MINUTES OF THE

      SENATE COMMITTEE ON COMMERCE AND LABOR

 

      Sixty-seventh Session

      January 22, 1993

 

 

 

The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Friday, January 22, 1993, in Room 227 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda.  Exhibit B is the Attendance Roster.

 

 

COMMITTEE MEMBERS PRESENT:

 

Senator Randolph J. Townsend, Chairman

Senator Sue Lowden, Vice Chairman

Senator Ann O'Connell

Senator Mike McGinness

Senator Raymond C. Shaffer

Senator Leonard V. Nevin

Senator Lori L. Brown

 

 

STAFF MEMBERS PRESENT:

 

Brian Davie, Senior Research Analyst

Sheri Asay, Senate Committee Secretary

Denise Pinnock, Senate Committee Secretary

Frank Krajewski, Senior Research Analyst

 

OTHERS PRESENT:

 

Don Jayne, General Manager, State Industrial Insurance System   (SIIS)

Marc Hechter, Assistant General Manager, SIIS

Larry Zimmerman, President, CDS of Nevada

Carol Jackson, Director, Department of Industrial Relations (DIR)

Jim Jeppson, Administrator, Division of Industrial Insurance    Regulation, DIIR

Bill Champion, Lobbyist, Employers Coalition of Nevada

Mike Fischer, Chairman, Nevada State Medical Association

Dr. Mary Paterson, Ph.D., Assistant Professor, Department of Health       Care Administration, University of Nevada, Las Vegas

 

 

 

Senator Townsend opened the meeting announcing a discussion of the medical component of workers' compensation, utilization review, peer review, claims and claims management, Preferred Provider Organizations (PPO), Managed Care Organizations (MCO), and Health Maintenance Organizations (HMO).

Dr. Michael Fischer, Chairman, Nevada State Medical Association Governmental Affairs Commission, defined managed care (Exhibit D)

He discussed quality assurance programs, essential to a good managed care program, and said competent medical care relative to the area should be provided. Dr. Fischer cautioned about capitation. "If you have capitation as a method of reimbursement to the physicians, usually what happens is you have a gatekeeper to the system, and that gatekeeper has the ability to prevent you from going from primary care to specialized care," he explained. Dr. Fischer defined capitation as the method by which an organization insures a pool for a certain amount of money, and the beneficiary agrees to follow the organization's rules in order to obtain services under this organization. The worker goes directly to the primary doctor assigned to him, not to a specialist. Under capitation the physician is paid a certain amount of money for everyone he sees, and the pool of money remaining is divvied up at the end, explained Dr. Fischer.

 

Dr. Fischer said primary care physicians would want to keep referrals to a minimum so there is more money to divide. He discussed the problem with self-referral, and concluded it is hard to license ethics, as anyone can over-utilize any system.

 

Senator Brown asked if the reason behind capitation was to "encourage doctors to utilize less?" Dr. Fischer responded affirmatively.

 

Marc Hechter, Assistant General Manager, State Industrial Insurance System (SIIS), explained capitation rates are primarily a function of health maintenance organizations, to manage overall costs of service.

 

Senator O'Connell expressed employers' concern regarding this system, that their employees receive good care.

 

Dr. Fischer responded the employer is primarily looking at the economic impact.

 

Senator O'Connell disagreed and said, "...as an employer with three businesses, my key concern is that they are well, and that I have people there when I need them. If I am paying for their health care, I want them to have the best for the dollar that I am

paying."

 

Dr. Fischer reiterated his position that monetary considerations will determine the employer's health care decisions.

 

Mr. Hechter discussed the history of managed care (Exhibit E). Predominately in use in first party health insurance, managed care is now beginning to orient itself towards workers' compensation, he said. He discussed Oregon, a pioneer in managed care, and the reform bills they passed providing for a managed care environment. Mr. Hechter defined "willing providers": Any provider willing to follow the terms must be accepted by the MCOs who participate. Willing provider language was not included in the original draft SIIS put together, although it has been requested from various trade associations, he said.

