MINUTES OF THE SENATE COMMITTEE ON FINANCE Sixty-eighth Session June 24, 1995 The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 7:40 a.m., on Saturday, June 24, 1995, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator William J. Raggio, Chairman Senator Raymond D. Rawson, Vice Chairman Senator Lawrence E. Jacobsen Senator William R. O'Donnell Senator Dean A. Rhoads Senator Bernice Mathews COMMITTEE MEMBERS ABSENT: Senator Bob Coffin GUEST LEGISLATORS PRESENT: Assemblyman Brian E. Sandoval, Washoe County Assembly District No. 25 Senator Ernest E. Adler, Capital Senatorial District STAFF MEMBERS PRESENT: Dan Miles, Fiscal Analyst Bob Guernsey, Principal Deputy Fiscal Analyst Judy Jacobs, Committee Secretary OTHERS PRESENT: Kathy Karrasch, Concerned Citizen Stephanie Tyler, Lobbyist, Nevada Nurses Association, Nevada State Chiropractic Association John Orr, Assistant Director, Department of Employment, Training and Rehabilitation John P. Comeaux, Director, Department of Administration Robie Willis, Justice of the Peace, Carson City Municipal Court, Legislative Chairman, Nevada Judges' Association Steve Morris, Senior Management Analyst, Las Vegas Municipal Court Robert E. Bayer, Director, Department of Prisons Gary J. Little, Medical Administrator, Department of Prisons Karen A. Gedney, M.D., Senior Physician, Northern Nevada Correctional Center Judge Nancy A. Becker, Department 1, Eighth Judicial District To accommodate a visiting legislator, Senator Raggio opened the hearing on Assembly Bill (A.B.) 373. ASSEMBLY BILL 373: Proposes to exempt from taxes on retail sales orthotic appliances and ambulatory casts, other supports and casts if prescribed or applied by licensed provider of health care, and splints, bandages, pads, compresses and dressings prescribed, furnished or sold under certain circumstances. As he stepped forward to testify on A.B. 373, Assemblyman Brian E. Sandoval, Washoe County Assembly District No. 25, accepted congratulations on the birth of his first son, James Brian Sandoval. Mr. Sandoval explained A.B. 373, if approved, will go to a vote of the people in 1996, since any exemption from sales tax must go on the ballot. If approved, the measure will provide for a consistent tax policy, he said. According to Mr. Sandoval, at present, no sales tax is charged for certain orthotics obtained in a tax-exempt hospital, whereas a sales tax must be charged for the same appliance in a doctor's office. He stated A.B. 373 will clarify the definition of "medicine." He called attention to the second page, lines 29 through 35, where medicine is described. He asserted a cast is an external implement which aids in the cure of the human body. Mr. Sandoval declared passage of the measure will result in a reduction of medical costs. He stated Medicare and insurance companies do not reimburse for sales tax, and the sales tax is passed through to be paid by the recipient of the cast or orthotic. Mr. Sandoval called attention to the fiscal note, which indicates the measure may have an impact of $290,000 per year, if approved. He asserted the figure has been disputed by the Nevada State Medical Association, and he has a constituent who has researched the matter and will testify the fiscal impact will be much lower than indicated. He acknowledged the Senate Committee on Taxation has agreed more research into the fiscal impact is necessary. Senator Raggio inquired how the fiscal note was determined. Mr. Sandoval stated his belief the Department of Taxation made a survey of those who sell the equipment. However, he said, another survey of podiatrists in the state made by a constituent, and a survey of orthopedic offices made by the Nevada State Medical Association, both indicate the tax revenue is much less than indicated by the Department of Taxation. Kathy Karrasch, Concerned Citizen, indicated she was representing her husband, Dr. C. Craig Karrasch. She read from prepared testimony, Exhibit C. She said she received a policy and procedures statement from the Office of the Attorney General defining medicine which indicates two requirements must be met in order for things to fall under the definition of medicine. She read: It must be a substance or preparation intended for external or internal application to the human body in the diagnosis, cure, medication, treatment or convention of disease or affliction of the human body and which is commonly recognized as a substance or preparation intended for such use, and it must be subject to control by a licensed physician, dentist or podiatric physician for the treatment of his patient by supplying or applying the substance or preparation, or by prescription. Mrs. Karrasch added the other