Legislature(2015 - 2016)ANCH LIO BUILDING

05/13/2015 01:00 PM House FINANCE

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Audio Topic
01:09:58 PM Start
01:10:52 PM HB148
02:35:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Location: 1st Floor Auditorium
Heard & Held
Discussion: Dept. of Law Regarding Legal Cases
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
**Streaming available to public in Juneau
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                                                                    
1:12:17 PM                                                                                                                    
STACEY KRALY,  CHIEF ASSISTANT ATTORNEY  GENERAL, DEPARTMENT                                                                    
OF LAW, placed herself on record.                                                                                               
RACHEL  WITTY,  ASSISTANT  ATTORNEY GENERAL,  DEPARTMENT  OF                                                                    
LAW, introduced herself.                                                                                                        
Ms.  Kraly explained  that as  the Chief  Assistant Attorney                                                                    
General she represented the Department  of Health and Social                                                                    
Services  (DHSS) and  supervised a  section of  10 attorneys                                                                    
including  herself. Her  section provided  all of  the legal                                                                    
representation  for  DHSS  except  for  Child-In-Need-Of-Aid                                                                    
proceedings. Her section did a  small amount of work for the                                                                    
Office of Children's Services (OCS)  but did not handle day-                                                                    
to-day proceedings. At  any given time her section  had 4 to                                                                    
5  fulltime attorneys  working on  Medicaid-related matters;                                                                    
one  fulltime  attorney  specifically  dealt  with  Medicaid                                                                    
audits  and sanctions  relating  to provider  relationships.                                                                    
Her  section  also had  a  dedicated  attorney that  handled                                                                    
Medicaid recovery including  third-party liability and trust                                                                    
and  estate recovery.  The hours  equivalent of  2 attorneys                                                                    
spread amongst 2  to 5 attorneys, were  dedicated to working                                                                    
on  representing  and  advising the  department  on  various                                                                    
matters   related  to   the  Medicaid   program.  The   work                                                                    
encompassed   dealing   with    regulations,   advising   on                                                                    
legislation, representing  the department  in administrative                                                                    
hearings, civil litigation, and Supreme Court appeals.                                                                          
Ms.  Kraly relayed  that in  preparing for  her presentation                                                                    
she  was asked  to discuss  three topics;  Xerox litigation,                                                                    
other  litigation  related  to  DHSS,  and  efforts  of  the                                                                    
Medicaid  Fraud  Control Unit.  She  would  be inviting  Mr.                                                                    
Peterson to join  her when talking about the  third item. In                                                                    
talking about some of the litigation  she would try to be as                                                                    
responsive  as  possible  to  the  questions  posed  by  the                                                                    
committee. However,  she wanted to remind  the committee she                                                                    
would  be  talking  about active  litigation  including  the                                                                    
Xerox  case  and  would  provide   as  much  information  as                                                                    
possible but  some answers  might have to  be answered  at a                                                                    
later  time. She  reiterated that  she  would try  to be  as                                                                    
responsive as possible.                                                                                                         
Ms.  Kraly introduced  the PowerPoint  "Department of  Law's                                                                    
Presentation on Medicaid Issues."                                                                                               
Ms. Kraly began with slide 3: "Xerox Contract":                                                                                 
     · In 2007, DHSS contracted with Xerox to develop and                                                                       
        operate a new Medicaid Management Information System                                                                    
        for the State of Alaska.                                                                                                
     · There are two major parts of this contract:                                                                              
        · The design and development of the system                                                                              
        · The operation of the system                                                                                           
Ms.  Kraly   indicated  that  once  the   Xerox  system  was                                                                    
certified  Xerox   would  continue  to  do   the  day-to-day                                                                    
operations  of the  program. The  contract encompassed  both                                                                    
1:15:58 PM                                                                                                                    
Ms. Kraly continued to slide 4: "Purpose of Litigation":                                                                        
     · The claim filed in September 2014 focused on getting                                                                     
        Xerox to provide a fully operational system. DHSS                                                                       
        did not terminate the contract and has continued to                                                                     
        work closely with Xerox to fix the system.                                                                              
     · The litigation appears to have motivated Xerox to                                                                        
        prioritize its  Alaska project  and has  resulted in                                                                    
        significant improvements.  As Ms.  Brodie testified,                                                                    
        since the claim was  filed, Xerox has  developed and                                                                    
        implemented a  corrective  action  plan  to  improve                                                                    
       claims processing and resolve system defects.                                                                            
Vice-Chair  Saddler  wanted to  confirm  that  there were  a                                                                    
couple of different  avenues of redress the  State of Alaska                                                                    
had  against  Xerox.  He   mentioned  civil  litigation  and                                                                    
hearings before  an administrative  law judge. He  wanted to                                                                    
know if litigation  meant in court or  an administrative law                                                                    
Ms. Kraly relayed  that the case was filled in  front of the                                                                    
Office of Administrative Hearings. The  state did not file a                                                                    
case in Superior Court.                                                                                                         
Vice-Chair   Saddler  clarified   that  it   was  considered                                                                    
litigation  before  an  administrative  hearing.  Ms.  Kraly                                                                    
stated that Representative Saddler was correct.                                                                                 
Ms. Kraly  relayed that as  Ms. Brodie  testified previously                                                                    
that  since the  claim  was filed  Xerox  had developed  and                                                                    
implemented a  corrective action plan for  claims processing                                                                    
and was working on resolving system defects.                                                                                    
Ms. Kraly turned to slide 5: "Status of Litigation":                                                                            
     · As noted above, Xerox and DHSS agreed to a "go live"                                                                     
        date of October 1, 2013.                                                                                                
     · As noted by Ms. Brodie, significant problems were                                                                        
        identified immediately. DHSS worked  with Xerox over                                                                    
        the ensuing  year  to  achieve  improvement  but  to                                                                    
        little or no avail.                                                                                                     
     · Per the contract, the parties engaged in a two- day                                                                      
        mediation in September 2014. This  mediation was not                                                                    
Vice-Chair Saddler asked if the  state decided to go live on                                                                    
its   own  volition   or  if   relied   solely  on   Xerox's                                                                    
representations that it  should. There was a  question as to                                                                    
whether the  state should have  or could have  continued the                                                                    
old  system.  He asked  if  it  was  clarified as  to  whose                                                                    
decision  it  was  to  go live  without  the  legacy  system                                                                    
continuing in a parallel fashion.                                                                                               
Ms.  Witty responded  that in  the claim  DHSS alleged  that                                                                    
based on representations  by Xerox the new  system was ready                                                                    
to  engage. It  was  her understanding  that,  at a  certain                                                                    
point, running  both systems simultaneously  had to  end. In                                                                    
the state's  claim the  decision to  cease the  operation of                                                                    
the old system was based on Xerox's representations.                                                                            
1:19:27 PM                                                                                                                    
Vice-Chair  Saddler  clarified   whether  the  decision  was                                                                    
solely going live  while concurrently ending the  use of the                                                                    
old  system. Ms.  Witty  answered that  it  was the  state's                                                                    
decision to go  live without the legacy  system remaining in                                                                    
Co-Chair Thompson  acknowledged Representative  Josephson in                                                                    
the audience.                                                                                                                   
Ms. Kraly continued to explain  that in the previous year in                                                                    
August and  September the Department  of Law (LAW)  and DHSS                                                                    
evaluated its  many options under the  state's contract with                                                                    
Xerox  and determined  that the  contract required  that the                                                                    
parties   engaged   in  alternative   dispute   resolutions.                                                                    
Department of Law initiated provisions  of the contract that                                                                    
required  a  mediation. The  parties  engaged  in a  two-day                                                                    
mediation  held  in  Anchorage in  September  2014  held  in                                                                    
Anchorage. Although the  mediation highlighted and addressed                                                                    
a   number  of   significant  issues,   it  was   ultimately                                                                    
Ms. Kraly advanced to slide 6: "Status of Litigation":                                                                          
     · On September 22, 2014, DHSS filed a contract claim                                                                       
        with the Commissioner of Administration which was                                                                       
        referred to the Office of Administrative Hearings.                                                                      
        The claim sought the following relief:                                                                                  
        · Development of an acceptable corrective action                                                                        
        · Completion   and    correction   of   deliverables                                                                    
          necessary for a fully operational system that can                                                                     
          be certified by the federal government                                                                                
        · Payment  of liquidated  damages and  other damages                                                                    
          resulting   from   the    delays   and   lack   of                                                                    
Ms. Kraly advanced to slide 7: "Status of Litigation":                                                                          
     · A hearing on the liquidated damages was held on                                                                          
        February 18 and 19, 2015.                                                                                               
     · A hearing on the breach of the contract was                                                                              
        scheduled for August 2015.                                                                                              
Representative Gara did not understand why the committee                                                                        
was rehashing the litigation information rather than                                                                            
debating the bill.                                                                                                              
Ms. Kraly continued with slide 7:                                                                                               
     · On April 2, the administrative law judge stayed the                                                                      
        case. The  parties  agreed to  stay  the case  until                                                                    
        August 24, 2015 to allow Xerox  to complete its work                                                                    
        under the corrective action plan  and other deferred                                                                    
