MINUTES OF THE JOINT SUBCOMMITTEE MEETING OF SENATE COMMITTEE ON FINANCE AND ASSEMBLY COMMITTEE ON WAYS AND MEANS AND LEGISLATIVE COMMITTEE ON HEALTH CARE Sixty-eighth Session May 26, 1995 The joint meeting on Human Resources/K-12 of the Senate Committee on Finance and the Assembly Committee on Ways and Means and the Legislative Committee on Health Care was called to order by Chairman Raymond D. Rawson, at 8:00 a.m., on Friday, May 26, 1995, in Room 331 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. LEGISLATIVE COMMITTEE ON HEALTH CARE COMMITTEE MEMBERS PRESENT: Senator Raymond D. Rawson, Chairman Mrs. Vivian Freeman, Vice Chairman Mrs. Jan Evans Ms. Sandra Tiffany COMMITTEE MEMBERS ABSENT: Senator Raymond C. Shaffer (Excused) Senator Bernice Mathews (Excused) JOINT SUBCOMMITTEE ON HUMAN RESOURCES/K-12 SENATE COMMITTEE MEMBERS PRESENT: Senator Raymond D. Rawson, Chairman Senator William J. Raggio Senator Bob Coffin Senator Dean A. Rhoads ASSEMBLY COMMITTEE MEMBERS PRESENT: Mrs. Jan Evans, Chairman Mr. Lynn C. Hettrick, Chairman Mr. Dennis L. Allard Mrs. Vonne Chowning Mr. Joseph E. Dini, Jr. STAFF MEMBERS PRESENT: Steve J. Abba, Program Analyst Kerri Carroll Davis, Senior Research Analyst Pamela Jochim, Committee Secretary OTHERS PRESENT: Marie H. Soldo, Lobbyist, Sierra Healthcare Services Alan Stipe, Chief Executive Officer, Sunrise Hospital David Manning, Vice President of Government Affairs, Columbia HCA Charlotte Crawford, Acting Director, Department of Human Resources Cindy Johnson, Representative, Pacific Health Policy Group Senator Rawson opened the meeting and indicated the interim committee on health care and the Joint Subcommittee on Human Resources/K-12 are meeting jointly to discuss an alternative proposal regarding the state's Medicaid and the county indigent care system. The senator requested Alan Stipe, Chief Executive Officer, Sunrise Hospital to come forward and provide the committee with an overview of the proposal. Mr. Stipe came forward and distributed a handout (Exhibit C) detailing an alternative strategy to the proposed 1915(b) Waiver which the state is presently pursuing. He noted Sunrise Hospital is the state's second largest provider of Medicaid care and he feels it would be more beneficial to the state to pursue an 1115 Waiver. He said the 1115 Waiver will give the hospital an opportunity to initiate some innovative programs and expand medical care. In addition, he pointed out that Nevada has the highest uninsured population in the nation. Mr. Stipe introduced David Manning, Vice President of Government Affairs for Columbia HCA, who provided the committee with an overview of the company's proposal. Mr. Manning said prior to joining Columbia HCA, he worked 20 years in the area of financial management for the state of Tennessee. In his position as chief financial officer for the state of Tennessee, he faced many of the problems Nevada is dealing with regarding Medicaid funding. He noted there are many differences between Nevada's Medicaid problems and Tennessee's, however, he said there are also many similarities such as tax structure and rural versus urban issues. Mr. Manning stated he was responsible for implementing a TennCare program in Tennessee. He indicated the national press has reported on a number of problems associated with the TennCare program, however, the press has not reported on the successes the program has experienced. The TennCare program provided insurance to 400,000 more people in Tennessee which increased the state's insurance coverage level to 95 percent. Consumers using the TennCare program have indicated through surveys the quality of health care is the same or better as it was under Medicaid. He noted the program dramatically decreased the inappropriate use of hospital emergency rooms and the excessive use of inpatient hospitalization, while the access to primary care substantially increased. He pointed out the total cost of the system has been "virtually flat" due to market driven forces. The federal government's General Accounting Office recently released a report indicating Tennessee was the only state issued an 1115 Waiver which met the criteria of budget neutrality, remarked Mr. Manning. In addition, he pointed out the Tennessee Legislature has held two legislative sessions since the program was implemented and has not made any changes to the program. Mr. Manning said, due to severe financial problems facing Tennessee in 1993, the TennCare program was implemented rather hastily, which caused some significant problems. He related Nevada has an opportunity to avoid these mistakes by taking a reasonable approach when implementing its program. Mr. Manning related a 1915(b) Waiver was the most common waiver granted by the federal government until several years ago when the 1115 Waiver was touted as a way to reform the Medicaid program. He said an 1115 Waiver is preferable to a 1915(b) Waiver because it gives a state the flexibility to effectively