SB 203-OFFICE OF ADMINISTRATIVE HEARINGS  SENATOR GENE THERRIAULT, sponsor, told members that the Senate Judiciary Committee held a few hearings on this subject last year. SB 203 is a complex piece of legislation. He has continued to discuss with the Murkowski Administration how to fashion and implement the legislation. He said his goal is to refresh members' memories on the legislation and to prepare members to consider another committee substitute (CS) in the next week. SENATOR THERRIAULT explained that the concept of a panel of administrative law judges has been in the legislative process for a number of years. Senator Ogan worked on this issue for a number of years. The purpose of SB 203 is to separate the administrative adjudication process from the agencies that promulgate and enforce regulations. Currently, an agency writes regulations and that agency's in-house staff acts as the enforcer, judge and jury over the enforcement of the regulations. Quite often constituents have contacted legislators complaining that they are not getting a legitimate opportunity to question the fairness of regulations from the agency that wrote those regulations. SENATOR THERRIAULT pointed out the concept of SB 203 is to form a centralized panel of hearing officers within the Department of Administration (DOA) to provide an arm's length between the agency and the person acting as judge and jury. The federal government and a number of states use this approach with good results. He said it is not his intent to create a centralized pool and lose expertise. However, the staff with adjudicatory functions in some agencies have extra time. His thought is to have two or three hearing officers specialize in certain issues and be assigned to a department. They would also be cross- trained so that if they have extra time they could help out with the caseload in another agency. He believes that will enable the state to better utilize the staff it has and increase confidence among Alaskans that they are getting a fair shake. In addition, it should lead to better regulations because agencies will know that the regulations they write will be adjudicated by a truly independent person who is not pressured to back the department. SENATOR THERRIAULT informed members that their packets contain a CS that contains technical changes. CHAIR SEEKINS clarified that version U was before the committee. SENATOR THERRIAULT told members that a blank committee substitute was brought before the committee last year but, rather than propose one more [at this time], he is attempting to incorporate input from the departments into one document. He noted that the testimony the committee will hear today will provide members with an overview and will not address any particular version. SENATOR OGAN told members that several years ago, he and staff worked to move a hearing officer out of what he recalled to be the Department of Revenue (DOR) because of the industry's perception [of an unfair system]. He said the change worked well. CHAIR SEEKINS said he totally supports the concept and that his questions are for the purpose of clarification. He then asked Mr. Stancliff to testify. MR. DAVID STANCLIFF, staff to the Administrative Regulation Review Committee (ARRC), gave the following synopsis of the measure. Just to bring committee members back up to speed a little bit and give you an idea of where we're at after work over the interim, the version you had before you was the State Affairs version. We had discussed some amendments to that version but, as Senator Therriault mentioned, it would probably be a better use of the committee's time to now put those together in a package of larger, more policy-oriented amendments that have been discussed with us by the administration. As has happened in other states, this issue is really not a partisan... [END OF SIDE B] TAPE 04-1, SIDE B    MR. STANCLIFF continued: ... of how to make government operate better, save money, and also deliver better adjudication to people who may want to challenge government regulations. The devil's in the details - you've heard that before and, in this case, we have a very fragmented adjudication system spread out all over the state. We have hearing officers of every size and level of expertise located in all sorts of places. We have many boards and commissions that do a lot of hearings and what the administration has asked us to do is to be sensitive to the diverse situation we have and to try to amend this legislation to have as seamless a transition as possible. Underlying the basis for that request are two things. First of all, I know it's Senator Therriault's desire and I'm sure the committee's also, not to simply disrupt the interest of the state in such a major piece of reform. Maybe, more importantly, costs are involved and so to keep costs minimal and this transition as seamless as possible, we're now going through approximately 25 suggestions that have been given to us by this administration - we're still discussing some of those.... We hope to have at your next meeting, Mr. Chairman, those in the form of a CS and we will go through each one for the committee members to consider. I want to state for the record that we have worked with people both inside and outside the process. We've worked with hearing officers, we've worked with other rd ALJs and, on February 3 ... there is an expert panel assembled by the state Association of Administrative Law Judges who are going to discuss this piece of legislation. There's quite a bit of interest in it, it's sort of a new model. And they're going to be available on-line in the Terry Miller building from noon to 2. It's not a legislatively convened meeting but we're going to be able to listen to what they have to say about, first of all, how their states implemented and constructed their model, how it compares to ours, and hopefully they'll warn us on some of the things to avoid and some of the things to try to do. So I want to make members and staff to members aware of that meeting. So we've had a lot of input from a lot of places. You do have on-line this morning Mr. Dan Houghton who is a chief financial officer for Alaska Regional Hospital. His particular institution, I believe, has been kind of in the centrifuge of the regulation process for almost 10 years now and is still