        work, and to allow  DHSS to evaluate the  system for                                                                    
Ms. Kraly indicated that if the system was acceptable to                                                                        
DHSS then the hearing in August would be removed from the                                                                       
Ms. Kraly reported that the parties were in an acceptance                                                                       
phase of the contract negotiation as detailed in slide 8:                                                                       
     · On or before July 31, 2015, the parties are to meet                                                                      
        and establish  whether the  system is  acceptable to                                                                    
        DHSS, meaning  that  all  major  defects  have  been                                                                    
        resolved, all deliverables  are complete,  and Xerox                                                                    
        can be released from the implementation phase of the                                                                    
        contract  and   allowed   to   focus   solely   upon                                                                    
     · This means that DHSS will have to determine that the                                                                     
        system is  functioning at  a level  and degree  that                                                                    
        meet its core business needs. But this does not mean                                                                    
        that DHSS is the sole arbiter for acceptance-DHSS is                                                                    
        in contact  with the  federal  government to  assure                                                                    
        that their determination of acceptance meets the                                                                        
        federal standard so that the system will be                                                                             
1:23:16 PM                                                                                                                    
Co-Chair Neuman  referred to the  slide indicating  that the                                                                    
department  would have  to certify  that  all major  defects                                                                    
were resolved.  He suggested that  the department  would not                                                                    
know for a  while whether the program  was working properly.                                                                    
He  mentioned  new  coding  requirements  from  the  federal                                                                    
government.  He wondered  how the  state could  certify that                                                                    
all major  defects were resolved having  experienced so many                                                                    
problems with the system.                                                                                                       
Ms.  Kraly stated  that there  was a  likelihood that  there                                                                    
would always  be issues with the  systems, functionality and                                                                    
improvements that  would have to  be addressed.  The concept                                                                    
articulated in the  slide had to do with the  idea there had                                                                    
been a list of correctable  defects in the corrective action                                                                    
plan.   Issues  encountered   with  the   new  International                                                                    
Statistical  Classification of  Diseases and  Related Health                                                                    
Problems 10th Revision  (ICD 10) codes were not  part of the                                                                    
consideration   currently.    There   would    be   constant                                                                    
improvements and  additions that  would need  to be  made as                                                                    
long as the program was operational.                                                                                            
Co-Chair  Neuman asked  whether Xerox  would be  held liable                                                                    
for any complications  in the future after July  31, 2015 if                                                                    
the state signed off on  everything the company had done to-                                                                    
Ms.  Kraly  responded  in the  negative.  She  informed  the                                                                    
committee that there was a  contract in place that addressed                                                                    
both  the  design and  development  of  the system  and  the                                                                    
operations  of  the   program  including  additional  change                                                                    
orders  requested  in  the  future.   Xerox  would  be  held                                                                    
accountable for the changes as they occurred in the future.                                                                     
Co-Chair  Neuman asked  about the  possibility of  having an                                                                    
independent auditor  or analyst that could  advise the state                                                                    
on the signing off of the system.                                                                                               
Ms. Witty relayed that the  state had a technical assistance                                                                    
contractor  under  contract  known  in the  industry  as  an                                                                    
independent   verification   contractor;   a   third   party                                                                    
assessing  the  system  that determined  whether  Xerox  was                                                                    
complying with the corrective action  plan. In addition, the                                                                    
state had the  check of the federal  government, the Centers                                                                    
for Medicare and Medicaid Services  (CMS). If the system did                                                                    
not do all  that it was expected  to do, there was  a way to                                                                    
check against DHSS's assessment.                                                                                                
Co-Chair Neuman  asked for  a specific  list of  items being                                                                    
addressed by Xerox.                                                                                                             
1:27:38 PM                                                                                                                    
Representative Munoz  asked about  the 38 items  that needed                                                                    
to  be fixed  subject  to the  corrective  action plan.  She                                                                    
wondered if all of the  actions were consistent with federal                                                                    
requirements. She  wondered if there would  be an additional                                                                    
list of demands.                                                                                                                
Ms. Kraly communicated that the  two items were not mutually                                                                    
exclusive.  The items  the DHSS  list identified  were items                                                                    
that had  to be addressed  in order to reach  the acceptance                                                                    
phase. As part of the  acceptance phase the department would                                                                    
be engaging with  the federal government, CMS,  and with the                                                                    
technical   assistance  contractor   mentioned  earlier   to                                                                    
ultimately  ensure certification.  She  was unclear  whether                                                                    
the  items would  be the  same ones  the federal  government                                                                    
would  be  focusing  on.  She  did  not  believe  they  were                                                                    
mutually exclusive of each other. They went hand-in-hand.                                                                       
Vice-Chair  Saddler wanted  Ms. Kraly  to elaborate  on what                                                                    
was  at  stake for  the  state  in  terms of  finances,  the                                                                    
operations, fines, and penalties. He  wanted to know why the                                                                    
case was important to Alaskans                                                                                                  
Ms. Kraly  responded that a functioning  Medicaid Management                                                                    
Information    System   (MMIS)    was   critical    to   the                                                                    
administration of  the Medicaid program. She  opined that it                                                                    
had been  testified to  by the  commissioner and  Ms. Brodie                                                                    
over  the past  two days.  It was  necessary to  operate the                                                                    
Medicaid  program. With  respect to  getting acceptance  and                                                                    
certification the two functions  lead to federal dollars for                                                                    
the development  and operation of  the program. In  order to                                                                    
get certification  from the federal  government they  had to                                                                    
approve the  system. Once  approved, the  federal government                                                                    
would pay  50 percent of  the cost. Upon  certification, the                                                                    
federal government would backfill  the additional 40 percent                                                                    
covering 90 percent of the program.                                                                                             
Ms. Kraly  continued that, in  terms of the  operation phase                                                                    
and the functionality going  forward, the federal government                                                                    
would  pay  75 percent  of  the  operation of  the  program.                                                                    
Certification  lead  to  enhanced federal  funding  for  the                                                                    
operation of the program.                                                                                                       
Vice-Chair  Saddler  asked Ms.  Kraly  to  confirm that  the                                                                    
reason why  the administrative investment rate  went from 75                                                                    
to 50  percent. He wondered if  it was due to  some error on                                                                    
the part of the state.                                                                                                          
Ms. Kraly  did not believe it  was based upon an  error. She                                                                    
thought  it was  a  functionality of  not  getting paid  the                                                                    
enhanced rate until certified.                                                                                                  
1:30:59 PM                                                                                                                    
Vice-Chair  Saddler wondered  about the  finances. He  heard                                                                    
that the state was on the  hook for a payback to the federal                                                                    
government  with some  potential fines  and error  rates. He                                                                    
wanted to know the financial implications.                                                                                      
Ms. Kraly communicated that as  was testified previously the                                                                    
intent was for the state  to eventually become whole. If the                                                                    
state  had either  over  paid providers  in  error then  the                                                                    
state had to pay back  the federal government the additional                                                                    
payment. If  the state had  underpaid, once  reconciled, the                                                                    
federal government would give the  money back. There were no                                                                    
penalties  or  sanctions, per  se.  There  was the  ultimate                                                                    
accounting reconciliation  at the  end of  the day  that the                                                                    
federal government was not overpaid  or underpaid for billed                                                                    
Vice-Chair  Saddler asked  if the  state would  ever recover                                                                    
some of the money. Ms. Witty  prefaced by saying that it was                                                                    
important  to put  Ms. Brodie's  affidavit into  context. It                                                                    
was not only  a point in time, but it  was filed in response                                                                    
to  a motion  by Xerox  saying that  the state's  liquidated                                                                    
damages  clause was  unenforceable. Xerox  claimed that  the                                                                    
state's actual  damages were minimal compared  to the amount                                                                    
of  damages  the  state  had said  it  accrued  through  the                                                                    
liquidated damages  clause. Xerox  suggested that  it should                                                                    
be struck from the  contract as unenforceable. The affidavit                                                                    
of Ms. Brodie  was to support the state's  position that the                                                                    
damages were  difficult to calculate  and under the  law the                                                                    
state's situation  was the reason  why a  liquidated damages                                                                    
clause would be included in a contract.                                                                                         
Ms. Witty  added that  although the  state was  uncertain of                                                                    
the ultimate value  of the damages, it could  still go after                                                                    
Xerox for  its costs.  Accounting reconciliation  issues and                                                                    
repayment issues were causes for damages.                                                                                       
Vice-Chair Saddler pointed to page  8 of the affidavit where                                                                    
it  referenced the  state's current  outstanding balance  of                                                                    
$104 million. On page 7 it  also stated that CMS had dropped                                                                    
the  state's  reimbursement  rate from  75  percent  Federal                                                                    
Medical  Assistance Percentages  (FMAP) to  50 percent  as a                                                                    
result  of  continued  delays   in  correcting  defects.  He                                                                    
