Interim Joint Committee on Health and Welfare


Minutes of the<MeetNo1> 2nd Meeting

of the 2002 Interim


<MeetMDY1> September 18, 2002


The<MeetNo2> 2nd meeting of the Interim Joint Committee on Health and Welfare was held on<Day> Wednesday,<MeetMDY2> September 18, 2002, at<MeetTime> 1:00 PM, in<Room> Room 129 of the Capitol Annex. Representative Tom Burch, Co-Chair, called the meeting to order at 1:15 PM, and the secretary called the roll.


Present were:


Members:<Members> Senator Julie Denton, Co-Chair; Representative Tom Burch, Co-Chair; Senators Charlie Borders, Tom Buford, Paul Herron Jr, David K. Karem, Ed Miller, Daniel Mongiardo, Joey Pendleton, Richard Roeding, Dan Seum, and Katie Stine; Representatives Paul Bather, Brian Crall, Robert Damron, Bob DeWeese, Bob Heleringer, Joni Jenkins, Mary Lou Marzian, Stephen Nunn, Ruth Ann Palumbo, Jon David Reinhardt, and Kathy Stein.


Guest Legislators:  Senators Albert Robinson and Richie Sanders, Jr.; Representatives Gippy Graham, Harry Moberly, Don Pasley, and Dottie Sims.


Guests:  Phyllis Culp, Office on Aging Services, Cabinet for Health Services; Dr. Rice Leach, Sharma Klee, and James Carreer, Department for Public Health, Cabinet for Health Services; Sheila Schuster, Kentucky Mental Health Coalition, Louisville; Joyce Lea, Steve Gearheart, Rosanne Barkley, and Jason Dunn, Cabinet for Families and Children;  Jan Gould, Kentucky Retail Federation, Frankfort; Mike Mayes, Kentucky Pharmacists Association, Frankfort; Stephanie Bell, Richard Lawrence and Chuck Adams, Kentucky Academy of Trail Attorneys; Janie Miller, Betsy Johnson, and William Nold, Department of Insurance; JoAnn Keller, Kentucky Occupational Therapy Association, Louisville; Steve Hanson, Glenna Taylor, Patty Demsey, and Marie Vanhook, Appalachian Regional Center; Prentice Harvey, Norton Healthcare, Frankfort; Nancy L. Black, Occupational Therapy Board, Frankfort; Ronny Pryor and Sarah S. Nicolson, Kentucky Hospital Association; Bart Baldwin, Children’s Alliance, Frankfort; Ann Gordon, Cabinet for Health Services; and Anne Joseph, Kentucky Task Force on Hunger.


LRC Staff:  Robert Jenkins, CSA, Barbara Baker, Eric Clark, DeeAnn Mansfield, Murray Wood, Gina Rigsby and Cindy Smith.


A motion was made to approve the minutes of the August 18, 2002 meeting by Senator Roeding, seconded by Senator Borders, and approved by voice vote.  A motion to approve 201 KAR 28:170 was made by Senator Roeding, seconded by Representative Damron, and approved by voice vote.


The first agenda item was a presentation on medical malpractice insurance premiums for Kentucky presented by Janie Miller, Commissioner, Department of Insurance; Chuck Adams, President, and Richard Lawrence, President-Elect, Kentucky Academy of Trial Attorneys; Preston P. Nunnelley, M.D., Chairman, Public Education Committee, Kentucky Medical Association; and Steve Hanson, President & CEO, Appalachian Regional Healthcare, Kentucky Hospital Association.  Commissioner Miller said that in December, 2001, the department received notice that St. Paul, the third largest carrier in Kentucky, would phase out its business on a nationwide basis by non-renewal.  On July 12, 2002, the department held a public hearing to obtain more information about the availability and affordability of the medical malpractice market and to gather information regarding the various factors affecting premium costs.  Notice of the hearing was sent to associations representing various healthcare providers, insurers known to be actively writing medical malpractice insurance, associations representing agents, associations representing trial attorneys, and legislators.  She said that 26 people offered oral testimony, and there were written comments from 20 people.  Providers indicated that the status of the economy was effecting them and their revenue levels were static and decreasing.  The providers stated the increase in price was due to increased frequency of frivolous lawsuits, the increase in the cost of the legal system to defend the claims, and higher jury awards.  The impact of the cost of medical malpractice effects the entire healthcare delivery system because physicians are not available, have chosen to leave the area, or discontinue high risk procedures.


