COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 256(HES) "An Act relating to regulation of managed health care and allowing physicians to collectively negotiate with a health benefit plan that has substantial market power." Senator P. Kelly told the Committee he introduced this bill to address any inequities starting to grow out of the rapidly changing health care industry. He stated that many of the mergers of the past few years were changing the rules for health care providers. He gave an example of the severity of the problem, saying that since 1994 the leading 18 insurance companies has been reduced to only six and that more mergers were projected. He asserted that the bargaining power of the insurance companies has increased while the bargaining power of the health care providers has not. Senator P. Kelly attested that this bill contains a mechanism called a "state action doctrine" to address the problem. He shared that this doctrine came out of a US Supreme Court case and that it allows the states to allow health care providers to form groups for the purpose of negotiating with health care companies without being subject to some anti-trust laws. He noted the groups are still overseen by the state and must still adhere to other anti-trust laws. Senator Phillips declared a conflict of interest due to his employment with Providence Medical Center. Co-Chair Torgerson noted the bill has two substantive sections, one being the patient and health care provider protection and the other the authority to negotiate with health care providers. He asked what the first section accomplishes. Senator P. Kelly explained it is part of the necessary structure to enable the negotiation provision. After receiving verification that there were no Health Maintenance Organizations (HMO) operating in Alaska, Senator Green asked if the definition of a "managed care entity" in the bill applies to a self insured group or a preferred provider. She wanted to know if the definition included anything else. Senator P. Kelly responded that there could be a number of additional companies that would fall under the definition of "managed care entity." He deferred to the Anchorage Independent Physicians organization provide further detail. SIGNE ANDERSON, Assistant Attorney General, Fair Business Practices Section, Civil Division, Department of Law testified via teleconference from Anchorage to answer questions on the anti-trust issue. Co-Chair Torgerson asked why there is an antitrust question. JULIA COSTER, Assistant Attorney General, Commercial Section, Civil Division, Department of Law, testified via teleconference from Anchorage to explain that the legislation would involve the Federal Trade Commission's (FTC) enforcement of federal laws. Ms. Anderson added that there is another legal concern regarding the Employment, Retirement, Income and Security Act of 1974 (ERISA) Premption and that she was available to answer questions on that matter as well. She stated that this concern was implicated in Sections 2 and 3 of the bill. RICHARD FEINSTEIN, Assistant Director, Bureau of Competition, Federal Trade Commission, testified via teleconference from Washington DC and clarified that he was authorized by the Commission to offer views on the legislation but that the Commission was not taking an official position nor was he speaking for the Commission. Co-Chair Torgerson referred to congressional legislation, HR 1304, the Quality Health Care Coalition Act of 1999 sponsored by Congressman Thomas Campbell, and asked if the bill was still pending or if it had been enacted. Mr. Feinstein answered the legislation was still pending. Co-Chair Torgerson noted that his information claimed that this US House of Representatives bill would be the "fix of all fixes" if it were adopted into law. He asked if the witness shared that view. Mr. Feinstein replied that while the bill was a "fix in one sense," the Commission has formally opposed it as detailed in the written testimony presented before congress by Chairman Robert Pitofsky. [Copy on file] Mr. Feinstein clarified that if HR 1304 were passed at the federal level, it would preempt any effort by a state to address collective negotiations by physicians and health plans in any other way. Mr. Feinstein qualified that he only recently received the latest version of SB 256 but that this bill was a variation of a theme seen at the federal level to facilitate collective bargaining by physicians in their dealings with health plans. He stressed that several other states are also considering similar measures. Mr. Feinstein emphasized that the focus of the FTC is whether these proposals are in the best interest of consumers. He understood that there are many concerns about managed care and how it delivers health care and health insurance services. However, he said the Commission had serious questions about whether anti-trust immunity for providers was the best way to address those concerns. Mr. Feinstein referred to a list of issues proposed in SB 256 that directly targeted the concerns articulated about the managed care. He quoted Section 2 (8), "protects the ability of a health care provider to communicate openly with a covered person about all appropriate diagnostic testing and treatment options." He surmised this subsection was intended to address what was sometimes referred to as a "gag clause" and that a number of states had already passed legislation to address this issue. He suggested that if there were specific concerns about the operations of managed care organizations, those concerns should be addressed directly rather than indirectly by creating circumstances in which groups of providers may be able to exercise market power in ways that don't benefit consumers. Mr. Feinstein assured that he completely respected the states' authority to address the issues in the manner they felt most appropriate and in the best interest of its citizens. He stressed that it was not his job to take a bottom line position on whether or not this is good legislation, but was more to give advice on the anti-trust analysis. Mr. Feinstein pointed out that one provision of the bill is the notion where health plans, health insurers and managed care organizations, have at least 15 percent of the market, there is a presumption that that constitutes considerable market power. In these instances, he continued, the bill gives authorization