HOUSE BILL NO. 314 "An Act relating to fees and charges for medical treatment or services, the crime of unsworn falsification, investigations, and penalties as they relate to workers' compensation; and providing for an effective date." 1:37:05 PM KONRAD JACKSON, STAFF, REPRESENTATIVE KURT OLSON, SPONSOR, reported that HB 314 addresses medical treatment, service fees, and penalties related to worker's compensation. He informed the committee that the Medical Services Review Committee met a number of times the previous year to address the issues and generated a report with a recommendation to set up a medical services fee schedule. House Bill 314 sets up the schedule and addresses civil penalties. The current fee schedule cap expires at the end of the year. LINDA HALL, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, provided an overview of the background and contents of HB 314. She noted that when changes were made to the workers' compensation law in 2005, there was an inadvertent deletion of the basis of the Worker's Compensation Board to adopt a fee schedule. An expectation that stakeholders would convene and propose legislation before August 1, 2007 was not met; subsequently, the department has twice requested increases to the old 2004 fee schedule. She called the 2006 and 2008 increases "artificial, across-the-board." The most recent fee schedule will expire December 31, 2010. After expiration, there will not be a cap on charges by providers for services given to injured workers. Ms. Hall referred to handouts before the committee, beginning with "Workers Compensation Medical Losses Are More Than Half of Total Losses; All Claims-NCCI States" (copy on file). She explained that NCCI is the National Council on Compensation Insurance, the statistical agent for Alaska and 35 other states. Data collected by NCCI in the 36 states show medical expenses in 2008 being 58 percent of the total system cost with indemnity (lost wages) at 42 percent. Ms. Hall directed attention to the second chart, "Workers Compensation Benefit Split in Alaska; All Claims--Alaska" (copy on file), with pie charts focusing on statistics in Alaska only. She noted that Alaska's medical cost is at 72 percent; the equivalent of $0.72 of every dollar spent on workers' compensation benefits is spent on medical services. She emphasized that this was significantly higher than the national average. Ms. Hall turned to the third chart, "Alaska Medical Average Cost per Case vs. Countrywide" (copy on file). She pointed out that in 2008, Alaska spent approximately $40,000 per case; the national average is $26,000. Ms. Hall referred to the final chart, "Oregon Worker's Compensation Premium Rates Ranking, Calendar Year 2008" (copy on file) and emphasized that Alaska ranks number one in both 2006 and 2008 for workers' compensation premium rates. She believed that much of the high premium costs are driven by medical costs. Ms. Hall acknowledged that the proposed new fee schedule in HB 314 was not a "fix" that would lower the premiums, but she asserted it would replace the consumer price index (CPI) increases that have created a static schedule with a sustainable schedule adding back missing procedure codes, language for medical supplies, and transportation costs, which have seen dramatic increases. Ms. Hall asserted that the fee schedule in the bill would be complete. In addition, a vendor would supply the information to the Division of Workers' Compensation. She pointed out that there would not be changes in the process. 1:43:32 PM Ms. Hall remarked that the second part of the bill would update fraud prosecution language. She noted that current language is insufficient to prosecute in cases of fraud. Ms. Hall provided a sectional analysis, beginning with the first section addressing the fee schedule: Section 1. Amends AS 23.30.097(a) to provide that after December 31, 2010, the fee may not exceed the usual, customary and reasonable charges in a fee schedule adopted by the board which must include the most recent Current Procedural Terminology codes maintained by the American Medical Association for category I, II and III medical services and the Health Care Procedure Coding System for medical supplies, injections, emergency transportations and other medically related services. The fee schedule must reflect the cost in the geographical area where services are provided and is set at the 90th percentile. Ms. Hall detailed that fees in Alaska are based on 90 percent of the predominant charges in an Alaskan geographical area. Ms. Hall turned to the next section providing language regarding fraud: Section 2. Amends AS 23.30.250(a) to clarify that the behaviors outlined are workers' compensation fraud which may be punished under AS 11.46.120 - 11.46.150 (criminal law). Ms. Hall detailed that crimes committed in false representation is considered to be a felony and subject to criminal prosecution. Ms. Hall noted that the next section separates criminal penalties in Section 2 from civil penalties: Section 3. Amends AS 23.30.250 (c) clarifies that in addition to criminal penalties, a violation of this chapter may result in civil liability with an award of three times the amount of compensatory damages. 