SB 256-PHYSICIAN NEGOTIATIONS WITH HEALTH INSURE SENATOR WILKEN moved to adopt the proposed committee substitute for SB 256 (Version G) as the working document of the committee. There being no objection, the motion carried. JEFF DAVIS, Executive Director of Blue Cross Blue Shield of Alaska, made the following comments. From Blue Cross's perspective, the intent of SB 256 is to address inequities in bargaining power between physicians and insurers - however, Blue Cross's experience suggests that inequities are not the case in Alaska. Blue Cross began talking with Alaskan physicians in 1989 about potential agreements. Approximately 1,750 licensed physicians practice in Alaska. After 11 years of work, Blue Cross has agreements with approximately 700 physicians, which shows that Blue Cross does not have extraordinary market power in Alaska. Aetna, the largest insurer in the State, has made repeated attempts to negotiate contracts with physicians and, according to an Aetna source, as of yesterday Aetna has contracts with approximately 100 physicians. Blue Cross understands that, amongst the other insurers in the State, some may have a handful of contracts but most have none at all. MR. DAVIS repeated that Blue Cross does not have extraordinary market power in Alaska because it has been unable to convince any physicians in many specialties to join. He pointed out that Blue Cross has made numerous attempts to make easier interactions between physicians and Blue Cross members. Many physicians prefer to collect full payment upfront from the patient. Physicians agreed to bill Blue Cross directly and, in exchange, Blue Cross agreed to pay physicians directly. Many members appreciate that part of the agreement. Physicians also agreed to be credentialled by Blue Cross. That process is done using national committee for quality assurance criteria. The point of the credentialling process is to give Blue Cross members additional confidence in the physicians who are part of the network. Physicians also agreed to cooperate with Blue Cross's care management program. That program focuses on the appropriate setting of care for a particular member. MR. DAVIS noted that physicians also agreed to refer members to network providers, a point that was discussed by the committee at a previous hearing. He provided verbatim language from a standard Blue Cross contract which speaks only to hospitals and reads: The provider agrees to arrange for admission of preferred enrollees only to preferred hospitals provided that one is available locally and, in the professional judgement of the provider, admission to that preferred hospital will adequately provide the enrollee's medical care needs. MR. DAVIS said the decision as to where the patient's needs will best be met is left to the physician. MR. DAVIS stated the contracts also contain a 30 day termination clause for the protection of both parties. If at any time a physician says the agreement is not working, the physician can terminate the agreement, and vice versa. In his five years of experience, only one physician terminated because he did not want to fill out the credentialling paperwork. MR. DAVIS noted that Blue Cross is regulated by the Division of Insurance with respect to how it determines usual, customary and reasonable fees. Alaska statute requires Blue Cross to use Alaska data, adjust the data by region, and review it every six months. When Blue Cross looks at the data, it looks at each procedure code, known as a CPT 4 code. All charges in the 12 month sample are examined to determine, what physicians in Alaska have charged and where the 90th percentile lies. The contract says that if the physician's charge is less than the 90th percentile, then the entire charge is covered. If the charge is above the 90th percentile, the physician agrees to accept the 90th percentile and the member will not be billed for the additional amount. The contract results in members being protected from amounts over the usual, customary and reasonable fee. MR. DAVIS explained that Blue Cross identifies physicians who it wants to have a discussion with in several ways: through member requests, because of a gap identified in the network, or because physicians contact Blue Cross. Blue Cross usually makes contact by phone or in person. Blue Cross recently went through a push to recruit. Since last October, Blue Cross has contacted about 140 physicians. Of those, 33 declined immediately, 91 requested more information and are engaged in ongoing discussions with Blue Cross, and 15 have reached agreements. Regarding concerns raised about the federal employee program at the last meeting, MR. DAVIS said of the 105,000 Blue Cross members, 35,000 are federal employees. The rules for the federal employee program are set by the federal office of personnel management in Baltimore. SENATOR WILKEN asked if Blue Cross has a "hole" and has no contract with a surgeon, how much Blue Cross reimburses. MR. DAVIS said the terms of payment are dictated by the member's contract with Blue Cross. The member's contract could say that Blue Cross may pay 80 percent up to the allowable limit. The difference is if there is a contract, the member is not responsible for the amount over. If there is no contract, the balance is between the member and the physician. SENATOR ELTON asked if Bartlett Memorial Hospital is a preferred hospital. MR. DAVIS said it is. JERRY REINWAND, a lobbyist for Blue Cross, commented that Blue Cross has been unable to analyze what costs, if any, SB 191 will have on subscribers. Blue Cross is concerned about the rise in the medical consumer price index versus other consumer price indexes. Any changes that have the potential to impact the price of health care are of concern to Blue Cross. At Monday's meeting, a testifier made the statement that physicians are having a very difficult time with insurers, a statement which Blue Cross finds befuddling. MR. JIM