MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session March 16, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:50 a.m., on Thursday, March 16, 1995, in Room 119 of the Legislative Building, Carson City, Nevada, and was video conferenced to Room 4401 of the Grant Sawyer State Office Building at 555 East Washington Avenue, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator John B. (Jack) Regan Senator Joseph M. Neal, Jr. STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Vance Hughey, Senior Research Analyst Molly Dondero, Committee Secretary OTHERS PRESENT: Bob Ostrovsky, Lobbyist, Nevada Resort Association Danny Thompson, Political Director, Nevada State American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) Nancyanne Leeder, Nevada Attorney for Injured Workers, Department of Business and Industry (DIR) J. Michael McGroarty, Attorney, Associated General Contractors Brian Nix, Senior Appeals Officer, Hearings Division, Department of Administration Samuel P. McMullen, Lobbyist, Nevada Self-Insurers Association Danny Williams, Dare To Dream Stella Marchand, Dare To Dream Douglas Dirks, General Manager, State Industrial Insurance System Arthur J. Busby Jr., Benefits Administrator, Horseshoe Hotel and Casino, Las Vegas Cecilia Colling, Assistant General Manager, State Industrial Insurance System (SIIS) Harvey Whittemore, Lobbyist, Nevada Resort Association Larry Harvey, Nevada Employers Workers' Compensation Coalition Marsha Berkbigler, Lobbyist, Nevada State Medical Association Stephanie Tyler, Lobbyist, Nevada State Chiropractic Association Ray Bacon, Executive Director, Nevada Manufacturers Association Jack Jeffrey, Secretary-Treasurer, Southern Nevada Building and Construction Trades Council Edward F. Barnard, P.T., Aspen Industrial Rehabilitation, Nevada Physical Therapy Association Lynn Grandlund, President, Grandlund, Watson, Clark, and Associates, Vice President, Employers of Nevada Ron Hubel, Industrial Medical Group The hearing was opened with discussion of Proposal 15 from Exhibit C (Workers' Compensation Reform Proposals). Bob Ostrovsky, Lobbyist, Nevada Resort Association, recommended the adoption of Proposal 15 which is a filing of a C-1. If the C-1 is not filed, and later a C-4 is filed, then the worker must prove he did not file a C-1 based on the exceptions currently outlined in the law. Proposal 15 is a change in filing time from 30 days to 7 days. Danny Thompson, Political Director, Nevada State American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), discussed Proposal 15. Nancyanne Leeder, Nevada Attorney for Injured Workers, Department of Business and Injury (DIR), suggested the wording should be 7 days for a report of incident, and 90 days for report of injury. SENATOR NEAL MOVED TO INCLUDE PROPOSAL 15. SENATOR REGAN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** J. Michael McGroarty, Attorney, Associated General Contractors, spoke from Las Vegas presenting his testimony in favor of Proposal 41. Senator Shaffer asked if they have capabilities for video conferencing in Laughlin. Mr. McGroarty stated they do not. Brian Nix, Senior Appeals Officer, Hearings Division, Department of Administration, indicated appeals are held in Carson City and Las Vegas. Senator Townsend asked if Mr. Nix has a suggestion for accommodating the people in the outlying areas. Mr. Nix stated people are allowed to testify by telephone. Senator Townsend asked how many additional hearings and appeals officers are requested in the new budget. Mr. Nix responded there is a request for two additional appeals officers, one for Carson City, and one for Las Vegas. There is not a request for additional hearings officers in the budget. Senator Townsend asked if the department has authority to conduct a hearing by means other than telephoning in a testimony to Carson City or Las Vegas. Mr. Nix indicated there is nothing to prevent traveling to conduct a hearing, they, simply, do not have the facilities available to them in the outlying areas. Samuel P. McMullen, Lobbyist, Nevada Self-Insurers Association, stated this is a request made by his association. Senator Neal asked who bears the cost of travel to the hearings. Ms. Leeder stated the claimant bears the cost, even if the case is continued at the last minute, and it is out of the claimant's control. Remote location hearings are possible and have been scheduled in the past, but it is not usual to do so. She stated video conferencing is not a problem, but funding travel will require expanding the budget. Senator Regan asked why the community college facilities throughout the state cannot be used. He suggested the facilities are in place in most outlying populated areas and should be used. Senator Shaffer said the educational system is improving their video conferencing abilities. Senator Townsend suggested a letter be drafted to the fiscal division asking for information on using community college facilities, specifically requesting information on whether the video-communication systems are compatible with the hearings' division systems. He asked a letter also be sent to the Department of Administration asking them to assist in compiling the