remarked that Ms. Witty was correct.                                                                                            
Representative   Gara   wanted   to  be   clear   that   the                                                                    
reimbursement rate that Vice-Chair  Saddler mentioned had to                                                                    
do with  the reimbursement rate  of the cost of  the system,                                                                    
not  the reimbursement  rate for  health  care services.  He                                                                    
said it had  gone down from 75 percent to  50 percent but it                                                                    
would retroactively  go back to  75 percent once  the system                                                                    
was certified.  He wanted to  make sure he was  correct. Ms.                                                                    
Kraly responded in the affirmative.                                                                                             
1:34:50 PM                                                                                                                    
Representative  Gara   asked  that   once  the   system  was                                                                    
certified and  the retroactivity was activated,  it would be                                                                    
as if  it had been  75 percent the  entire time in  terms of                                                                    
reimbursements to  the state. Ms. Kraly  responded, "That is                                                                    
Representative  Gara   noted  was  that  with   all  of  the                                                                    
improvements  that were  enforced through  litigation, which                                                                    
he  appreciated, the  system was  up to  about a  95 percent                                                                    
billing  accuracy. Ms.  Kraly responded  that  that was  her                                                                    
Representative Gara  commented that not only  was the system                                                                    
up  to  95 percent  accuracy,  the  remaining 5  percent  of                                                                    
claims were  paid within  the following  one or  two billing                                                                    
cycles.  He  recapped  that   the  billing  performance  was                                                                    
essentially 100  percent accurate. Ms. Kraly  responded that                                                                    
was her understanding.                                                                                                          
Representative Gara  asked, with  the improvements  that had                                                                    
been made, if there was any  reason why the state should not                                                                    
proceed  with  Medicaid  expansion  at  present.  Ms.  Kraly                                                                    
responded,  "Through the  chair, Representative  Gara, I  do                                                                    
Representative  Gattis added  to  the comments  made by  Co-                                                                    
Chair  Neuman. One  of her  concerns  was that  she was  not                                                                    
hearing from  both sides  of the  litigation. She  wanted to                                                                    
hear what the other side had to say.                                                                                            
Representative Pruitt wanted to  discuss the money. He asked                                                                    
Ms. Kraly about  her understanding of the system  as she had                                                                    
gone  through the  litigation process.  He  wondered if  she                                                                    
considered herself  very capable  of understanding  the full                                                                    
ramifications of the system.                                                                                                    
Ms. Kraly responded that she  had been representing DHSS for                                                                    
fifteen  years.  In  that  time   she  had  represented  the                                                                    
Medicaid  agency in  its  various  iterations. She  reported                                                                    
working  very closely  with  all of  the  divisions and  the                                                                    
commissioner's office on a myriad  of Medicaid problems. She                                                                    
had been actively involved in  the litigation, although, she                                                                    
was not one  of the attorneys who had  entered an appearance                                                                    
in the litigation. She was  very comfortable with discussing                                                                    
the  impact of  the MMIS  system  on the  operations of  the                                                                    
department as  well as the  impact to litigation  related to                                                                    
the Medicaid system.                                                                                                            
1:37:59 PM                                                                                                                    
Representative  Pruitt  asked about  additional  discussions                                                                    
concerning  payments or  penalties the  state might  have to                                                                    
pay. He  wondered what the  ramifications of  a recuperation                                                                    
the state could have on  the litigation from Xerox's faults.                                                                    
He  wondered what  the clause  covered. He  asked if  it was                                                                    
just the money  that the state would  otherwise receive from                                                                    
the federal government, labor costs, or other things.                                                                           
Ms. Kraly wanted to make  sure she understood Representative                                                                    
Pruitt's question. She  wondered if he was  asking about the                                                                    
damages the state could potentially recover from Xerox.                                                                         
Representative  Pruitt  responded  affirmatively  and  added                                                                    
that he  also wanted to  know the  scope of the  damages. He                                                                    
wondered if  the state  would be  recouping money  lost with                                                                    
the  federal government  and  future  financial actions.  He                                                                    
wanted to  make sure the state  would be whole again  at the                                                                    
end of the litigation.                                                                                                          
Ms. Kraly  responded that the  purpose of the  litigation as                                                                    
filed was  to ultimately get  a functioning system.  As part                                                                    
of the  litigation the  state raised a  number of  claims in                                                                    
the  accusation including  a claim  for liquidated  damages.                                                                    
Under the  contract there was  a provision that  allowed for                                                                    
liquidated damages. Xerox was  contesting that provision and                                                                    
had  argued  that  damages  should  be  held  unenforceable.                                                                    
Xerox's  argument  was  that   the  damages  the  state  was                                                                    
assessing were so large in  comparison to the actual damages                                                                    
the state  was suffering.  As a  result, she  continued, Ms.                                                                    
Brodie  drafted  the  affidavit   responding  to  the  claim                                                                    
identifying that  the damages that  the state  suffered were                                                                    
large  and  significant  but difficult  to  quantify  for  a                                                                    
variety of  reasons. The state  would not actually  know the                                                                    
dollar amount in  damages for quite some time  well into the                                                                    
future. The purpose of a  liquidated damages provision under                                                                    
the  law  was  to  identify a  penalty.  The  provision  was                                                                    
initiated  because  of Xerox's  failure  to  perform and  an                                                                    
inability  of the  state  to quantify  damages.  It was  her                                                                    
expectation  at the  conclusion of  the litigation  that the                                                                    
state would  have a  functioning system  and there  would be                                                                    
some form of remuneration from  Xerox related to some of the                                                                    
damages.  Currently,  she was  unable  to  provide an  exact                                                                    
amount. Part of  the litigation that was  currently in front                                                                    
of  the administrative  hearing office  was how  to quantify                                                                    
and  calculate  the amount  for  damages.  The numbers  that                                                                    
needed to be reconciled would  be determined once all of the                                                                    
pieces were in place.                                                                                                           
1:42:23 PM                                                                                                                    
Representative  Pruitt  asked  whether Xerox  would  make  a                                                                    
profit from  the system. Ms.  Kraly relayed that  there were                                                                    
two  parts to  the contract.  The first  was the  design and                                                                    
development  and implementation  phase.  The operations  was                                                                    
the second  part of  the contract.  She furthered  that once                                                                    
the  system  was  operating and  certified  by  the  federal                                                                    
government the state would be  in a contractual relationship                                                                    
with Xerox and receiving payment,  as they would continue to                                                                    
manage and operate  the program. She supposed  that it would                                                                    
be better to ask Xerox about potential profits.                                                                                 
Representative Pruitt  understood that  the state  was going                                                                    
to pay Xerox.  However, if the state  was awarded liquidated                                                                    
damages exceeding  what the  state paid  for the  system, he                                                                    
wondered  at  what legal  opportunity  could  Xerox end  its                                                                    
business relationship with the  state. He was concerned with                                                                    
being left  with a  system without  support. He  wondered if                                                                    
Xerox would cut its losses  and whether the state would have                                                                    
any recourse.                                                                                                                   
Ms.  Kraly  responded  that should  Xerox  determine  it  no                                                                    
longer  wanted to  participate there  would be  a breach  of                                                                    
contract.  The  state  would  then   litigate  a  breach  of                                                                    
contract  action against  Xerox. She  furthered that  unless                                                                    
there  was  a  mutual   termination  the  state  would  have                                                                    
additional  claims.  The  current  litigation  was  the  one                                                                    
remedy the state  had with respect to Xerox. It  was not the                                                                    
exclusive remedy,  there were additional remedies  under the                                                                    
contract  up  to  and  including   the  termination  of  the                                                                    
contract. The state did not  want to terminate the contract,                                                                    
rather, it  wanted an operational  system. If Xerox  were to                                                                    
walk away from  the state unilaterally then  the state would                                                                    
evaluate and pursue all of its remedies under the contract.                                                                     
Representative Pruitt  asked about the  maintenance contract                                                                    
duration. Ms.  Witty believed the contract  ran through 2019                                                                    
with options to  renew. She would get back  to the committee                                                                    
to confirm her answer.                                                                                                          
Representative Pruitt mentioned that  the state had used the                                                                    
previous system  for 26 years. He  expressed further concern                                                                    
with  being stuck  with a  very large  and expensive  system                                                                    
after 5 years  if Xerox potentially did not  want to support                                                                    
it down  the road.  He asked about  the state's  recourse at                                                                    
that point.                                                                                                                     
Ms. Kraly indicated that the  state could choose to litigate                                                                    
with Xerox. She  also noted that the system  belonged to the                                                                    
state. The  state could bring  in a new operator  as another                                                                    
Ms.  Witty clarified  that  the  contract expired  September                                                                    
1:46:27 PM                                                                                                                    
Co-Chair Thompson suggested that  the contract was renewable                                                                    
for up to 25 years.                                                                                                             
Vice-Chair Saddler  stated that  the enterprise  system went                                                                    
live in October  2013, 4 years behind  schedule according to                                                                    
