SB 8-REPEAL CERTIFICATE OF NEED PROGRAM  3:33:49 PM CHAIR WILSON announced the consideration of SENATE BILL NO. 8 "An Act repealing the certificate of need program for health care facilities; making conforming amendments; and providing for an effective date." 3:34:38 PM GARY ZEPP, Staff, Senator David Wilson, Alaska State Legislature, Juneau, Alaska, provided the sectional analysis for SB 8 as follows: [Original punctuation provided.] Sections 1-3: AS 12.25.030(e) & AS 12.55.155(c)(36)  PAGE 1, LINE 4 - PAGE 2, LINE 4: Makes conforming amendments to AS 18.20.400 and AS 18.20.499 to eliminate references to AS 18.07.111, which is repealed under sections 9 and 10 of the bill. Section 4: AS 18.20.400(c)  PAGE 2, LINE 8 PAGE 4, LINE 10: Makes a conforming amendment to AS 18.26.220 by removing references to repealed sections of law. Section 5: AS 18.20.400  PAGE 4, LINES 11 - 23: Makes a conforming amendment to AS 18.20.200(c)(7)(A)(i), which defines a "residential psychiatric treatment center" licensed by the Department of Family and Community Services. Section 6: AS 18.20.499(2)  PAGE 4, LINE 24 PAGE 5, LINE 5: Makes conforming amendments to AS 18.20.499(2) to eliminate references to AS 18.07.111, which is repealed under sections 9 and 10 of the bill. Section 7: AS 18.26.220  PAGE 5, LINES 6 16: Repeals a section of uncodified law, section 4, chapter 275, SLA 1976, which provided a transition to allow medical facilities in existence or under construction before July 1, 1976 to obtain a certificate of need. Section 8: AS 18.35.399(9)  PAGE 5, LINES 17 - 29: Makes a conforming amendment that removes the reference to the "certificate of need" statute AS 18.07.111, and replaces it with the updated statue reference under AS 18.20.400 (d), "Definitions". Section 9: AS 18.07.021 - 18.07.111; AS  21.86.030(c)(1); AS 44.64.030(a)(18); and AS  47.80.140(b)  PAGE 5, LINE 30 PAGE 6, LINE 1: Repeals all of AS 18.07, which describes the certificate of need program for health care facilities, and AS 21.86.030(c)(1), AS 44.64.030(a)(18), and AS 47.80.140(b), which also relate to the certificate of need program. Section 10: Section 4, ch. 275, SLA 1976, is repealed:  PAGE 6, LINE 2: Repeals section 4, chapter 275, SLA 1976. Section 11: Certificate of Need; Applicability:  PAGE 6, LINE 3 LINE 8: Amends uncodified law and provides that the Department of Health may not take action on or after the effective date of sections 1- 11 to revoke, enforce, or modify a certificate of need issued to a health care facility before the effective date of sections 1-11 of this Act. Section 12:  PAGE 6, LINES 9 - LINE 14: Amends uncodified law by adding a new subsection that directs the Department of Family and Community Services to create necessary regulations by July 1, 2025, to implement the changes made by this Act by, but not before the effective date of sections 1-11 of the Act. Section 13:  PAGE 6, LINE 15: States that section 12 of this Act takes effect immediately under AS 01.10.070(c). Section 14:  PAGE 6, LINE 16: States that, except as provided in section 13 of this Act, this Act takes effect July 1, 2026 MR. ZEPP noted that Sections 5, 11, and 12 erroneously refer to the Department of Family and Community Services (DFCS) instead of the Department of Health (DOH). 3:40:58 PM CHAIR WILSON opened public testimony on SB 8. 3:41:21 PM JEFFREY SINGER, Senior Fellow, Cato Institute, Phoenix, Arizona, testified in support of SB 8 as follows: [Original punctuation provided.] My name is Jeffrey A. Singer. I am a Senior Fellow in Health Policy Studies at the Cato Institute. I am also a medical doctor specializing in general surgery and have been practicing that specialty in Phoenix, Arizona, for over 40 years. Thank you for allowing me to testify before the Senate Health and Social Services Committee regarding SB 8, which seeks to repeal health care Certificate of Need requirements. I appreciate this opportunity to provide my perspective as a health care practitioner and policy analyst to assist this committee in assessing existing policies. 3:41:34 PM MR. SINGER continued: Roughly four decades since the repeal of the 1974 federal law that incentivized states to establish "Certificate of Need" (CON) requirements before new health care facilities can developor existing ones can add beds or equipmentCON requirements still exist to varying degrees in 35 states. A classic example of central planning, CON commissions are heavily influenced by incumbent health care providers. Attempts to reform or repeal them are often met by fierce resistance from the incumbents who try to make the case that they only have the interests of the general public in mind. CON laws render state health care systems sclerotic and unable to rapidly adjust their infrastructure to meet the changing demands of public health emergencies. Many governors suspended CON laws during the public health emergency. State legislators should formally repeal the CON laws in those states and those where they were not suspended. 