HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE February 10, 2000 3:00 p.m. MEMBERS PRESENT Representative Fred Dyson, Chairman Representative Jim Whitaker Representative Joe Green Representative Carl Morgan Representative Tom Brice Representative Allen Kemplen Representative John Coghill MEMBERS ABSENT All members present OTHER HOUSE MEMBERS PRESENT Representative Andrew Halcro COMMITTEE CALENDAR HOUSE BILL NO. 277 "An Act relating to payment of retirement benefits for subsequently reemployed retired members of the teachers' retirement system." - MOVED HB 277 OUT OF COMMITTEE HOUSE BILL NO. 297 "An Act relating to the certificate of need program; and providing for an effective date." - HEARD AND HELD HOUSE BILL NO. 302 "An Act relating to disclosure of public assistance information to report suspected abuse or neglect of children or vulnerable adults." - SCHEDULED BUT NOT HEARD PREVIOUS ACTION BILL: HB 277 SHORT TITLE: RETIREMENT BENEFITS FOR REHIRED TEACHERS Jrn-Date Jrn-Page Action 1/10/00 1892 (H) PREFILE RELEASED 1/7/00 1/10/00 1892 (H) READ THE FIRST TIME - REFERRALS 1/10/00 1892 (H) HES, FIN 1/10/00 1892 (H) REFERRED TO HES 2/10/00 (H) MINUTE(HES) BILL: HB 297 SHORT TITLE: CERTIFICATE OF NEED PROGRAM Jrn-Date Jrn-Page Action 1/21/00 1961 (H) READ THE FIRST TIME - REFERRALS 1/21/00 1961 (H) HES 1/21/00 1961 (H) REFERRED TO HES 2/02/00 2076 (H) COSPONSOR(S): KOTT 2/10/00 (H) MINUTE(HES) WITNESS REGISTER JONATHON LACK, Legislative Assistant to Representative Halcro Alaska State Legislature Capitol Building, Room 418 Juneau, Alaska 99801 POSITION STATEMENT: Presented sponsor statement for HB 277. LARRY WIGET, Executive Director Public Affairs Anchorage School District 4600 DeBarr Road Anchorage, Alaska 99519 POSITION STATEMENT: Testified in support of HB 277. GUY BELL, Director Division of Retirement & Benefits Department of Administration PO Box 110203 Juneau, Alaska 99811-0203 POSITION STATEMENT: Provided information and answered questions on HB 277. JOHN CYR, President NEA (National Education Association) Alaska 114 Second Street Juneau, Alaska 99801 POSITION STATEMENT: Testified in support of HB 277. BILL CHURCH, Retirement Supervisor Division of Retirement & Benefits Department of Administration PO Box 110203 Juneau, Alaska 99811-0203 POSITION STATEMENT: Answered questions regarding HB 277. DARROLL HARGRAVES, Executive Director Alaska Council of School Administrators 326 Fourth Street, Suite 404 Juneau, Alaska 99801 POSITION STATEMENT: Testified in support of HB 277. CARL ROSE, Executive Director Association of Alaska School Boards 316 West 11th Street Juneau, Alaska 99801 POSITION STATEMENT: Commented on HB 277. REPRESENTATIVE JEANNETTE JAMES Alaska State Legislature Capitol Building, Room 102 Juneau, Alaska 99801 POSITION STATEMENT: Testified as sponsor of HB 297. MARK BUCKLEY, Chairman Kodiak Island Hospital and Care Center Advisory Board PO Box 649 Kodiak, Alaska 99615 POSITION STATEMENT: Testified in opposition to HB 297. PHIL CLINE, Administrator Providence Kodiak Island Medical Center PO Box 9990 Kodiak, Alaska 99615 POSITION STATEMENT: Testified in opposition to HB 297. ANN HOOK-BAKER, Nurse Matanuska-Susitna Valley Hospital PO Box 4466 Palmer, Alaska 99645 POSITION STATEMENT: Testified in opposition to HB 297. ELIZABETH RIPLEY, Director of Community Health Planning Matanuska-Susitna Valley Hospital 450 Scheelite Drive Wasilla, Alaska 99654 POSITION STATEMENT: Testified in opposition to HB 297. CHARLES FRANZ South Peninsula Hospital 4300 Bartlett Street Homer, Alaska 99603 POSITION STATEMENT: Testified in opposition to HB 297. BARBARA FLEMING, Board Member Providence Hospital Statewide Board PO Box 302 Seward, Alaska 99664 POSITION STATEMENT: Testified in opposition to HB 297. MARTY RICHMAN, Chief Executive Officer Central Peninsula General Hospital PO Box 1636 Soldotna, Alaska 99669 POSITION STATEMENT: Testified in opposition to HB 297. JANE FAULKNER, Nurse Central Peninsula General Hospital 36040 Kobuk Street Soldotna, Alaska 99669 POSITION STATEMENT: Testified in opposition to HB 297. DIANA ZIRUL, Board of Directors President Central Peninsula General Hospital 215 Fidaldo Avenue, Suite 104 Kenai, Alaska 99611 POSITION STATEMENT: Testified on HB 297. ELMER LINDSTROM, Special Assistant to Commissioner Perdue Department of Health and Social Services PO Box 110601 Juneau, Alaska 99811-0601 POSITION STATEMENT: Testified on HB 297. DR. PAUL WORRELL, MD. 3650 Lake Otis Parkway Anchorage, Alaska 99508 POSITION STATEMENT: Testified in support of HB 297. DR. WILLIAM DOOLITTLE, MD., Board Member Fairbanks Memorial Hospital Foundation Board PO Box 71046 Fairbanks, Alaska 99707 POSITION STATEMENT: Testified in opposition to HB 297. REBECCA DEAN 493 Valley View Drive Fairbanks, Alaska 99712 POSITION STATEMENT: Testified in support of HB 297. LOUISE BJORNSTAD, Market Manager Healthsouth Diagnostic Center of Anchorage 4001 Laurel Anchorage, Alaska 99508 POSITION STATEMENT: Testified in support of HB 297. HARRY PORTER, Member Fairbanks Memorial Hospital Foundation Board 3206 Riverview Drive Fairbanks, Alaska 99709 POSITION STATEMENT: Testified in opposition to HB 297. LARAINE DERR, Executive Director Alaska State Hospital and Nursing Home Association 426 Main Street Juneau, Alaska 99801 POSITION STATEMENT: Testified in opposition to HB 297. CHERYL KILGORE, Executive Director Interior Neighborhood Health Corporation 311 Hawk Fairbanks, Alaska 99709 POSITION STATEMENT: Testified in opposition to HB 297. MIKE POWERS Fairbanks Memorial Hospital 1283 View Pointe Fairbanks, Alaska 99709 POSITION STATEMENT: Testified in opposition to HB 297. DAVID RASLEY, District Representative Operating Engineers Union 2286 Steven Avenue Fairbanks, Alaska 99709 POSITION STATEMENT: Testified in opposition to HB 297. JEROME SELBY Providence Health Systems PO Box 1962 Kodiak, Alaska POSITION STATEMENT: Testified in opposition to HB 297. RICK SOLIE, Director Community Relations and Planning Fairbanks Memorial Hospital/Denali Center 4437 Stanford Drive Fairbanks, Alaska 99709 POSITION STATEMENT: Testified in opposition to HB 297. BRIAN GILBERT, Chief Executive Officer Wrangell Medical Center PO Box 288 Wrangell, Alaska POSITION STATEMENT: Testified on HB 297. DAVID CALDWELL, Senior Financial Analyst Fairbanks Memorial Hospital 1650 Cowles Street Fairbanks, Alaska 99701 POSITION STATEMENT: Testified in opposition to HB 297. BARBARA HUFF TUCKNESS, Director Governmental and Legislative Affairs General Teamsters Local 959 State of Alaska 520 East 34th Avenue Anchorage, Alaska 99503 POSITION STATEMENT: Testified in opposition to HB 297. JENNIFER HOUSE, Comptroller Fairbanks Memorial Hospital/Denali Center 1650 Cowles Street Fairbanks, Alaska 99701 POSITION STATEMENT: Testified in opposition to HB 297. ED LAMB, President/Chief Executive Officer Alaska Regional Hospital 2801 DeBarr Road Anchorage, Alaska 99508 POSITION STATEMENT: Testified in opposition to HB 297. SHARON ANDERSON 18820 Fish Hatchery Row Eagle River, Alaska 99577 POSITION STATEMENT: Testified on HB 297. DR. DAVID MCGUIRE 4048 Laurel Street Anchorage, Alaska 99508 POSITION STATEMENT: Testified on HB 297. ACTION NARRATIVE TAPE 00-11, SIDE A Number 0001 CHAIRMAN FRED DYSON called the House Health, Education and Social Services Standing Committee meeting to order at 3:00 p.m. Members present at the call to order were Representatives Dyson, Whitaker, Brice and Coghill. Representatives Green, Morgan and Kemplen arrived as the meeting was in progress. HB 277-RETIREMENT BENEFITS FOR REHIRED TEACHERS CHAIRMAN DYSON announced the first order of business is House Bill No. 277, "An Act relating to payment of retirement benefits for subsequently reemployed retired members of the teachers' retirement system." Also, he said that the Alaska Native Health Board (ANHB) had asked him to distribute a booklet to committee members which is in the information packet before them. Number 0206 JONATHON LACK, Legislative Assistant to Representative Halcro, Alaska State Legislature, came forward to present HB 277. He stated that HB 277 would allow retired teachers in Alaska to be re-employed in Alaska schools without jeopardizing the collection of their retirement benefits. Schools throughout the state of Alaska are experiencing a dire shortage of teachers. Today there are almost 8,000 retired Alaskan teachers living outside Alaska. It is unknown how many of these have taken jobs with outside school districts, but they represent a lost opportunity for the people of Alaska. These are experienced teachers who could be filling a need here in Alaska. They understand the Alaskan way of life but have moved on to teach outside so they can collect their Alaskan retirement and a paycheck from the outside school. MR. LACK went on to say the bill is a very broad concept. Representative Halcro drafted it not to restrict the ability of school districts and teachers to negotiate the terms of how to implement the language of this bill. Each school district would go to their respective bargaining units and establish a system for rehire. Presumably teachers would be able to come back at a lower salary; they might even come back without health benefits because rehired teachers would be eligible for health insurance through the Teachers' Retirement System (TRS). Each school district and bargaining unit would be able to work out a system for rehire that would best benefit that individual school district. Members of the Anchorage School District brought this bill to Representative Halcro's attention, and they support the bill. MR. LACK indicated that Representative Halcro asks the committee to support it. Number 0231 CHAIRMAN DYSON asked how present law precludes a retired teacher from working full time. MR. LACK replied that actual language in AS 