Commissioner Miller stated that comments from attorneys indicated that there should be better disclosure by insurance companies on how rates are developed and a requirement that rate increases be justified, taking into consideration reserves, investments, and profit, and secondly that consideration should be given to the creation of a physician-owned company that would add competition to the market and help control rates.


Commissioner Miller said that since the July hearing, the department has tried to identify the data sources that would bear out what is believed to be the cost of the malpractice premiums.  The department is also getting data on the frequency of claims, the cost of claims, and the cost of carrying those claims all the way to a jury verdict.  She said that all lines of insurance, not just medical malpractice, are having difficulty in pricing decisions.  Kentucky has approximately eight to ten carriers in every market line that are admitted carriers and that are writing business.  Surplus lines are picking up a lot of business, indicating that carriers are not writing the same level of risk as previously written.  Financial data shows carriers are experiencing less profit or are incurring losses.  The 2001 loss ratios for direct claims loss and the allocated defense and cost containment expenses incurred to adjust claims is running at approximately 113.9 percent.  Carriers are reducing risk exposure through exiting markets, writing no new or limited business, tightening underwriting standards and applying these standards more strictly.  Most of the market disruption that is occurring today is a result of St. Paul pulling out of the market, and the department is collecting information on how states have addressed this issue.  Two pieces of federal legislation have been introduced that deal with tort reform.  Kentucky has been in the forefront on passing tort reform.


Senator Borders asked when Kentucky had first known St. Paul was pulling out of the market.  Commissioner Miller said that the department was unofficially notified that St. Paul would pull out of the market in late October and early November.  They department was informed that St. Paul would stop writing policies in December, 2001.


Representative Nunn said that Kentucky could create a Kentucky physician’s mutual insurance company similar to the Kentucky Employees Mutual Insurance Company that covers worker’s compensation.  A medical review panel could review claims.  Commissioner Miller said that Kentucky does need a competitive market place for fairer rates.  She said that there needs to be more stability of price in the market.  Senator Roeding suggested that there should be lawsuit review boards.


Mr. Lawrence said that insurance companies should be required to base premiums on claims experience.  He said that putting a cap on non-economic damages indicates that someone does not believe in the United States Constitution, the Kentucky Constitution, the Kentucky jury system, and a community’s ability to assess the uniqueness of each individual injury.  Senator Roeding took exception to the implication that a person must not believe in the Constitution simply because the person has a different opinion.  He stated that review panels have been effective.  Mr. Lawrence said that every person has the right to a jury trial by their peers and said that his statement was intended to remind everyone that this right was guaranteed by the Constitution.  He apologized for any offense resulting from the way he had expressed himself.


Senator Mongiardo stated that it could take six to eight years and high defense costs before a case is resolved which results in higher malpractice insurance.  He asked how many malpractice suits were because of paper medical errors.  Mr. Lawrence said that healthcare cutbacks, driven by the insurance industry, have increased the frequency of negligence actions.  More and more hospitals do not have centralized recordkeeping.  Senator Mongiardo said that electronic order entry would help reduce medical errors.


Senator Denton asked if lawsuits had contributed to the problems with malpractice insurance rates.  Mr. Lawrence said that, yes, but not in the proportion to the premiums increasing at the present time.  Mr. Adams said that there is no data that would suggest that increased premiums in recent years are due to an increase in claims, lawsuits, awards, or payouts in Kentucky.  The increase has been due to the dip in the stockmarket in March of 2000 and the events of September 11, 2001.  Mr. Hanson said a physician’s inability to obtain liability insurance results in his not practicing his specialty which creates an access problem in the healthcare system.  The number of claims and lawsuits against healthcare providers may have remained stable over the past five years, but malpractice awards have increased significantly.


Senator Denton asked if anyone had any objections or comments from the general public or the committee in regards to the block grants.  No one had any comments, therefore, the minutes will reflect that the block grants have been addressed.


Dr. Nunnelley said that the Kentucky Medical Association created its own medical malpractice insurance carrier, Kentucky Medical Insurance Company, or KMIC, because there were only a few carriers in the market.  Because of stabilizing of the market due to KMIC’s presence, other insurers returned to the Kentucky marketplace, thereby creating competition.  With increased competition, however, KMIC had difficulty competing with multi-state insurance companies that could spread their risk over larger groups and was forced to merge with a larger insurance company.  He said that physicians are leaving the state, retiring from practice early, or giving up high risk patients due to the increase in malpractice insurance.