information requested. Senator Townsend closed the testimony on Proposal 41 and asked for discussion on Proposal 45. Mr. McMullen stated he strongly objects to the proposal. No action was taken on Proposal 45. Discussion was conducted on Proposal 46. Mr. Nix explained his department is asking for flexibility in considering the needs of all parties when setting the time for hearings. He expressed there are usually continuances because one or more parties involved require extra time. The department is required to set hearings within 90 days, whether the parties concerned are ready or not. This proposal will assist the department by reducing the amount of paperwork involved. Ms. Leeder agreed the present statute needs to be changed. She stated the current statute is unrealistic and creates unnecessary paperwork. Senator Townsend explained the 90-day requirement was placed into statute to make certain everyone was given hearings in a timely manner. Mr. McMullen stated the 90-day requirement is beneficial. It assures reasonable hearing time for a claim. He expressed his concern for deleting the 90-day requirement. He suggested there should be a good reason for asking for a delay past 90 days. Danny Williams, Dare to Dream, presented Exhibit D and responded to Proposal 41. He stated there is a new library in Searchlight where hearings could be conducted. He commented on Proposal 46 and stated his approval for the proposal as long as all parties agree to the extension of the 90-day rule. He stated he would like to see the 90-day requirement changed to 60 days. Mr. Nix stated originally the time-period was 60 days. He explained if the department is free to schedule cases needing the additional time, it frees calendar space for those cases not in need of extra time. He stated if the time requirement is changed to 60 days, there will be more cases scheduled for continuance. Senator Regan asked if there is a requirement for "reasonable cause" when asking for an extension. Mr. Nix stated there is. He explained beginning May 1, the department will begin scheduling hearings in 30 days. These will be pre-hearing conferences where the department will attempt to ascertain issues, resolve issues which can be resolved, and schedule cases for hearings based on the parties needs. Mr. Nix stated: My only concern is if we do have a party who, for some reason, refuses to agree, and I know from my experience that this case needs to be set because of discovery needs or medical investigation, it does not make sense for us to be forced to set that hearing knowing that we are just going to continue it again, anyway. SENATOR NEAL MOVED TO ADOPT PROPOSAL 46. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** Proposal 46a was discussed. Senator Neal expressed his feelings that this proposal is in conflict with Proposal 46. Mr. Nix stated the department is already required by law to schedule hearings within 10 days. SENATOR NEAL MOVED TO DELETE PROPOSAL 46A. SENATOR REGAN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** Mr. Nix discussed Proposal 47. He suggested there are many attorneys who utilize paralegals, and that the department has no objection to paralegals representing claimants in hearings as long as they work for the attorney who is directly employed by the claimant. Senator Townsend pointed out current legislation allows anyone to appear on behalf of a claimant as long as they do not charge for that service. Mr. Nix stated as long as no fee is charged, a union representative is able to represent a claimant. He said: It depends on what you do with other sections of the law and how this actually gets drafted. If it is drafted in such a manner that it does not interfere with the provision that allows union representatives or other parties to assist their injured workers, then no, I do not think it would interfere. It depends how you draft the language...If you charge a fee and you are not one of these parties, [as indicated in Proposal 47] then you cannot do it. Mr. McMullen stated he wants it clarified the paralegal must be working directly for the attorney retained by the injured worker, not just a paralegal who works for an attorney. Senator Townsend stated: What this language is attempting to establish, is to allow a paralegal who is working for an attorney, retained directly by the claimant, to appear on their behalf. Stella Marchand, Dare To Dream, asked if this bill would preclude any non-paid support groups from assisting the injured worker in court. Senator Townsend stated it would not preclude the non-paid support groups from appearing on behalf of someone in court, either as a support group or an individual, as long as they were not being retained for a fee. Senator Neal asked if the nonprofit organization is paid, would they be restricted from appearing. Senator Townsend stated, "If you pay the nonprofit organization...if they do not have an attorney as part of the organization, you could not do that." SENATOR O'CONNELL MOVED TO INCLUDE PROPOSAL 47. SENATOR LOWDEN SECONDED THE MOTION. Senator Regan asked if the language will be added "or paralegals working under the supervision of an attorney hired by or under the..." Senator