14.25.043 prohibits a retired teacher from returning to service in more than a 40 percent capacity. A retired teacher can work for a school district on a part-time basis but if they return full time, they lose their retirement benefits. He said HB 277 allows retired teachers to return to a school district to teach and continue to receive their retirement benefits. Number 0272 CHAIRMAN DYSON clarified if a retired teacher returned to teach full time, he/she would actually receive two paychecks, one for retirement and one for teaching. Number 0282 MR. LACK answered yes. He further stated that HB 277 does not address at what step or range a retired teacher would be rehired. He presumed that the school district and the teacher's union bargaining unit would negotiate the pay range of the rehired retired teacher. He believes that school districts will not want to rehire retired teachers at the high twenty-year salary level, so the school districts will probably negotiate less than the high retirement figure. Initially Representative Halcro had wanted to designate that retired teachers return at year one salary level to the school district. In answer to Representative Halcro's idea, school districts indicated they would like to offer more, maybe year four or five. Subsequently, it was Representative Halcro's decision to leave the pay rate issue up to school districts and the teacher's union bargaining unit. Number 0422 LARRY WIGET, Executive Director, Public Affairs, Anchorage School District, testified via teleconference from Anchorage. He said that the Anchorage School District supports the concept of HB 277 very strongly. He explained that the Anchorage School District sees HB 277 as a tool to attract school psychologists, special education teachers and physical therapists, of which there is a nationwide shortage. Nevertheless, he commented that the Anchorage School District does not see HB 277 as a panacea for all teachers who may think they can retire and then be rehired. He noted that in Anchorage there were up to potentially 300 teachers who would be eligible for rehire but that the Anchorage School District would probably not want to rehire the majority of those eligible. The Anchorage School District is interested in rehiring teachers who serve the critical needs areas previously mentioned. Number 0537 GUY BELL, Director, Division of Retirement & Benefits, Department of Administration, testified for the Teachers' Retirement System (TRS) and discussed the implications HB 277 could have on the teachers retirement fund. He said the Teachers' Retirement System is funded from three sources: 1) school district employer contributions, 2) employee contributions and 3) interest earnings on investments. MR. BELL explained that the TRS fund is used to pay for current benefits of retired members and to provide health benefits for retirees. The number of state employees affected by HB 277 is only about 100 out of about 930 active TRS members now employed in the Department of Education, the Alaska Vocational Technical Institute and Mt. Edgecumbe High School. Therefore, he explained, when the Division of Retirement & Benefits produces a fiscal note on legislation which affects the TRS, very often minimal fiscal impact to the state is cited on the fiscal note even if a piece of legislation could have a financial impact. He reminded the committee that actual impact on employer rates is hard to measure because the employer rate is variable. He noted that the teacher contribution rate is set in statute at 8.65 percent. The school district employer rate has been variable but Teachers' Retirement board policy has set it at 12 percent for the past seven years in an effort to keep the rate level stable for all employers. He indicated that if teachers' behavior did not change as a result of HB 277 and everything stayed the same, there would be no impact on employer rates. MR. BELL informed the committee that the Division of Retirement & Benefits had asked their actuarial firm to assess the impact of HB 277 on contribution rates if teacher behavior changed. The fiscal note analysis in the last paragraph indicates that if half of the people who had twenty years of service stayed an additional two years, then the impact on employer rates would be .75 percent. He said that figure does not exert a huge impact on rates but .75 percent does add up to about $3 million on a yearly basis. However, he cautioned the committee to remember that the scenario he has presented is a big "what if." Number 0755 MR. BELL admitted that there is no way to know how many teachers will take advantage of HB 277 or how many teachers the school districts will allow to return, assuming that the school districts can have the option to rehire retired teachers. He wanted the committee to understand that HB 277 could have a fiscal impact, depending on what happened in response to HB 277 if the legislation is adopted as it is drafted now. CHAIRMAN DYSON commented that the committee is working with an undetermined fiscal note. He inquired as to what it would cost the state if 100 retired teachers came back to work. Number 0790 MR. BELL answered by posing a hypothetical scenario of a total teacher salary base of $1 million. Of that $1 million, .75 percent would result in $75,000 of additional cost. However, he believes that due to the size of the TRS system, the first scenario he presented would cost the state about $3.6 million annually. REPRESENTATIVE COGHILL said he understands that if a retired teacher is rehired, employer and employee contributions would be deposited in the TRS for that employee. MR. BELL agreed and said that whenever a retired teacher is rehired, the requirement still exists of employer and employee contribution to TRS. Number 0867 REPRESENTATIVE WHITAKER asked Mr. Bell to repeat the $1 million example of percentage because Mr. Whitaker had not heard it clearly and did not think the $75,000 figure was correct. MR. BELL explained again that supposing a .75 percent rate increase were imposed on a $1 million salary cost for state employees, the fiscal impact annually would be $7,500, not $75,000 [he had made a mistake in figuring]. Number 0962 JOHN CYR, President, NEA-Alaska [National Education Association], came forward to testify in favor of HB 277. He stated that NEA-Alaska is especially pleased that HB 277 will be bargained at a local level. He believes there is enough variance of need from one school district to another that it is appropriate for union bargaining units to negotiate with school districts about how to use HB 277. He does not believe districts will hire hundreds of retired teachers; he believes districts will recruit new teachers. In his opinion, districts will only use HB 277 when they have no other choice. Therefore, he does not believe there will be any impact on the TRS system. Even if some teachers are rehired, they will continue to contribute to the TRS system at the same rate as they would have originally. Number 1048 REPRESENTATIVE COGHILL asked if Mr. Cyr knew, from a bargaining perspective, what the original 40 percent number in AS 14.25.043 was based upon. MR. CYR answered he did not know; that number has been on the books for years. BILL CHURCH, Retirement Supervisor, Division of Retirement & Benefits, Department of Administration, came forward to answer questions regarding HB 277. He explained that an employee became a member of the TRS if he/she worked a minimum of 50 percent of a contract for a school district or another employer that qualified for TRS. Individuals who work less than 50 percent of a contract are not covered by TRS. DARROLL HARGRAVES, Executive Director, Alaska Council of School Administrators, came forward to testify and said he supported HB 277 if certain things are true. He understood from testimony heard that HB 277 is actuarially sound. If HB 277 is actuarially sound in TRS, HB 277 allows teachers to form a hiring pool for school district critical need shortages. Statistics that he has read indicate that there are many certified teachers in Alaska. He reminded committee members that these numerous certificate holders are people in the retired category and that under HB 277, they could be rehired to meet school district needs. It is important that school districts retain jurisdiction over who is rehired. That way school districts can fill a critical need. For this reason, not all retired teachers will be rehired. He indicated that if a teacher were rehired, that teacher would be rehired under policies, terms and conditions of a negotiated agreement at the local level. MR. HARGRAVES noted that HB 277 is a winning proposition for both school districts and retired teachers. He said that HB 277 seems to maintain an actuarially sound TRS, saves money for school districts and provides quality instruction performed by certified teachers. Number 1343 CARL ROSE, Executive Director, Alaska Association of School Boards (AASB), came forward to testify. He said that the AASB is trying to address the teacher shortage issue. His membership has not had an opportunity to address HB 277. He will review HB 277 with his membership within the next two weeks and bring an answer back to the committee. CHAIRMAN DYSON commented that if HB 277 passes, it is his intention to include a note to the Finance Committee asking them to explore actuarial soundness and advise if anything needs to be added to the fiscal note. Number 1400 REPRESENTATIVE WHITAKER made a motion to move HB 277 out of committee with individual recommendations, attached note to the Finance Committee and attached fiscal note. There being no objection, HB 277 moved from the House Health, Education and Social Services Standing Committee. The committee took an at-ease from 3:24 p.m. to 3:25 p.m. HB 