for collective negotiation with those parties that made up the 15 percent. He warned that this is only a useful measure if there is clear understanding of what the percentage of the market is; and in looking at the geographic or product market in Alaska, he did not think it was clear. He inferred that a determination of the percentage of the market could not be done without a definition of what that would be. He predicted that this legislation could result in some health plans that have a relatively small share of the market would find themselves negotiating with a group that represented 100 percent of the providers. Mr. Feinstein spoke about the general boycotts, strikes and concerted action provisions in the bill as another area that should be reviewed. He quoted the findings in the bill; "the collective bargaining will benefit competition so long as the physicians don't engage in expressed or implied threat of retaliatory collective action including boycotts or strikes." Elsewhere in the language, he read, "competing physicians may not engage in a boycott related to these terms and conditions." He stated that those terms are somewhat ambiguous. He gave a scenario of an attempt at collective negotiations between providers in a given area and the health plan, which did not lead to a satisfactory contract. He said a situation could then arise where the bargaining group would not have contracts, they would withhold their services to the plan and the patients would have to pay for the services out of pocket. He noted the bill did not require health plans to participate in negotiations. Tape: SFC - 00 #43, Side B 9:50 AM Mr. Feinstein next addressed the state action doctrine on anti-trust, which he felt was relevant to the Committee's analysis of the bill. He said there were two "prongs" to the doctrine, first was the need a clearly articulated policy of the state to displace competition in the sector that is being regulated and to replace it with regulation. He did not think there was any question that this bill would satisfy that requirement. The second "prong" was the requirement under federal anti-trust law that there be active supervision by the state of the private parties who were hoping to benefit from the state action exemption, and according to Mr. Feinstein, could be more problematic. He stated that it was unclear whether the regulatory apparatus in the bill would meet test of active supervision. Senator Wilken wanted to know how other states have provided the active supervision. Mr. Feinstein replied that it was probably too early to tell since no other state had such a process implemented as of yet. He told of similar legislation passed the previous year in Texas and that the attorney general's office in that state was in the process of adopting regulations to oversee the private conduct of the bargaining groups. Co-Chair Torgerson requested the witness submit his comments as written testimony. Mr. Feinstein referred to written testimony presented on behalf of the Commission to address the federal bill plus two letters written by the Bureau of Competition. One letter he said related to the Texas legislation and the other was sent to the District of Columbia. [Copies on file.] BOB LOHR, Director, Division of Insurance, Department of Community and Economic Development, testified via teleconference from Anchorage focusing on the public cost of the legislation. He stated that identifying what the cost would be was difficult, partly because no other state had established a system that could be used as a model. He stressed that any factor that might provide more equity or address an imbalance in bargaining power could also have the affect of raising consumer prices. Speaking to the impact on the division, Mr. Lohr referred to the fiscal note that reflects the addition of one fiscal analyst position to analyze the estimated number of contracts that would result from the legislation. He directed the Committee's attention to Section 3 of the bill saying that it stipulates, "It is the responsibility of the division to approve, in advance, the contracts submitted as having the required elements, in the form that is required and not having the prohibited elements." He clarified the amount requested in the fiscal note is very conservative and is based on the likelihood that the participating negotiating parties will customize the contracts. These customized contracts, he stated, would require more analysis since each one would contain detailed provision and there would also be time pressure for the division to make a determination. Co-Chair Torgerson requested written testimony from all testifiers, noting the helpful points raised. Senator P. Kelly asked how many contracts the division currently reviews. KATY CAMPBELL, Actuary on Life and Health Issues, Division of Insurance, Department of Community and Economic Development replied only two and that they were required filings from Blue Cross. She explained these were standard provision contracts and were not specific to the health plans each employer purchased. Senator P. Kelly asked if the witness thought the number of contracts the division would review would change dramatically if this bill passed into law. Ms. Campbell referred to the provisions in the legislation stating that the health care services would be required to be detailed in the contract, which were complex and individualized for the groups that were covered. She spoke of the many variations in health plans such as different vision and dental services. Senator P. Kelly thought the fiscal note seemed high and asked if the division anticipated any standardization of the new contracts. Ms. Campbell responded that there would be a significant increase in the workload because the contracts currently reviewed by the division do not contain the details for each individual services package. JEROME SELBY, Providence Health Systems testified via teleconference from Anchorage saying he was present to answer questions. Ms Coster reiterated her earlier comments that the Department of Law thought that the definition of "benefit plan" in Section 3 of the bill would be in conflict with ERISA. GARY SWARTZ testified via teleconference from Fairbanks that because the Alaska Healthcare Network has been under investigation by the FTC for over a year, they are unable to enter contracts, etc. and had become dysfunctional. He