Legislature(2015 - 2016)ANCH LIO BUILDING

05/11/2015 03:00 PM House FINANCE

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Audio Topic
03:05:34 PM Start
03:07:32 PM HB148
05:01:48 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Location: 1st Floor Auditorium
-- Please Note Time Change --
Heard & Held
- Current status of the MMIS system & associated
costs and issues
- Provider taxes as drafted in HB 148
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
**Streaming available to public in Juneau in
Capitol Rm 120**
HOUSE BILL NO. 148                                                                                                            
     "An   Act  relating   to   medical  assistance   reform                                                                    
     measures;   relating   to   eligibility   for   medical                                                                    
     assistance  coverage;  relating to  medical  assistance                                                                    
     cost containment  measures by the Department  of Health                                                                    
     and  Social Services;  and providing  for an  effective                                                                    
3:07:32 PM                                                                                                                    
VALERIE  DAVIDSON, COMMISSIONER,  DEPARTMENT  OF HEALTH  AND                                                                    
SOCIAL  SERVICES,  acknowledged  the two  topics  she  would                                                                    
address; the  Medicaid payment system  and the  provider tax                                                                    
section  of HB  148. She  highlighted that  Margaret Brodie,                                                                    
Director, Division  of Health  Care Services,  Department of                                                                    
Health and  Social Services, was  currently in  the meeting.                                                                    
She informed  the committee about three  items regarding the                                                                    
Medical  Management Information  System  (MMIS). First,  she                                                                    
acknowledged  that the  system had  definite hurdles  in the                                                                    
implementation process.  She reported  that when  the system                                                                    
went live in October  2013 there were significant challenges                                                                    
which  the department  was  transparent  about. Second,  she                                                                    
reported  that  the  system had  improved  remarkably  since                                                                    
December  2014.  Director  Brodie's   affidavit  was  not  a                                                                    
statement of  the current functionality  of the  MMIS system                                                                    
in February  but rather highlighted a  historical problem as                                                                    
well  as  delays  in  the system  to  support  a  liquidated                                                                    
damages  claim   against  Xerox.   Third,  she   wanted  the                                                                    
committee  to know  that the  department would  be ready  to                                                                    
enroll new  Alaskans under Medicaid  Expansion on  August 1,                                                                    
Ms.  Davidson moved  on to  address implementing  a provider                                                                    
tax.  She relayed  that there  were three  items to  keep in                                                                    
mind.  First,  the bill  did  not  include a  provider  tax.                                                                    
Separate legislation would be  necessary to implement such a                                                                    
tax.  Second, HB  148 required  the state  to engage  with a                                                                    
third-party vendor to  work with stake holders  to provide a                                                                    
recommendation  to the  legislature  in  late January  2016.                                                                    
Third, a  provider tax  was authorized  in 49  other states.                                                                    
Alaska was the only state that  did not have a provider tax.                                                                    
She  added  that most  states  taxed  hospitals and  nursing                                                                    
Co-Chair Thompson  mentioned that Representative  Tilton had                                                                    
joined the audience.                                                                                                            
3:11:21 PM                                                                                                                    
JERED  KOSIN, EXECUTIVE  DIRECTOR,  OFFICE  OF RATE  REVIEW,                                                                    
explained that  his office was  responsible for  setting the                                                                    
reimbursement rates for Medicaid  services for providers and                                                                    
facilities.  He   indicated  he  would  be   discussing  the                                                                    
provider tax  provision within  HB 148.  He relayed  that HB
148  directed  the  department to  do  two  things;  analyze                                                                    
provider  taxes and  bring provider  tax legislation  to the                                                                    
legislature for final consideration.  House Bill 148 did not                                                                    
create  or  implement  a  new   provider  tax.  Instead,  it                                                                    
directed the  department to analyze provider  taxes with the                                                                    
assistance  of  an  independent   contractor  and  to  bring                                                                    
legislation forward. He reiterated  that Alaska was the only                                                                    
state that  did not  have a provider  tax. He  reported that                                                                    
two thirds  of all  other states  had at  least one  or more                                                                    
provider tax  on their  books. He  proceeded to  explain the                                                                    
definition  of provider  taxes and  how they  work beginning                                                                    
with  the legal  framework. He  informed the  committee that                                                                    
federal law specified how providers  should work as outlined                                                                    
in the  Code of Federal  Regulations (CFR) (42 CFR  433). He                                                                    
detailed the code. He suggested  that if the state wanted to                                                                    
tax providers  it could  tax 19  possible classes.  The most                                                                    
common provider  tax applied to  nursing homes  and hospital                                                                    
inpatient  services. He  reviewed that  most states  tax the                                                                    
mentioned categories.  He relayed that most  small providers                                                                    
were not taxed under the provider tax system.                                                                                   
Co-Chair  Neuman stated  that he  had heard  a provider  tax                                                                    
described as  a tax  on Medicaid recipients  in which  a tax                                                                    
was  passed  on  from  providers to  patients.  He  wondered                                                                    
whether a  provider tax  would apply  to small  clinics with                                                                    
only one or  two physicians or to large  hospitals. He asked                                                                    
about the sideboards of a provider tax.                                                                                         
Mr.  Kosin  replied  that there  were  specific  classes  of                                                                    
providers  or services  that could  be taxed.  He reiterated                                                                    
that the most  common providers taxed were  nursing homes. A                                                                    
facility  was  specifically  taxed   based  on  net  patient                                                                    
revenue. A facility might collect  revenue from a variety of                                                                    
sources all of  which would be considered.  Most states took                                                                    
a percentage of  expected revenue. The provider  tax was not                                                                    
a  tax  on individuals  or  on  recipients of  services.  He                                                                    
suggested that  the tax could  be modeled through  a variety                                                                    
of structures such  as the discharge days at  a hospital. He                                                                    
explained that a  formula could be generated from  a pool of                                                                    
data.  He  mentioned that  there  was  an opinion  from  the                                                                    
attorney  general that  indicated that  taxes could  only be                                                                    
used  for  a  general  purpose. The  legislature,  being  in                                                                    
charge  of fund  appropriations,  would  be responsible  for                                                                    
deciding about the budgeting of  provider taxes if they were                                                                    
approved. The  tax could not  be specifically  earmarked for                                                                    
Medicaid but could be appropriated to it.                                                                                       
3:15:03 PM                                                                                                                    
Co-Chair  Neuman commented  that many  of the  questions his                                                                    
office  received had  to do  with how  a provider  tax would                                                                    
affect individual doctors.                                                                                                      
Co-Chair Thompson  added that the questions  were from small                                                                    
Mr.  Kosin stated  that  the department  sought  to hire  an                                                                    
independent  contractor   to  analyze  other   provider  tax                                                                    
categories.  However, he  maintained  that  the most  common                                                                    
provider's tax was on hospital  and nursing home facilities.                                                                    
He  expressed  that,  based  on  preliminary  research,  his                                                                    
office  did not  anticipate  proposing a  tax on  individual                                                                    
providers  such  as  doctors. He  suggested  that  the  most                                                                    
likely  tax proposed  would apply  to  hospitals or  nursing                                                                    
homes.  He concluded  that small  providers would  likely be                                                                    
excluded from his office's provider tax proposal.                                                                               
Co-Chair  Neuman  asked  if  the provider  tax  was  a  pass                                                                    
through tax to Medicaid recipients.                                                                                             
Mr. Kosin responded  that in reviewing the  tax structure of                                                                    
other  states he  found examples  such  as in  the state  of                                                                    
Tennessee where  specific provisions were included  in their                                                                    
tax  structures that  stated that  hospitals could  not pass                                                                    
the cost of  the tax onto charges for  general services. The                                                                    
reason his  office wanted to  use an  independent contractor                                                                    
was due to 49 other states  already having a provider tax in                                                                    
place.  His  office  wanted to  take  advantage  of  outside                                                                    
expertise  in order  to  do  what was  best  for Alaska.  He                                                                    
relayed that the department did  not want to see an increase                                                                    
in  charges   for  healthcare.  The  state   wanted  a  more                                                                    
efficient system.                                                                                                               
Co-Chair Neuman  was unsure whether  Mr. Kosin  answered his                                                                    
question.  He  suggested  that   maybe  someone  else  could                                                                    
address the question.                                                                                                           
3:17:29 PM                                                                                                                    
JON SHERWOOD, DEPUTY COMMISSIONER,  MEDICAID AND HEALTH CARE                                                                    
POLICY, DEPARTMENT OF HEALTH  AND SOCIAL SERVICES, clarified                                                                    
that federal law  limited what could be  charged to Medicaid                                                                    
recipients for  the cost of  their care. He did  not believe                                                                    
that  there was  any  direct way  to pass  the  cost of  the                                                                    
provider tax  onto Medicaid patients.  He suggested  that as                                                                    
Mr.  Kosin  continued  with his  presentation  he  would  be                                                                    
pointing out  other practical considerations that  would not                                                                    
permit passing on the cost.  He explained that generally the                                                                    
tax    structure   was    arranged   such    that   Medicaid                                                                    
reimbursements could  be used to  offset some of  the impact                                                                    
of   the  tax.   However,  he   was  speaking   of  Medicaid                                                                    
reimbursements from the state, not from a recipient.                                                                            
Co-Chair Thompson asked  about the impact of  a provider tax                                                                    
on  the  insured and  expressed  concern  about costs  being                                                                    
shifted to the privately insured patient.                                                                                       
Mr.  Kosin responded  that  the  payer of  the  tax was  the                                                                    
facility being taxed. For instance  if a hospital was taxed,                                                                    
the hospital  would be  responsible for  paying the  tax. He                                                                    
stated  that  the  state  of  Tennessee  had  provisions  to                                                                    
preclude  hospitals   or  the  tax  payer   from  increasing                                                                    
charges,  thereby, shifting  liability to  private patients.                                                                    
The state would  need expertise to craft  its legislation to                                                                    
protect private patients.                                                                                                       
Co-Chair   Thompson  asked   if  non-profit   tribal  health                                                                    
providers could be included in the provider tax structure.                                                                      
Mr. Kosin differed  to the attorney general's  office and to                                                                    
council for  an answer  to Co-Chair Thompson's  question. He                                                                    
was unclear whether the state  could tax a tribal entity. He                                                                    
indicated  that  the  state   set  rates  for  19  different                                                                    
hospitals, 12 of which were  combined with nursing homes and                                                                    
6   stand-alone  nursing   home  facilities.   All  of   the                                                                    
facilities,  with  the  exception   of  4,  were  non-tribal                                                                    
entities. He  continued that if  he was correct  in assuming                                                                    
that tribal entities could not  be taxed by the state, other                                                                    
hospitals should  be able to  be taxed  including non-profit                                                                    
Vice-Chair Saddler  asked about  the 19  different providers                                                                    
eligible to  be taxed. He wondered  which category generated                                                                    
the  most revenue  for  the  state. He  asked  Mr. Kosin  to                                                                    
recite a list.                                                                                                                  
Mr.  Kosin responded  that  his office  had  not ranked  the                                                                    
classes. He wanted  to operate in good faith  to indicate to                                                                    
providers that his office was  not targeting a certain class                                                                    
or  specific providers.  His  office  performed the  primary                                                                    
rate function for hospitals and  nursing homes. He explained                                                                    
that part  of the  reason that  hospitals and  nursing homes                                                                    
were some of the common  provider tax candidates was because                                                                    
they  often received  Medicaid  reimbursement. He  furthered                                                                    
that  there  were very  specific  limitations.  There was  a                                                                    
mechanism in which  the state could draw  down federal funds                                                                    
with a certain amount  of generated tax revenue, essentially                                                                    
matching funds  and offsetting  liabilities. The  reason the                                                                    
provider tax  was palatable because  the state  could offset                                                                    
some of the liability with enhanced payments for Medicaid.                                                                      
3:22:29 PM                                                                                                                    
Vice-Chair Saddler asked Mr. Kosin  for a general ranking of                                                                    
facilities  that generated  the  most  patient revenues.  He                                                                    
