Report Title:

Health Care Authority; Regulation of Private Hospital Rates

 

Description:

Establishes the Hawaii health care authority for administrative purposes within the department of health to regulate private hospital rates and ensure the containment of health care costs.

 

THE SENATE

S.B. NO.

2446

TWENTY-FIRST LEGISLATURE, 2002

 

STATE OF HAWAII

 
   

A BILL FOR AN ACT

 

RELATING TO HOSPITALS.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Legislative findings; purpose. (a) The legislature finds that the health and welfare of the citizens of this State are being threatened by:

(1) Unreasonable increases in the cost of health care services;

(2) A fragmented system of health care;

(3) Lack of integration and coordination of health care services;

(4) Unequal access to primary and preventative care;

(5) Lack of a comprehensive and coordinated health information system to gather and disseminate data to promote the availability of cost-effective, high-quality services and to permit effective health planning and analysis of utilization, clinical outcomes, and cost and risk factors.

(b) In order to alleviate these threats, the legislature finds that there is a need to:

(1) Gather information on health care costs;

(2) Develop a system of cost control; and

(3) Create an entity of state government that is given the authority to:

(A) Ensure the containment of health care costs;

(B) Gather and disseminate health care information;

(C) Analyze and report on changes in the health care delivery system as a result of evolving market forces, including the implementation of managed care; and

(D) Assure that the rate regulation program and information systems serve to promote cost containment, access to care, quality of services and prevention.

(c) Therefore, the purpose of this chapter is to protect the health and well-being of the citizens of this State by guarding against unreasonable loss of economic resources as well as to ensure the continuation of appropriate access to cost-effective, high-quality health care services.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

HAWAII health care authority

§ -1 Definitions. As used in this chapter, unless the context clearly requires otherwise:

"Authority" means the Hawaii health care authority established by this chapter.

"Board" means the board of directors of the Hawaii health care authority established by this chapter, and any successor thereto.

"Charges" means the economic value established for accounting purposes of the goods and services a hospital provides for all classes of purchasers.

"Class of purchaser" means a group of potential hospital patients with common characteristics affecting the way in which their hospital care is financed. Examples of classes of purchasers include medicare beneficiaries, welfare recipients, members of health maintenance organizations, and other groups as defined by the board.

"Health care provider" means a person, partnership, corporation, facility, hospital, or institution licensed, certified, or authorized by law to provide professional health care service in this State to an individual during the individual's medical, remedial, or behavioral health care, treatment or confinement. For purposes of this chapter, "health care provider" does not include the private office practice of one or more health care professionals licensed, certified, registered, or otherwise authorized to practice in this State.

"Hospital" means a private institution with an organized medical staff, regulated under section 321-11(10), that admits patients for inpatient care, diagnosis, observation, and treatment. The term does not include any state hospital, including any state mental health facility or long-term care facility, or any health facility as defined in section 323F-1.

"Purchaser" means a consumer of patient care services, a natural person who is directly or indirectly responsible for payment for patient care services rendered by a health care provider, but does not include third-party payers.

"Rates" means all value given or money payable to health care providers for health care services, including fees, charges, and cost reimbursements.

"Records" means accounts, books, and other data related to health care costs at health care facilities subject to this chapter that do not include privileged medical information, individual personal data, confidential information, or other protected health information, the disclosure of which is prohibited by chapter 323C or other state or federal law, and information, the disclosure of which would be an invasion of privacy.

"Related organization" means an organization, whether publicly owned, nonprofit, tax-exempt, or for profit, related to a health care provider through common membership, governing bodies, trustees, officers, stock ownership, family members, partners, or limited partners including subsidiaries, foundations, related corporations, and joint ventures. For the purposes of this definition, family members mean siblings, whether by the whole or half blood, spouses, ancestors, and lineal descendants.

"Third-party payor" means any person or government entity responsible for payment for patient care services rendered by health care providers.

§ -2 Hawaii health care authority; establishment; board; staff. (a) There is established the Hawaii health care authority, which shall be a body corporate and a public instrumentality of the State, for the purpose of implementing this chapter. The authority shall be placed within the department of health for administrative purposes only.

