CSHB 511 (HES)am-CERTIFICATE OF NEED PROGRAM  CHAIR DYSON announced the next order of business to be CSHB 511(HES)am. SARA NIELSON, staff to Representative Ralph Samuels, explained that the bill modifies certain aspects of the Certificate of Need statute to level the playing field. She said the following would provide an overview of the changes: The bill modifies the section of statute that allows the relocation of an ambulatory surgical facility to only one time as long as they still would otherwise meet all the requirements of the original Certificate of Need. It also clarifies that a Certificate of Need would not be needed in an emergency or a temporary case such an earthquake or some kind of a disaster. It also adds independent diagnostic testing facility and residential psychiatric treatment center - would make them go through the CON process if they fall within the $1 million expenditure limit. The bill also reduces the amount of time the department has to review the application from 90 to 60 days. On the House floor a letter of intent was adopted to address the Certificate of Need process by asking that a task force be assembled to go over the entire process. JANET CLARKE, Department of Health & Social Services representative, identified herself and stated: I am here to testify in support of HB 511 - Relating to certificates of need (CON). Certificate of need is a health planning process that reviews health facility construction projects that cost over $1 million dollars to determine whether there is a need for the project. This particular bill does not do away with CON; it keeps the underpinnings of the statute in place. There are nine sections in the bill and I'll quickly go over a sectional review. As Sara stated, Section 1 corrects an inequity for ambulatory surgery centers related to relocation and whether a CON is needed for relocation. Section 2 has two parts. It basically limits the relocation outlined in the first Section to one time. It also amends the statute to include equipment that is purchased through a lease provision that for CON purposed, the net present value of the lease space or equipment is used to calculate the cost. Currently, if you purchase equipment that costs over $1 million, you go through the CON program. If you lease it, you do not. This would put those two purchase processes on the same level playing field. Section 3 amends the provision for emergency or temporary CON that's currently in the bill. Section 4 would add "residential psychiatric treatment centers" to fall within CON review. The department is particularly interested in this provision. As you know, Medicaid is a primary payer for residential psychiatric treatment centers (RPTC). We have several we're paying for. We're paying for children in out-of- state placement. At any one time there's over 500 children who are in these out-of-state residential psychiatric treatment centers. We have a program to bring these kids home to Alaska. We want to make sure that as we built these RPTCs in Alaska that it's done in a very thoughtful, planned process and that we do them close to hub communities in Alaska because these kids do better when they're closer to home. So we believe that the CON program is the best mechanism to look at this planning process for RPTCs. Section 5 adds a new section in law relating to time standards for review by the department. It shortens the time period that the department has to review CONs from 90 to 60 days internally. Section 6 amends the definition of health care facilities to include independent diagnostic testing facilities as well as residential psychiatric treatment centers. Section 7 goes along with Section 6. It adds the definition for what a residential psychiatric treatment center is. Section 8 deals with the applicability issues of when this law is applicable to what. Section 9 is the effective date clause of the legislation. CHAIR DYSON said he appreciates the problem they're trying to solve in Fairbanks, but he didn't understand why an empty building should have a CON grandfathered in. MS CLARKE pointed to Section 1 and said a few years ago the Legislature added language that was confusing and that is the language that would be deleted. She reminded members that CON covers capital construction and services. HB 511 gets rid of the provision where someone could construct a new ambulatory surgical center and take their certificate of need with them. That provision is counter to CON because it's actually a capital construction review that looks at whether you're spending $1 million on construction or adding a new service. CHAIR DYSON asked Ms. Nielson to further clarify. MS. NIELSON reported that according to Legislative Legal Services, the language in Section 2 makes the last sentence in Section 1 (c) unnecessary, which is why it would be deleted. "Basically, you can't have a building - you can't have one person - have their services in one building and have the certificate of need and then move over to another one. And then that building that was left, they still have to go through the certificate of need process if somebody else wants to move in there - assuming that those people didn't already have a certificate of need and are exercising their one time relocation." CHAIR DYSON admitted that his blood pressure rises when he thinks about the issue. Furthermore, he said he's more confused because Ms. Clarke says this is just for construction and then the bill says it's okay to relocate. In addition to that, he heard it's also for the present worth value of leased equipment, which isn't construction either. Section 1 simply gets rid of the restrictive and stupid language, but then in Section 2 "you only eliminate stupid once and if we'd ever done anything else stupid like this, in law, that we can only [make a] fix once." MS. NIELSON agreed that the final sentence in Section 1 (c) wasn't needed. The first part of Section 1, subsection (c) says a business may relocate an ambulatory surgical facility once without obtaining a certificate of need as long as bed capacity and the number of categories of health services remain unchanged. Any subsequent business or