noted the network had spent over $100,000 on the investigation saying there was no merit to the accusations and no finding of fact. He shared that he had many discussions with the FTC and that he disagreed with Mr. Feinstein. Co-Chair Torgerson noted the Committee did not have the written testimony Mr. Schwartz had referred to. DR. MICHAEL CARROLL, Board Member, Alaska Healthcare Network, testified via teleconference from Fairbanks on behalf of both physicians and consumers. He spoke to the uniqueness of Fairbanks in that it has more than one hospital in the community. He believed if physicians were prevented from addressing the health care plans in an organized manner, the consumer is going to suffer. He gave and example of the question of how to define an emergency room visit and emergency room care. He was not interested in interfering with how much money doctors are paid he stressed that he only wanted physicians to be part of the process. PAUL SMITH, Attorney, testified via teleconference from San Francisco, California as legal council for the Alaska Healthcare Network. He noted the area of physicians in collective bargaining groups was "fought with practical difficulty" because the anti-trust guidelines were not always clear. He gave an example the discretion between price related terms and non-price-related terms, which was difficult to make. He advised that this legislation would be helpful because it does make that classification. Mr. Smith then drew attention to the correspondence submitted by the FTC claiming that under existing anti- trust laws physicians can comment and express opinions on proposed contracts, which he thought was a fair statement. However, he said that in practice, the boundary between expressing an opinion and engaging in a negotiation was difficult to recognize. He stated that by setting forth a regulated procedure that defines the scope of acceptable conduct, it would provide practical help to physicians and physician organizations who need to engage in these kind of activities. HELEN JAMISON testified via teleconference from Chicago that she wished to listen and would be available if something came up needing clarification. DWIGHT PERKINS, Deputy Commissioner, Department of Labor and Workforce Development testified that the department has no expertise to handle such anti-trust matters. He had heard that because the federal legislation was stalled, interested parties were attempting to pass new laws in each state and that to date, they were only successful in Texas. He asked that the Committee take time to consider this legislation and that the department had not submitted a fiscal note because of the uncertainty of the actual affect on the department. Stated that he met with group that would be testifying. Co-Chair Torgerson stated that the department's request to be excused from this legislation was odd, since this legislation addresses a labor issue. Senator Leman stated that he readily agreed with the witness's testimony saying he did not think it was appropriate for the department to review the legislation. MIKE HAUGEN, Executive Director, Alaska Physician and Surgeons testified that the organization was on the front lines of dealing with the contracts. He stressed that the provisions in this legislation were completely voluntary for all parties. He suggested that if the state, the payers or the physicians felt uncomfortable about the process, negotiations would be over. He added that the legislation requires active state oversight. On the merits of bill, he stressed physicians would be able to communicate amongst themselves without a threat of the FTC. GEORGE RHYNEER, Cardiologist, President, Alaska Physicians and Surgeons testified that he was available to answer questions. Co-Chair Parnell asked Mr. Haugen what would be the benefit to consumers regarding the availability and affordability of health care if this legislation passed. He noted that those opposed to the bill argued that this would drive up the cost of health care. Mr. Haugen responded that this bill would allow physicians to get together and discuss issues such as medical necessity and who determines what is medically necessary. He lamented that these decisions were often left up to a clerk in the insurance company looking at a "cookbook" when a doctor calls for pre-authorization. His organization felt these decisions should be made by a physician and that there should be peer review. Another example he gave was how to define emergency services and the frustrations of trying to deal with an insurance company at the time of an emergency. He concluded that the bill would solve a number of patient protection and physician issues. Co-Chair Parnell wanted to know how the witness could address the concerns of increased costs saying that when physicians organized, they would talk about their own best interests. Mr. Haugen assured that because of the state's oversight, if the costs got to high, the Division of Insurance could step in on behalf of the public's best interest. He also told of "point of service options," which allow a patient to go outside an established network for services but must pay the difference. This would not cost the employer but would give another choice to the consumer. Mr. Haugen next addressed the concern that the bill will drive up litigation. He used the Texas legislation of an example of how this would probably not happen. Although the new law in Texas includes the right to sue health plans, he pointed out that in three years there have only been five lawsuits filed. Because of this and because of the larger Texas population, he thought the litigation expenses in Alaska would be minimal. Co-Chair Parnell thought one benefit to the bill would be to bring in competition. Senator P. Kelly asked for an explanation of how the bill would bring other health care companies into the state. He also asked the witness to respond to the concern raised by the FTC representative regarding active state supervision. Mr. Haugen shared that the State of Pennsylvania drafted good language to address what is required of the state. He responded to Senator P. Kelly's first question saying that it is cost prohibitive for new healthcare carriers to enter the Alaska market due to the population base and the established relationships of existing carriers with local physicians. He stated that if potential carriers