HB 316-WORKERS' COMPENSATION MEDICAL FEES  3:46:02 PM CHAIR OLSON announced that the next 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." [Version O was before the committee.] 3:46:28 PM ANNA LATHAM, Staff, Representative Kurt Olson, Alaska State Legislature, stated that HB 316 changes the fee schedules for workers' compensation from a usual, customary, and reasonable schedule (UCR), which the state has used for the past 10 years, to a resource-based relative value scale (RBRVS) based on Centers for Medicaid (CMS) and Medicare services rate with a conversion factor that is set by workers' compensation board (WCB) under the advisement of the medical services review committee (MSRC). 3:47:44 PM REPRESENTATIVE JOSEPHSON recalled 90 percent of the UCR schedule has been discussed. He asked for her view of the 90 percent. MS. LATHAM said that the target and goal of HB 316 is to set fees at a reasonable and fair amount that allows the medical community to make a fair profit, but to align fees with group health and not allow specific procedures to be inflated at the 400 to 800 percentile. CHAIR OLSON referred to members' packets to a comparison of the top 25 workers' compensation procedures in comparison to Washington and other states. He noted that there wouldn't be an easy answer. He recalled that Alaska's costs are over 1,000 percent for some workers' compensation medical procedures. 3:48:41 PM REPRESENTATIVE JOSEPHSON recalled previous testimony by Premera Blue Cross Blue Shield in which Mr. Sorrin related that specialty services for muscular skeletal or cardiovascular are 600 to 700 percent of Medicare rates. MS. LATHAM noted that testimony was on HB 203 and not HB 316. REPRESENTATIVE JOSEPHSON acknowledged that point. He asked how workers' compensation patients could get coverage for those specialties unless there is sufficient compensation to match the rates. MS. LATHAM agreed that it made perfect sense. She explained that the intent of HB 316 is to align these rates to be similar to group health rates. She indicated that the aforementioned Anchorage rates for group health will also probably be comparable for workers' compensation rates. She reiterated the intent of HB 316 is reduce the extremely inflated workers' compensation medical procedure rates to more reasonable rates. 3:50:43 PM The committee took a brief at-ease. 3:51:47 PM RICK TRAINI, Business Representative, Teamsters Local 959, stated he works as the negotiation coordinator and is currently serving his second term as a member of the Alaska Workers' Compensation Board (WCB) representing labor. He offered support for HB 316, noting the bill was introduced on behalf of the Alaska WCB, who unanimously approved a resolution in December requesting this type of authority. He explained that the WCB created a special "listening tour" consisting of a committee with members from labor and industry who toured Anchorage, Fairbanks, Juneau, and Kenai. Over the years, the state has experienced a tremendous escalation in medical costs, which adversely affects premiums paid by employers, and in turn reduces other benefits to employees due to the inflated spending on medical bills for injured workers. The goal of HB 316 is to allow the board the authority to set the fee schedule based on this statute. He hoped that the rates will be more reflective and result in what the top insurers pay for the same procedures. Currently, Alaska is at the top of the nation in reimbursement for fees and services and he hopes to bring these costs in line. In response to Representative Josephson's earlier question, he stated that each type of specialty or service will have a different conversion rate. He said the bill is set up for the Medical Services Review Committee (MSRC) to be responsive to the medical providers, insurers, and other participants in the system and set the rates similar to other insured employees' rates. He offered his belief that the WCB will be a lot more responsive to changing environments and fees. 3:54:53 PM MR. TRANI reported that the current medical fees schedule is in its second or third year. Prior to that time, the schedule was in place for 10 years with two cost-of-living adjustments. Again, the WCB would like the fee schedule to be more responsive, and after public testimony and input from the medical community, to set the conversion rate at a modifier acceptable to them, to the public, employers, and employees that use the workers' compensation system. CHAIR OLSON remarked the WCB has a tough job. 3:55:43 PM REPRESENTATIVE JOSEPHSON said the target of the bill is the RBRVS [Resource Based Relative Value Scale]. He asked whether that scale is aligned to reasonable and fair amounts akin to group health. MR. TRANI said that he was not sure. The target is not to have that be the arrival point but to be the basis for the starting point before the conversion rates or multipliers are applied to the medical services. The end goal isn't to have it use the numbers, he said, but to tailor it based on the input from all of the participants, "consumers," and then arrive at a number. 3:56:48 PM REPRESENTATIVE SADDLER asked whether other states face similar types of dramatic cost disparities; if other states face these same problems. MR. TRANI offered his belief that other states have faced similar issues; however, although Alaska is now ranked number one in terms of workers' compensation costs, it has not always been ranked so high. In 2004, the state had been ranked in the middle or low one third of costs. However, the state hasn't enacted any cost reforms to stay relative to what private insurers pay for employee coverage, but other states have addressed this. He predicted that approximately 14 to 16 states may have some type of medical fee schedule based on a derivative of this method, which represents a trend to make sure that patients using private insurance and patients using workers' compensation are charged the same fees for doctor's visits. 3:58:51 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 316. 