House Ambulance Medical Service Transportation Study Committee

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ARIZONA HOUSE OF REPRESENTATIVES

Fifty-first Legislature –First Regular Session

HOUSE AMBULANCE MEDICAL SERVICE

TRANSPORTATION STUDY COMMITTEE

Minutes of Interim Meeting

Tuesday, November 19, 2013

House Hearing Room 1 -- 3:00 p.m.

Chairman Ugenti called the meeting to order at 3:07 p.m. and attendance was noted by the secretary.

Members Present

Representative Michelle Ugenti, Chairman Terry Mullins for Will Humble

Charles Bassett Thomas MacKay

Tom Betlach Neal Thomas

Les Caid John Valentine

Mary Dalton

(1) vacant

Chairman Ugenti thanked everyone for attending, noting that there will be an opportunity for the public to speak at the end of the meeting. Since the Office of Administrative Hearings (OAH) is a significant part of the Certificate of Necessity (CON) application process, OAH will give the first presentation. The Arizona Corporation Commission (ACC) will talk about how rate increases are handled, after which a presentation will be made by the
Joint Legislative Budget Committee (JLBC) on Arizona Health Care Cost Containment System (AHCCCS) ambulance rates. She indicated that this will be the last informational hearing; one more meeting will be held to focus on potential legislation and/or recommendations.

PRESENTATIONS

Office of Administrative Hearings (OAH)

Cliff J. Vanell, Director, Office of Administrative Hearings (OAH), reviewed a schematic design of the OAH process involving CONs (Attachment 1, A). He said OAH is a central tribunal. The administrative adjudication function was extracted from all of the agencies, with some exceptions, so OAH holds independent proceedings. He indicated that electronic docketing is used for cases that involve a large volume of exhibits or a large number of parties/interveners, and also allows for public access.

In response to questions, Mr. Vanell related that many CON hearings last one or two days, but some have taken weeks, perhaps because parties have a difficult time getting witnesses for certain hearings.

Mr. Mullins related that he is the Chief of the Bureau of Emergency Medical Services and Trauma System (Bureau) at the Arizona Department of Health Services (ADHS), representing the Director, Will Humble. He clarified that the role of the Bureau during the administrative and substantive review process is to help the applicant build an application package that is descriptive of the strengths and weaknesses of the organization so that when the hearing process begins, the hearing officer has as much information as necessary in order to make an informed decision, using the criteria in statute and rule. Sometimes that process does not allow the applicant to include all of the necessary information so the pre-hearing is used as an opportunity to ask questions.

In response to questions, Mr. Mullins indicated that if the 420-day time frame associated with the substantive review and the pre-hearing is not met, which rarely occurs, application funds are returned to the applicant.

Chairman Ugenti questioned if it would be appropriate to impose stronger penalties to make sure the deadlines are met, which Mr. Mullins deferred to Director Humble.

Mr. Vanell clarified that the conclusion of a hearing is defined as when the record closes, which does not always occur immediately after testimony from the last witness because there is post-hearing memoranda, etc. Barring that, OAH transmits decisions within the 20-day time frame approximately 90 percent of the time. The 20-day time frame is an advisory directive that has no consequences if it is not met; however, it is taken very seriously by OAH. Hearings are expedited as much as possible given OAH resources and the needs of the parties.

Mr. Vanell indicated that once the administrative law judge’s (ALJ) decision is transmitted to ADHS, there is a time limit of 30 days for ADHS to accept, reject or modify the decision and send it to OAH; five additional days are allowed for mailing. If OAH does not receive an agency action within 35 days, the OAH Director certifies the ALJ’s decision as the final order. Agencies often allow the decision to be certified by the OAH Director. Audits are constantly performed on cases, and if a record remains open and the ALJ continues to do nothing, the case could go to Superior Court on a special action. In his 18 years as Director, that has not occurred.