Townsend said this will be added. Senator O'Connell stated it is her desire to have that language in the proposal. THE MOTION CARRIED UNANIMOUSLY. ***** Mr. Nix expressed his opposition to Proposal 48 even though it was passed. He stated if this becomes law, it limits his ability to supervise and guide the directions of the hearings officers in the agency. He said every 2 years the hearings officers have to face whether or not they will be reemployed. Senator O'Connell stated: As the person who made the motion, I would like to put it on the record that at the time the motion was made, my understanding was that you could still dismiss this person for cause. If that is not the case, then I would like to, at this time, make a motion. SENATOR O'CONNELL MOVED TO RESCIND THE MOTION THAT WAS ACTED ON PREVIOUSLY ON PROPOSAL 48. SENATOR SHAFFER SECONDED THE MOTION. THE MOTION PASSED UNANIMOUSLY. ***** Discussion was held on Proposal 49. Mr. McGroarty discussed Proposals 49 and 50. He suggested the Supreme Court of Nevada has determined not to allow this type of appeal. The statutes must be changed in order to allow the appeal. Douglas Dirks, General Manager, State Industrial Insurance System (SIIS), said he is concerned with Proposal 49 because it will greatly hinder SIIS's ability to close claims. He stated that currently the policyholders have a right to participate in the hearings. If they choose not to participate, SIIS represents their interest. He said there is an opportunity to appeal to the general manager of SIIS. If the general manager overrules the stipulation, the experience is written off from the employer's account. Mr. McGroarty stated there are situations "where SIIS will stipulate around the employer directly with the claimant, and not even bother to tell the employer what they have done." Mr. Dirks commented there is still opportunity for appeal to the general manager of SIIS. Mr. McGroarty stated: We have done this in the past and we have had to face motions to dismiss from your counsel on the basis of the United Exhibition case, that you have no jurisdiction to review something that is going on before the appeals officers and hearings officers. Senator Townsend asked if the Supreme Court of Nevada decision in the United Exhibition case states the general manager does not have the right to take an appeal. Mr. McGroarty stated, "It limits the abilities to use Nevada Revised Statutes 616.392 to handle this type of proceeding." Mr. Dirks asked for time to review the case decision. Senator Neal discussed Exhibit E and asked if they will create a Falline situation. Mr. McGroarty stated: This is the antithesis of Falline...our position there, is our exclusive remedy should not be eroded and instead we should rely upon the regulations and enforcement from the Industrial Insurance Regulation Section (IIRS) to make sure that employers do the right thing. In this case, there is a relationship between the policyholder and its insurance company, SIIS. We are trying to cure a situation of bad faith by the insurer with its policyholder failing to represent the insurer's best interest by the policyholder. In that regard it is similar to the Falline situation, but this is the regulatory or the administrative substitute for a direct "bad faith" [law]suit against SIIS... We would like to be able to appeal that to an independent agency other than the [general] manager to get a fair resolution. Mr. Nix explained: My concern with this section is that this provides an opportunity for a party who did not participate in the appeals process to second-guess an agreement made between the parties who did participate in the appeals process...If this is enacted, it means that anyone can not participate in the proceeding before my agency. When they do reach an agreement, they can simply say, no, we do not agree with that. Start all over again. Mr. McGroarty commented that things do not always run smoothly in the real world. He claimed: It is often the situation that SIIS, even without a stipulation, will agree to whatever the claimant wishes...award it, pay it out, and we are still litigating something that is already being paid out...Once the money is paid out...you cannot get it back, so then it becomes a question of getting it taken off our account. So once it is paid out, why do we want to continue in front of the appeals officer on something that even if we win, we win nothing. Senator Shaffer asked what happened to the exclusive remedy clause. Senator Townsend postponed further discussion of Proposals 49 and 50 until next Wednesday and asked for discussion of Proposals 50a through 50g. Ms. Leeder explained to expand the staff as indicated in Proposal 50a would change the character of the Nevada Attorney for Injured Workers (NAIW). There will be a fiscal impact on NAIW if the proposal passes. Arthur J. Busby Jr., Benefits Administrator, Horseshoe Hotel and Casino, Las Vegas, said he has studied other states who have had trouble with litigation expenses. He stated they had expanded their state agencies. Creating more of a clearing house for workers' compensation, they held down their overall attorney costs. He suggested the