wanted a list of the top three or four.                                                                                         
Mr.  Kosin reported  that for  the FY  15 authorized  budget                                                                    
physician   services   made    up   the   largest   Medicaid                                                                    
expenditure.   Inpatient   hospital   services,   outpatient                                                                    
hospital  services, nursing  homes, mental  health services,                                                                    
personal  care   services,  followed  in  the   ranking.  He                                                                    
reiterated that  for the  purpose of  looking at  a provider                                                                    
tax  hospitals  and  nursing  homes  rose  to  the  surface.                                                                    
Currently he was  unable to say where the  state would apply                                                                    
a provider  tax. He  wanted to operate  in good  faith which                                                                    
was  why  he   would  be  bringing  in   a  contractor  with                                                                    
Co-Chair Thompson acknowledged  Representative Hughes in the                                                                    
audience and Representative Pruitt at the table.                                                                                
Vice-Chair  Saddler  wanted to  clarify  that  if the  state                                                                    
sought to impose a provider tax  that it would make sense to                                                                    
investigate the top payers. He  wanted to make sure that Mr.                                                                    
Kosin provided a ranking of Medicaid billing.                                                                                   
Mr.  Kosin asserted  that  he provided  a  list of  Medicaid                                                                    
expenditures.  He stressed  that  based on  HB  148 and  the                                                                    
provider  tax  provision  the state  had  already  issued  a                                                                    
request  for proposal  (RFP) for  a  contractor. His  office                                                                    
requested   a  specific   provision  that   the  independent                                                                    
contractor would focus primarily  on reviewing every type of                                                                    
class  of  provider  tax  as   an  act  of  good  faith.  He                                                                    
emphasized that  he anticipated  any proposal  would include                                                                    
hospitals and nursing homes.                                                                                                    
Vice-Chair Saddler  wanted to hear additional  details about                                                                    
fees,  time, and  costs.  He wanted  to  know about  patient                                                                    
revenue in each  of the classes of  providers. He understood                                                                    
there  were some  limitations as  to what  the provider  tax                                                                    
would  be able  to collect.  He mentioned  6 percent  of net                                                                    
patient revenue. He wondered about access to the data.                                                                          
Mr. Kosin responded that a  consultant would have to compile                                                                    
the information.  He indicated  that his  division collected                                                                    
Medicare cost  reports from hospitals and  nursing homes and                                                                    
were  able   to  determine   different  revenue   and  other                                                                    
financial information.                                                                                                          
Mr. Kosin addressed the safe  harbor provision of a provider                                                                    
tax. He relayed that it was  often thought of as a 6 percent                                                                    
tax. The  federal government said  that the state  could not                                                                    
hold  its providers  harmless. In  other words,  the federal                                                                    
government did  not want states  to impose a tax  that would                                                                    
keep everyone harmless. The federal  government did not want                                                                    
any  state to  levy a  tax, collect  the revenue,  draw down                                                                    
federal  funds, and  then  pay the  provider  back in  full.                                                                    
There were certain  caps in place including  the safe harbor                                                                    
provision. The  safe harbor  provision was  a 6  percent cap                                                                    
that held  entities harmless as  long as their tax  was less                                                                    
than or equal to 6 percent of net patient revenue.                                                                              
Vice-Chair Saddler clarified that the  6 percent tax was not                                                                    
a 6  percent provider tax but  a tax cap in  which the state                                                                    
could collect no more that  6 percent of net patient revenue                                                                    
for  a class  of  provider. Mr.  Kosin  responded, "That  is                                                                    
Vice-Chair  Saddler  remarked  that  the  tax  could  be  .5                                                                    
percent,  1  percent, or  5  percent  depending on  the  net                                                                    
Mr. Mr. Kosin  elaborated that in theory the  state could go                                                                    
over 6 percent.  However, there was an  additional test. The                                                                    
test was referred to as a  75/75 test. He qualified that the                                                                    
test stated  that if the  tax collected exceeded  6 percent,                                                                    
the  tax  remained  valid  unless  75  percent  or  more  of                                                                    
providers in the  same class received 75 percent  or more of                                                                    
the total tax cost  through enhanced Medicaid payments. This                                                                    
was another  measure to prevent  drawing down  federal funds                                                                    
to make providers whole.                                                                                                        
3:27:21 PM                                                                                                                    
Representative  Gara asked  about  the administrative  costs                                                                    
for a provider tax. He  referred to the department hand-out.                                                                    
He suggested  that in the  first year of  Medicaid expansion                                                                    
the state  savings in  its budget  equaled $6.6  million and                                                                    
rose  every year  until 2021  to $24.5  million. He  relayed                                                                    
that the administrative costs were  less than $2 million. He                                                                    
suggested  that  the  state   could  save  money  without  a                                                                    
provider tax  by accepting  Medicaid expansion.  He wondered                                                                    
if he was correct.                                                                                                              
Mr.  Sherwood responded  affirmatively.  He elaborated  that                                                                    
Medicaid expansion  would offset  funds that  were currently                                                                    
being paid through  the state's GF. He  anticipated that the                                                                    
offsets  would  exceed  the   administrative  costs  of  the                                                                    
expansion and  would ultimately  be equal  to 10  percent of                                                                    
the cost of the actual services provided.                                                                                       
Co-Chair  Neuman commented  that  the  numbers Mr.  Sherwood                                                                    
shared with  the committee came  from a report  conducted by                                                                    
Evergreen  Economics.   He  relayed  that   three  different                                                                    
reports were  completed by three different  contractors, the                                                                    
results of  which varied. He  warned that there  was nothing                                                                    
substantiating  the   findings  in  Evergreen's   report.  A                                                                    
previous  report by  The Lewin  Group claimed  that Medicaid                                                                    
expansion  would  cost  the  state up  to  $44  million.  He                                                                    
suggested that  the numbers from  the Evergreen  report were                                                                    
not necessarily accurate.                                                                                                       
Mr.  Sherwood  agreed  that the  department's  numbers  were                                                                    
estimates  based  on  Evergreen'  report.  He  informed  the                                                                    
committee  that Evergreen  Economics had  been doing  DHSS's                                                                    
long-term  care   forecasts  for  approximately   10  years.                                                                    
Originally  the company  was a  subcontractor  of The  Lewin                                                                    
Group.  He emphasized  that  Evergreen's  forecast was  more                                                                    
recent than  that of  The Lewin Group.  He also  pointed out                                                                    
that some  of the previous forecasts  included the estimated                                                                    
cost of  more people  applying for Medicaid  as a  result of                                                                    
the  Affordable Care  Act which  required a  person to  show                                                                    
proof  of health  insurance  or  to pay  a  tax penalty.  He                                                                    
stressed  the  importance   of  making  an  apples-to-apples                                                                    
comparison when looking at the  numbers. He stated that DHSS                                                                    
thought the  Evergreen numbers were reasonable  and based on                                                                    
Alaska-specific information,  information not  considered in                                                                    
some of the other forecasts.  He noted that there was always                                                                    
a degree of uncertainty in forecasts and projections.                                                                           
Co-Chair Neuman  emphasized that the numbers  were estimates                                                                    
rather than factual numbers.                                                                                                    
3:31:31 PM                                                                                                                    
Mr.  Mr.  Kosin communicated  that  in  the process  of  his                                                                    
analysis he  typically started  with reviewing  federal law.                                                                    
He  suggested things  were pretty  straight forward  because                                                                    
many other  states had a  provider tax. He believed  that in                                                                    
order to  determine what  was best for  Alaska he  needed to                                                                    
better  understand  and  learn  from  the  expertise  of  an                                                                    
independent  contractor. He  added that  all provider  taxes                                                                    
had  three requirements.  First, the  tax had  to be  broad-                                                                    
based for  all providers  within a class,  uniformly imposed                                                                    
at the  same rate  or amount for  providers within  a class,                                                                    
and  providers could  not be  held  harmless using  Medicaid                                                                    
reimbursement to  effectively make  them whole  with federal                                                                    
funds. He  spoke of the  RFP that  DHSS issued on  April 30,                                                                    
2015 in  order to be  proactive. He highlighted  the purpose                                                                    
of  the RFP  was  to  perform a  feasibility  study, and  if                                                                    
viable,  put  together  a  tax  proposal  to  bring  to  the                                                                    
legislature  for final  approval.  He  anticipated that  the                                                                    
contract would  be awarded  by June  30, 2015.  He concluded                                                                    
his presentation  by offering to  answer any  questions from                                                                    
members of the committee.                                                                                                       
Representative  Wilson  asked  if  a fee  could  be  applied                                                                    
rather than  a tax.  She suggested that  a fee  would likely                                                                    
affect more providers.  Mr. Kosin responded that  he did not                                                                    
feel knowledgeable  enough to distinguish between  a fee and                                                                    
a tax. He  noted that other states  collected licensing fees                                                                    
based on the  number of beds that an entity  had or based on                                                                    
something structural  for the  facility. In  terms of  a tax                                                                    
versus a fee,  generally what he had seen was  a tax for the                                                                    
19 classes of providers.                                                                                                        
Mr. Sherwood added that he  had seen some examples of states                                                                    
that referred  to their revenue as  fees such as a  bed fee.                                                                    
However, he  believed that a  higher level of analysis  by a                                                                    
contractor  was  necessary   to  better  understand  federal                                                                    
3:34:25 PM                                                                                                                    
Representative Wilson  wanted to  know why the  provider tax                                                                    
was not  included in the  bill. She suggested that  the bill                                                                    
was  crafted not  only because  of  Medicaid expansion,  but                                                                    
also due to  the growth in costs for  Medicaid. She believed                                                                    
that the bill  was about all healthcare costs  to the state.                                                                    
She opined that it was an  integral part and wondered why it                                                                    
was not included in the legislation.                                                                                            
Mr.  Sherwood responded  that  commonly  states had  enacted                                                                    
provider  taxes to  avoid  rate reductions  or  in times  of                                                                    
budget  stress.  The   department's  understanding  and  the                                                                    
advice  from  the Department  of  Law  was that  any  taxing                                                                    
authority that  the state  had needed  to be  very specific.                                                                    
The taxing authority could not  be open-ended. Department of                                                                    
Health and Social Services was  not comfortable with putting                                                                    
a  proposal together  until it  conducted more  research and                                                                    
brought in experts to  evaluate the different considerations                                                                    
and potential implications to health care providers.                                                                            
Representative Wilson  asked about how to  determine whether                                                                    
a provider had folded a tax into the cost to patients.                                                                          
Mr. Kosin  affirmed that his  office had the  same question.                                                                    
He explained  that, specifically  for hospitals  and nursing                                                                    
homes, the  way in which Alaska  reimbursed through Medicaid                                                                    
and the way  it set reimbursement rates  included a rigorous                                                                    
financial   analysis  using   Medicaid   cost  reports.   He                                                                    
contended  that   his  office   could  track   numbers  very                                                                    
effectively.   He  suggested   that  not   only  could   the                                                                    
legislature include  language prohibiting the passing  on of                                                                    
fees,  the   Office  of  Rate  Review   could  do  effective                                                                    
oversight through  the state's  Medicaid cost  reporting and                                                                    
through the reimbursement of rates by tracking dollars.                                                                         
Representative Wilson  wanted to make sure  that people were                                                                    
aware  that a  Tennessee  hospital was  one  of the  highest                                                                    
charging  providers.  The entity  charged  a  total of  $286                                                                    
million in 2009 and 2010.  She found it difficult to believe                                                                    
that some of those charges were not pass-through charges.                                                                       
Mr. Kosin responded that there  were other states that could                                                                    
be used as examples other  than Tennessee. He suggested that                                                                    
perhaps Tennessee was not the best model.                                                                                       
3:37:50 PM                                                                                                                    
Vice-Chair Saddler  asked about Mr. Kosin's  reference to an                                                                    
