MINUTES OF THE
ASSEMBLY COMMITTEE ON WAYS AND MEANS
Sixty-seventh Session
February 4, 1993
The Assembly Committee on Ways and Means was called to order by Chairman Morse Arberry, Jr., at 8:04 a.m., on Thursday, February 4, 1993, in Room 352 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Mr. Morse Arberry, Jr., Chairman
Mr. Larry L. Spitler, Vice Chairman
Mrs. Vonne Chowning
Mr. Joseph E. Dini, Jr.
Mrs. Jan Evans
Ms. Christina R. Giunchigliani
Mr. Dean A. Heller
Mr. David E. Humke
Mr. John W. Marvel
Mr. Richard Perkins
Mr. Robert E. Price
Ms. Sandra Tiffany
Mrs. Myrna T. Williams
COMMITTEE MEMBERS ABSENT:
None
STAFF MEMBERS PRESENT:
Mark Stevens, Fiscal Analyst
Gary Ghiggeri, Deputy Fiscal Analyst
Chairman Arberry yielded to Mark Stevens, Fiscal Analyst. Mr. Stevens announced the committee was invited to visit the POST academy on Saturday, February 6, to watch new recruits performing role playing exercises on handling DUI and domestic violence situations.
Mr. Stevens then distributed to the committee members copies of the reorganization savings schedules received from the Budget Division thus far. The schedules explained how the reorganization savings were calculated for each agency.
Chairman Arberry announced the agenda would be heard out of order, beginning with the Public Service Commission budgets.
REGULATORY FUND - PAGE 331
Mr. Spitler noted he would not participate in discussion or voting on this budget because he works in an industry regulated by the Public Service Commission.
Judge John Mendoza, Chairman, Public Service Commission (PSC), reported the agency was headed by a five-member Board of Commissioners. He introduced Commission Secretary Mr. Bill Vance, Board member Mrs. Joanne Kelly and staff members Mr. Terry Page, Director of Regulatory Operations, and Janet Hartman.
Judge Mendoza explained the PSC was charged with assuring the availability of safe and reliable utility and transportation services to the public at a fair and reasonable rate. The PSC regulated electricity, water, gas and motor carriers as well as safety regulation of railroads and interstate pipelines. The mission was to be as objective as possible in arriving at fair rates and establishing a quality of service.
Judge Mendoza noted the PSC had requested an additional six positions in the budget. The Governor recommended only one of those positions, a staff person to deal with federal-state relationships. He explained this new position was necessary because changing federal law dictated Commission appearances before various federal commissions, such as the Interstate Commerce Commission, Federal Communications Commission and Federal Energy Regulatory Commission (FERC). Commission attendance at such proceedings was required to protect ratepayers as well as to assist affected utilities. A full-time position was needed to meet the PSC's obligation of appearing before those federal commissions.
Judge Mendoza stated the only other change to the budget recommended by the Governor was to bring parity to two safety gas engineer positions in terms of position classification and rates of pay.
Chairman Arberry noted the Commission requested funding for a legal consultant in Washington, D.C. He questioned whether the consultant would be duplicating the services of the recommended new staff position. Judge Mendoza answered there would not be a duplication of services. The consultant would provide on-site service by making brief appearances before the federal agencies and monitoring the federal proceedings. The consultant would then relate information to the Commission and to the staff FERC specialist.
Ms. Giunchigliani inquired whether the consultant would interact with the Washington, D.C. office of the Commission on Economic Development. Judge Mendoza indicated he was unaware of the existence of the Washington, D.C. office. He explained the PSC required the services of someone who was informed in the areas of electricity, gas and other specialty regulatory areas.
Ms. Giunchigliani asked why PSC enforcement activities were not transferred to the Public Safety Department as had been the case with other agencies. Ms. Ellen Townsend, Principal Budget Analyst, Budget Division, said she was unable to answer the question but she would provide an answer to the committee at a later time.
Chairman Arberry questioned why the PSC had been exempted from the proposed reorganization plan. Judge Mendoza answered the PSC was involved in economic regulation as opposed to police-type regulation. If the PSC's enforcement staff was transferred to a police agency, the Commission would simply have to call them back from that agency in order to utilize their services, and the result would be a problem with control. He noted several years ago the Legislature had examined this question and determined it was better economically and functionally to leave those positions within the Commission.
Mr. Marvel asked about the status of Nevada Power's bond rating. Judge Mendoza replied the bond ratings had improved and were no longer on a watch list. Additionally, Nevada Power's stock prices had increased from $17 to $24 in six months and the company was successful in trading stock.
Mrs. Williams said she was curious about why it was more efficient and functional to keep enforcement and data processing staff in this agency than it was in other agencies. Ms. Rochelle Summers, Principal Budget Analyst, Budget Division, responded while she was not familiar with the law enforcement portion of the proposed reorganization, it was her understanding the PSC data processing staff was involved not only in in-house information management but also went outside the agency to the regulated utilities to verify the adequacy of data processing techniques. She stated she would investigate the matter further and report to the committee.
