JUNEAU — A bill revamping how medical costs under the Alaska workers’ compensation program are calculated passed the state House Wednesday.

Time is tight for House Bill 306 to make it through the state Senate before the Legislature’s required April 20 adjournment, however.

The legislation changes the method for paying medical fees of injured workers under the state program to one that is used in several other states.

State Rep. Kurt Olson, R-Soldotna, sponsor of the bill, believes the new method will slow the fast-rising workers’ compensation medical costs that are driving up the costs of workers’ comp insurance premiums employers must pay.

“This is an effort to reduce exorbitant costs in both the public and private sectors,” Olson said when he introduced the bill in mid-February.

Workers’ compensation medical costs in Alaska are increasing at about 10 percent per year compared with an annual inflation of 4 percent in the medical cost component of the Anchorage Cost of Living, says Mike Monagle, director of the state Workers’ Compensation Division.

“Medical costs constitute 76 percent of workers’ compensation claims in Alaska, which has a serious impact on premium rates paid by all Alaska employers,” said Anna Latham, an aide to Olson.

“The result is that Alaska has the highest workers’ compensation premiums in the nation. Medical costs under the program are continuing to rise despite a 14 percent decline in claims by injured workers,” due partly to employers’ workplace safety improvements, she said.

The problem has been in the way payments in Alaska are currently made, which are set at the 90th percentile for the costs of specific procedures in a given area.

Monagle said that if there are just a few practitioners for a given medical procedure the 90th percentile rule has the effect of setting the rate at close to what the most expensive practitioner charges.

When those rates are published, the providers charging less expensive rates see that and are encouraged to raise their rates, which creates an upward spiral of prices, he said.

HB 316 shifts to a different system where prices would be based on federal Medicaid and Medicare rates for procedures and then adjusted through a “conversion factor” that would be set by the Alaska Medical Services Review Committee, an advisory body to the Alaska Workers’ Compensation Board.

The Commissioner of Labor and Workforce Development ultimately approves the conversion factor under HB 316.

Medicaid and Medicare rates are already given a regional geographic adjustment for Alaska and Medicaid rates are also adjusted for higher-cost areas within the state.

The conversion factor would make additional adjustments, but just how that will work is unclear.

Critics in the Legislature said HB 316 does not define the conversion factor or describe it. Rep. Andy Josephson, D-Anchorage, said he is concerned about that, and that the rates might fall to the point that some medical providers will turn away injured workers.

There are now concerns in the other direction, however, that the bill’s influence in moderating rates may have been weakened.

An amendment made to the bill recently in the House Finance Committee, at Olson’s request, tends to strengthen the hand of the medical rate review committee. Medical providers, who have little incentive to see lower rates, hold four of the nine seats on the committee. The Alaska Medical Association suggested the change.

“It has been tough to keep all the stakeholders happy with this,” Olson said.

In the previous version of the bill the rate review committee’s role was advisory only, with the actual decision on the conversion factor made by the workers’ compensation board.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.