SB 121-HEALTH INSURANCE ALLOWABLE CHARGES  [CSSB 121(HSS) was before the committee.] 3:04:19 PM CHAIR BJORKMAN reconvened the meeting and announced the consideration of SENATE BILL NO. 121 "An Act relating to settlement of health insurance claims; relating to allowable charges for health care services or supplies; and providing for an effective date." 3:04:42 PM SENATOR CATHY GIESSEL, District E, Alaska State Legislature, Juneau, Alaska, sponsor of SB 121. She stated that the bill establishes minimum reimbursement standards for healthcare services to ensure fair and sustainable payments to providers. After the repeal of the 80th percentile rule it left no reimbursement floor, clinics faced severe payment declines. She said SB 121 guides the Director of Insurance to set and audit standards requiring insurers to reimburse at least the 75th percentile of statewide charges or 450 percent of Medicare rates, using current, market-based data to maintain equitable and affordable healthcare in Alaska. 3:07:53 PM SENATOR BJORKMAN announced that Senator Gray-Jackson joined the meeting. 3:08:01 PM CHAIR BJORKMAN asked if the bill, to repeal the 80th percentile rule, included a reimbursement floor set at 300 percent of Medicaid rates. 3:08:12 PM SENATOR GIESSEL replied that it was 300 or 350 percent of Medicare not Medicaid. 3:08:34 PM CHAIR BJORKMAN announced invited testimony on SB 121. 3:08:58 PM JEFF DAVIS, Principal, Weston Group Consulting, Wenatchee, Washington, provided a presentation on SB 121. He stated that the 2004 regulation was intended to prevent balance billing, where insurers paid far less than a provider's charge, by establishing a market-based standard. However, the regulation also had an unintended consequence, it became a key reference point in payment negotiations between providers and insurers. 3:10:40 PM MR. DAVIS moved to slide 2 and spoke to the following: [Original punctuation provided.] SB 121: Restores State-defined, Alaska-based standard for health insurance allowable charges. Protects Alaskans from large balance bills Restores balance at bargaining table Addresses criticisms of the 80th percentile Require insurers to: • Set allowable charges, usual, customary & reasonable (UCR) at 75th percentile of Alaska charges (Reduced from 80th percentile) • Entire state is one region, not 4 separate geographic regions • Updated not more often than every three years • Instead of every six months, not less than every five years 3:11:57 PM MR. DAVIS moved to slide 3, Why does Alaska need a UCR replacement. He stated that there are two reasons a replacement is needed. Insurers don't base payments on provider charges but on an allowable amount, often referred to as the usual, customary, and reasonable rate. Someone must determine that allowable amount. Under the previous rule, it was set at the 80th percentile, roughly 450 percent of Medicare rates. After the rule's repeal, insurers set their own standards, reducing allowable payments to about 185 percent of Medicare, a drop of around 60 percent. 3:12:55 PM MR. DAVIS moved to slide 4 and provided examples why usual, customary, and reasonable (UCR) rate matters to patients. He said if UCR is set too low, patients pay more out of pocket. When set at market rates, patients receive the full insurance benefit they're paying for: [Original punctuation provided.] Benefit calculation examples:    Benefit with insurer-defined $100 charge for service low UCR: Patient owes $60. UCR set at $50 80 percent benefit = $40 covered by plan Patient owes $60  UCR at hypothetical 80th $100 charge for service percentile: Patient owes $28. 80th percentile = $90 80 percent benefit = $72 covered by plan Patient owes $28  3:13:26 PM MR. DAVIS moved to slide 5 and stated that the 80th percentile rule originally protected consumers when few providers had contracts, setting a benchmark for reimbursement when no agreement existed. He said as more providers became contracted, about 90 percent by 2017, the rule no longer set payment terms but still served as a key reference point in negotiations. Providers often accepted slightly lower rates to remain in- network, benefiting both patients and their practices, yet the 80th percentile continued to guide fair contract pricing. 3:15:39 PM MR. DAVIS moved to slide 6 and spoke to the following: [Original punctuation provided.] Impact: Repeal with no "floor" replacement No state-defined UCR method after repeal in January 2024 Insurers again used their own definition: -Largest plans chose 185 percent of Medicare Physician fee schedule -185 percent is roughly 40 percent of the 80th percentile With UCR defined as 185 percent of Medicare Insurers demanded steep reductions in contract rates! -Insurers began demanding steep reductions in existing contracts Providers' alternatives: • Accept reduced terms-not financially sustainable, eventually close • Go out-of-network and balance-bill patients If terminate contract, large balance bills return new insurers trying to establish network using low UCR-may cause large balance bills 3:16:19 PM MR. DAVIS moved to slide 7 and stated that before the repeal, a provider might accept $80 on a $100 charge when the 80th percentile was $90. After repeal, that benchmark dropped to about $35 at 185 percent of Medicare, giving insurers much greater leverage. He said without a replacement, the repeal greatly weakened providers' bargaining power in reimbursement negotiations. 