HB 316-WORKERS' COMPENSATION MEDICAL FEES  4:47:00 PM CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 316, "An Act relating to workers' compensation fees for medical treatment and services; relating to workers' compensation regulations; and providing for an effective date." 4:47:04 PM ANNA LATHAM, Staff, Representative Kurt Olson, Alaska State Legislature, stated that for the past decade, Alaska has faced the highest workers compensation rates in the nation. The Alaska Workers' Compensation Board, the legislature, and the administration agree that effective reform is needed. She said this bill proposes to change the fee schedule for workers' compensation claims to a schedule based on the federal Centers for Medicare and Medicaid Services fees with a conversion factor set by the Alaska Workers' Compensation Advisory Board (AWCAB). She reviewed the section-by-section analysis of the bill. 4:47:48 PM MS. LATHAM stated that Section 1 would amend the physician, outpatient and ambulatory surgical center, and inpatient hospital fee schedules to be based on the federal Centers for Medicare and Medicaid Services fees. Section 2 refers to the fee schedule that is currently in statute. This section would go back into effect on January 1, 2019. She related that there is a sunset provision for this new schedule. 4:48:04 PM MS. LATHAM stated that Section 3 would require the Workers' Compensation Advisory Board (WCAB) to annually review and adjust fees set under Section 1. It also requires the WCAB to set a conversion factor for the fee schedules in Section 1. It provides for maximum reimbursement for fees rendered in another state. It requires the board to set the rate for air ambulance service and to set the markup and reimbursement limits for durable medical equipment. It requires the board to set the markup, dispensing fee, and reimbursement limits for prescription drugs. It also requires a prescription drug dispensed by a physician to include in an invoice the code from the National Drug Code Directory published by the U.S. Food and Drug Administration (FDA). Section 4 lists reference materials the department may incorporate, including future amended versions, into regulations. Sections 5-8 are part of the sunset clause, which she'll explain in a few minutes. 4:49:10 PM MS. LATHAM stated that the fee schedule currently in use is not working. In 2004, the state established a usual, customary, and reasonable fee schedule that was set at the 90th percentile and reflective of the geographic area in which services were rendered. The UCR schedule has been in effect since 2004 and since then the state has had the highest workers' compensation rates in the nation. Medical costs constitute $.76 of every dollar spent on workers' compensation in Alaska, which has had a serious impact on premium rates paid by all Alaskan employers. Medicare costs have risen 25 percent over the past year despite a 14 percent decline in the frequency of workers' compensation claims over the same period. Alaska's premiums are priced at 160 percent above the national median. High premiums are a drain on resources in both the public and private sectors. Clearly the fee schedule Alaska is using is not effective in reducing costs. Upward pressure is constantly applied to the UCR schedule and once a fee schedule is published; charges tend to rise to and above the level of payment, which guarantees an annual increase in the UCR charges. MS. LATHAM asked why the state should switch to a resource-based relative value scale. This methodology was created in the late 80s by a team of researchers from Harvard, which included statisticians, physicians, and economists. They determined that each procedure was equated to a relative value unit that included a combination of physician's work, practice expenses, and malpractice insurance. This system is owned and updated by the American Medical Association (AMA). The AMA assigns a relative value unit to each current procedural technology (CPT) code. Other states using this system commonly apply a geographical adjustment factor. The value is multiplied by a fixed conversion factor, which is a dollar amount that converts a relative value unit into a payment amount for service. This is the basis for Medicare and Medicaid's payment schedule and 32 states have adopted this methodology. 4:51:12 PM MS. LATHAM stated that HB 316 specifies that there are three fee schedules that will be used for workers' compensation billing. The physician fee schedule, an outpatient and ambulatory surgical fee schedule, and an in-patient hospital fee schedule. The WCAB would then be responsible for setting conversion factors for all of the three fee schedules and annually renewing and adjusting fees. They would also set the fees for air ambulance or Medevac. They would set the markup for durable medical equipment, the dispensing fee and markup rates for reimbursement of prescription drugs. She highlighted the safety net in HB 316, in the form of the sunset provision. This bill will give the WCAB four years to set the new rates and measure the success of those reforms. The new resource-based relative value scale and the conversion factors would go into effect January 1, 2015 and sunset January 1, 2019. Section 2, which includes all of the old language using the UCR schedule go back into effect January 1, if the legislature did not take any action. She stated that HB 316 is the first step in developing a solution to the escalating medical costs that Alaska faces with its workers' compensation system. The concepts introduced in HB 316 were unanimously approved by the WCAB this last September. 