manage costs by allowing a competitive market system. He commented medical costs cannot be controlled unless a competitive market system is in place. The 1915(b) Waiver limits a recipient's care to Health Maintenance Organizations (HMOs) and is biased towards federally qualified HMOs which further limits the competitive market system, related Mr. Manning. He maintained a 1915(b) Waiver will institutionalize inefficiencies which already exist in Nevada's Medicaid program. It is very clear, he indicated, Nevada is presently paying too much for its Medicaid services. Research points out Nevada's Medicaid costs are higher than neighboring states and the national average as a whole. On the issue of the uninsured, Mr. Manning commented the 1915(b) waiver does not effectively address the problem of the uninsured. He related Nevada shifts uninsured costs to the private sector which is inefficient and costly. Nevada needs to have a program in place which addresses all of its Medicaid problems, remarked Mr. Manning. Mr. Manning stated the alternative action proposed in Exhibit C will maximize the use of the current funds in Nevada's health care system and provide "absolute budget certainty." The proposed alternative program provides for a market driven system which allows the state to use its buying power instead of its taxing power. He indicated the 1115 Waiver is a long-term approach and not a Band-Aid approach to Nevada's Medicaid problems. The proposal offers Nevada the opportunity to provide insurance coverage to uninsured children and pregnant women. An additional benefit of the 1115 Waiver, stated Mr. Manning, is it provides the state with an opportunity to remove one of the biggest obstacles to welfare reform. If a welfare recipient returns to the work force, explained Mr. Manning, the traditional Medicaid program terminates the recipient's health care coverage which is a deterrent for many welfare recipients to return to work. The 1115 Waiver will allow the former welfare recipient to maintain health care coverage by paying a fee based on a sliding premium schedule. Mr. Manning said Nevada, like all states, is facing a changing Medicaid environment due to discussions presently being held in Congress. He is certain the Congress will cap all Medicaid programs and stressed it is important for a state experiencing a strong growth pattern to use their health care buying power to the maximum potential for cost controls. He stressed any costs above the federal cap level will be the responsibility of the state, so Nevada should develop a Medicaid program which meets its long-term needs. He opined the 1915(b) Waiver will not meet Nevada's overall objectives and long-term needs. Mr. Stipe noted he has reviewed the Request for Information (RFI) which was released by the state Welfare Division in April of 1995 and it is apparent to him the 1915(b) Waiver sought by Nevada will limit competition among health care providers because preference points will be assigned to federally qualified HMOs. He commented the RFI indicates preference points will be awarded to the University Medical Center in Las Vegas, but none will be assigned to other Las Vegas Medicaid providers. In addition, the RFI report indicates all Medicaid providers will have to operate under a 75/25 Rule which requires that 25 percent of a qualified bidder's business come from sources other than Medicaid. Mr. Stipe said it has been suggested there will be 30,000 Medicaid recipients in southern Nevada, therefore, only two HMOs providing medical coverage should be in the southern portion of the state. He submitted the number of HMOs should be broadened in order to increase competition and reduce costs. He recommended Nevada end its pursuit of the 1915(b) Waiver and informed the committee the 1993 Legislature passed legislation requiring the state to pursue a 1115 Waiver. Mrs. Freeman noted she was not given the new Medicaid proposal until May 24, 1995, and asked why the proposal is being introduced late in the session. Mr. Stipe responded: The position has been articulated through the Nevada Hospital Association for a long time and has been presented at interim committees. I don't think it is an issue that is a last minute issue. I think we have been presenting this issue relatively consistently for a long time....It is consistent with a position paper that was put out a year ago....It is something we have advocated for a long time. Mrs. Freeman related she has been a member of the Legislative Health Care Committee for several years and this is the first time she has heard of the proposal. She noted, during a previous hearing, a testifier indicated Tennessee was experiencing problems with its program and asked how the program is presently operating. Mr. Manning replied the Tennessee program has not experienced funding problems, but there are a number of technical issues the state and the federal Health Care Financing Administration (HCFA) are trying