Highlight on Alaska: FTC, DOJ back Alaska Senate’s move to eliminate certificates of need

Citing “considerable competitive concerns” raised by certificate of need (CON) laws, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued a joint statement in support of Alaska Senate Bill 62 (SB 62), which would repeal Alaska’s CON program effective July 1, 2019. CON programs generally require firms to demonstrate an unmet need for services to the state before being permitted to enter the health care market, for example, by building a new hospital. Sen. David Wilson (R-Wasilla), who submitted the bill, applauded the statement, noting, “As government officials, we should not lose sight of a basic truth that competition improves the quality and lowers the costs of services; it’s what drives innovation and ultimately leads to the delivery of better healthcare.”

CON laws were enacted to reduce costs and improve access to care, based on the assumption that the existence of too many health care facilities in the same area could lead to inflated pricing for services. However, the FTC and DOJ opined that the laws create barriers to entry and expansion, allow entities to abuse the process to delay or halt competitors’ entry or expansion, and deny consumers effective remedies from anticompetitive mergers.

Alaska’s program requires parties wishing to spend at least $1.5 million on health care facility construction, alter an existing facility’s bed capacity, or add a category of health services provided to an existing facility to secure a CON after demonstrating that the quality, availability, or accessibility of existing health care resources is less than necessary “to maintain the good health of citizens of [the] state.” Specifically, it requires parties to submit an application with a fee ranging from $2,500 to $75,000.  The Department of Health and Social Services holds a public meeting and solicits comments and then submits a recommendation to the Commissioner of Health and Social Services, who makes the ultimate decision. Members of the public substantially impacted by the CON may initiate administrative proceedings and eventually seek judicial review.

The agencies stated that the existing state law raises both the monetary and time-based costs of entry and expansion, eliminates or reduces competitive pressure that normally incentivizes firms “to innovate, improve existing services, introduce new ones, or moderate prices,” and, in the event of denials, prohibits entry or expansion.  Furthermore, the law allows incumbent firms to drag out the CON application process by filing challenges or comments in order to delay competitors’ entry into the market. It also provides a platform that allows firms to form anticompetitive agreements–for example, two firms could agree to file CON applications for separate services to avoid a lengthy application process and potential challenges from one another. Finally, the existing law could impede antitrust remedies. As an example, the joint statement cited to the case of FTC v. Phoebe Putney.  Although the Supreme Court eventually ruled that an anticompetitive merger was subject to antitrust scrutiny, the entities involved had already merged and the applicable state’s CON laws made divestiture “virtually impossible.”

 

Highlight on Alaska: Alaskan fund reminiscent of high risk pools–Will the country follow suit?

In the summer of 2016, Alaska’s Republican legislature passed, and the independent governor signed into law, a bill that established a state health insurance fund to stabilize rates and cover the medical costs incurred by high-usage insured individuals with insurance companies. The fund is reminiscent of high-risk insurance pools that existed prior to the implementation of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), when individuals could still be denied coverage for pre-existing conditions and had difficulty obtaining insurance. Although the law was a reaction to rising costs among Alaskans and Alaska’s insurers, other states may follow suit, now that President-Elect Donald Trump has indicated that his administration will “work with both Congress and the states to re-establish high-risk pools.”

Alaska’s small population is subject to high health care costs.  Only 23,000 Alaskans enrolled in the non-group market in 2016.  Average monthly marketplace premiums were $863 pre-advance premium tax credit (APTC) in Alaska, according to an April HHS Assistant Secretary for Planning and Evaluation (ASPE) report, compared to $396 in the rest of the nation. Premiums rose by more than 31 percent in 2016 in Alaska, compared to just over 1 percent nationally, and not all marketplace enrollees qualified for premium tax credits. Only one insurer, Premera Blue Cross, will remain in the marketplace in 2017. Notably, Premera insured 8,500 people in 2015, but nearly one-quarter of its monetary claims arose from only 37 cases.

House Bill (HB) 374, which was signed into law in July 2016, earmarks $55 million accrued through an existing 2.7 percent premium tax on all Alaskan insurers–not only health insurers–for a comprehensive health insurance fund. The fund provides insurers with money to cover the costs of claims incurred by high-risk residents. The bill sunsets in two years, but allows the state to apply for a state innovation waiver under section 1332 of the ACA.

The incoming federal administration, however, has stated its plans to repeal the ACA and replace it with new legislation.  Other states may consider following Alaska’s lead in order to continue to provide insurance to those individuals with the greatest need for it.