RFP.  He  was  specifically   looking  at  an  RFP  entitled                                                                    
"Medicaid Redesign  and Expansion Technical  Assistance." He                                                                    
wondered if  the RFP that Mr.  Kosin was referring to  was a                                                                    
different RFP.  Mr. Kosin responded that  he was referencing                                                                    
a different RFP.                                                                                                                
Vice-Chair Saddler  asked for more  details of  the contract                                                                    
such as the duration of  the contract and the expected cost.                                                                    
Mr. Kosin  relayed that the  state was seeking to  award the                                                                    
contract by June 30, 2015  for the term of approximately one                                                                    
year  in the  amount of  $175  thousand. He  added that  the                                                                    
scope of the project  focused on three specific deliverables                                                                    
with iterations of  the items. He offered to  provide a copy                                                                    
of the RFP to the committee upon request.                                                                                       
Co-Chair Thompson indicated he wanted a copy of the RFP.                                                                        
Mr.  Kosin continued  to detail  the  three deliverables;  a                                                                    
feasibility and  recommendation, a  draft tax  proposal, and                                                                    
pubic  presentation and  subject matter  expertise. The  RFP                                                                    
outlined definite timelines and milestones.                                                                                     
Vice-Chair  Saddler  asked Mr.  Kosin  to  repeat the  three                                                                    
deliverable items of the contract.                                                                                              
Mr. Kosin reiterated  that the first deliverable  item was a                                                                    
feasibility study  and recommendation.  He indicated  that a                                                                    
draft tax proposal would then  be crafted with the intention                                                                    
of it being  presented to the legislature.  The tax proposal                                                                    
was the  second deliverable  item and  would be  shaped with                                                                    
the help of the Department  of Revenue (DOR). The third item                                                                    
was public  presentation and significant  stake-holder input                                                                    
in regular meetings with providers and the general public.                                                                      
Representative  Kawasaki  commented  that many  doctors  had                                                                    
come  to   him  with  their  concerns   about  losing  their                                                                    
practices  upon the  implementation  of a  provider tax.  He                                                                    
wondered if  separate legislation  was necessary prior  to a                                                                    
provider   tax   taking    effect.   Mr.   Kosin   responded                                                                    
Representative Kawasaki  asked if  he was  currently working                                                                    
on  an RFP  outside of  the context  of the  Medicaid reform                                                                    
bill.  Mr.  Kosin  replied, "Yes."  He  explained  that  the                                                                    
department  wanted  to  make sure  a  proposal  was  crafted                                                                    
Representative  Kawasaki  asked  whether   HB  148  had  any                                                                    
provider  taxes within  the legislation.  Mr. Kosin  made it                                                                    
clear that  HB 148 did  not propose, create, or  implement a                                                                    
provider  tax.  The bill  directed  the  public to  study  a                                                                    
proposal for the legislature.                                                                                                   
Co-Chair  Thompson  interjected  that  what  Mr.  Kosin  had                                                                    
stated was cited in the bill.                                                                                                   
Representative Kawasaki  asked if  the department  was doing                                                                    
the RFP. Mr. Kosin replied that  the RFP had been issued and                                                                    
the department was reviewing it.                                                                                                
Representative Kawasaki  asked if  Section 1  of HB  148 was                                                                    
necessary for the  RFP to go out. Mr. Kosin  deferred to the                                                                    
Department of Law and the deputy commissioner.                                                                                  
3:41:42 PM                                                                                                                    
Mr. Sherwood believed  DHSS had the authority  to pursue the                                                                    
RFP whether it was contained in the bill.                                                                                       
Representative  Pruitt  was  trying to  understand  why  the                                                                    
provider tax was written into  HB 148. He suggested that if,                                                                    
in the department's view,  Medicaid expansion covered itself                                                                    
there was  no reason to  discuss authorizing a  provider tax                                                                    
to the maximum  extent allowed under federal  law. He wanted                                                                    
to know  why it was included  in the bill, whether  it would                                                                    
have  been  included no  matter  what  the circumstance,  or                                                                    
whether it was included  because the current Medicaid system                                                                    
was  significantly broken.  Mr. Sherwood  reported that  the                                                                    
legislation  included   a  proposal  for  expansion   and  a                                                                    
proposal for reform. He added that  it was the intent of the                                                                    
department  to  be open  and  transparent  about looking  at                                                                    
expansion and reform.                                                                                                           
Representative  Pruitt asked  if  it was  accurate that  the                                                                    
state  would not  be  able  to cover  the  cost of  Medicaid                                                                    
because  of   the  fiscal  challenges  it   was  facing.  He                                                                    
continued that  the provider tax  would help offset  some of                                                                    
the state's costs.  Mr. Sherwood replied that  in periods of                                                                    
revenue  shortfalls  states  typically  analyzed  whether  a                                                                    
provider tax  system could help support  GF expenditures for                                                                    
the Medicaid  program. Alaska was  facing a time  of revenue                                                                    
deficits. He  also mentioned  that Medicaid  expansion could                                                                    
reduce charity care.  The question was asked  whether it was                                                                    
an opportune time  for providers who shoulder  the burden of                                                                    
charity care  to look  at a provider  tax. He  believed that                                                                    
these considerations brought the issue to the forefront.                                                                        
Representative  Pruitt asked  how  the  state would  proceed                                                                    
with an  expanded population if  reimbursement fell  from 90                                                                    
percent  to  50 percent.  He  wondered  if the  state  would                                                                    
consider an additional  tax in the future  to cover expenses                                                                    
for  an  increase  in   Medicaid  population.  Mr.  Sherwood                                                                    
responded that the current  legislation included a provision                                                                    
that if the  revenue fell below 90 percent,  the state would                                                                    
not cover the expanded population.                                                                                              
Representative Pruitt  asked Mr. Sherwood if  he thought the                                                                    
state would  start off providing Medicaid  to certain people                                                                    
then  halt providing  it to  the same  group if  the federal                                                                    
government's  portion fell  below 90  percent. He  suggested                                                                    
that if  the government's portion  fell, for example,  to 88                                                                    
percent,  he anticipated  an  argument that  it  was only  2                                                                    
percent below 90 percent.                                                                                                       
3:46:04 PM                                                                                                                    
Commissioner  Davidson  explained  that  when  the  governor                                                                    
included federal  receipt authority  in the  original budget                                                                    
bill  at  the  beginning  of the  year,  the  House  Finance                                                                    
Committee asked if a provider  tax had been considered since                                                                    
all  other  states  had  provider taxes.  At  the  time  the                                                                    
committee wondered if  providers had or should  have skin in                                                                    
the  game.   As  the  governor   and  the   department  were                                                                    
considering introducing a stand-alone  bill, in the interest                                                                    
of transparency, they included at  least a thorough study of                                                                    
the issue prior  to considering a provider  tax. She pointed                                                                    
out that  HB 148 specifically stated  that the participation                                                                    
for the  expansion population was contingent  upon a federal                                                                    
match of at least 90 percent.                                                                                                   
Representative  Pruitt  was  concerned with  whether  Alaska                                                                    
would actually  pull out of expansion  if federally matching                                                                    
funds  dropped  below   90  percent.  Commissioner  Davidson                                                                    
responded  that she  would expect  the department  to follow                                                                    
the law. The law that  was currently being proposed outlined                                                                    
that if  the federal match  went below 90 percent  the state                                                                    
would discontinue its participation.                                                                                            
Representative  Gara  commented,   "Congress  will  do  what                                                                    
Congress  will  do."  He  suspected   that  if  the  federal                                                                    
government  went  below  90  percent,  as  the  current  law                                                                    
promised, there  would be many  states up in arms.  He asked                                                                    
how many  states were  signed up  for Medicaid  expansion at                                                                    
present.  Commissioner Davidson  responded  that there  were                                                                    
approximately 27  states enrolled. She added  that almost 30                                                                    
states had participated in Medicaid expansion.                                                                                  
Representative  Gara  referred  to   one  of  the  pamphlets                                                                    
provided by DHSS. He asked  about proposals between Medicaid                                                                    
expansion   and  Medicaid   reform   which  the   department                                                                    
projected  a   state  savings  of  $580   million  over  the                                                                    
following  6 years.  He  asked if  there was  a  need for  a                                                                    
provider tax  for the Medicaid  and expansion  portion given                                                                    
the  potential savings.  Commissioner Davidson  responded in                                                                    
the negative. She elaborated that  there was not necessarily                                                                    
a need  for a  provider tax. However,  since Alaska  was the                                                                    
only  state  without  a  provider tax  it  was  unusual  and                                                                    
something  to  consider  moving  forward  in  financing  the                                                                    
state's healthcare delivery system.                                                                                             
3:50:13 PM                                                                                                                    
Representative  Gara summarized  that the  state would  save                                                                    
approximately $580  million over  the following 6  years. He                                                                    
asked  if the  regular Medicaid  program cost  money to  the                                                                    
state. He opined that the  provider tax would help to offset                                                                    
some  of  the costs  of  the  regular Medicaid  program.  He                                                                    
wanted  to know  if  the  commissioner agreed.  Commissioner                                                                    
Davidson responded affirmatively.                                                                                               
Vice-Chair Saddler understood that  states that had provider                                                                    
taxes could collect no more  that 25 percent of its Medicaid                                                                    
revenue, an  imposed cap.  For example,  if the  state spent                                                                    
$800 million on  Medicaid the state could  collect a maximum                                                                    
of $200  million in provider  taxes. He wanted to  make sure                                                                    
he was  understanding the  calculation correctly.  Mr. Kosin                                                                    
believed that the cap applied  to each class of provider. He                                                                    
restated that  it was 25  percent of expenditures  per class                                                                    
of providers  or services. He  thought the cap was  based on                                                                    
classes. He would  find out and provide a  written answer to                                                                    
the Representative's question.                                                                                                  
Co-Chair Thompson asked  that the answer be  provided to his                                                                    
office.  He would  see  to it  that  committee members  were                                                                    
provided with a copy.                                                                                                           
Vice-Chair  Saddler noticed,  after doing  some research  on                                                                    
provider  taxes,  that  there  had  been  proposals  by  the                                                                    
federal government to  reduce the cap from 6  percent to 3.5                                                                    
percent  of  patient  revenue.  He wanted  to  know  if  the                                                                    
department had considered what kind  of effect such a change                                                                    
would have on the  state's calculations. Mr. Kosin confirmed                                                                    
that  the  department  had considered  the  change  and  its                                                                    
effects.  He clarified  that  Representative Saddler  stated                                                                    
that  the federal  government  had  considered lowering  the                                                                    
Safe  Harbor provision  to 3.5  percent. He  emphasized that                                                                    
the  department  would be  asking  the  contractor to  do  a                                                                    
separate analysis on the issue.  It would be included in the                                                                    
tax proposal.                                                                                                                   
Vice-Chair Saddler  noted that the federal  budget projected                                                                    
the federal  Medicaid costs  to jump 62  percent by  2026 to                                                                    
approximately $567  billion. There  was a  strong likelihood                                                                    
that the federal government would  consider rolling back its                                                                    
caps. Mr. Kosin relayed that  the federal government had had                                                                    
a deficit for  a long period and had never  taken action to-                                                                    
date. He could not confirm with a "yes" or "no".                                                                                
Representative Wilson  wanted to  verify a couple  of items.                                                                    
First,  she  inquired  whether the  provider  tax  could  be                                                                    
passed to patients or any  entities. Mr. Kosin remarked that                                                                    
he  had heard  that other  states had  protocol in  place to                                                                    
prevent it from happening. He  added that he would look into                                                                    
it with the contractor. He  stressed that the analysis would                                                                    
