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." This was the third hearing for this bill in the Senate Finance Committee. Co-Chair Torgerson noted written testimony dated March 31, 2000, provided by the Department of Community and Economic Development that included a report entitled, "National Cost of Physician Anti-Trust Waivers". [Copy on file]. BOB LOHR, Director, Division of Insurance, Department of Community and Economic Development, testified via teleconference from Anchorage that he had reviewed the available cost studies related to this legislation and found the closest match was the analysis of pending congressional legislation, HR 1304, which was highly studied. Mr. Lohr gave detail on the background of the National Cost of Physician Anti-Trust Waivers report, which he found to be the most comprehensive study on the matter of collective negotiation for health care. He stated that the conclusion of the study was that there would likely be between $29 to $95 billion, or a five to 13 percent increase to private health insurance premiums with the passage of HR 1304. He noted that this increase is beyond the already dramatic increases due to the cost of health care. Mr. Lohr told the Committee that the study analyzed the impact of collective negotiations on the cost of services provided. He stated that this would be the primary factor in the increased premium costs. He said the second effect would be increased health care utilization, or the increased use of health services as a result of negotiated changes in the plan. The third effect, he stated would be the spillover affect on other health plans besides the managed care plans. He explained this was using the assumption that health care providers tend to provide one level of service rather than different levels of service according to the payment ability of each patient's insurance plan. Mr. Lohr pointed out that the study indicated that during the early years of the new federal law, the increases would be at the lower end of the predictions and in subsequent years, at the higher range. Senator P. Kelly asked if the witness had studied the cost analysis done by Penn State University. Mr. Lohr responded that he had not seen that study. Senator P. Kelly explained this study found that the Charles River study was full of unwarranted assumptions and questionable methodology. Senator Green noted the first paragraph of the written testimony stating that the division opposed this bill because it was thought the bill would significantly increase health care costs. She wanted to know if the division would take the same position for all other potential legislation concerning insurance mandates and changes to the insurance industry that would impose similar standards to those proposed in this bill. Mr. Lohr promised the division would endeavor to assess the impact on insurance or health care costs of any proposed legislation. As to predicting a future position on a hypothetical bill, he said he would be difficult. Senator Green challenged that a prediction was made on this bill. She wanted to make sure that the same standard is applied to any other legislation. Senator Adams asked how the federal legislation complemented this bill. Mr. Lohr gave a background of the congressional legislation, also known as the Quality Health Care Coalition Act of 1999 and the Campbell Act after Representative Thomas Campbell, the sponsor. This bill, he explained would exempt health care professional from anti- trust laws when they negotiate with health plans over fees and other terms of any contract under which they provide health care items or services. He said the physicians would therefore be treated as any other group engaged in concerted action under the National Labor Relations Act. The physicians would also be exempted from the Sherman Anti-Trust Act and comparable state statute, he added. JULIA COSTER, Assistant Attorney General, Commercial Section, Civil Division, Department of Law, testified via teleconference from Anchorage referencing Senate Health and Social Services committee substitute. She stated she would limit her comments to the collective bargaining issues proposed in the committee substitute. She said the department has serious legal and policy concerns with the collective bargaining because it may result in substantial harm to consumers in the form of increased health care cost and reduced health care options. Ms. Coster also voiced concerns about the level of state involvement provided in the bill, saying it may not be sufficient for active state supervision to immunize physicians from federal anti-trust enforcement. Ms. Coster stated that the department agrees with previous testimony given to the Committee by a representative of the US Federal Trade Commission (FTC) as well as two letter submitted by the federal agency regarding similar collective negotiating legislation in the State of Texas and in Washington DC. [Copies on file.] She referenced the FTC's prior investigations and enforcement actions that have found an increase in health care costs and a possible decrease in health care services where collective negotiation is allowed as potential harm to consumers. Ms. Coster agreed with Mr. Lohr's conclusion that costs would likely increase in Alaska if this legislation were passed. Ms. Coster pointed out that while there are two primary limits to collective bargaining contained in the bill, these limits are insufficient to protect consumers from substantial mark-ups. The first limitation, she said is the definition of "market share" as 