 

Mr. Hechter discussed Exhibit E. He defined managed care organizations as delivery systems of health care, not necessarily insurance. Mr. Hechter defined PPOs and said the incentive to use them is the employee shares the cost if he goes outside the network. He pointed out this does not work well with workers' compensation as it is a deal between management and labor to guarantee full compensation to the worker, and to eliminate his capacity to litigate against his employer for liability.

 

Senator Townsend brought up the subject of shared premium copay, such as Washington State uses, and the impact it would have on the exclusive remedy theory. Senator Townsend said this practice has not been challenged, or at least not successfully, in Washington.

 

Mr. Hechter said he thought it could be challenged, and mentioned the need for fairness and equity in dealing with these issues, balancing between the needs of management and labor. He said transferring over that kind of incentive mechanism might tend to erode exclusive remedy.

 

Senator Shaffer expressed concern over the quality of the physicians involved in managed care. Marc Hechter said most PPOs and HMOs have competent physicians, but quality assurance controls need to exist in all systems.

 

Mr. Hechter referred to page 3 of Exhibit E. The points listed should be in any managed care organization, he said; administrative mechanisms, non-discriminatory provider network, utilization review, quality assurance program, and dispute resolution process. A properly run MCO for workers' compensation should be able to eliminate Comprehensive Integrated Workups (CIWs), added Mr. Hechter.

 

Senator Townsend pointed out getting control of the expense is the fundamental basis from which all reform must take place.

 

Mr. Hechter agreed, explaining management's position. He said  medical costs to workers' compensation were $170 million last year, and temporary total disability was considerably greater. MCOs control both expenses - medical as well as compensation payments, he said. In defense of the medical community, Mr. Hechter discussed problems the provider has with liability, concluding that the provider has as much to worry about as do employers and SIIS.

 

Senator Townsend asked why we do not have the utilization review we should.

 

Don Jayne, General Manager, SIIS, responded SIIS has never had a contract with a utilization review company. The only utilization review is internal to the agency within the claims teams, he said. He added SIIS has been discussing utilization review contracts for the 18 months he has been with them. SIIS has had individual contracts with two companies,

with marginal success due to a lack of fundamental control over the treating physician, said Mr. Jayne.

 

A discussion ensued as to what constitutes a good utilization review. Senator Lowden wondered whether a nurse could perform the same function as a physician in this process.

 

Mr. Jayne said no, although there were tasks nurses had been performing that were helping to bring the costs down.

 

Senator Brown asked if we are paying a physician's hourly rate for utilization reviews.

 

Mr. Jayne explained utilization reviews and peer reviews. He said there were controls in place to ensure the cost of treatment stays within set parameters. Mr. Jayne compared SIIS with self-insured programs, who have fewer employees and active claims. He mentioned a proposal currently under internal review to test for an outside utilization review company, which would try to integrate with SIIS for a smoother operation. He said that because SIIS is so massive, it is less effective. Mr. Jayne explained self-insureds have an incentive in that the treating physician knows "...he's also the health guy and doesn't want to get too far afield from where his economic benefit is coming from." When SIIS does not agree with the treatment, the result is often costly independent medical exams and CIWs, said Mr. Jayne. "That's the problem with utilization review in a SIIS institution versus a self-insured employer," he concluded.

 

Senator Lowden expressed concern over blatant abuses by chiropractors. She thought a second opinion, in some cases, was worth the price.

 

Mr. Jayne agreed and said that second opinions were done often, but needed to be done better, and would be.

 

Senator Townsend asked about penalties administered by DIR in overuse cases.

 

Larry Zimmerman, president of CDS of Nevada, explained the control exercised over chiropractors and said the insurer is responsible for monitoring the number of treatments given. There is no penalty, however, as the claims person is not qualified to judge the doctor, he said. A second opinion often results in a CIW, Mr. Zimmerman added.

 

Jim Jeppson, Administrator, Department of Industrial Insurance Regulation (DIIR), described the process which occurs in a billing dispute.