Judge Mendoza explained one of the problems of the PSC was the manner in which information was received from the utilities. At pre-hearing conferences the utilities were requested to provide software and develop accounting programs compatible with those of the PSC. Additionally, the Commission had made a concerted effort to automate the office and to network the Las Vegas and Carson City offices.
Mrs. Williams stated this was the kind of centralized effort the committee was looking at for all agencies. She asked Ms. Summers to provide to the committee the rationale for not including the PSC within the proposed reorganization plan. Ms. Summers indicated she would provide the information.
Chairman Arberry noted the Interim Finance Committee had recently approved approximately $78,000 from the reserve account for data processing to implement a case management system. The new system was estimated to save approximately $50,000 per year. He asked for an update of the situation.
Judge Mendoza explained the Commission was not utilizing teleconferencing and video conferencing capabilities for hearings. It was currently video conferencing agendas and hoped to begin video conferencing hearings which would lend themselves to that technology (e.g., hearings in which credibility of the witness was not an issue). The implementation of video conferencing would enable the Commission to reduce travel expenses.
Chairman Arberry asked if there was a resulting cost savings reflected in the Executive Budget. Judge Mendoza answered a cost savings was projected. Mr. Vance indicated the agency request in the Executive Budget had been reduced by $78,000 when the Interim Finance Committee approved the funding from the reserve account.
Mr. Price noted Leo Penne was the representative in the state's Washington, D.C. office. He explained Mr. Penne and his staff were located in the Hall of the States. He suggested Judge Mendoza contact Mr. Penne to see if the Washington office could provide any assistance to the Commission. Judge Mendoza said he would contact Mr. Penne.
Ms. Giunchigliani said by her determination the Executive Budget reflected only a $35,000 savings. She questioned where the budget had actually been reduced by $78,000. Mr. Vance responded the original data processing equipment request was reduced by $39,000 in each year of the biennium. Ms. Summers noted a request for $20,279 in the first year of the biennium and $2,237 in the second year for data processing was not recommended.
Ms. Giunchigliani asked if KPMG's recommendations were instituted in all cases. Ms. Summers replied they were not. In some instances the Governor chose not to implement the recommendations either at all or all at one time.
Ms. Giunchigliani requested a list of the recommendations which were not implemented or partially not implemented. Ms. Summers said she would provide a list.
ADMINISTRATIVE FINES - PAGE 337
Judge Mendoza reported one hearing officer was responsible for enforcement activity involving violations of NRS 706. He explained citations were for economic violations. The hearing officer would assess fines. The Commission requested a transfer of $97,000 from the fine fund for use in this budget in order to reduce its request for funding from the Department of Transportation.
Mr. Humke asked how the money would be spent. Mr. Vance replied the expenditures would be for in-state travel ($39,000), vehicle operation ($39,500), copying and printing ($4,000) and court reporters ($14,000).
Mr. Humke inquired whether those expenditures were all attributable to the hearings process. Judge Mendoza answered the expenditures were attributable to the economic enforcement specified in NRS 706.
Mr. Humke asked if such enforcement represented hearings which did not lend themselves to the video conferencing process. Judge Mendoza replied that was the case for some of the hearings. Other hearings required testimony by expert witnesses and those hearings were not appropriate for video conferencing.
SIIS REHABILITATION CENTER - PAGE 1657
Mr. Don Jayne, General Manager, State Industrial Insurance System, stated he was appearing to discuss the budgets for the State Industrial Insurance System (SIIS) and the SIIS Rehabilitation Center, the Jean Hanna Clark Rehabilitation Center. He requested the Rehabilitation Center budget be heard first. He introduced Mrs. Becky Abba, the agency's Budget Analyst.
Mr. Marvel asked what impact pending legislation would have on the budget. Mr. Jayne replied the legislation could have a tremendous impact on the budget, depending on which legislation was passed. He said he encouraged the passage of dramatic legislative changes. SIIS had deemed it appropriate to prepare fiscal notes as new legislation was introduced because it was difficult to project what might happen. He noted the budget requested had no new staffing included. Internal reorganization would allow existing staff to handle current caseloads. He pointed out SIIS had not been subject to the state hiring freeze. In fact, the Interim Finance Committee had approved 48 additional positions in June 1992.
Mr. Jayne stated this was his first full legislative session as General Manager of SIIS and his first appearance before the committee. He explained SIIS' mission was to serve as the worker's compensation insurance company for Nevada. The former entity, the Nevada Insurance Commission, had included a multitude of functions, including regulation and appeals, which had been separated out, leaving only the insurance company component.