Dr. Nunnelley stated that the Council on Economic Advisors’ report claims that the U.S. tort system is the most expensive in the world and refers to it as a “litigation tax.”  The Bush administration, through the Department of Health and Human Services, released a report on medical liability that confirms the medical liability system is in crisis and is affecting professional liability insurance premiums. He said the report gave the following recommendations: 1) improve the ability of patients who are injured by negligence to get quicker, unlimited compensation for economic loss; 2) limit recoveries for non-economic loss to $250,000; 3) reserve punitive damages for justified cases; 4) provide payment over time instead of one lump sum; and 5) provide that defendants pay based on fault, not how deep their pockets are.


Dr. Nunnelley said that the KMA: 1) has created a committee to devise a plan; 2) has testified before the Department of Insurance and anyone who will listen; 3) is attempting to draw attention to the problem; 4)is developing materials to help physicians educate their patients; and 5) is developing a legislative package for the 2003 Regular Session.  He said the General Assembly can: 1) recognize the extent of the problem and what it means to patients of Kentucky; 2) use legislative resources to determine the best method of resolving the problem; and 3) monitor the effects of efforts.


Representative Palumbo asked that an audio tape of Dr. Alumbaugh’s testimony on medical malpractice from the Families and Children Subcommittee meeting be sent to all members.


The next agenda item was a presentation on public health initiatives on obesity, diabetes, and heart disease presented by Rice Leach, M.D., Commissioner, Department for Public Health, Cabinet for Health Services.  Dr. Leach stated that the causes of obesity are the high number of calories consumed, foods high in fat content, not enough fiber, lack of exercise, and smoking.  The impact of obesity is more people on disability, fewer years in the workforce, earlier admission to the nursing home, increased demand for health care services, increased demand on Medicaid and Medicare, increased demand for public support of medical care, and increased cost of employee health insurance.  The impact of chronic disease is more diabetes, more heart disease, more strokes, more kidney failure, more patients on dialysis, and earlier disability.


Dr. Leach stated that nearly ten percent of Kentuckians are Type II diabetics, that diabetes generates 14 percent of all health care costs, and 10,000 pregnant women have gestational diabetes.  He encouraged prevention efforts such as increased exercise, change in diet, less television viewing, increased physical education in schools, increased health education in school, increased general public education, and increased provider knowledge.  He said some current state initiatives are NGA Best Practices – Chronic Disease, Diabetes Program and Coalition, Cardiovascular Disease Program, Exercise-Obesity, Tobacco Control, School Health Program, Cooperative Extension Service, and Local Health Department contributions.  The estimated expenditure on medical care is $14.5 billion, but only $350 million on expenditures is in prevention.


The last agenda item was a presentation on managing the Medicaid Outpatient Pharmacy Program presented by Don Grondin, Clinical Pharmacist, Medicaid Pharmacy Benefits Management Company, MedImpact; Kathy Kustra, Special Medicaid Assistant to the Governor; and K. Troy Koch, PharmD, MBA, Medical Pharmacy Manager, Department for Medicaid Services, Cabinet for Health Services.


Ms. Kustra said that, thanks to the guidance of the General Assembly and the enacted legislation, the department has started to manage the escalating line of Medicaid spending while at the same time keeping clinical considerations.  The prior authorization process has been completely revised.  Because of better data and analysis, there is an understanding of the program about who is using medications, the costs, and the trends.  She said that eligibility, costs, and utilization have increased.  The proposed Pharmacy and Therapeutic (P&T) Committee recommendations will be amended to allow for a 30-day trial for a drug, or any shorter period of time as attested by the prescriber of an adequate trial, before authorization for an atypical psychotropic drug will be given.  A second amendment will be to allow a “look back” period of 12 months when deciding if a person has used the trial drug.


Mr. Grondin said that U.S. spending of prescription drugs increased from $51.3 billion in 1993 to $121.8 billion in 2000, which indicates drug costs are rising.  According to the National Institute for Health Care Management (NIHCM), Medicaid spending for outpatient drugs increased an average of 18 percent per year from 1997 to 2000.  The Kaiser Family Foundation reported that Kentucky’s prescription utilization at retail increased an average of six percent per year from 1992 to 2001.  The per capita prescription consumption in 1992 was 7.3 and 10.8 in 2000.