15 percent, with the provision that any health care plan that has over 15 percent of the market share could be subject to physicians forming a group for the purpose of collective negotiations. She explained the second limitation as where a health care plan has less than five percent of the market share, the physician group may not exceed 30 percent of the market in that service area. Ms. Coster said these limitations are not based on accepted concepts of market power. For instance, she stated that a 15 percent of the market is not ordinarily presumed to constitute market power. She also stressed that the limitation of physicians groups to 30 percent of the providers would not affect the group's ability to raise prices. She said these two factors could result in 100 percent of physicians located within a geographic service area negotiating with a health care plan that is only five percent of the market share. She also talked about the impact a physicians group could have on a small health care provider. Ms. Coster next addressed the prohibition on boycotts and concerted actions by physicians saying that when negotiating on price terms, there is no affective prohibition on boycotting. She was unsure if the omitting of such a stipulation was an oversight or a deliberate action. She admitted that the bill does contain a provision for concerted actions, but was unsure if it was sufficient. Ms. Coster stated that another area of concern is the provision in the bill that relates to community issues under the State Action Doctrine. In order to obtain immunity from federal prosecution, she said, state officials must actively supervise the process and ensure competitive conduct. She cautioned that the courts have set high standards for this activity. She explained that the courts have ruled that the state agency must have and exercise ultimate control over the challenge conduct and to exercise sufficient independent judgement and control so that the details of the rates and prices have been established and is the product of deliberate state intervention. An agreement by the parties is not sufficient to prevent anti-trust actions, she stressed. She went into more detail about the requirements of the state to oversee the negotiation process. She added that the legislation fails to place the burden of proof on the parties that propose a contract but instead on the Attorney General's Office. However, she admonished, the time frame allotted for state review was not adequate and the legislation does not provide the Department of Law with any of the information necessary to make an analysis nor any investigative authority to obtain that information. Co-Chair Torgerson stated his intent to adopt a proposed committee substitute as a working draft. Senator P. Kelly suggested taking from the previous testimony, all the warnings of potential problems and instead to focus on the actual detriments to constituents. He compared the statements to the tort reform arguments heard during a previous legislative session when that matter was being considered. Senator P. Kelly returned to his earlier reference to the Penn State University study that questioned the findings of the study cited by the Division of Insurance. He then clarified that the FTC as an agency, did not testify on this bill but rather an individual who works at the commission gave testimony. Therefore, Senator P. Kelly surmised that the FTC has not stated a pro or con position on the legislation. Senator P. Kelly pointed out letter from the Department of Law, which listed concerns with the bill. [Copy on file.] He also noted letter from the Division of Legislative Legal and Research Services that disputes many of the claims of the Department of Law. [Copy on file.] Senator P. Kelly suggested simply placing a sunset clause on this legislation to see what would actually happen. He warned of the results of the mergers of many large insurance companies. He felt that doctors should be allowed to speak out for the benefit of their patients and should not have to chose between salary and their ethics oath. He asserted that every argument made against this bill is refuted in some way. Senator Adams agreed with the suggestion of a sunset clause. He asked if this bill would change the services or goods delivered to consumers in Alaska by federal medical programs. He stressed that it was difficult for him to understand the effect this legislation would have on Alaskans as well as the amount of funds needed from the state. Mr. Lohr responded that the bill would change the price of goods and services delivered in Alaska. If the prices did not increase, he wondered what the point of the bill would be with regards to increased market leverage. Senator Adams asked what impact this bill would have on federal programs. Mr. Lohr said he would have to research before offering an assessment. He said he would provide that information to the Committee. Senator P. Kelly asked for a direct assessment on general cost increases as well. He noted the claim that the costs would rise was based on a study that has been found to be at fault. Mr. Lohr thought the Charles River study did provide a clear statement on its assumptions and methodology, which allows it to be criticized. He said that other testimony presented to the Committee regarding cross-impacts was based on non-germane studies and provided no information about the studies themselves or the methods employed. Therefore, he said those claims were more difficult to assess. Co-Chair Torgerson asked if the witness had the Penn State