what Xerox promised the state.  Xerox was currently 2 months                                                                    
into  a  corrective  action  plan   and  there  was  nothing                                                                    
regarding the  enterprise system  that stood  in the  way of                                                                    
expanding Medicaid  at present.  He asked if  the enterprise                                                                    
system was currently  certified. If not, he  wondered if the                                                                    
state would receive any FMAP if it expanded Medicaid today.                                                                     
Ms.  Kraly  answered  that the  system  was  not  certified.                                                                    
However,  certification   would  not  impact   the  enhanced                                                                    
federal match for the expansion  population. The state would                                                                    
still receive  the 100 percent  federal match in 2016  if it                                                                    
expanded as indicated in HB 148 on August 1, 2016.                                                                              
Vice-Chair  Saddler  asked  why  the  state  would  need  to                                                                    
certify the  system. Ms. Kraly responded  that certification                                                                    
had to  do with  the functionality or  the operation  of the                                                                    
system. It had nothing to do  with the federal match for the                                                                    
reimbursement from the federal  government for services that                                                                    
were  provided. Certification  had  to do  with whether  the                                                                    
MMIS met  certain protocols set  by the  federal government.                                                                    
It  did not  impact payment.  She provided  an example.  She                                                                    
suggested that the state was  receiving its 50 percent match                                                                    
for  all  of  the  services that  the  state  was  currently                                                                    
providing.  The  state  was  receiving  a  little  more  for                                                                    
certain children  and pregnant  women. The  matching dollars                                                                    
were coming in from the  federal government every day, week,                                                                    
or month.                                                                                                                       
Ms. Kraly briefly discussed slide 9: "Certification":                                                                           
     Once   the  system   is   accepted,   DHSS  will   seek                                                                    
     certification for the  system. Certification relates to                                                                    
     the federal matching for  the development and operation                                                                    
     of  the  system,  not  to the  federal  match  for  the                                                                    
     payment of services.                                                                                                       
     For example:                                                                                                               
          For development of a new MMIS system, the federal                                                                     
          government pays 90% of that cost, the state pays                                                                      
          For operation of the MMIS system, the federal                                                                         
          government pays 75% of that cost and the state                                                                        
          pays 45%                                                                                                              
Ms.   Kraly   stated   that    the   slide   discussed   the                                                                    
certification,  the   concept  of  certification,   and  its                                                                    
related funding from the federal government.                                                                                    
1:49:06 PM                                                                                                                    
Ms. Kraly outlined slide 10: "Certification":                                                                                   
     Currently the federal government  is only paying 50% of                                                                    
     the cost  of the development  and is paying 50%  of the                                                                    
     operation.  Once the  system is  certified the  federal                                                                    
     government will  reimburse the state to  the full match                                                                    
     noted above,  e.g., the additional  40% for  design and                                                                    
    25% for operation. And this payment is retroactive.                                                                         
     Thus, certification  relates to  funds expended  by the                                                                    
     state to build and operate  the new system and does not                                                                    
     impact provider  payments for federal match  related to                                                                    
     those payments.                                                                                                            
Ms.  Kraly summarized  that slide  10  discussed more  about                                                                    
Representative  Wilson asked  about  page 9.  She wanted  to                                                                    
know  if  what  was  listed  for  the  federal  government's                                                                    
operational  costs  for  the  MMIS of  75  percent  and  the                                                                    
state's  portion  of  45 percent  was  accurate.  Ms.  Kraly                                                                    
responded that it was a typographical error.                                                                                    
Co-Chair  Thompson clarified  that  the  number should  have                                                                    
been 25 percent.                                                                                                                
Representative  Wilson asked  about the  coding in  October.                                                                    
She  wondered  why   the  state  did  not   wait  to  pursue                                                                    
litigation  with Xerox  until  the next  large  test of  the                                                                    
system occurred or until certification was completed.                                                                           
Ms. Kraly  indicated that  she was  not qualified  to answer                                                                    
Representative Wilson's  question. She pointed out  that the                                                                    
commissioner and Ms. Brodie spoke  on the topic the previous                                                                    
day. As  far as her  second question, certification  was not                                                                    
the trigger  for reimbursement  from the  federal government                                                                    
for the provision  of services. In her  opinion, waiting for                                                                    
certification to expand did not  make sense. The state would                                                                    
receive  money from  the  federal  government regardless  of                                                                    
Representative Wilson  indicated she  was only  referring to                                                                    
the  state's  agreement with  Xerox.  She  wondered why  the                                                                    
state  would  not  wait  to  take  care  of  the  litigation                                                                    
following the  certification for Xerox. She  was not looking                                                                    
at  expansion.  She  was looking  at  whether  other  states                                                                    
waited until they changed over.                                                                                                 
Ms.  Kraly relayed  that  if  she understood  Representative                                                                    
Wilson's question  correctly the state  was in a  status quo                                                                    
position with  Xerox currently. The state  had not withdrawn                                                                    
the  litigation or  the claim  for  liquidated damages.  The                                                                    
state was  able to reinstitute  or go  back off the  stay or                                                                    
address  additional   claims  should  there   be  additional                                                                    
problems  in  the  future.  The  state  did  not  intend  on                                                                    
releasing Xerox  from performing  under the contract  in the                                                                    
future.  There was  really no  need  to wait  until the  two                                                                    
milestones were reached.  The state was moving  forward on a                                                                    
day-to-day basis.                                                                                                               
Representative  Wilson suggested  looking  again during  the                                                                    
interim  at whether  other  states in  converting  to a  new                                                                    
system, used certification as a stamp of approval.                                                                              
1:52:50 PM                                                                                                                    
Co-Chair  Thompson commented  that,  in terms  of the  whole                                                                    
system,  when it  initially  went live  it  seemed to  work.                                                                    
However,  when the  big  load was  initialized  there was  a                                                                    
significant  problem. The  system currently  appeared to  be                                                                    
working, but  the state  would be adding  20 thousand  to 40                                                                    
thousand new  people and 70 thousand  NCCI [National Council                                                                    
on   Compensation   Insurance]   codes   into   the   system                                                                    
simultaneously. He  was concerned  whether the  system could                                                                    
handle the additional load.                                                                                                     
Ms. Kraly moved to slide 12: "State Litigation":                                                                                
     Filipino    American    Assisted    Living    Providers                                                                    
     Association v. DHSS:                                                                                                       
     This  class action  complaint for  injunction, damages,                                                                    
     and  declaratory  relief related  to DHSS'  efforts  to                                                                    
     engage in  cost-based rate setting for  assisted living                                                                    
     home operators.                                                                                                            
Ms.  Kraly reported  that the  committee requested  that the                                                                    
topic of ongoing  litigation within DHSS be  included in the                                                                    
presentation  as well  as  to discuss  a  couple of  federal                                                                    
cases.  She reported  that  the  Filipino American  Assisted                                                                    
Living  Providers Association  v.  DHSS was  currently in  a                                                                    
lull. The  state had prevailed  on all  motions [Secretary's                                                                    
note: Audio cut out briefly].                                                                                                   
Ms. Kraly turned to slide 13: "State Litigation":                                                                               
     Putnam and Brown v. State of Alaska, DHSS, DSDS:                                                                           
     Litigation  filed on  behalf  of  two Medicaid  nursing                                                                    
     home recipients,  requesting a  preliminary injunction,                                                                    
     and declaratory and injunctive  relief arguing that the                                                                    
     notices sent by DHSS  violated due process because they                                                                    
     did    not   engage    in   a    material   improvement                                                                    
     analysis/process   similar  to   what   is  done   when                                                                    
     terminating  a  person  from home  and  community-based                                                                    
     waivers under AS 47.07.045.                                                                                                
Ms.  Kraly relayed  that  the litigation  was  filed by  two                                                                    
Medicaid  recipients   who  were  challenging   the  state's                                                                    
determination  that  they  no longer  met  nursing  facility                                                                    
level  of care  conditions and  could no  longer have  their                                                                    
services paid for in a  nursing home. The allegations raised                                                                    
were that  the state  should use the  same process  that was                                                                    
used for home and  community-based waivers establishing that                                                                    
recipients had materially improved.                                                                                             
Vice-Chair  Saddler  asked for  details  about  the case  on                                                                    
slide 12.  Ms. Kraly responded that  4 or 5 years  prior the                                                                    
legislature  and  the  department  discussed  a  variety  of                                                                    
issues  concerning consistency  within  the assisted  living                                                                    
home  arena. The  discussion included  moving to  cost-based                                                                    
reporting required by the  federal government. Department of                                                                    
Health and Social Services engaged  in a regulatory proposal                                                                    
to  require assisted  living homes  to engage  in cost-based                                                                    
reporting which  was a fundamental  shift in how  rates were                                                                    
established previously.  A number  of assisted  living homes                                                                    