(b) The authority shall be headed by a board of directors consisting of three voting members from the private sector, who shall be appointed by the governor as provided in section 26-34; provided that:

(1) One member shall have a background in health care finance or economics;

(2) One member shall have previous employment experience in human services, business administration, or substantially related fields; and

(3) One member shall be a consumer of health services with a demonstrated interest in health care issues.

(c) The board shall elect a chairperson from among its members.

(d) Two voting members shall constitute a quorum, whose affirmative vote shall be necessary for all actions by the authority. A vacancy in the board shall not affect the right or duty of the remaining board members to function as a board.

(e) The members shall serve without compensation, but shall be reimbursed for expenses, including traveling expenses, necessary for the performance of their duties.

(f) The governor shall appoint, without regard to chapter 76, an executive director who shall serve at the pleasure of the governor. The executive director's salary shall be within the range of salaries paid directors of the departments of the state government. The executive director shall be a member of the state employees' retirement system and shall be eligible to receive the benefits of any state or federal employee benefit program generally applicable to officers and employees of the State.

(g) The authority may employ persons not subject to chapters 76 and 78 to perform and execute the functions of the authority.

(h) No person may serve as a member of the board or as an employee thereof while in the employ of, or holding any official relation to, any hospital or health care provider subject to this chapter, or who has any pecuniary interest therein.

(i) All board members and employees shall be subject to chapter 84; provided that no board member or employee may:

(1) Be a candidate for or hold public office or be a member of any political committee while acting as a board member or employee;

(2) Receive anything of value, either directly or indirectly, from any third-party payor or health care provider; or

(3) Accept employment with any hospital or health care provider subject to the jurisdiction of the board in violation of chapter 84, part II.

§ -3 Information gathering and coordination; data advisory group. (a) The board shall:

(1) Coordinate and oversee the health data collection of state agencies;

(2) Lead state agencies' efforts to make the best use of emerging technology to effect the expedient and appropriate exchange of health care information and data, including patient records and reports; and

(3) Coordinate data base development, analysis, and reporting to facilitate cost management, utilization review, and quality assurance efforts by state payor and regulatory agencies, insurers, consumers, providers, and other interested parties.

(b) Agencies of the State collecting health data shall work together through the board to develop an integrated system for the efficient collection, responsible use, and dissemination of such data and to facilitate and support the development of statewide health information systems that will allow for the electronic transmittal of all health information and claims processing activities of state agencies within the State, and that will coordinate the development and use of electronic health information systems within state government. The board shall establish minimum requirements and issue reports relating to information systems of all state health programs, including simplifying and standardizing forms, establishing information standards and reports for capitated managed care programs to be managed by the insurance commissioner, and shall develop a comprehensive system to collect ambulatory health care data. The board may gain access to any health-related data base in state government for the purposes of fulfilling its duties; provided that for any data base to which the board gains access, the use and dissemination of information from the data base shall be subject to the confidentiality provisions applicable to that data base.

(c) To advise the board in its efforts under this section, the board shall create a data advisory group and appoint one of the board’s members as chair of the group. The group shall be composed of representatives of consumers, businesses, providers, payors, and state agencies. The data advisory group shall assist the board in developing priorities and protocols for data collection and the development and reform of health information systems provided under this section.

(d) The board's staff shall gather information on cost containment efforts, including the provision of alternative delivery systems, prospective payment systems, alternative rate-making methods, and programs of consumer education. The board shall pay particular attention to the economic, quality of care, and health status impact of these efforts on purchasers or classes of purchasers, particularly the elderly and those on low or fixed incomes.

(e) The board staff shall further gather information on state-of-the-art advances in medical technology, the cost effectiveness of these advances and their impact on advances in health care services and management practices, and any other state-of-the-art concepts relating to health care cost containment, health care improvement, or other issues the board finds relevant and directs staff to investigate. The board staff shall prepare and keep a register of this information and update it on an annual basis.

(f) The members of the data advisory group shall serve without compensation, but shall be reimbursed for expenses, including travel expenses, necessary for the performance of their duties.

