Legislature(2009 - 2010)BARNES 124

02/03/2010 03:15 PM House LABOR & COMMERCE

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03:27:16 PM Start
03:27:35 PM HB314
04:11:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
                  HB 314-WORKERS' COMPENSATION                                                                              
3:27:35 PM                                                                                                                    
CHAIR OLSON  announced only  order of business  would be  HB 314,                                                               
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."                                                                    
3:28:34 PM                                                                                                                    
KONRAD JACKSON,  Staff, Representative  Kurt Olson,  Alaska State                                                               
Legislature, explained that  the purpose of HB 314  is to replace                                                               
the current medical  fee schedule with an updated  schedule.  The                                                               
Medical  Services   Review  Committee  recommended   the  current                                                               
medical fee schedule be replaced with an updated schedule.                                                                      
3:29:48 PM                                                                                                                    
LINDA  HALL, Director,  Division  of  Insurance (DOI),  Anchorage                                                               
Office, Department  of Community & Economic  Development (DCCED),                                                               
provided the history  of the medical fee schedule.   In 2005, the                                                               
statute  inadvertently deleted  the  mechanism  for the  Workers'                                                               
Compensation Board  to adopt a  new fee  schedule.  At  that time                                                               
the  DOI anticipated  the stakeholders  would propose  an updated                                                               
schedule by  August 1, 2007.   However, that did not  happen, the                                                               
medical fee schedule was frozen,  and the 2004 fee schedule still                                                               
applied.  A Consumer Price Index  (CPI) was adopted and used from                                                               
2004  - 2006.   Last  year, the  legislature adopted  another CPI                                                               
increase  which  expires December  31,  2010.   She  discussed  a                                                               
replacement for the current CPI.   She referred to her handout in                                                               
the  committee  packets and  reviewed  charts,  pointing out  the                                                               
colored pie  charts titled  "Workers Compensation  Medical Losses                                                               
are More  Than Half of  Total Losses," [page  32].  In  2008, the                                                               
National Council  on Compensation Insurance, Inc.  (NCCI) states,                                                               
consisting  of approximately  33  states, had  medical fees  that                                                               
encompassed 58 percent  of the medical costs,  with the remaining                                                               
42 percent of the costs consisting  of indemnity costs.  The next                                                               
chart  refers  to  the "Workers  Compensation  Benefit  Split  in                                                               
Alaska"  with  medical  costs  representing  72  percent  of  the                                                               
medical claims, which has increased by  20 percent in the past 20                                                               
years [page 31].                                                                                                                
3:32:48 PM                                                                                                                    
MS.  HALL stated  that the  average cost  per case  in Alaska  is                                                               
$40,000,  while the  countrywide average  cost is  $26,000"Alaska                                                               
Medical Average Cost  per Case vs. Countrywide [page  35].  Thus,                                                               
Alaska is substantially above the national average.                                                                             
3:33:19 PM                                                                                                                    
MS.   HALL  stated   that  according   to  the   Oregon  Workers'                                                               
Compensation  Premium Rate  Ranking, Calendar  Year 2008,  Alaska                                                               
ranked  number one  [page 4].   She  stated that  Alaska has  the                                                               
highest  Workers'  Compensation  premium rates  in  the  country.                                                               
While Alaska's  rates have  remained high,  California's premiums                                                               
were  once   high,  but  California  is   now  ranked  thirteenth                                                               
nationwide.   The state must review  what drives up the  cost for                                                               
Workers' Compensation  insurance in  Alaska.  Although  this bill                                                               
is not a complete fix and  will not lower premiums, it represents                                                               
progress.    This  bill,  HB  314,  will  replace  the  past  CPI                                                               
increases  with a  sustainable schedule  until  a more  permanent                                                               
solution  can be  found.   This temporary  fix approach  has been                                                               
recommended  by  the  Medical Services  Review  Committee.    She                                                               
applauded  the work  the Medical  Services  Review Committee  has                                                               
done to examine the issues and to work to find solutions.                                                                       
3:35:14 PM                                                                                                                    
MS. HALL explained that HB 314  provides a fee schedule that will                                                               
eliminate the  need for  the DOI to  come before  the legislature                                                               
each year.   The bill contains a full fee  schedule that contains                                                               
all  of the  procedure codes,  consisting of  approximately 2,000                                                               
new procedure  codes, which  have been  developed since  2004, at                                                               
the  time when  the last  fee schedule  was updated  and adopted.                                                               
She suggested  the importance in  adopting the codes  and assured                                                               