participated in  providing cost-based reports  and certified                                                                    
accounting records.  Other homes did  not like the  new plan                                                                    
and filed the  litigation arguing that the  system the state                                                                    
was engaging  in through regulations  was too  extensive and                                                                    
ineffective. The state presently  prevailed on all claims at                                                                    
Vice-Chair  Saddler  thanked  Ms.   Kraly  for  the  helpful                                                                    
Ms. Kraly continued  to explain slide 13.  She reported that                                                                    
the case remained active and  an oral argument was scheduled                                                                    
at the end of June [2015].                                                                                                      
1:56:57 PM                                                                                                                    
Ms. Kraly pointed to slide 14: "State Litigation":                                                                              
     Henderson v. DHSS, DHCS:                                                                                                   
     Litigation  related to  the  DHSS' protocols  regarding                                                                    
     the   approval   for   prior  authorization   for   the                                                                    
     hepatitis C  drug Sovaldi  violated  federal and  state                                                                    
     law. The drug in question  is Sovaldi, a relatively new                                                                    
     treatment for  hepatitis C with a high  rate of success                                                                    
     in  patients with  the disease,  along with  a cost  of                                                                    
     $84,000  for  each course  of  treatment.  At issue  is                                                                    
     whether the  criteria were  properly adopted  under the                                                                    
     Administrative  Procedures  Act,   whether  the  policy                                                                    
     unjustly   discriminates  in   violation   of  42   CFR                                                                    
     440.230(c), and  whether the notice of  denial comports                                                                    
     with due process.                                                                                                          
Ms.  Kraly  indicated that  the  state  had been  sued.  The                                                                    
argument was  that the state's  protocols were  in violation                                                                    
of  the Administrative  Procedures  Act; they  discriminated                                                                    
under  the federal  rules related  to the  Medicaid Act  and                                                                    
that the  state's notice violated due  process. She reported                                                                    
that  the case  was  in  its infancy  in  the discovery  and                                                                    
motion practice.                                                                                                                
Ms.   Kraly  detailed   the  case   on   slide  15:   "State                                                                    
     Nafalhu v. SDS:                                                                                                            
     Litigation  related   to the  Division   of Senior  and                                                                    
     Disabilities Services  (SDS) alleging that  the process                                                                    
     used by SDS to determine  eligibility for personal care                                                                    
     services  violates due  process because  eligibility is                                                                    
     not  based  solely  upon   the  assessment but  is  put                                                                    
     through  a   quality  control  system  to   assure  the                                                                    
     accuracy  of the  assessment   in  light  of  all other                                                                    
     factors,   such  as   medical  diagnoses   and  medical                                                                    
Ms.  Kraly  relayed  that  the case  was  filed  within  the                                                                    
previous month  regarding how the division  determined needs                                                                    
of patients for personal care services.                                                                                         
Ms.  Kraly  clarified  that  the four  cases  that  she  had                                                                    
presented   she   would    highlight.   They   were   active                                                                    
litigations.  The  department  had a  myriad  of  additional                                                                    
cases  it  dealt  with  at   the  Office  of  Administrative                                                                    
Hearings,  which dealt  with  Medicaid  provider audits  and                                                                    
recipient  fair   hearings  with  respect  to   the  denial,                                                                    
suspension, or termination of Medicaid benefits.                                                                                
Ms. Kraly moved on to slide 16: "Federal Litigation":                                                                           
     King v. Burwell:                                                                                                           
     The issue  is whether a person  who purchases insurance                                                                    
     on an  exchange established by the  federal government,                                                                    
     instead of  on an exchange  established by a  state, is                                                                    
     authorized to get tax credits under Obamacare.                                                                             
     Only 16  states have their own  exchange; the remaining                                                                    
     states  have relied  upon the  federal exchange.  It is                                                                    
     estimated  that at  least  5  and maybe  as  many as  8                                                                    
     million  people will  lose their  tax  credits, if  the                                                                    
     Court  finds  that the  tax  credits  do not  apply  to                                                                    
     insurance purchased on the federal exchange.                                                                               
Ms.  Kraly  relayed that  the  case  was before  the  United                                                                    
States Supreme  Court. She  provided case  details regarding                                                                    
the   Affordable  Care   Act.   Individuals  who   purchased                                                                    
insurance through  the exchanges had been  provided with tax                                                                    
credits. The  question in front  of Burwell was  whether the                                                                    
tax credits could be provided  if a person had purchased the                                                                    
insurance  through   the  federal  exchange.  There   was  a                                                                    
provision in the  Affordable Care Act that  indicated that a                                                                    
person  could only  receive  a tax  credit  if they  applied                                                                    
through a state exchange.  The litigation was asking whether                                                                    
the  tax   credits  were   available  through   the  federal                                                                    
2:00:17 PM                                                                                                                    
Vice-Chair Saddler  asked if the  state was at issue  in the                                                                    
case being that it did not  have its own exchange relying on                                                                    
the federal exchange. Ms. Kraly responded affirmatively.                                                                        
Vice-Chair Saddler  asked about the potential  impact if the                                                                    
Burwell  case  went  against  the  federal  administration's                                                                    
position.  Ms.  Kraly  explained that  the  ultimate  impact                                                                    
would be  that those  individuals that received  tax credits                                                                    
through the federal exchange would  no longer be eligible to                                                                    
receive them.                                                                                                                   
Vice-Chair Saddler  asked if Alaskans  would be  required to                                                                    
repay the tax credits. Ms. Kraly  did not know the answer to                                                                    
Vice-Chair Saddler's question. She assumed not.                                                                                 
Vice-Chair Saddler wondered if the  State of Alaska would be                                                                    
required  to step  in  for the  people  affected. Ms.  Kraly                                                                    
responded that the State of  Alaska could certainly step in,                                                                    
but   currently  the   questions   and   answers  would   be                                                                    
hypothetica1. She  reiterated that  the state could  step in                                                                    
to provide fixes.                                                                                                               
Vice-Chair Saddler asked if the  state would be obligated to                                                                    
step in. Ms. Kraly did not believe so.                                                                                          
Co-Chair Neuman commented that when  he had spoken with many                                                                    
Alaskans around the  state who had received  the credits and                                                                    
expressed their  concerns. He suggested having  something in                                                                    
HB 148  that addressed  the needs of  Alaskans who  would be                                                                    
subject to losing  the credits. He mentioned  Obama Care. He                                                                    
suggested that  the Department of  Law come up  with options                                                                    
for the legislature to consider  to make sure that the state                                                                    
did not  lose the 21  thousand Alaskans that  were currently                                                                    
covered.  He also  did not  want  the same  people to  incur                                                                    
additional costs  just because  the state decided  to expand                                                                    
Representative  Pruitt  asked  about the  income  level  for                                                                    
people who would  qualify for tax credits.  Ms. Kraly stated                                                                    
that roughly speaking insurance  was made available to those                                                                    
with an income of 133 percent  to 400 percent of the federal                                                                    
poverty  line.   An  individual  making   approximately  $16                                                                    
thousand  to  $47 thousand  would  be  required to  purchase                                                                    
coverage but  would no  longer receive  any help  should the                                                                    
court rule  against the  administration. She  suggested that                                                                    
the department might have more accurate information.                                                                            
Representative  Pruitt asked  about the  numbers. Ms.  Kraly                                                                    
answered  133 percent  to  the 400  percent  of the  federal                                                                    
poverty guideline.                                                                                                              
Representative  Pruitt did  not  believe  the income  levels                                                                    
matched the  percentage levels. He  wanted to hear  from the                                                                    
commissioner if possible.                                                                                                       
2:05:04 PM                                                                                                                    
VALERIE  DAVIDSON, COMMISSIONER,  DEPARTMENT  OF HEALTH  AND                                                                    
SOCIAL  SERVICES, responded  that  the subsidized  insurance                                                                    
available  on  the  federally facilitated  market  place  in                                                                    
Alaska  was based  upon an  individual  falling between  100                                                                    
percent and  400 percent  of the  federal poverty  level. In                                                                    
terms of  state versus federal-based exchanges,  every state                                                                    
had  the  opportunity  to   develop  their  own  state-based                                                                    
exchange  by a  certain date.  She relayed  that there  were                                                                    
federal grants  available for states  to take  advantages of                                                                    
building  the  exchanges.  She  continued  that  for  states                                                                    
unable  or  chose  not  to  develop  their  own  state-based                                                                    
exchange were  subject to  the federally  facilitated market                                                                    
place.   Previously,  the   issue  was   addressed  by   the                                                                    
department in a  letter to Senator Coghill  addressed by the                                                                    
commissioner of  insurance in a  memorandum. She  could make                                                                    
the letter dated April 14, 2015 available to the committee.                                                                     
Commissioner Davidson  relayed the exchange options  for the                                                                    
state.  The  first  was  to  do  a  traditional  state-based                                                                    
exchange  which  Alaska no  longer  had  the opportunity  to                                                                    
pursue  due to  federal dollars  no longer  being available.                                                                    
The second option  was to build a  state designated exchange                                                                    
in  which   the  state  basically  designated   the  federal                                                                    
exchange to  serve as the  state-based exchange in  order to                                                                    
