By ALLEN HIPPLER
Alaskans have a huge opportunity: We can eliminate an unnecessary regulation that has caused price inflation and turmoil in the healthcare market in Alaska. This regulation was put into place as a well-intentioned consumer protection but has quickly evolved into a major factor driving up costs for healthcare, impacting virtually all Alaskans.
We are speaking of the so called 80th Percentile Rule, which is a regulation enacted in 2004 that is unique to Alaska. It sets a minimum reimbursement level for “out of network” claims. The purpose of this minimum price is to protect consumers against “surprise billing.” The way this works is that insurance companies must pay medical providers at the 80th percentile of charges.
Unfortunately, one can imagine how rates would be set if a provider controls at least 21% of the market, thereby automatically setting the 80th percentile. As it turns out, many specialists in Alaska actually do have that level of control over their areas.
As early as 2011, the Milliman report concluded: “Since many providers have over 20% of their market share, this implies that those providers can ensure that their charges are below the 80th percentile…”
In such a scenario, what would one expect to happen, particularly with specialty areas such as cardiology, urology, or orthopedics? In Alaska, we have seen these specialty areas command a vast premium compared to any other place in the world. Consider what the 2019 Oliver Wyman study showed: In 2017, cardiology reimbursement was 627% of Medicare fee for service standards, compared to Seattle’s 165%. Compare that with areas where no single provider controls over 20% of the market, such as ophthalmology for example: reimbursement in 2017 was 192% of Medicare, compared to Seattle’s 120%.
Such an off balance system in Alaska for specialty services has outsize impact. Even though the impacts of this rule are concentrated in a few specialties, those high costs put a drag on the entire system. In 2018, an ISER study here in Alaska concluded that, “The share of the overall increase in expenditures that we attribute to the 80thpercentile rule is between 8.61% and 24.65%.”
Finally, now that the Federal No Surprises Act is in place, there is a better solution to address the “surprise billing” issue. This federal law starts at the 50th percentile, which softens the price distortions that we have seen in Alaska by using the 80th percentile.
The solution to all this is simple. Repeal the 80th Percentile Rule. The special interests are out in force to protect their high margins. We can stand against the special interests by undoing the damage we have caused ourselves, and reversing this harmful regulation.
Allen Hippler is a former member of the Alaska Health Care Commission.