Mr. Jayne reported SIIS was designed to be an independent, actuarially funded system to provide insurance to employers against liability for injury and occupational diseases for which their employees might be entitled to benefits. He said SIIS was responsible for effectively managing the claims of injured workers in order to promptly and properly provide medical care and treatment and return the injured worker to gainful employment at the most reasonable cost possible to the employer.
Mr. Jayne said SIIS was a non-General Fund agency, receiving all revenue from premiums from employers and investment income. The administrative budget represented approximately 13 percent of overall costs. He noted 13 percent administrative overhead costs was a very reasonable amount in both the private and public sectors.
Mr. Jayne indicated SIIS had both internal and external problems. He and his staff were working hard to correct the internal problems. The Legislature would address many of the external problems over the course of the legislative session; however, SIIS was required to administer the law as written and current law had helped to generate many of SIIS' external problems.
Mr. Jayne explained SIIS had developed a five-year information system plan to demonstrate data processing needs for the future and a business plan to provide a blueprint for changes required for recovery from current difficulties.
Mr. Jayne asked Mrs. Abba to explain the method used to calculate the budget.
Mrs. Abba reported the Executive Branch hiring review process instituted in May 1991 had caused a delay in filling 120 positions authorized by the 1991 Legislature and other vacancies until the policy was lifted in June 1992. As a result, there was an average of 100 vacant positions for fiscal year 1991-92. Staffing levels increased from 760.5 full-time equivalent approved positions in fiscal year 1990-91 to 989.5 full-time equivalent approved positions in fiscal year 1992-93. Fiscal year 1991-92 program dollars were understated and would not provide a reliable baseline for projecting 1993-95 biennial program needs. Therefore, 1992-93 work program year figures were used as the baseline rather than the fiscal year 1991-92 actual figures.
Mrs. Abba said performance indicators--registered claims counts and number of policy holders--were revisited. It was determined growth had slowed since the 1991-93 projections. The final assumption which the agency request was based on was that the system was in the process of internal reorganization which included adoption of the recommendations of a Coopers & Lybrand study to place more emphasis on claims management and control. Additionally, functional responsibilities for collection were reassigned to strictly enforce regulations and statutes concerning premium collection.
Mrs. Abba stated the agency was not requesting an enhanced budget but a maintenance budget to maintain the current program and staffing level. She indicated the agency would have to continually re-evaluate its staffing needs as the impact of the internal reorganization and pending legislation became apparent.
Mrs. Abba said the issues the agency was addressing were maintaining program costs to support the existing staff of 989.5 positions, upgrading automation and funding for costs associated with the Americans With Disabilities Act.
Mr. John Hines, Assistant Administrator, Jean Hanna Clark Rehabilitation Center, stated the center was an out-patient medical facility established to provide all physical rehabilitation a claimant would require to return to productive employment. Evaluation and treatment was administered by physicians, psychologists and therapists. Several types of treatment programs were offered. Treatment could be prescribed by either a center physician or the claimant's physician. Housing all treatment programs in one facility provided less fragmented treatment and assured claimants' earlier return to work.
Mr. Hines reported the center was accredited by the Commission on Accreditation of Rehabilitation Facilities (CARF) and provided physical therapy, occupational therapy, remedial therapy and industrial therapy as well as psychological evaluation services. The only physician employed by the center was the Medical Director. Other physicians at the center and physicians in the community were paid by SIIS according to the fee schedule for services performed; they were not employed by the center or by SIIS. Physicians were not paid unless services were performed.
Mr. Hines explained the center performed physical restoration--helping people become capable of working. After a client had been seen at the center and was ready to work, he or she would then become a client for vocational rehabilitation. He said the center did not provide vocational rehabilitation.
Mr. Hines noted federal fund revenue in the Executive Budget actually reflected food income. The center did not receive federal funds. Other revenue actually reflected fees for services performed. Approximately 95 percent of the center's revenue was received from SIIS on a fee-for-service basis. The remaining 5 percent was received from other people requesting services--either self-insured employers or private individuals.
Mr. Spitler asked if the planned reorganization would impact the rehabilitation services performed at the center in any negative way. Mr. Hines replied it would not.
Mr. Spitler questioned how fees were determined. Mr. Hines answered the fees charged for worker's compensation services were based on the medical fee schedule established by the Department of Industrial Relations.
Mr. Spitler noted in the past SIIS had subsidized the Jean Hanna Clark Rehabilitation Center when the center was not at its medical capacity. He asked if that practice was continuing. Mr. Hines indicated the practice was continuing but to a lessening amount in recent years. It was expected the situation would be corrected shortly and the result would be increased capacity and billing.
Mr. Spitler asked how much subsidy was provided by SIIS currently. Mr. Hines replied approximately $1.4 million per year had been received from SIIS over the past few years.