to resolve. He related the Medicaid rolls in Tennessee grew at an average rate of 20 percent per year from the mid-1980s through 1992, however, after the first year of TennCare, the rate of expenditure growth was less than 1 percent. Mrs. Freeman noted the Columbia HCA proposal only addresses southern Nevada and questioned whether the company has plans to expand to northern Nevada. Mr. Stipe replied the program outlined in Exhibit C is a statewide comprehensive approach which will allow benefit expansion without increasing taxes. Mrs. Freeman inquired if the proposal advocates two managed care programs for southern Nevada and one for the northern portion of the state. Mr. Stipe responded he is recommending that Nevada pursue an 1115 Waiver instead of a 1915(b) Waiver because the 1115 Waiver allows for the use of a variety of different managed care structures. Mrs. Freeman questioned, "So you are proposing in the rural areas, contracting with some of the local providers?" Mr. Stipe responded, "If that is possible, and an alternative fee for services, as it is discussed now with the 1915(b)." Mrs. Freeman commented Exhibit C addresses how "most" uninsured individuals will be treated, but does not address how "all" uninsured will be treated. Mr. Manning, referring to Mrs. Freeman's question regarding rural areas, stated the managed care organizations serving the more lucrative markets of the state will be required to serve the rural areas of the state. He indicated, until the managed care organizations can demonstrate there are programs available to the rural areas which meet access and quality standards, then the organization will be required to pay on a fee for service basis. He said this action will facilitate the formation of adequate networks in rural areas due to the high costs involved in paying on a fee-for-service basis. With respect to the uninsured issue, Mr. Manning related, the proposal focuses on providing full coverage to children and pregnant women, but it also provides a mechanism to address the balance of the uninsured population. Presently, he said, all Nevada citizens are paying health care costs for the uninsured. The balance of the uninsured should be addressed in a "managed care like setting as possible," remarked Mr. Manning. The proposal outlined in Exhibit C provides a $10 million indigent care pool which will be allocated among the providers based on actual services provided to indigents. He said most state Medicaid programs disburse large sums of funds without "attaching the service to anyone on the presumption it will be used to serve the uninsured" and stressed there is no accountability in the present Medicaid system. The proposal outlined in Exhibit C provides accountability by allowing medical providers to accumulate indigent medical bills based on the current Medicare rate structure and requiring all medical providers to share in these expenses based on their proportionate share of the total system's indigent care pool. Mr. Manning related this section of the proposal allows cost-shifting to be fair and controlled, whereas cost- shifting in Nevada's present system is not always equitable. Mrs. Evans stated she approved of certain aspects of the proposal such as: 95 percent indigent coverage; the TennCare Program; flat costs; and strong consumer support. She asked Mr. Manning to elaborate on articles in the Wall Street Journal indicating TennCare providers were extremely displeased with the operation of the program. Mr. Manning responded at the time TennCare was implemented, there was very little managed care market penetration in Tennessee. He said the doctors and hospitals in Tennessee were required to accept an enormous amount of change in a short period of time which initially caused some problems, however, he insisted the provider issue in Tennessee has been resolved. He noted Blue Cross/Blue Shield was the largest provider for TennCare and entered the Tennessee market in 1988 at the invitation of the state to devise a plan for state workers and teachers which would be more cost effective than the state's health care system at that time. Blue Cross/Blue Shield established a Tennessee Provider Network which was an aggressively managed Preferred Provider Organization (PPO). He indicated the provider community and the consumer community were deeply concerned regarding the program's implementation, but after 1 year, the Tennessee Provider Network became the most popular private sector managed care network in Tennessee. Initially, TennCare received the same type of reaction from the provider community and approximately 7,000 physicians in the Blue Cross/Blue Shield network left the network because of the implementation of TennCare, however, most physicians rejoined the network within 6 months after the program's implementation. Mrs. Evans questioned, "So your explanation is, it was just a matter of adjusting to change in a new system." Mr. Manning replied, "It was." He