could deal with an organization of physicians, without fear of action by the FTC, "new players" could come into the market. Senator P. Kelly wanted to know if Mr. Haugen was confident that the adoption of the state action doctrine would allow groups of physicians to enter these discussions without the threat of being sued by the FTC. Mr. Haugen was. JIM JORDAN, Executive Director, Alaska State Medical Association deferred to written testimony he submitted to the Committee. [Copy on File.] NANCY WELLER, Division of Medical Assistance, Department of Health and Social Services testified that her concern was the affects this bill could have on the Medicaid program. However, the division believed the program was exempted from the bill because it was already heavily regulated by the federal government. Co-Chair Torgerson clarified that the division did not oppose the bill since the division was not involved. GORDON EVANS, Health Insurance Association of America noted he had submitted written testimony. [Copy on file.] He stated that although the previous witnesses did respond to some of his earlier comments, he felt the responses were self-serving. He surmised that the physicians in support of the bill dispute the association's claim that the issue is economics rather than quality of care. He stated that stated that this argument gave the physicians leverage to "prevent the intrusion of a giant third party into the sacred physician-patient relationship." While Mr. Evans agreed that this relationship is sacred, he hadn't heard any physicians turning down insurance payments from this "giant third party." Mr. Evans addressed the statements that this legislation would establish a voluntary arrangement, which any party could withdraw from if not satisfied. He asked why the bill was needed saying that if the physicians currently thought they provide quality care, the insurance companies would not refuse to work with them. He surmised the answer was to give physicians leverage, noting that three years ago, the average income of an Alaskan doctor was $250,000 and that this bill would only seek to increase their income at the expense of the consumers. JEFF DAVIS, Executive Director, Blue Cross-Blue Shield of Alaska testified about previous testimony given before the Senate Health, Education and Social Services Committee. He summarized that the company's perspective was that there is not an imbalance of market power based on the limited success in trying to contract with physicians. He stated that the company has contracts with 700 of the total of 1800 physicians practicing in the state. Aetna, he said, had approximately 100 contracts and that other carriers had no contracts. Mr. Davis qualified that the bill contained some patient's rights provisions that the company does support, such as the "gag clause". He stressed that they never have had this clause. However, he noted that other provisions in the bill were confusing and unnecessarily costly. He stated that no carrier in Alaska prohibited patients from obtaining services from physicians outside of the network of contracted physicians although the cost to the patient was higher when he or she did so. Mr. Davis disagreed with the claim that this bill would bring more carriers into the market because the true limitations were economies of scale and distance. He stressed that the issue with this legislation would increase costs both regulatory and administrative and that there was a potential that physician costs would increase. He noted that FTC regulations already allow physicians to come to carriers in fairly large blocks to discuss patient care. LEN SORRIN, Assistant General Council, Blue Cross-Blue Shield of Alaska, focused his comments on the collective bargaining/anti-trust provisions of the bill. He stressed that the provisions were certain to increase costs to Alaskan consumers. He pointed out that those provisions are unrelated to the patient protection issues in the bill and that there was no consumer benefit to collective bargaining. He stated that physicians do have the right under federal guidelines to collectively talk about issues related to patient care, but also to negotiate prices with carriers. He admitted that there are some limitations on the physicians' ability to do so but said consumers deserve a substantial quid pro quo from those parties to ensure increased efficiency to the marketplace and improved delivery of health care. Mr. Sorrin asserted that the provisions related to market share were unprecedented in the realm of anti-trust law. He did not know of any case in the health care services industry where 15 percent was determined to be a significant market share. In fact, he added, the US Department of Justice guidelines established a "two-tier safe harbor" of 30 percent for physicians grouping together. He stressed that it makes no economic or legal sense to impose the negotiating provisions for those carriers that only have 15 percent of the marketplace. Tape: SFC - 00 #44, Side A 10:37 AM Mr. Sorrin continued saying that under the Justice Department's guidelines, no carrier in the state would fall under the bill's terms. Mr. Sorrin concluded that there was no problem and that this legislation did not offer a solution. He stated that the regulations being drafted in Texas had generated a "firestorm of controversy" and suggested that "we underestimate the regulatory complications that this bill will bring to everyone's life." He added that problems would reemerge each time the contracts were up for negotiation. Senator P. Kelly rebutted the claim that doctors currently are allowed to get together and negotiate for both terms and conditions and price. He said the FTC had ordered the North Lake Tahoe Medical Group and the Mesa County Physicians Independent Practice Association, Inc. to cease an desist from these activities. He read definition language from one of the two consent decrees, "exchanging or facilitating the exchange of information among physicians concerning the terms and conditions including reimbursement on which any physicians are willing to deal with payers." [Copies on file.] He said while he had not been able to find any information to substantiate the claim that physicians were allowed to gather; he was able to find information that showed where the FTC did not allow the activities. Co-Chair Torgerson ordered the bill HELD in Committee.