297-CERTIFICATE OF NEED PROGRAM CHAIRMAN DYSON announced the next order of business as House Bill No. 297, "An Act relating to the certificate of need program; and providing for an effective date." REPRESENTATIVE JEANNETTE JAMES, Alaska State Legislature, presented HB 297 as sponsor. She said HB 297 modifies the existing certificate of need program but does not eliminate it. She commented that what used to be medical services is now medical industry. Therefore, she emphasized that competition would be good for the medical industry to ensure needed services. She indicated there is a proposed CS for HB 297. Number 1541 REPRESENTATIVE BRICE made a motion to adopt the proposed CS for HB 297, version 1-LS1301\G, Chenoweth/Lauterbach, 2/8/00, as a work draft. There being no objection, proposed CSHB 297 was before the committee. REPRESENTATIVE JAMES informed the committee that she has a suggested amendment from the Department of Health and Social Services but does not want to discuss it at this time. Number 1638 MARK BUCKLEY, Chairman, Providence Kodiak Island Medical Center and Care Center Advisory Board, testified via teleconference from Kodiak. He testified in opposition to HB 297. He stated that Providence Kodiak Island Medical Center did not receive any state money to build the hospital; the community passed a bond to finance building of the hospital. He further stated that the hospital earned only a minimal profit last year. He emphasized that some services the hospital provides earn money and some do not. However, whether the services earn or lose money for the hospital, the hospital is still under obligation to provide certain basic services. He explained that if some other group focused only on those services that turn a profit, taking away business from the hospital, then the hospital would lose money. At that point, he said, the hospital would be forced to go to the borough and ask for money to fill the gap between lost revenue on high-end services. Another possible result of HB 297, he noted, might be that the hospital would have to stop providing low-end services. Number 1731 REPRESENTATIVE BRICE asked Mr. Buckley to cite some essential, low-end services that the hospital provides. MR. BUCKLEY replied that the hospital provides a home health service done by visiting nurses which does not earn a profit. PHIL CLINE, Administrator, Providence Kodiak Island Medical Center, testified via teleconference from Kodiak. He testified against HB 297. He reminded the committee that expenditures for "bricks and mortar", technology and equipment actually creates demand. He urged that the $1 million limit of the hospital certificate of need be retained to ensure that the opportunity of creating unnecessary demands be kept under control. Number 1816 REPRESENTATIVE KEMPLEN asked if Mr. Buckley believes it would be appropriate to increase the $1 million limit to reflect inflation adjustment. MR. CLINE replied that the idea has some merit but said that the quantum leap from $1 million to $7 million as stated in HB 297 is impossible to support. ANN HOOK-BAKER, Nurse, Valley Hospital in Palmer, testified via teleconference from the Matanuska-Susitna (Mat-Su) Legislative Information Office (LIO). She testified in opposition to HB 297. She said that the hospital provides long-term care and psychological care facilities to patients who cannot be moved. Those services cost the hospital money, but those services do not earn money for the hospital, thus forcing the hospital to absorb the cost. Further the hospital provides, with absolutely no reimbursement, diabetes dietary counseling, prenatal classes and other health educational classes. She reiterated previous testimony that what competition will do is skim off high money-making services and leave the hospitals with low-end, non-profitable, but necessary services. MS. HOOK-BAKER said this kind of thing has already happened in California and Arizona. She noted that the result to those states was massive closure of health facilities, including emergency rooms because the counties could no longer support the facilities after profit-making services had been skimmed. She recommended that the legislature keep the certificate of need process intact at $1 million to minimize cost to health facilities and minimize fragmentation of services. Number 1971 ELIZABETH RIPLEY, Director, Community Health Planning, Valley Hospital, testified via teleconference from the Mat-Su LIO. She said she is unequivocally against HB 297. She explained that the Valley Hospital provides many mission-oriented programs to meet specific needs for the Matanuska-Susitna Valley population. She indicated that if HB 297 passed it would eliminate a level playing field for hospitals in the state because hospitals are required to accept any patient, whereas private health centers can accept or reject patients as they please. She noted that private health centers can limit their patients to those who have third-party insurance payers. She strongly urged the committee to vote against HB 297. Number 2064 REPRESENTATIVE KEMPLEN asked if Valley Hospital provides all services needed by health consumers or does the hospital refer some clients to other providers. MS. RIPLEY replied that Valley Hospital is a primary care institution so people who need tertiary care, for example, heart surgery or brain surgery, are referred to hospitals in Anchorage. She said that Valley Hospital does provide home health care, family health, hospice, infusion therapy and outpatient surgery. CHARLES FRANZ, South Peninsula Hospital, testified via teleconference from Homer. He testified strongly against HB 297. He said there is no justification for increasing the certificate of need (CON) threshold to $7 million. He reminded the committee that $1 million was set as the threshold in order to require detailed planning before embarking on a construction project. He suggested that there is already a great deal of competition in the health care field due to the mobility of the population. One example of competition that he cited is that of South Peninsula Hospital competing with Smith-Kline Laboratories, Seattle, Washington, for laboratory services. He expressed his concern that HB 297 just aids one small special interest group. If HB 297 is passed, it will result in higher costs to the community or it will drive small hospitals out of business. He urged the committee not to pass HB 297. Number 2212 BARBARA FLEMING, Board Member, Providence Hospital Statewide Board, testified via teleconference from Seward. She said that HB 297 threatens both local Seward health care facilities and other health care facilities in the state. She explained that private enterprise would be allowed to take pieces of high-paying health care services from rural hospitals. It is her opinion that someday emergency rooms in some areas or even the hospital in Seward would have to close for lack of financial support. Already the Seward facility is in dire straits. She suggested that the committee assess HB 297 very carefully before coming to a vote. She reminded the committee that the Seward health care facility is a major employer in the community. She does not agree that a private enterprise should be allowed to come into a town and "pick and choose" who it will serve, with no commitment to the community itself. She envisioned private enterprise leaving the community if it was not making a profit and leaving a hole where the local Seward health care facility used to be. She strongly recommended opposition to HB 297. Number 2282 REPRESENTATIVE KEMPLEN asked Ms. Fleming if she thought raising the CON threshold to accommodate inflation had merit. MS. FLEMING replied no. She said that the Seward hospital facility can be impacted even now at the $1 million CON threshold. REPRESENTATIVE KEMPLEN asked if Ms. Fleming could accept an increase in the CON threshold if it was limited to population communities of over 100,000 people. MS. FLEMING answered that the basic problem of private health center skimming high-paying health care services would still exist. She noted that hospitals are rethinking how best they can serve their communities as a result of the balanced budget amendment and other numerous pieces of federal legislation. Nonprofit hospitals already feel the new constraints and anything else added on becomes a burden. She reiterated that hospitals are legally bound to provide services to anyone, whereas private health care centers can choose not to serve people. She believes that this kind of situation erodes Seward hospital's ability to keep providing services. TAPE 00-11, SIDE B Number 2361 MARTY RICHMAN, Chief Executive Officer, Central Peninsula General Hospital, testified via teleconference from Kenai. He testified in opposition to HB 297 because he believes it will start a "medical arms race." He said there is a scarcity of capital for hospitals right now, yet under HB 297 new buildings and equipment, reimbursed by the Medicaid system, will be brought into communities in addition to already existing hospitals. He believes that existing hospitals and new buildings will only be used at half capacity as a result of doubling of service provision. He cannot figure out who benefits from HB 297 except for a very few isolated people. He explained that hospital functions do not operate in isolation to each other. For example, hospital emergency rooms must function for the benefit of the community, but emergency rooms lose money because many times patients cannot afford to pay. Therefore the local hospital picks up the tab for emergency room service, hoping to make up the difference by providing high-earning services. He said that last year the Central Peninsula General Hospital provided $2.5 million in uncompensated