4:52:43 PM MS. LATHAM outlined some concern about the WCAB setting the conversion factors, in particular, due to their expertise in setting fee schedules. Another board, the Medical Services Review Committee (MSRC), is defined under AS 23.30.095. Its mission is to assist and advise the Department of Labor & Workforce Development (DLWD) and the WCAB in matters involving appropriateness, necessity, and cost of medical and related services. However, the current a nine member MCRC has not met since 2009. She related that four members have medical expertise and the committee will develop a proposed committee substitute requesting the MSRC to advise the WCAB when setting conversion factors. She anticipated that the proposed committee substitute would be before the committee soon. 4:53:35 PM CHAIR OLSON remarked that several months ago the committee started contacting all the stakeholders to solicit advice. The committee has begun to receive information back that is being incorporated into the CS. 4:54:24 PM JOHN BITNEY, Lobbyist, stated that he represents the Alaska Surgery Center. He indicated that the concern the Alaska Surgery Center expressed was having the board be a rate-setting entity. He believed that some provisions in the proposed committee substitute will address this. He indicated he has provided written comments, but reiterated that he thinks the proposed committee substitute will address this; however, he will review the committee substitute once it is finalized. 4:55:17 PM DAVIS PETERSON, Orthopedic Surgeon; President, Alaska State Orthopaedics Society, stated he has previously submitted a written statement that includes details. He said that his society would prefer an RVRVS type for billing purposes for the administrative simplicity and since the RVRVS system is maintained for updated codes and modifications of codes as technology develops, which is readily maintained. In the past problems have existed with private coding services that were not maintained appropriately and were quickly outdated. He emphasized that his organization would prefer a conversion factor system, and like some of the other stakeholders, including the Alaska State Medical Association, would prefer that rate setting and conversion factor adjustment be completed by a separate entity, preferably made up of commission level individuals. Additionally, his group would prefer uniformity be developed among employers and stakeholders, in terms of forms, paperwork, and submissions, so physicians will not need to deal with multiple entities that make administrative changes more complicated. He said that, currently, his society is being faced with the ICD 10 changes that require software adaption and billing for Medicare purposes that will entail additional cost to officers, including hiring additional employees for coding. As much as possible, he hoped for consistency in order to save time, training, and money in the long run, which will help with efficiencies. 4:58:22 PM SALLIE STUVEK, Human Resources Director, Fairbanks North Star Borough (FNSB), stated that she oversees the Division of Risk Management, which handles the workers' compensation benefit program for the FNSB and the FNSB School District, which are self-insured plans. The FNSB continues to see increases in medical cost and believes that the changes proposed in HB 316 are a step in the right direction, and the FNSB is in full support of those changes. She stated that the FNSB administration and the assembly support the proponents of the WCAB's adopted resolution in September 2013. She referred to a letter of support and FNSB Resolution [Number 2014-09] in support of the changes outlined [in Resolution 13-01 of the Alaska Workers' Compensation Board]. 4:59:29 PM DAVE JONES, Assistant Superintendent, Kenai Peninsula Borough School District (KPBSD), stated that he previously testified before this committee with respect to the large medical cost increases the KPBSD's workers' compensation plan has experienced. He said he will not repeat the testimony. He stated that the fee schedules within HB 316 represent a good start toward addressing the state's medical cost concerns. He would like to see treatment guidelines developed to regulate usage, too. He urged members to move HB 316, which will help control the workers' compensation costs. 5:00:38 PM JULIE CISCO, Risk Manager, Kenai Peninsula Borough School District (KPBSD), said she seconded everything Mr. Jones said. Any steps that the state can make to get workers' compensation costs under control will be greatly appreciated. She said the KPBSD will continue to support HB 316. 5:01:10 PM DAVE KESTER stated he is representing himself. He said he is a commercial insurance broker and prior to that worked as a workers' compensation underwriter for an insurance company. He also said he has served for ten years as a member of the Workers' Compensation Board, having just been reappointed to his fourth term. He clarified that he is not representing the Workers' Compensation Board. He participated in the working group this summer that heard from a large array of stakeholders in Fairbanks, Juneau, Kenai, and Anchorage, including large and small employers, members of labor, medical providers, adjusters, attorneys and others. Many public members expressed their concern about the rising medical costs in workers' compensation. As a result, the board adopted Resolution 13-01 to support addressing system costs under the Alaska Workers' Compensation Act. He offered his belief that HB 316 is taking a lot of those into account and offered his support for the bill. He indicated that the current system cannot sustain these types of escalating medical costs and a different medical fee methodology as presented in HB 316 will have a big impact. He cautioned that without it he feared employers would be subject to additional increases, which will make them uncompetitive and the state uncompetitive. The legislative intent for the Alaska Workers' Compensation Act was to ensure the quick, efficient, fair, and predictable delivery of indemnity and medical benefits to injured workers at a reasonable cost to employers. He said that reasonable cost is far exceeded for employers. He asked members to carefully consider the sunset clause. He suggested that fixing the problem and then returning to a methodology that got us into this problem in the first place seems counterproductive. He also advocated implementing evidence-based treatment guidelines and encouraged the committee to consider implementing the guidelines into the bill. Additionally, the suggested that having the MSRC give input to help the board is a very good idea. He admitted that the board doesn't consist of medical experts. The WCB had considered seeking that kind of expertise when it adopted the resolution. He appreciated the committee's time and efforts to try to fix the system. 