Mr. Spitler inquired whether some clients required referral to other facilities for rehabilitation. Mr. Hines answered the center could provide all physical rehabilitation services except specialized services such as MRIs. Mr. Spitler requested documentation of all cases referred to other facilities over the past year. Mr. Hines agreed to provide the information.
Mr. Jayne noted the center's administrator position was vacant and Mr. Hines was acting in that capacity. Mr. Jayne said he was seeking an administrator who would be able to attract more private sector clientele in order to offset the SIIS subsidy. He noted Jean Hanna Clark was one of the few accredited rehabilitation centers in the western United States. His objective was to make the center self-sufficient.
Mr. Spitler asked for information showing the decreasing subsidies from SIIS.
Ms. Giunchigliani asked if physiatrists were maintained on staff or if the center contracted with physiatrists. Mr. Hines replied physiatrists were included in the group of physicians who were contracted on a fee-for-service basis.
Ms. Giunchigliani questioned whether there was a different medical fee schedule for self-insured employers. Mr. Jayne said there was only one schedule.
Ms. Giunchigliani asked if it was feasible to mandate utilization of the center by managed care organizations which might be established as a result of the planned reorganization. Mr. Jayne said it was feasible to mandate usage of the center for secondary care; however, managed care networks which currently had their own rehabilitation capacity might want to debate that point. Clients could not be required to use the center if they chose to use the facilities of their own direct care provider.
Ms. Giunchigliani queried why more private sector clients were not referred to the Jean Hanna Clark Rehabilitation Center. Mr. Jayne said the problem was there had been no focus on attracting private sector referrals to the center. A requirement of the new administrator would be to bring center utilization up to capacity.
Ms. Giunchigliani suggested early intervention procedures could be improved as well. Mr. Jayne agreed. He said since November 1992 an early intervention program had been in place whereby medical staff, claims examiners and employers networked with each other. As a result, the more serious cases could be identified early and determinations made regarding the need for physical rehabilitation.
Mr. Marvel asked if doctors in Northern Nevada were aware they could refer patients to Jean Hanna Clark Rehabilitation Center. Mr. Jayne replied doctors were probably aware of the facility but they were not utilizing it to capacity. SIIS had not been aggressive in marketing the center.
Mr. Marvel inquired whether referrals from the north were increasing. Mr. Hines responded the numbers had remained stable. He explained Northern Nevadans had to assume travel costs over and above medical costs to travel to the center.
Mr. Jayne introduced Mr. Mathew Dorangricchia, Assistant General Manager of SIIS. Mr. Dorangricchia explained the lack of referrals from Northern Nevada was because claimants were reluctant to travel to Las Vegas for extended periods for physical therapy when there were adequate treatment facilities in Northern Nevada. Physicians shared this reluctance. All referrals from Northern Nevada were initiated by SIIS employees who wished to use the center's services for evaluation.
Mr. Humke asked for an explanation of the difference between physical rehabilitation and vocational rehabilitation. Mr. Dorangricchia said physical rehabilitation and vocational rehabilitation were two different processes although they existed together in most cases. The claimant must have physical health in order to participate in vocational rehabilitation. Jean Hanna Clark Rehabilitation Center did not provide vocational rehabilitation, but patients at the center received consideration for vocational rehabilitation early in the medical treatment process. SIIS rehabilitation counselors focused on becoming involved in the claim within 10 days. Additionally, physical rehabilitation did not have to be complete before vocational rehabilitation could be started.
Mr. Humke inquired whether there were some cases where physical rehabilitation was unnecessary and the client could proceed immediately to vocational rehabilitation. Mr. Dorangricchia replied there were such cases; however, most of the cases required some type of physical therapy or chiropractic treatment.
Mr. Humke asked why the center was not moved to another agency, such as Rehabilitation, under the Governor's proposed reorganization when all the vocational rehabilitation functions had been moved to Rehabilitation. Mr. Jayne said he could not answer the question. SIIS had no significant input to the Governor's reorganization plan.
Ms. Summers said the Budget Division had requested the Rehabilitation Division to investigate what would be required for it to rehabilitate SIIS clients. She noted Rehabilitation had a good track record for rehabilitating injured people. The Rehabilitation Division had indicated it did not require the services of the Jean Hanna Clark Rehabilitation Center in order to provide rehabilitation services to SIIS clients.
Mrs. Chowning said she understood SIIS was referring clients to physiatrists in San Francisco and was not utilizing physiatrists to uncover fraudulent claims of soft tissue injury. Mr. Dorangricchia explained physiatrists were doctors of physical medicine with a broad educational background who dealt with the whole person. SIIS utilized physiatrists to obtain evaluations of clients' conditions and develop treatment plans. Individuals could choose physiatrists as their treating physicians as well. There was a limited number of physiatrists in Nevada and most of them worked at the Jean Hanna Clark Rehabilitation Center. There were perhaps three physiatrists in Northern Nevada. Some were reluctant to see injured workers. When a claimant had been seen by several Nevada physicians and those physicians could not reach agreement on the case, the claimant might be sent to an out-of-state treatment center in Utah or California. Also, in some cases, the best care could only be provided at an out-of-state facility, such as U.C. Davis.