Horseshoe Hotel is willing to pay more to NAIW if it meant there will be more education for the employees about the NAIW and how it functions. Senator Lowden asked if other casino owners are in favor of his proposals. Mr. Busby indicated he is alone in this. Senator Lowden suggested the proposals need a little more work. Senator Townsend suggested, though there may be value in the proposals, Ms. Leeder may need time to study the proposals. Senator Neal commented many of the proposals have merit. Ms. Leeder stated she is not in favor of Proposal 50e at the appeals level. She commented at the hearing level, it would make the hearing more formal. She said 50d is already in the law, though they must be appointed by the appeals officer. She stressed the only way the NAIW enters the hearings officer level is when they have already been appointed to the case at the appeals level, and the case is remanded back to the hearings officer level. She stated that is not done any longer because of the bypass procedure. Senator Neal asked Ms. Leeder if there is need for the changes recommended in 50a through 50g. She commented the changes will substantially alter the system and the NAIW does not need the changes. Senator Townsend suggested the committee review the proposals during next Wednesday's hearing. Mr. Dirks discussed Proposal 56 which came from the SIIS business plan. He stated Managed Care Organizations (MCOs) are reducing the costs of claims and are enhancing the care that the injured workers are receiving. He requested the MCO program be expanded into Douglas County and Carson City. Proposal 57 was discussed. Mr. Dirks explained if there is not the minimum MCOs maintained in Clark and Washoe counties, then the program is void. He said if, for some reason, an MCO must drop out of the program, the entire program is immediately discontinued. Currently, Clark County must have seven MCOs and Washoe County must have five MCOs. He said SIIS requests the limits be completely removed. He said the 7 and 5 rule greatly influences the bidding. He commented that requiring a minimum requirement in the law, distorts the bidding process. He stressed if the 7 and 5 rule is removed from the law, the bids will be more competitive which will result in lower prices for all. He said there are also operational problems resulting from the 7 and 5 rule. He stated the law currently requires every medical field be represented in each MCO's panel. He stressed there are some specialties where there are very few providers and it is very difficult to maintain each category in each MCO. Senator Regan commented it is the intent of the Legislature to provide the highest quality of care as possible within the system. He stated he feels the lowest bidder might not be able to provide that quality of care. He asked if by removing the requirement for 7 and 5, if SIIS can maintain the same quality of care it has been offering. He suggested it is not always advantageous to reach for the lowest bid. Mr. Dirks stated it is his feeling that the number can be lowered and still maintain the same high standard for care for the injured worker. He stressed he does not advocated awarding a contract based on the lowest price. He stated it is easier to monitor the care provided by the MCOs, thus enhancing the quality of care. He stressed it is important to offer a choice to the consumer. Some MCOs are small and can specialize in services for specific industries. Senator Lowden asked if there is a specific number of MCOs Mr. Dirks would like to use. Mr. Dirks stated he would like to keep the number open-ended. Senator Lowden asked if this will permit Health Maintenance Organizations (HMOs) as well. Mr. Dirks responded that the current law does not permit capitation of the medical provider. Senator Neal asked if the utilization of MCOs is an original idea of SIIS. Mr. Dirks stated the general concept was in the 1992 Business Plan. He noted there are, currently, 15 contracts with 13 organizations. He said two of the MCOs operate both in Clark County and Washoe County. He said they are Sierra Health Options and FHP. Senator Neal asked how many contracts there are between the two groups. Mr. Dirks responded there are four separate contracts because they work in the two counties. Cecilia Colling, Assistant General Manager, State Industrial Insurance System (SIIS), commented there are 13 contracts even though the law only requires 12. SIIS is concerned if one of the MCOs should be unable to fulfill their contract, then the state would drop below the 12 required by law. To do so will require the entire program to be dismantled. An extra MCO was added in Washoe County due to a request for proposal (RFP) dispute. Senator Neal asked if removing the 7 and 5 rule will better serve the policyholders. Mr. Dirks stated it will reduce the confusion which surrounds the MCO program. He indicated having 15 organizations increases the confusion between medical providers, employers, and injured workers about where to obtain medical treatment. He pointed out that managed care requires the injured worker to participate in their treatment. They must understand how the system works. He stated both the