care. This type of fee statement will eventually erode the hospital's ability to serve the community. He is adamantly opposed to HB 297. Number 2306 JANE FAULKNER, Intensive Care Unit Nurse, Central Peninsula General Hospital, testified via teleconference from Kenai. She testified in opposition to HB 297. She said that because Soldotna is a small community, it is difficult to keep staff at the prescribed level in the hospital. She envisioned that if services are shared with private groups according to HB 297, it will become more difficult for the hospital to retain staff and provide services to the community. She wondered if she would still have a job if there are less patients to be seen. She is opposed to HB 297. Number 2270 DIANA ZIRUL, President, Board of Directors, Central Peninsula General Hospital (CPGH), testified via teleconference from Kenai. She said that the hospital has suffered a decrease in revenue sharing from the state, as have other hospitals statewide. Thus, Central Peninsula General Hospital finds itself heavily dependent on the diversity of third-party insurance payers to ensure that the cost to all of its clients, both inpatient and outpatient, is maintained at minimum level. She informed the committee that third-party revenue is used by the hospital to purchase new technology and equipment in the ever-changing health care arena. She believes that HB 297 would undercut CPGH's ability to keep up with technology, while at the same time serving all clients, if private enterprise which can choose clients, is allowed to use third-party dollars too. She reminded the committee that CPGH's doors are open to everyone whether they have money or not. Number 2185 REPRESENTATIVE KEMPLEN asked Ms. Zirul what kind of services are sent outside of the hospital. MS ZIRUL replied that tertiary care patients are sent to Anchorage. She said that CPGH cooperates with other agencies in the Kenai area to provide services that are not provided at CPGH itself. Currently CPGH cannot provide chemical dependency and substance abuse services due to cost considerations; but CPGH is actively considering a program to encompass those services. Number 2159 REPRESENTATIVE KEMPLEN asked Ms. Zirul if CPGH sends patients to other hospitals or for-profit surgery centers, depending on patient need. MS. ZIRUL answered that patients are sent to major hospitals in Anchorage but also CPGH cooperates with several non-profit agencies in the Kenai area. She said she does not know of any for-profit agencies in the Kenai area that treat hospital patients. Number 2119 ELMER LINDSTROM, Special Assistant, Office of the Commissioner, Department of Health and Social Services (DHSS), came forward to testify about the CON program. He said that last year the Long-Term Care Task Force (LTCTF) had presented a bill to the legislature which strengthened the CON process as it related to long term care and nursing home beds. He explained that Medicaid pays approximately 85 percent of long-term nursing home care and acute care costs. He affirmed that HB 297 appears to weaken the state's ability to control costs on the long-term care side of the equation, but the proposed CS relates only to acute care costs. MR. LINDSTROM informed the committee that DHSS had provided an indeterminate fiscal note dated February 10, 2000. He noted that the proposed CS will increase the CON financial threshold for acute health care facilities and medical equipment from $1 million to $7 million. He said the $7 million threshold will assure that major health care projects will continue to be subject to the CON requirement. However, smaller projects like purchase of medical equipment or construction of a small outpatient facility would no longer require a CON. Number 2044 MR. LINDSTROM said that over the short term DHSS believes that the higher threshold of $7 million will result in construction of health care facilities which may create excess health care capacity in any given community. He recognized that the Medicaid program would likely incur some additional costs which would not otherwise be incurred. He stated that impact on the Medicaid budget would depend on the location, cost and the date new projects are brought on line. The Department of Health and Social Services does not have sufficient detailed information about potential projects to provide a credible and concrete estimate of potential costs. Number 1995 MR. LINDSTROM explained that over the long term DHSS cannot determine the fiscal impact of increased health care competition in a community. He reasoned that excess capacity may be absorbed by population increases over time. He emphasized that increased competition may result in other efficiencies within the community health care system. He believes that increased competition will likely result in different outcomes in different communities over time. MR. LINDSTROM said that DHSS had provided an amendment to the proposed CS for Representative James which she had mentioned earlier, and he wished to describe that amendment at this time. He read the following amendment: Section 1, Page 2 line 6 through line 7 delete: (C) addition of a category of services provided by a health care facility that is a nursing home. Section, 2, Page 2, lines 8-16, delete all material and renumber remaining sections accordingly. MR. LINDSTROM explained that HB 297 was drafted to establish a $7 million threshold for acute care facilities and a separate section was created with a $1 million threshold for nursing home facilities. The legislation drafters simply replicated the conditions from acute care to the nursing care facilities; consequently, page 2, lines 6-7, (C), does not have any relevance to nursing home beds, and the DHSS believes that item ought to be deleted. MR. LINDSTROM noted the DHSS does not understand the purpose of Section 2, page 2. He referred to the last two sentences of that section at the bottom of the page to the language beginning "not consider the estimated cost of associated facilities such as the offices of health care professionals maintaining a private practice that are incorporated into or made part of the health care facility." The department is not certain what that means, particularly when read in conjunction with existing law, at which point he referred to two pages of CON existing law on the back of the amendment. He referred to the second page of the CON law where under the definition section for the CON program it already states "the term health facility excludes the offices of private physicians or dentists whether an individual or group practice." He believes that this last alluded language simply is not necessary; it is already covered by the definition. However, he leaves it open to sponsor discretion that if there are other types of associated facilities which need to be excluded they should be identified and listed because ambiguity might be a source of litigation in the future. Number 1886 REPRESENTATIVE KEMPLEN asked Mr. Lindstrom what a magnetic resonance imaging (MRI) machine costs. MR. LINDSTROM answered that an MRI costs about $1 million. REPRESENTATIVE KEMPLEN asked if there are other pieces of medical equipment that cost that much or more. MR. LINDSTROM answered that he is not that familiar with medical equipment to know. REPRESENTATIVE KEMPLEN asked if the DHSS had ever received comments from providers complaining that the CON process was a factor that prevented them from providing services to Alaskans. Number 1799 MR. LINDSTROM replied that the CON has been an on-going area of dispute and discussion for a long time. He recounted that at times the Commissioner of DHSS has rejected CON requests. REPRESENTATIVE BRICE inquired as to how successful the CON program has been in terms of managing Medicaid and Medicare costs. MR. LINDSTROM answered that DHSS believes that the CON program is absolutely critical in managing the long-term care issue. The Department of Health and Social Services would like to see more community-based services of one type or another. At the same time, keeping control of growth of nursing home beds is absolutely critical to producing other aspects of long-term care. Regarding acute care, he mentioned that it is not perceived as being critical. Number 1707 REPRESENTATIVE BRICE asked to what breadth of scope the DHSS considers when authorizing a CON for acute care. MR. LINDSTROM replied that generally DHSS assesses need for an additional facility or piece of equipment. He explained that a CON is required to substantiate the need for a facility or equipment purchase. REPRESENTATIVE BRICE asked how DHSS defines need. MR. LINDSTROM replied he would supply the full CON statute which defines need. REPRESENTATIVE WHITAKER remarked that Mr. Lindstrom had stated that the effect on long-term care would be substantial. Representative Whitaker asked for an explanation of what those effects would be. Number 1644 MR. LINDSTROM answered that HB 297 had raised the CON threshold for all aspects of the CON; for long-term care, for nursing beds, for acute care beds, equipment and facilities. He said that the proposed CS has little, if any, impact on the long-term care program because the proposed CS is limited to raising the financial threshold for acute care facilities and equipment. REPRESENTATIVE BRICE asked when a CON is required. MR. LINDSTROM replied that a CON is required when a proposed health care facility costs $1 million or more. A health care facility is defined as "a private, municipal, state or federal hospital, psychiatric hospital, tuberculosis hospital, skilled nursing facility, kidney disease treatment center, including free-standing hemio-dialysis units, intermediate care facility, and ambulatory surgical facility." Those are the types of services and