Alaska's new workers' compensation fee schedule: having a positive impact on medical costs and premiums.

• Author: Barbour, Tracy
• Position: INSURANCE

Recently, the Alaska Division of Workers' Compensation implemented a new medical fee schedule that completely alters how providers are reimbursed for the treatments and services they render. The new schedule--which became effective December 1, 2015--is already having a positive impact on workers' compensation costs. It's also eliciting praise from people who say it's a good start toward reducing some of the exorbitant medical costs that have been plaguing Alaska.

The recent reforms to the Alaska Workers' Compensation Act change the way medical care is paid for under the state's workers' compensation program. The program has moved away from a system of simply paying providers at the 90th percentile of billed fees considered "usual, customary, and reasonable" to an actual fee schedule determined by a RBRVS (resource based relative value system) established by the Centers for Medicaid and Medicare Services. The new fee schedule uses a fairly complex method for determining the amount providers are reimbursed. In simple terms, it calculates payments by multiplying the combined costs of each procedure--each of which now has a universal code--by a "local conversion factor." The schedule is subject to annual review and adjustment as needed.

Some people are under the impression that Alaska's workers' compensation program is paying Medicare prices. But that's not the case, says Marie Marx, director of the Alaska Workers' Compensation Division. "It is not just Medicaid and Medicare rates," she explains. "We instead apply our Alaska-specific conversion factor for each service to arrive at a geographically-specific rate for each service. By multiplying the RBRVS by our state-specific conversion factor, you are able to calculate the maximum allowable reimbursements."

Incidentally, under the Alaska Workers' Compensation Act, employers with one or more workers must carry workers' compensation insurance. The employer has to purchase the insurance from a licensed insurance company or be self-insured. Worker's compensation insurance generally represents the largest outlay of an employer's total business insurance budget.

History of Rising Medical Costs

The new medical payment system is designed to give Alaska a much-needed respite from having some of the steepest workers' compensation costs in the country. Since 2006, Alaska has the highest workers' compensation insurance medical costs, Marx says. "Those costs translate into one of the highest workers' compensation insurance rates in the nation," she says.

The sharp rise in Alaska's workers' compensation premium rates began in 2000. Between 2000 and 2006, premium rates rose 61.8 percent, according to the Medical Services Review Committee, an advisory body established by the Alaska Legislature. In 2000, Alaska's workers' compensation premium rates ranked 28th in the country. By 2006, Alaska had risen to the top of the premium rate rankings, gaining the distinction of having the highest premium rates in the nation.

The primary driver for Alaska's workers' compensation premiums is medical costs. In fact, Alaska's medical costs comprise 76 percent of total workers' compensation claims costs, compared to the national average of about 60 percent, Marx says. "We are 145 percent higher than the median average of all other states," she says.

Alaska's medical costs rose from 52 percent of claim costs in 1988 to 76 percent of claim costs by 2006, reported the Medical Services Review Committee. From 2000 to 2006, total medical benefit costs rose 50.9 percent, from $81.1 million to $122.4 million.

Alaska also suffered high numbers in the area of medical claim severity (size of loss-related medical costs), which is one of the criteria used to calculate premium rates. The state's average medical claim severity on a time...