MCO and SIIS should contact the injured worker. Senator Neal asked why should the injured worker be confused about who he should turn to for care, if the MCO is supposed to be managing his care. Mr. Dirks stated the contact with the MCO occurs after treatment has been provided. He stated the MCO system affirmatively enrolls every injured worker to help reduce confusion. With 15 organizations it does create confusion for all parties involved. Senator Neal asked if the requested changes are made, would the MCOs continue to be paid through a per capita rate. Mr. Dirks said the per capita rate is the most attractive to the system on all basics including quality of care and cost, and he would like to continue the option to make contract awards based on that rate system. Senator Neal commented the self-insured employers do not pay their MCOs on a per capita basis. He asked why should SIIS pay on a per capita basis. Mr. Dirks stated he is not familiar with their contracts. He is looking for flexibility in the granting of contracts between the MCOs and SIIS. He stated the MCOs handle one component of claims management. They control medical management. He stressed there is much more to the claim for which SIIS is responsible. Mr. Dirks stressed he supports the MCO program as a part of SIIS's overall claim's function, because it gives them the ability to manage the medical component of the claim better than it was previously handled. Senator Neal asked if the original requests for proposals (RFPs) indicated whether an MCO would be paid on a per claim basis. Mr. Dirks indicated the RFP asked for three different pricing mechanisms. He stated they were, 1) the composite rate (if it was a lost-time claim or a medical-only claim, the payment is the same, 2) a separate price for lost-time claim and a medical- only claim, 3) per capita basis. All three were priced by the MCOs in response to the RFP. Senator Neal asked if once the bids were accepted for 13 MCOs, did two of the large MCOs threaten to pull out of the program if the per capita rate was not adopted. Mr. Dirks stated it was not just the two large ones. He stated during a 2-day session, it was indicated by SIIS to the MCOs that they would base the bid on a composite rate. He indicated it was a management decision to use the per capita rate in order to get the program activated. They knew it would cost more, but it was a necessary decision. He stated at the time, he felt there would be some MCOs who would not be able to make it if the per capita rate was not used, thus causing the entire program to fail. Senator Neal asked if the MCOs threatened to pull out of the program, if the per capita rate was not used. Mr. Dirks explained it was the "sense" of the meeting that they would lose some MCOs if the per capita rate was not used. He stressed it was important to get the program "up and running." Senator Neal asked, " If that was the reason you permitted the MCOs to operate for 4 months without any audit of the number of people that they said they were taking care of." Mr. Dirks responded: What we did initially, based on the actual enrollment and the assignments we made, we made estimates of the number of enrollees, and paid the MCOs for 5 months based on those estimates. We, subsequently did audits and did a true-up and made adjustments for any overpays and underpays based on the actual enrollments. Senator Neal asked if the MCOs have a good situation with the system. Mr. Dirks responded they have, and so does SIIS. He stressed MCOs have reduced SIIS's claims costs. He stated everyone must benefit from the program, or it will not work. Senator Neal asked if it is a good deal to pay out $28 million a year. Mr. Dirks explained he would rather not, and that is why he is asking to have the 7 and 5 rule removed. Senator Neal asked how the committee can be assured that there will be a corresponding reduction in the amount of money paid to the MCOs. Mr. Dirks maintained, that though the per capita rate is not the most cost-effective, it was, at the time, in the best interest of the system to assure start-up of the program. Senator Neal commented he feels the decision was in the best interest of the MCOs not the system. Mr. Dirks stressed, the policyholders are the system, and they are the ones who benefit by the program. Senator Townsend asked if removing the 7 and 5 rule will mean removing the RFP requirements. Mr. Dirks stated some of the RFP requirements are of value to SIIS, some are not necessary. He stressed the need for greater flexibility. Senator Townsend asked if the system is allowed to have the flexibility, as discussed today, how would the three types of payment methods be changed. Mr. Dirks stated he was not certain how the types of payment will change. Senator Townsend asked for an assessment of quality by the current MCOs. Mr. Dirks stated the law requires SIIS to hire an independent utilization review firm. The results are public record. Senator Neal asked for an explanation of Proposal 59. Mr. Dirks stated it refers to the market share cap each MCO may have. He said SIIS requires an affirmative enrollment of all workers. There are over 381,000 employees enrolled in