members  that the  DOI still  will  continue to  work to  address                                                               
rising  transportation  costs  for   air  and  ground  transport,                                                               
particularly for  emergency transports.   She emphasized  that HB
314 will bring  the fee schedule up to date.   The overall system                                                               
will not  change, is  the same  system that has  been in  use for                                                               
many years.  In fact, the  regulations have been in place for the                                                               
past 20  years.  She  assured the committee  that the DOI  is not                                                               
"reinventing the  wheel" and  changes are not  being made  to the                                                               
regulatory process.   A vendor compiles various  bill charges and                                                               
creates  the fee  schedule, which  is purchased  and subsequently                                                               
adopted by the  members of the Workers' Compensation  Board.  She                                                               
explained  that members  of the  Workers' Compensation  Board are                                                               
appointed by the  Governor and are confirmed  by the legislature.                                                               
She  said  she  found  some reactions  to  this  bill  surprising                                                               
because the  system will remain  the same and the  overall effect                                                               
of the bill is to update the fee schedule.                                                                                      
3:37:36 PM                                                                                                                    
MS. HALL explained that the  bill will also update the provisions                                                               
for prosecution of fraud.   Workers' compensation fraud adds cost                                                               
to the  system and the  DOI hopes to  tighten up the  language in                                                               
the  Division  of  Workers'  Compensation  statutes.    In  2005,                                                               
investigative  authority was  added with  the understanding  that                                                               
fraud  could be  prosecuted, she  noted.   However, the  Workers'                                                               
Compensation  Board recently  discovered it  could not  prosecute                                                               
fraud under its statutes.                                                                                                       
MS.  HALL provided  a section-by-section  analysis  of the  bill.                                                               
Section 1 would amend AS  11.56.205(a) to add the application for                                                               
benefit under AS  23.20 to the crime of  unsworn falsification in                                                               
the first degree which  is a class C felony.   Thus, if a person,                                                               
with the  intent to mislead  submits a false written  or recorded                                                               
statement that  the person  does not  believe to  be true  at the                                                               
time he/she applied  for a benefit will be considered  a crime of                                                               
unsworn falsification, which will be a felony.                                                                                  
MS.   HALL   explained   that    Section   2   would   amend   AS                                                               
23.30.097(a)(1)(D), such  that the  new base  fee may  not exceed                                                               
the usual,  customary, and reasonable  charges in a  fee schedule                                                               
adopted by the Workers' Compensation  Board.  The fee schedule is                                                               
based on  a credible profile  of bill charges, and  includes cost                                                               
differential for geographical areas.   She offered that currently                                                               
only one  vendor, Ingenix,  creates fee  schedules.   The company                                                               
uses  geozips,  or geographical  zip  codes  to develop  the  fee                                                               
schedule.   Thus,  the  company analyzes  the  primary codes  and                                                               
groups  together   places  where  the  charges   are  comparable.                                                               
Ingenix is also used by  health insurers to develop standard bill                                                               
charges.   The  fee schedule  charges  are based  only on  Alaska                                                               
data,  not  on Louisiana  data,  noting  that Louisiana  has  the                                                               
lowest  charges in  the  nation.   Thus,  the  costs  in the  fee                                                               
schedule are  not average costs.   She explained  that basically,                                                               
Section 2 creates  a base schedule to insert  the procedure codes                                                               
back  into the  statutes as  a complete  fee schedule.   The  fee                                                               
schedule  must   include  the  most  recent   current  procedural                                                               
terminology  codes  for  category   I  and  category  II  medical                                                               
treatment, or other  services based on credible  data for today's                                                               
charges.  The  schedule must also adhere to  the regulations from                                                               
the  Division of  Workers'  Compensation.   The  fee schedule  is                                                               
based on the 90th percentile, she said.                                                                                         
3:42:31 PM                                                                                                                    
MS. HALL explained that Section 3  would amend AS 23.30.250(a) to                                                             
clarify  that a  crime  that is  a violation  of  the chapter  is                                                               
prosecuted  under AS  11, which  is  Criminal Law,  and that  the                                                               
violation may  result in civil  liability with an award  of three                                                               
times the amount  of compensatory damages.  Insurance  fraud is a                                                               
crime and Workers' compensation fraud is a similar crime.                                                                       
3:43:26 PM                                                                                                                    
MS. HALL  related that the changes  in Section 4 would  allow the                                                               