Mr. Jayne noted if managed care legislation was passed, some of the disputed cases could be resolved within the managed care entity. Part of the litigiousness of the treatment process could be lessened if third party liability was removed.
Mrs. Williams asked if vocational rehabilitation included medical rehabilitation. Mr. Jayne replied physical rebuilding was done within Jean Hanna Clark Rehabilitation Center. Other job skills retraining and job placement was vocational rehabilitation. If vocational rehabilitation counselors required physical rehabilitation as a prerequisite to vocational rehabilitation, they would utilize the services of the Jean Hanna Clark Rehabilitation Center.
Mrs. Williams stated the committee had been struggling to determine whether the missions of the various agencies would be met following the proposed transfers. While functions seemed alike on paper, the committee needed to know if indeed they were alike.
Mrs. Williams questioned whether SIIS was meeting with members of the business community to discuss the assignment of light duty to injured workers. Mr. Jayne answered SIIS had been meeting extensively with the business community. Seminars were conducted regularly to inform employers how they could help reduce worker's compensation costs. He said the employer's involvement with the injured worker as well as the availability of light duty assignments were critical in helping the worker return to work while he or she was still recuperating. It was sometimes difficult for small employers to provide light duty assignments, but SIIS was looking at the possibility of pooling those assignments among a group of small employers.
Ms. Tiffany noted her husband had interviewed with the Jean Hanna Clark Rehabilitation Center to provide cardiac services. She said he had been very impressed with the operational procedures, the services provided and the quality of physicians hired. Also, the fees for services were very competitive.
Mr. Price asked how occupational therapy differed from vocational therapy. Mr. Dorangricchia explained occupational therapy was a modality of physical therapy. Occupational therapy was work simulation. Remedial therapy was work hardening and body conditioning. Industrial therapy dealt with more accurate job simulation.
Ms. Giunchigliani questioned whether industrial therapists could help small employers analyze possible light duty assignments within their workplace. Mr. Dorangricchia responded affirmatively.
STATE INDUSTRIAL INSURANCE SYSTEM - PAGE 1652
Mrs. Abba explained traditionally the insurance fund had supported approved expenditures. The Governor recommended changing revenues to insurance premiums, investment income and balance from previous years. It appeared the revenue sources for 1993-94 totaled $901,570,373, in comparison to work program year 1992-93 total revenue of $69,380,471.
Mrs. Abba reiterated no additional positions were requested. The Governor recommended 168 positions be removed as part of the proposed reorganization. Personnel expenses reflected the removal of those positions. Additionally, the Governor recommended increased vacancy savings.
Mrs. Abba said SIIS requested $15,000 for out-of-state travel. The Governor recommended the amount actually spent for out-of-state travel in fiscal year 1991-92, $4,151. She again pointed out SIIS had not used fiscal year 1991-92 as its baseline in preparing the budget. $257,815 was requested for in-state travel for fiscal year 1993-94, the same amount as authorized in fiscal year 1992-93. The Governor recommended $83,184. Mrs. Abba explained the Governor's recommendation was based on the fiscal year 1991-92 actual figure less $99,469 associated with the removal of the 168 positions.
Ms. Giunchigliani inquired whether there were travel expenses related to the positions which would be removed. Mrs. Abba responded travel expenses were related to some of the positions but not all of them. She indicated she was preparing a more detailed cost comparison and would provide it to the committee.
Mrs. Abba reported SIIS had requested $8,154,196 for operating expenses. The Governor recommended $4,861,628.
Mrs. Abba pointed out the Governor did not recommend upgrading the SIIS automation system. The agency requested $1,000,000 for contract programming services to continue the data processing upgrade. In addition, contract services was further reduced $100,000 back to the fiscal year 1991-92 level.
Mrs. Williams asked why the Governor did not recommend the contract programming services for SIIS. Ms. Summers answered the agency requested new, non-existing programming services. The Governor did not recommend new data processing. SIIS's current data processing system would remain intact and would not be moved to the Department of Data Processing.
Mrs. Williams queried whether the data processing enhancements were requested in order to improve efficiency. Mrs. Abba responded affirmatively. She added the enhancements would not require additional positions but could be managed by existing staff.
Mr. Jayne noted SIIS would be spending $5.7 million to upgrade programs for the claims system. The expenditure was viewed as an ongoing development and part of its 5-year business plan.