 

Senator Townsend said there needed to be a strong penalty for abusers of the system.

 

Mr. Jeppson responded continued abuse could result in removal from the panel of treating physicians and chiropractors, but it had never happened.

 

Carol Jackson, Director, Department of Industrial Relations (DIR), said a formal complaint from an insurer must be lodged before DIR could act. They have not had one yet, she added.

 

Mr. Hechter discussed the purpose of integrating an MCO and the advantage of having contractual arrangements. "...our envision of the model would not be with the system. We would contract with individual managed care organizations to provide the turnkey services to us," he said. MCOs administer their own delivery system and have the option of removing an offender from the process, he explained. Mr. Hechter said that was the best way to penalize someone. "That's one of the reasons that management tends to be somewhat opposed to willing providers language," he added. Mr. Hechter said "It can still work and, in fact, there's a classic example in health insurance right now... in their statute (there is) a requirement that they let willing providers in. It doesn't mean they have to keep them," he explained.

 

Senator Townsend said the committee would be discussing managed care research on Wednesday, and would have an idea how many options the committee would be able to address. This could be facilitated by having dollar figures attached, he said. 

 

Mr. Hechter discussed willing providers. He said they are difficult to manage, and explained the contracted MCOs are responsible for managing them. SIIS is responsible for making sure the MCO delivers quality service, he added.

 

Senator Lowden expressed concern the providers may not be able to do the job. "Can they realistically handle it?'' she asked.

 

Mr. Hechter said he did not know. "The observation I would make is that from their perspective, the more control they have the better they like it. In the context of workers' compensation, remember, we have different issues of equity and fairness," he said. He added there needs to be broader choice and less discrimination of provider types.

 

Senator Brown asked about safeguards for undercare in an HMO setup, a complaint she heard often.

 

There was a momentary interruption in the meeting, to celebrate the birthday of Senator Townsend.

 

Mr. Hechter explained that peer review and quality assurance systems within PPOs and HMOs target both over-utilization and under-utilization. Quality assurance is important to both the employees and employers, he said. In the case of workers' compensation, both the individual MCO network and SIIS or self- insured employers perform quality control.

 

Senator Townsend welcomed Dr. Mary Paterson, Assistant Professor, Department of Health Care Administration, University of Nevada, Las Vegas. She distributed an information sheet on health care spending and costs (Exhibit F) and discussed her medical background. "Health expenditures per capita are driven by the demand side and supply side questions," she said. Dr. Paterson added that most public policy deals with the supply side. She referred to a General Accounting Office (GAO) report done in 1992 and explained the supply side and demand side issues discovered in the report. (See Exhibit F.)

 

Dr. Paterson said policies which consider both the supply side and demand side must be incorporated by SIIS. She explained managed care is a continuum and the key to its success was understanding the environment in which a managed care system functions. Dr. Paterson gave an example of a well-populated state versus an area with a smaller provider base. "In a small community with relatively few providers, if you structure a stringently closed panel {(PPO)} you have a profound effect on that provider market, and it is, in effect, much more anti-competitive than it might be in a state like New York," she explained.

 

Senator Brown asked for specific recommendations that would decrease demand.

 

Dr. Paterson responded that preventative education has proven cost-effective, if performed by qualified health educators rather than physicians. She said another worthy endeavor is targeted screening. This involves screening the population for conditions they are at risk to acquire.

 

Senator Townsend pointed out 50 percent of SIIS claims are for low back injuries.

 

Dr. Paterson reiterated an understanding of the environment was essential. She pointed out that the family practice physician could be asked to participate in health education, but should not be expected to bear the whole burden.

 

Senator O'Connell mentioned the unhealthy climate of Nevada and wondered what was happening with the health education program established two years ago.

 

Ms. Jackson responded the Joyce contract was approved December 11, 1993. "DIR is currently working on safety brochures and videos for the public," she said. The Division of Preventative Safety (DPS) has been targeting the population with the highest percentage of injuries. They put together safety programs directed toward the high risk areas.