5:05:12 PM CHUCK BRADY, President, Workers' Compensation Committee of Alaska (WCCA);, Manager, Workers' Compensation, Arctic Slope Regional Corporation, stated that he is primarily responsible for workers' compensation in the Lower 48; however, he is very much involved with Alaska, too. He referred to a letter submitted today on behalf of the WCCA voicing support of HB 316 with suggestions. The suggestions are consistent with what he previously heard, including that input by the MSRC is probably a good idea since they have medical expertise. Another suggestion is that the fee schedule alone will not get the state where it needs to be. In his experience in the claims field, every state that has introduced fee schedules as a means of controlling costs has experienced a limited effect over a short period of time until medical providers find a way to bill around it. He said that medical fee schedules alone are not effective but they can be if they are introduced with utilization and frequency standards to control treatment. Additionally, there needs to be changes to AS 23.30.090 (a) to deal with the effects of the 1999 U.S. Supreme Court decision for Hebden v. WCAB [Bethenergy Mines, Inc..), 632 A.2d 1302 (Pa.Commonwealth 1993)] which essentially gave treating doctors a blank check for two years with no real recourse by employers or insurance carriers to question what was being done or to limit the cost within the first two years. Finally, the sunset clause is of concern since the state could be right back where it started in four years. He offered support HB 316 with the additional comments. 5:07:40 PM CHAIR OLSON answered that some components will come out shortly. He indicated that next year, the committee could take up best practices for pain management and other components that will interface with this bill. 5:08:03 PM RACHEL PETRO, President; Chief Executive Officer, Alaska State Chamber of Commerce (Alaska Chamber), stated that the Alaska Chamber represents hundreds of businesses across Alaska as well as local chambers. She stated that the Alaska Chamber submitted a letter that articulated all of their concerns. She emphasized workers' compensation reform is a top priority for the Alaska Chamber and all of the members. It's a competitiveness issue. She appreciated the committee introducing the bill. She stated that the Alaska Chamber's letter made recommendations to improve the bill. More specifically, it would like to see more policy direction given to the board in respect to giving them the responsibility of setting the fee schedules. Additionally, the Alaska Chamber would like to see a more robust and defined public process for the promulgation of regulations through the board. She agreed with earlier comments regarding adoption of evidence based treatment guidelines and utilization review standards. Finally, the Alaska Chamber considers the MSRC as a great option to help provide advice to the Workers' Compensation Board. She said the Alaska Chamber looks forward to working with the committee to achieve real reform on workers' compensation in Alaska. 5:09:55 PM SARAH LEFEBVRE, Staff, Exclusive Paving and University Redimix; Member; Alaska Workers' Compensation Board, agreed with Mr. Kester, especially with respect to the sunset clause. She doesn't believe that type of mechanism works well and said further changes are needed. She said this is an excellent bill and an excellent start. She discouraged any changes that could possibly impede its progress, and her only concern was the sunset clause. CHAIR OLSON said the committee will consider the sunset clause. 5:11:30 PM KAREN PURDUE, Chief Executive Officer; President; Alaska State Hospital and Nursing Home Association (ASHNHA), stated that hospitals and nursing homes are large private sector employers so they bear the burden of workers' compensation costs. As employers and health care providers, ASHNHA supports the concept of workers' compensation fee reform. She indicated that where it makes sense AHNHA is willing to be paid less than they are today. However, she outlined a few concerns about fees and rates set out in the bill. It might seem easy to use Medicare and multiply those rates geographically; however, hospitals and nursing homes are paid in five different ways under Medicare law. She said that ASHNHA submitted a letter that covers more details. She highlighted that Medicare is a poor payer for Providence Alaska Regional; Fairbanks Memorial, Kenai, and Bartlett Memorial Hospital. She cautioned against using Medicare since it pays about $.30 on the dollar in Alaska. She said ASHNHA needs some reassurance in the process. The commercial rates that Premera and Aetna pay might be a target that the committee could consider to provide a minimum or backstop in this discussion. Secondly, in terms of the critical access hospitals, which are 13 of the small hospitals in Alaska, Congress has already exempted them from Medicare fee schedules. She explained that these small hospitals have an exemption, since they cannot kept their doors open based on volume so they have a cost-based reimbursement system. For example, Idaho exempts "cause" from their workers' compensation Medicare based fee schedule and she recommended that this be the case in Alaska. She pointed out that the letter also outlines skilled nursing facilities. She said that the ASHNHA stands ready to work with the committee. 