Mr. Vanell and Mr. Thomas discussed the OAH proceedings in a CON application involving ABC Ambulance.

Chairman Ugenti remarked that it may be possible to minimize some time frames, but it is important to understand why OAH takes the time it does, where the time is allocated, etc., because the parties involved invest a lot of money.

In response to further questions, Mr. Vanell advised that, depending on the case, the ALJ has the power to limit motions that are repetitive or irrelevant. ALJs have no interest in prolonging cases but it is necessary to have a thorough hearing. There are two types of cases: appealable agency actions in which an agency has acted and someone appeals the decision, and contested cases whereby an agency proposes something, such as revoking a license, but has not made a decision.

Mr. Thomas noted that the handout indicates that the statutory scheme does not address intervention as a matter of right, and questioned if that could be addressed in legislation.
Mr. Vanell responded that the issue of intervention is considered by referring to the Rules of Civil Procedure; other than that, there is no specific direction. OAH does not typically oppose an intervener.

Mr. Vanell thanked the Committee for the invitation to speak, noting that the questions asked give “food for thought.” The statute requires OAH to receive input from the public, which the process includes; OAH is lacking resources but is willing to serve to the extent possible.

Arizona Corporation Commission (ACC)

Lori Lustig, Legislative Liaison, Arizona Corporation Commission (ACC), stated that the ACC is often referred to as the fourth branch of government. It is composed of five commissioners who are elected statewide; the current chairman is Bob Stump. The ACC’s creation and scope of functions is outlined in Article 15 of the Arizona State Constitution. The ACC has nine divisions, including the Corporations Division, which is responsible for the issuance of articles of incorporation for corporations and limited liability companies (LLC), as well as the
Securities Division, which oversees the registration and oversight of securities, brokers, dealers, salespersons and investment advisors. The ACC is also known for its regulatory and rate-making responsibilities of public service corporations.

John LeSueur, Assistant Director, Utilities Division, Arizona Corporation Commission (ACC), said there are two parts to a rate case. The first is a review of the requirement component in which it is determined the amount of revenues a utility needs to cover its cost of service over a 12-month period. The second is rate design where the revenue requirement component is apportioned to the utility’s customers which, based on the questions raised, is of primary interest to the Committee. He explained the formula for calculating the revenue requirement (Attachment 2).

Referring to a thick stack of papers, Mr. LeSueur indicated that it represents a rate case filed in 2013 by a water company that serves about 16,000 customers in Litchfield Park and Avondale. All of the information is vetted by the ACC in order to determine if it is sufficient for processing, which usually takes approximately 30 days, unless something is lacking, which takes longer. If all the information is provided, the ACC issues a sufficiency letter after which there is a time frame in which to set a date for a hearing, depending on the size of the company (360 days for a large company). In the meantime, the utility is directed to provide public notice so customers know what is being proposed, requests can be filed to intervene and interveners can make recommendations, review the company’s prefiled evidence and make pre-filed rebuttals or recommendations.

In response to questions, Mr. LeSueur related that the process for large companies is different than for smaller companies. The size of the company is determined by the amount of revenue the utility generates. Rates cases are mostly filed by utilities that determine the rates are inadequate to cover the cost of service; however, the ACC also has the authority to direct a utility company to file a rate case, for example, if there is a specific concern.

Mr. LeSueur indicated that the intensity of capital versus expenses in large utilities varies. Reasonable cost is determined by ACC accountants, engineers and lawyers who vet the figures provided by the utility company. Items such as donations to Little League are eliminated because it is not necessary for providing electric service and anomalies that may occur during that particular year are normalized. The Utilities Division has 60 people on staff; outside consultants are used, particularly for larger utility rate cases.

He clarified that there is a Certificate of Convenience and Necessity (CC&N) process in which the ACC evaluates the fitness and properness of an applicant to provide service in an area. If the entity is determined to be fit and proper, it is given a monopoly right. The entity must show it has the technical, financial and legal capability of providing the service. During his six years at the ACC, requests for providing service to new territories have declined; those he has seen were from one applicant asking to serve an existing area.