Mr. Grondin said that 77 percent of the Medicaid recipients utilize the prescription benefit.  According to NIHCM, the generic rate for drugs in the Medicaid program has decreased over time.  In 1995, the rate was 54 percent and it was 51 percent in 1998.  In the Medicaid program, there are a substantial number of older patients, and their utilization of prescriptions is much higher per member per month.  The total amount paid per member per month for Medicaid recipients is between $120 to $130.  The trend is demonstrating a 11 percent to 11.5 percent increase.  The average amount paid per prescription for both brand and generic drugs is $49.35.  The new drugs tend to be branded and higher in cost.  For example, the antibiotic, Erythromycin, has been replaced by Zythromax.  The average amount paid per brand or generic prescription is increasing.  He said that one reason there is a price increase for generic drugs is because of the federal upper limit.  The federal upper limit price is set by HCFA and is based on an average amount that a pharmacy pays for a generic drug.  The generic prescribing rate is 52 percent because of the mandatory generic edit.  As a result of the mandatory generic edit, the percent of multi-source brands has decreased from 12 percent to seven percent.


Mr. Grondin stated 45 percent of the Medicaid budget is spent on asthma, behavioral health antidepressants, infectious disease, and upper GI disorders.  The P&T Committee developed a preferred Proton Pump Inhibitors (PPI) formulary to maintain appropriate utilization of chronic PPI while being cost effective.


Mr. Koch said that the current prior authorization process involves a physician or a pharmacist sending a fax to the claim processor, Unisys, for a drug that is currently prior authorized.  The clerks enter the information in the database, and then a nurse make a determination.  One of two things happen: either it is approved and processed by Unisys, or it is denied because of a technical reason such as incomplete information, and it is sent back to the pharmacy or physician.  It is then sent to MedImpact pharmacist and either approved or denied, and Unisys notifies the physician or pharmacy of the decision.  Response times are based upon whether it is as an urgent request, long-term care request or a routine request.  There are approximately 20,000 requests per month with 58 percent approved, and 42 percent denied.


Mr. Grondin stated that the current guidelines approved by the P&T Committee allow a preferred PPI to be prescribed to a patient with a severe condition for up to eight weeks.  Long-term care patients can automatically get prior authorization for a capsule that can be opened and put into something liquid.


Senator Roeding said that Kentucky pays $128 per Medicaid recipient and asked how that compared to other states.  Mr. Grondin said that the TennCare program paid $58 in 2001.  Senator Roeding said that overutilization was a major factor.  Ms. Kustra said that the Kentucky Medicaid program has a higher number of sick frail citizens than Tennessee’s Medicaid program, therefore making the cost higher.  Senator Roeding said that more Kentuckians take prescriptions, particularly Medicaid recipients.  Ms. Kustra stated that all Kentuckians take more prescriptions, not just Medicaid recipients.


Representative Marzian asked if there had been a decrease in utilization since the implementation of the $1 co-pay.  Ms. Kustra said that the co-pay was only implemented August 1, 2002 and has not been in effect long enough to have this data.  Ms. Kustra answered Representative Marzian by saying the $15 million professional fee is the total dispensing fee that the pharmacists receive for prescriptions.  Representative Marzian asked if the department had negotiated the use of mail order prescriptions which would lower the dispensing fee.  Ms. Kustra stated that the statutes do not prohibit mail order prescriptions, but the department had not negotiated anything with any pharmacies.


Representative Burch asked if there was any data on how many recipients had been denied medications because of the inability to pay the $1 co-pay.  Mr. Grondin said they had not been able to get this data.  Ms. Kustra corrected an earlier statement by saying the Medicaid program has mail order pharmacies.


Senator Mongiardo said that he had experienced problems getting prior authorization for PPI’s for his patients.  Ms. Kustra said that she would follow-up on this problem.  Senator Mongiardo asked if costs for transportation had risen because a prescription was approved 24 hours later, thereby, causing the patient to have to return to the pharmacy.  Ms. Kustra said that the brokers were paid on a capitated basis and the department was not informed of any rise in transportation costs.  In response to Senator Mongiardo’s question, Ms. Kustra said that the administration fee for the prior authorization program was $500,000.  She said that $3 is the maximum Medicaid will allow a pharmacy to charge a recipient for a co-pay but  Kentucky has a $1 co-pay.  Senator Mongiardo stated that mail order prescriptions could be devastating to residents in eastern Kentucky because local pharmacies might close.


Representative Marzian suggested that the cabinet negotiate with pharmaceutical companies to lower costs.  Ms. Kustra said that she would contact them.


There being no further business, a motion to adjourn at 4:50 p.m. was made by Representative Marzian, seconded by Senator Herron, and approved by voice vote.