be   included  in   any  tax   proposal  presented   to  the                                                                    
Representative Wilson asked if  other states shared the same                                                                    
challenges  of  attracting   providers.  She  mentioned  the                                                                    
Washington,  Wyoming,  Alaska,  Montana, and  Idaho  (WWAMI)                                                                    
program to entice providers to  Alaska. She also noted other                                                                    
incentives such  as loan forgiveness.  Commissioner Davidson                                                                    
responded  in the  affirmative.  She  elaborated that  there                                                                    
were a  number of other  states that were  considered health                                                                    
professional shortage  areas that had to  undertake measures                                                                    
to attract providers.                                                                                                           
Representative  Wilson  wondered  about  which  states  were                                                                    
included.  Commissioner Davidson  indicated  that she  would                                                                    
provide the committee with a list.                                                                                              
3:54:27 PM                                                                                                                    
Representative Wilson  wondered if  the state  could proceed                                                                    
with  implementing a  provider tax  whether or  not Medicaid                                                                    
was  expanded. Commissioner  Davidson stressed  that HB  148                                                                    
did not  implement a provider  tax. However, it  did require                                                                    
the state  to engage  a contractor  to recommend  a provider                                                                    
tax to  the legislature. She  added that  it would be  up to                                                                    
the legislature to act on the recommendation.                                                                                   
Representative  Wilson restated  her question.  She wondered                                                                    
if,  following   the  study,  the  department   would  bring                                                                    
legislation forward to implement a  provider tax even if the                                                                    
state  did not  opt  to participate  in Medicaid  expansion.                                                                    
Commissioner  Davidson restated  that  the department  would                                                                    
provide a  recommendation to the legislature  on whether the                                                                    
state  should  institute  a   provider  tax.  She  suggested                                                                    
waiting  for  the   third-party  contractor  recommendations                                                                    
before making any speculations.                                                                                                 
Representative Pruitt  asked about pass through  and tax. He                                                                    
wondered if the department would  be able to identify a pass                                                                    
through fee  to an individual  payee or an  insurance payee.                                                                    
He  wondered if  the department  would  be able  to see  all                                                                    
elements  concerning payees.  Mr.  Kosin  was uncertain.  He                                                                    
thought it  was possible  to conduct the  necessary analysis                                                                    
but needed to  consult with a contractor. He  opined that at                                                                    
the state  did not want to  see costs passed on  to patients                                                                    
or a rise in health care costs.                                                                                                 
3:57:08 PM                                                                                                                    
Vice-Chair Saddler  followed up regarding the  hold harmless                                                                    
cap.  He  wondered  if  the  state  would  be  obligated  to                                                                    
backfill  the difference  through  the state  GF. Mr.  Kosin                                                                    
appreciated  the  representative's  question.  He  suggested                                                                    
that he  would refer  to the  contractor's analysis.  He was                                                                    
unsure of the  answer. He was aware that  the department did                                                                    
not want to  put the governor or the State  of Alaska in the                                                                    
position of  repayment. The department  wanted to  do things                                                                    
correctly and responsibly.                                                                                                      
Vice-Chair Saddler  commented that  a consultant would  do a                                                                    
better assessment. However, he wanted  to know how likely it                                                                    
was  that  the  government would  change  the  hold-harmless                                                                    
rate.  Commissioner  Davidson  responded that  in  order  to                                                                    
change the cap  the federal government would  have to change                                                                    
the  federal  law  requiring consent  from  both  bodies  of                                                                    
congress as well as the  consent of the president. Mr. Kosin                                                                    
also  suggested that  regulation  could be  changed and  was                                                                    
aware that the president had looked into it.                                                                                    
Vice-Chair Saddler pointed out that  the president had a pen                                                                    
that he could use.                                                                                                              
Representative  Gattis wanted  to make  sure that  the study                                                                    
considered  the  concerns  of providers  from  her  district                                                                    
regarding non-profits  earning huge profits on  the backs of                                                                    
small providers.  Mr. Kosin responded that  the governor had                                                                    
made  it very  clear  that  he did  not  intend  to put  any                                                                    
proposals forward  that would affect small  providers to the                                                                    
extent that  the state would lose  healthcare providers. The                                                                    
department would be looking into  the fairness of a proposed                                                                    
Co-Chair Thompson  announced that  the committee  would hear                                                                    
the next section of the day's presentation.                                                                                     
4:00:42 PM                                                                                                                    
AT EASE                                                                                                                         
4:02:32 PM                                                                                                                    
MARGARET   BRODIE,  DIRECTOR,   DIVISION   OF  HEALTH   CARE                                                                    
SERVICES,   DEPARTMENT  OF   HEALTH  AND   SOCIAL  SERVICES,                                                                    
introduced herself  and explained  that she would  provide a                                                                    
status update  on the Medicaid  Payment System (MMIS)  as it                                                                    
related to  her affidavit she  filed on February 2,  2015 in                                                                    
the lawsuit against Xerox.                                                                                                      
Ms. Brodie turned to slide 2: "Background":                                                                                     
     October 2013:  Alaska Medicaid  program deployed  a new                                                                    
     claims  payment system  developed by  Xerox Corporation                                                                    
     to replace the old system.                                                                                                 
     These   systems  are   known  as   Medicaid  Management                                                                    
     Information Systems (MMIS).                                                                                                
     The  new system  had significant  performance problems;                                                                    
     many  claims  suspended  or denied  in  error,  causing                                                                    
     providers  to experience  serious difficulties  getting                                                                    
Ms.  Brodie explained  that  in October  2013  the State  of                                                                    
Alaska replaced its  30 year-old legacy MMIS  with the Xerox                                                                    
enterprise  system. She  reported  that the  new system  had                                                                    
immediate and significant performance  problems on the first                                                                    
day of  its initialization.  She elaborated that  there were                                                                    
claims suspended or denied in  error as well as claims being                                                                    
paid to the wrong provider.                                                                                                     
Ms. Brodie moved to slide 3: "Background, Cont.":                                                                               
     While Xerox worked to fix  the system, the State issued                                                                    
     advance payments to providers on request.                                                                                  
     The  State  has  made  over  $165  million  in  advance                                                                    
     payments. Of  that, the State has  recouped $70 million                                                                    
     as of May 1, 2015.                                                                                                         
Ms. Brodie explained that Xerox  and the state worked to fix                                                                    
the problems with the system.  She relayed that in order for                                                                    
providers  to   continue  providing  services   to  Medicaid                                                                    
recipients the  state had to  help by advancing  payments to                                                                    
providers per their  request. The state had  to evaluate the                                                                    
claims that  had been submitted  into the system.  The state                                                                    
analyzed whether  the claims had been  denied, suspended, or                                                                    
paid  inappropriately.  If  providers  had  submitted  valid                                                                    
Medicaid claims  for payment  the state  paid the  claims in                                                                    
the form of advanced payments from GF dollars.                                                                                  
Ms.  Brodie  reported that  the  state  had made  over  $165                                                                    
million  in  advance  payments at  present.  The  state  had                                                                    
recuperated over $70 million of those dollars currently.                                                                        
Ms.  Brodie  continued  to  slide   4:  "State  Holds  Xerox                                                                    
     August 2014 -  State finds Xerox in  breach of contract                                                                    
     due to performance problems.                                                                                               
     October 2014 - Xerox agrees to corrective action plan.                                                                     
     February  2015 -  Administrative hearing  on liquidated                                                                    
     damages. Decision  pending; next hearing  scheduled for                                                                    
     August 2015.                                                                                                               
     May  2015 -  The  system is  processing  new claims  at                                                                    
     greater  than  90  percent  accuracy.  This  is  better                                                                    
     performance than the old legacy system.                                                                                    
Ms.  Brodie continued  to explain  that as  of August  2014,                                                                    
after 11 months  of attempting to resolve  claims, the state                                                                    
filed  a breach  of contract  against Xerox.  In October  of                                                                    
2014 Xerox agreed to a  corrective action plan that included                                                                    
certain changes  that would  resolve the  payments problems.                                                                    
She added that  the corrective action plan  was not intended                                                                    
to  fix the  entire system.  Its purpose  was to  fix claims                                                                    
pricing  and  payments  which  were   the  items  that  most                                                                    
affected providers.  There were also other  items within the                                                                    
system that needed correction.                                                                                                  
Co-Chair Thompson asked Ms. Brodie  to make sure to announce                                                                    
any  slide  changes  for  proper  record  keeping.  He  also                                                                    
indicated that Speaker Chenault had joined the audience.                                                                        
Ms.  Brodie  reported  that  in   February  2014  the  state                                                                    
formally  accepted Xerox's  corrective action  plan and  had                                                                    
its first hearing  in front of an  administrative law judge.                                                                    
She added  that the  next hearing  was scheduled  for August                                                                    
2015. She  specified that the  completion of  the corrective                                                                    
action  plan was  scheduled for  the end  of March  2015. It                                                                    
took until  the end  of April  2015 to  complete all  of the                                                                    
tasks  specified in  the  corrective  action plan.  However,                                                                    
while  addressing  the  initial   items  more  defects  were                                                                    
identified.  She  asserted  that  even  with  the  remaining                                                                    
defects the  state was processing  90 percent of  the claims                                                                    
4:07:42 PM                                                                                                                    
Ms. Brodie advanced to slide 5: "System Improvement":                                                                           
     Xerox and the State agreed to a Correction Action Plan                                                                     
     requiring correct claims pricing and correct claims                                                                        
     payment by certain timelines.                                                                                              
     Xerox is required to make 17 system corrections,                                                                           
     called Design, Development & Implementation (DDI)                                                                          
     Xerox has submitted all deliverables. They have not                                                                        
     been fully accepted by the State.                                                                                          
Ms.  Brodie  reiterated  that  the state  had  agreed  to  a                                                                    
corrective  action  plan.   She  also  reported  outstanding                                                                    
design, development,  and implementation  (DDI) work  on the                                                                    
enterprise system. She relayed  that Xerox had submitted all                                                                    
of  the corresponding  deliverables  but the  state had  not                                                                    
fully  accepted them  to-date. The  state contended  that if                                                                    
the system  had been fully  tested, as it should  have been,                                                                    
the state would  not have had the number of  defects that it                                                                    
was  currently  experiencing.  She clarified  that  a  large                                                                    
system like the one the  state had would never be completely                                                                    
free of  defects. She added  that the enterprise  systems in                                                                    
the  country  were  not  without a  dozen  or  more  ongoing                                                                    
defects.  She claimed  that the  state's legacy  system also                                                                    
had many defects.                                                                                                               
Ms.  Brodie  advanced  to   slide  6:  "System  Improvement,                                                                    
     State outlined 38 items that needed to be completed                                                                        
     for the corrective action plan.                                                                                            
          16 effect claims                                                                                                      
          4 have already been resolved                                                                                          
     For system acceptance the State outlined:                                                                                  
          19 deferred items                                                                                                     
          13 DDI deliverables                                                                                                   
Ms.  Brodie   highlighted  that  Xerox  had   completed  the                                                                    
corrective action plan. A few  items remained that needed to                                                                    
be addressed because they were  not working as intended. She                                                                    
clarified  that these  items were  problems arising  from of                                                                    