3:17:09 PM MR. DAVIS moved to slide 8 and explained that the graph shows data from 13 medical practices comparing insurer payments and insurance premiums over time. Provider payments remained flat or declined, while insurance premiums rose about 30 percent. This demonstrates that rising premiums are not caused by increased provider reimbursements. 3:18:27 PM MR. DAVIS moved to slide 9 and stated that repealing the 80th percentile rule without a replacement created serious financial strain on providers. Reimbursements have remained flat for years while practice costs, especially staff wages, have risen by 47 percent since 2016. He said as a result, physicians' take-home pay in Alaska is now the lowest in the nation. With insurers seeking further reductions, providers face difficult choices like closing practices, stopping care for Medicare or Medicaid patients, or going out of network and balance bill patients, returning to problems seen before 2004. 3:21:17 PM MR. DAVIS moved to slides 10-13 and shared a few excerpts from the many letters received in support of SB 12: [Original punctuation provided.] "My office is in danger of closing owing to shrinking reimbursement. While inflation has occurred every year and the cost of supplies like sutures, liquid nitrogen, gauze?and expenditures such as health insurance has grown exponentially (27 percent increase in health insurance rates, 2025-2026)?our reimbursement is CUT each year." Matthew Cannava, MD, Soldotna "?I have tried to negotiate with insurance companies unsuccessfully. I am concerned that in the near future I may have to close my practice given the deteriorating financial situation for me in Alaska. Given the lower reimbursement, it will be more difficult for me to serve Medicare and Medicaid patients since my economic situation is declining?I am the only neurosurgeon in Fairbanks, Alaska and I want to stay in Fairbanks, Alaska but I do need to operate with positive margins. Please help me to continue to do this with passage of Senate Bill 121." John A. Lopez, MD, Fairbanks "?Inflation has increased 30+ percent in the last 11 years. Reimbursements on average have DECREASED by 30- 40 percent. It is not sustainable for medical practices in the state to continue to be able to pay the cost of doing business with the rates that Premera, who is setting in-network rates lower than 11 years ago, and out of network rates at 185 percent of Medicare. The ONLY leverage we had in negotiating any kind of fair reimbursements was to have a percentile rule in place that at the very least allowed providers to negotiate." Debbie Ryan, Business Manager, Community Chiropractic, Anchorage "?As a family physician practicing in Juneau for over 25 years, I have seen a tremendous change in the status of medical practices in Juneau. Patients have less selection and options, as a number of independent practices have closed (or merged into the local tribal health system). Declining reimbursement and decreasing income for physician practices are the factors causing physician practices to become nonviable." Janice Sheufelt, MD, Juneau MR. DAVIS said physician practices becoming nonviable is a serious and urgent situation. Alaska's provider community is at risk, and losing physicians would have long-term consequences, as they are unlikely to return. 3:24:15 PM MR. DAVIS moved to slide 14 and stated that in summary, SB 121 restores Alaska's state-defined standard, protects consumers from balance billing, and rebalances provider-insurer negotiations while addressing criticisms of the 80th percentile rule. 3:24:43 PM MR. DAVIS moved to slides 15-18 and stated that the appendices highlight reasons why healthcare costs are high, including cost shifting from Medicare and Medicaid to private payers, which raises prices for those patients. The appendices also explain why premiums rise and why Alaska's healthcare system does not operate as a true free market, providing context and reference for common questions. 3:25:52 PM SENATOR YUNDT asked how other states' laws compare to Alaska. 3:26:00 PM MR. DAVIS replied that ten states: California, Texas, Florida, New York, Nevada, Oregon, Utah, Colorado, Kansas, and South Carolina have laws similar to Alaska's percentile rule, with eight using the 80th percentile and two using the 90th percentile. 3:26:29 PM SENATOR YUNDT noted that it is unusual for payouts to decrease while insurance premiums rise and suggested that the legislature must address this issue soon. 3:26:47 PM MR. DAVIS stated that provider costs make up about 2025 percent of total healthcare costs, and with 90 percent of providers under contract, rising expenses are not driven by provider charges. Instead, costs are increasing due to Alaska's aging population, the growing share of Medicare/Medicaid patients, limited provider numbers, expanding medical technology that adds rather than replaces, and the high cost of new pharmaceuticals. Overall medical inflation is about 5 percent, though individual market headlines show higher rates due to unique Affordable Care Act (ACA) market factors. 