criteria was that the substance has to be under control of a hospital. Mrs. Karrasch continued reading her statement. She showed the committee photographs of people wearing orthotic appliances and pointed out it is impossible for a doctor to apply pins or screws without a cast to immobilize the area while it heals. She noted orthoses prosthetic devices are used to replace body parts and as such are exempt from taxation. Senator Raggio interjected the committee is concerned with the fiscal impact of A.B.373. Mrs. Karrasch responded the podiatrists practicing within the state estimated a net impact of $8,700, and the only laboratory which fabricates orthotics in the state estimated sales tax generated from its product at $3,500 to $4,200. She acknowledged the majority of health care professionals in Nevada use out-of-state suppliers. Mrs. Karrasch asserted Medicare and Medicaid regulate fees for physicians, so the cost cannot be recovered even though insurance companies and managed care organizations do not reimburse patients or physicians for the sales tax through office visits. She closed her appeal by asking, "Shall the state profit on people's infirmities?" Stephanie Tyler, Lobbyist, Nevada Nurses Association, Nevada State Chiropractic Association, testified A.B. 373 will bring fiscal equity across the board, particularly with the advent of managed care, when more people will be encouraged to use out-patient procedures and avoid hospitals. She noted the tax is a pass- through, and insurance companies will not reimburse for taxes. Citing an example from her own experience, Ms. Tyler stated she paid $3,500 for a back brace in a tax-exempt hospital, and $3,000 for another brace supplied in the doctor's office. She asserted the 7 percent sale tax added in the physician's office made a "substantial personal hit." Senator Rawson commented the Legislature has been struggling with health-care costs for 10 years, and he expressed puzzlement at why a tax is placed upon items for which attempts are being made to lower costs. He surmised the enactment of A.B. 373 will not bring about a noticeable decrease in health-care costs, but each moderation of costs helps the citizenry in the long run. He voiced support for the measure. There being no further testimony on the matter, Senator Raggio closed the hearing on A.B. 373, and opened the hearing on S.B. 571. SENATE BILL 571: Revises provisions governing allocation of money in unemployment compensation administration fund. John Orr, Assistant Director, Department of Employment, Training and Rehabilitation, explained S.B. 571 will affect the claimant employment program, which is a specialized program funded exclusively by a small share of employers' unemployment taxes. He said the bill is the result of the fact the reserves which support the program seem to be too high, and it was suggested some of those funds should be returned to employers by using part of the reserve. Mr. Orr called attention to page 2, line 32 of the bill which will limit the amount of the reserve to 90 days' worth of authorized expenses at the end of each fiscal year. The balance, he said, will be returned to the unemployment insurance trust fund which will ultimately lead to a reduction of the unemployment tax rate. There are several places in the bill, according to Mr. Orr, in which the phrase "or other unemployed person" is added with the intention of eliminating any limitation on the employment and training program to serve only unemployed claimants. He stated the intention is not only to continue to prioritize serving unemployed claimants, but also to open the resource to other persons as a workforce development issue. He recalled prior discussions that the procedure will enable the department to direct attention to legislative initiatives, such as the Division of Parole and Probation's life skills project and to welfare reform. Responding to a query by Senator Raggio, Mr. Orr pointed out the federal government has recognized that 164 different federal employment and training programs create unnecessary program boundaries. He declared the state has repeated "that mistake" and is attempting to simplify access to such programs. Senator Raggio voiced concern over the broad language of the measure, which he asserted may open utilization of the fund not only for the normal purpose, but also for other programs. Mr. Orr acknowledged the language does open the potential, even though that is not the intention. He pointed out the first and third purposes stated in section 3, 2. (A) on page 2, which defines the purpose, should provide protection against misuse. Senator Mathews inquired if the bill will increase the premium of the employer