not out. He would like to, if he could, speak to the committee and unless there are questions you would want me to answer at this time, I would defer to Mr. Houghton if he's on-line. CHAIR SEEKINS asked Mr. Houghton to proceed with his testimony. MR. DAN HOUGHTON, Chief Financial Officer at Alaska Regional Hospital, provided the following timeline of events that correlate to the discussion on SB 203. · During 1991 to 1993, the Alaska Regional Hospital felt the Medicaid rates it was given were inadequate for its costs. · Alaska Regional Hospital filed a rate appeal in 1994. · A series of events left the hearing officer position vacant for approximately a two-year period so a hearing officer did not hear the case until 1997. The hearing lasted approximately three weeks. · On May 26, 2000, the hearing officer who heard the case issued her decision. The Alaska Regional Hospital was seeking reimbursement of an additional $4 million in costs. · In June of 2000, the hearing officer's decision was submitted to Commissioner Jay Livey. · In April of 2001, Commissioner Livey issued a decision. Most of his ruling reversed the hearing officer's decision. · The Alaska Regional Hospital filed an appeal in April of 2001 in the Alaska Superior Court. · The Superior Court ruled on the case on January 9, 2003. The Alaska Regional Hospital felt that ruling was in its favor and the dollar impact at that time was about $4.2 million. · The Superior Court, as part of the administrative ruling process, sent that ruling to the commissioner for action on the ruling itself. In February or March of 2003, Commissioner Gilbertson remanded the ruling to the hearing officer for action. · The current hearing officer set oral argument for October of 2003 however, due to a change in maternity leave plans, the hearing officer departed earlier than planned. The Alaska Regional Hospital now hopes its oral argument will be heard in March or April of 2004. MR. HOUGHTON told members the Alaska Regional Hospital is anxiously supporting this bill. The hospital [board] believes had the new system been in place, the process the hospital went through would have been much faster. SENATOR OGAN asked for clarification of the Superior Court's ruling and the remand to the hearing officer. MR. HOUGHTON explained that his understanding is that when the Superior Court ruled, it actually sent the case back to the commissioner for action upon that ruling. The commissioner has the ability to either make a decision upon that ruling or remand it to the hearing officer for review and a "ruling on the ruling." That was the process the current commissioner chose. SENATOR OGAN asked, "Is it the same - the fox is watching the hen house that you had before?" MR. HOUGHTON said his quick estimate is that four to five different hearing officers dealt with this particular case over the last 10 to 11 years. SENATOR OGAN asked if he has calculated the time value of money and how much that will be. MR. HOUGHTON said he has calculated about $2 million to $2.5 million in interest. He repeated his support of the legislation, as the hospital board believes it will aid the process that the Alaska Regional Hospital and other facilities have experienced. He maintained that a centralized hearing officer panel will provide efficiency found in a group. The larger body will allow the proceedings to continue regardless of personal issues that may arise with individual hearing officers. MR. STANCLIFF asked members to consider the following matters. No matter how one sides in Alaska politics, it is never in the best interest of government to do something it ultimately fails in and is costly. Under today's system, it may be impossible to get out of the regulatory centrifuge, unless the agency wants to release that party. He told members that the Alaska Regional Hospital case is one of many that he has heard of in which a party petitions for relief and the decision goes to the commissioner, is remanded to the hearing officer, and back and forth, on and on. More importantly, a 2001 National Law Judge Foundation paper and an examination by a law professor at UCLA provide the genesis of why this issue is before the committee today. Those papers are premised on the fact that when the courts give deference to agency decisions, many people suppose that deference is given because of all of the work the hearing officer may or may not have done - collecting evidence and taking testimony. However, that simply is not the case. The courts actually give deference to the last decision and the highest power in that decision making process, the commissioner. The courts do not even have to look at what the hearing officer did. He also asked members to keep in mind the rule of necessity, which has developed over the years within the judicial system. That rule allows a judge to hear a case even if the judge is biased when there is no other way to deal with the case. His research shows that more frequently, over time, the courts have allowed those decisions to stand. As a result, the states have said: Look, if we're going to have this expertise argument constantly before us that the agencies put up, and we're going to have commissioners who have perhaps ex parte contact making our decisions, and we're going to have courts upholding those decisions based on the rule of necessity, the only avenue for our citizenry and the people who represent them to have a fair and impartial hearing, is through a more impartial adjudicator. That, as much as anything, has driven the reform in other states. MR. STANCLIFF said he is not intimately familiar with the Alaska Regional Hospital case so he does not know if that case is tinged with that problem. He asked members to consider that those problems are being factored into the discussion to change to independent adjudicators and create time limits on the process for seeking additional relief. CHAIR SEEKINS said his impression is that it should be the state's responsibility, or the responsibility of the hearing officers, to reach a fair and just decision. Many times the perception of the outside party, when that party is aware of a personal relationship between the hearing officer and the prosecutor, is that the party will not get a fair hearing. He applauded Senator Therriault's effort to address this issue. He asked