1:46:47 PM Ms. Hall detailed that Section 3 enables a civil action in addition to criminal penalties, noting that attorney fees are on top of the three times the amount of compensatory damages. Ms. Hall referred to the next sections: Section 4. Amends AS 23.30.280(a) to change the specific statute citation of AS 23.30.250 to "this chapter" to broaden the investigative authority to the entire chapter. Section 5. Amends AS 23.30.280(b) to delete reference to AS 23.30.250(a) to broaden the reporting of fraudulent acts to the employer. Section 6. Provides for an immediate effective date under AS 01.10.070(c) Section 1. Amends AS 23.30.097(a) to provide that after December 31, 2010, the fee may not exceed the usual, customary and reasonable charges in a fee schedule adopted by the board which must include the most recent Current Procedural Terminology. Representative Austerman asked for clarification related to Page 2, line 9 and the new fee structure. Ms. Hall responded that the fee schedule is based on procedure codes done by the American Medical Association and are standard throughout the industry. She explained that GENEX Services takes all the Alaska charges in geographical areas and sets th the schedule at the 90 percentile and replaces the current schedule only in that it updates and adds codes and makes the charges in line with what is actually being billed. Representative Austerman queried the meaning of the 90th percentile. Ms. Hall provided the example of putting ten charges for knee surgery in a line; 90 percent would fall th not a percentage but becomes a maximum amount. She agreed the number was basically 90 percent. Ms. Hall added that the current fee schedule is missing approximately 2,000 procedure codes that have been added to practice since the last update. 1:50:29 PM Vice-Chair Thomas had questions about the measure related to seasonal workers. He asked whether damages can be recovered if a seasonal worker intentionally injures himself, makes a claim, and then leaves the state. Ms. Hall replied that there are more workers' compensation claims at the end of the season and in difficult economic times. She explained that an employer can go before the Workers' Compensation Board to challenge a claim. The board is able to go out of state and investigate. She thought the ability to extradite would depend on the amount of benefits collected. The claim can be challenged even if the person has moved within the states; she was not sure about what would happen to a person who has left the country. Vice-Chair Thomas relayed personal experience and expressed concerns. 1:53:30 PM Representative Fairclough queried costs on the current fee structure. Ms. Hall answered that the structure had been in place since 2004. She estimated that it did not cost much to update the schedule, although it has been ineffective. Representative Fairclough asked about letters of opposition the committee had received related to payment methodology. Ms. Hall replied that she had worked with two groups with concerns. Revisions were made in response to concerns by the state medical association. She noted additional opposition from those who felt the original language about fraud prosecution was too narrow. The department had made changes in the language that were satisfactory. Representative Fairclough quoted from a February 2, 2010 letter from the Alaska Spine Institute dated in February 2010 related to the language currently before the committee: This revised language provides "the board" with an undefined and unlimited scope of authority to make changes and establish policy with respect to the medical fee schedule. Representative Fairclough pointed out that the only difference she could see is an "and" provision on line 14 [page 2] regarding the coding system. She questioned whether the issues raised had been addressed. Representative Gara directed attention to Section 3 (Page 3, line 10) and language regarding liability of a person guilty of fraud. He noted that current law says a person is "entitled to compensatory damages and an award of three times the amount of those damages." He compared the proposed language: "economic damages as a result of the award and three times the amount of the compensatory damages." He questioned the reason for the language change. 1:58:12 PM ERIN A. POHLAND, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW (via teleconference), explained that the change was for clarification. The change is that the person who suffers from economic harm as a result of workers' compensation fraud would be entitled to three times economic damages as compared to essentially four times the compensatory damages. Representative Gara pointed out that original statute does not have the word "economic." He noted that generally statutes talk in terms of compensatory damages a person is entitled. He suggested reverting to compensatory damages plus an award of three times the amount of compensatory damages. He asked the policy reason for the new language. Ms. Hall did not know any reason not to have the original language in the bill. Representative Gara understood the intent was to make it clear that the amount of compensatory language was three times and not four. Ms. Hall believed old language had been interpreted as four times the damages. Representative Gara pointed out that a person usually does