3:41:47 PM MR. SINGER continued: Lawmakers enacted Certificate of Need Laws based on the theory that restricting the supply of health care services would somehow reduce demand for those services and thus restrain health care spending. However, policymakers should have noticed that third- party payers, private or government-run, pay for most health care services. This insulates most patients from the actual prices of health care services, while the third-party payers absorb the costs. Consumer- patients with little skin in the game have no incentive to be cost-effective. When price signals are inoperative, demand continues despite restrictions in supply. Shortages inevitably develop while prices paid by third-party payers increase at a greater rate than would have otherwise occurred. This is basic economics. 3:42:29 PM MR. SINGER continued: The only way to reduce health care expenditures when health care consumers are largely insulated from price effects is to decrease availability and access to health care. In a George Mason University Mercatus Center working paper, a review of 20 academic studies found that CON laws largely failed to achieve their goal of reducing health care costs and concluded that the overwhelming evidence is that CON laws are associated with higher per-unit costs and higher expenditures. The numbers speak for themselves. National per capita health expenditures increased from $2354 in 1974 to $12,914 in 2021 (in constant 2021 U.S. dollars). 3:43:04 PM MR. SINGER continued: Despite the ineffective nature of these laws, states still have a variety of CON laws on the books today. The various states differ in the type and number of restricted facilities and expenditures. For example, Ohio restricts only long-term care services, while Kentucky restricts more than 24 different types of health care facilities. The state where I reside and practice medicine, Arizona, repealed all of the CON laws except for ambulance services in 1990. The Arizona Hospital Association supported this action. By 1990, California, Colorado, Idaho, Kansas, Minnesota, New Mexico, South Dakota, Texas, Utah, Wisconsin, and Wyoming repealed all of the CON laws. Hospital administrators argue against the repeal of CON laws claiming these laws allow them to generate enough revenue to provide 24-hour emergency services and uncompensated care. Physicians and other health care practitioners also provide uncompensated care and other services. Yet state professional organizations don't argue for creating a certificate of need requirement before allowing additional doctors, nurses, psychologists, physical therapists, etc., to set up practices in a state. And they would be publicly derided if they did so. 3:43:47 PM MR. SINGER continued: New health care practitioners entering the state may provide competition to incumbents. This has not stunted the growth of the health care professions. Instead, it has benefitted health care consumers by increasing choice and access. Lawmakers should heed the lessons the public health crisis provided and act now to repeal CON laws and rid their health care systems of discredited central planning reminiscent of a bygone era. 3:44:32 PM JARED KOSIN, Present and CEO, Alaska Hospital and Healthcare Association, Anchorage, Alaska, testified in opposition to SB 8. He stated that to treat the repeal of CON as a binary choice grossly over-simplifies the issue. Healthcare is complex. The wholesale removal of CON directly threatens care access for vulnerable people, transparency, and overall healthcare costs, which is why most states still have CON laws. He agreed that healthcare costs are too high. However, healthcare is not a free market and will not respond as one because the prices for over 50 percent of healthcare services rendered are set and paid for by the government. MR. KOSIN stated that eliminating CONs paves the way for a proliferation of ambulatory services that only serve patients with private insurance. This happened in Georgia, Pennsylvania, Ohio, and other states. Repeal of CON jeopardizes patients with Medicare and Medicaid. It also undermines the ability to offer core services at community hospitals. The repeal of CON laws leads to a proliferation of surgery and imaging centers; emergency care, labor and delivery, inpatient rehabilitation, and dialysis are impossible without these services in hospitals. He stated that people would not be better off having more surgery and imaging centers when hospitals cannot provide emergency services or deliver babies. MR. KOSIN opined that balance is needed. The CON program is flawed; it has not been updated in twenty years. All the regulations for the CON program are in Alaska's Administrative Code. Modernizing regulations is the solution. He urged the legislature to direct the Department of Health to work with stakeholders on refining the Alaska Administrative Code and vote no on SB 8. 