said the TennCare program's capitation rate was very aggressive and many users and providers had to adjust to the numerous changes. He related there was a 90 percent reduction in the inappropriate use of emergency rooms within the first 6 months of the TennCare program and, in the first year of TennCare, hospital days decreased from 1100 days to less than 700. In addition, Mr. Manning stated it has been suggested the federal government will be giving preference to states with an 1115 Waiver in respect to base funding amounts. Mrs. Evans, referred to page 5 of Exhibit C and requested an explanation regarding the statement concerning the disproportionate share of indigent care. Mr. Manning stated: Disproportionate share payments have been sent out in large bulk without a great deal of accountability attached to them....We send these large sums of money out and they are not attached to the eligibility or specific services provided to anyone. We have a far better system, if we take those dollars under an 1115 approach and attach them to eligibility for specific people. So basically, what you would be doing is taking those subsidies that now just float through in mass without being attached to any services to an individual and using them to expand coverage, as well as the savings you get from a competitive system to expand coverage to Nevada's children and pregnant women who are uninsured. Mrs. Evans commented if the state accepted this new proposal then the present agreement on disproportionate share will need to be dissolved. Mr. Manning remarked he strongly recommends that Nevada utilize its disproportionate share funds to expand coverage and stressed: If you are ever to get accountability in health care, you have got to stop sending large sums of money out that are not attached to anybody and are primarily designed to serve specific institutions, as opposed to serving people. Mr. Manning indicated the TennCare program has strong consumer support because the program focused on the needs of the consumer instead of the needs of specific provider groups within the health care system. Mrs. Evans inquired, "So when you assert that Nevada can do this alternative plan without additional cost, you are doing it based on the fact the disproportionate share dollars would then be utilized in this way?" Mr. Manning responded, "Those, along with savings you would accrue from the base program." Mrs. Evans noted there have been some concerns raised regarding the problems with the 1915(b) Waiver and the 75/25 Rule, however, she understands states not qualifying for the waiver have 3 years to overcome any problem areas. Mr. Manning explained, if a 1915 Waiver is approved, then the only entities who would be allowed to participant are those who have met the criteria of a federally qualified plan or have met the 75/25 Rule. He indicated it is vitally important for the state to have a system with the broadest competition possible. He reported Tennessee originally had 21 providers submit proposals for the TennCare program with 12 providers eventually being chosen to provide coverage. It is this kind of competition the State of Nevada needs in order to have a market driven Medicaid health care system, insisted Mr. Manning. Mrs. Evans commented the proposal seems to address southern Nevada's needs, but not northern Nevada's needs. She asked how the alternative proposal will affect the remainder of the state. Mr. Manning replied the proposal is designed to be a statewide program and noted the state will have significant problems in the coming years if any portion of the state is not included in the program. One of the advantages a competitive system offers is the state can require health care providers serving the indigent population to provide service to other less lucrative markets of the state, remarked Mr. Manning. Senator Rawson noted Mr. Manning had indicated TennCare costs had increased only 1 percent in its first year of operation and asked if the program limited access to the program in order to achieve this percentage. Mr. Manning responded the cost of the system did rise only 1 percent and was expected to remain under a 5 percent growth level into the future. He said Tennessee conducted a baseline survey to determine if TennCare participants have as much access to health care as the privately insured. The survey asked each participant the length of time it took to receive an appointment with a provider and the results of the survey indicated the TennCare program participants access to health care was not significantly different than the access for the privately insured. Senator Rawson commented a recent article he read indicated many state plans modeled after the TennCare program are being reconsidered because of the possibility of growth capitation limits. He said Ohio has recently received approval for an OhioCare plan, but has not legislatively acted on the program due to expected growth which would be above the