§ -4 Powers generally. In addition to the other powers granted to the board by this chapter, the board may:

(1) Sue and be sued;

(2) Have a seal and alter the same at pleasure;

(3) Make and execute contracts and all other instruments necessary or convenient for the exercise of its powers and functions under this chapter;

(4) Make and alter bylaws for its organization and internal management;

(5) Adopt rules in accordance with chapter 91 with respect to its projects, operations, properties, and facilities;

(6) Through its executive director represent the authority in communications with the governor and the legislature;

(7) Through its executive director allocate the space or spaces which are to be occupied by the authority and appropriate staff;

(8) Hold public hearings, conduct investigations, and require the filing of information relating to matters affecting the costs of health care services subject to this chapter, and may subpoena witnesses, papers, records, documents, and all other data in connection therewith. The board may administer oaths or affirmations in any hearing or investigation;

(9) Apply for, receive, and accept gifts, payments, and other funds and advances from the United States, the State, or any other governmental body, agency, or agencies or from any other private or public corporation or person (with the exception of hospitals subject to this chapter, or associations representing them, doing business in this State, except in accordance with section -5(b)), and enter into agreements with respect thereto, including the undertaking of studies, plans, demonstrations, or projects. Any such gifts or payments that may be received or any such agreements that may be entered into shall be used or formulated only so as to pursue legitimate, lawful purposes of the board, and shall in no respect inure to the private benefit of a board member, staff member, donor, or contracting party;

(10) Lease, rent, acquire, purchase, own, hold, construct, equip, maintain, operate, sell, encumber, and assign rights or dispose of any property, real or personal, consistent with the objectives of the board as set forth in this chapter; provided that the acquisition or purchase of real property or construction of facilities shall be consistent with planning by the state comptroller and subject to the approval of the legislature; and

(11) Exercise, subject to limitations or restrictions imposed in this chapter, all other powers that are reasonably necessary or essential to effect the express objectives and purposes of this chapter.

§ -5 Health care cost review fund; budget expenses of the board. (a) The board shall annually prepare a budget for the next fiscal year for submission to the governor and the legislature, which shall include all sums necessary to support the activities of the board and its staff.

(b) Each hospital subject to this chapter shall be assessed by the board on a pro rata basis using the gross revenues of each hospital as reported under the authority of section -11 as the measure of the hospital's obligation. The amount of the fee shall be determined by the board, except that in no case shall the hospital's obligation exceed one tenth of one per cent of its gross revenue. The fees shall be paid on or before the first day of July in each year and shall be paid into the state treasury and deposited into a special fund which is hereby created, and shall be designated the health care cost review fund. Moneys in the fund shall be expendable after appropriation by the legislature for purposes consistent with this chapter. Any balance remaining in the fund at the end of any fiscal year shall not revert to the treasury, but shall remain in the fund, and the moneys shall be expendable after appropriation by the legislature in ensuing fiscal years.

(c) Each hospital's assessment shall be treated as an allowable expense by the board.

(d) The board is empowered to withhold rate approvals and certificates of need if any such fees remain unpaid, unless exempted by law.

§ -6 Annual board report. The board, within thirty days of the close of the fiscal year, or from time to time as requested by the legislature, shall prepare and transmit to the governor and the legislature a report of its operations and activities for the preceding fiscal year. The report shall include summaries of all reports made by the hospitals subject to this chapter, together with facts, suggestions, and policy recommendations the board considers necessary. The board, after rate review and determination in accordance with this chapter, shall include these rate schedules in its annual report or other reports as may be requested by the legislature.

§ -7 Jurisdiction of the board. (a) Notwithstanding any other law to the contrary, the jurisdiction of the board as to rates for health services care shall extend to all hospitals as defined in section -1 doing business in the State.

(b) Those costs or charges associated with individual health care providers or health care provider groups providing inpatient or outpatient services under a contractual agreement with hospitals (excluding simple admitting privileges) shall be under the jurisdiction of the board. The jurisdiction of the board shall not extend to the regulation of rates of private health care providers or health care groups providing inpatient or outpatient services under a contractual agreement with hospitals when the provision of that service is outside the hospital setting, and shall not extend to the regulation of rates of all other private health care providers practicing outside the hospital setting; provided that such practice outside of the hospital setting is not found to be an evasion of the purposes of this chapter.

§ -8 Hearings; Administrative Procedures Act applicable; hearings examiner; subpoenas; judicial review. (a) The board may conduct such hearings as it deems necessary for the performance of its functions and shall hold hearings when required by this chapter or upon a written demand therefor by a person aggrieved by any act or failure to act by the board or by any rule or order of the board. All hearings of the board shall be announced in a timely manner and shall be open to the public except as may be necessary to conduct business of an executive nature.