3:29:14 PM NOAH LAUFER, Physician, Medical Park Family Care, Anchorage, Alaska, testified by invitation on SB 121. He stated that he agreed with the testimony of Mr. Davis and said the crisis in healthcare is urgent and more severe than many realize. At Medical Park Family Care, he has 14 providers, 85 employees, and 3540,000 patient visits annually, reimbursement has been flat for 10 years. He said the clinic sees about 25 Medicaid patients a day and provides extensive care that is often uncompensated. It has no negotiating leverage making its financial stability tenuous - retirement or incapacity of an owner could force closure. He said nobody wants to buy a business that doesn't make a profit. He said the comprehensive coordinated care that his clinic has offered to generations of patients is at risk. 3:31:53 PM CHAIR BJORKMAN stated that the 80th percentile rule has been absent for just over a year, but reimbursements were flat for the previous 10 years and asked whether the rule had been ineffective. 3:32:08 PM MR. LAUFER replied that the 80th percentile rule wasn't critical for his office because it sees all payers and is not the most expensive. However, without it, there is no negotiation or leverage with insurers; the only potential leverage would be refusing patients and that would likely achieve nothing. 3:32:43 PM CHAIR BJORKMAN stated that for nine of the last ten years the 80th percentile rule gave providers an automatic price floor that increased twice a year and allowed providers to set their minimum price. He asked if the 80th percentile rule worked so well that providers are now requesting its reinstatement, then why, given that environment, did reimbursement pay stay the same. 3:33:18 PM MR. LAUFER replied that the rule benefited the community by fostering negotiation, but providers cannot set their own prices and are paid only what insurers dictate. 3:33:51 PM WADE ERICKSON, Physician, Capstone Clinic, Wasilla, Alaska, testified by invitation on SB 121. He stated that up until around 2017, the 80th percentile rule allowed providers to negotiate fairly with insurers despite downward market pressures. After 2018, negotiations ceased, and rates were held steady. Following the repeal of the rule, insurers quickly set floors at 185 percent of Medicare, triggering concern as the safety net the rule provided disappeared. The rule had maintained a floor that prevented further rate reductions, but without it, independent practices face downward pressure from insurers and hospitals, which control both premiums and provider reimbursements. 3:37:13 PM MR. ERICKSON stated that it's become difficult to receive healthcare in the Lower 48, which in turn brings patients back to Alaska to see their primary care physicians. Since the repeal of the 80th percentile rule, specialists are leaving, making recruitment difficult and threatening independent practices. This could reduce access and quality of care, leaving hospitals to fill the gap. He asked for immediate legislative action to restore balance before 2027, or the damage to primary and specialty care will be significant. 3:40:26 PM GENE QUINN, Cardiologist, Alaska Heart and Vascular Institute, Anchorage, Alaska, testified by invitation on SB 121. He said Envoy Integrated Health is a physician collaborative focused on improving the quality and reducing the cost of Alaskan healthcare through coordination and population health. He said starting with five groups five years ago, it now includes 38 practices, over 300 physicians, and other providers. The collaborative uses value-based care and created Alaska's first locally based accountable care organization, saving 67 percent of Medicare costs, compared to the 1 percent reduction promised by repealing the 80th percentile rule. He said threats to the income of physicians, such as, the repeal, reduce investment in infrastructure, discourage care for vulnerable populations, and distract from meaningful healthcare improvements. Collaboration with insurers on cost and quality, not payment disputes, is essential to advance Alaska's healthcare system. 3:46:04 PM CHAIR BJORKMAN commended hospitals, care providers, and insurers for engaging in cost-of-care projects, including SB 133 on prior authorization. He highlighted the contrast between low-wage caregivers and highly trained providers, noting the need to address healthcare costs beyond simply increasing government funding. He said he supports exploring regulations or standards to ensure more insurance premiums go toward provider reimbursement, emphasizing a systemic approach rather than just distributing more money, which drives premiums up. 3:48:29 PM CHAIR BJORKMAN held SB 121 in committee.