changes  in  regulations  and new  federal  mandates.  Xerox                                                                    
approached  the   state  about   being  released   from  the                                                                    
corrective action  plan. The state  reviewed the  system and                                                                    
generated a  list of 38  additional items that Xerox  had to                                                                    
address to be  released from the corrective  action plan. In                                                                    
comprising  its list  the state  took  a look  at the  broad                                                                    
functionality of  the system. The state  identified 16 items                                                                    
that needed  to be fixed  affecting claims, 4 of  which were                                                                    
resolved. The  state anticipated  that Xerox would  have the                                                                    
remaining  items  affecting  claims  processing  dealt  with                                                                    
within 3 months.  She relayed that the state  had a schedule                                                                    
of all deployments through January 2015.                                                                                        
Ms. Brodie informed the committee  the state was identifying                                                                    
any item  that would  prevent it  from accepting  the system                                                                    
before releasing  Xerox. She relayed  that in order  for the                                                                    
state to accept  the system it needed the  19 deferred items                                                                    
completed. She claimed  that some of the 19  items no longer                                                                    
existed. She  relayed that some  of the enhancements  had to                                                                    
do  with something  called  "smart PA"  which  the state  no                                                                    
longer used.  Smart PA was the  state's prior authorization,                                                                    
also known  as a service authorization  system. Its function                                                                    
was to obtain  permission to perform a service  prior to the                                                                    
performance    of    the   service.    Currently,    service                                                                    
authorizations were done through  the enterprise system. She                                                                    
shared  that over  the  course of  the  following month  the                                                                    
state would  be negotiating  with Xerox about  what function                                                                    
the state would  receive in lieu of the Smart  PA. The state                                                                    
was not interested in receiving  a dollar amount in place of                                                                    
adding a different function.                                                                                                    
Ms.  Brodie  reiterated  that   the  conditions  of  Xerox's                                                                    
release  included  addressing  19  deferred  items,  13  DDI                                                                    
deliverables, and acquiring certification.                                                                                      
4:12:44 PM                                                                                                                    
Ms.  Brodie continued  with  slide  7: "System  Improvement,                                                                    
     There are three components to the system:                                                                                  
          Claims processing                                                                                                     
          Financial accounting                                                                                                  
     Claims processing has dramatically improved. Claims                                                                        
     are now processing timely and with over 90 percent                                                                         
          Acceptance by the State depends on:                                                                                   
               Additional fixes to financial reason codes                                                                       
               Further improvements in reporting                                                                                
Ms.  Brodie  explained  that  there  were  three  components                                                                    
within  MMIS.  The corrective  action  plan  focused on  the                                                                    
claims processing system.  The majority of the  work left to                                                                    
complete  had  to  do  with  the  financial  accounting  and                                                                    
reporting  portions of  the system,  both of  which affected                                                                    
the  state  rather than  providers.  She  reported that  the                                                                    
state had had  a temporary system in place  for the previous                                                                    
20 months.                                                                                                                      
Ms. Brodie  noted the vast improvement  of claims processing                                                                    
in the previous month. She  relayed that her office had been                                                                    
inundated  with calls  on Tuesdays  and  Wednesdays after  a                                                                    
cycle ran  and people  could verify the  status of  a claim.                                                                    
She observed  that calls had ceased  with the implementation                                                                    
of  improvements. She  also mentioned  a reduction  in staff                                                                    
time  addressing  claim  issues. She  highlighted  that  her                                                                    
office   had  had   difficulties  processing   a  particular                                                                    
provider's claims  about 50 percent of  the time. Currently,                                                                    
the office was able to  process all claims for this provider                                                                    
within a cycle.                                                                                                                 
Ms. Brodie made  it clear that acceptance of  the system was                                                                    
also contingent  on fixing the  financial reason  codes. The                                                                    
codes   identified  the   reason   for  a   claim  such   as                                                                    
overpayment.  The  reason codes  had  not  worked until  the                                                                    
month prior.  She reported that they  were currently working                                                                    
and that only one or two more codes needed to be fixed.                                                                         
Ms.  Brodie  emphasized  that the  most  important  area  to                                                                    
improve was  reporting. The major report  that was currently                                                                    
missing was  the cost  report that enable  the state  to set                                                                    
rates for providers.                                                                                                            
Ms.  Brodie   detailed  the  graph   on  slide   8:  "System                                                                    
Timelines." She explained that the  slide showed the state's                                                                    
current  timely  processing  of  claims.  She  offered  that                                                                    
claims were,  "flying through the  system." The  claims were                                                                    
no  longer  needing manual  intervention,  it  was all  auto                                                                    
Ms.  Brodie advanced  to slide  9: "Defects."  She explained                                                                    
that the chart  showed the number of defects  from July 2014                                                                    
through the  present and noted  the substantial  decrease in                                                                    
the numbers.  She reported that  the number for  the current                                                                    
day was  80 the  majority of  which had  nothing to  do with                                                                    
claims payment and pricing.                                                                                                     
Ms.  Brodie  moved  to  the   chart  on  slide  10:  "System                                                                    
Performance."  She pointed  out  that  since initiating  the                                                                    
corrective  action plan  the state  had  been successful  in                                                                    
getting  more  claims  paid  with   less  new  claims  being                                                                    
suspended. She  noted that the  gray bars on the  chart were                                                                    
claims  being reprocessed;  old claims  that had  been paid,                                                                    
denied,  or  suspended  incorrectly  were  given  a  suspend                                                                    
status to be reprocessed.                                                                                                       
4:16:58 PM                                                                                                                    
Ms.  Brodie turned  to slide  11: "Payment  Processing." She                                                                    
pointed out  that the blue  horizontal line  represented the                                                                    
state's historical payment level.  The state had been paying                                                                    
above  the   historical  level.   She  explained   that  the                                                                    
encounter  rates were  paid using  the new  system. However,                                                                    
previous  encounter rates  had  to be  paid  outside of  the                                                                    
legacy  system.  She  expected  the new  normal  to  be  $27                                                                    
million to $28 million.                                                                                                         
Co-Chair Thompson announced that  Senator Giessel had joined                                                                    
the audience.                                                                                                                   
Ms. Brodie observed  that the last few  slides showed marked                                                                    
improvement in every area of the enterprise system.                                                                             
Ms. Brodie detailed slide 12: "February 2015 Affidavit":                                                                        
     A February  2015 affidavit  signed by  Margaret Brodie,                                                                    
     Director   of  Health   Care  Services,   outlined  the                                                                    
     problems the  State had with  Xerox's system  since its                                                                    
     October 2013 deployment.                                                                                                   
     Since that  time, many of  the defects  identified have                                                                    
     been corrected or significantly improved.                                                                                  
Ms.  Brodie  informed  the  committee   that  she  filed  an                                                                    
affidavit  on  February  2,  2014.   The  affidavit  was  in                                                                    
response to the Xerox litigation  claiming harm to the state                                                                    
as  a result  of Xerox  not  performing its  job. Since  the                                                                    
filing  the state  had seen  significant improvement  on the                                                                    
part  of  Xerox  to  correct its  performance  defects.  The                                                                    
number  of  defects  had  been  reduced  significantly.  The                                                                    
company had  fixed most  of the  claims payment  and pricing                                                                    
issues.  She mentioned  that she  would review  her comments                                                                    
made  in the  affidavit  and provide  the  committee with  a                                                                    
current  update.   She  maintained   that  at   present  not                                                                    
everything was fixed.                                                                                                           
Ms. Brodie read from slide 13: "Item Number 7: Defects":                                                                        
     Affidavit: System  unable to accurately  balance claims                                                                    
     as a result of an embedded rounding error                                                                                  
     Current Status: CORRECTED, April 2015                                                                                      
     Affidavit: Slow  system performance on  medical service                                                                    
     authorization - authorizations were taking 30 minutes                                                                      
     Current Status:  IMPROVED: Authorizations are  taking 5                                                                    
     to  10  minutes.  Xerox  has  committed  to  continuous                                                                    
Ms. Brodie  indicated that the  state wanted to  see further                                                                    
improvement  in reducing  the  time it  took  to process  an                                                                    
authorization request.  She noted that in  the legacy system                                                                    
the most expeditious people  could complete an authorization                                                                    
within two minutes.                                                                                                             
Co-Chair  Thompson asked,  "How  many  minutes?" Ms.  Brodie                                                                    
responded, "Fourteen."                                                                                                          
Vice-Chair  Saddler read  from Ms.  Brodie's affidavit  that                                                                    
Xerox  had committed  to continuous  improvement. He  opined                                                                    
that based  on her  affidavit Xerox  had been  "shinning the                                                                    
state on for the four years."  He wondered if Xerox could be                                                                    
trusted currently.                                                                                                              
Ms.  Brodie   pointed  to  Xerox's  performance   since  the                                                                    
implementation  of the  corrective  action  plan in  October                                                                    
2014. She felt the state was getting results from Xerox.                                                                        
Vice-Chair  Saddler asked  Ms. Brodie  again if  she trusted                                                                    
Xerox.   Ms.  Brodie   relayed   that   she  trusted   their                                                                    
performance because of significant improvements.                                                                                
4:20:36 PM                                                                                                                    
Ms.  Brodie  detailed  slide 14:  "Item  Number  7:  Deficit                                                                    
     Affidavit: System does not price claims correctly                                                                          
     (12.4 percent of all claims are not pricing                                                                                
     Current Status: CORRECTED, March 2015.                                                                                     
     Affidavit: System fails to pay certain categories of                                                                       
    claims (e.g. hospital stays longer than three days)                                                                         
     Current Status: CORRECTED with minor exceptions:                                                                           
         TEFRA - solution ready to go (few claims)                                                                              
          Hospital stays where Medicaid is secondary payer                                                                      
          primary (low dollar amounts)                                                                                          
Ms. Brodie explained  that the 12.4 percent  reported in the                                                                    
affidavit  applied to  claims that  were priced  incorrectly                                                                    
from  October 2013  through September  2014. Currently,  the                                                                    
system was  paying claims at  an accuracy rate of  more than                                                                    
90 percent.                                                                                                                     
Ms.  Brodie discussed  the statement  made in  the affidavit                                                                    
about  the  failure to  pay  certain  types of  claims.  She                                                                    
clarified  that  the  system  was  not  paying  many  claims                                                                    
associated with  behavioral health  and with  hospital stays                                                                    
greater than three days. She  relayed that there were only a                                                                    
small number of these  challenging claims and indicated that                                                                    
the  state had  mapped out  solutions for  Xerox. She  added                                                                    
that the  state had problems  with claims having to  do with                                                                    
hospital  stays  where  a commercial  insurance  company  or                                                                    
Medicare  was  the  primary  payer   and  Medicaid  was  the                                                                    
secondary payer. It  really came down to  low dollar amounts                                                                    
due to co-pays and deductibles that only Medicaid paid.                                                                         
Representative Wilson  referred to slide 14.  She asked when                                                                    
Medicaid was a secondary versus  a primary payer. Ms. Brodie                                                                    
responded that  she would  need to get  a percentage  of the                                                                    
number of  recipients that had  other health care.  She gave                                                                    
an  estimate of  20 percent  to  25 percent  of the  state's                                                                    
recipients.  She would  provide  Representative Wilson  with                                                                    
the exact figure. Mr. Sherwood  also indicated that Medicaid                                                                    