director to establish a section  within the DOI for investigation                                                               
of fraudulent or  misleading acts under this chapter.   The DOI's                                                               
investigators  would be  able to  investigate any  type of  fraud                                                               
under the chapter, which broadens  the authority.  This provision                                                               
would  allow the  DOI director  to  investigate whether  credible                                                               
evidence exists  that a person obtained  a payment, compensation,                                                               
medical treatment,  or other benefit provided  under this chapter                                                               
by a fraudulent act or false or misleading statement.                                                                           
3:44:28 PM                                                                                                                    
MS. HALL explained  that Section 6 would repeal  AS 23.30.250 (c)                                                               
since this provision has been included  and moved to Section 3 of                                                               
this bill.  She explained that is the sum extent of the bill.                                                                   
3:44:59 PM                                                                                                                    
CHAIR OLSON  thanked the director  for the efforts made  to bring                                                               
this forward.  He suggested that  this bill is not perfect but is                                                               
a step in the right direction.                                                                                                  
3:45:02 PM                                                                                                                    
REPRESENTATIVE BUCH  asked about the availability  of enforcement                                                               
and staff to conduct investigations.                                                                                            
MS.   HALL   related   her  understanding   that   a   six-person                                                               
investigative  unit  in  the Division  of  Workers'  Compensation                                                               
would  provide  assistance  and   uses  a  two-pronged  approach.                                                               
Insurance  companies must  report suspected  benefit fraud.   The                                                               
DOI  can  investigate,  as  well  as  the  Division  of  Workers'                                                               
Compensation,  she  stated.   The  two  divisions agreed  several                                                               
years  ago to  avoid duplicate  work  and to  prevent cases  from                                                               
"falling through the cracks."  Thus,  the DOI and the Division of                                                               
Workers'  Compensation divided  their responsibilities  through a                                                               
formal Memorandum of Understanding (MOU).   When the DOI receives                                                               
a fraud referral  it refers the case to the  investigators at the                                                               
Division of  Workers' Compensation.  Their  investigators proceed                                                               
and take  the case to  prosecutors in  the Department of  Law for                                                               
prosecution.  The Division of  Insurance retained the bulk of the                                                               
premium fraud, since  it more closely aligns  with insurance, and                                                               
although the  Workers' Compensation  Board has some  authority to                                                               
investigate premium fraud,  the bulk of those types  of cases are                                                               
investigated by its  dedicated prosecutor.  She  related that the                                                               
authority was  not clear for  the Department of Law  to prosecute                                                               
the DOI's cases.                                                                                                                
3:48:02 PM                                                                                                                    
REPRESENTATIVE BUCH referred to a chart  on page 4 of the handout                                                               
listing Alaska  as being number one  in fraud.  He  asked whether                                                               
the changes in HB 314 would affect Alaska's fraud status.                                                                       
MS.  HALL  responded   that  the  premium  chart   and  the  90th                                                               
percentile on the fee schedule are  not related.  This chart is a                                                               
result of the premiums based on  system costs as presented to the                                                               
DOI, but  the cost  of claims  is what  drives up  premium costs.                                                               
This  bill will  not change  any costs,  but she  said she  hopes                                                               
provisions in HB  314 will also not increase any  costs.  The DOI                                                               
hopes  for an  overall solution  so that  the delivery  system is                                                               
improved since  is not  currently an  efficient system.   Whether                                                               
the  solution is  obtained through  health insurance  or Workers'                                                               
Compensation changes does not really  matter.  However, the state                                                               
needs to  discover efficiencies.   The system should  be adequate                                                               
so that  injured workers are  treated and doctors should  also be                                                               
paid fairly, but the state must  find ways to control costs since                                                               
Alaska's costs  should not  be 14 percent  higher than  any other                                                               
state in the country.                                                                                                           
3:51:28 PM                                                                                                                    
CHAIR OLSON remarked that a  Workers' Compensation bill will also                                                               
be taken  up before the  committee at  some point, and  that bill                                                               
may  affect Workers'  Compensation rates.  However, the  proposed                                                               
bill does not have anything to do with HB 314, he said.                                                                         
3:52:02 PM                                                                                                                    
REPRESENTATIVE  T.  WILSON inquired  as  to  how often  fees  are                                                               
