HOUSE BILL NO. 228 An Act relating to fees for certain medical treatment and service under the Alaska Workers' Compensation Act; and providing for an effective date. DEREK MILLER, STAFF, REPRESENTATIVE MIKE KELLY, commented that in 2005, the Alaska Legislature passed SB 130, a rework of the Workers Compensation statutes. As part of the rework, medical payments were frozen at the 2004 fee schedule so that a review could be done of the underlying reasons for premium increases. The review was to be jointly done by a special Workers Compensation Legislative taskforce in concert with the Department of Labor & Workforce Development Medical Review Committee. The taskforce was to develop recommendations to moderate program increases in the future. As part of the conditions of the medical rate freeze, the taskforce was to have completed their review by February of 2006; the rate freeze would sunset in August of 2007 (to be replaced by a new fee schedule). The taskforce did not complete the report by that time; consequently, the State is faced with the sunset of the medical rate freeze in August 2007. There is no plan for the post rate freeze sunset period. Mr. Miller pointed out that under HB 228, the medical rate freeze would be extended two years to allow time for recommendations to be developed. It implements an annual rate increases based on the Consumer Price Index (CPI). He added that the bill is not meant to be a long-term fix, but rather a stop-gap measure, extending the medical fee schedule, adjusting it for inflation. The bill is supported statewide. 1:50:30 PM Representative Crawford remembered when price controls were put in place to lessen inflation during the Nixon Administration, which did not accomplish the intent. He voiced concern that the legislation does not allow the market place precedence. He stressed the importance that injured workers receive the care they need. He questioned the time table. Mr. Miller explained that the Division of Insurance has indicated that if the measure is not adopted, medical care costs will increase related to workers compensation insurance. The March 1timeline places it in the middle of the legislative session in order for long-term discussion. Representative Gara acknowledged the need to raise medical treatment compensation rates as costs keep increasing; he asked if compensation rates for certain injuries had been frozen. 1:55:25 PM Vice Chair Stoltze asked about restrictions & need constraints to important services. Representative Kelly said it was not addressed; the bill only recognizes the sunset and absent that, rates will be frozen. The bill does not attempt to fix the system. 1:57:38 PM LINDA HALL, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, voiced support for the bill and offered to answer questions regarding the impact to insurance. Representative Crawford questioned the timing of the rates. Ms. Hall did not know why those dates had been chosen. The Division makes their rates effective the beginning of each calendar year with the process beginning in April or May, 2007. Any data received by them would be included in the rate making process. She indicated concern with the mid- term rates. 1:59:55 PM ROD BETIT, PRESIDENT, ALASKA STATE HOSPITAL & NURSING HOME ASSOCIATION (ASHNHA), ANCHORAGE, noted that ASHNHA, requested the proposed legislation in an attempt to "fix" this problem. The work of the task force has not been complete and with a rate freeze sunset in August, hospital and physicians would get paid on what they had billed, which would result in insurers paying out more than intended. No one wants to see that happen. HB 228 addresses these concerns. Representative Gara asked if the medical cost inflation adjustment would be retroactive to the time it was frozen. Mr. Betit replied it would be prospective for the next eighteen months. Representative Crawford inquired about the difference in rate structure. Mr. Betit explained that hospital members follow the Consumer Price Index (CPI) closely. At the time the freeze was put in place, the hospital charges were being discounted by workers' compensation; he anticipated it would be in the 25% discount range. Representative Crawford thought that the rate was higher; he worried about the final disparity. Mr. Betit commented that the bill only impacts the medical claims of an injured worker, not all medical claims; no one is happy with it as a permanent solution. Long-term reimbursement needs to be made through negotiation. 2:04:33 PM Representative Gara asked if the frozen rates would create risk for those not receiving treatment with fees too low. Mr. Betit said no; the providers will continue to give treatment. Representative Gara pointed out that they would be charging less than the workers comp arena to private patients and asked if costs would be passed to other consumers. Mr. Betit explained that the same charge is made to all patients. There are different reimbursement agreements reached with different payers; each hospital offers charity policies, some of which are passed to other payers. Representative Gara reiterated his query regarding the workers comp rate being lower than customarily charged and causing a rate increase to others. Mr. Betit reiterated it was not passed on. 2:07:32 PM GEORGE RHYNEER, CARDIOLOGIST, ALASKA PHYSICIANS AND SURGEONS, ANCHORAGE, testified in support of HB 228, as it provides the Legislature time to more fully evaluate the real cost of workers' compensation. He noted that the cost of medical care continued to rise due to technological advances. Physicians want to determine a solution for cost effectiveness and that HB 228 allows that to happen. 2:10:19 PM SALLY STUVEK, (TESTIFIED VIA TELECONFERENCE), HUMAN RESOURCE DIRECTOR, FAIRBANKS NORTH STAR BOROUGH, FAIRBANKS, testified that the Fairbanks North Star Borough supports the legislation, which provides stability in establishing costs. The adjustment appears reasonable as the rates have been frozen since 2004. She requested that consideration be made for March 2009, when the bill again sunsets, there then be a process in place to address these concerns. A long-term solution would be the best. It is also an important issue for providers. MICHAEL HINCHEN, (TESTIFIED VIA TELECONFERENCE), GENERAL MANAGER, ALASKA TIMBER INSURANCE (ATI) EXCHANGE, PORTLAND & KETCHIKAN, stated that he represents a small workers' compensation insurance company, formed in 1980. The company is owned by the policy holders, who are concerned about rising medical costs. [remaining testimony inaudible]. 2:16:28 PM PAUL LISANKIE, DIRECTOR, DIVISION OF WORKERS' COMPENSATION, DEPARTMENT OF LABOR & WORKFORCE DEVELOPMENT, responded to a query by Representative Gara, explaining that it would be lump sum payments associated with permanent partial impairments, not indexed. Representative Gara asked the last time they were updated. Mr. Lisankie thought it was 2000 & offered to check the precise date. Representative Gara said he was concerned that injured people are being compensated. 2:18:16 PM PUBLIC TESTIMONY CLOSED Representative Gara asked if workers compensation rates were updated, does that affect all rates. Ms. Hall emphasized that benefits in any one time period are aggregated for the amount that the system costs by a three year look-back, trending for current and projected costs. There are no single items, creating a huge cost. Alaska is already number one in the country for premium costs for employers. Representative Gara noted that he would speak to the sponsor regarding his concerns. Co-Chair Meyer referenced the two zero notes. Representative Gara pointed out the two CPI rates for medical services, the one used is the Medical Care CPI index; the other is the Medical Care Services Component, a percent higher. Representative Kelly agreed, noting that the one chosen caused the "least consternation". 2:22:58 PM Vice Chair Stoltze MOVED to REPORT CS HB 228 (L&C) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 228 (L&C) was reported out of Committee with a "do" recommendation and with zero notes #1 & #2 by the Department of Administration and Department of Labor & Workforce Development. 2:24:20 PM