was  the payer  of last  resort  for all  payers except  for                                                                    
services covered  by Indian  Health Service  (IHS). Medicaid                                                                    
was a  secondary payer behind Medicare,  Veterans Insurance,                                                                    
Tricare, private insurance, and  any other liable individual                                                                    
such as  worker's compensation. He reiterated  that Medicaid                                                                    
was secondary.                                                                                                                  
Ms.  Brodie  moved to  slide  15:  "Item Number  7:  Deficit                                                                    
     Affidavit: System inappropriately denies claims; many                                                                      
     remain wrongly denied and outstanding for over a year                                                                      
     Current Status: CORRECTED. New claims are processing                                                                       
          Backlog:  Old  claims  wrongly  denied  have  been                                                                    
          identified   and  are   being  reprocessed.   Many                                                                    
          providers have  resubmitted claims and  been paid.                                                                    
          September target for completion.                                                                                      
Ms.  Brodie informed  the committee  that her  office had  a                                                                    
plan  for  old claims  that  had  been processed  in  error.                                                                    
Claims had  been identified,  a work  plan had  been drafted                                                                    
for reprocessing  claims, and claims were  sorted into three                                                                    
categories.  The  categories  included claims  resulting  in                                                                    
payouts to  providers, claims resulting  in paybacks  to the                                                                    
state  from overpayments  to providers,  and claims  without                                                                    
any monetary changes.                                                                                                           
4:24:45 PM                                                                                                                    
Ms. Brodie  advanced to  slide 16:  "Item Number  7: Deficit                                                                    
     Affidavit: System is unable to process many claims,                                                                        
     causing the claims to incorrectly suspend.                                                                                 
     Current Status: CORRECTED.                                                                                                 
     Some claims suspend because they require manual                                                                            
          School-based services suspend pending payment of                                                                      
          the school district's state match.                                                                                    
          Durable medical equipment claims suspend for                                                                          
          manual review of the invoices.                                                                                        
          Claims    that     require    medical    necessity                                                                    
          justification    suspend    until    payment    is                                                                    
          Claims that were first billed to insurance                                                                            
          suspend   until   any   insurance   payments   are                                                                    
Ms. Brodie indicated  that the slide applied  to claims that                                                                    
were   suspended  inappropriately.   She  highlighted   that                                                                    
incorrect  suspensions  had  been  corrected  and  that  any                                                                    
claims that  remained in suspension status  were supposed to                                                                    
be suspended.                                                                                                                   
Ms.  Brodie  informed  the committee  that  there  were  two                                                                    
categories  of claims  intended to  be suspended.  The first                                                                    
was  the  school-based  services   claims  in  which  school                                                                    
districts  billed Medicaid  for  services  they provided  to                                                                    
children  in their  districts. The  state  had an  agreement                                                                    
with the participating school districts  where they paid the                                                                    
state  match portion  of the  services. She  elaborated that                                                                    
three years prior the state had  been able to pay the claims                                                                    
and  subsequently   collect  the   money  from   the  school                                                                    
districts.  However, the  federal  government mandated  that                                                                    
once a claim was paid a  state could not go back and collect                                                                    
money from  a school district.  Therefore, the state  had to                                                                    
receive the  match up front. Currently,  the state suspended                                                                    
claims, the  school district paid  the claims to  the state,                                                                    
and  then the  state released  the claims  for payment.  She                                                                    
reported  that there  were  other types  of  claims such  as                                                                    
durable  medical equipment  claims  that  were suspended  in                                                                    
order to  attach an invoice  prior to submission.  She added                                                                    
that someone had to manually  inspect the invoices and price                                                                    
the claims.                                                                                                                     
Ms.  Brodie  presented slide  17:  "Item  Number 7:  Deficit                                                                    
     Affidavit: System lists claims as being paid, but                                                                          
     links no provider to the claim, so checks can't issue                                                                      
     and the claims aren't paid.                                                                                                
     Current Status: CORRECTED.                                                                                                 
     Affidavit: System pays wrong provider.                                                                                     
     Current Status: CORRECTED.                                                                                                 
Ms. Brodie  reported that  claims listed  as being  paid but                                                                    
without a  link to a  provider were referred to  as "ghosted                                                                    
claims"  because of  the difficulty  in  tracking them.  The                                                                    
deficit had  been corrected five months  previously. Another                                                                    
deficit that  had been corrected  was the system  paying the                                                                    
wrong provider due to  provider identification numbers being                                                                    
mapped incorrectly  to the wrong provider.  She continued to                                                                    
explain  that  providers   had  several  different  provider                                                                    
numbers.  If  the  system  did  not  match  to  the  correct                                                                    
provider  identification  number  it was  possible  that  an                                                                    
incorrect provider could be paid.                                                                                               
Ms. Brodie continued with slide  18: "Item Number 7: Deficit                                                                    
     Affidavit: System is not able to produce cost-based                                                                        
     reports needed to change provider rates                                                                                    
     Current Status: Xerox correction target date June 2015                                                                     
     Affidavit: Error with third-party liability insurance                                                                      
     Current Status: CORRECTED.                                                                                                 
Ms. Brodie  relayed that there  was one report that  had not                                                                    
been  able to  be produced  and Xerox  hoped to  resolve the                                                                    
issue  in June  2015. She  stated that  the problem  was not                                                                    
necessarily the  report that was  incorrect, but the  way in                                                                    
which  information  had  to  be  loaded  into  the  decision                                                                    
support system to run the report correctly.                                                                                     
Ms.  Brodie briefly  stated that  the third-party  liability                                                                    
insurance error had been corrected.                                                                                             
4:28:13 PM                                                                                                                    
Ms.  Brodie  slide  19:  "Item   Number  10:  Responding  to                                                                    
     Affidavit: Xerox is not adequately responding to                                                                           
     provider calls.                                                                                                            
     Current Status: The number of calls being abandoned                                                                        
     has decreased significantly. This means Xerox has                                                                          
     increased its capacity to handle provider calls.                                                                           
Ms.  Brodie  stated  that upon  the  initialization  of  the                                                                    
system  the  number  of calls  abandoned  often  reached  50                                                                    
percent,  a  problem that  Xerox  had  since rectified.  She                                                                    
clarified  that an  abandoned call  was  a call  in which  a                                                                    
caller got tired of being on  hold and hung up. Mr. Sherwood                                                                    
added that  there was  always a  certain percentage  of call                                                                    
abandonment expected.  He never  expected the  percentage to                                                                    
equal  zero, but  wanted to  see the  number decrease  as it                                                                    
Ms. Brodie turned to slide  20: "Item Number 11: State Staff                                                                    
     Affidavit: Xerox system problems are requiring State                                                                       
     time and resources.                                                                                                        
     Current Status: State staff time spent working with                                                                        
     providers    on   claims    problems   has    decreased                                                                    
     considerably in the last three months.                                                                                     
          DHSS has one dedicated FTE remaining through                                                                          
          December 2015.                                                                                                        
Ms. Brodie explained that as  Xerox continued to work on the                                                                    
corrective  action   plan  and  amended  the   defects  that                                                                    
affected  claims  payment  and   pricing,  the  call  volume                                                                    
decreased on a weekly basis.                                                                                                    
Ms.  Brodie detailed  slide  21: "Item  Number  12: Loss  of                                                                    
Federal Match":                                                                                                                 
Affidavit:  Xerox  problems  are delaying  enhanced  federal                                                                    
reimbursement to the State for the MMIS project.                                                                                
Current Status: When the system  is certified the State will                                                                    
receive the 25% enhanced match.  There is no loss of federal                                                                    
CMS    letter:    "Upon   certification….the    state    may                                                                    
retroactively claim the remaining 25%"                                                                                          
Ms.  Brodie  offered  that  there  had  been  problems  with                                                                    
delayed enhancement  federal reimbursement to the  state for                                                                    
the  MMIS  project. She  offered  that  the state  typically                                                                    
received an  enhanced federal medical  assistance percentage                                                                    
rate of 75  percent for the operations of  the MMIS project.                                                                    
However, because  the system was  not certified  the federal                                                                    
government  notified  the state  that  it  was dropping  its                                                                    
federal  participation   rate  to  50  percent.   The  state                                                                    
received its  notice nine months  after the state  went live                                                                    
with the  system. She stressed  that the state had  a letter                                                                    
from the  Centers for Medicare  and Medicaid  Services (CMS)                                                                    
that upon  certification of the  system the  state's federal                                                                    
match percentage would resume at 75 percent retroactively.                                                                      
Co-Chair   Thompson  clarified   that   the  federal   match                                                                    
percentage  of  75 percent  would  be  retroactive from  the                                                                    
initiation  of  the   system.  He  asked  if   there  was  a                                                                    
compliance cutoff.  Ms. Brodie responded that  there was not                                                                    
a cutoff for certification of  an enterprise system but that                                                                    
it typically  took between 24 to  30 months for a  system to                                                                    
be certified.                                                                                                                   
Co-Chair Thompson wanted to confirm  that that it took 24 to                                                                    
30 months  to get a  system certified. Ms.  Brodie responded                                                                    
4:31:30 PM                                                                                                                    
Ms. Brodie  explained the  chart on  slide 22:  "Item Number                                                                    
13: Advantages to Providers":                                                                                                   
     Affidavit: The State is having to advance payments to                                                                      
     providers due to Xerox system problems.                                                                                    
     Current Status:                                                                                                            
          $165 million in advance payments have been issued                                                                     
          $70 million has been recouped from providers;                                                                         
          collections are ongoing.                                                                                              
Ms.  Brodie emphasized  that the  level of  advance payments                                                                    
was  not increasing.  She suggested  that if  the state  was                                                                    
having problems with payments to  providers the amount would                                                                    
be  increasing. Providers  were willingly  repaying advances                                                                    
they received.                                                                                                                  
Ms. Brodie  scrolled to slide  23: "Item Number  14: General                                                                    
Fund Shifting":                                                                                                                 
     Affidavit:   Legislative    Audit   disallowed   manual                                                                    
     adjudication of advance payments, delaying State's                                                                         
     ability to receive federal match FY 2014.                                                                                  
     Current Status:  Correction in progress. As  we process                                                                    
     these claims though the MMIS  system, the State will be                                                                    
     able to  receive federal reimbursement  in FY  2015 and                                                                    
     FY 2016.                                                                                                                   
          There is no loss of general funds.                                                                                    
Ms. Brodie  relayed that  the state had  worked with  CMS to                                                                    
claim the  advance payments that it  had made in FY  14. The                                                                    
state had  taken care to  review and document each  claim in                                                                    
which  it paid  out an  advance to  a provider.  The federal                                                                    
government   was   comfortable   with  the   state   seeking                                                                    
reimbursement for the advance  payments and drawing down the                                                                    
state's  federal  match  because of  the  thoroughness  with                                                                    
which  the state  took with  each claim.  She reported  that                                                                    
Legislative Budget  and Audit disallowed the  state's action                                                                    
