Allen Hippler: Repeal the ’80th Percentile Rule’

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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.

14 COMMENTS

  1. It’s not in the interests of the healthcare community (and support industries) to fix this. Not many people choose to take money out of their pockets.

    Here in SE it’s a common practice to take anything besides run of the mill healthcare to Seattle. Even with the cost of going to Seattle it’s usually long run cheaper. Plus more up to date as well.

    Until we move the capital to the road system, it’s a near impossible task to fix this. The special interests flood Juneau and get appointments to see how overseers (legislators). The average person has to lay out 1000s of dollars to visit Juneau just to be turned away by the people allegedly there to represent them.

  2. Allen Hippler is nothing but a blow hard banker working for Northrim bank. I support the 80th percentile rule and saw its benefits when it was put in place. The quality and number of specialists that came to the state when the 80th percentile rule was established benefitted all Alaskans.
    I’m moving my money from Northrim — the bank in anti-Alaskan.

    • They came from out of state because of the astonishing fees they can charge here.

      Plus we don’t grow enough of our own providers so we have to import at the prices they demand.

    • Randall, I have news in which you will find comfort. I am not with Northrim. Therefore, you can keep your money there, in one of the finest financial institutions in the world.
      Make sure you ask for a good interest rate to keep up with medical cost inflation!

  3. Who woulda thunk that excessive government regulation could have led to a distorted private sector economy? The law of unintended consequences where the government sets a minimum that necessarily ratchets up that very minimum isn’t hard to forsee.

  4. Great idea let us replace The Alaska Heart Institute and Orthopedic Physicians Associates with Doc in Book surgeons. Always a good idea to save money especially as you laying on the operating table.

  5. Lots of fly-by-night clinics, out of state docs, and quacks here thanks to the ridiculously high reimbursement. Alaska is famous for this and they pull up to the trough. So much over ordering of studies, tests, and consults. So many unnecessary surgeries and procedures. I’m sure it was originally well intended, but it’s crippling quality health care in this state.

  6. I have read about this in several places but even in re-reading it, I don’t “get” it. Is there someone who could explain this in a more simplified manner? I am embarrassed to admit being so dense but for some reason this issue makes no sense to me.

    • AK has sky high reimbursements for medical care. The 80th percentile forces your insurance to pay at no less than the 80th percentile of what health care services are charging around here. So, they keep charging more and more.

    • You aren’t dense Gretchen – this is a poorly written article on a confusing complicated issue. The biggest source of confusion here is the math – 80% and 20% naturally make 100%, but not for this subject. The author seems to be saying that if one controls 20% of the market in their specialty, then they can set prices as high as they want and third party payers – insurance – must pay at least 80% of the charges for out of network services. Hippler further confuses this in his denial comment below. His main point seems to be ANY government interference in health care pricing drives costs up and the so-called 80% rule needs to be repealed to allow market forces to flourish.

  7. Gretchen, don’t be embarrassed. It is indeed confusing.

    The 80th percentile rule requires insurers to base their payments for out of-network claims on the amount at or above 80 percent of what all the providers charge for a specific service, in a given area of the state. (This is not, as many Alaskans believe, a requirement that insurers pay 80% of the billed charges.)

    Consider a hypothetical service with only 10 charges in one year in Alaska. In that example, the 3rd highest cost is the 80th percentile. If a single provider gave 3 of these 10 services in the state, whatever dollar amount it charged would be the 80th percentile. And the state law mandates that this be the base for insurance payments!

    No other state does this.

    • Is what you describe, Allen, the result of systemic price fixing, collusion, possibly Medicare/Medicaid fraud, in Alaska’s medical-pharmaceutical-insurance industry?
      .
      If so, the situation seems highly vulnerable to whistleblowers’ false-claims lawsuits, which might be what’s necessary to fix the problem or at reduce it to manageable proportions.

      • Morrigan, I hear what you are saying but in my opinion the issue is structural. It is not that individual actors within the system are colluding. The regulation removes any incentive to collude because as long as one entity controls 20% of the market, the entity may unilaterally set the price.

  8. I agree. Got referred to the heart institute a month ago. 2 visits, first 45 minutes, did blood pressure, 2nd was an hour late, a 15 minute visit. That was $9400.
    Wanted to do do about 15k of tests then $400 worth of meds a month uncovered, then more.
    Go south, they’re a bunch of money grabbing bastards. They don’t listen, they’ve got a plan before you go in.
    We don’t get the best here and by my experience, I can say that.

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