proposed capitation limits. The chairman asked if Mr. Manning had any information regarding problems encountered by Ohio. Mr. Manning replied he is not very familiar with Ohio, but is aware the state has received approval for an 1115 Waiver. He related every state must aggressively utilize its buying power in order to handle the capitation limits being required. Tennessee does not have any difficulties with the capitation limits because it has structured a program which allows the state to operate within its allowable funding, stated Mr. Manning. He pointed out difficulties arise when the state tries to placate the various special interests and health care providers instead of utilizing a market driven system. He stressed states will not be successful in controlling costs unless the focus is placed on the consumer, the consumer's needs and a competitive market. Mr. Manning indicated Nevada has a serious problem if capitation limits are set, due to its enormous population growth. He said it is unfair for a state with large population growth to be required to operate under the same capitation regulations as a state experiencing static growth or a declining population. Ms. Tiffany commented she supports the state's efforts to acquire an 1115 Waiver because this type of waiver will allow the state to determine what the "true value" is for the services provided. In addition, she said the 1115 Waiver allows the state more flexibility regarding changes in the welfare system. She asked why Tennessee was awarded an 1115 Waiver when Nevada's application for the waiver was declined. Mr. Manning answered Nevada approached HCFA with a proposal which did not expand coverage, but sought only to utilize managed care for the Medicaid population. He explained HCFA indicated an 1115 Waiver was not appropriate under Nevada's proposed plan because the proposal was not fundamentally different and did not demonstrate an alternative approach to health care. He said if Nevada had approached HCFA with the program outlined in Exhibit C, then an 1115 Waiver would have been appropriate. Ms. Tiffany questioned why someone in the health care field did not come forward sooner with this information and provide the state with some guidance in its pursuit of an 1115 Waiver. She asked what problems the state will encounter with HCFA if the 1915(b) Waiver is approved and the state sought to move to an 1115 Waiver. Mr. Manning responded this action will complicate the state's efforts to move toward that end, however, he indicated several states are pursuing this avenue. He pointed out if the state proceeds with this action, then the state will be institutionalizing, in a managed care setting, an inappropriate value for the services being delivered. Ms. Tiffany inquired whether Tennessee's program allowed for a single source provider or multiple source providers. Mr. Manning explained Tennessee did not bid the indigent health care system, but instead set rates based on studies performed by the state. He related 21 different companies examined the rates and indicated an interest in the program. All 21 companies had to go through a qualification procedure to prove they could provide the required services. He said it was Tennessee's objective to have at least two providers for each area of the state. Ms. Tiffany asked why Blue Cross/Blue Shield of Tennessee provides most of the coverage for TennCare patients. Mr. Manning indicated Blue Cross/Blue Shield of Tennessee provides coverage to 45 percent of the TennCare population which duplicates the average the company has in the state's total market. In addition, he related Blue Cross/Blue Shield of Tennessee provided a PPO which included more choices for the participant. Ms. Tiffany questioned how Tennessee handled its medical residency programs after it implemented TennCare. Mr. Manning responded Tennessee allowed a period of 1 year to transition into a market driven system which determined the value of medical education costs and subsidies. He said graduate medical education subsidies are presently being considered for elimination by the federal government and many state governments. A market driven system will always provide for medical education training, remarked Mr. Manning, and suggested each health care provider needs to be responsible for ensuring that appropriate medical education continues. He related the TennCare program does not subsidize graduate medical studies, instead the medical providers negotiate with a medical facility regarding the value of services provided by graduate medical students. The plan outlined in Exhibit C proposes that each managed care organization participating in Nevada's program be required to participate in the training of graduate medical students based upon the provider's proportionate share of the market. Ms. Tiffany stressed she is concerned the state will not be able to handle the expansion costs associated with the 1115 Waiver. Mr. Manning replied he