following  the  state's reappropriation  period.  Currently,                                                                    
many of the claims had  already processed through the system                                                                    
and  federal  dollars  had  been   drawn  down.  There  were                                                                    
approximately $95  million outstanding.  She added  that the                                                                    
division   was   hoping  to   collect   the   bulk  of   the                                                                    
reimbursement  monies   by  June   30,  2015   and  complete                                                                    
collection by December 31, 2015.                                                                                                
Ms. Brodie continued  to slide 24: "Item Number  15: Loss of                                                                    
Insurance Payments":                                                                                                            
     Affidavit: System did not produce clean data to allow                                                                      
     state to bill third-party payers.                                                                                          
     Current Status: CORRECTED.                                                                                                 
     Going out this week:                                                                                                       
         Commercial insurance billing: $37 million                                                                              
          Commercial insurance billing: $200 thousand                                                                           
          Medicare billing: $48 thousand                                                                                        
     Going out next week:                                                                                                       
          Medicare B billing: $25 thousand                                                                                      
Ms. Brodie clarified that the second line should read,                                                                          
"Commercial insurance recoupment: $200 thousand."                                                                               
Ms. Brodie moved to slide 25: "Item Number 16: Xerox                                                                            
     Affidavit: Xerox did not  sufficiently staff its Alaska                                                                    
     Current Status:  Xerox continues  to recruit  for these                                                                    
     positions. State is monitoring closely.                                                                                    
Mr. Brodie relayed that Xerox  had provided additional staff                                                                    
from other locations to assist  with the Alaska project. The                                                                    
state had been  able to work with the  temporary staff Xerox                                                                    
provided and  significant progress had been  made. The state                                                                    
continued to monitor the recruitment process closely.                                                                           
4:35:26 PM                                                                                                                    
Ms. Brodie advanced to slide 26: "Item Number 17: Liability                                                                     
of Audits":                                                                                                                     
     Affidavit:  We anticipated  Xerox problems  would cause                                                                    
     the State to  have high error rates  in federal Payment                                                                    
     Error Rate Measurement (PERM) audits                                                                                       
     Current  Status:  Preliminary  results  from  the  PERM                                                                    
     audit in March, April, and  May are very positive, with                                                                    
     lower-than-expected error rates.                                                                                           
     Affidavit:  Xerox's processing  of editing  claims does                                                                    
     not meet federal criteria.                                                                                                 
     Current Status:  Xerox is working  on it.  This problem                                                                    
     is not  unique to Alaska and  exists throughout Xerox's                                                                    
     MMIS legacy and new systems.                                                                                               
     Affidavit: State concerned about federal Office of                                                                         
     Inspector General (OIG) audit of IHS payment.                                                                              
     Current Status: Audit not finalized yet.                                                                                   
Ms. Brodie explained that six  years prior the state had the                                                                    
best PERM rating in the  nation and three years prior Alaska                                                                    
had  the second-best  rating. She  supposed  that the  state                                                                    
would be rated the worst in  the nation due to the period of                                                                    
time in which  the PERM auditors were  focused. She conveyed                                                                    
that  the   auditors  reported  finding   discrepancies  and                                                                    
associated  dollar   amounts  much  lower  than   the  state                                                                    
anticipated. The auditors reported  finding a total of $18.3                                                                    
thousand in  discrepancies for  29 claims.  More information                                                                    
was  forthcoming from  the auditors.  She was  surprised and                                                                    
encouraged  by the  correspondence  the  state had  received                                                                    
from the auditors to-date.                                                                                                      
Co-Chair  Thompson  asked  if the  state  had  received  any                                                                    
penalties  related to  past errors  in billing  or if  there                                                                    
were  potential  penalties  the  state  might  receive.  Mr.                                                                    
Sherwood  responded that  the state  had never  received any                                                                    
penalties  related  to  the  PERM  audits  that  assess  the                                                                    
state's  overall  accuracy.   Generally  speaking  in  other                                                                    
audits, the state simply had  to repay any error amounts. He                                                                    
clarified that  the PERM audit  was conducted in  each state                                                                    
every three years. He purported  that until the current year                                                                    
the state had  been ranked number one or number  2 each time                                                                    
it had  been subject  to a  PERM audit.  The state  had very                                                                    
high rates of accuracy regarding Alaska's claim payments.                                                                       
Vice-Chair Saddler  relayed that  in Ms.  Brodie's affidavit                                                                    
the PERM rate  for Alaska was 6 percent to  12.4 percent. He                                                                    
wondered what  rating Ms. Brodie anticipated  from the audit                                                                    
that  was  in progress.  Ms.  Brodie  responded that  the  6                                                                    
percent to  12.4 percent was  based on a study  conducted by                                                                    
Kevin Quinn of  Xerox. She believed the  state would receive                                                                    
a rating between 5 to 8 percent.                                                                                                
Vice-Chair  Saddler  asked  how  a rating  between  5  to  8                                                                    
percent   compared   to    previous   ratings   before   the                                                                    
implementation  of  the   enterprise  system.  Mr.  Sherwood                                                                    
stated that for FY 08 the  PERM rate equaled .47 percent. In                                                                    
FY 11 the PERM rate was 1.4 percent.                                                                                            
Vice-Chair Saddler  concluded that the state  was looking at                                                                    
a possible rate 10 times  the rate the state had previously.                                                                    
Ms.  Brodie stated  yes.  She explained  that  the rate  was                                                                    
determined  based on  how  a claim  processed  in its  first                                                                    
attempt.  The  rating  had nothing  to  do  with  rectifying                                                                    
errors. The period of time  that the PERM audit reviewed was                                                                    
from October 2013 through September  2014, a time when there                                                                    
were many errors.                                                                                                               
4:40:08 PM                                                                                                                    
Vice-Chair Saddler  asked about potential  financial impacts                                                                    
of an error  rate. Ms. Brodie answered that if  there was an                                                                    
error on a  claim, the state had to reprocess  the claim and                                                                    
pay it  correctly. If a  claim was  paid when it  should not                                                                    
have been  paid, the state  would be obligated to  repay the                                                                    
amount. If  a claim paid  incorrectly with the  wrong dollar                                                                    
amount, the  claim would have  to be reprocessed  and either                                                                    
the state would  end up paying more or  recouping funds from                                                                    
a  provider. She  elaborated that  any time  a provider  was                                                                    
overpaid there  was no limit on  the amount of time  for the                                                                    
state to receive the money back from a provider.                                                                                
Vice-Chair Saddler read  page 11, lines 6 through  10 of Ms.                                                                    
Brodie's affidavit:                                                                                                             
     We are  expecting to  have to pay  back to  the federal                                                                    
     government  substantial  sums.  While DHSS  can't  know                                                                    
     what  this  number  will be  with  certainty,  it  will                                                                    
     likely be  between 6  percent and  12.4 percent  of the                                                                    
     total  amount   of  Medicaid  claims  paid,   which  is                                                                    
     approximately $1.2 billion.                                                                                                
Vice-Chair Saddler  wondered about how much  the state would                                                                    
have to repay if the rate  was 5 percent to 8 percent rather                                                                    
than 6  percent to 12.4  percent. Ms. Brodie  explained that                                                                    
what the affidavit stated was  of the $1.2 billion in claims                                                                    
paid,  the state  had  documentation  from Xerox  indicating                                                                    
that 6  percent to 12.4 percent  of the claims were  paid in                                                                    
error. Xerox's report looked at  the end result of the claim                                                                    
including any  reprocessing of claims. The  PERM only looked                                                                    
at  the initial  processing  of a  claim.  She offered  that                                                                    
processing  incorrectly  meant  that   a  claim  was  either                                                                    
overpaid or underpaid. She was  not able to provide a dollar                                                                    
amount because  some were overpaid  and some  were underpaid                                                                    
Vice-Chair Saddler  suggested that the language  was damning                                                                    
and wanted to give Ms.  Brodie an opportunity to clarify. He                                                                    
stated that  since the state  had to pay back  a substantial                                                                    
sum he  wanted to know  if the  amount was $60  million. Ms.                                                                    
Brodie  indicated that  the division  expected  a very  high                                                                    
PERM error rate  due to the period of  time being evaluated.                                                                    
However, she  expressed her confidence  in new  date claims.                                                                    
She  furthered   that  claims  found   in  error   would  be                                                                    
reprocessed and  literally the money  would come from  or to                                                                    
the providers.                                                                                                                  
4:44:11 PM                                                                                                                    
Representative Pruitt  referred to Ms. Brodie's  estimate of                                                                    
a  5 percent  to 8  percent PERM  error rate.  He wanted  to                                                                    
understand   the  PERM   error  compared   to  her   earlier                                                                    
discussion about  the system processing  at greater  than 90                                                                    
percent accuracy.  Ms. Brodie answered  that the  PERM error                                                                    
reflected  looking back  in time.  Whereas,  the 90  percent                                                                    
represented present  day, new  day claims.  The presentation                                                                    
slide showed that there were  a significant number of errors                                                                    
in  claims since  October 2013  through October  2014. Since                                                                    
the state began working with  Xerox on the corrective action                                                                    
plan to address  defects in the system and  to implement the                                                                    
change   requests,   claims    were   currently   processing                                                                    
expeditiously through the system.  She reported a maximum of                                                                    
9 days to process a claim currently and with accuracy.                                                                          
Representative Pruitt wanted to  understand how a 10 percent                                                                    
error rate  was an  improvement to  a PERM  error rate  of 5                                                                    
percent  to  8 percent.  Ms.  Brodie  noted that  the  state                                                                    
actually thought  the claims were  being paid at  95 percent                                                                    
but  did not  have  the resources  to  calculate a  specific                                                                    
percentage. She furthered that it  would take an analysis of                                                                    
every  claim that  went through  the system.  The state  had                                                                    
requested  that its  contractor  perform  such an  analysis.                                                                    
However,  the contractor  provided a  similar figure  to the                                                                    
state's number.  She relayed  that she did  not want  to get                                                                    
anyone's hopes up when there  were issues still remaining in                                                                    
the system.                                                                                                                     
Mr.  Sherwood  interjected  that  the  PERM  error  measured                                                                    
against the  dollar value  of the  errors. He  supposed that                                                                    
relatively  small  errors  counted against  the  state,  but                                                                    
looking at the  payment accuracy it was  small. He furthered                                                                    
that  when  looking  at  the  volume  of  claims  the  state                                                                    
considered that there might be  a number of errors but small                                                                    
in value.  The small  value items did  not get  the priority                                                                    
the big  volume errors  received. PERM  was a  very specific                                                                    
error  rate and  auditors looked  at more  than just  claims                                                                    
processing.   They  actually   evaluated   policy  and   the                                                                    
documentation  of claims.  Adequate documents  were required                                                                    
in order to support the claims.                                                                                                 
Ms. Brodie  revealed that  the state knew  that a  number of                                                                    
claims processed in the time  period were paid a fraction of                                                                    
a cent off and counted as an error against the state.                                                                           
4:47:44 PM                                                                                                                    
Representative  Pruitt supposed  that if  the state  were to                                                                    
have another  perm audit done  presently it would have  a 95                                                                    
percent accuracy rate or a  5 percent error rate. Ms. Brodie                                                                    
responded affirmatively.                                                                                                        
Representative  Pruitt thought  the 5  percent was  close to                                                                    
the rates listed  in the affidavit. He felt  that the update                                                                    
concerning  the   system  was  more  glowing   than  in  the                                                                    
affidavit. He  wondered how the  state would argue  its case                                                                    