if SB 203 contains a provision that allows the panel to contract with an outside source if it does not have anyone available with an appropriate level of expertise. MR. STANCLIFF said one of the amendments he is working on would allow the chief hearing officer to provide expertise at the hearing or allow the agency to conduct the hearing. The beauty of this model is that the chief hearing officer will be monitoring what is going on so the agencies will be aware of that oversight. He believes the amendment will address the expertise issue but not tilt it so far as to be used as an excuse to do away with due processes. CHAIR SEEKINS said his concern is to be able to expand the pool beyond the panel on a case-by-case basis when necessary. SENATOR OGAN asked Mr. Stancliff to recount for committee members the meeting between a hearing officer and a constituent when Senator Ogan employed him. 9:08 a.m. MR. STANCLIFF told members when a constituent first came to then Representative Ogan's office, as staff he would explain that if an issue is in some form of adjudication or under legal proceedings, it is not always best or proper for Senator Ogan to get involved. In this case, the constituent asked Mr. Stancliff to attend a meeting with agency staff to verify whether the horror stories he described are true. MR. STANCLIFF said he attended the meeting and the constituent asked questions that he thought Mr. Stancliff should hear the answers to. At one point, an agency representative warned him to be careful or the agency would be looking into other matters. He was speechless. That demonstrated to him the agency's level of impunity. The constituent's goal was to get out of the regulation process and get to court. That did ultimately happen but it took years. The agency called the constituent's bonding agent and caused him to lose his bond. The constituent spent millions to get through the administrative process to get to court to get a decision. SENATOR THERRIAULT told members that agencies reviewed this legislation over the interim. Some of their comments and concerns were unfounded. He and staff worked with agency personnel to sift through which concerns were valid and drafted amendments to address them. One example is that the agencies noted that the appeal process is actually dictated by federal law in some areas, particularly when an agency uses federal funds. Those suggestions are being incorporated into a new CS. SENATOR FRENCH asked, regarding the Alaska Regional Hospital's case, if the appeal process involved the hearing officer first, then the commissioner, then the Superior Court. MR. STANCLIFF said in that case he believes the case went back and forth between the hearing officer and the commissioner and then went to the Superior Court. SENATOR FRENCH asked if SB 203 changes that process or whether the commissioner will still be involved. He then expressed concern about the interplay between a complex dispute and the time constraints. MR. STANCLIFF replied at this point, the time limit is not flexible enough. He has been working with the administration to make them flexible enough to consider and integrate the Administrative Procedures Act, complex matters, and federal requirements. He noted that there has been discussion about whether or not the courts should give deference to decisions of commissioners versus decisions of hearing officers versus decisions of hearing officers within the central panel. He told committee members they may want to consider whether the way the courts give deference based on the record and expertise versus the commissioner's ability to summarily overturn a decision should be changed. He pointed out that some commissioners have petitioned to continue to have that authority. SB 203 splits the difference down the middle: the commissioners would still have the ability to overturn, but the decision must be based on the record, factual and evidential, not simply on opinion. He suggested the committee might want to look at changing the deference if that language is removed. SENATOR FRENCH asked what standard of review the Superior Court uses when it gets a commissioner's decision. MR. STANCLIFF deferred to Mr. Hemenway. MR. ANDY HEMENWAY, Hearing Officer, Department of Administration (DOA), said he believes the standard of review for a decision that goes up to the Superior Court on factual matters is the same as that for a case on appeal from Superior Court to the Supreme Court: substantial evidence. On questions of law, the Superior Court defers to the agency on matters within the agency's expertise, depending on the nature of the statute. SENATOR FRENCH asked if the standard of review is set out in statute. MR. HEMENWAY said he does not believe it is. He said it could be in the Administrative Procedures Act but he believes the decisions on appeal are a matter of case law. SENATOR FRENCH asked if SB 203 changes the standards. MR. STANCLIFF replied: From the standpoint of the commissioner's ability to overturn a decision, I guess there's a change in the overall look at things but it does not change specifically what you just spoke to Mr. Hemenway about. SENATOR FRENCH questioned, "So there is nothing in the act that tells a Superior Court judge how to analyze decisions of hearing officers or commissioners? You would maintain the same standards as set now?" MR. HEMENWAY said that is correct. 9:17 a.m. SENATOR THERRIAULT said as a result of conversations with the Department of Law, he believes the CS will say the commissioner still has the power to overrule, but only on a certain basis, and the commissioner will have to produce a written finding. The Department of Law supports that approach because when the commissioner overturns a hearing officer and no written finding exists, the Department of Law has to support the commissioner's action in court with no paper trail. CHAIR SEEKINS announced that the committee would hold SB 203 and await the new CS. SENATOR THERRIAULT informed members that Mr. Stancliff would spend time with individual members as soon as the new CS is prepared. He pointed out that the bill is complex and dry but makes big changes and that he has been working with the administration on the successful implementation of this bill. With no further testimony, CHAIR SEEKINS adjourned the meeting at 9:19 a.m.