Below is the HillCo Client report from the September 15 Senate State Affairs Committee hearing.

The committee met to consider the following interim charges:
 
Examine the negative economic impact on Texas business from legal issues involving threatened and actual patent litigation by "patent assertion entities" (PAEs). Consider the effects of PAE actions on innovation and economic development in Texas, paying particular attention to threats and lawsuits involving software and technology patent claims. Make recommendations on how the State of Texas can address problems related to frivolous legal actions and unsubstantiated patent claims asserted against legitimate business enterprises in light of the relevant federal jurisdiction, laws, regulations, and court rules in patent cases.
 
Study the emerging negative impacts of the Federal Affordable Care Act, including the use of navigators, and make recommendations to mitigate any unintended consequences including rising health insurance premiums, lack of access to healthcare, mishandling of Texans' private information by insufficiently-trained navigators, and the Act's overall effect on Texas employers and insurance consumers. Evaluate free-market alternatives to the Act, including state-led proposals to repeal, reduce or replace the Act. Closely monitor and make recommendations on the continuation of the Texas Health Insurance Pool.
 
Study and make recommendations on increasing medical price transparency in Texas, including studying the impact of SB 1731, 80th Legislative Session. Analyze relevant reforms considered or implemented in other states, and make recommendations regarding potential changes designed to create a more open marketplace for enhanced consumer decision making in Texas.
 
Study and make recommendations relative to the structure of Texas Mutual Insurance Company and the residual market for workers' compensation insurance in Texas.
 
Patent Assertion Entities
 
Jeff Austin, Vice Chairman, Austin Bank

  • PAEs compromise more than 62% of patent infringement claims
  • Patents are purchased or acquired for small sums then demand letter are mailed to businesses which may have violated that patent
  • One company attempted to file a patent for ATMs then asked for $2,000-4,000 per ATM from multiple banks
  • Many banks just paid the “nuisance fee” to avoid litigation
  • This is basically legalized extortion
  • Chairman Craig Estes noted if the issue is taken to court the banks cannot be extorted
  • 18 states have already adopted legislation regarding bad faith patent claims
  • Texas Bankers Association has adopted a legislative agenda pursuing legislation that protects the banking industry particularly from patent trolls
  • Sen. Rodney Ellis asked if the witness’ bank has been sued
    • Yes, for well over $1 million; have gone to settlement in three cases over two years and many other cases are in the process
  • Sen.-Elect Van Taylor asked about a study that showed patent trolls cost Americans about $30 billion per year and the industry is growing at around 40% a year; 30-50% of the cases are in Texas

 
Justin Freeman, Counsel, Rackspace Hosting

  • Over the last 4 years, cost for these claims have raised 500%
  • Sen. Leticia Van de Putte asked about the differences between legitimate patent claims aND frivolous ones
    • They are just flimsy patents that are filed very broadly and in high quantity

 
Kathy Barber, Caterpillar

  • Caterpillar has millions of dollars’ worth of patents that Caterpillar likes to protect
  • If someone is designing something that looks like a Caterpillar product, a demand letter is sent to warn the other company that a lawsuit may be imminent
  • Caterpillar does not send mass numbers of letter to mass numbers of end users or consumers
  • Legislation should have clear rules regarding what can and cannot be done; there should be safe harbor for entities trying to protect their existing patents
  • Estes asked if legislation is passed if Caterpillar would like to have a seat at the table to ensure their business model is not caught up in legislation
    • Yes, it is a problem but demand letters and legitimate patent claims should be protected

 
Karen Neely, Counsel, Independent Bankers Association of Texas

  • Patenting of processes such as ATM services and secure emailing is becoming a pattern
  • The end user is often targeted by patent trolls instead of an entity that may have developed the process
  • It costs about $2 million to defend against a patent suit and the cost to the economy is probably closer to $80 billion a year

