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Portrait of Senator Pete Kelly Session:
State Capitol, Room 510
Juneau, AK 99801-1182
Phone: (907) 465-2327
Fax: (907) 465-5241
Send E-Mail

119 N. Cushman St., Suite 201
Fairbanks, AK 99701-2879
Phone: (907) 456-8161
Fax: (907) 451-9293

Frequently Asked Questions - CSSB 256 (RLS)
Physician Negotiations with Health Insurers

An Act relating to regulation of managed health care and allowing physicians to collectively negotiate with a health care insurer that has substantial market power.

Updated: April 19, 2000

What is SB 256?

Senate Bill 256 levels the playing field for Alaska's patients and the physicians who care for them. It allows independent, competing physicians to jointly negotiate contract provisions with insurance companies without violating federal anti-trust laws. However, it includes a clearly established process to be followed for these joint negotiations to occur and involves active state oversight as required for a State Action Doctrine. By allowing joint negotiations to occur, a more fair and equitable negotiating process between doctors and insurance companies is created, and doctors are given the ability to better protect their patients.

What SB 256 is not

It is not a union-creating device. It is not mandatory for either a doctor or an insurance company. It does not allow physicians to boycott or strike.

Why is SB 256 needed?

Although Health Management Organizations (HMOs) do not yet exist in Alaska, it is likely that they will be established here in the future. Currently there are Preferred Providers Organization (PPO) plans that, while not as restrictive as HMOs, can limit which specialists a doctor may refer a patient to, or the treatments a doctor may prescribe. SB 256 would allow doctors to negotiate with insurers on these limitations.

Currently patients have no advocate other than their doctors. By allowing doctors to discuss and jointly negotiate definitions such as "medical necessity," patients can receive better care. Physicians could use their own judgement in determining medical emergencies and would not be required to rely on the insurance company's interpretation of undefined contract terms.

For example, if a patient visits the doctor to have an injured knee examined, the doctor may recommend an MRI. Next the doctor must contact the insurance company for approval. If the insurance company does not approve this treatment, but instead recommends physical therapy for 2 weeks, the doctor must relay that to the patient. In order for the insurance company to pay for that patient's care, the doctor must follow the insurance company's idea of good medicine, one that is based on the bottom line. If doctors could negotiate contractual terms, that patient could receive the MRI and the course of treatment could follow the doctor's recommendations, not costs to the insurer.

How does SB 256 benefit consumers?

Passage of SB 256 will allow physicians to discuss and agree to definitions and terms used in service agreements with insurers. Doctors will have more say when it comes to the specific guidelines of the health plans their patients must live with. They will have more say about which treatments and medications they can recommend. They will have more say about which specialists they can refer patients to.

SB 256 will allow patients to choose the right care. Some patients are forced by a health plan to accept the least expensive form of treatment even if it is not the care the doctor would recommend. This legislation ensures that health plans do not put profits above patients.

Participation is voluntary, not mandatory.

Why bother with SB 256?

This will make it easier for a new health insurance plan to enter the Alaskan market. New insurance carriers find it too expensive and time-consuming to attempt to penetrate the Alaskan market without assurances that they can sign up a significant number of doctors from the start. A new health insurer desiring to build a network of doctors would find it more cost effective to negotiate with a group of physicians rather than a single doctor at a time.

Will SB 256 raise health care or insurance costs?

Insurance companies say yes, doctors say no. Both sides can cite studies. The truth is, no one knows, there are only guesses. Although a similar law has already passed in Texas and legislation has been proposed in numerous other states, nothing has been in place long enough to examine the effects on cost.

This legislation gives the Attorney General some control over costs. The negotiations can be rejected if the Attorney General decides that "the terms (1) provide for excessive payments; or (2) contribute to the escalation of the cost of providing health care services." Furthermore, nothing in the bill is mandatory. Neither doctors nor insurers must negotiate.

To emphasize the fact that rising costs are unlikely, a sunset clause has been included in SB 256. Instead of listening to the "what if" and "how much" scenarios from groups opposed to this legislation, we will see what the actual impact of this legislation is. If costs increase too dramatically as a result of SB 256, the legislature can simply fail to renew this law after 60 months.

Can't physicians already discuss non-fee issues?

No. Doctors may not discuss the terms of service contracts with any colleague within the same geographic service area. In some cases, that may be the entire state. Two FTC rulings have been issued that explicitly state that "exchanging or facilitating the exchange of information among physicians concerning the terms or conditions" of a contract is prohibited.

Why include fees?

Fees must be included in this bill; the FTC has linked fees and quality making them inseparable. A situation in Fairbanks illustrates this. A group of Fairbanks doctors got together to discuss quality issues - specifically emergency room care. The FTC got wind of this when a complaint was filed. A letter from the FTC ordered the doctors to "cease and desist," saying that discussing quality issues constituted discussing fees.

Why can fees be discussed?

SB 256 limits the discussion of fees to health insurers with more than a 15% share of the insured market. The base of this calculation is not the population of the state; it is the insured population. This does not include Medicare or Medicaid recipients, it does not include the military, it does not include Indian Health participants, and it does not include the uninsured. When you remove those people from the denominator, that 15% goes up. It is only in these limited circumstances that dollar figures may be discussed. And even then, the AG has the power to say no.

Can all of Alaska's doctors form one big group to negotiate?

When there are more than 40 doctors in a geographic service area, up to 30% of them may form a group to negotiate. If a community has 40 doctors or fewer, 100% of those physicians may participate. When you're dealing with small populations, percentages don't work - you have to deal in numbers.

  • Kenai has 5 doctors. All five may negotiate -- 100% of them.
  • Soldotna has 41 doctors. Only 30% of those 41 doctors may negotiate.
  • Ketchikan has 29 doctors. 100% may participate.

This 30% / 40 doctor figure also applies to specialties. Alaska has an under-supply of medical specialists. The geographic service area of a specialist may include the whole state. For example, there are only 12 cardiologists in serving Alaska, all based in Anchorage. Allowing only 30% of just 12 cardiologists is just 3.6 doctors who may negotiate. This is ridiculous. If there are 40 or fewer specialists serving the state, 100% may negotiate.

Why 40 doctors?

The doctors who are involved in the negotiating process have substantial fees to cover. They have to pay for the AG's involvement. They have to hire an attorney to review the contracts. They have to hire a third party to negotiate for them. If there are fewer than 40 doctors involved, they may not be able to afford to negotiate.

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