modification rate. Mr. Orr replied it will not. He explained the cost to the employer for the claimant employment program will remain the same. Rather than reduce the amount, he said, his department determined to use surpluses to contribute to the solvency of the unemployment insurance tax fund. Senator Raggio asked if the administration has any problem with the measure, which John P. Comeaux, Director, Department of Administration denied. There being no further testimony on S.B. 571, Senator Raggio closed the hearing. He opened the hearing on A.B. 293. ASSEMBLY BILL 293: Removes references to county jail in penalty related to domestic violence. Robie Willis, Justice of the Peace, Carson City Municipal Court, Legislative Chairman, Nevada Judges' Association, stated a judge in Las Vegas feels he lacks the authority to sentence people in domestic violence cases to the city jail because the law specifies "county jail" and he is a city judge. According to Judge Willis, other municipal judges have continued to send people to the city jail under the law, and the Nevada Supreme Court ruled they could do so. A.B. 293, he said, removes the words "county jail" and specifies "on imprisonment," thus removing the obstacle. He added there appears to be no fiscal impact. Senator Raggio agreed the distinction will be clear, and A.B. 293 apparently has no opposition. He closed the hearing on the bill and opened the hearing on A.B. 364. ASSEMBLY BILL 364: Authorizes administrative assessment for misdemeanors to cover costs of providing court facilities. Steve Morris, Senior Management Analyst, Las Vegas Municipal Court, indicated the bill will allow Clark County to add an additional $10 to the fine upon conviction of a misdemeanor offense. He said the $10 will go into a special fund to be used for land acquisition or court construction to expand and improve facilities in Clark County. He noted the assessment will apply only to Clark County and it will be in addition to the assessment already imposed under state law. Senator Raggio inquired how much revenue can be anticipated as a result of the bill. Mr. Morris estimated it will result in $2.5 million within the county. He acknowledged the judges in Clark County support the measure and do not feel the $10 fine will be an excessive addition. Senator Raggio pointed out there is another bill which may adjust the assessment which has not been processed due to concern over the potential financial impact. Mr. Morris acknowledged there may be some impact on municipal courts under S.B. 495. SENATE BILL 495: Makes various changes to provisions governing collection of fines and assessments. According to Mr. Morris, when traffic citations are written under the Nevada Revised Statutes the funds are forfeited and remain with the local courts, or they are converted to fines. Under S.B. 495, he said, bail which has been posted and forfeited will go to the state rather than stay with the local municipality. Mr. Morris reported Judge Nancy A. Becker wished to convey her support for A.B. 364. Senator Raggio recalled an amendment, still being drafted, was suggested for S.B. 495 which provides for a fixed fee regardless of the amount of the penalty. There being no further testimony on A.B. 364, he closed the hearing and opened the hearing on A.B. 697. ASSEMBLY BILL 697: Makes supplemental appropriation to department of prisons for certain costs related to medical care. Robert E. Bayer, Director, Department of Prisons, offered support for A.B. 697 which he indicated will provide supplemental funding for the medical operating budget. He pointed out in the first 5 months of the fiscal year there were six deaths at the prison, a rate of .83 per month. He noted there have been 14 deaths in the second half of the fiscal year, equating to 2.33 per month. He opined the death rate increase is indicative that as the inmate population grows and longer sentences are imposed, there will be greater health costs incurred. Mr. Bayer acknowledged the Department of Prisons (DOP) is addressing some problems which he hopes will result in minimized costs. Senator Raggio inquired what percentage is attributable to outside medical costs. Gary J. Little, Medical Administrator, Department of Prisons, provided the committee with a memorandum with supporting documents on the matter (Exhibit D. Original is on file in the Research Library.) and responded the total amount expended to date for outside medical costs is $3.665 million. He added, because of the time that elapses between the administration of medical services and the date of billing, the estimated total cost for outside medical services will be over $5 million for the fiscal year. He