around the state. Not just through charitable care, but through their operation here in Seward and in other communities across the state. Seward's hospital, emergency room and clinic would, quite literally, not be here without Providence. No other entity in the state would ever take on this endeavor, as it [Seward hospital] operates quite heavily in red ink, and is never expected to make a profit or even break even. By changing the CON legislation, it will affect the larger hospitals in the state. By cutting into their profitability, you short change all facilities across the state and especially in Seward. The current CON legislation adequately serves all our needs. The balance, though delicate, is serving all Alaskans and I urge you to reject the proposed changes in HB 297. Number 1525 JOHN VOWELL, Sitka Hospital, testified via teleconference from Sitka. He said that the public has a right to and a vested interest in health care. He noted that there has to be a process so that the public can be involved in the decisions that are being made relative to the health care that is being provided and planned for them. He explained that is why he feels a CON exists and why he personally feels that Alaska needs a CON process in which the public is involved. MR. VOWELL commented that hospitals exist to provide inpatient care. However, the economics of health care create a situation where those beds are supported by outpatient services. He mentioned that revenues from outpatient services allow the hospital to invest in personnel, equipment, supplies, and structures to provide those services but not because of those services on an inpatient basis. He indicated that the Sitka hospital functions on 25 percent revenue from inpatient and 75 percent from outpatient services. MR. VOWELL informed the committee that recently a major physician group in Sitka chose to build a complete service outpatient laboratory in their physicians' office. He emphasized that the impact on the Sitka community is that the new laboratory will take more than half of the outpatient revenue from the Sitka hospital laboratory. He remarked that the new laboratory will not decrease any costs of operating the Sitka hospital laboratory and the new laboratory is not required to operate 24/7, as does the Sitka hospital. Therefore, he concluded, when a decision is made without a review process it results in detriment to the community and to the ability of the Sitka hospital to meet community health care needs. Number 1341 CHAIR JAMES asked if the physicians were required to apply for a CON in order to build an outpatient laboratory. MR. VOWELL answered no. He added that the physicians were not required to go through any type of review process or consideration. He reminded the committee that the Sitka hospital already had those services available for people in the community. He observed that there is no mechanism in Alaska to attract highly technical people necessary to support services. He stated that he recruits outside Alaska in a very competitive, expensive environment and Sitka hospital will lose some expensive personnel to an outside service, which means that Sitka hospital will have to go outside and repeat the recruitment process. He reiterated the issue is not just the dollar amount but the health issue and ability of the Sitka hospital to continue to provide community services. Again, he said the public has a vested interest in decisions that are being made. Number 1204 DON ETHERIDGE, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), testified on behalf of his organization in opposition to HB 297. He said many AFL-CIO trustees are concerned about cost increase to their memberships if hospitals must increase their prices. He noted any increase in hospital costs will be passed on to members of AFL-CIO in their health care cost. Number 1126 MARY KIESSLING, testified via teleconference from Anchorage in support of HB 297. She read her testimony as follows: My husband is a physician who has practiced family medicine and occupational medicine in Anchorage for over 25 years. His professional corporation has an independent contract to provide the physician services for two HealthSouth medical clinics, one in Anchorage and one in Eagle River. I'll give a brief, thumbnail sketch of my background. In the early 70s I worked in public accounting for Ernst & Ernst where I performed on audits of health care facilities--both public and private. For 14 years, I worked in health care administration. I've been a hospital controller, chief financial officer, assistant administrator, associate administrator, executive director, and Chief Executive Officer (CEO). I was the executive director of Humana Hospital Alaska here in Anchorage until June 1987, when I stepped down to become my kids' Mom. Since then I've done private consulting for doctors' offices and a couple of hospitals outside of Anchorage, but still in Alaska. Currently, I handle the financial aspects of my husband's professional corporation, which is a part-time job. I've been involved in several private, diverse business ventures, including publishing. I've been active in many community organizations over the years, and am currently on the board of the Alaska Center for the Performing Arts, and am a board member and treasurer for Breast Cancer Focus, Inc. My real business is being the owner and instructor of a private mathematics center in Anchorage. This is my 7th year of owning the Kuman Math Center which helps students from age 4 to 74 learn and master a high skill level in mathematics. I'm here today to support any legislation that reduces the politics in health care. House Bill 297 seems to be a step in the right direction, but my preference would be for the state to eliminate the Certificate of Need requirement. The CON process restricts access of providers into the market and, from that point on, compromises the benefits of the free market model for the private sector of health care delivery. At the point of service level, health care is a unique and complex industry because the lines between the public sector and the private sector are fading. Nowhere is that more apparent than in Alaska, where public sector facilities built by government funds provided by our nations's taxpayers are opening their door to private patients. No CON process is required here. The private sector comprises tax-exempt and tax-paying providers, and the distinction between these two are also fading. Tax-paying organizations, with their private capital base, are expected to meet social standards of free access, provide the compassionate and caring delivery of health care services, and participate in the community as good, tax-paying corporate neighbors. The tax-exempt preference was created to be a significant financial incentive for organizations to provide services that government might otherwise have to provide. Number 0936 Tax-exempt organizations have come to function with financial goals of income exceeding expenses, with sophisticated competitive strategies for increasing their market share and political influence. They can raise funds directly from the community on a tax-free basis to help meet their stated missions and goals. They can also obtain funds directly from the government for major projects that enhance their market share and influence. Every facility