 
Dan Hatfield, Texas Association of Realtors

  • Over a dozen members were sued by trolls in 2013
  • They did not file demand letters they just went to filing lawsuits against end users since members’ websites were using real estate search software
  • These are small companies and if lawsuits are being piled up on these small companies their business will suffer
  • Recommends legislation aimed at ending bad faith patent claims
  • Sen. Robert Nichols asked how that should be done
    • There are ways to make sure if a lawsuit is filed it is against a person who uses the patent in the first place, not the end user
  • Nichols noted federal law cannot be changed by state law; federal law allows the end user to be sued
  • Taylor noted other states have used around four different methods to address this situation

 
John Murphy, Counsel, PhRMA

  • In other states bills are passed with varying standards about what should or should not be in a demand letter
  • Members would have a hard time ensuring demand letters meet all the different states’ guidelines
  • There are concerns and PhRMA would like to be involved in the process of creating legislation
  • The line is somewhat blurry between legitimate and frivolous claims

 
Mike Hall, Texans for Lawsuit Reform

  • TLR is reasonably convinced there is a problem
  • Have not settled on a solution
  • Currently working on developing something
  • Van de Putte asked about the organization’s hesitancy to add causes of action; what sort of balance is being sought
    • That is the same question TLR is dealing with; federal preemption along with the rights of legitimate patent claims makers must be considered
  • Sen. Troy Fraser asked about loser pays provisions limiting this; are there laws that have been passed before that help the issue
    • There isn’t really anything addressing this
  • Sen. Joan Huffman asked if it will be TLR’s position that the state does need to do something
    • It is clear that there is a problem that needs to be addressed; a solution needs to be both constitutional and not too onerous
  • Sen. Rodney Ellis asked if the federal government is looking at shortening the life of these patents
    • Not sure
  • Ellis asked if the states taking steps against patent trolls are big patent states
    • Not sure

 
Lisa Kaufman, Texas Civil Justice League

  • Agree with all the witnesses so far
  • There is definitely a problem in Texas that needs a solution that addresses both sides of the issue; there needs to be balance
  • Van de Putte asked what sort of evidence should be looked at to find a solution
    • Laws that are in place, ideas other states use, concerns of both sides

 
Nelson Roach, Texas Trial Lawyers Association

  • Does not oppose legislation addressing this issue; there is a problem
  • Some of the statistics cited today are from data collected in 2011 before congress passed legislation radically changing patent litigation limiting frivolous cases and offering recourse
  • The laws have strengthened the ability of patent holders to defend their patents
  • The effects of this recent legislation is still unknown
  • The question is where is the line between what the state can do and what the federal government can do
  • Other states have passed legislation that crosses the line by defining good faith and bad faith in a cumbersome way; must ensure the legislation passes constitutional muster
  • The key will be to draft legislation that solves the problem without causing more harm
  • Ellis noted the different life spans for different types of patents will be an issue with this going forward

 
Texas Mutual Insurance Company
 
Richard Gergasko, President/CEO, Texas Mutual Insurance Company

  • Largest provider of workers’ compensation in Texas for almost 20 years
  • Created in 1991 by the legislature
  • Initially capitalized with $300 million in bonds; by 1999 the company had paid off all bonds with interest; converted to a mutual insurance company in 2001
  • Do not operate using tax dollars and no employees are state employees; the company is not a state agency
  • The governor appoints 5 of the 9 board members
  • Proposing a change to put the policy holders fully in charge by allowing holders to elect their own board and ending state oversight
  • Fraser asked what percentage of the market the company has
    • 39%
  • The proposal is fully supported by board of directors and all policy holders as well as the business community
  • Fraser noted he came into the legislature as a one issue candidate; workers’ compensation was the issue and they passed reform; workers’ comp was at a crisis point in the state and the company was created by the legislature because no other companies would write workers’ comp policies
  • Fraser feels very strongly that the company should continue in its current manner to ensure transparency and that the company continues to operate above board; the company was started by the state and the company has accrued $2 billion that the government allowed them to make; currently the legislature can audit the company but under the new proposal that would not happen; open meetings are currently required and under the new proposal they would not be
    • The Department of Insurance has a responsibility to make sure the financial strength of the company remains intact; there are many laws that regulate mutual companies already
  • The way that the company is structured now as a mutual company would allow for it to work better without state oversight
  • Fraser noted this is the worst concept for legislation he has ever seen; it is close to theft; if relieved of state oversight the company could use the $2 billion in assets to write bonus checks to employees and that is why it is a bad proposal