 

Senator O'Connell asked why we are not seeing the results of this education, and questioned the material being used.

 

Ms. Jackson informed the committee the DIR was surveying employers targeted last year, to see if their accident rate decreased. She explained the problem of making safety education interesting, and  noted how everyone always thinks accidents will never happen to them. Ms. Jackson concluded the high cost of workers' compensation was creating interest, and safety education was working.

 

Senator O'Connell stressed the importance of establishing a good data base.

 

Ms. Jackson gave examples of how this is being done.

 

Senator Townsend asked if the examples could be presented at the meeting Monday, January 25. He also asked Ms. Jackson to provide an overview on what DIR had done before in this area, and how they will measure results in the future. Senator Townsend said the committee is willing to spend money, but not unwisely. He pointed out that DIR did not keep good statistics before Ms. Jackson's arrival, and said he was sure she would do better.

 

Dr. Paterson said the program evaluation was necessary for understanding demand side and supply side control. Fiscal pressures often cause public policy makers to make premature decisions, she added. "However, not only do you have to analyze the effect of demand side measures, but also before you set up networks, before you decide whether you are going to close panel, open panel, fee for service, you have to also analyze your supply side network. You need to  understand it before you close it," explained Dr. Paterson. If not, you may incur higher costs because of the effect of monopoly, a frequent occurrence in small markets, she concluded.                                                      

Senator Townsend said testimony has proven better case management alone could save about 15 percent of costs. SIIS could save up to 40 percent by going to an HMO. He said Nevada has approximately 120,000 to 150,000 uninsured workers. Senator Townsend asked Dr. Paterson to find out if SIIS could contract with HMO services, allowing the uninsured to participate, and what this would cost.

 

Dr. Paterson cautioned the more care is managed, the more administrative costs are incurred. She said if this plan were implemented, extremely high administrative costs would result.

 

Senator Townsend again requested Dr. Paterson's participation in getting fiscal information on any of the ideas discussed in the meeting.

 

Dr. Paterson said she would be happy to, as long as the data was available.

 

Senator Townsend thanked Dr. Paterson for her help and invited her to testify again when the session convened in Las Vegas in February.

 

Bill Champion, Employers Coalition of Nevada, introduced himself as an employer who began the managed care business in Las Vegas years ago when health care costs were escalating at 22 percent a year. He and several others formed Health Care Inc. (HCI) to institute cost containment as a service to hotels. He said there were no incentives to keep costs down. At that time, an employee who got sick was sent to the hospital. The employee could not get paid unless he/she was in the hospital, because it was easier on the doctors. The insurers did not contest billing, because the reserves were created from premiums, and protecting the reserves was high priority.  Managed care exists because of deficiencies in the operation of the free market system, declared Mr. Champion. "We tried to make up the differential to where the market governs the cost, by putting controls on it," said Mr. Champion. He pointed out that, ideally, one would pay the patient and let the patient bargain with the provider, as he does with anyone from whom he buys a service. "...we realize that isn't practical in a great many cases ... so we try to close all the control incentives that exist for high costs."

 

Utilization management was the first task of HCI, according to Mr. Champion. Instead of using doctors, who receive monetary gain from people entering hospitals, nurses were employed, which resulted in national certification for utilization review nurses. Mr. Champion stressed the importance of good data control and cited an example HCI encountered, where complete data enabled them to show lack of justification for a desired premium increase. Mr. Champion said he is against provider driven MCOs because of the incentives that exist to abuse the system. He cited MGM's success in keeping their rates constant for three years.

 

Senator Townsend adjourned the meeting at 10:20 a.m. with the announcement that the scheduled Thursday night hearing would be postponed until February 4.

 

 

 

            RESPECTFULLY SUBMITTED:

 

 

 

                                    

            Sheri Asay,

            Committee Secretary

 

 

 

APPROVED BY:

 

 

 

 

                                     

Senator Randolph J. Townsend, Chairman

 

 

DATE:                                

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Senate Committee on Commerce and Labor

January 22, 1993

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