is not suggesting the program be expanded, but is suggesting the state utilize the resources already available within the program for expansion. In addition, he related HCFA allows an 1115 Waiver to contain a provision which provides the state with a capitation limit on total exposure. Senator Rawson commented Nevada counties are responsible for indigent care and he is troubled about the viability of county hospitals if the proposed changes are implemented. The senator asked Mr. Manning how the state of Tennessee handled this problem with their state and private hospitals. Mr. Manning answered some of the large public hospitals did experience some problems and suggested Nevada has a significant "overcapacity" in its health care system. He said the marketplace will decide which facilities should continue operating and indicated there will be significant changes in the way health care is delivered in the future. Mr. Allard inquired about the length of time it took the state of Tennessee to receive an 1115 Waiver. Mr. Manning answered the waiver request was submitted to HCFA in June and approved in November of the same year. Mr. Allard asked if the criteria for an 1115 Waiver is more stringent than the criteria for a 1915(b) Waiver. Mr. Manning replied, "Yes, because it is not as defined." He remarked it is in Nevada's best interest to define a health care system which works for the state in the long-term. Mr. Allard asked when the state of Tennessee began working on its plan for an 1115 Waiver. Mr. Manning answered Tennessee was facing severe financial problems and began developing and designing a program in January of 1994. The program was presented to the Tennessee Legislature in April of 1994 and approved in May of 1994. The waiver document was developed between May and the time it was submitted in June of 1994. Mr. Allard asked if the proposed alternative plan (Exhibit C) was presented to the interim health care committee. Mr. Manning explained he joined Columbia HCA in January of 1995 and has been making a concerted effort to educate himself on the health care issues the company is involved with in 38 states. He indicated he did not begin to study Nevada's problems and program until March of 1995. Mr. Stipe interjected the 1993 legislation called for an 1115 Waiver and the focus of the interim health care committee was on obtaining an 1115 Waiver until it was determined an 1115 Waiver would not be granted, then the committee's attention turned to applying for a 1915(b) Waiver. Mr. Allard questioned why Mr. Stipe did not present the alternative plan at that time. Mr. Stipe said it has taken him time to understand all the implications and differences between the two waivers. He related the state's hospital industry has focused in the past on an 1115 Waiver. Mr. Dini commented Nevada has sparsely populated rural areas which are medically "under served" and asked how Tennessee handled this problem. Mr. Manning responded Tennessee required each provider covering a region to also provide the rural market in that area with the same type of services. If the providers did not meet this criteria, then they were required to pay on a fee-for-service basis which is very costly. A managed care system encourages individuals from rural areas to receive treatment from local hospitals and doctors rather than traveling to a larger urban area for medical treatment. He pointed out rural areas are helped economically when treatment is provided at the community level. Mr. Stipe thanked the committee for allowing him and Mr. Manning to present the proposal to the committee. He related the state has an opportunity to take a definitive step in providing health care access and coverage to the indigent and uninsured. He said the resources of Columbia HCA are at the committee's disposal and the organization would be happy to participate in the development of this strategy. Senator Rawson invited Charlotte Crawford, Acting Director, Department of Human Resources, forward to provide testimony to the committee on the proposal presented in Exhibit C. Ms. Crawford stated department personnel and the department's contract actuary have reviewed the proposal and discovered a number of attractive features in the proposal such as program expansion, rural coverage, and medical education. She said, unfortunately, the proposal is not cost-neutral and the department's analysis indicates recipient costs will total $2600 per recipient, but the proposal is built on a recipient base rate of $1500. In addition, the proposal is predicated upon a 15 percent savings from the implementation of managed care. She related the department's findings indicate managed care alone will not achieve a 15 percent reduction in costs. The department's proposed program, which the budget is built on, allows for a savings of 3 percent. Ms. Crawford stated, "It is a very attractive proposal, it does a lot of good things, but we don't know how to do it in Nevada