acknowledged the budget for the year was set at $3.84 million. Senator Raggio asked how outside medical care is monitored, and who authorizes it. Mr. Little replied inmates are first examined by a staff physician from the DOP who makes an evaluation. The staff physician can make a referral to an outside provider. Dr. Karen A. Gedney, Senior Physician, Northern Nevada Correctional Center (NNCC), explained prisoners are referred to outside providers for anything that cannot be provided in the prison or the Regional Medical Facility (RMF) such as specialty physicians and hospitalization. She indicated if an inmate requires special treatment such as orthopedic, cardiac, or intensive care or an operation, a utilization review committee considers the matter. Senator Raggio asked if that committee is within the prison system. Mr. Little responded the utilization review is done through a contract with Sierra Health Options. He explained an internal review was made until the DOP combined with the risk management pool in 1993, at which time review was changed to Sierra Health Options, and any outside procedure over $200 must be preauthorized by them. Senator Raggio pointed out the request for additional funding has grown from over $900,000 to $1.7 million. He asked if that represents the total estimated cost of medical care for this fiscal year. Mr. Little replied that is the total projected cost of outside medical cost for the fiscal year, whereas the total cost of all medical care for the fiscal year is estimated at $23,659,818. He was unable to say how much was attributable to either male or female inmates. Senator Jacobsen inquired if rooms for inmates are maintained at Carson-Tahoe Hospital. Mr. Little replied there are two rooms designed for the prisons which are also used for infection control or whatever the hospital deems appropriate. Mr. Bayer interjected the DOP is considering construction of several rooms in hospitals in the Las Vegas area to minimize security coverage. Senator Rawson recited testimony alleging prejudicial treatment of women inmates because there are no physicians on the premises at night. He asked if there was any validity to the charge. Dr. Gedney responded the Nevada Women's Correctional Center is very close to the Nevada State Prison which has 24-hour coverage. She said if a woman truly needs constant nursing care, the woman is transferred to the Regional Medical Facility which has the capacity to care for all levels or classifications of inmates. She averred women are given adequate care. Mr. Bayer interjected no change has been provided in the plan to staff the women's prison as a male facility if the female population is contracted out, and the medical provisions may even be decreased. Mr. Little reported in a 6-month period there were only 12 occasions when nurses were required to go from the Nevada State Prison to the women's prison. Senator Raggio asked why long-term care inmates in southern Nevada facilities are not routinely transferred to the Regional Medical Facility. Mr. Little replied there is a 10-bed infirmary in southern Nevada, while approximately 55 to 56 inmates have been sent to the RMF over the past 2 or 3 months. He noted the RMF has experienced difficulty employing adequate nursing staff for the number of inmates, so fewer inmates have been transferred there from the southern facilities. Senator Raggio pointed out medical expense information has only been received through December, 1994, which he deemed an indication medical cost records have been inadequate. He requested a response from Mr. Comeaux. Mr. Comeaux agreed. He explained the Budget Office has had as much difficulty as the legislative office in obtaining information regarding medical costs. He stated an internal audit is in progress and there will be more direct oversight of the fiscal side of the medical division by the DOP in the future which should improve the situation. Senator Raggio declared the overrun on medical costs for the prison has been one of the most difficult tasks for the Legislature to overcome in closing budgets each session in his experience. He declared he would prefer the DOP make a realistic estimate of costs prior to submitting budgets rather than come back each session to request an additional $2 to $3 million for medical overruns. He asked what is necessary to obtain a better estimate of medical costs. He surmised it would pay for itself if another staff position is employed to monitor the situation. Senator Raggio recalled the Senate approved a suggestion about 10 years ago to contract out all medical services, which failed to receive Assembly approval. He opined that would have provided a measure of control