not get the three times unless they got the compensatory damages; he wanted to know if the goal was to take away the right to compensatory damages. Ms. Hall responded that taking away compensatory damages was not the goal. 2:02:18 PM Representative Austerman asked whether eliminating Section 3 would make the old language law. Representative Gara commented that the bill says a person would be given criminal penalties. In addition, a person would get compensatory damages plus a three times multiplier. To be consistent with current statute, he proposed starting with the word "person" on line 9 to read: "person for compensatory damages as a result of the violation and an award of three times compensatory damages resulting from the violation". Co-Chair Stoltze requested an explanation of the difference between economic and compensatory damages. Ms. Hall explained that compensatory damages are broader than economic damages and potentially more subjective. Representative Gara described "compensatory damages" as resulting when someone hits a person in a car; the person hit is entitled to compensation for losses such as physical damages and lost wages, although lost wages tend to be called economic damages. He was concerned that the bill was written just in terms of economic damages. He asked whether the attorney had problems with going back to compensatory damages plus three times the amount of those compensatory damages. Ms. Pohland believed there should be a discussion with the Department of Labor and Workforce Development in terms of the policy change. She opined that damages that would be considered in a workers' compensation fraud case would be economic damages. Representative Gara described a hypothetical situation in which there could be medical damages as opposed to economic damages. Ms. Pohland agreed and pointed out that there are provisions already in place addressing an insurer or employer's failure to insure (AS 23.30.155 and AS 23.30.255). Penalties and damages are already in place; for example, there is usually a penalty provision (essentially an extra interest) that is tacked on when an employer or an insurer have unfairly controverted a claim. The legislation was intended to address other situations, such as the intentional misclassification of employees to avoid paying workers' compensation premiums, or lying in a case. 2:08:25 PM Ms. Hall added that one of the reasons for the section was a "co-mingling" of civil and criminal language, which had presented difficulty in attempted prosecution. The language attempted to clear up the confusion between criminal and civil penalties. Representative Austerman wanted to ask the Department of Labor and Workforce Development about the change in policy. TRENA HEIKES, DIRECTOR, DIVISION OF WORKERS' COMPENSATION, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, did not know why the changes were made in subsection (c). She had recommended a change in the attorney fee language. Currently, attorney's fees allow prevailing party by law, but that is a small percent of costs. She requested adding an award of reasonable attorney's fees, or recovery of full reasonable attorney's fees. Regarding Representative Gara's question, she did not know why the change was made. She recommended deleting the language "economic" and "compensatory" so that damages are not delineated. Representative Gara summarized that no one had intended to change the damages a person is entitled to. He asked for an evaluation by DLWD of proposed changes: line 9 to 10 (page 3) cross out "who suffers economic" and insert "for compensatory" after "person" on line 9; on line 10 after "violation" put "and" instead of "for". The result would be: "a person for compensatory damages as a result of the violation and an award of three times". Ms. Heikes replied that her first reaction was that she did not have a problem with the proposal. Ms. Hall felt the proposed change left the intent intact and clarified the issue in a way that would resolve concerns. 2:14:06 PM Ms. Pohland concurred that the proposal clarified the language and makes clear what damages a person is entitled to without changing the original intent. Representative Doogan understood that the legislation would get rid of the application of theft by deception in the statute and replaces it with being guilty of perjury and related offenses. He asked why the change was being made in terms of the criminal code. Ms. Hall noted that another amendment was pending that would provide further clarity. She stated that the goal was to make workers' compensation fraud more than a paperwork problem or theft by deception but closer to real workers' compensation fraud on the part of an employee, provider, or employer. In making the change, DCCED was attempting to clarify that it was talking about other specific things in Section 2. Ms. Heikes explained that the need for the change in AS 23.30.250 arose out of a problem DLWD had in prosecuting for fraud. The statute currently says that the intent element of the crime is to "knowingly" make a false statement, etc., that the person is guilty of theft by deception. However, theft by deception is a higher intent. The law appears to establish two different intents, which makes prosecution difficult, if not impossible. For that reason, DLWD wanted just one intent. In the re-write, AS 23.30.250(a) provisions were gutted. Representative Doogan queried whether the proposal would make a misdemeanor a felony or affect other "penalty creep." Ms. Heikes answered that under the new statute, the felony or misdemeanor status would depend on amount of damage or the amount taken. 