 
­­­­­­­­­­­­­­­­Eric Oliver, Board Vice-Chair, Texas Mutual Insurance Company

  • One of four elected directors
  • The workers’ comp market is extremely competitive and very efficient
  • There are over 250 competitors to the company
  • Reform in the workers’ comp industry worked very well
  • Fraser noted everything done with workers’ comp could be undone with one bill and the need for the state oversight could come back instantly; may be filing legislation to bring the company fully back under the legislature
  • Van de Putte asked how dividends would be returned to members under the new proposal
    • Would remain operating as a mutual insurance company; would always evaluate the needed equity level and return dividends to shareholders accordingly
  • Van de Putte asked if profit would be subject to tax under the new proposal
    • If the governor no longer appointed the five board members the federal tax exemption would be lost; may be lost anyway as the federal government updates the tax code
  • Van de Putte asked about the company continuing with safety resources
    • That is part of the culture of the company and would not change; safety is the best way to ensure the business stays successful

 
Rob Looney, President, Texas Oil and Gas Association

  • Industry groups represent about 40% of Texas Mutual’s policies
  • Industry groups work closely with Texas Mutual on safety programs which are extremely important to associations
  • If Texas Mutual began acting inefficiently, industry groups could exert the influence of their large membership to ensure the company was run better

 
Cathy Dewitt, Texas Association of Business

  • The state should get out of the business of workers’ compensation
  • In support of the proposal
  • Fraser believes there are a lot of TAB members who would be on the other side of the issue if they understood it better; the predecessor of TAB was the West Texas Chamber of Commerce which was one of the big proponents of the workers’ compensation reform

 
Medical Price Transparency
 
Katrina Daniel, Associate Commissioner, Texas Department of Insurance (TDI)

  • SB 1731 (80R) directed TDI to build a website to show consumers information about the cost of health care
  • Trying to make more information available to consumers to educate the public about choice
  • Applied for a federal grant aimed at transparency and received around $4 million
  • When collecting data from companies and outliers are seen, TDI has not been able to drill down and determine what is causing these outliers to charge more
  • Planning to build out the website to show components that would represent the overall cost of a medical care experience

 
Jamie Dudensing, Texas Association of Health Plans

  • Insurance carriers are strong advocates for price transparency because informed consumers make smarter choices
  • When consumers know the information they make more cost efficient choices
  • A big component to transparency is improving health care literacy
  • Van de Putte asked about health plan efforts to inform consumers
    • Health plans are required to provide written notice to consumers that a provider is out-of-network as well as when a provider in a network hospital is out-of-network
  • Van de Putte asked about network adequacy; the state is the largest purchaser of health care services in the state; provider lists must be continually updated because many times providers that are no longer in existence still show up on network lists

 
Trey Berndt, AARP

  • The number one complaint coming from members is about balance billing and surprise medical charges
  • There is a problem with providers being out-of-network when working at an in-network hospital; this can be very confusing to consumers
  • This is not just a health plan or provider or hospital problem, it is owned by all three
  • Estes asked about solutions
    • People in an emergency room situation should be held harmless from balance billing; this has worked in New York and other states