provider's dream is to be an exclusive, sole source provider in their self-defined market, with no government interference. The issue at hand is the role the state should play in determining who can enter the private market at the facility level, and how a provider will be allowed to grow by expanding and enhancing their services. I'm just here today to say that the CON process prevents free market benefits. Do we really want health care to be another utility? Number 0681 SCOTT WHEAT said he is a mental health consumer advocate in agreement with Walter Majoros' testimony. He reiterated that the main concern of a mental health consumer is the impact on the overall Medicaid general fund budget if there is competition or expansion of cost to the Medicaid program. He noted that things like prescribed drugs, mental health clinic services, and rehabilitative services are all very important to keep people like himself out of the hospital. He explained that de- institutionalizing people by recognizing community-based services is important and if institutions are able to access the Medicaid fixed budget then community supports for consumers could be lost. Number 0537 LELAND "CORKY" CORKRAN testified via teleconference from Fairbanks in opposition to HB 297. He said he has been a ten- year user of outpatient surgery at Fairbanks Memorial Hospital (FMH). He noted that probably FMH has provided the best that he can get and best return for the money. He reiterated that FMH has done a very good job. Number 0444 CARL WALES testified via teleconference from Fairbanks in support of HB 297. He read his testimony as follows: I am speaking for myself, work in satellite data systems and have nothing to do with health care industry beyond being a patient. Between my wife, my daughter, and myself we have had five outpatient surgeries in the last two years. In my view, health care is not just the medical care you receive but it starts when you sign in and ends when your account is settled. I remind you that "not for profit" does not assure lower or lowest cost and/or high efficiency. In my view, if someone is afraid of competition, then I immediately wonder why. What are they afraid of? Out-of-state management must return enough in economies of scale to compensate for the drain of funds (profits?) out of the state. In the Interior (in over six years that I have lived here) we have seen population growth, economic growth, and tourism and visitor growth. The only health care facility growth that I know of is at the Banner Health Systems facility. In my opinion the rest of the growth has been stalled by the CON process as we saw this last year [in Fairbanks]. I think the system should let investors take their own risk. I believe that Fairbanks needs more choices and competition. I believe that we should have Alaska ownership and management or, even better, local ownership and management. We need to keep profits in the state. Number 0053 WILLIAM DOOLITTLE, M.D., testified via teleconference from Fairbanks in opposition to HB 297. He read his testimony as follows: I have been in this community practicing medicine for thirty-five years. TAPE 00-13, SIDE A Number 0040 During that time I have served on multiple hospital and community boards and have seen the Interior of Alaska escape much of the turmoil in health care that has engulfed our neighbors in the Lower 48. For 20 years or more I was able to serve the North Pole Fire Department as Medical Director for their ambulance service. There was little concern there for competition since it was an unpaid position the rewards of which were limited to watching a group of town folk develop into highly skilled emergency medical technicians (EMT) providing a much needed state-of-the- art service. That's stuff I know something about. I confess to a consuming ignorance about politics and much of the legislative process. Regarding HB 297, I appreciate the time spent by the committee in taking this cogent testimony. As a novice to the process, it is difficult for me to escape the concept that the energy being put into this unfortunate piece of legislation is directly related to the three rejected certificates of need in the city of Fairbanks for a free-standing outpatient surgery center. The Department of Health and Social Services (DHSS) had extensive public input, hired an outside consultant and came to the conclusion that there was no definable need for expansion of outpatient surgery services in Fairbanks. Two of the three CON applicants were for- profit providers and one was the single hospital in the city--a not-for-profit, publicly owned hospital established just after the flood--the '67 flood in Fairbanks, not Noah's--through donation and hard work. In as much as the hospital had previously developed outpatient surgery to the extent deemed necessary, pursuit of this legislation to raise the economic threshold for CON appeared to be designed to enable these two for-profit entrepreneurial efforts to build without restriction. Number 0202 CHAIR JAMES said that she did not file HB 297 to make sure that two ambulatory surgery centers were built in Fairbanks. She explained that HB 297 is a statewide effort to solve the real problems of the CON. Number 0231 DR. DOOLITTLE replied that the issue he addresses now is that CON is designed to protect small communities. He continued to read his testimony as follows: ... Whereas there is general acceptance of competition as a market force to favor consumers, competition for a small, relatively stable health care niche has the single purpose of driving competitors out, since the market here does not expand or change materially, and there has been no demonstrated need for expansion. At that point, when the competition for a particular health care niche--in this case outpatient surgery--has closed out the other competitors, we will have gone the full circle where competition is gone, only now with for-profit providers driving the system for--guess what--profit. With a single, community owned not-for-profit center of health care, certain services are essential, but do not generate sufficient revenue to be attractive to competition. The community hospital is proscribed from eliminating some services even though they may not be profitable. When for-profit operations sequester off the services that appear to be profitable, they may well accomplish the purpose of eliminating the competition, and then find that some technologic or therapeutic nuance makes the service they offer no longer profitable. They have no constraint against leaving, and they have no requirement to restore the prior status quo to accommodate the needs of the community. In sum, all the spurious arguments of advantage in competition that would be enabled by this legislation notwithstanding, only one result would emanate--loss of the ability of small communities of Alaska to protect themselves from invasion of for-profit entrepreneurs who have no commitment to the long-term health of these small communities. I don't always believe in the rectitude of DHSS decisions--in this case they were right. This legislation appears to be an attempt to circumvent their decision. Please don't let it pass. Number 0452 CHAIR JAMES closed public testimony and announced that she has appointed a subcommittee made up of Representatives Green, Smalley and herself.