JORDAN, Executive Director of the Alaska State Medical Association, explained the amendments made in the proposed committee substitute. First, the scope of the bill was increased to go beyond insurance plans. That change was made through the inclusion of intent language and by changing "health care insurer" to "health benefit plan." Two other changes were made. Blue Cross was concerned that only when negotiations involve fee related items does the mechanism kick in whereby the criteria for the substantial market share has to have been met by the insurer. Blue Cross is concerned about how the number of folks covered will be determined. That can take a great deal of work by a state agency. One of the amendments provides for a rebuttable presumption so that when a group of physicians, represented by an authorized third party, requests of the Commissioner of the Department of Labor that the process begin, the other party would be notified and given an opportunity to rebut that presumption if it chooses to do so. The last change adds a new section on page 10, AS 23.50.040, that allows a health benefit plan to initiate the negotiation process by making a request of the Commissioner when the health benefit plan wishes to discuss fee related items with a group of physicians when they do not have a substantial market share. This allows health benefit plans to initiate the process and voluntarily ask the commissioner to provide oversight and allow negotiations under the state action doctrine exceptions. SENATOR ELTON asked if physicians will be able to collectively negotiate fees with the state about the state's self insurance plan. MR. JORDAN said it will and said he discussed that topic at length with the drafter who created the mechanism. SENATOR ELTON asked about the fiscal note. CHAIRMAN MILLER pointed out the bill will be reviewed by the Senate Finance Committee. SENATOR ELTON asked whether the 30 percent requirement on page 8 pertains to the physicians in a particular specialty and whether it only kicks in if the health benefit plan has more than five percent of the local market. MR. JORDAN said not quite. He indicated it means that an authorized third party may not represent more than 30 percent, however, an authorized party may represent more than 30 percent if the health benefit plan has more than five percent of the market share in a particular area. The reason that provision was included is because of concern for rural areas where there may be very few physicians. SENATOR ELTON asked what the effect is of this provision on small health care plans that do not have more than five percent of the market share in a local community but where another health plan may have more than five percent. He expressed concern that a small insurer, who has less than five percent, may be driven out of the market. MR. JORDAN said that is why the bill was changed to allow for voluntary participation. There are circumstances in which a small insurer may not have that market share but can ask for oversight under AS 23.50.040 (page 10, lines 8-10). SENATOR ELTON said the bill essentially says a small health care plan either conforms or disappears because the market threshhold would be difficult for them to meet. MR. JORDAN said that is correct but he does not see how they would disappear because they would be allowed to voluntarily enter into negotiations. SENATOR WILKEN asked who authored the document entitled, "Response to Comments by Gordon Evans" in committee members' packets. MR. JORDAN said he wrote it. MR. MIKE HAUGEN, representing Alaska Physicians and Surgeons, stated that, in his opinion, Blue Cross is not the issue. The issue is freedom of communication between doctors to discuss patient protection and physician issues and managed care contracts. Without the protections offered by this bill, physicians are effectively gagged from discussing terms of contracts among themselves, and not just the financial aspects. If the contracts were about the financial aspects only, they would be one-half page long. A typical contract is 15 to 20 pages. While it is true that Blue Cross has negotiated term changes with some of the 700 contracts, many physicians have told him that because of Blue Cross's large footprint in Alaska, they have to sign the contract as is because they cannot afford to lose that much business. The physicians in Fairbanks have incurred huge legal fees and had to undergo one year of FTC scrutiny because of an anonymous complaint phoned into the FTC. Under the current messenger model it is too easy for a party with an axe to grind to notify the FTC and claim that doctors are trying to boycott or price fix. SB 256 requires state oversight to ensure that physicians are not boycotting or price fixing. Again, the process is voluntary on everyone's part. SENATOR PETE KELLY moved CSSB 256(HESS) with its accompanying fiscal note to the next committee of referral. SENATOR ELTON objected and said that intellectually, he does not have a problem with people getting together and bargaining as a group and that he will vote to move it on but he is very interested to see what the Finance Committee finds. SENATOR KELLY thought Senator Elton's concerns are valid and will create a change, but he remarked the entire health care industry is changing by quantum leaps. Alaska's doctors are quite isolated and many of them are attached to a few health care plans, so they are at a disadvantage to city doctors in other states. Other states are choosing to go with this model as well. CHAIRMAN MILLER agreed that both comments are valid and that the legislature needs to know what all of the ramifications of the bill will be. He noted that since less than 80 days are left in this session, it is time to move the bill on so that some of the questions can be answered by the Finance Committee. CHAIRMAN MILLER announced that with no further objection, CSSB 256(HES) moved from committee.