 
Charles Bailey, Texas Hospital Association

  • Supportive of efforts by the legislature that increase price transparency
  • Health care can be very complicated and all involved should be working to increase transparency
  • Hospitals are doing their best to educate consumers in the business office but that doesn’t always carry over to the emergency room
  • Estes asked for THA to look into what other states have done regarding price transparency
  • Providing estimated charges is of limited benefit but does help to some effect
  • Health plans are the best source for accurate information on prices and can come up with the best tools to educate consumers; many plans are already doing this

 
Dr. David Bryant, Texas Society of Anesthesiologists; Anesthesiologist

  • Regarding the TDI price website, it would be better organized around an event of treatment rather than CPT codes; there is also an issue with accuracy of data, many times their price quotes are below Medicaid billing rates specifically with anesthesia
  • Health plans have information regarding networks and discounts so their input into the system is crucial
  • The website needs guidance regarding how to use the information provided

 
Dr. Patrick Carter, Texas Medical Association; Family Physician

  • Cost estimates are a good step toward price transparency
  • SB 1731 was passed a long time ago and the internet has improved significantly; many industry efforts taking place in regard to SB 1731 are going above and beyond requirements of the legislation
  • TMA has established a work group studying the transparency issue and has suggested some ideas
  • SB 1731 has worked and any new legislation should work in concert with SB 1731 and not be too burdensome

 
Carl Isett, Texas Association of Benefit Administrators

  • SB 1731 was a good first effort to try to get to transparency but there needs to be much more work done
  • Would like to work with the legislature to help in this regard

 
Impacts of the Affordable Care Act
 
Jamie Walker, Associate Commissioner, TDI

  • Discussed requirements in rules regarding health benefit exchange navigators
  • Estes asked how many are certified as navigators
    • 26 entities and 208 individuals
  • Rules prohibit navigators from charging for assistance, electioneering, or suggesting plans or providers
  • Van de Putte asked about clarifications on the rules; with the provision regarding support of candidates does it have to do with non-partisan races as well
    • Yes, the provision is applicable to navigators providing assistance and wearing candidate shirts, buttons, etc. at the same time; goes for any candidate; they are allowed to support candidates outside of their official capacity
  • Nichols asked about being able to go back and determine what navigator helped a person if they have problems down the road
    • Yes; the individual is responsible for keeping that information in case they need to file a complaint later; the information is not kept by TDI
  • Nichols noted there could be bad player and they could give bad information to multiple people, it might be beneficial to keep a list like that in case a problem arose
    • CMS may keep that data
  • Ellis asked how many states have state navigator rules
    • Multiple states do; can find out which ones
  • Ellis asked how much more or less stringent are Texas rules
    • Other states have specifically defined navigators as those who received federal grant money
  • Ellis noted it would be helpful to see more of that information to determine if changes need to be made
  • Ellis asked if other states are considering putting the same regulations on other insurance agents
    • Essentially there are regulations; they must take an exam and go through background checks similar to what navigators go through

 
Katrina Daniel, Associate Commissioner, TDI

  • The high risk pool was created in 1997 and has covered more than 95,000 people
  • With passage of the ACA, individual insurance companies are not allowed to deny coverage so the pool was no longer required
  • Last session a bill was passed directing the pool to go away unless guaranteed issue insurance is not readily available; working through some of the wind down issues with the pool and resolving remaining claims; once those duties are complete the pool will dissolve and return remaining funds to TDI
  • TDI will use the funds to close out remaining expenses for the Healthy Texans program and to improve access to health benefit coverage for the uninsured
    • Have conducted some work with stakeholders to determine how the resources should be prioritized to expand access

 
Dr. Patrick Carter, Texas Medical Association; Family Physician

  • It is not always easy to confirm benefits for patients through any type of insurance program
  • The less the patient knows about how coverage is structured means more time providers must spend educating them
  • Van de Putte asked if there is any difference between the grace period when customers buy insurance on the exchange versus what they buy normally
    • The only time a provider knows if the patient is getting insurance through the exchange is if they get a subsidy; for the first 30 days of the grace period the health plan must pay if a customer does not pay their premium and insurance is cancelled, for the next 60 days the provider is on the hook
  • Recommends that insurers be required to disclose limited provider networks; requiring insurers to clearly identify on patient ID cards if the patient is covered by an exchange