facilities that must obtain a CON. Number 1530 REPRESENTATIVE DYSON asked whether the question of equipment purchase had been foreseen when the CON process was put in place. MR. LINDSTROM answered that he believed the CON originally had envisioned equipment purchase. He stated that prior to 1983 the threshold was less than $1 million, but since 1983 a CON always included equipment. Number 1481 REPRESENTATIVE DYSON commented that the inference is that "marketplace" [competition] will not function effectively in determining if a community should have an MRI or not. MR. LINDSTROM replied that the purpose of the CON is to determine whether or not the demand really exists in a given community for a piece of equipment or a facility to make it a viable program. The assumption is that if excess capacity is created, inefficiency and extra costs would result to the health care system. Number 1391 DR. PAUL WORRELL, testified via teleconference from Anchorage to the contrary of much of previous testimony. He believes that the CON has outlived its usefulness. He commented that he has practiced as a doctor since 1971 in Anchorage and has observed health care before the CON process and after. He indicated that previous testifiers seem to be saying that monopoly is good for them, and he can see why. He believes the CON process was instituted in Alaska due to politics. At one time, inflation was blamed for overbuilding of hospitals and health care costs. DR. WORRELL remarked that in his opinion, the CON process promotes a two-part semi-monopoly. Again, it is his opinion that both regional hospitals and Providence Hospital do a good job, but he does not see the need to perpetuate their semi-monopoly on health care. He empathizes with hospitals' financial problems but does not believe increasing the CON threshold is the way to solve those problems. DR. WORRELL commented that the CON process has quashed any real health care expansion in the last 15 years. He cited as an example of repression the lack of privately-owned medical buildings for doctors. He reminded the committee that regional hospital budgets and Providence Hospital's budget have more than doubled since the CON process was instituted. He does not believe that the hospitals are suffering greatly in a financial way. He does believe that the CON process gives regional hospitals and Providence Hospital de facto veto power over a competitor wishing to create a new entity. Number 1159 DR. WORRELL noted that the excess number of hospital beds or nursing beds cannot be blamed for health care costs. In his opinion, innovation arises from doctors in the communities. He said sometimes hospitals listen to innovators, but oftentimes they do not. He reminded the committee that before the CON process was instituted, innovative doctors could push ahead with reform whether hospitals agreed or not. However, he believes the current CON process serves only the status quo and slows innovation. In the long run the health care community would be better served without the CON process; perpetuating the status quo is not going to work. The current CON system creates a barrier to innovation and is not healthy for the health care system. Number 1107 REPRESENTATIVE KEMPLEN referred to innovations that Dr. Worrell had mentioned for the Anchorage area. He asked if Dr. Worrell believed that Anchorage was the only area where innovation was being suppressed. DR. WORRELL answered that he had heard that there were similar problems in Fairbanks too. However, he does not have detailed knowledge of what is happening in Fairbanks. Nevertheless, in his experience as a doctor for 30 years, he has observed that the best innovation usually originates with doctors, not with big hospital systems. He still maintains that the CON process is a barrier that impedes innovation. Number 1039 REPRESENTATIVE COGHILL noted that the proposed CS keeps the CON process intact but raises the threshold to $7 million. He asked Dr. Worrell if $7 million is an arbitrary number, or is it a number that would allow a degree of competition. DR. WORRELL replied that the proposed CS $7 million figure is a tremendous change in the right direction. He is in favor of the proposed CS but also is in favor of eliminating the entire CON process. Number 0955 DR. WILLIAM DOOLITTLE, Member, Fairbanks Memorial Hospital Foundation Board and retired doctor, testified via teleconference from Fairbanks. He spoke in opposition to the modification of HB 297 and to the threshold of value for the CON. He explained that he has participated in many community health planning efforts beginning with health system agencies when the CON threshold was under $500,000. He commented that the purpose of community-wide planning is uniquely suitable for small communities, such as Fairbanks, where health care responsibilities of a medical facility transcends some of the economic considerations. He recommended the CON as a requirement to consider need, access, availability, financial feasibility, quality, the relationship to existing services and their relationships to ancillary services. He believes the CON process helps diminish the likelihood of opportunists sequestering a specific lucrative part of health care services to the detriment of existing services which might have a broader obligation in terms of ancillary and co-existent services. DR. DOOLITTLE reminded the committee that in larger communities many, if not all, of the services necessary to support consumers of health care are already duplicated. However, in Alaska many communities, outside of the one large community [Anchorage], have only one multi-service hospital. Consequently, control of medical entrepreneurism is a necessity to avoid development of provider groups who suck off an economically sustainable service but have no other responsibility for providing other less lucrative services. He reiterated that the economics of medicine is different from the usual market influences. Therefore, the margins under which health care providers operate are relatively fixed by an endless assemblage of controls long before a service reaches the marketplace; all related to third-party payers. He affirmed that one does not see similar controls in a grocery store or lumber companies where tight competition to put a competitor out of business is a rule. The only issue that remains for health care providers is how the minimal profit margin is to be distributed. He asked the committee not to tinker with the system because the product of such tinkering might well be an unfixable catastrophe. Number 0760 REBECCA DEAN testified via teleconference from Fairbanks. She said she is a professional health care worker in the Fairbanks community. She urged the committee to ratify and support HB 297. She commented that the CON process in the state of Alaska has not kept pace with the evolution of health care service history or with fellow states nationwide. She urged passage of HB 297 in order to provide appropriate economic direction and measurement as well as maintenance to remain current when control requirements are mandated. She reminded the committee that the CON program was initiated in 1976 under a federal mandate with the focus on controlling undue costs and preserving our budgeted dollars to support the health care needs. Nevertheless, the circumstances which drove the initiative have changed drastically over the past 20 plus years since that implementation. MS. DEAN reiterated that federal regulations have been repealed along with federal subsidies for state program maintenance. Since the repeal of the federally mandated programs, many states have responded proactively and repealed, or at the very least, modified their state CON process. She believes that Alaska's CON process needs to be re-evaluated to reflect appropriateness in its application for the year 2000 and the future of the new millennium. She encouraged the passage of HB 297 in order to foster independence in the state of Alaska to allow entrepreneurship and provide for health care services that are unique to the community needs. Number 0547 MR. LINDSTROM stated that the Department of Health & Social Services takes a neutral stand regarding HB 297. However, he reminded the committee that DHSS is concerned with long term care needs. LOUISE BJORNSTAD, Market Manager, Healthsouth Diagnostic Center of Anchorage, came forward to testify. She referred to previous comments about a common playing field. She said Healthsouth is a for-profit corporation that pays corporate, business and property taxes. She explained that Healthsouth purchased the surgery center almost by default. In 1994 the Federal Trade Commission (FTC) mandated that Columbia Hospital divest themselves of the Alaska Surgery Center. This mandate came as a result of a merger between Columbia Hospital and Medical Care International, who is owner of 95 different surgery centers throughout the country. She commented that the Alaska Surgery Center in Anchorage was the only surgery center that had to be divested because the FTC felt that the Alaska Surgery Center was vital to the competition to keep health care costs down in the state of Alaska. She noted that the FTC required the Alaska Surgery Center remain viable for ten years. MS. BJORNSTAD indicated she favors HB 297. The Alaska Surgery Center would like to replace its present facility, and the Alaska Surgery Center does not believe a new facility to replace the old would disrupt the market. However, when the Alaska Surgery Center submitted its CON letter to the DHSS, the department replied that the Alaska Surgery Center had to submit a completely new CON instead of just a CON letter to replace the existing building. She informed the committee that a full CON can take up to two years to