University study. Mr. Lohr did not, but would obtain a copy. Co-Chair Torgerson asked if the proposed committee substitute, LS-1291\I, incorporated all previously submitted amendments except for Amendment #1. Senator P. Kelly explained that the committee substitute does incorporate the amendments but that it does not provide for a sunset date. He detailed the changes beginning with Section 2, which was removed in the committee substitute. He noted this language was present in a similar House bill that addressed contracts between doctors and insurance providers. Senator P. Kelly stated that throughout the committee substitute, references to the commissioner of the Department of Natural Resources was changed to the Department of Law. Senator P. Kelly continued that a new subsection was added to provide for active state oversight of the contract negotiations as required by the States Action Doctrine. Senator P. Kelly pointed out that a cleanup was made in last page of the bill, which he said was not germane to the legislation. He did not detail what language was removed. Senator P. Kelly next stated the committee substitute added clarification to the description of the substantial market power within the geographic service area. This allows the legislation to more individualize the grouping of physicians into their own service area to the market power of the insurance companies within that area, he explained. He said this was to avoid grouping of all physicians in the state into one large group. Senator P. Kelly relayed that there was some question over the covered lives and the total population in the geographical service area. He said language was inserted in the committee substitute on page three, lines 20 and 24, to give a more defined number. Senator P. Kelly concluded with a comment about the sunset clause. [Indiscernible] Senator P. Kelly commented that the biggest concerns addressed in the committee substitute were switching the contract portion to the Department of Law and the matter of the geographic service areas. Senator P. Kelly moved to adopt the committee substitute, LS-1291\I, as a work draft. Senator Adams would not object to adoption but asked for time to review the committee substitute before reporting from Committee. He said he preferred a sunset clause of two or three years rather than five years to give the legislature a chance to review impacts on consumers and, if necessary, take action at an earlier time. Senator P. Kelly commented that the next legislature has the ability to repeal this law if it were shown to be detrimental. Secondly, he stated the health care market is evolving. He stressed that Health Management Organizations (HMO) could begin doing business in the state in the next few years and if the sunset clause were enacted before the arrival of HMOs the problem of payment to physicians could arise again. Senator Leman asked if the committee substitute adequately addressed the concerns about market share raised by the Department of Law. Senator P. Kelly asserted that he thought the matter of market share was adequately addressed in the committee substitute. He commented that he felt that the entire state could be considered one market share. However, he said the committee substitute narrowed the scope to the area within the market that the physicians actually practicing. He qualified that for some specialties, such as cardiology, the practicing area for a physician could encompass the whole state, but that that issue was addressed in the committee substitute. There was no objection and the committee substitute, Version "I" was adopted as a workdraft. Senator P. Kelly verified that the proposed amendments #1 through #5 were included in the committee substitute. AT EASE 10:43 AM / 10:46 AM Co-Chair Torgerson noted remaining bills scheduled on the day's agenda, SB 289 and SB 290, would not be heard at this meeting. Co-Chair Torgerson noted a new fiscal note for SB 290 was distributed to members to fund pupil transportation at the full amount requested of $5,079,900. Debate resumed on SB 256. Senator P. Kelly told the Committee that Becky Cerney, Director of State Legislation, American Medical Association was available on teleconference from Chicago, Illinois to address any of the questions raised. AT EASE 10:47 AM Amendment #6: This amendment deletes "geographic" everywhere it appears in the committee substitute. The term, "geographic service area" now reads, "service area". Senator P. Kelly moved for adoption and explained the amendment is to address concerns voiced by the Department of Law and the Division of Legal and Research Services. Without objection, the amendment was ADOPTED. Co-Chair Torgerson stated his intent to allow members a couple of days to review the committee substitute before the Committee takes further action. Senator Adams requested information on how the states of Washington and Oregon handle collective negotiating by physicians. He wanted to know what fees could be negotiated under the other's provisions. Senator P. Kelly clarified there is a difference between collective bargaining, which applies to labor unions and collective negotiating. He stated that the physicians under this legislation would not be allowed to engage in the same activities as collective bargaining units. He suggested that members mentally replace "collective negotiating" whenever they hear "collective bargaining" in discussions about this bill. Co-Chair Torgerson ordered the bill HELD in Committee. ADJOURNED Senator Torgerson adjourned the meeting at 10:51 AM. SFC-00 (7) 04/03/00