3:59:30 PM REPRESENTATIVE JOSEPHSON recalled the workers' compensation costs as being ranked first in the nation, but it does not include the permanent, partial impairment (PPI) ranking, in which the state is ranked 36th of 50. MICHAEL MONAGLE, Director, Central Office, Division of Workers' Compensation, Department of Labor & Workforce Development (DLWD), answered that the state is number one, but being number one in premium stems from a combination of things. He said it is made up of indemnity costs, noting that permanent, partial impairment is part of the indemnity costs, but medical costs constitutes the other part. The medical portion in Alaska is $0.75 on the dollar whereas nationally it is $0.55. The medical costs on a time loss claim, an indemnity claim, in which a worker misses time away from work, averages $57,000, whereas nationally it averages $24,000. Thus, Alaska's medical component of the premium loss cost has been significantly higher than the rest of the country. He acknowledged that other portions, such as indemnity benefits, are about in the middle with the PPI being a portion of indemnity. He agreed that the state's PPI benefits nationally rank in about the lower third. 4:00:52 PM REPRESENTATIVE JOSEPHSON said he doesn't see the goal of linking rates to group health has been shown. He asked whether the aforementioned is a goal or is it just something that the Medical Services Review Committee (MSRC) in combination with the WCB is expected to do. MR. MONAGLE suggested that the general practitioners use evaluation and management and include the general office visit in line with general health. He acknowledged that as previously suggested, specialty medicine and specialty practitioner rates, including some cardiologists and orthopedic physicians, charge significantly higher rates in Alaska. He said that as Mr. Traini mentioned, when developing conversion factors, the division will examine costs for each specialty. He related that a conversion factor will be developed for evaluation and management whereas a separate conversion factor may be developed for surgery and specialty surgery. He envisioned that the MSRC in conjunction with the WCB will adopt conversion factors. He did not think it was in anyone's intent to create conversion factors that will dissuade providers from treating an injured worker in the state. He offered his belief that through the collaboration process the division should be able to arrive at a conversion factor agreeable to everyone. 4:02:58 PM REPRESENTATIVE REINBOLD noted that labor costs, oil production, and education costs in Alaska are high. She acknowledged that she is sad that workers' compensation costs are also high. She expressed an interest in reducing costs, and she asked if safety prevention in the workplace has been implemented. She also noted that the WCB had three pages of suggestions [in members' packets.] She further asked whether he was pleased with how much was incorporated in the bill or if he has issues. MR. MONAGLE replied that medical costs are the "elephant in the room," and they really are the cost driver. If the state can resolve the medical cost issues, it will also help lower premium costs. Certainly, other workers' compensation issues definitely need to be resolved. He felt that the list in [WCB's Resolution Number 13-01] addresses some things related to medical costs, such as a recommendation for treatment guidelines to address utilization, but other things such as employment benefits and legal costs could also be addressed to help lower over rates; however, medical costs represent the biggest issue. 4:04:37 PM REPRESENTATIVE REINBOLD reiterated that implementing worker safety can also help prevent worker injuries. MR. MONAGLE offered his belief that employers currently do a great job focusing on safety issues. From 1990 to the current date, employment in Alaska has increased over 100,000 jobs, but during that same time period, the loss rates - the number of workplace injuries - has been reduced from 30,000 to less than 20,000. Thus, the state has been growing employment and reducing injuries, which is largely due to employers valuing safety programs and being safety conscious. The Department of Labor & Workforce Development, Division of Labor Standards and Safety, has a safety consultant program in which employers can confidentially consult with the division to create a safer environment yet not be penalized for violations. In fact, this program helps identify safety practices. In addition, a number of insurance companies offer premium reductions for voluntary workplace safety programs, such as drug free workplace. He reiterated that insurance companies offer incentives for safe work environments and to reduce premiums and premium discounts. 4:06:13 PM CHAIR OLSON remarked that a number of unions have actively been involved in developing their own safety standards, which have been picked up and used by insurance companies and self- insurers, too. He said that the [state's] track record is good, but the aging workforce contributes to the issue since injuries require additional healing time and expense for older workers. 4:06:53 PM MR. MONAGLE, in response to Representative Saddler's earlier question, acknowledged that this issue is one other states also face. Prior to 1990, the majority of costs in workers' compensation systems nationwide were indemnity costs so states have focused on that aspect of loss costs. At the same time, medical costs surpassed indemnity costs nationwide as the biggest cost driver. In 1990, 12 states had fee schedules. Today, only six states do not have fee schedules so a transition has occurred nationwide to adopt fee schedules, although not all are RBRVS schedules. However, over 32 states have adopted RBRVS methodology in producing schedules. Again, it is a nationwide issue, but a number of states have worked to address this via practices and adopting fee schedules represents "a big tool" to help control medical costs in workers' compensation. CHAIR OLSON remarked that not surprisingly all 32 of those states have lower rates than Alaska. MR. MONAGLE agreed. 4:08:12 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 316. [HB 316 was held over.]