(b) All pertinent provisions of chapter 91 shall apply to and govern the hearing and administrative procedures in connection with and following the hearing except as specifically stated to the contrary in this chapter.

(c) Any hearing may be conducted by members of the board or by a hearing examiner appointed for that purpose. Any member of the board may issue subpoenas and subpoenas duces tecum, which shall have the same force and effect and shall be served in the same manner as if issued from a court of record.

(d) Notwithstanding any other state law, when a hospital alleges that a factual determination made by the board is incorrect, the burden of proof shall be on the hospital to demonstrate that the determination, in light of the total record, is not supported by substantial evidence. The burden of proof remains with the hospital in all cases.

(e) After any hearing, after due deliberation, and in consideration of all the testimony, the evidence and the total record made, the board shall render a decision in writing. The written decision shall be accompanied by findings of fact and conclusions of law, and the copy of the decision and accompanying findings and conclusions shall be served by certified mail, return receipt requested, upon the party demanding the hearing, and upon its attorney of record, if any.

(f) Any interested individual, group, or organization shall be recognized as affected parties upon written request from the individual, group, or organization. Affected parties shall have the right to bring relevant evidence before the board and testify thereon. Affected parties shall have equal access to records, testimony, and evidence before the board, and shall have equal access to the expertise of the board's staff.

(g) Any person aggrieved by a final decision and order of the board in a "contested case", as defined in chapter 91, is entitled to judicial review thereof by the circuit court of the circuit in which the board making the final decision and order has jurisdiction. The review shall be as provided by chapter 91.

§ -9 Refusal to comply. (a) Whenever a hospital fails or refuses to furnish to the board any records or information requested under this chapter or otherwise fails or refuses to comply with the requirements of this chapter or any reasonable rule adopted by the board under this chapter, the board may make and enter an order of enforcement and serve a copy thereof on the hospital in question by certified mail, return receipt requested.

(b) The hospital shall be granted a hearing on the order of enforcement if, within twenty days after receipt of a copy thereof, it files with the board a written demand for hearing. A demand for hearing shall operate automatically to stay or suspend the execution of the order of enforcement, with the exception of orders relating to rate increases.

(c) Upon receipt of a written demand for a hearing, the board shall set a time and place therefor, not less than ten and no more than thirty days thereafter. Any scheduled hearing may be continued by the board upon motion for good cause shown by the hospital demanding the hearing.

§ -10 Uniform system of financial reporting. (a) The board shall develop and specify a uniform system of reporting utilization, accounting, and financial reporting, including cost allocation methods by which hospitals shall record their revenues, income, expenses, capital outlays, assets, liabilities, and units of service. This development and specification process shall be conducted in a manner determined by the board to be most efficient for this purpose. Each hospital shall adopt this uniform system for the purpose of reporting utilization, costs, and revenues to the board effective for the fiscal year beginning twelve months from the effective date of this chapter.

(b) The board may provide for modification in the accounting and reporting system in order to correctly reflect differences in the scope or type of services and financial structures of the various categories, sizes, and types of hospitals and in a manner consistent with the purposes of this chapter.

(c) The board may provide technical assistance to those hospitals which request it and which evidence sufficient need for assistance in the establishment of a data collection system to the extent that funds are available to the board for this purpose.

(d) The board, after consultation with health care providers, purchasers, classes of purchasers, and third-party payors, shall adopt a mandatory form for reporting to the board, at its request, medical diagnosis, treatment, and other services rendered to each purchaser by health care providers subject to this chapter.

(e) Following a public hearing, the board shall establish a program to minimize the administrative burden on hospitals by eliminating unnecessary duplication of financial and operational reports; and to the extent possible, notwithstanding any other law, coordinate reviews, reports, and inspections performed by federal, state, local, and private agencies.

§ -11 Annual health care provider report. (a) Every health care provider that comes under the jurisdiction of this chapter shall file with the board all reports required by the board, including the following financial statements or reports in a form and at intervals specified by the board, but at least annually:

(1) A balance sheet detailing the assets, liabilities, and net worth of the hospital for its preceding fiscal year;

(2) A statement of income and expenses for the preceding fiscal year;

(3) A statement of services rendered and services available; and

(4) Such other reports as the board may prescribe;

provided that where more than one licensed hospital is operated by the reporting organization, the information required by this section shall be reported for each hospital separately.