MS.  HALL responded  that  fees are  reviewed  annually or  semi-                                                               
REPRESENTATIVE T. WILSON asked who approves the fee schedule.                                                                   
MS.  HALL responded  that  the  fee schedule  is  prepared by  an                                                               
outside  vendor, who  purchases the  fee schedule  based on  bill                                                               
charges  comprised of  Alaska data.   The  proposed fee  schedule                                                               
would  be disbursed  by  the Workers'  Compensation  Board.   The                                                               
vendor  does not  tinker with  the fees,  but purchases  a system                                                               
based on credible data.                                                                                                         
3:53:39 PM                                                                                                                    
REPRESENTATIVE  HOLMES  referred  to  the  penalty  provision  in                                                               
Section 1 that establishes a class  C felony and asked how claims                                                               
are currently handled for fraud.                                                                                                
MS. HALL  offered her  belief that some  intent language  set the                                                               
bar so  high that cases could  not be prosecuted.   She explained                                                               
that the current  standard was the "knowing  standard" and seemed                                                               
to be impossible to prove in  the insurance arena.  She explained                                                               
that this  bill establishes a  reasonable standard of  proof, but                                                               
that  the methods  for an  investigation  or due  process do  not                                                               
change under the bill.  She noted that she is not an attorney.                                                                  
3:55:35 PM                                                                                                                    
JIM  JORDAN,  Executive   Director,  State  Medical  Association,                                                               
stated that  the State Medical Association  wholeheartedly agrees                                                               
that HB 314  is a step in  the right direction.   He related that                                                               
it  is "not  the most  artful attempt  at language  drafting" but                                                               
agreed  with Ms.  Hall's  testimony.   He  remarked  that he  was                                                               
interested in  the intent  of the  Category 2  current procedural                                                               
technology (CPT) codes.   He said that essentially  the CPT codes                                                               
are supplemental  tracking codes  that are  used to  help measure                                                               
performance.      These   were    developed   to   minimize   the                                                               
administrative  burden  for  those interested  in  measuring  the                                                               
quality  of   patient  care.     Data  is  developed   so  actual                                                               
development  of  measurements  of comparative  effectiveness  for                                                               
treatments.  A health care provider  may have a number of ways to                                                               
treat an injury, but this  method uses evidence-based medicine to                                                               
help determine the most effective treatment for an injury.                                                                      
3:58:55 PM                                                                                                                    
MR. JORDAN, in response to Chair  Olson related that he worked in                                                               
the  Division of  Insurance  in 1988.   It  has  been nearly  two                                                               
decades  since  his  involvement   in  the  insurance  regulatory                                                               
profession,  but  he  has  an   extensive  work  history  in  the                                                               
3:59:52 PM                                                                                                                    
JED WHITTAKER stated that he is  opposed to the felony charge for                                                               
unsworn falsification.   He  said it  seemed to  him that  when a                                                               
worker is hurt  that the injury needs to be  verified by a doctor                                                               
or  medical  community,  but often  an  adversarial  role  exists                                                               
between  the interest  of  the  worker and  the  interests of  an                                                               
insurance company.   He said  he would  tend to trust  the worker                                                               
and not  medical community.  He  did not think the  felony charge                                                               
is a good  idea since it would  tie up a lot of  resources in the                                                               
legal system.   In the event a  person who is injured  did make a                                                               
false claim,  even more money  would be spent to  incarcerate the                                                               
person.   He does  not support false  claims, but  questioned the                                                               
wisdom of this type of penalty.                                                                                                 
4:02:44 PM                                                                                                                    
REPRESENTATIVE LYNN asked for the  commonality between being hurt                                                               
and lying.                                                                                                                      
MR. WHITTAKER  offered that in  the instance a person  is injured                                                               
and  the doctor  cannot  find  the person's  source  of pain  and                                                               
opines the  person did  not hurt  his/her back.   In  the medical                                                               
community doctors  have varying  opinions.   He hazarded  a guess                                                               
that the percentage of fraudulent claims is small.                                                                              
4:03:59 PM                                                                                                                    
ERIN   POHLAND,  Assistant   Attorney  General,   Human  Services                                                               
Section,  Civil Division  (Anchorage), Department  of Law  (DOL),                                                               