without it costing us more money." Mrs. Freeman related her concerns regarding the issue of disproportionate care and noted Washoe Medical Center writes-off $50 million a year in uncompensated care. She said the proposed $10 million pool to help compensate the hospitals providing service to the uninsured is not large enough and she is concerned about the economic health of Washoe Medical Center in Reno and University Medical Center in Las Vegas. Ms. Crawford also expressed her concern with this portion of the proposal. The department's preliminary analysis does not indicate the $10 million pool will allow the state to structure a program such as the one outlined in Exhibit C which is cost- neutral. Senator Coffin commented President Clinton's health care plan failed to gain acceptance because costs were not market driven. He noted managed care systems reduce medical costs and indicated many of his business clients who utilize managed care programs have not incurred a rate increase in 1995. Ms. Crawford remarked the state is not requiring health care providers interested in providing services to the Medicaid program under the 1915(b) Waiver to be federally qualified. She said this issue was discussed, but the interim health care committee determined recipients should have access to a number of providers. It is her understanding the 1915(b) Waiver allows the state to request a waiver from HCFA for a new Health Maintenance Organization (HMO) as long as the state is making progress towards complying with the 75/25 Rule. Senator Coffin stated he approves of that portion of the proposal which indicates coverage will be offered to the uninsured population. He asserted: Apparently the people who drive the market forces are saying they want to try and I am a little distressed we have been making budgetary moves...that would point us away from the market force approach. I am worried about that and I might want to change my mind and my vote on some of those things....I want the administration to keep an open mind on this issue and try to open it up as much as possible. Ms. Crawford responded the department finds the proposal attractive, however, Nevada's Medicaid program provides very little coverage to indigents, whereas, Tennessee's program, before the implementation of TennCare, provided coverage to a much larger indigent population. She said it will be difficult for Nevada to effectively expand eligibility without increasing costs. Ms. Tiffany related the $1500 per recipient proposed in Exhibit C is impressive and may be the "best reason in the world to do an 1115." She said Mr. Manning pointed out the 1915(b) Waiver inflates medical costs due to government restraints. In addition, she noted she was in agreement with Ms. Crawford regarding her statement that managed care alone could not reduce costs by 15 percent. She indicated she supports the 1915(b) Waiver, but would like the committee to continue researching the viability of an 1115 Waiver. Marie H. Soldo, Lobbyist, Sierra Health Services, came forward and introduced Cindy Johnson, President, Pacific Health Policy Group. Ms. Soldo noted Ms. Johnson has extensive experience in helping states process 1115 Waivers. She indicated Sierra Health Services (SHS) was the first health care organization to suggest that the state pursue an 1115 Waiver. Although, SHS supports the 1115 Waiver process, the organization would like to see the 1915(b) Waiver go forward. Ms. Johnson stated her company works almost exclusively with state and local governments on Medicaid reform issues. She said she has helped the following states in the last 18-24 months process 1915(b) Waivers and 1115 Waivers: Oklahoma, New York, Rhode Island, Illinois, California, Vermont, Kansas, Alabama, and Arizona. She supports many of the ideas presented in the proposal (Exhibit C), especially the concept of extending coverage. The 1915(b) Waiver proposal is competitive and contains many market driven forces such as the rate setting process, the bid process, and transitional issues, remarked Ms. Johnson. She indicated there are benefits to expanding the different types of providers used to deliver health care services, but there will be some limitations because most health care recipients in this program are indigent and are not able to share in any medical costs. In a PPO medical structure, the recipient is covered if the network is used, but if the recipient seeks care outside of the network, the cost to the patient can be as high as 50 percent. She related two scenarios take place when indigents receive care from a PPO: (1) a patient has no meaningful choice because of the cost to go outside of network; or (2) a patient goes outside of network and providers must accept whatever reimbursement is paid. Ms. Johnson stated, when the committee explores the different medical structures, it should keep in mind the diversity of the population served by the Medicaid program. Ms. Johnson commented, in the