(b) It shall be the duty of every related organization to file with the board, within thirty days from the effective date of this section, the following financial statements or reports for each of its three prior fiscal years:

(1) A balance sheet detailing the assets, liabilities, and net worth of the related organization;

(2) A statement of income and expenses;

(3) A statement of cash flows; and

(4) Such other information as the board may prescribe.

After the initial filing of the financial information required by this subsection, every related organization shall thereafter file annual financial reports with the board in a form specified by the board.

(c) The annual financial statements filed pursuant to this section shall be prepared in accordance with the system of accounting and reporting adopted under section -10. The board may require attestations from responsible officials of the hospitals or related organizations that these reports have to the best of their knowledge been prepared truthfully and in accordance with the prescribed system of accounting and reporting.

(d) All reports filed under this chapter, except personal medical information personally identifiable to a purchaser and any tax return, shall be open to public inspection and available for examination at the offices of the board during regular business hours.

(e) Whenever a further investigation is deemed necessary or desirable to verify the accuracy of any information set forth in any statement, schedule, or report filed by a health care provider or related organization under this section, the board may require a full or partial audit of the records of the health care provider or related organization.

§ -12 Rate-setting powers generally. (a) The board shall have the power to:

(1) Initiate reviews and investigations of hospital rates and establish and approve those rates;

(2) Initiate reviews and investigations of hospital rates for specific services and the component factors which determine those rates;

(3) Initiate reviews and investigations of hospital budgets and the specific components of those budgets; and

(4) Approve or disapprove hospital rates and budgets taking into consideration the criteria set forth in section -13.

(b) In the interest of promoting the most efficient and effective use of hospital service, the board may adopt and approve alternative methods of rate determination. The board may also adopt methods of charges and payments of an experimental nature which are in the public interest and consistent with the purpose of this chapter.

§ -13 Rate determination. (a) Upon commencement of review activities, no rates may be approved by the board nor payment be made for services provided by hospitals under the jurisdiction of the board by any purchaser or third-party payor to or on behalf of any purchaser or class of purchasers unless:

(1) The costs of the hospital's services are reasonably related to the services provided and the rates are reasonably related to the costs;

(2) The rates are equitably established among all purchasers or classes of purchasers within a hospital without discrimination unless federal or state statutes, rules, or regulations conflict with this requirement. After the effective date of this section, a summary of every proposed contract, or amendment to any existing contract, for the payment of patient care services between a purchaser or third-party payor and a hospital shall be filed by the hospital for review by the board, which reviews shall occur no less frequently than each calendar quarter:

(A) If the contract establishes a discount to the purchaser or third-party payor, it shall not take effect until approved by the board. For the purposes of this chapter, a risk-bearing contract is reviewable as a discount contract and the amount computed as the discount percentage by the provider on the board shall be the approved amount of the discount. The difference, if any, between the actual discount percentage and amount and the approved amount, shall not be considered for rate-setting purposes;

(B) The board may adopt rules in accordance with chapter 91 that establish the criteria for review of discount contracts, which shall include provisions that:

(i) No discount shall be approved by the board which constitutes an amount below the cost to the hospital;

(ii) The cost of any discount contained in the contract shall not be shifted to any other purchaser or third-party payor;

(iii) The discount shall not result in a decrease in the hospital's average number of Medicare, Medicaid, or uncompensated care patients served during the previous three fiscal years; and

(iv) The discount is based upon criteria which constitutes a quantifiable economic benefit to the hospital. The board may define by rule what constitutes "cost" in clauses (i) and (ii); "purchaser" in clause (ii); and "economic benefit" in this clause. Any rules adopted pursuant to this subsection may be filed without regard to the public notice and public hearing provisions of chapter 91. All information submitted to the board shall be certified by the hospital's chief executive officer and chief financial officer as to its accuracy and truthfulness;

(3) The rates of payment for Medicaid are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated hospitals subject to this chapter. The rates shall take into account the situation of hospitals which serve disproportionate numbers of low income patients and assure that individuals eligible for Medicaid have reasonable access, taking into account geographic location and reasonable travel time, to inpatient hospital services of adequate quality;

(4) The rates are equitable in comparison to prevailing rates for similar services in similar hospitals as determined by the board; and

(5) In no event shall a hospital's receipt of emergency disaster funds from the federal government be included in the hospital's gross revenues for either rate-setting or assessment purposes.