comply with the  rules. The third option was  to establish a                                                                    
supported state-based exchange. The  fourth was where Alaska                                                                    
could contract with  another state. The fifth  option was to                                                                    
build a  regional exchange  where a  number of  states could                                                                    
work together to  develop an exchange. The  sixth option was                                                                    
a  state  private  exchange. She  relayed  that  based  upon                                                                    
Alaska's   situation,   the  most   cost-effective   systems                                                                    
available  and being  pursued by  the Division  of Insurance                                                                    
were the state-designated exchange  or the contracted state-                                                                    
based  exchange.  The  federally  facilitated  market  place                                                                    
would be designated as Alaska's  exchange or the state could                                                                    
contract  with  another state  to  provide  the service  for                                                                    
2:08:44 PM                                                                                                                    
Vice-Chair Saddler  asked that  the information  be provided                                                                    
in writing.  He suggested  that the Commissioner  was saying                                                                    
that if there was a  reduction through federal litigation in                                                                    
health care benefits  to some Alaskans that  the state would                                                                    
consider  several  options  to maintain  that  [health  care                                                                    
benefits].   Commissioner   Davidson  responded   that   the                                                                    
department would be happy to provide the information.                                                                           
Representative Pruitt  assumed that the closer  a person was                                                                    
to  the poverty  the higher  the subsidy  or tax  credit. He                                                                    
wondered if  he was correct in  his assumption. Commissioner                                                                    
Davidson responded affirmatively.                                                                                               
Representative Pruitt wanted to  know how many people within                                                                    
the  expansion  population  could potentially  be  impacted.                                                                    
Commissioner Davidson  would try to provide  the information                                                                    
Representative Pruitt was requesting.                                                                                           
Representative Gara  asked a question about  the donut hole.                                                                    
He suggested when Governor Parnell  and other governors sued                                                                    
to stop the Affordable Care  Act the ruling resulted in what                                                                    
was  commonly referred  to as  a  donut hole.  He wanted  to                                                                    
better  understand the  circumstances for  those people  who                                                                    
would have  received insurance  subsidies but  currently did                                                                    
not  receive  either  insurance subsidies  or  Medicaid.  He                                                                    
wanted to  better understand the  gap and wondered  how many                                                                    
people were affected.                                                                                                           
Commissioner  Davidson stated  that she  could provide  some                                                                    
specificity  on  the  exact number  of  Alaskans  that  fall                                                                    
within the  gap Representative  Gara was talking  about. She                                                                    
explained that  in terms  of the donut  hole created  by the                                                                    
Supreme  Court  it  resulted   because  under  the  original                                                                    
Affordable Care Act that was  drafted Medicaid expansion was                                                                    
required  of  all  states.  As a  result  some  states  sued                                                                    
including Alaska.  The Supreme  Court determined  that while                                                                    
the  Affordable Care  Act  was  constitutional states  could                                                                    
reject  Medicaid.  Individuals that  are  at  less than  100                                                                    
percent of the  federal poverty level did not  qualify for a                                                                    
subsidized insurance plan in the marketplace.                                                                                   
2:11:57 PM                                                                                                                    
Representative Gara  asked if  there was  a group  of people                                                                    
below  100 percent  of the  federal poverty  line that  were                                                                    
also not eligible to receive Medicaid even with expansion.                                                                      
Commissioner  Davidson  responded  in the  affirmative.  She                                                                    
pointed out  that people in  the expansion  populations that                                                                    
were newly eligible between the ages  of 19 to 64 in 2016 of                                                                    
the almost 42 thousand Alaskans  who would be eligible under                                                                    
the expansion, 23,344 were below  100 of the federal poverty                                                                    
level, ineligible  for a subsidy on  a federally facilitated                                                                    
Representative  Munoz  asked  about  how  many  people  were                                                                    
purchasing  subsidized  insurance  that  would  transfer  to                                                                    
Medicaid  with expansion.  Commissioner  Davidson would  get                                                                    
back to  the committee  with the  information Representative                                                                    
Munoz was requesting.                                                                                                           
Ms. Kraly pointed to slide 18: "Federal Litigation":                                                                            
     Scott v. DSS:                                                                                                              
     On  April 29,  2015,  Governor Rick  Scott, filed  suit                                                                    
     against the federal Government  related to its decision                                                                    
     to  defund  the  Low  Income   Pool,  a  grant  program                                                                    
     authorized  by  the  federal government  to  assist  in                                                                    
     offsetting cost of care for  persons who do not qualify                                                                    
     for Medicaid.                                                                                                              
     Florida receives  1.3 billion  to help  hospitals cover                                                                    
     the  cost of  care for  uninsured persons.  The federal                                                                    
     Government decided not to re-issue  the grant that paid                                                                    
     for  the Low  Income  Pool arguing  that those  persons                                                                    
     should be covered by Medicaid expansion.                                                                                   
     Governor Scott  filed suit arguing that  this reduction                                                                    
     of the  grant was  akin to  the coercion  argument that                                                                    
     was  struck  down  by  the  US  Supreme  Court  in  the                                                                    
     Sebelius case in 2010.                                                                                                     
     The  federal government  stated  that  the program  was                                                                    
     temporary  and had  been previously  set  to expire  in                                                                    
     June. The  pool funding  shouldn't be  used to  pay for                                                                    
     costs  that  would  be  covered   by  an  expansion  of                                                                    
Ms. Kraly concluded her portion of the presentation.                                                                            
2:15:13 PM                                                                                                                    
ANDREW PETERSON,  ASSISTANT ATTORNEY GENERAL,  DEPARTMENT OF                                                                    
LAW,  introduced   himself  indicating   that  he   was  the                                                                    
supervisor of the  Medicaid Fraud Control Unit.  He would be                                                                    
discussing a  number of things including  the unit's mission                                                                    
and  how it  had been  fulfilled through  collaborating with                                                                    
other state and  federal agencies. He would  be pointing out                                                                    
some of  the results of  the enhanced collaboration  and the                                                                    
effectiveness  it had  provided the  unit and  the resulting                                                                    
cost savings. He  would also talk about some  of the reforms                                                                    
his office  and Ms. Kraly's  office recommended to  DHSS. He                                                                    
noted that he  would be summarizing the first  few slides to                                                                    
save time.                                                                                                                      
Mr. Peterson started with slide 20: "Introduction":                                                                             
     Omnibus Budget Reconciliation Act 1993                                                                                     
          Requires states to establish Medicaid Fraud                                                                           
          Control Units (MFCU)                                                                                                  
         Sets performance standards and guidelines                                                                              
          Minimum personnel requirements                                                                                        
     Federal Financial Participation (FFP) grant                                                                                
          Funds 75% of MFCU costs                                                                                               
Mr. Peterson explained that the  Medicaid Fraud Control Unit                                                                    
was established  in 1993 by federal  regulation. Essentially                                                                    
the regulation  required that all states  had Medicaid Fraud                                                                    
Control Units  (MFCU) nationwide.  Currently, there  were 49                                                                    
states and  the District  of Columbia  that had  MFCU. North                                                                    
Dakota  was  the  only  state  that  did  not  have  a  MFCU                                                                    
presently.   The  federal   government  set   forth  certain                                                                    
performance  standards   and  guidelines  that  had   to  be                                                                    
followed similar to DHSS. The  unit was audited on a regular                                                                    
basis to  back sure it  is being  a good steward  of federal                                                                    
resources being  received. As  a result, the  unit had  a 75                                                                    
percent federal financial participation match.                                                                                  
Mr. Peterson  advanced to slide 21:  "Medicaid Fraud Control                                                                    
Unit [MFCU]"                                                                                                                    
     MFCU investigates and prosecutes:                                                                                          
          Medical Assistance Fraud                                                                                              
          Allegations of abuse or neglect                                                                                       
          Financial exploitation or misappropriation of                                                                         
          patient assets                                                                                                        
Mr.  Peterson  indicated  that   MFCU  was  responsible  for                                                                    
investigating  and  prosecuting  medical  assistance  fraud,                                                                    
allegations   of   neglect    and   abuse,   and   financial                                                                    
exploitation  or  misappropriation  of patient  assets.  The                                                                    
unit had  statewide jurisdiction  to prosecute any  crime in                                                                    
the State  of Alaska. The  way he  described it was  that if                                                                    
the unit had Medicaid fraud  or abuse allegation of hook the                                                                    
unit would prosecute  any other crime involved  in the case.                                                                    
If a  Medicaid hook was  not part of  a case the  case would                                                                    
move to  another prosecutor such as  the District Attorney's                                                                    
office or  the Office of Special  Prosecutions. He mentioned                                                                    
having a couple of limitations.                                                                                                 
Vice-Chair Saddler  asked how  many staff  he had  and about                                                                    
the division's budget. Mr. Peterson  answered that there was                                                                    
a total  of 10 staff  in the  MFCU. He expounded  that there                                                                    
were  two prosecutors,  himself  and another.  There were  6                                                                    
criminal  investigators, one  of whom  was in  a supervisory                                                                    
role. The other  staff member was the  only forensic auditor                                                                    