Mrs. Abba noted the Governor was not recommending funding for equipment expenses to cover the Price, Waterhouse program. The agency requested a total of $221,756. The Executive Budget reduced that amount by $15,800 as part of the Governor's proposed reorganization. The remainder of the request was then reduced to cover only replacement items. No new equipment was recommended by the Governor.
Mrs. Abba said $270,000 was requested for building improvements--$100,000 for continuing maintenance of the Carson City and Las Vegas buildings and $170,000 for retrofitting the buildings pursuant to the requirements of the Americans With Disabilities Act (ADA). She noted the Interim Finance Committee had approved approximately $34,925 in December 1992 to cover ADA costs and the agency had reduced its request by that amount. The Governor recommended $55,000 for ADA retrofitting.
Ms. Summers distributed copies of the information provided to the Budget Division by SIIS regarding building and land improvements (Exhibit C) which reflected estimated ADA costs for fiscal year 1993-94 of $55,000. She said those figures were inadvertently left out of the Executive Budget. Mrs. Abba explained Exhibit C was a draft worksheet and did not accurately reflect the agency's final request. SIIS actually requested $170,000, less the $34,925 from the Interim Finance Committee, for ADA costs in its budget detail and budget narrative.
Mrs. Abba then referred to out-of-state audits expense. She explained this category covered premium auditors' travel expenses to conduct out-of-state audits. The Governor recommended removal of the premium auditor staff but not the removal of the out-of-state audits expense category, although recommended funding was reduced to the fiscal year 1991-92 level. Ms. Summers noted this item was left in the Executive Budget inadvertently.
Mrs. Abba said SIIS had requested additional funding for staff training to cover the cost of ongoing training as well as programmer training which was vital to the operation of the Price, Waterhouse system. The Governor did not recommend funding above the $48,514 fiscal year 1991-92 actual level.
Mrs. Abba noted under data processing expenses SIIS had requested funding for additional hardware to continue data processing upgrades. The Governor did not approve that request.
Mrs. Abba called to the committee's attention various new assessments, claims expenses and claims reserves placed in the agency's budget by the Department of Administration.
Mr. Marvel asked if the out-of-state auditors would be transferred out of the agency. Ms. Summers responded all audit functions would be transferred to the Tax Division under the proposed reorganization.
Mr. Marvel also inquired about the agency's data processing function. Ms. Summers replied data processing would remain within SIIS.
Ms. Giunchigliani asked what the impact of adding investment income and balance from previous years into the revenue category was. Mr. Jayne said he believed the change in format reflected the Governor's desire to change the manner of accounting for expenditures. The increased total included a balance forward, which represented the Budget Division's estimate of what reserves would be at the end of fiscal year 1992-93, and projected premium and investment income. The changes were made to fit the new Executive Budget format.
Ms. Giunchigliani questioned whether there was a risk involved in estimating future reserves. Ms. Summers said the agency worked with estimates routinely. She explained the Budget Division had attempted to present to the money committees a depiction of the full expenditures incurred by SIIS. The claims expenses had not been apparent in previous budgets.
Chairman Arberry asked if the projections had come from the Budget Division or from SIIS. Ms. Summers replied the projections were from the Insurance Division's audit of SIIS. She referred to Exhibit D, which reflected projected assets remaining at the end of fiscal year 1992-93 of $467,856, premiums received in fiscal year 1993-94 of $566,891, interest and dividends in fiscal year 1993-94 of $37,641 and claims paid in fiscal year 1993-94 of $561,962. Those figures were adjusted downward in the Executive Budget to conform to the proposed reorganization. For example, the Governor recommended the rehabilitation portion of the program be shifted to Vocational Rehabilitation so those claims costs were extracted from the SIIS budget. Additionally, savings were anticipated as a result of implementation of the managed care system. Pending legislation could impact savings on claims paid.
Ms. Giunchigliani asked Mr. Jayne if he agreed with the figures on Exhibit D since they represented discrepancies with the Tillinghast audit figures. Mr. Jayne responded he had no major problem with the numbers, considering they were projections. The major discrepancies in the two audits were the methods of accounting for unfunded liabilities and financing. The Insurance Commissioner's audit revealed a total liability of $2.5 billion. The Tillinghast audit revealed a total liability of $2.27 billion. Those differences were not significant within actuarial ranges. The Insurance Commissioner's audit did not allow credit for investment income or future enhancements such as managed care, although they were projected in the Executive Budget.
Ms. Giunchigliani noted page 1652 of the Executive Budget reflected $521,998,750 for claims and adjustment expense. She asked where the corresponding figure was on Exhibit D. Ms. Summers explained the $561,962 for claims paid on Exhibit D represented an adjustment of the Executive Budget figure for the SIIS vocational rehabilitation project and anticipated savings from pending legislation and implementation of managed care. Additionally, the Budget Division expected savings to result from Vocational Rehabilitation assuming responsibility for rehabilitation of SIIS claimants.
