HOUSE BILL NO. 13 "An Act relating to fees and charges for medical treatment or services as they relate to workers' compensation; and providing for an effective date." 9:08:33 AM REPRESENTATIVE KURT OLSON, SPONSOR, discussed HB 13. He explained that the existing extension to the workers' compensation fee schedule would have expired on December 31, 2010, but it had been extended by emergency regulation until June 30, 2011. He communicated that staff and employees of the Department of Commerce, Community and Economic Development (CCED) were available to discuss the bill. LINDA HALL, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, addressed the bill and the purpose of the fee schedule. In 2007 anticipated legislation, which would have addressed the inadvertent deletion of the fee schedule, had not been introduced. Over time three provisions had been implemented that made cost of living increases to the fee schedule. The procedure codes in the schedule had not been kept up-to- date; currently there were approximately 2,000 fee codes that were not covered. She referred to several charts (copy on file) that showed current medical fees related to workers' compensation in Alaska. The first handout was titled "Medical Benefits Constitute the Majority of Total Benefit Costs in Alaska." She shared that a significant portion of workers' compensation cost was due to the high cost of medical care; the chart showed that the total medical costs in Alaska represented 75 percent of the system costs compared to the countrywide average of 58 percent. The second graph from the National Council on Compensation Insurance was titled "Alaska Medical Average Cost per Case vs. Countrywide." The average cost in Alaska for a workers' compensation case in 2009 was $37,000 compared to the average countrywide cost of $27,000, which represented a 37 percent cost differential. She discussed that it was important to restructure the fee schedule in order to address the high costs. The third handout was the "2010 Oregon Workers' Compensation Premium Rate Ranking Summary." Alaska no longer held the number-one rank in the study that it had occupied during the prior four years. There had been rate decreases for the last five years. Ms. Hall discussed the general overview of the provisions in the legislation. She detailed that the bill would replace the past Consumer Price Indexes (CPI) with a sustainable schedule, which would limit the division's need to request CPI increases from the legislature every year or so. A full fee schedule that included the missing procedure codes would be provided and was a step back to the methodology that had been in place in 2004. The schedule was adopted by the Workers' Compensation Board and was constructed by an outside vendor that collected data based on geographical areas. The fee schedule was a base schedule that was not to exceed the usual reasonable and customary fees that were established by the board; it was based on a credible profile of billed charges to ensure actuarial credibility. The schedule reflected the cost differences in the four geographical areas in Alaska. Categories were expanded under the bill to ensure that all types of medical services were incorporated, including transportation costs. 9:16:06 AM Ms. Hall detailed that some transportation costs such as emergency medevac and ground transportation were extremely expensive. She had received a number of anecdotal cases from Alaskans related to high transportation costs for health insurance and workers' compensation. She did not think the transportation costs would be reduced through their inclusion in the fee schedule. She added that the fee schedule would be based on the 90th percentile of bill charges. The number was higher than most medical health insurance fee schedules and ensured that injured workers would have access to good treatment. Representative Neuman asked how the bill would impact employer insurance costs. He had heard from employers that unemployment benefits and workers' compensation contributed to their high insurance costs. Ms. Hall replied that the bill stabilized the fee schedule. She did not think that it would reduce costs, but it had the potential to cap costs. The 2,000 procedure codes that were not covered in the fee schedule were currently paid at 100 percent and would be capped at the 90th percentile under the legislation; therefore, a small cost increase could occur initially. She opined that the stability of the fee schedule would be beneficial to the system and the system costs. Representative Neuman wondered whether the Physicians Board had been consulted on the proposed fee schedule. He believed that the stability could help to bring more insurance companies into the state, which would offer increased competition and help to stabilize costs. Ms. Hall responded that HB 13 was identical to a bill that passed the House the prior year and changes had been made to the language in response to concerns from the medical society. She added that she had not heard the concerns during the current year. Co-Chair Stoltze observed that North Dakota had cheaper premiums. 9:20:05 AM Representative Guttenberg wondered whether there was an analysis that showed how providers would be impacted by fee schedule or capping cost shifts related to Medicaid and other. He asked whether charges would increase in other areas. Ms. Hall did not believe that an analysis had been done, given that the division's statistical agent National Council on Compensation Insurance had not conducted one. She did not think that any significant cost shifting would occur with a fee schedule at the 90th percentile. She noted that a potential reduction to the rates of Medicare and Medicaid could result in rates that were lower than the service costs. Co-Chair Stoltze OPENED and CLOSED public testimony. Co-Chair Stoltze pointed to the $75,000 fiscal note. MIKE MONAGLE, DIRECTOR, DIVISION OF WORKERS' COMPENSATION, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT (DLWD), discussed that the $75,000 estimated cost associated with producing a medical fee schedule was based on the costs of the last contractor the department had used in 2003 (Engenics). Co-Chair Stoltze asked what the previous fee schedule had cost. Mr. Monagle responded that it had been ten years since the last fee schedule had been produced and the department did not have record of the costs associated with its production. The department had contacted Engenics for a general quote on the costs, but did not have specific details because DLWD was planning to submit a request for proposal and anticipated that the company may enter a bid. Co-Chair Stoltze was surprised about the missing record because workers' compensation had not been a low profile issue in 2003 and 2004. Vice-chair Fairclough wondered whether the committee should zero-out FY 13 through FY 17 on the fiscal note in order to make it more relevant. Co-Chair Stoltze thought the recommendation represented a good compromise. Representative Doogan wondered whether the first year would help to provide information necessary for a more complete fiscal note. Mr. Monagle replied in the affirmative. He explained that after the department awarded its first contract bid it would have more solid cost data. Co-Chair Stoltze remarked that the cost would be at least $75,000. 9:26:31 AM Vice-chair Fairclough observed that it was possible the awarded bid would come in higher than the projected cost on the fiscal note, which would not look good; however, the bid could be less than the projected amount. Co-Chair Stoltze communicated that the fiscal note would be modified to reflect the committee's changes. The FY 13 through FY 17 columns would be zeroed-out. Representative Gara commented that medical costs in workers' compensation and across the board were high in Alaska. He had been told that most states allowed an average insurance compensation at the 50th percentile and that Alaska allowed compensation at the 70th percentile. He did not know whether the insurance compensation played a part in Alaska's high medical costs, but he thought it would be worth hearing about as the committee discussed Medicare and medical costs. Vice-chair Fairclough MOVED to report HB 13 out of committee with individual recommendations and the accompanying fiscal note. HB 13 was REPORTED out of committee with a "do pass" recommendation and with new fiscal note by the House Finance Committee for the Department of Labor and Workforce Development. 9:29:34 AM AT EASE 9:30:45 AM RECONVENED