Mr. Mullins indicated that ADHS has three people who conduct reviews. An annual automatic rate increase is issued without a hearing following an evaluation by staff. For general rate increases, a notice of waiver of hearing is issued and a hearing is not held; however, a hearing can be held if there is a request.

Jim Armstrong, Arizona Corporation Commission (ACC), indicated that the ACC hears 30 to 40 large rate cases each year.

Mr. LeSueur noted that the ACC also hears CC&Ns, and in order for a utility company to borrow funds, financing approval must be obtained from the ACC.

Mr. Mullins indicated that ADHS hears about seven general rate increase cases annually.

Chairman Ugenti surmised that the number of staff at each agency is appropriate to the amount of rate requests.

In response to further questions, Mr. LeSueur advised that utilities are required to file an annual report with the Utilities Division declaring the amount of revenue received from customers, in state and out of state. The utilities are assessed a certain amount based on those revenues, which is placed in a utility revolving fund for operation of the ACC. Affiliated interest rules apply to larger utility companies (annual revenues of $1 million or more) and require that if a utility wants to merge or conduct transactions with an affiliate, it must be disclosed and permission must be obtained from the ACC.

Mr. LeSueur indicated that an applicant who received a CC&N would have to be determined not fit and proper to provide service in an area and have its CC&N revoked by the ACC, in order for another company to offer utility service in that area.

Mr. LeSueur discussed how the ACC determines the profit of a utility.

Ms. Lustig noted that after ACC staff complete the process outlined by Mr. LeSueur, a hearing is held that is conducted by an ALJ who writes a recommended opinion. That opinion is given to the commissioners for a hearing in an open meeting, which is noticed; this takes approximately two to three months.

In response to a question, Mr. LeSueur indicated that smaller companies have a short form and sometimes go through the ACC without a hearing, but the cases are ultimately voted on by the ACC.

Joint Legislative Budget Committee (JLBC)

Amy Upston, Joint Legislative Budget Committee (JLBC), reviewed a handout regarding Arizona Health Care Cost Containment System (AHCCCS) Ambulance Rates (Attachment 3). She indicated that in addition to licensing ambulances, ADHS also sets three types of reimbursement rates: Mileage, Basic Life Support (BLS) and Advanced Life Support (ALS), which requires a paramedic. The two types of rates increases are automatic (providers submit a one-page document and automatically receive the increase) and general (over and above inflation).

Chairman Ugenti asked about the mileage rate of $9.32 (lowest).

Ithan J. Yanofsky, Deputy Chief, Bureau of Emergency Medical Services and Trauma System, Arizona Department of Health Services (ADHS), advised that the statute dictates how an automatic rate adjustment is calculated and when it can be implemented or applied for. Arizona Administrative Code (A.A.C.) R9-25-1107 outlines the factors the Director of ADHS shall take into consideration in determining the mileage rate.

Mr. Mullins related that about three years ago, the formula for the automatic annual rate increase was changed to include costs associated with transportation because it is a significant part of providing service. Discussion followed.

Chairman Ugenti asked if it would be more appropriate to include costs associated with transportation for the general rate increase so a provider must provide justification.

Mr. Yanofsky responded that the automatic rate adjustment allows ambulance services not to have to go through the general rate adjustment process as often.

Chairman Ugenti asked the reason for the disparity in rates among providers. Mr. Yanofsky replied that the ambulance services serve rural and suburban areas with different expense structures; some have 200 runs while others have tens of thousands of runs. There are also municipal ambulance services subsidized by local tax dollars and for-profit ambulance services without that ability. Mileage rates are calculated based on the criteria in A.A.C. R9-25-1107 but an ambulance can choose to have a lower mileage rate, only automatic rate adjustments, etc.