Nevada. The caps are based on the enrollment, and the highest market share is based on the 381,000 figure. Each MCO in Clark County is allowed no more than 25 percent of the 381,000 figure, and in Washoe County, 34 percent. Senator Neal asked if by removing the percentage cap could an MCO garner 90 percent of the market share. Mr. Dirks stated it will be permissible under the changes. Senator Neal asked if a 3 and 2 rule is a false figure. Mr. Dirks stated 3 and 2 is not his proposal. He indicated he does not want any caps at all. Senator Neal stressed the largest MCO can have a monopoly in the state if there are no caps. Mr. Dirks stated a monopoly situation is not in the best interest of the state and the policyholders. It is the obligation of SIIS to provide the policyholders a choice. Senator Neal commented SIIS is a monopoly. Mr. Dirks agreed, but doubted a state can sanction a private monopoly. He indicated he is not certain. Senator Neal asked if Mr. Dirks had spoken with any MCOs about his position on market shares and the 7 and 5 rule. Mr. Dirks mentioned he has had informal discussions on the issue. He stressed the proposal was developed internally at SIIS, with the belief that the current caps of 7 and 5 in the law have distorted the bidding process. Senator Neal asked how this will affect the injured worker. Mr. Dirks stressed the injured worker will be benefited by, 1) reducing confusion, 2) assuring quality of care, and 3) creating a more cost-effective program. Senator Neal asked how much these proposals will reduce the costs to SIIS. Mr. Dirks stated the budget will be reduced by $5 million, if the caps are removed. He stated they will have to wait for the bids to know the final figures. He commented they have an alternate budget if the proposals do not pass. Senator Neal asked if Mr. Dirks has an agreement with anyone on the Senate committee or the Assembly committee that this proposal will pass. Mr. Dirks stated the budget committees will defer any decision until the Senate Committee on Commerce and Labor has made its decision. Senator Augustine asked how many MCOs are in the state. Mr. Dirks said he does not know how many are currently licensed with the Insurance Commissioner. He indicated they received 31 bids statewide. There are currently 15 in the state. Mr. Dirks stated there, previously, had been no need for MCOs. Now that they are allowed by law, there are more under development in the state. Senator Townsend summarized the discussion by articulating the requests made by Mr. Dirks. He said Mr. Dirks is asking to remove the 7 and 5 rule, and the 34 and 25 percent provision, to eliminate the prohibition of MCOs in the rural communities, and to remove the prohibition against the capita rate. Mr. Dirks explained they are not seeking to move MCOs into the entire state, only into Carson City and Douglas County. Senator Townsend commented if the 7 and 5 rule is removed, then the MCOs will realize they can be excluded because the minimum requirement will no longer be a factor in maintaining the MCO program. Mr. Dirks agreed. He stated they are not "prejudging the number we will end up with. It will depend on the response." Senator Regan asked for a 30-day notification for the cancellation of an MCO as a method to monitor the quality of care provided by an MCO. He asked how a contract is rescinded. Mr. Dirks stated the contracts give SIIS the right to terminate in 60 days without cause, and 30 days to terminate with cause. He will wish to maintain those provisions in the new contracts. Senator O'Connell asked if there are fewer MCOs in the state, will they be able to accommodate the caseloads. Mr. Dirks indicated some may, some may not. He stressed it is SIIS's obligation to assure there is enough choice so as not to overload any MCO. Senator Shaffer suggested there be a hotline so people may be helped if they do not understand the MCO procedure. Senator Townsend asked how the injured worker finds out about their MCO. He asked for an explanation of the procedure. Mr. Dirks explained there is affirmative enrollment of each employee in their MCO so they know who their MCO will be if they are injured. Each MCO has a different way of informing its enrollees. Some have issued cards to be kept in a wallet. Others have hung posters at the work sites. There is an MCO hot line with a list of each MCO and the employers enrolled in them. He indicated his desire to see more consistency in the program. Senator Neal referred to page 33, section 75.2 of SENATE BILL 316 of the Sixty-seventh Session and asked Mr. Dirks to read it into the record. The manager shall not enter into a contract with an organization for managed care if the contract provides that the services rendered by the organization will be paid for on a periodic, pre-paid basis without regard to the extent of services actually furnished and will be based solely on the number of employees who will be receiving services through the organization. SENATE BILL 316 OF THE SIXTY-SEVENTH SESSION: Makes various changes to provisions governing industrial insurance. Senator Neal asked Mr. Dirks how he is able to use the per capita rate since it is barred by the