Ms. Giunchigliani asked how many positions would be transferred to Vocational Rehabilitation. Ms. Summers responded 79 positions would be transferred to Vocational Rehabilitation.
Ms. Giunchigliani asked if nurses were included in those 79 positions. Ms. Summers said nurses were not included. The Executive Budget reflected physicians and nurses remaining in the SIIS for one-fourth of the first fiscal year. Thereafter, those positions would be abolished in the SIIS budget and Vocational Rehabilitation would have new positions established in its budget.
Ms. Giunchigliani queried whether there was an understanding within the Budget Division of the nurses' role in processing and managing claims. Ms. Summers responded the Budget Division believed implementation of the managed care system would eliminate the need for nurses.
Ms. Giunchigliani stated this was a shift in thinking from the original intent of the transfer of SIIS staff to Vocational Rehabilitation. The nurse structure should comply with the crisis team component of S.B. 7 of the Sixty-sixth Legislative Session and should not be affected by managed care. She expressed her opinion the Executive Budget would have to be adjusted.
Chairman Arberry asked Mr. Steve Shaw, Administrator, Rehabilitation Division, to address this issue. Mr. Shaw stated the Rehabilitation Division had handled worker's compensation rehabilitation prior to 1983. When the Governor requested input to the reorganization plan, it appeared natural to suggest the SIIS rehabilitation system and the Rehabilitation Division rehabilitation system represented a duplication of services. He said he knew of no insurance company which had its own rehabilitation unit. SIIS offered no delivery system in the rural areas, whereas the Rehabilitation Division had an extensive delivery system throughout the state. It was discovered SIIS was referring cases to private rehabilitation in rural areas which, in turn, would refer those cases to the Rehabilitation Division. As a result private rehabilitation would receive payment for services provided by the Rehabilitation Division. The Rehabilitation Division entered into a cooperative agreement with SIIS pursuant to S.B. 7 of the Sixty-sixth Legislative Session whereby referrals in rural areas were made directly to the Rehabilitation Division.
Mr. Shaw expressed concern about SIIS' ability to buy out clients who would then no longer be eligible for rehabilitation services. The SIIS buy outs shifted the onus for caring for those people from the business premium payer to the taxpayer.
Mrs. Williams asked how many of the Rehabilitation Division's 226 employees had medical rehabilitation backgrounds. Mr. Shaw answered the division had two physicians and two nurses, who were recently laid off. Staff counselors were master's degree vocational rehabilitation counselors but they did not have medical backgrounds.
Mrs. Williams noted there were several stages of rehabilitation and people requiring medical rehabilitation would be referred to the Rehabilitation Division at the first stage. Mr. Shaw stated he was unfamiliar with that aspect of the reorganization proposal.
Mrs. Williams said she did not think the Rehabilitation Division was familiar with that aspect of rehabilitation either. She questioned whether problems would be exacerbated because clients were not receiving the proper rehabilitation. She said the Rehabilitation Division provided services which were entirely different from the primary medical rehabilitation provided by SIIS. Mr. Shaw agreed. He said the Rehabilitation Division budget proposal did not contemplate assumption of the Jean Hanna Clark Rehabilitation Center.
Mrs. Williams commented good managed care required good case management. She questioned how good case management could be accomplished without nurses or someone with the medical expertise to do it.
Mr. Spitler said he understood vocational rehabilitation as it applied to medical rehabilitation would remain within SIIS and the vocational rehabilitation services to be transferred to the Rehabilitation Division would take place after the claimant had been medically rehabilitated.
Mr. Shaw said the distinction between medical rehabilitation and vocational rehabilitation was a SIIS issue. He said vocational rehabilitation should begin early in the rehabilitation process and the Rehabilitation Division had offices in hospitals in order to accomplish early intervention. It was not the intent of the Rehabilitation Division to move into medical rehabilitation. He noted some SIIS cases had not been referred for vocational rehabilitation as much as one year post injury.
Mr. Spitler inquired whether SIIS was making the determination of when to refer clients to the Rehabilitation Division. Mr. Shaw replied SIIS would release the client to the Rehabilitation Division for rehabilitation services.
Mr. Spitler asked how many SIIS clients currently undergoing vocational rehabilitation would be transferred to the Rehabilitation Division under the proposed reorganization. Mr. Jayne answered there were approximately 3,600 current active cases. 7,700 rehabilitation cases were handled in fiscal year 1991-92.
Mr. Spitler asked Mr. Shaw if the Rehabilitation Division budget was projected based on the assumption of taking over that caseload. Mr. Shaw said the Rehabilitation Division budget was based on a projected caseload of 3,587, which was the number reported in the 1990 SIIS audit.