person moving into the site is no longer addressed, which is what the sponsor intended. CHAIR DYSON opined it all has to do with capacity and a person should be able to move from site to site without jumping through hoops as long as capacity isn't changed. SENATOR GUESS questioned why the language they propose removing is problematic except that it is redundant. "You can't use that site unless you get a certificate of need because they want to see, 'Is there the capacity for that site to go back up how it used to be?' so if you take this out, and someone moves from one site to the other and someone wants to use that previous site, they should have to go through the certificate of need to ensure that we're not overcapacity." MS. NIELSON agreed that the language is redundant and that's why they propose removing it. MS. CLARKE said it is a confusing section of law, but she needed to clarify her previous statement. Although she was focusing on the construction aspect, certificate of need applies to the expenditure of $1 million or more for construction, renovation or the purchase of new equipment. 2:55 pm  CHAIR DYSON asked her to show the committee how, "with the help of government intervention, we've gotten into this bizarre situation where having more than adequate capacity drives prices up and how choices by consumers can drive prices up and then specifically this section here about mental health and how after 31 days or 30 days, government has to pay and how having choices there can drive costs up." MS. CLARKE replied health care isn't as clean cut as other market forces that we're used to because the decision to go to one place or another for a particular procedure is divorced from the economics of that decision. "We might make that decision related to where our doctor refers us based on the proximity to a hospital," she said. Furthermore: As government, and government plays a big part in the economics of the health care industry in Alaska whether it's Medicaid or Medicare - we're a big player in that so we, particularly for certain parts of the health care system, as the primary payer - you are - the Legislature appropriates - particularly for long term care, nursing homes, for mental health services - we are the primary payers so we have an interest in looking at this regulation to make sure that it's done in such a way that the primary payer is not stiffed with the bill in the end because the individual decision is not based on economics of the decision. CHAIR DYSON said that after his discussion with the commissioner, he understands that if there are several providers, there's nothing keeping a patient whose costs are paid by Medicare from selecting the very highest cost treatment as long as the provider hasn't been disqualified for some reason. MS. CLARKE replied there is a mandatory freedom of choice in both the Medicare and Medicaid programs. CHAIR DYSON continued to say that he also understands that when someone is in a mental health residential program for more than 30 or 31 days then Medicaid picks up the entire cost for the rest of the time the person is in the program. He wasn't clear whether both adults and children were included or just children. MS. CLARKE replied she'd have to check on that then clarified that this is about children and adolescents and just as with any insurance program, there are certain standards for when insurance coverage would apply. For an acute care setting, which is psychiatric hospital treatment, she thought 30 days was the industry standard. After that, if no placement is available for the child then the general fund would likely have to cover 100 percent of the cost because Medicaid might decertify them. CHAIR DYSON asked what decertify means. MS. CLARKE explained that being decertified means that the 30 days is up and the child typically no longer needs the psychiatric hospital treatment, but they do need a continuum of care from mental health facilities. Through careful planning they are trying to ensure that there is in-home care, outpatient care, group homes, and residential psychiatric treatment centers so that the psychiatric hospital isn't the only alternative. CHAIR DYSON asked if she said that decertify means going from acute hospital care to a lesser level of care. MS. CLARKE said decertification means the insurance program won't pay any more. SENATOR GUESS referred to Section 1 and asked whether she could continue operating an original facility without going through a new CON process if she had also constructed a new facility and was running it using the original certificate of need. MS. CLARKE said she thought the answer was yes, one time, but she would need to verify that. She then asked whether the language didn't refer to a sale. SENATOR GUESS said the language doesn't refer to a sale; it refers to moving. Furthermore, she said it seems that there could be over capacity if that were allowed. MS. CLARKE read the existing law that says, "as long as neither the bed capacity nor the number of categories of health services provided at the new site is greater." SENATOR GUESS agreed the new site couldn't have greater capacity, but she wondered whether she couldn't run both sites using just the one CON. CHAIR DYSON opined that you couldn't do that because that would increase the capacity set in the original CON process. SENATOR GUESS asked whether the CON controls the capacity. CHAIR DYSON explained it's like a government license to provide X amount of service. CHAIR DYSON announced that he wanted to use the balance of the time to take public testimony from anyone that wouldn't be available on Monday. JOHN WILLIAMS, Mayor of the City of Kenai, testified via teleconference to say that they are interested because there are several groups that would like to build a psychiatric facility for children in Kenai. They applaud Senator Green's work to bring children home and place them in care units in the state. Most recently the city has been involved with two capable companies each of which would like to build a 30-bed unit in Kenai. Both companies have expended considerable time and money to get started this year, but he sees many issues in the