Ms. Upston continued the presentation (Attachment 3, Page 5).

Chairman Ugenti questioned why a provider would not at least request an automatic rate increase. Mr. Mullins replied that if a community subsidizes the service, a provider may not request an automatic rate adjustment. He is not sure if that is true with general rate increases without checking those records.

Ms. Upston responded to questions concerning AHCCCS ambulance rates, indicating that after 2015, the rates will remain at 80 percent of the ADHS-set rate unless it is changed by the Legislature.

Discussion followed about the difference in Medicaid rates compared to other states
(Attachment 3, Page 9).

Chairman Ugenti noted the statute states that if ADHS does not render a decision on an adjustment of rates or charges within 90 days of commencement of a hearing, the ambulance service may adjust its rates and charges to an amount not to exceed the amount sought by the ambulance service in its application. Mr. Mullins said it also states if that rate is not approved in a hearing process, the ambulance service must reimburse the appropriate ratepayer the difference between the ambulance service’s adjusted rates and the rates and charges ordered by ADHS. To the best of his knowledge, in over seven years with ADHS, a rate has never been charged prior to obtaining approval from ADHS.

Chairman Ugenti said perhaps the language is not needed in statute.

Mr. Valentine noted that the overall gross revenue charge of $1,400 base rate and $22 per mile does not take into account that there is a 30 percent no-pay rate for customers to which ambulance companies must respond.

Mr. Thomas remarked that many actions can be taken to tighten up the financial reporting guidelines, which goes into the rate setting to help determine reasonable costs, without having to hire outside consultants.

COMMITTEE DISCUSSION

Chairman Ugenti commented that at the next meeting, she would like to review the possibility of:

· shortening some time frames

· consequences for not meeting certain time frames

· whether or not ADHS is still the appropriate place for this process

· whether automatic rate adjustments should continue and how they should be handled

· whether there should be a mechanism under which a company can apply a rate prior to approval from ADHS.

She encouraged the Members to contact her with any other recommendations.

PUBLIC TESTIMONY

Bud Paine, Fire Chief, Pinal Rural Fire Rescue (PRFR), stated that PRFR is a nonprofit volunteer fire department in an extremely remote area in southeastern Pinal County where the only CON is frequently unavailable; if not, another CON has to travel from Tucson. PRFR applied for a CON last year, but the application was withdrawn because the process was very burdensome. PRFR is reapplying. One of the CONs going to the hearing is changing its response time from 100 percent to 98 percent, which automatically means the provider cannot show up for hours because it is still within the two percent time frame. PRFR’s money is spent on fire and rescue, etc., and PRFR cannot afford an attorney. The CON they are dealing with will have a municipal attorney present, and there will be another CON participating that does not even service the area. He opined that the process will ultimately not benefit the citizens.

Mr. Paine talked about a woman in PRFR’s response area who was double-billed at two different base rates totaling over $4,000 because the emergency vehicle she was transported in was not an ALS, which requires a paramedic, so she was transferred to an ambulance with a paramedic. He questioned if that was a fluke or if this happens often or with AHCCCS. He added that in the mid-1970s, Emergency Medical Services was under the Department of Public Safety (DPS), which had more staff than ADHS, and one of the items required was response time compliance, which has been eliminated, so he put 98 percent response time on PRFR’s application, which defeats any recordkeeping whatsoever.

Chairman Ugenti asked if it would be helpful to have a recommended decision from ADHS prior to the OAH process. Mr. Vanell responded that he will have to consult with the ALJs and agreed to report to the Committee at the next meeting.

Without objection, the meeting adjourned at 5:21 p.m.

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Linda Taylor, Committee Secretary

November 25, 2013

(Original minutes, attachments and audio on file in the Chief Clerk’s Office; video archives available at http://www.azleg.gov)

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HOUSE AMBULANCE MEDICAL SERVICE

TRANSPORTATION STUDY COMMITTEE

November 19, 2013

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