in the state.                                                                                                                   
Mr. Peterson  discussed the unit's  budget. He  relayed that                                                                    
in   federal  FY   2015   totaled   $1,105,990.  Ms.   Kraly                                                                    
interjected that the number was on slide 28.                                                                                    
Co-Chair  Neuman  recollected  DHSS  moving  over  about  $6                                                                    
million  from its  budget  to help  with  fraud control.  He                                                                    
asked Mr. Peterson to clarify.  Mr. Peterson speculated that                                                                    
Co-Chair  Neuman was  likely referring  to funds  designated                                                                    
for the  fraud control  unit within  the Division  of Public                                                                    
Assistance.   One   of    the   specific   requirements   of                                                                    
establishing  MFCU was  that  they  be entirely  independent                                                                    
from DHSS.  Twenty-five percent of  MFCU's budget  came from                                                                    
the Attorney  General's budget. The remaining  75 percent of                                                                    
funds came from a federal match.                                                                                                
2:19:55 PM                                                                                                                    
Mr. Peterson detailed slide 22: "MFCU Limitations":                                                                             
     Non-Medicaid cases                                                                                                         
     Investigating or prosecuting recipient fraud                                                                               
     Data mining                                                                                                                
Mr.  Peterson mentioned  that MFCU  had some  limitations on                                                                    
what the unit could prosecute.  In a recipient case in which                                                                    
there  was a  collaboration with  a doctor  or provider  the                                                                    
unit  would charge  both together.  The last  limitation was                                                                    
doing  any kind  of data  mining.  Instead the  unit took  a                                                                    
referral from any source, primarily  from DHSS. The referral                                                                    
could  come from  a citizen  or a  physician. When  the unit                                                                    
received  a  referral it  opened  the  door to  initiate  an                                                                    
Mr. Peterson advanced to slide  23: "NFCU Collaboration with                                                                    
     Coordination Between                                                                                                       
          Program Integrity                                                                                                     
          Quality Assurance (SDS)                                                                                               
          Health Care Services QA                                                                                               
          Behavioral Health QA                                                                                                  
          Department of Law - Civil Division                                                                                    
     Identify Problems or Limitations                                                                                           
          Criminal vs. Civil Action                                                                                             
          Regulation modification                                                                                               
Mr.  Peterson talked  about the  way MFCU  had been  able to                                                                    
enhance   the   unit's   ability  to   investigate   through                                                                    
collaboration, primarily  with DHSS.  In meeting  with other                                                                    
directors  from MFCU  nationwide, Alaska's  unit had  one of                                                                    
the best relationships  with a DHSS than  any throughout the                                                                    
nation. It was baring fruit  which he would demonstrate when                                                                    
he discussed results. The Medicaid  Fraud Control Unit had a                                                                    
close relationship  with DHSS  and with  the civil  unit. He                                                                    
relayed that when  DHSS sent over a  referral Mr. Peterson's                                                                    
unit could  work closely to  collaborate on the best  way to                                                                    
handle a  case. If  neither MFCU  nor the  criminal division                                                                    
were able  to prosecute,  the next  discussion needed  to be                                                                    
about  some  type of  regulatory  reform  or a  request  for                                                                    
statutory  reform.  If  Department   of  Health  and  Social                                                                    
Services wanted to address a  problem the unit had to figure                                                                    
out a way to approach it.                                                                                                       
Mr.  Peterson  scrolled  to slide  24:  "Collaboration  with                                                                    
other Agencies":                                                                                                                
     Office of Inspector General (OIG) Agents                                                                                   
     Immigrations and Customs Enforcement                                                                                       
     Other Federal Agencies (SSA, DEA, USPS)                                                                                    
     Alaska State Troopers                                                                                                      
     Municipality of Anchorage & APD                                                                                            
     Dept. of Labor                                                                                                             
     Dept. of Commerce                                                                                                          
     Dept. of Corrections                                                                                                       
Mr.  Peterson pointed  to the  extensive list  of additional                                                                    
agencies that MFCU  worked with on a daily  or weekly basis.                                                                    
He  reported the  unit worked  closely  with many  different                                                                    
federal  agents  and  state  law  enforcement  officers.  He                                                                    
reported that in  the previous three years  MFCU had entered                                                                    
into memorandums  of agreement with the  Department of Labor                                                                    
and  Workforce  Development,  the  Department  of  Commerce,                                                                    
Community and  Economic Development,  and the  Department of                                                                    
Corrections.  The  agreements  had allowed  the  sharing  of                                                                    
information. The data that was  exchanged helped the unit to                                                                    
fulfill its  mission of prosecuting waste,  fraud, and abuse                                                                    
within the system.                                                                                                              
2:22:29 PM                                                                                                                    
Mr. Peterson revealed slide 25: "Results":                                                                                      
     102 Criminal Cases Filed since FFY 2012                                                                                    
          80 Criminal Convictions                                                                                               
          Suspension from providing Medicaid services                                                                           
          8 civil resolutions - limitation on providing                                                                         
     Restitution Judgments totaling $2,806,369.70                                                                               
     Pending Cases:                                                                                                             
          Number of pending and ongoing investigations                                                                          
          Potential Restitution: $4 million in pending                                                                          
          criminal cases                                                                                                        
Mr. Peterson affirmed that those  individuals who received a                                                                    
criminal conviction  were suspended from  providing Medicaid                                                                    
services  for  10  years typically,  and  faced  a  possible                                                                    
extension  of   10  years  which   was  determined   by  the                                                                    
commissioner  of   DHSS.  The  unit  had   secured  8  civil                                                                    
resolutions that  had not risen  to the level of  a criminal                                                                    
charge or a negotiation had been agreed upon.                                                                                   
Vice-Chair  Saddler   asked  about   the  $2.8   million  in                                                                    
restitution   judgements.   He   wonder   about   the   loss                                                                    
percentage.  Mr.  Peterson  assumed Vice-Chair  Saddler  had                                                                    
heard  about  audits  within  DHSS  and  how  it  looked  at                                                                    
statistically   valid   samples.   In  terms   of   criminal                                                                    
prosecution Mr. Peterson  had to have a  verifiable loss. He                                                                    
furthered that what the unit  could prove in court was equal                                                                    
to  what  the  restitution  judgements would  be.  The  $2.8                                                                    
million   in  judgements   were  criminally   court  ordered                                                                    
restitution judgements based upon the prosecutions.                                                                             
Vice-Chair Saddler  asked if it  equaled 100 percent  of the                                                                    
proven loses. Mr. Peterson speculated  that it was never 100                                                                    
percent of  the proven  losses. It was  what the  unit could                                                                    
prove  in court.  He  relayed that  there  were often  times                                                                    
situations where the unit believed  that there was more lost                                                                    
than  could  be  proven.  He was  referring  to  what  could                                                                    
actually be proven.                                                                                                             
Vice-Chair  Saddler  remarked  that he  was  not  completely                                                                    
clear  about  Mr.  Peterson's   remarks.  He  rephrased  his                                                                    
question.  If  the  unit was  recovering  $2.8  million,  he                                                                    
wondered  about   the  amount   being  lost.  He   wanted  a                                                                    
percentage provided.                                                                                                            
Mr.   Peterson  commented   that  the   Federal  Bureau   of                                                                    
Investigations  (FBI)  had  statistics estimating  what  the                                                                    
percentage was for fraudulent health  care billing. He added                                                                    
that it  was 100 percent of  what the unit had  been able to                                                                    
prove in its criminal cases.                                                                                                    
Vice-Chair Saddler  was still unclear about  the percentage.                                                                    
He appreciate any information Mr.  Peterson could provide on                                                                    
the subject. Mr. Peterson responded  that the FBI statistics                                                                    
suggested that  3 percent to  10 percent of all  health care                                                                    
billing was fraudulent.  If the 3 percent  FBI statistic was                                                                    
applied to the  Medicaid system of the state  of Alaska then                                                                    
potentially $45 million  per year could be  determined to be                                                                    
Co-Chair Thompson  asked if  judgements were  different from                                                                    
collections. He cited  that the state had  not collected the                                                                    
amount it just  reflected the amount the  state had received                                                                    
in judgements. He wondered if he was correct.                                                                                   
Mr. Peterson  stated that Co-Chair Thompson  was correct. He                                                                    
relayed his surprise at the  amount that had been collected.                                                                    
He also mentioned  that MFCU had recently  received a fairly                                                                    
significant judgement. One  of the benefits was  that once a                                                                    
potential  fraud  was   identified  the  federal  government                                                                    
essentially reached  into the state's  coffers and  took the                                                                    
fraudulent amount of the federal  share back from the state,                                                                    
a  sign that  the  state  had been  a  poor  steward of  the                                                                    
state's resources. Once a conviction  was obtained against a                                                                    
defendant  and  the  state  proved  the  judgement  was  not                                                                    
collectable the  state would then  be able to get  the money                                                                    
back from  the federal government. Although  the state might                                                                    
not  collect  100  percent  of  the  funds  that  the  state                                                                    