bill that would prolong and delay the process. Pointing to the DHSS fiscal note dated 3/24/04 and prepared by Sherry Hill he noted it says that 728 children between the ages of 7 and 19 were served in FY 02 and that it's conceivable that up to 150 new RPTC beds could be built in Alaska. The 60 beds that might be built in Kenai would just scratch the surface of need for these types of facilities and he said he could see no reason to delay by tying the companies down with a great deal more paperwork. In conclusion he said the City of Kenai recommends placing the effective date of the bill as of January 1, 2005 rather than making it effective immediately. Doing so would allow the two companies working in Kenai to begin building the facilities immediately. He added that he understands there might be 30 to 60 other beds that are in the planning stage that might also be expedited if the effective date were to be changed. This too is beneficial to the state since DHSS recognizes an immediate need for 150 beds. PAUL FUHS, Alaska Open Imaging representative, said he'd like to frame some of the issues the first of which is why the bill is so confusing. The reason, he said, is because it's a bill that's designed to address a specific lawsuit. Another point is that this is an effort to restrict what people can do. For the government to tell you whether or not you can go into business is the most extreme action that a government can take, he said, so there'd better be solid justification for doing that. He continued to say: Mr. Chairman, you hit the nail on the head when you asked, 'Show us where the cost savings are going to be.' Because what's actually happened is when these independent testing facilities have resulted in lower prices - up to 30 percent lower. So then you get into the argument - well it's not really cost control. Now it's over to we want a level playing field. And the hospitals - we need to overcharge on imaging because we're making up for something else. And in all the hearings that were held, no one came forward and showed their economics to show why they needed this. They didn't come and show why when we went through this - one hospital, Providence, they made $13.4 million in revenues over expenses last year. So why do they need that protection and what happened to that money? And then you get into the smaller hospitals and they say well it's to protect the smaller hospitals, but the smaller hospitals themselves said that new imaging would not develop in small communities where there are low patient volumes, but only in the largest markets of Anchorage, Fairbanks, Wasilla, Kenai and Juneau. So it's not the small hospital. That is a completely empty argument that the department itself dismisses. It's really the big hospitals trying to limit competition. That's what it comes down to. Although some of these are listed as non-profits, I pulled off of Moody's or Dun and Bradstreet, some of the financials on some of these corporations. Providence - $3.5 billion in revenues last year. This isn't some mom and pop non-profit. They're also showing profits of $58 million a year - 38 percent increase over the previous year. Triad hospitals in the valley - a $3.8 billion corporation - they're in the Fortune 500. That's who's managing that. Banner Corporation for Fairbanks Memorial - $2.1 billion corporation - a private non-profit corporation. So before you believe the idea that these are poverty- stricken operations that need government protection, I hope that you'll take a look at some of these financials and maybe some other information will be brought out. The other thing I want to mention - you can level the playing field two ways. You can either increase government regulation or you could decrease it and that's what we offered on the House side. We said well let's relieve the hospitals of this too especially for imaging. This technology driven sector - it's not a bed - you want the best technology available. But when that was offered, it was not even allowed to go to second reading on the House floor to even have the amendment considered. So that's how strong it's been to even try to restrict the discussion on this. I hope your committee will look into all these issues. I think you'll hear a lot of testimony and hopefully we'll have a much clearer discussion on the issues than occurred in the other body. TAPE 04-26, SIDE A  3:05 pm SENATOR GUESS said she looked forward to a discussion with his client about policies for the uninsured and the underinsured and whether anyone from those populations gets served in these facilities. She then remarked that government does get involved with natural monopolies in situations such as this so it's an overstatement to say that there isn't a government role in this type of market. Whether it's appropriate or not is a separate question. MR. FUHS reiterated if you restrict people's private activities then you must have strong justification. CHAIR DYSON referenced the goal of bringing children with psychiatric needs home to Alaska and asked Ms. Clarke how long it would take the two companies already working on the peninsula to go through the CON process. MS. CLARKE explained that they would first submit a letter of intent so that DHSS would send them an application. CHAIR DYSON asked whether there was a review and culling process when the letter of intent is filed. MS. CLARKE said that when the letter of intent is received then DHSS sends a letter back affirming or denying eligibility. CHAIR DYSON asked how long that would take. MS. CLARKE pointed to an example that took one day. The next step is for the company to submit a CON application for which DHSS provides some technical assistance. In the example referenced above, it took two months for the company to complete the application. At that point, DHSS goes through a process of declaring the application complete. That took several days in the example, but could take longer if the application was more extensive. Once the application is complete there is a noticed public hearing and in the example used that took about four weeks. After the public meeting the information is reviewed, which took four to