5:14:57 PM GREG MILLES, Physical Therapist; WCC, Owner, Home Town Physical Therapy, stated that he has a small private outpatient clinic. He supported ASHNHA's comments but asked to tread lightly. Currently this bill is based off Medicare fee schedule. He related his understanding that this practice has occurred in the Lower 48. Small practices and some larger facilities are beginning to minimize the health care exposure to Medicare. He thought this could impact how much health care coverage will be provided for the workers' compensation patients, which could have the effect of minimizing patients' health care and how quickly these patients return to work. CHAIR OLSON pointed out this is a work in progress and the committee is receiving a lot of feedback. 5:17:00 PM RUTH CARSON, Physical Therapist, Equinox Physical Therapy, stated she has a small physical therapy practice in Fairbanks. She agreed with Ms. Purdue and Dr. Milles that the current Medicare and Medicaid fee schedule will make it more difficult to run her business. She understands the need to reform, but she must work harder to keep her doors open. 5:18:01 PM WALTER PARRISH, testifying on behalf of himself, stated that cutting these costs will interfere with his health care. He said he thought it is a savings to the workers' compensation board to have that in effect. He said, "My old saying is if it ain't broke don't fix it." 5:18:44 PM JULIANA AMENT, Physical Therapist, DPT, MOMT Owner, stated that she is a small business owner, a health care provider as a physical therapist, and a member of the Alaska Chapter of the American Physical Therapy Association. While the association supports the efforts to reform and improve this workers' compensation system, she still has a number of questions and concerns about the bill. The proposal is broad and far reaching and may have serious ramifications if all of its implications are not fully vetted or understood. She urged members to proceed with caution. The proposed RBRVS-based system may not be ideal for Alaska. The proposed workers' compensation fee schedule would have its foundation in the Medicare physician fee schedule, which is a fundamentally flawed and broken system. She did not think it will be a good fit for Alaska. It has taken only focused management strategies and cost shifting in her clinic to be able to continue to see patients whose payers are currently using an RBRVS system like Medicare. This bill appears to have a five year sunset; which would greatly affect her business's ability to continue to see workers' compensation patients in North Pole. Given the potential for unintended consequences and some of the ramifications this bill could potentially have on small business health care providers and the patients she sees, she strongly recommended the bill be turned over to a subcommittee to review the variables and potential outcomes. She offered to submit her statement in writing. 5:21:05 PM RICHARD COBDEN, Orthopedic Surgeon, Fairbanks Orthopaedic Center, stated that he is a sole practitioner, immediate past Chief of Staff at Fairbanks Memorial Hospital, and a member of the Alaska State Orthopaedics Association. He said he has two problems with the bill. First, the CMS RBRVS Medicare based fee schedule creates big problems for him and his colleagues. He also said that most of them are barely getting by even though the reimbursement rates are reported as very high. In fact, a lot of the CMS reimbursement rates will change. On April 1 it will revert back to 26 percent lower rates than the current rates based on issues that the Congress has experienced. Basing it on that kind of reimbursement system could be a catastrophe for Alaska. Secondly, the average wholesale price (AWP) for medications has always been used for reimbursement for prescription medications, which should continue since the actual invoice price included in the bill is significantly lower. He said that physicians will no longer be able to give patients prescription medications at a great convenience to them. He asked members to consider the basic reimbursement rate, the Medicare rate, and the other rates before deciding that Alaska is just like the rest of the 50 states. He asserted that Alaska is not, that it has big problems, very difficult medical and orthopedic problems with injured patients and the state and physicians have an obligation to take care of them. He would like to continue to do this, but his colleagues have told him that if the CMS rates drop and if the workers' compensation rates drop, that they simply won't be able to see these patients. He concluded that this is a huge problem for patients who should be the number one priority. 5:23:11 PM REPRESENTATIVE REINBOLD asked whether he could provide written testimony outlining his concerns. She expressed an interest in the April 1, 2014 rates dropping by 26 percent. DR. COBDEN offered to do so. He indicated that he has already prepared a written statement and will add to it. 5:23:47 PM DEBORAH MURSCH, Financial Director, Willow Physical Therapy, stated that she has a small physical therapy business and agreed with the previous testimony. She said that her practice disagrees with this bill. She hoped the committee will consider the small physical therapist's practices in Fairbanks so they can stay open and be able to provide medical care for patients. [HB 316 was held over.]