complete. Number 0316 REPRESENTATIVE COGHILL referred back to Mr. Lindstrom's proposed amendment, Section 2, and whether it was needed or not. He asked if Ms. Bjornstad, after hearing testimony, still felt that Section 2 was unnecessary as it seemed to be site specific. MS. BJORNSTAD answered in the affirmative. She explained that the CON process requires that an interested party submit a letter of intent to start the process. Subsequently, she said, the interested party has to wait 60 days before he/she can submit the rest of the CON paperwork and if, in that time period, the interested party finds another piece of land that is suitable and less expensive, he/she has to start the whole CON process all over again. Number 0202 CHAIRMAN DYSON asked if $7.5 million is the right threshold number. MS. BJORNSTAD cannot advise a number. She said that the CON threshold was raised to $1 million in 1982, and she remembered that the CON process did apply to equipment purchases. Number 0063 REPRESENTATIVE KEMPLEN asked Ms. Bjornstad how long it had taken to obtain the CON. MS. BJORNSTAD answered two years. She said that when the Alaska Surgery Center submitted their CON, they had to submit the design, go through public hearings and present the paperwork, all at the same time. However, she commented that some CON requirements have been eliminated since then. TAPE 00-12, SIDE A Number 0057 HARRY PORTER, Member, Fairbanks Memorial Hospital Foundation Board, testified via teleconference from Fairbanks. As a member of foundation board, he is concerned that proper medical care be provided for the community. As a businessman, he believes in competition on the open market, but he feels health care is a different issue. Nobody has a choice about where he is going to be sick or where he will be taken for treatment. He said Fairbanks is fortunate to have a non-profit, well-equipped and well-operated hospital. He does not want to see it "cherry-picked" so that there are no funds to take care of the needs that no one else wants to provide. As far as he is concerned, it is a waste of time to consider or hear HB 297, and it should never have been on the program. He reminded the committee that Mayo Clinic is a hospital and has produced many world-famous innovations; this was to answer a previous testifier who felt that hospitals do not encourage innovation. Number 0266 LARAINE DERR, Executive Director, Alaska State Hospital and Nursing Home Association (ASHNHA), came forward to testify in opposition to HB 297. She said opposition was a unanimous decision by the board when they met two weeks ago. She noted that ASHNHA had cooperated with DHSS last year regarding the long-term care issue. Number 0424 CHAIRMAN DYSON announced that it was his intention to take all testimony today, though he does not plan taking any action on the proposed CS today. CHERYL KILGORE, Executive Director, Interior Neighborhood Health Corporation (INHC), testified via teleconference from Fairbanks. She stated that the INHC is the major health care clinic in the Fairbanks North Star Borough. She explained that its mission is to provide universal access to excellent health care. At any given time more than half of the patients are either low income and/or uninsured. She urged the committee to oppose HB 297. She reminded the committee that Alaska's health care market is small and that makes it different. She represents an agency whose mission is to address the primary health care needs of the medically underserved, and she is concerned about any action that potentially would make the situation worse. She believes that HB 297 in its present form and its current threshold could very well make the health care situation worse in many small communities of Alaska. Number 0581 MIKE POWERS, Administrator, Fairbanks Memorial Hospital, came forward and testified in opposition to the proposed CS. He discussed the value of competition. He had heard testimony that seemed to indicate that hospitals are against competition. If that is the perception, then hospitals have not communicated effectively, or others have not listened carefully. He believes there is considerable competition in health care and in the appropriate setting, it is probably the best way to allocate resources effectively. He said he has never experienced a CON that took two years to finish. In his experience as a hospital administrator, it has taken between three and six months to complete the CON process. MR. POWERS mentioned the health care market issue. He explained that there are four basic elements to a free, fair market: 1) consumers must be well informed, 2) buyers and sellers must be numerous, 3) they must be independent and 4) there must be easy exit and entry from the market. It is his opinion that none of these elements are present in health care. MR. POWERS noted that the CON process has been in place for 25 years and is a proven control of Medicaid expenditures. He stated that the CON process is in place in 75 percent of all other states. Most communities in Alaska have one hospital which serves a far-flung population, excess in standby capacity, difficulty in recruiting very hard to fill positions, particularly operating room nurses, and an inability and unwillingness to drop services because of a broader good, of which psychiatric services is a wonderful example. MR. POWERS stated he desired the committee to observe the 1993 task force report on the CON issue in terms of strengthening the CON to control Medicaid expenditures. He summarized by saying that ASHNHA represents 33 licensed hospitals and nursing homes in Alaska and all 33 entities have opposed HB 297. Given the unique population distribution of Alaska and the incentive to "cherry pick" only profitable services in the absence of any regulatory oversight, he urged the committee to oppose the proposed CS or at the very least intensively study the broader implications on communities. Number 0774 DAVID RASLEY, District Representative, Operating Engineers Union, testified via teleconference from Fairbanks. He is also a member of the Fairbanks Memorial Hospital Foundation Board. The reason he became a member of the board was because many members of the Operating Engineers Union were using hospital services and Mr. Rasley wanted to see how the [union] medical dollars were being used. He opposes HB 297 and the proposed CS because he does not believe there are competitors who want take on mental health services and unprofitable areas. He informed the committee that the Fairbanks Memorial Hospital just recently completed a new mental health unit, yet Mr. Rasley had not seen anyone breaking down the door to compete with the project. He agreed with Mr. Porter's testimony that the services which are more lucrative help support those services which are not. He stated he cannot understand how the legislature can pass legislation to allow competition in to a small community like Fairbanks for the purpose of "cherry picking" lucrative services. He informed the committee that in summary he has a short statement: "If it ain't broke, don't fix it." Number 0907 JEROME SELBY, Providence Health Systems, came forward to testify in opposition to HB 297. He explained that Providence Health Systems has been in Alaska almost 100 years; they came here in 1902. He said that Providence Health Systems built their first hospital in Nome, later built one in Fairbanks and more recently in Anchorage, and they also manage the Seward and Kodiak facilities as well. He requested that the committee oppose HB 297 for a number of reasons. Realistically, a cap at $7 million is virtually the same as throwing HB 297 out, and for all practical purposes eliminating the CON process. He believes that a $7 million cap defeats the careful control on capital costs; the CON is about capital costs, not competition. He said doctors compete, hospitals just provide a place where doctors can work. MR. SELBY explained that he believes doctors control and drive the system and the competition between providers for health care systems. He suggested that the committee try to keep the competition aspect separate from the CON issue. He reiterated that the CON is not about competition, it is about not overcapitalizing the industry. If overcapitalization occurs, all citizens in the state will pay the increased health care cost. It still costs the same if a health care facility is half-utilized or fully utilized. Number 975 MR. SELBY stated that working with a $7 million cap, he could build a surgical center, and then for another $7 million he could build an imaging center, he could build a laboratory for another $7 million; he could spend $21 million in facilities. He built the whole replacement hospital in Kodiak for $20 million. He could go in and "cherry pick" all three of those services which drive the whole hospital in Kodiak and spend less than $20 million. He urged the committee to understand what they are doing to the rural communities. If there is no surgery in the hospital in Kodiak, the hospital will lose money. When Kodiak went one year without a surgeon, the hospital lost money. In Providence Hospital's case in Anchorage, please understand that having surgery and these other revenues is how $25 million worth of charity care is covered and how they bring new services to Alaska. The Children's Hospital is one of those examples. There are more pediatric services in Alaska than ever before and the only way to finance that is with that revenue stream coming from the places where they "make a profit"; it all goes back into health service because they are a nonprofit. Nobody is making money off of this. It is going in to increasing health care for Alaskans. REPRESENTATIVE KEMPLEN asked Mr. Selby what he would think if the cap were to be $2 million