states where she has helped with program implementation, savings generally averaged 5-7 percent the first year. She mentioned Arizona has the oldest and most studied program and noted the state has been successful in keeping their rate of growth to 30-40 percent less than states which use a fee-for-service rate. The newer programs are trying to achieve a 7-10 percent reduction in costs in the short-term which is achievable depending upon the inefficiencies already existing in the program, mentioned Ms. Johnson. She said Arizona recently completed a "rebid" for Medicaid health care services and 22 providers bid for 12 openings. Arizona has also determined its aged, blind, and disabled population is two and one-half times higher than its Aid to Families with Dependent Children (AFDC) population. Ms. Johnson stated it is conceivable for the state to move ahead with its 1915(b) program and to also pursue an 1115 Waiver package which will subsume the 1915(b) program upon approval of the 1115 Waiver. She strongly encouraged the committee to take this action because the original 120 day processing period has increased to 9 months to over 1 year and noted nine other states are ahead of Nevada in requesting an 1115 Waiver. Regarding the issue of program expansion, Ms. Johnson cautioned the committee to be extremely careful in calculating the number of indigents who will be eligible for the program. She related, due to Nevada's rapidly growing population and its large transient population, the state could experience some serious problems if the numbers are much higher than projected. Mrs. Evans indicated her concern regarding Arizona's percentage of aged, blind, and disabled population compared to their AFDC population. Ms. Johnson responded the aged, blind, and disabled population is a sick population which requires a variety of health care services. Mr. Hettrick asked what type of waivers have the states on the waiting list applied to receive. Ms. Johnson responded the waiting list she referred to earlier pertained to 1115 Waivers. Mr. Hettrick questioned how long it takes to process a 1915(b) Waiver. Ms. Johnson replied, once HCFA receives an application and all inquiries are handled, then the application is processed within 90 days. Continuing, Mr. Hettrick inquired about how long it would take Nevada to receive an 1115 Waiver if it was applied for in the near future. Ms. Johnson estimated it would take at least 9 months, however, depending upon actions taken by Congress this summer, the state may not need an 1115 Waiver. She indicated she is working with an organization in Washington, D.C. to develop a set of technical proposals for Congress which will allow states the flexibility needed to operate their Medicaid program under the proposed federal capitation limits. There are a number of initiatives within these proposals which eliminates the need for an 1115 Waiver, remarked Ms. Johnson. Senator Rawson stated he was unaware these technical proposals had been developed and asked if there is any action the Legislature could take to indicate support for the proposed changes. Ms. Johnson replied: I think the states have a very unique opportunity, right now, in terms of the changes that have occurred in Congress and the fact that you have a lot of new people there that still think of themselves as states' rights types....There is two ways to look at savings on the Medicaid Program. The federal perspective is they want to save federal dollars....You want to save state dollars and you want to draw as much federal money into your state as you can. If the states are able to agree and move away from some of the debate around entitlements and to agree on a set of technical proposals, I think you have a real opportunity this year to get the kind of flexibility you are going to have to have, if you are going to live in the world of tomorrow.... Senator Rawson inquired if it is worthwhile to pursue a 1915(b) Waiver at the same time an 1115 Waiver is being developed. Ms. Johnson replied Oklahoma is the first state to pursue both waivers at the same time. She indicated Oklahoma's 1915(b) Waiver has been approved, but discussions are still ongoing regarding the 1115 Waiver. She maintained the state should not abandon its effort to receive a 1915(B) Waiver due to the long process it takes to receive an 1115 Waiver. Senator Rawson stated, due to time constraints, a letter presented to the committee from Health Access Washoe County (Exhibit D) will be made part of the record. There being no further business before the committee, Senator Rawson closed the hearing at 10:25 a.m. RESPECTFULLY SUBMITTED: Pamela Jochim, Committee Secretary APPROVED BY: Senator Raymond D. Rawson, Chairman DATE: Assemblyman Lynn C. Hettrick, Chairman DATE: Assemblywoman Jan Evans, Chairman DATE: Senate Committee on Finance Assembly Committee on Ways and Means Joint Subcommittee on Human Resources/K-12 Legislative Committee on Health Care May 26, 1995