(b) In the interest of promoting efficient and appropriate utilization of hospital services, the board shall review and make findings on the appropriateness of projected gross revenues for a hospital as the revenues relate to charges for services and anticipated incidence of service.

(c) When applying the criteria set forth in subsections (a) and (b), the board shall consider all relevant factors, including the following:

(1) The economic factors in the hospital's area;

(2) The hospital's efforts to share services;

(3) The hospital's efforts to employ less costly alternatives for delivering substantially similar services or producing substantially similar or better results in terms of the health status of those served;

(4) The efficiency of the hospital as to cost and delivery of health care;

(5) The quality of care;

(6) Occupancy level;

(7) A fair return on invested capital, not otherwise compensated for;

(8) Whether the hospital is operated for profit or not for profit;

(9) Costs of education; and

(10) Income from any investments and assets not associated with patient care, including parking garages, residences, office buildings, and income from related organizations and restricted funds whether or not associated with patient care.

(d) Wages, salaries, and benefits paid to or on behalf of nonsupervisory employees of hospitals subject to this chapter are not subject to review unless the board first determines that the wages, salaries, and benefits may be unreasonably or uncustomarily high or low. This exemption does not apply to accounting and reporting requirements contained in this chapter, nor to any that may be established by the board. The term "nonsupervisory personnel", for the purposes of this section, includes employees of hospitals subject to this chapter who are paid on an hourly basis.

(e) Any licensing agency empowered to suggest or mandate changes in buildings or operations of hospitals shall give notice to the board together with any findings.

(f) A hospital shall file a complete rate application with the board on an annual basis a minimum of seventy-five days prior to the beginning of its fiscal year. If the application is filed and determined to be complete by the board sixty days prior to the beginning of the hospital's fiscal year, and no hearing is requested on the application, the board shall set the rates in advance of the year during which they apply and shall not adjust the rates for costs actually incurred; provided that:

(1) If the board does not establish rates by the beginning of the hospital's fiscal year, and a hearing has not been requested, the board shall establish rates retroactively to the beginning of the hospital's fiscal year; and

(2) If the board does not establish rates by the beginning of the hospital's fiscal year, and a hearing has been requested, the board may establish rates retroactively to the beginning of the fiscal year.

This subsection shall not apply to the procedure set forth in section -14(c).

(g) No hospital may charge for services at rates in excess of those established in accordance with the requirements of and procedures set forth in this chapter.

(h) Notwithstanding any other provision of this chapter, the board shall approve all requests for rate increases by hospitals which are licensed for one hundred beds or less and which are not located in a standard metropolitan statistical area where the rate of increase is equal to or less than the lowest rate of inflation as established by a recognized inflation index for either the national or regional hospital industry. The board, by rules adopted pursuant to chapter 91, may impose reporting requirements to ensure that a hospital does not exceed the rate of increases permitted in this section.

(i) Notwithstanding any other provision of this chapter, the board shall develop an expedited review process applicable to all hospitals licensed for more than one hundred beds or that are located in a standard metropolitan statistical area for rate increase requests which may be based upon a recognized inflation index for the national or regional hospital industry.

(j) The board may require hospitals to file such additional information as it deems necessary to evaluate a market-driven system of rate setting.

§ -14 Procedure for obtaining initial rate schedule; adjustments and revisions of rate schedules. (a) No hospital subject to this chapter may change or amend its schedule of rates except in accordance with the following procedures:

(1) Any request for a change in rate schedules or other changes shall be filed in writing to the board with such supporting data as the hospital seeking to change its rates considers appropriate, in the form prescribed by the board. Upon receipt of notice, the board, if it considers necessary, may hold a public hearing on the proposed change. The hearing shall be held no later than forty-five days after receipt of the notice. The review of the proposed change may not exceed an overall period of one hundred eighty days from the date of filing to the date of the board's order. If the board fails to complete its review of the proposed change within the time period specified for the review, the proposed change shall be deemed to have been approved by the board. Any proposed change shall go into effect upon the date specified in the order. The review period is deemed complete upon the date of the board's final order, notwithstanding an appeal of the order by an affected party;