instead of $7 million for Kodiak. MR. SELBY agreed it would come a long way toward answering the concern he identified, but still $2 million is pretty high. It doesn't eliminate his concern for the small communities. Because of the technological advances, the costs of medical equipment is actually coming down. RICK SOLIE, Director, Community Relations and Planning, Fairbanks Memorial Hospital/Denali Center, testified via teleconference from Fairbanks. He is also the presiding officer of the Fairbanks North Star Borough Assembly, and although he is not representing their position, it does influence what he believes about HB 297. He stated this bill is bad for Fairbanks and for Alaska's hospitals. This is nothing other than an effort to "cherry pick" the profitable services and take away from the hospitals that are trying to provide the necessary medical services. Fairbanks has a 30 year private, not government, nonprofit partnership that has provided for cost-effective quality care. Their outpatient surgery prices are competitive with those in Anchorage which does have free standing surgery centers. MR. SOLIE submits that the law here has worked well. It has resulted in a partnership from the community, hospital and legislature. The hospital has clearly benefitted from the government, but it does not receive ongoing operating subsidies from the government. From his assembly perspective on the fiscal picture, he does not relish the idea of the hospital all of a sudden having a difficult time providing services and looking to the borough government for a tax. Fairbanks has a wonderful facility, but he advised not rushing to make changes to the law to benefit those who are simply trying to "cherry pick" the profitable services because there are many services that are needed greatly that are truly not supported financially. Fairbanks has expanded their mental health center, and those services are greatly needed by their community. He urged the committee to spend some time with this bill because it will impact Fairbanks and the rest of Alaska very much. Number 1328 BRIAN GILBERT, Chief Executive Officer, Wrangell Medical Center, came forward to testify. He has been there for 30 years so he was around when the certificate of need began. This bill won't affect Wrangell because his facility is too small, but the problem would be seen in Juneau, Ketchikan and other large centers that he does send patients to. There are four family practice doctors in Wrangell, and they don't do much surgery. He believes the amount of money should be $500,000 instead of $1 million; he definitely disagrees with $7 million. The CON does control the amount of money spent. There is still competition if someone can prove there is a need in a community. REPRESENTATIVE KEMPLEN asked Mr. Gilbert how long it takes an applicant to get a certificate of need. MR. GILBERT replied he never has submitted a CON because Wrangell never wanted to do anything that cost $1 million. Number 1452 DAVID CALDWELL, Senior Financial Analyst, Fairbanks Memorial Hospital, testified via teleconference from Fairbanks. He also opposes this bill for many of the same reasons already expressed. The hospital in Fairbanks has to provide all kinds of services, many of which are not profitable. Those services are supported by the ones that are profitable. The hospital offers home health care, cardiac rehabilitation and mental health which are not profitable, however, the community needs those services. If someone came in and opened a surgery center, that could take away the hospital's ability to provide those services. The choice is to either cut out the nonprofitable services, even though the community needs them, or cut the charity care for those who can't pay. Number 1539 BARBARA HUFF TUCKNESS, Director, Legislative and Governmental Affairs, General Teamsters Local 959 State of Alaska, came forward to testify. She informed the committee that she is not associated with any of the hospitals nor any doctor groups. She presented some labor and commerce issues. Her organization wears two hats. They represent 500-600 members around the state that work within the health care industry that includes very technical, high skilled positions throughout the hospital. The union doesn't just represent one particular industry or classification within the hospitals. The employees are well paid, have good benefit packages and the union has fought hard over the years in maintaining some sort of balance within the hospitals it represents, specifically South Peninsula Hospital and Providence Kodiak Island Medical Center. She expressed opposition to HB 297. MS. HUFF TUCKNESS continued that in addition to representing employees, the Teamsters provide health benefit coverage for employees. The union has not had an opportunity to sit down with the health care benefit consultants and really look at the potential affect or take a look at what other states have gone through in these particular cases. In her brief research, she found that 11 states have actually eliminated the certificate of need, and those states are offering heavily managed care or capitated plans, or there are the HMOs [health maintenance organization] or PPOs [Preferred Provider Organizations]. The only thing in Alaska that comes close to that are PPOs. MS. HUFF TUCKNESS is concerned about the impact on the work force. The operating nurses are a highly skilled and highly trained classification where the positions are hard to fill, and that will be another drain in the health care industry. She maintains that the most expensive piece of equipment is the pen used by the doctors. She assured the committee that it is the doctors in Alaska who decide what facility the patient is going to, what surgeries are going to be performed, and what services the community will be utilizing. She urged the committee to consider the issues addressed today and again expressed opposition to HB 297. Number 1699 JENNIFER HOUSE, Comptroller, Fairbanks Memorial Hospital/Denali Center, testified via teleconference from Fairbanks. She expressed her opposition to HB 297. She is not anti-competition, but health care services cannot be put in the same category as other retail businesses, particularly hospital services provided in rural settings. The Fairbanks hospital is obligated to provide a wide spectrum of health care services to meet the needs of the community. Some are profitable and some are not. If the hospital was run like a retail business, some of those services would be cut out, and there would be less attention to the needs of the community. The completion of a $9.5 million cancer treatment center is evidence of that. The decision to go forward with that was not made because it would be a great money maker. On the contrary, it was done in response to the community needs. MS. HOUSE commented that unlike the emergency room, she can't think of another business in town that has to provide services or products for the consumers regardless of their ability to pay. The Fairbanks hospital provides well over $1 million for charity care each year. By diluting the current certificate of need regulation, it is inviting wasteful duplication in health care services in her community and allowing other providers to come to town and "cherry pick" profitable services that the hospital is already providing; the long-term stability of the hospital will be jeopardized. This law doesn't protect hospitals, it protects communities. It works both ways. If there is a need not being met in the community, the CON application process will validate that. Number 1827 ED LAMB, President/Chief Executive Officer, Alaska Regional Hospital, testified via teleconference from Anchorage. He clarified that whether an organization is tax-exempt or not, profit does not dictate whether a patient is able to receive care at a hospital. His hospital and other facilities that have testified today do not discriminate whether a person receives health care based on their ability to pay. The true issue is that the assessment of need with the proposed change is greatly compromised. It is believed that both excess capacity and the inability to staff appropriately those critical care areas that a hospital maintains on a 24-hour basis will be greatly challenged. Given the current nursing shortages, it would be difficult for the community in Alaska to support all those extra staff. He expressed his group's opposition to these changes. Number 1880 SHARON ANDERSON, former Chief Executive Officer, Alaska Regional Hospital, came forward to testify. She has been in Alaska since 1973 and was involved with the certificate of need process when it first started in Alaska. She has authored CON applications and volunteered on the Anchorage Municipal Health Commission and the Southcentral Health Planning Development, Inc., which was the regional health systems agency charged with making recommendations to the state regarding all CON applications that went through the regional health planning board. She has sat on both sides of the table as it related to certificate of need applications. MS. ANDERSON expressed support for competition. Coming out of the for-profit sector, she values competition. Knowing that, her colleagues called her when this issue came up to see if she could help provide them with some additional oversight as they went through the certificate of need process. In the sponsor statement there was one area that referenced the Federal Trade Commission (FTC). She was the CEO at the hospital at that time the FTC made that particular ruling. As such, she participated in Washington D.C. to respond to questions from the FTC staff in that area. It was the hospital's [Alaska Regional, formerly Columbia Hospital] position at that time that the