3:46:58 PM BILL WARD, representing self, Delta Junction, Alaska, testified in support of SB 8. He stated that since 2018 a bill to repeal CON has been before the legislature. He has watched each bill die due to the legislature's irresponsible method of delaying bills to the end of a session for a budget battle. The legislature ignores action on important bills. Delta Junction needs advanced medical care facilities. CON restrictions exacerbate the situation. Delta Junction has two clinics that provide good urgent and routine care. Fairbanks' hospitals have handled emergency, advanced diagnostics, and extended care. The need for medical care in Delta Junction is recognized, but CON laws prevent the expansion of care. Delta Junction patients are transported to Fairbanks if not stabilized within one day because the clinics lack the proper diagnostic equipment. Ambulance transport to Fairbanks is impeded by the weather and increased road use. Delta Junction's population is rising, and its citizens are aging. CON laws keep all eastern Alaska from receiving proper healthcare. 3:50:42 PM STEVE FRANK, Board Member, Foundation Health Partners, Fairbanks, Alaska, testified in opposition to SB 8. He stated that Foundation Health Partners has a hospital, clinic, and long-term care facility. The foundation is a locally owned nonprofit organization. Surgery and imaging are two services that bring in money for the foundation. Repealing CON would allow others to take these services from the foundation but not offer the services that would not earn them a profit. Passing CON will hurt the foundation and cause Medicaid to increase. CON is a complicated issue. He warned the legislature to be careful in their decision because repealing CON will not reduce costs; it will increase the Medicaid budget. 3:52:58 PM PATRICK SHIER, Representative, Pacific Health Coalition, Wasilla, Alaska, testified in support of SB 8 and said he favors measures that enlist the power of the competitive markets in pursuit of better healthcare access and pricing. The Pacific Health Coalition is a private nonprofit coalition of 49 self- funded health plans across Alaska and the Pacific Northwest. The coalition assists the 240,000 members in finding ways to provide the best pricing and value in quality healthcare. Member's plans saved over $721 million in 2021, an increase of over $100 million from the prior year. The coalition did this by leveraging available competitive principles. Competition is responsible for historic discounts in many areas, such as orthopedic surgery in south-central Alaska, where a provider approached the coalition to negotiate lower fees to reduce members' engagement in medical tourism. He opined that CON's intervention in healthcare had once been warranted, but it has since outlived its usefulness by creating barriers to Alaska's healthcare industry. Repealing CON would be the first step in unraveling many distortions in the healthcare industry. Repealing CON would help providers and consumers think of new ways to achieve high-quality, effective healthcare delivery in Alaska. 3:55:08 PM MARY KASPARI, President, Interior Alaska Hospital Foundation, Delta Junction, Alaska, testified in support of SB 8 and provided a brief history of CON. She said Delta Junction is an underserved healthcare area in Alaska where CON laws do not help. From Delta Junction to the Canadian Border, there is no advanced health care available for Alaskans, only day clinics. The nearest hospital is 100 miles away, and getting there can be difficult due to weather, military convoys, and trucking services. A person does not realize the severity of the issue until it is their loved one in a life-threatening situation where time is of the essence. Repealing CON will increase Delta Junction's ability to knit necessary medical services in the community with the vast surrounding service area. 3:56:55 PM DAWN FRAZIER, representing self, Delta Junction, Alaska, testified in support of SB 8. She said outlaying communities drive through Delta Junction to get to a hospital in Fairbanks. People in those communities have driven in dangerous road conditions to reach Fairbanks to save lives. Community volunteers have worked hard to improve healthcare by establishing a clinic and pharmacy. The volunteers are now working to develop a small community hospital like those in Valdez, Nome, Cordova, and Wrangell. It is a big task for a worthy cause but receives no support from CON. Healthcare