law. Mr. Dirks stated SIIS's interpretation of the provision is, "It was intended to prevent capitation of the medical provider and not capitation on the administrative fee paid to the MCO." He stressed he had difficulty with that interpretation and commented they did not have the attorney general's office give an opinion. Senator Neal noted that SIIS interpreted the law on their own. Senator Townsend asked if Mr. Dirks felt, at the time, that they were forced to interpret that section of the statute to accommodate the smaller MCOs who needed a per capita administrative rate so as to allow them access to the program, thus assuring compliance with the 7 and 5 rule. Mr. Dirks stated they reviewed the provision and determined they could reconcile it with the per capita basis. SIIS's interpretation was, "The intent was to prohibit capitation of the medical provider and not capitation of the administrative fee." Senator Neal stated the provision refers specifically to an MCO. He asked how they read "provider" into the law. Mr. Dirks stated, "It was based on our interpretation of the intent when the provision was passed. I will readily admit it may be a tortured interpretation of that provision." Senator Neal asked if it is policy for SIIS to interpret the laws, rather than have the attorney general do the interpreting. Mr. Dirks stated they interpret the laws every day. He commented when a benefit is awarded, SIIS is interpreting the law. Every claim's decision is an interpretation of the law. He stated they do not routinely obtain the attorney general's opinion. He stressed, "It is our [SIIS's] obligation to do our best to pursue your intent in these laws." Ms. Colling commented SIIS has been doing research and has found that there are disadvantages to bidding strictly on the per claim basis. She stated they are studying ways of doing the bid based on the losses of the specific industry being covered. This will allow the enrollment rate to be based on what is expected. Senator Neal commented the original proposals sent by SIIS did not ask for bids based on a per capita rate. He stated, "That [the] per capita rate came in after you decided upon the numbers of MCOs you were going to deal with." Ms. Colling contradicted: That is not my understanding, and I did serve on the committee that developed the RFP...this was new ground for us. This had never been done in the state before. We had bidders who had never bid on a contract like this before, had never been involved in managed care before, and we did the best we could to try to anticipate the issues that were going to come up. That was how we tried to handle it, by doing a tiered bid. Senator Neal responded: The problem I have with this whole situation, [is] when there appears to be collusion with people who are going to profit from this particular system. I have a problem with that. This is what appears to have come out with SIIS's relationship with the MCOs. When they can dictate to the SIIS organization as to what they should be paid...and you have across the board, different per capita rates for each of the MCOs. They do not all receive the same per capita rate. Some get has high as $8 or more. Some get as low as $4. I have a problem with that, when I see that and I wonder about whether or not there is a collusion between SIIS management and the MCOs who operate under SIIS. Ms. Colling stated: I can assure you that is not the case. First of all, the purchasing act, the way the RFPs are required to be done, [states] once that bid comes in, you cannot negotiate that price. All the MCOs bid their own price without talking to each other. That is why there is such a broad range of differences in price. Senator Townsend asked about her statement about the purchasing act. Ms. Colling explained once the RFP has the price in it, and once the bid is accepted, the price is not negotiable. Senator Townsend commented that is advantageous to the bidder. Ms. Colling agreed. Ms. Colling commented that cost was not the most important point considered when accepting a bid. She emphasized quality is the first issue when looking at a bid. She explained quality takes precedence over cost. Senator Neal stated that under the purchasing act, they are usually dealing with one individual at a time. He asked why SIIS is obligated to accept a bid price without negotiation. Ms. Colling stated SIIS is required to follow one of the bidding prices under the contract. Senator Neal outlined there is one service with a group of people bidding on that service. He stated since under the law 13 were selected, did the state purchasing act box SIIS in, thus hindering its ability to select the prices in the contracts. Ms. Colling stated it did. Senator Townsend expressed his understanding of the problem and asked for testimony which will add a new dimension to the discussions being held. Harvey Whittemore, Lobbyist, Nevada Resort Association, stressed: Over a course of 2 to 3 weeks, the issues we are debating today, were in large part, the result of negotiations between lawyers representing various parties compelling decisions SIIS had to make with respect to this issue. It was not just, simply, management willy-nilly