2:19:12 PM Co-Chair Stoltze MOVED to ADOPT Amendment 1 (26-LS1354\R.1, Bailey, 3/9/10): Page 1, line 2: Delete "investigations," Page 2, line 24, through page 3, line 6: Delete all material and insert: "*Sec. 2. AS 23.30.250(a) is amended to read: (a) A person who (1) knowingly makes a false or misleading statement, representation, or submission related to a benefit under this chapter; (2) knowingly assists, abets, solicits, or conspires in making a false or misleading submission affecting the payment, coverage, or other benefit under this chapter; (3) knowingly misclassifies employees or engages in deceptive leasing practices for the purpose of evading full payment of workers' compensation insurance premiums; or (4) employs or contracts with a person or firm to coerce or encourage an individual to file a fraudulent compensation claim [IS CIVILLY LIABLE TO A PERSON ADVERSELY AFFECTED BY THE CONDUCT, IS GUILTY OF THEFT BY DECEPTION AS DEFINED IN AS 11.46.180, AND] may be prosecuted under AS 11 [PUNISHED AS PROVIDED BY AS 11.46.120 - 11.46.150}. Vice-Chair Thomas OBJECTED Co-Chair Stoltze remarked that he offered the amendment by request of the Department of Law. Ms. Hall explained that the amendment further refines language to clarify and separate potential criminal behavior vs. civil behavior. She noted the word "investigations" would be removed from the title. The deletion of Section 2 would remove references to civil liability in order to streamline the legislation. Adoption of the changes would make Section 4 and Section 5 on page 3 unnecessary. Representative Doogan wondered if the changes mean the entire criminal code would apply. 2:22:36 PM ANNE CARPENETI, ASSISTANT ATTORNEY GENERAL, LEGAL SERVICES SECTION-JUNEAU, CRIMINAL DIVISION, DEPARTMENT OF LAW, explained that a person who commits a crime under any pretext is subject to prosecution under Title 11. She reported that the department thought it would be clearer to simply state a person who commits a crime in relation to this type of activity is prosecutable under Title 11, since theft by deception under Title 11 has particular elements that need to be proven. Representative Doogan reiterated his concern regarding the amendment and asked if a more discrete definition of the offences was warranted. Ms. Carpeneti related that the Department of Law's view of violations that occur in the context of the worker's compensation law is already subject to prosecution under Title 11. It is unnecessary to list the specific offences in the legislation. The Department's intent in recommending that Title 11 be cross referenced in relation to these types of crimes was to keep the bill clear , inclusive, and expand their ability to prosecute fraud. Representative Doogan appreciated the Department's approach. 2:28:56 PM Representative Gara asked why Sections 4 and 5 must be deleted if Amendment 1 is adopted. He assumed the sections broadened the Department's investigative and prosecutorial authority. 2:30:01 PM RECESS 2:30:57 PM MICHAEL FORD, LIAISON, DEPARTMENT OF LAW, explained that sections 4 and 5 were in the bill accidentally. Changes were made in the Judiciary Committee that removed the reference to those sections, therefore Sections 4 and 5 should have been removed in the CS. He added that the sections could remain as a matter of policy. Representative Gara implied that he did not want Worker's Compensation investigators feeling constrained. Mr. Ford believed that removal of Sections 4 and 5 simply reflect technical changes to correct an oversight. Representative Gara requested assurance from the Department of Labor and Workforce Development. Ms. Heikes replied that the DLWD supports removal of Sections 4 and 5. She confirmed that previously the investigators could not get prosecutions because of confusion regarding intent and the bill clarifies that. Vice-Chair Thomas WITHDREW his OBJECTION. There being NO OBJECTION, Amendment 1 was adopted. Representative Gara MOVED to ADOPT Conceptual Amendment 2: Page 3, lines 9-10: Delete "who suffers economic" and replace with "for compensatory" Page 3, line 10: Replace "for" with "and" Co-Chair Stoltze OBJECTED Representative Gara read the changes, "on behalf of a person for compensatory damages as a result of the violation and an award of three times the amount of compensatory damages…" Ms. Hall agreed with the amendment. Co-Chair Stoltze WITHDREW his OBJECTION. There being NO OBJECTION, Amendment 2 adopted. Co-Chair Stoltze requested discussion of the fiscal notes. Ms. Heikes explained FN 2 (LWF) that the $75 thousand was for development of the new medical fee schedule. Vice-Chair Thomas MOVED to report CSHB 314(FIN) out of Committee with individual recommendations and the accompanying fiscal notes. CSHB 314(FIN) was REPORTED out of Committee with a "do pass" recommendation and with two previously published fiscal notes: FN1 (LAW); FN2 (LWF). 2:37:31 PM RECESS 2:51:26 PM RECONVENED