hospital felt that the acquisition of the Anchorage Surgery Center would enhance the competition in the Anchorage market. There were rumors in the provider community that the competitor was doing something to prevent that from happening. She said that because the hospital did disagree with the FTC's findings and it probably would have enhanced competition. Healthsouth is a dynamic company that has done a lot to keep competition in the area too. MS. ANDERSON informed the committee that a number of states have strengthened their certificate of need process. Thirty eight states still have it, 22 still have certificate of need for ambulatory surgery centers at a threshold less than $2 million. The thresholds vary, but most are below the $2 million figure; one state goes as high as $5-9 million. She believes the department offered that list to the committee and she also has those resources. It is the position of Alaska State Hospital and Nursing Home Association (ASHNHA) that this is an important issue. There could be improvements to the system; some have been made along the way. Other states have done some creative things, and ASHNHA believes those kinds of things could be discussed. There is dialog that should occur, and ASHNHA would like to be at the table to have that continue, and the members are willing and anxious to do that. Number 2038 DR. DAVID MCGUIRE came forward to testify. He has had a private practice in Anchorage for 24 years. He has never turned away a patient for care he could provide regardless of the ability to pay or regardless of Medicaid or Medicare. The doctor does make the decision, but the doctor can't make the decision to take the patient to a facility if it doesn't exist. The federal government tried to control health care by the CON in 1974 because Medicare was a cost plus service. In the early 1980s, the government realized it didn't work so it was repealed. A lot of states have repealed the CON, but Alaska hasn't. In 1983 there were two bills, SB 85 and HB 19, which voted to repeal the CON in its entirety. He shared various bits of testimony on SB 85 and HB 19 which basically suggested repealing the certificate of need. DR. MCGUIRE referred to "cherry picking" and said "you've got to be very certain that you are not the cherry that is being picked." It isn't the way it is said to be. The Surgery Center in Anchorage has worked for a long time. The Surgery Center takes care of Medicaid, Medicare and anybody that comes there. "If you would be kind enough to grant me nonprofit status, I will be very happy to continue taking care of even more indigent patients." REPRESENTATIVE COGHILL asked if the $7 million threshold in HB 297 gives Dr. McGuire the possibility of putting together a facility that could just pick off the best and most profitable services or is it acute care that could be more broad in this spectrum. DR. MCGUIRE answered "We sometimes forget the patient. But suppose that we are the patient. We are being told that a certain patient is more valuable than another; that a hospital needs this revenue stream in order to do the good that it's supposed to do. Mostly we hear this from the nonprofits. You certainly heard from Ed Lamb that they do take care of indigent patients. My point in 'cherry picking' is, let's remember that we as individuals are the people who receive these services, as so, if we're paying to cross subsidize, we should at least know that in advance. We should know where the money goes. And so this concept of 'cherry picking,' it's each of us as the patient that are being 'cherry picked.' The Federal Trade Commission, in every single time that they have addressed this issue, have said, uniformly, that the CON doesn't work. The Commission has discovered that existing hospitals have sometimes opposed these CON applications, not in good faith, but merely to delay the entry of a new competitor and burden it with heavy costs." Again he read from testimony supporting this. REPRESENTATIVE KEMPLEN asked Dr. McGuire what he would think of a two-tiered approach to certificate of need where the smaller and moderate-sized communities have a smaller threshold and the larger communities have a larger threshold to address many of the concerns raised in public testimony. TAPE 00-12, SIDE B Number 2267 DR. MCGUIRE answered he didn't know what he thinks about that. The problem is the consumer isn't given the choice when there is a monopoly of health care. "I've heard a number of statements about people not clamoring to provide these services. One of the reasons they don't clamor is because they know it is never going to be allowed. Mental health care in lots of places in the world is done privately and quite well as a matter of fact. There was someone who wanted to provide cancer treatment in Fairbanks privately but that was not permitted. So I suppose there is a concern based on population, I don't know how you'd decide what the number is. ... What defines a community that should have a different application to it." CHAIRMAN DYSON asked Dr. McGuire to comment on someone getting three separate certificates of need to build three separate free standing facilities to provide three separate services. DR. MCGUIRE answered, "As it stands right now, if you spend over $1 million basically to do anything except a private office ... you have to have a certificate of need. You can't be licensed if you don't have it, and if you aren't licensed well then you can't participate in any of the programs. So someone could go out and apply for a surgery center, they could go out and apply for an imaging center, as far as I know it could be the same entity, they would have to go through the process no matter what it was." DR. MCGUIRE continued, "If I could, a clarification on the language, the current department has lumped together all elements of a given building. If you have office space in a building, they say that that's part of the surgery center. And the contention is that if they're to limit the surgery center, it ought to be those costs that are allocated to the surgery center, not those that are associated with the building but may be related simply to office space." REPRESENTATIVE KEMPLEN asked Dr. McGuire how long it has taken him to have a certificate of need approved. DR. MCGUIRE replied it is a very long process. "That as someone else earlier testified, it's got to be site specific. So you've got to own, lease, rent, something the property that you're going to do it on. Then you put in a letter of intent, that's 60 days; then you got to put in your application and the problem is the certificate process may take forever because they may say there is no need, in which event, everything that you've done is presumably forever. We've spent over two years on it and are nowhere with the first one we've spent eighteen months. I would be interested to hear from the department if there has ever been a certificate of need approved in less than a year. Maybe there has been; I don't know about it." REPRESENTATIVE COGHILL noted that hospitals are 24-hour, seven day a week care units and that other entities can pick and choose their hours and customers. He wondered if that is taken into account as far as the need goes. He asked if the operating hours are part of the needs criteria. DR. MCGUIRE answered "The current process uses a thing called the 'Washington State Methodology' and so the number of available operating room minutes per population is said to be what determines whether or not there's a need. Now exactly how Washington State ever figured that out is a little unclear. But so if you have, for example in the case in Fairbanks, if you have two ambulatory surgery suites that were built under the label of 'ambulatory' then you only get to count those minutes from 7 to 5 or what the presumed normal operating hours of ambulatory suites would be. If you change the designation of those, then you get to count them 24 hours a day and so to that extent yeah I guess it does. It says there are more available operating room minutes, whether anybody would use them or not is another question." REPRESENTATIVE COGHILL said he likes the idea of having a free market as much as possible. It isn't a totally free market situation in medical care, but he prefers that direction. He asked Dr. McGuire if this was a fair assessment: "You have no other responsibility to the market than that particular chunk and that would siphon off from the community based hospitals and then you could take that nice chunk of market but you have no other responsibility to the market." DR. MCGUIRE answered "I don't think it's fair. As I said, we take care of all patients for what we do whether they are "cherry picked" or the high profit margins or whatever we take care of them. Second is has been repeated many times here, if you're a not for profit and don't pay taxes presumably that money is meant to go to help with those uncompensated care. Yes, it's true that we're not open 24-hours a day, that's true, but it's also true that we provide a service that people want and need, and if given the choice, choose. In the end, there's a lot to be said about that." REPRESENTATIVE COGHILL reminded the committee members that they need to ask themselves the question on the criteria the certificate of need whether they are comparing apples and apples or apples and oranges. He wants to know if they are just gauging what is actually being done in town and if people are going out-of-state. It seems like they are talking about a finite market that may not be so easily defined as a finite market. [HB 297 was heard and held.] ADJOURNMENT Number 1966 There being no further business before the committee, the House Health, Education and Social Services Committee meeting was adjourned at 5:30 p.m.