suggesting that things had to take place. The suggestion that there was any collusion is absolute balderdash. It did not happen, did not occur, would not have been allowed to take place by the participants, and I think we need to set the record straight. Mr. Ostrovsky stated during the committee meetings dealing with the issue at hand, there was counsel present to advise them as to what the purchasing act required. He stressed the committee was very careful. The committee members were instructed not to make contact with any bidder, to report any contact made by a bidder to them, and at every meeting, Mr. Ostrovsky stressed he asked each member present if they had contact with any of the bidders. He stressed there were minutes of those meetings and the draft of each RFP document is available. Larry Harvey, Nevada Employers Workers' Compensation Coalition, commented on Proposal 57. He stated he agreed with everything Mr. Dirks presented. He agreed with privatization, opening up the bidding process, and hoped Mr. Dirks would run the system from now on. He stressed the employers want to be assured there will always be a choice. Marsha Berkbigler, Lobbyist, Nevada State Medical Association, requested her comments be placed into the record. She stated the association is in opposition to Proposals 56, 57, 58, and 59. She explained if the numbers are lowered there will be fewer providers who are providing services in Nevada . She stated there is discrimination now, and it may continue and become worse if these proposals are adopted. Stephanie Tyler, Lobbyist, Nevada State Chiropractic Association, stated her opposition to the proposals discussed by Ms. Berkbigler. She discussed Proposal 56 and suggested expanding coverage of the MCOs to the Carson area and Douglas County is premature. She suggested waiting 2 years until the 20-mile issue is resolved and the MCO program is better developed. Ms. Berkbigler stated passage of Proposal 59 might direct injured workers toward specific providers. Ray Bacon, Executive Director, Nevada Manufacturers Association, expressed his concerns about Proposal 56. He stressed there should be assurances that there will be local providers on the lists. Senator Townsend directed Mr. Bacon to discuss his specific concerns with Mr. Dirks. Senator Townsend commented it is not the intention of the committee to require people to seek treatment in Reno. Jack Jeffrey, Secretary-Treasurer, Southern Nevada Building and Construction Trades Council, expressed his concern about Proposal 58. He stated there are three large MCOs in Clark County, and he does not want to see the smaller MCOs put out of business. He stressed the basic intent should be to provide more MCOs, not less. Edward F. Barnard, P.T., Aspen Industrial Rehabilitation, Nevada Physical Therapy Association, stated the association supports "in concept" the legislation which will make the system more efficient. He expressed his concern that a monopoly could exist if only a few, large MCOs control the majority of treatment offered in the state. He asked that Proposal 71 be tied into the idea of having fewer MCOs available. He stressed the need for quality care. Lynn Grandlund, President, Grandlund, Watson, Clark, and Association, Vice President, Employers of Nevada, expressed that the reduction in numbers of the MCOs will reduce the quality of care. She stated the smaller MCOs are doing the job well, and the employers do not want to see them go out of business. Mr. McGroarty agreed with Ms. Grandlund's statements. Ron Hubel, Industrial Medical Group, stated 10 percent or less of the workers do not know who their MCO is, or how to use the system. He stated that by reducing the numbers of MCOs, business will go down for some providers and the loss of business will cause many providers to go out of business. Senator Regan stressed the small MCOs who are doing their job will stay in the system. SENATOR LOWDEN MOVED TO INCLUDE PROPOSALS 56, 57, 58, 59 AND TO REMOVE THE CAPITATED RATE. There was no second on the motion. Senator Shaffer stated he feels there needs to be some minimum number of MCOs. SENATOR SHAFFER MOVED TO INCLUDE PROPOSAL 56 TO ALLOW INCLUSION OF DOUGLAS COUNTY AND CARSON CITY. SENATOR LOWDEN SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** SENATOR LOWDEN MOVED TO INCLUDE PROPOSAL 58. SENATOR REGAN SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS NEAL, O'CONNELL, AND AUGUSTINE VOTED NO.) ***** SENATOR LOWDEN MOVED TO INCLUDE PROPOSAL 59. There was no second on the motion. SENATOR AUGUSTINE MOVED TO DELETE PROPOSAL 59. SENATOR NEAL SECONDED THE MOTION. THE MOTION FAILED. (SENATORS REGAN, SHAFFER, LOWDEN, AND TOWNSEND VOTED NO.) ***** Proposal 59 was held for later discussion. SENATOR LOWDEN MOVED TO ALLOW SIIS TO ACCEPT BIDS FROM ANYONE ON ANY BASIS WHICH INCLUDES CAPITATED RATES. SENATOR REGAN SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR NEAL VOTED NO.) ***** SENATOR LOWDEN MOVED TO INCLUDE PROPOSAL 2. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR NEAL VOTED NO.) ***** There being no further business, the hearing closed at 11:50 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor March 16, 1995 Page