to  get  restitution.  Mr. Sherwood  pointed  out  that  the                                                                    
affidavit reported that  in the last PERM cycle  in 2011 the                                                                    
national error  rate was  3.3 percent  and was  comprised of                                                                    
approximately one third  of the states in  various stages of                                                                    
maturity. He opined that with  a very mature system in which                                                                    
the state had  25 years to work out various  issues it would                                                                    
be operating at a very  high level of accuracy. He continued                                                                    
that  a system  tested within  its first  year of  operation                                                                    
would likely  have a  greater error  rate than  the national                                                                    
average because of  the time needed to  identify and address                                                                    
problems with a large system.  He was encouraged by the fact                                                                    
that the state's new system,  in operation for only about 12                                                                    
months,  had an  error rate  close to  that of  a system  in                                                                    
operation for 20 years.                                                                                                         
Representative Pruitt  commented that  part of  the argument                                                                    
in  the  state's  case  appeared  based  on  estimating  the                                                                    
state's  error  rate.  He  thought  that  Mr.  Sherwood  was                                                                    
contradicting the argument by  indicated that the error rate                                                                    
was anticipated because the system  was new. He asked if the                                                                    
state's case was harmed with such a contradiction.                                                                              
Commissioner Davidson  replied in the negative.  She pointed                                                                    
out that  the affidavit was  not a statement of  the current                                                                    
functionality  of the  MMIS system.  Rather, it  highlighted                                                                    
historical  problems that  documented  problems  as well  as                                                                    
delays in  the system to  pursue a liquidated  damages claim                                                                    
against Xerox.  She explained  that the  claim was  for past                                                                    
damage  and  past   harm  to  the  state.   Similar  to  all                                                                    
litigation, damages were assessed  for a historical point in                                                                    
4:51:28 PM                                                                                                                    
Representative  Pruitt  understood  Commissioner  Davidson's                                                                    
point.   However,  he   felt  that   the   state  was   more                                                                    
comfortable, currently,  with the  original issue.  He found                                                                    
it interesting  that currently  the state  did not  have the                                                                    
same challenges with  the system that it did at  the time it                                                                    
filed litigation against Xerox. He  remarked that what was a                                                                    
problem previously  was not a  problem presently.  He opined                                                                    
that the  state had a  different standard currently  than it                                                                    
did prior.                                                                                                                      
Commissioner  Davidson   stated  that  she   disagreed  with                                                                    
Representative Pruitt's characterization.                                                                                       
Ms.  Brodie  continued  with slide  26.  She  reported  that                                                                    
Xerox' process editing  claims was not firing  in the proper                                                                    
sequence.  Xerox was  working  on a  corrective action.  She                                                                    
added  that any  state  using Xerox's  MMIS  legacy and  new                                                                    
systems  were experiencing  the  same  issue. She  explained                                                                    
that the  state had  an audit of  the Indian  Health Service                                                                    
payment  conducted  by  the   federal  Office  of  Inspector                                                                    
General.  The  state  was  waiting   for  the  audit  to  be                                                                    
finalized before it would know its status.                                                                                      
Co-Chair  Thompson asked  if the  state was  still accessing                                                                    
damages  against Xerox.  Ms. Brodie  replied that  the state                                                                    
had been  withholding payments from Xerox  and applying them                                                                    
to the liquidated damages.                                                                                                      
Ms.  Brodie  continued  to  slide  27:  "Items  18  and  19:                                                                    
Mandates and Regulation:                                                                                                        
     Affidavit: Concern Xerox system would hamper State's                                                                       
     capacity to comply with Medicaid mandates and                                                                              
     regulation projects                                                                                                        
     Current Status: Capacity has improved and we are                                                                           
     addressing the mandates and regulation projects:                                                                           
          ICD-10 is on schedule.                                                                                                
          Xerox provided T-MSIS proposal - currently                                                                            
          HIPAA Operating Rules is in progress.                                                                                 
          Mandates were prioritized and the remaining will                                                                      
          follow completion of the above.                                                                                       
          Early and Periodic Screening, Diagnostic, and                                                                         
          Treatment (EPSDT) in progress.                                                                                        
          Free Standing Birth Center in progress.                                                                               
          New Waiver Regulations in progress.                                                                                   
          Last EPSDT regulations in progress.                                                                                   
Ms.  Brodie explained  that the  items listed  on the  slide                                                                    
were  all of  the things  listed in  the affidavit  that the                                                                    
state  had  not  addressed.  Since the  affidavit  had  been                                                                    
written some  items had been addressed  including the ICD-10                                                                    
which was on schedule. She  indicated that progress had been                                                                    
made on most  of the items on the list  since February 2015.                                                                    
Prior to February no work had been done on the items.                                                                           
4:54:05 PM                                                                                                                    
Ms.  Brodie turned  to  slide 28:  "Item  Number 21:  Future                                                                    
     Affidavit: Built-in system problems may create more                                                                        
     costly maintenance.                                                                                                        
     Current Status: Xerox and the state are taking steps                                                                       
     to work cooperatively to reduce costs as much as                                                                           
Ms. Brodie  believed that some  things were built  into core                                                                    
that belonged  in relational tables. She  relayed that Xerox                                                                    
had  agreed  to review  the  items  and make  the  necessary                                                                    
adjustments.  She was  hoping  to  mitigate increased  costs                                                                    
going forward.                                                                                                                  
Ms. Brodie pointed to the last slide 29: "Reprocessing":                                                                        
     230,371 claims to be reprocessed that will result in a                                                                     
          Have been prioritized and work is on-going                                                                            
          Can reprocess approximately 20,000 claims an hour                                                                     
     226,000 claims to be reprocessed that will result in                                                                       
          Letters went out to these providers on May 1st                                                                        
     5,436 claims to be reprocessed - no financial impact                                                                       
Ms. Brodie concluded  that the amount of  work that remained                                                                    
in  cleaning up  the system  was significant.  However, much                                                                    
progress had  been made since October  2014 and particularly                                                                    
from  February 2,  2015 when  she filed  the affidavit.  She                                                                    
admitted that the  system was not perfect,  there were still                                                                    
items to  resolve, and issues  could result from  the audit.                                                                    
She expressed surprise  about the results of  the PERM audit                                                                    
indicating  a  small  number of  claims  with  small  dollar                                                                    
amounts  that had  problems. She  stated that  she had  been                                                                    
shocked at the results.                                                                                                         
Co-Chair  Thompson  asked  the  director to  come  back  the                                                                    
following day to answer further questions.                                                                                      
Representative  Gara wondered,  after all  of the  fixes, if                                                                    
the system was  processing claims at a better  rate than the                                                                    
state's  old system.  Ms.  Brodie  answered positively.  She                                                                    
furthered  that  the  system  could  actually  process  more                                                                    
claims  than  the previous  system.  The  legacy system  was                                                                    
limited to  a number of claims  that it was able  to process                                                                    
each week.                                                                                                                      
Co-Chair Thompson asked the age  of the previous system. Ms.                                                                    
Brodie stated that the system was 30 years old.                                                                                 
Representative  Gara  asked  if the  system  was  processing                                                                    
claims  more  accurately.  Ms.  Brodie  responded  that  the                                                                    
system   was   not   necessarily  processing   claims   more                                                                    
accurately.  However, the  system was  processing claims  at                                                                    
higher-than-historical levels. The state  was aware that the                                                                    
accuracy was greater than 90 percent.                                                                                           
Representative Gara asked about  the $1.2 million of federal                                                                    
reimbursement mentioned  in the  affidavit and the  error in                                                                    
payments. He asked how the  error rate compare to the amount                                                                    
Representative  Saddler  asked  you about  currently  versus                                                                    
prior  to January  2014 when  the administration  took over.                                                                    
Ms. Brodie  stated that the  error rate that  the department                                                                    
had seen had  declined from October 2014 to  the present. In                                                                    
the  course   of  correcting  the  claims   processing,  the                                                                    
payment, the  pricing, and the  processing had  been reduced                                                                    
4:58:12 PM                                                                                                                    
Representative  Wilson  wanted  to  know if  the  state  was                                                                    
forward funding providers as a  result of errors. Ms. Brodie                                                                    
stated that  the department  had one  or two  providers that                                                                    
the state had issued advances  to in the previous two weeks.                                                                    
These providers  had specific  issues associated  with their                                                                    
claims   which  were   being  address   to  expedite   their                                                                    
Representative Wilson wanted to  hear more about advances to                                                                    
providers  due to  errors. She  also wanted  to address  the                                                                    
topic  of  lost providers  resulting  from  issues with  the                                                                    
Vice-Chair  Saddler remarked  that  the new  system was  not                                                                    
more accurate than  the previous system. He  stated that she                                                                    
had  testified earlier  that the  error rate  was twice  the                                                                    
national  average  and  that  it  was up  to  10  times  the                                                                    
accuracy of the  previous system. He concluded  that the new                                                                    
system was  not processing  claims more accurately  than the                                                                    
old  system and  asked her  if  he was  correct. Ms.  Brodie                                                                    
contended that  currently the system was  paying claims with                                                                    
approximately 95  percent accuracy.  She clarified  that she                                                                    
was reporting  over 90  percent until  she could  verify the                                                                    
percentage.  She  continued  to respond  that  the  accuracy                                                                    
rates were  similar from the  legacy system at  96.4 percent                                                                    
to the new system.                                                                                                              
Vice-Chair Saddler  commented that his math  was off because                                                                    
he had seen  an error rate of  .47 and now an  error rate of                                                                    
between 5 percent  and 8 percent. Ms.  Brodie explained that                                                                    
the  numbers  were  from  letters   that  she  had  received                                                                    
regarding  the  PERM  audit to-date.  More  information  was                                                                    
forthcoming.  It  appeared  from  the  information  she  had                                                                    
received  through the  current  day the  state's error  rate                                                                    
would  be lower  than originally  anticipated. Mr.  Sherwood                                                                    
clarified that the rate he  was referring to was for federal                                                                    
FY 14 which was October  2013 through September 2014 and not                                                                    
the current period of time being addressed                                                                                      
Vice-Chair  Saddler stated  that  at a  rate  of 95  percent                                                                    
accuracy the state had an  inaccuracy rate of 5 percent. Mr.                                                                    
Sherwood responded that  Representative Saddler was correct.                                                                    
The  PERM not  only looked  at  the accuracy  of the  claims                                                                    
payment  system  but  assessed   all  possible  errors  that                                                                    
occurred  from  the  delivery of  the  service  through  the                                                                    
payment  of  the  service.  Perm  auditors  also  considered                                                                    
whether a  service was actually  delivered, the  service was                                                                    
delivered in an appropriate  way, whether there was adequate                                                                    
documentation  for the  service, and  whether the  claim was                                                                    
processed   and  paid   correctly   in   the  system   after                                                                    
HB  148  was  HEARD  and   HELD  in  committee  for  further                                                                    
5:01:23 PM                                                                                                                    
Co-Chair  Thompson reviewed  the  agenda  for the  following                                                                    

Document Name Date/Time Subjects
HB 148 Affidavit of Margaret Brodie.pdf HFIN 5/11/2015 3:00:00 PM
HB 148
HB 148 HFIN Questions to HESS.pdf HFIN 5/11/2015 3:00:00 PM
HB 148
HB 148 HFIN Additional Questions 5 11 15 docx.pdf HFIN 5/11/2015 3:00:00 PM
HB 148
HB 148 Payment System.pdf HFIN 5/11/2015 3:00:00 PM
HB 148
HB 148 Provider Taxes.pdf HFIN 5/11/2015 3:00:00 PM
HB 148
HB 148 MMIS status.final ke.pdf HFIN 5/11/2015 3:00:00 PM
HB 148
HB 148 House Finance- Health Care Services - 5.11.pdf HFIN 5/11/2015 3:00:00 PM
HB 148