on medical costs because they would have been fixed and would fluctuate only according to the inmate population. He complained the Legislature has since had to provide additional appropriations each session. He asked what progress was being made in contracting out medical services for the facility in Ely and whether the Governor has approved the matter. Mr. Bayer responded, "We are going to approach Interim Finance Committee with the numbers. We have to calculate how much we have to withdraw from our operating budget and put in contract services." Senator Raggio asked, "Is there money in there to do that?" Mr. Bayer replied, "We will take it out of operating, yes, and then that portion that was set for Ely ... we'll use that for paying the contract." Senator Raggio inquired, "Is that firmed up?" Mr. Bayer replied, "Yes. We're just getting the numbers together now so we can approach...." Senator Raggio asked if there is a signed contract. Mr. Bayer responded: No. We have to develop a more detailed contract. We have an RFP [request for proposal] that was accepted. They're willing to stand by those numbers so we know the fiscal amount. What we didn't do, and there has not been time to do during this session, is develop the actual working document contract, ... and that's very complex. I talked to one state. I'm getting samples from other states. One state paid $10,000 to have a specialist come in and write one. We will do that ourselves, but it's something we couldn't do overnight, which is why we had to approach IFC [Interim Finance Committee]. We want to have everything set so we can go ... and our target date for implementation will be October 1st. Senator Raggio stated: I was informed that the Governor was in agreement, the Budget Office was in agreement, the prison administration, the medical staff of the prison administration were all in agreement that the medical services at Ely should be contracted out and that you had accepted some agreement from what company? Mr. Bayer answered, "Correctional Medical Services has the existing RFP." Senator Raggio asked, "And that is just a matter of having that now signed and firmed up?" Mr. Bayer answered, "Yes. Developing it. Yes." Senator Raggio inquired, "And there is money available to be appropriated by the Interim Finance Committee for that purpose?" Mr. Bayer replied, "Yes, it would not have to appropriate any additional money, it would be coming out of budget." He indicated it will come from the budget authorized by the Legislature. Senator Raggio asked, "And in the budget that we have authorized ... do you have sufficient means to properly monitor the medical costs during the next biennium, in your opinion?" Mr. Bayer replied, "We will ... approach, and the fiscal analysts are aware of this, we will approach and ask for a position to monitor the contract and be a liaison with our medical department. We will ask for that, because we have to make sure ...." Senator Raggio inquired if he was referring to the Ely contract, because the senator wished all medical costs to be monitored. Mr. Bayer responded, "Yes the Ely contract." He said: There are a few things going on. Right now I'm currently recruiting for a new medical director, a new mental health director. We will have a couple of other positions that have been approved once the entire budget package is approved. I think that, first of all, in the recruitment of those two medical administrators, I will look for someone who understands fiscal accountability, as well as the medical profession.... Very hard to find that combination. That's what were looking for. I'm going to increase oversight from the director's office. To date ... the medical division was the appointing authority and there was not a lot of communications, and so I will be much more responsible. I'm looking at reorganizing.... One of the frustrations, I'm sure you're aware of, when my wife went in for surgery, I tried to figure out, what's it going to cost? And you know how hard it is to get a straight answer just there.... As Dr. Gedney pointed out, once we send them to an outside provider, a cardiologist, if they go in for surgery, we lose control and we don't know until after the fact what else they've thrown in, and it's very difficult to track. We don't know, for example, what's out there that's in that lag time, but we're hoping that we're on target on that one. Mr. Bayer declared, "We'll do the best we can. We'll do much better than we have in the past.... I'll take the responsibility next time when I appear in front of you." Senator Raggio reiterated he does not want the DOP to underestimate the budget just to make the Executive Budget or the department look