(2) Each hospital shall establish, in a written report which shall be incorporated into each proposed rate application, that it has thoroughly investigated and considered:

(A) The economic and social impact of any proposed rate increase, or service decrease, on hospital cost containment and upon health care purchasers, including classes of purchasers, such as the elderly and low and fixed income persons;

(B) State-of-the-art advances in health care cost containment, hospital management, and rate design, as alternatives to or in mitigation of any rate increase, or service decrease, which report shall describe the state-of-the-art advances considered and shall contain specific findings as to each consideration, including the reasons for the adoption or rejection of each;

(C) Implementation of cost control systems, including the elimination of unnecessary or duplicative facilities and services, promotion of alternative forms of care, and other cost control mechanisms;

(D) Initiatives to create alternative delivery systems; and

(E) Efforts to encourage third-party payors, including insurers and health maintenance organizations, to control costs, including a combination of education, persuasion, financial incentives, and disincentives to control costs; and

(3) In the event the board modifies the request of a hospital for a change in its rates so that the hospital obtains only a partial increase in its rate schedule, the hospital shall have the right to accept the benefits of the partial increase in rates and charge its purchasers accordingly without in any way adversely affecting or waiving its right to appeal that portion of the decision and order of the board which denied the remainder of the requested rate increase.

(b) The board shall allow a temporary change in a hospital's rates which may be effective immediately upon filing and in advance of review procedures when a hospital files a verified claim that the temporary rate changes are in the public interest, and are necessary to prevent insolvency, to maintain accreditation or for emergency repairs or to relieve undue financial hardship. The verified claim shall state the facts supporting the hospital's position, the amount of increase in rates required to alleviate the situation, and shall summarize the overall effect of the rate increase. The claim shall be verified by either the chairperson of the hospital's governing body or by the chief executive officer of the hospital.

(c) Following receipt of the verified claim for temporary relief, the board shall review the claim through its usual procedures and standards; provided that this power of review does not affect the hospital's ability to place the temporary rate increase into effect immediately. The review of the hospital's claim shall be for a permanent rate increase and the board may include such other factual information in the review as may be necessary for a permanent rate increase review. As a result of its findings from the permanent review, the board may allow the temporary rate increase to become permanent, to deny any increase at all, to allow a lesser increase, or to allow a greater increase.

(d) When any change affecting an increase in rates goes into effect before a final order is entered in the proceedings, for whatever reasons, where it deems it necessary and practicable, the board may order the hospital to keep a detailed and accurate account of all amounts received by reason of the increase in rates and the purchasers and third-party payors from whom such amounts were received. At the conclusion of any hearing, appeal, or other proceeding, the board may order the hospital to refund with interest to each affected purchaser and third-party payor any part of the increase in rates that may be held to be excessive or unreasonable. If a refund is not practicable, the hospital, under appropriate terms and conditions determined by the board, shall charge over and amortize by means of a temporary decrease in rates whatever income is realized from that portion of the increase in rates which was subsequently held to be excessive or unreasonable.

(e) Upon a determination that a hospital has overcharged purchasers or charged purchasers at rates not approved by the board or charged rates which were subsequently held to be excessive or unreasonable, the board may prescribe rebates to purchasers and third-party payors in effect by the aggregate total of the overcharge.

(f) The board may open a proceeding against any hospital at any time with regard to compliance with rates approved and the efficiency and effectiveness of the care being rendered in the hospital.

§ -15 Incentives. The board shall be required to allow, as an incentive to the efficient management and operation of the hospitals covered by this chapter, that if the hospitals are more efficient than anticipated, they shall retain a portion of the resulting savings and if less efficient shall bear the resulting deficits.

§ -16 Utilization review and quality assurance; quality assurance advisory group. (a) In order to avoid unnecessary or inappropriate utilization of health care services and to ensure high quality health care, the board shall establish a utilization review and quality assurance program. The board shall coordinate this program with utilization review and peer review programs presently established in state agencies, hospital services and health service corporations, hospitals, or other organizations.

(b) After holding public hearings, the board shall develop a plan for the review, on a sampling basis, of the necessity of admissions, length of stay, and quality of care rendered at the hospitals that are subject to this chapter.

(c) The board shall monitor identified problem areas and impose such sanctions and provide such incentives as may be necessary to ensure high quality and appropriate services and utilization in hospitals under the jurisdiction of this chapter.