Mr. Jayne pointed out the caseload for rehabilitation counselors for worker's compensation injury was mandated by S.B. 7 of the Sixty-sixth Legislative Session. He said he had not had the opportunity to study the full recommendation for the change in rehabilitation under the proposed reorganizational plan. However, it was his understanding 35 per caseload would not be acceptable criteria.
Mr. Spitler stated the committee was grappling with the problem that the Executive Budget was based on many assumptions and if all those assumptions did not fall into place, it would not balance.
Mr. Shaw stated he was not desperately trying to move into the SIIS rehabilitation business. He was simply presenting an alternative to the present system. He added the Rehabilitation Division was the only division of the state which participated in the Social Security Reimbursement Program. If the Rehabilitation Division rehabilitated clients receiving Social Security income and those clients remained employed for nine months, the division would be reimbursed all costs and administrative expenses by the federal government. Many SIIS clients were concurrently on Social Security disability insurance but SIIS was not eligible for reimbursement by the federal government.
Ms. Giunchigliani asked how many staff positions were needed in order for the Rehabilitation Division to assume the SIIS vocational rehabilitation function. Mr. Shaw responded 79 positions were needed, including 47 vocational rehabilitation counselors and rehabilitation technicians. The division did not request nurses.
Ms. Giunchigliani inquired whether the reorganization proposal envisioned any private rehabilitation. Mr. Shaw stated the pending legislation was based on the 1973 Rehabilitation Act. Some people currently receiving the services of SIIS would not be eligible for the Rehabilitation Division program. The proposed legislation stated claimants could be treated by the division or, in the event claimants did not qualify for services, they could be referred to contracted private practitioners. In order to qualify for Rehabilitation Division services claimants had to be disabled, their ability to find or maintain a job had to be affected by the disability and they had to be able to benefit from the division's services.
Ms. Giunchigliani asked Mr. Shaw to provide the committee with a copy of the 1973 act.
Ms. Giunchigliani noted statutorily there were two different missions for the Rehabilitation Division and SIIS. She said perhaps those missions could be reconstructed to fit the proposed reorganization. She expressed concern that if the projection of 79 positions was based on only those clients who could qualify for Rehabilitation Division assistance, there would still be a significant number of claimants who would either have to be maintained by SIIS or assumed by the private sector. Mr. Shaw said private providers would be contracted to handle those clients.
Ms. Giunchigliani asked if there was a medical fee schedule for private sector vocational rehabilitation services. Mr. Jayne said SIIS had negotiated contracts with individual private providers. Those contracts provided for either individual fee schedules or hourly or per charge rates. He noted lump sum payments were provided by statute and there were times when lump sum payments might be appropriate. Mr. Shaw expressed concern that lump sum payments were not being made in accordance with the intent of S.B. 7 of the Sixty-sixth Legislative Session.
Ms. Giunchigliani asked Mr. Jayne if, in his opinion, the nurses needed to remain in SIIS regardless of implementation of a managed care program. Mr. Jayne responded he believed nurses were required. The number required would be determined by the managed care program adopted.
Ms. Giunchigliani asked for an explanation of the audits performed by SIIS. Mr. Dorangricchia stated SIIS performed audits for three fundamental reasons: 1) for revenue, 2) for service and 3) for equity. A revenue audit was a standard book audit to identify policy holders who were likely to have paid premiums which SIIS could recover. A service audit would be conducted to issue a certificate of insurance to a prime contractor as assurance that subcontractors were adequately covered. Equity audits insured claims, costs and premiums were accurately classified. Of the approximately 12,000 audits performed by SIIS in fiscal year 1991-92, 75 percent were not standard book audits.
Ms. Giunchigliani asked how employers who were underreporting were identified. Mr. Dorangricchia said underreporting was always looked at in any type of audit. Account classifications were also always looked at.
Ms. Giunchigliani questioned whether the job descriptions of SIIS auditors included the requirement to perform the three types of audits and if those job descriptions were approved by the Department of Personnel. Mr. Dorangricchia responded that was true to his knowledge.
Ms. Giunchigliani noted the Budget Division had recently testified all auditor positions were similar. However, an examination of job descriptions approved by the Department of Personnel revealed that testimony to be a misrepresentation regarding job assignments and classifications. She noted in most state agencies auditors did not perform payroll functions only but performed additional duties. She expressed concern about the fairness to the agencies, including the Tax Division, of expecting all state auditors to focus on locating sales tax revenue and making other fee assessments a lesser priority. The team approach might be appropriate as a service model; however, the differential of fee assessments was also a factor.
Ms. Summers stated the Governor had presented his budget and it was up to the Legislature to either accept it as presented or modify it.
There being no further business, the meeting was adjourned at 10:25 a.m.
RESPECTFULLY SUBMITTED:
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C. Dale Gray
Committee Secretary
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Assembly Committee on Ways and Means
February 4, 1993
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