 
Annie Spilman, National Federation of Independent Business

  • The rising cost of health insurance is a huge problem for independent businesses
  • 64% of membership says premiums went up during the implementation years of the ACA
  • Premiums for individuals and small groups have gone up because of requirements of coverage
  • Texas is expected to lose over 7,000 jobs and $1.3 billion in economic activity because of the health insurance tax by 2022
  • It is frustrating for small business that there is uncertainty surrounding the law
  • Van de Putte noted there was a lot of implementation that federal HHS had to do to put the law into effect when congress didn’t want to make a decision; does NFIB have a comparison of state to state that shows the effect on small business for states who have implemented Medicaid expansion
    • Can provide that
  • Van de Putte asked if NFIB recognizes the reports that showed the effect on the state from bringing those billions of dollars into the state for Medicaid expansion; one report showed that money would have brought around 200,000 jobs
    • No response
  • Sen. Brandon Creighton noted increasing regulations make it harder for small-business people to take a risk on opening a business; now some businesses have to determine how to keep their businesses from growing in order to keep their employee number small

 
Misty Baker, Independent Insurance Agents of Texas

  • There are three distinct business segments in Texas
    • Small employers
      • Small employers must age-rate employees for their premiums
      • Some states are asking for waivers to composite their employees
    • Large employers
      • Employers must disclose much more information about their employees
      • Employees will receive a 1095-C form to go along with a W-2
    • Self-funded plans
      • In 2015-16 these plans will be growing exponentially
      • Minimum essential coverage plans are a problem and will be used more often; these cover preventive care and indemnity most of the time
  • The ACA is making a huge impact on Texas no matter what part of the spectrum an employer falls under

 
Jamie Dudensing, Texas Association of Health Plans

  • In the first several months of implementation enrollment jumped quite a bit
  • The large group market did not change very much and there was a small decrease for small group enrollment
  • Open enrollment will begin again this November and TAHP is starting outreach
  • Still very concerned about affordability of coverage
  • There are still core function problems that many plans are having to mitigate themselves
  • There is some confusion and overlap between state and federal requirements
  • Coverage is not the miracle cure and affordability is a big part of the problem; price has not been driven down through the ACA

 
Stacy Pogue, Policy Analyst, Center for Public Policy Priorities

  • 734,000 Texans went to the exchange and selected a plan; believe around 80-90% have paid for their premiums
  • Open enrollment will go from November 15-February 15 but applicants can enroll at any time if there is a big life change
  • Marketplace premiums for Texas have not been posted for next year but other states’ have been posted and show modest changes
    • The average rate increase is 7%; for the 16 largest cities, there has been a 1% decrease
  • In 2014 family premiums rose by 3% and the share of employers offering coverage remained unchanged

 
John Davidson, Texas Public Policy Foundation

  • Federal reserve bank surveys asked employers about the effect of ACA on hiring and health care costs; many reported hiring more part-time or contracted employees; many reported seeing higher costs
  • Texas alone has lost thousands of jobs due to the ACA
  • There are a number of state-based alternatives to the ACA; in particular, self-insurance certificates with low income set-aside percentages rather than dollar amount requirements

 
Tiffany Hogue, Texas Organizing Project

  • Access to affordable health care is a top issue for Texans
  • The largest number of uninsured are in the service industries that do not generally provide employee insurance
  • Texas needs to find a way to draw down Medicaid expansion funding

 
Benjamin Hernandez, CFO, City of Houston Health Department

  • There were around 200,000 enrollments in the Houston area which would not have been possible without navigators
  • The rules that are in place have protected the consumer
  • Ellis asked what will be done differently for the next open enrollment
    • Changing the way enrollment events are done; for the benefit of the consumer appointments will be set up so they are not rushed in and out