five weeks in the example. Finally, the information is submitted to the commissioner's office for a decision. According to current statute, 90 days is allowed for the entire process once an applicant submits a CON. This legislation would shorten the process to 60 days. CHAIR DYSON asked if that was from the time the letter of intent is received to when a decision is issued. MS. CLARKE clarified it's from when the completed CON application is received to the decision. She then added that there is a 30 day comment period included within that time period. SENATOR GREEN asked whether the commissioner would issue a decision within that time. MS. CLARKE said no, the 90 day period is the time up until the commissioner receives the information. The commissioner does not have a time period within which to make a decision and that time period varies from a day or two up to several months. CHAIR DYSON asked how to avoid changing the rules in the middle of the game for the two companies already working in Kenai. MS. CLARKE said that discussions related to the effective date came up in the House and she had information in her office to further that discussion and would bring it to the hearing on Monday. With regard to Mayor William's testimony she said the department is interested in having the residential psychiatric treatment centers covered by CONs so they can be located in many communities so the residents are able to be close to their support groups. CHAIR DYSON asked if is true that the companies would still have to go through a licensing process before they could receive children that are either in state custody or in state supported treatment programs in other states. MS. CLARKE told him that is correct. CHAIR DYSON questioned how long the licensing process takes. MS. CLARKE said she would have to get back with that information. CHAIR DYSON pressed for an estimate. MS. CLARKE said she didn't have an answer. CHAIR DYSON posited it was months, but he would enjoy receiving that information at the next hearing. He then asked if DHSS could combine the licensing and CON processes and announce that they would only license so many beds within a single region. MS. CLARKE responded she would have to speak with the licensing staff. CHAIR DYSON observed that even someone that was successful in the CON process would still have to go through the licensing process. MS. CLARKE agreed then clarified that the licensing process looks at different things such as health and safety and the facility. CHAIR DYSON continued to say, "In your efforts to provide facilities where they're needed, in the government's opinion, you can only restrict people you can't make anything happen in a new place." MS. CLARKE told him they are working very hard to encourage private providers and others to look at a number of facilities across the state. "The government is doing what it can." CHAIR DYSON remarked that the answer is still yes. SENATOR GREEN asked how much longer the meeting would last. CHAIR DYSON said he'd like to wrap up in five minutes, but he wanted the committee to make it clear what additional information they want and what they're struggling with. If any members were thinking about offering amendments then he would like them to let people know so they could be prepared on Monday. SENATOR GREEN said she would like to review when the $1 million cap was set. MS. CLARKE advised that the original CON threshold was $150,000 and that was changed to $1 million in the mid 1980s SENATOR GREEN said she though the equivalency today was $2.5 or $2.75 million so if the intent is the same then it's probably still reliable for most construction. Some new equipment costs have gone down though so that might be an issue worth talking about. She then asked about the timeline and asked at what point the department releases the information publicly. MS. CLARKE said she thought it was when the review is complete, but she would get back with the information. There is an opportunity to publicly notice that someone has applied and this has been important in the past because there have been situations in which there were competing applications. SENATOR GREEN said, "I think it's very inappropriate that there is any disclosure of information about a CON application until the application is deemed complete. And I do not think that information should be posted, that information should not come from the department that should be a confidential arrangement." CHAIR DYSON asked whether she wanted to add language to the bill. SENATOR GREEN replied that with regard to amending she had a question because when they last reviewed the CON there were regulations that were at odds with current statutes. She questioned whether the regulations had been cleaned up. MS. CLARKE replied there were attempts to clean them up, but it wasn't done. SENATOR GREEN suggested that the committee draft a letter of intent saying the regulations must comport to current statute because they are woefully out of date and very misleading. She announced that she would like the certificate of need director to attend the next meeting. She then asked what the difference is between an approved adolescent treatment bed and a residential psychiatric treatment bed subject to the CON. MS. CLARKE replied she was referring to the acute care bed, which is a hospital psychiatric bed. Hospitals and psychiatric hospitals are covered by CONs. Residential treatment centers are not acute hospital care and they are not currently covered by CONs. SENATOR GREEN said she misunderstood and thought there was a current process for approving psychiatric treatment beds, but now she understands that she was talking about acute beds in a hospital setting. MS. CLARKE said yes. SENATOR GREEN asked what other acute psychiatric beds for adolescents are provided in Alaska. MS. CLARKE replied she could get that information. CHAIR DYSON asked Ms. Clarke to provide some discussion as to why the department can't say they would only license X number of beds in a community that they would pay for through Medicaid, Medicare, or general fund. He announced he would hold the bill in committee for further discussion on Monday.