(d) To assist the board in its efforts under this section, the board shall create a quality assurance advisory group and appoint one of the board’s members as chairperson of the group. The group shall be composed of representatives of consumers, providers, payors, and regulating agencies.

§ -17 Powers with respect to insurance policies and health organizations. (a) With respect to any policy of accident or health insurance, and with respect to any health maintenance organization or similar health-related organization, the board shall:

(1) Be considered for all purposes a directly affected party before the insurance commissioner for purposes of any application, hearing, or appeal on insurance matters;

(2) Review requests for, and make comments on, proposed rate increases or coverage decreases submitted to the insurance commissioner with respect to the reasonableness of the request and impact on health care cost containment; and

(3) Comment on the advisability, reasonableness, and impact on health care cost containment of any other matter coming before the insurance commissioner or any other governmental agency or body.

(b) On or before the date of filing with the insurance commissioner of any rate, including any proposed increase or decrease thereof, and any coverage matter, including any proposed increase or decrease thereof, each company or organization described in subsection (a) shall notify the board of that filing as the board directs.

(c) Each company or organization described in subsection (a) shall establish, in a written report which shall be incorporated into each proposed rate application, that it has thoroughly investigated and considered:

(1) The economic and social impact of any proposed rate increase, or coverage decrease, on health care cost containment and upon health care purchasers, including classes of purchasers, such as the elderly and low and fixed income persons;

(2) State-of-the-art advances in insurance and health care management and rate design as alternatives to or in mitigation of any rate increase, or coverage decrease, which report shall describe the state-of-the-art advances considered and shall contain specific findings as to each consideration, including the reasons for adoption or rejection of each;

(3) Implementation of cost control systems, including a combination of education, persuasion, financial incentives and disincentives to control costs;

(4) Initiatives to create alternative delivery systems; and

(5) Efforts to encourage health care providers to control costs, including the elimination of unnecessary or duplicative facilities and services, promotion of alternative forms of care, and other cost control mechanisms.

§ -18 Public disclosure. From time to time, the board shall engage in or carry out analyses and studies relating to health care costs, the financial status of any health care provider subject to this chapter or any other appropriate related matters, and it shall be empowered to publish and disseminate any information which would be useful to members of the general public in making informed choices about health care providers.

§ -19 Exemptions from state antitrust laws. Actions of the board shall be exempt from antitrust or other action as provided in chapter 480. Any actions of health care providers under the board's jurisdiction, when made in compliance with orders, directives, or rules issued or adopted by the board, shall likewise be exempt. Health care providers shall be subject to the antitrust guidelines of the United States Federal Trade Commission and the United States Department of Justice.

§ -20 Penalties for violations. In addition to any civil remedies set forth in this chapter, any person or health care provider violating any provision of this chapter or any valid order or rule lawfully established pursuant to this chapter shall be guilty of a misdemeanor. Each day of a continuing violation after conviction shall be considered a separate offense. No fines assessed may be considered part of the hospital's costs in the regulation of its rates."

SECTION 3. The Legislature finds that changing market forces may require periodic changes in the regulatory structure for health care providers, and accordingly directs the board of directors of the Hawaii health care authority established by this Act to examine the hospital rate-setting methodology established by this Act, including the need for hospital rate-setting and the development of alternatives to the cost-based reimbursement methodology as a means of controlling hospital costs, and report its findings, recommendations, and any proposed legislation, if necessary, to the legislature and the governor twenty days prior to the convening of the regular session of 2004.

SECTION 4. The auditor shall evaluate the Hawaii health care authority and its board of directors, and shall report its findings and recommendations, including any proposed implementing legislation, to the legislature no later than twenty days before the convening of the regular session of 2005, including and assessment of whether the public interest requires that the law establishing the authority and board be modified or repealed.

SECTION 5. It is the intent of this Act not to jeopardize the receipt of any federal aid nor to impair the obligation of the State or any agency thereof to the holders of any bond issued by the State or by any such agency, and to the extent, and only to the extent, necessary to effectuate this intent, the governor may modify the strict provisions of this Act, but shall promptly report any such modification with reasons therefor to the legislature at its next session thereafter for review by the legislature.

SECTION 6. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 7. This Act shall take effect upon its approval.

INTRODUCED BY:

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