foundations, corporations, and organizations can weigh in on the decisions affecting Delta Junction, while its residents pay more for their care, additional for travel, hotels, and meals. The CON process is cumbersome, unfair, and influenced by profit and expenses. She opined that it is time to do away with the CON program. During COVID hospitals did not have enough beds due to CON laws. 3:59:58 PM ERICK CORDERO, Vice President, Alaska Policy Forum, Palmer, Alaska, testified in support of SB 8. He stated that CON is detrimental to Alaskans. CON makes opening new healthcare facilities in Alaska difficult and expensive because patients pay higher costs for lower-quality care and have fewer options. CON laws require businesses to prove their services are necessary before entering the market, which limits accessibility and innovation. The laws also make it challenging to adapt to emerging healthcare needs quickly. Allowing existing providers to give input on their potential competition is not in the best interest of patients. COVID prompted Alaska and other states to suspend CON requirements to ensure healthcare facilities could deliver essential services. The suspension of CON created no problems but made the healthcare system more responsive to emerging needs. Alaska needs to follow the example of states that have removed CON laws. 4:01:45 PM ANTONIA LEONARD, representing self, Wasilla, Alaska, said she supports SB 8, the repeal of CON. 4:02:31 PM CHAIR WILSON stated the committee would hear from previously invited testimony that could not testify due to time constraints. 4:02:38 PM JAIMIE CAVANAUGH, Attorney, Institute for Justice, Arlington, Virginia, testified by invitation on SB 8 and said that from a policy perspective, several states with CON laws purposely exclude rural areas from the program. Alabama, Oregon, Tennessee, Washington, and Florida excluded rural areas from their Con programs to encourage hospitals and other healthcare facilities to expand into new areas. She opined that Utah and Colorado had not had a hospital closure since 2005, and neither state has CON laws. Therefore, it cannot be CON laws that prevent rural hospital closures. In 1987 the federal government repealed CON laws because findings showed the laws failed to control healthcare costs and were insensitive to community needs. Since then, various US government agencies have continued to be consistent and support CON repeal. In 2019 the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice submitted testimony supporting Congress's repeal. They testified that CON proponents concede that CON laws allow incumbent providers to earn greater profits than they would in a competitive environment. They argued that these providers use profits to cross-subsidize charity care. However, the evidence does not show that CON laws advance that goal. Empirical evidence contradicts the notion that dominant providers use market power to cross-subsidize charity care. DOJ and the FTC reviewed empirical evidence in a peer-reviewed journal and found that CON does not increase the amount of cross-subsidized charity care. They found that CON laws lead to higher costs, lower quality, and decreased access to care. She urged support for SB 8. 4:05:32 PM ZACH YOUNG, representing self, Anchorage, Alaska, testified in support of SB 8. He said CON laws are antiquated and have done the opposite of their intent. Alaska has severe medical care needs and a lot of rural communities. CON has caused undue hardship to Alaska's rural communities that should have hospitals. He stated his belief that repealing CON will provide affordable healthcare and competition within the hospital system, thereby creating more efficiency for the entire state of Alaska. 4:07:16 PM CHAIR WILSON closed public testimony on SB 8. 4:07:34 PM MATTHEW MITCHELL, Senior Research Fellow, Knee Center, West Virginia University, Morgantown, West Virginia, said he wished to address the comment that healthcare is not a free market and Medicaid costs will increase with the repeal of CON. He said 3 out of 10 Americans live in a state without CON, and their experience, as reported through 100 different studies, is greater access to higher quality and lower cost care. Alaska does not have to speculate what will happen with its repeal. A paper by Nancy Miller, Charlene Harrington, and Elizabeth Goldstein titled Access Community-Based Long Term Care: Medicaid's Role was published in 2002 in the Journal of Aging and Health. They found that CON is associated with higher per capita Medicaid community-based care expenditures. Two other studies found that CON's repeal does not affect Medicaid spending. Zero studies out of 40 found that Con is associated with reduced spending on Medicaid. 4:09:44 PM CHAIR WILSON held SB 8 committee.