received  in  restitution  judgements there  was  clearly  a                                                                    
financial benefit back to the State of Alaska.                                                                                  
2:26:30 PM                                                                                                                    
Representative  Gara  discussed  a  comment  made  by  fraud                                                                    
investigators  that  it  would  be cost  effective  to  hire                                                                    
additional  investigators in  order to  recuperate money  by                                                                    
discovering  fraud. He  furthered  that  they had  suggested                                                                    
that money  spent on  hiring additional  investigators would                                                                    
be less than  the money returned. He asked  for Mr. Peterson                                                                    
to comment.                                                                                                                     
Mr. Peterson relayed  that, based on statistics  he would be                                                                    
reviewing, Representative Gara's  statement was accurate. He                                                                    
reported that  prior to  2012 the  MFCU had  3 investigators                                                                    
and was prosecuting on average zero  to 3 cases per year. In                                                                    
2012 MFCU  expanded its number  of investigators to  6 which                                                                    
greatly  enhanced the  unit's ability  to look  at a  larger                                                                    
number  of  cases. Since  then,  the  unit had  dramatically                                                                    
increased both the  amount of restitution and  the number of                                                                    
prosecutions secured for Medicaid fraud.                                                                                        
Mr. Peterson advanced to slide 26: "Results Cont.":                                                                             
     121 suspensions of Medicaid providers based on                                                                             
     credible allegation of fraud                                                                                               
          114 Individual PCAs                                                                                                   
          4 PCA agencies                                                                                                        
          Transportation service provider                                                                                       
          Two medical practices                                                                                                 
Mr.   Peterson  acknowledged   that  there   had  been   121                                                                    
suspensions  of Medicaid  providers which  included the  102                                                                    
prosecutions mentioned earlier in the presentation.                                                                             
Mr. Peterson advanced to slide 27: "Cost Savings":                                                                              
     Estimated Savings: $30 Million                                                                                             
          FFY 2013: $461,805                                                                                                    
          FFY 2014: $18,089,187                                                                                                 
          FFY 2015: $12,154,541                                                                                                 
Mr. Peterson conveyed  that the number had  been provided to                                                                    
the  unit by  DHSS's  Program Integrity  Unit.  The way  the                                                                    
number was estimated was based  on the number of suspensions                                                                    
in each year. The cost  savings were estimated going forward                                                                    
based  on the  suspensions.  The estimated  savings was  $30                                                                    
million since federal FY 2013.                                                                                                  
Vice-Chair Saddler asked  what the number was  based on. Mr.                                                                    
Peterson replied  that it was  the Program  Integrity Unit's                                                                    
best estimate.                                                                                                                  
Mr.  Peterson detailed  slide  28:  "Funding," pointing  out                                                                    
that the chart showed the  total expenses for MFCU each year                                                                    
in 2012  through 2014. The  third line down was  the state's                                                                    
25 percent  share. On the  fourth line the fines  were shown                                                                    
and in each year starting in  2012 through 2014 the unit had                                                                    
increased  the  amount  of  fines  ordered  by  court  order                                                                    
judgements. He  mentioned that  the two  cases in  which the                                                                    
defendants   had  already   entered  plea   agreements,  but                                                                    
sentencing  was  pending  for the  following  summer,  would                                                                    
result in  $450 thousand in  additional fines being  paid to                                                                    
the state. Similarly, with  restitution, the slide indicated                                                                    
an  escalation in  the amount  of restitution  the unit  had                                                                    
been collecting  as part of the  prosecutions. Additionally,                                                                    
with  the two  pending cases  that should  be sentenced  the                                                                    
following  summer the  unit anticipated  an  excess of  $1.5                                                                    
million additional restitution ordered to the state.                                                                            
Mr.  Peterson discussed  the national  civil cases  was that                                                                    
one of the benefits the state  received by having a MFCU was                                                                    
that  the   state  was  able  to   participate  in  National                                                                    
Association of Medicaid Fraud Control  Unit cases. The cases                                                                    
are  national   cases  against  health  care   providers  or                                                                    
pharmaceutical companies.  The State  of Alaska was  able to                                                                    
join  in the  civil litigation  without having  to fund  the                                                                    
litigation itself.  The amount  of money  on the  chart were                                                                    
civil judgements  that had come in  to the MFCU as  a result                                                                    
of Alaska's membership in the national association.                                                                             
Mr.  Peterson pointed  a few  other items  on the  slide. He                                                                    
noted  the return  on investment,  a return  on the  state's                                                                    
investment of  the 25 percent  share on the amount  of money                                                                    
the state  was getting back.  Each year with  the additional                                                                    
investigators  additional  funds  had  been  collected.  The                                                                    
bottom   line  of   the  chart   reflected  the   number  of                                                                    
convictions each year since 2012.                                                                                               
2:31:10 PM                                                                                                                    
Ms.  Kraly  continued  to slide  29:  "Civil  Recoveries:  2                                                                    
Attorneys and 1.5 Paralegals." She  explained that the slide                                                                    
reflected a  calculation of the recoveries  that her section                                                                    
had achieved  over the prior  4 calendar years.  The numbers                                                                    
represented  actual recoveries  the  Human Services  Section                                                                    
had  obtained as  a  result of  the  estate recovery,  trust                                                                    
recovery,  third-party subrogation,  and  audits. She  added                                                                    
that she  had two attorneys  and 1.5 paralegals  dedicate to                                                                    
civil recoveries, a good return on investment overall.                                                                          
Mr. Peterson concluded with slide 30: "Reform":                                                                                 
     Collaboration to achieve/implement reform:                                                                                 
          Interest Penalties on Overpayments (HB 148)                                                                           
          Civil   fines   on    providers   for   regulation                                                                    
          violations (HB 148)                                                                                                   
          Revisions to Personal Care Attendant Program                                                                          
          (draft regulations pending)                                                                                           
          Revisions to durable medical equipment program                                                                        
          (regulations pending)                                                                                                 
          HB 161, pending transmittal to Governor for                                                                           
Mr. Peterson  began at  the bottom of  the slide.  He stated                                                                    
that  in the  unit's meetings  with DHSS  identifying reform                                                                    
was an  important component. He  conveyed his support  of HB
161   [Short   Title:   Medicaid:   Used   Durable   Medical                                                                    
Equipment],  a reform  in an  area  that the  MFCU had  been                                                                    
looking  at with  respect to  durable medical  equipment. At                                                                    
the top of the  list on the slide he stated  that HB 148 had                                                                    
several reforms that had been  proposed by both the criminal                                                                    
and civil  divisions of  the Department of  Law and  of DHSS                                                                    
with respect  to interest penalties  for providers  that had                                                                    
been either  potentially billing Medicaid for  services that                                                                    
were  not  allowed  or  not  keeping  proper  paperwork  and                                                                    
imposing  civil  fines.  The  reason   he  felt  it  was  so                                                                    
important  was  that currently  if  a  provider was  billing                                                                    
Medicaid in a manner that  maybe was not appropriate and was                                                                    
caught, the  only penalty was  a mulligan; return  the money                                                                    
and start over. They had  the opportunity to litigate in the                                                                    
administrative  hearing process  of the  state's claim  that                                                                    
the provider  owed the state  money which could  take years.                                                                    
In all of the time there  was no loss to the provider. There                                                                    
was no  interest charged  on the money  that the  state paid                                                                    
out. One  of the ideas was  to make sure that  providers had                                                                    
some skin in  the game. The two proposals  would ensure that                                                                    
providers had  skin in the  game. If providers  were billing                                                                    
Medicaid inappropriately  and receiving funds they  were not                                                                    
entitled to  they would be  entitled to appeal  or challenge                                                                    
the state's findings. However, in  the end, if the providers                                                                    
were determined  to be wrong  they would likely have  to pay                                                                    
interest on  the monies  improperly received.  Currently the                                                                    
only  way to  address  providers that  were doing  something                                                                    
wrong   was  with   a  criminal   charge  which   came  with                                                                    
significant consequences. The civil  fines that the unit was                                                                    
asking the legislature to consider  would provide the option                                                                    
to remedy  potential waste, fraud,  or abuse  without having                                                                    
to potentially put a provider out of business.                                                                                  
Mr. Peterson concluded  that some of the  revisions the unit                                                                    
had worked  with both  on the criminal  and civil  sides had                                                                    
been  addressing revisions  in the  personal care  attendant                                                                    
program. The unit  had implemented a number  of revisions in                                                                    
past years. He  intimated that the committee  had heard from                                                                    
the director of  Senior Disability Services (SDS)  as to the                                                                    
amount of money that had been  saved, some of which were due                                                                    
to  prosecutions  but   most  of  it  was   due  to  reforms                                                                    
implemented by SDS.                                                                                                             
Co-Chair Thompson  asked that any  written responses  to the                                                                    
questions be directed to his office.                                                                                            
HB  148  was  HEARD  and   HELD  in  committee  for  further                                                                    

Document Name Date/Time Subjects
HB 148 DOL Presentation to House Finance May 13 2015.pdf HFIN 5/13/2015 1:00:00 PM
HB 148
HB 148 Medicaid Fraud Press Release 050615.pdf HFIN 5/13/2015 1:00:00 PM
HB 148