stated that she is available for questions.                                                                                     
4:04:39 PM                                                                                                                    
REPRESENTATIVE BUCH  asked whether  the falsification  would also                                                               
apply to the employer.                                                                                                          
MS.  POHLAND  answered  yes.   She  clarified  that  the  statute                                                               
applies  to a  person,  so it  could be  anyone  in the  workers'                                                               
compensation process.                                                                                                           
4:05:15 PM                                                                                                                    
REPRESENTATIVE  HOLMES  asked  about   the  current  process  for                                                               
handling  fraudulent  cases and  whether  it  would change  under                                                               
Section 1 of HB 314.                                                                                                            
MS.  POHLAND  responded  that  under  the  current  statutes  the                                                               
attorney   general  has   been  unable   to  prosecute   workers'                                                               
compensation cases.   While she is not  the prosecuting attorney,                                                               
the current  AS 23.30.250 contains  inconsistent wording  for the                                                               
burden of  proof and mental states.   This statute would  set out                                                               
the  standard of  proof,  which  is the  intent  of  a person  to                                                               
deprive another of property.   However, the subsections require a                                                               
different  standard of  proof, which  is the  intent of  knowing.                                                               
Thus, the current  law is muddled; the  attorney general's office                                                               
cannot  prosecute cases  and suggests  a change  should be  made.                                                               
The   Division   of   Workers'  Compensation   fraud   unit   has                                                               
investigators  in Anchorage,  Fairbanks,  and Juneau.   Under  HB
314, the  civil section remains  the same, but the  statute would                                                               
refer to existing  criminal code for prosecution  rather than the                                                               
inconsistent wording  for the  burden of  proof contained  in the                                                               
DOI's statutes.                                                                                                                 
4:07:19 PM                                                                                                                    
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed public testimony on HB 314.                                                                                     
CHAIR  OLSON  asked for  the  national  percentage of  fraud  and                                                               
whether it would be as high as 10 - 15 percent.                                                                                 
MS.  HALL said  she did  not  know the  percentage of  fraudulent                                                               
cases.  In  further response to Chair Olson, said  she doubted it                                                               
was as  high as ten percent,  noting that her answer  is based on                                                               
intuition, not on any statistics.                                                                                               
4:08:29 PM                                                                                                                    
REPRESENTATIVE  LYNN asked  whether  unsworn falsification  means                                                               
lying, but not under oath.                                                                                                      
CHAIR  OLSON  said, "Let  the  record  reflect  that we  have  an                                                               
attorney  nodding  her  head  yes  [referring  to  Representative                                                               
4:09:05 PM                                                                                                                    
REPRESENTATIVE  LYNN offered  his  belief that  lying under  oath                                                               
would  be perjury,  while unsworn  falsification would  simply be                                                               
writing or stating something false.                                                                                             
MS.  HALL  recalled from  the  division's  investigations that  a                                                               
person  taking a  sworn statement  must be  sworn peace  officer.                                                               
Thus, it may not be possible  for the investigators to take sworn                                                               
statements,  but  simply statements  since  the  parties are  not                                                               
under oath.                                                                                                                     
CHAIR OLSON noted  the presence of the  attorney generals present                                                               
for any additional questions.                                                                                                   
4:09:53 PM                                                                                                                    
REPRESENTATIVE LYNN moved to report  HB 314 out of committee with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There  being no  objection, HB  314 was  reported from  the House                                                               
Labor and Commerce Standing Committee.                                                                                          

Document Name Date/Time Subjects
HB314 ver A.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Sponsor Statement ver A.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Sectional Analysis ver A.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Fiscal Note ver A - Law-Crim-01-29-10.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Fiscal Note ver A - DOLWD-WC-01-28-10.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 NCCI All States Medical Cost Comparison.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 NCCI AK vs Countrywide Medical Cost per Case.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Workers' Compensation Premium Rate Ranking cy 2008.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB294 Fiscal Note ver A - DNR-Parks-2-01-10.pdf HL&C 2/1/2010 3:15:00 PM
HL&C 2/3/2010 3:15:00 PM
HB 294
HB314 NCCI AK Medical Cost Comparison.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
8 AAC 45.082 Medical Treatment.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Letter AK Spine Institute 2-2-10.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Letter ASMA 1-1-10.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Suggested changes ASMA 1-1-10.pdf HL&C 2/3/2010 3:15:00 PM
HB 314
HB314 Letter NFIB 1-31-10.pdf HL&C 2/3/2010 3:15:00 PM
HB 314