good. He wants realistic amounts, he said. Senator Raggio asked if the administration approves the augmentation of the budget by the amount of the request. Mr. Comeaux replied, "The administration does support this request for a supplemental [appropriation]. We have reviewed it thoroughly and I don't think we have any choice but to support the supplemental request." Senator Raggio inquired if Sierra Health Options will monitor expenditures. Mr. Little responded they will make a review. He said an RFP has been put out for a new claims administrator which he asserted will make a big impact on the next year's expenses. He stated: CoreSource is our current provider, and the reports they give us are not in a usable format. Also what we're having them do, we're having them go back and input the numbers manually after the fact. CoreSource uses a shared system with another provider. We want a claims processor that gives reports and information that we need in our format, that's going to go back and reconstruct into our format. Senator Jacobsen asked how patients are transported from prison to private hospitals. Mr. Bayer replied prison vans are used with their own teams. Senator O'Donnell asked if patients who really do not need them may be overutilizing medical facilities. Mr. Bayer acknowledged some inmates take advantage of the system. Senator Raggio pointed out there is a copayment system in place which he surmised should provide a disincentive for inmates to overuse the system. Mr. Bayer concurred, and said the system has become a model for the nation. Mr. Comeaux stated: This supplemental request, and the size of it, does raise a question in our mind about the adequacy of the medical budget for the next biennium. However, we've not made any recommendation to increase that because, frankly, at this point in time I wouldn't know what to tell you. What we are going to attempt to do ... is make a concerted effort to improve the communication between the medical providers at the department and the fiscal staff so that we can get a handle on this thing. Senator Raggio suggested it may be easier to monitor the situation during the next biennium and report progress to the IFC. Mr. Comeaux indicated that is the plan of the Budget Office. In the absence of further testimony on the matter, Senator Raggio closed the hearing on A.B. 697. He invited Judge Becker to comment on A.B. 364. He inquired if priority will be given to the state's assessment in the event the full assessment is not collected. Judge Nancy A. Becker, Department 1, Eighth Judicial District, responded the first assessment to be paid will go to the state, as provided in section 2, subsection 5. She provided the committee with copies of a statement and letters in support of A.B. 364 (Exhibit E. Original is on file in the Research Library.). Senator Raggio invited committee consideration of bills heard earlier in the meeting. SENATOR O'DONNELL MOVED TO DO PASS S.B. 571. SENATOR RAWSON SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.) * * * * * SENATOR RHOADS MOVED TO DO PASS A.B. 293. SENATOR MATHEWS SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.) * * * * * SENATOR RAWSON MOVED TO DO PASS A.B. 364. SENATOR JACOBSEN SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.) * * * * * SENATOR RAWSON MOVED TO DO PASS A.B. 373. SENATOR O'DONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.) * * * * * SENATOR O'DONNELL MOVED TO DO PASS A.B. 697. SENATOR JACOBSEN SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.) * * * * * Senator Raggio opened the hearing on S.B. 106. SENATE BILL 106: Proposes to exempt from taxes on retail sales auditory devices and appliances. Senator Ernest E. Adler, Capital Senatorial District, testified several constituents complained that auditory devices are not exempt from sales tax even though eyeglasses are. He stated the devices can cost as much as $3,000 to $4,000, resulting in a considerable sales tax liability. He noted the elderly are generally the ones impacted. He explained S.B. 106 will allow the voters to decide whether the devices should be exempt from sales tax. Senator Raggio requested comment on the fiscal impact. Senator Adler offered the opinion the fiscal note is fairly accurate, and under state law it will be part of the ballot measure. SENATOR MATHEWS MOVED TO DO PASS S.B. 106. SENATOR O'DONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR COFFIN WAS ABSENT FOR THE VOTE.) * * * * * Senator Raggio recessed the meeting at 9:55 a.m., subject to the call of the chair. RESPECTFULLY SUBMITTED: Judy Jacobs, Committee Secretary APPROVED BY: Senator William J. Raggio, Chairman DATE: Senate Committee on Finance June 24, 1995 Page