Some of the most extreme examples of Alaska's unsustainable medical costs come from procedures by specialist clinics, including groups of orthopedists and cardiologists with near monopolies. A state regulation helps them charge more.
In this series of columns about medical costs that are eating up our public and private finances, I am focusing on issues unique to Alaska. Our costs are far above average, and far above what can be explained by the cost of living here.
Alaska's medical industry now costs about as much annually as the total value of a year's oil production. Roughly a third of that money goes to doctors, dentists and clinics and another third to hospitals.
In following the trail of money, a wide path leads to specialist clinics where partner doctors allegedly earn millions of dollars a year — although I was unable to get anyone on record to say how much these doctors actually make. Public statistics report only the earnings of doctors who collect salaries, not the owners of practices.
Some specialist procedures cost 10 times as much in Anchorage as they do in Seattle, said Lori Wing-Heier, director of the Alaska Division of Insurance. A standard rate for a knee replacement is $2,042 in Seattle but $10,218 in Anchorage, according to data from Premera Blue Cross Blue Shield of Alaska.
Over the last 10 years, that fee went up 8 percent in Seattle and 43 percent in Anchorage.
And that's the negotiated contract price between in-network doctors and the insurance company, which reflects a discount. The out-of-network cost could be much higher.
Insurance companies negotiate for set prices with in-network doctors. In an area like Seattle, with many providers, they can use their buying power to get deals. But not in Anchorage.
With the vast majority of orthopedists working for one firm, the merged Anchorage Fracture and Orthopedic Clinic and Orthopedic Physicians Alaska, there is little competition to control fees. In cardiology, Alaska Heart and Vascular Institute has a near monopoly in Anchorage. (I reached out to both Alaska Heart and Orthopedic Physicians but was unable to get an interview.)
Wing-Heier said no general surgeons are under contract in Alaska.
A state regulation requires insurance companies to pay 80 percent of usual and customary rates regardless of whether a doctor is in-network. But with only one major practice in some specialties, the usual and customary rate is whatever the clinic says it is. (I first learned of this issue from reporting by Annie Feidt of Alaska Public Media.)
Wing-Heier said the 80 percent rule was established in 2004 to protect consumers from surprise bills. In a hospital, patients cannot check every provider to find out if he or she is in-network, especially in an emergency. Before the rule, some patients faced financial ruin when their insurance companies presented them with massive unpaid balances because providers were out-of-network.
But paying a 20 percent co-pay is no bargain if the bill is inflated by more than five times. Readers have contacted me with examples of medical services they found that cost less in total than their insurance co-pay in Alaska.
Wing-Heier has the power to change the 80 percent rule but said it is still needed to protect consumers. However, she favors finding another mechanism to provide that protection. Alaska is the only state with the rule.
Premera Blue Cross Blue Shield of Alaska is trying to get the merged orthopedic practice and other specialists under contract, said its president, Jim Grazko. Those negotiations made him hesitant to criticize doctors in an interview Thursday.
Doctors I spoke to agreed that the lack of competition and the 80 percent rule take away specialists' financial incentive to contract with an insurer. Grazko said his company is enticing them with cooperative services instead, offering quicker payment and a more efficient relationship.
Premera does get savings using competition when it sends patients outside Alaska. Grazko said the company offers patients who need expensive procedures free travel to see an in-network doctor of their choice in any of the other 49 states, including airfare and lodging for a companion. Local doctors have refused to do follow-up on those out-of-state procedures, so the insurer also offers a second expense-paid trip for follow-up visits.
Even including the cost of the two trips for two people, the program saves an average of $20,000 per procedure, Grazko said.
Dr. Alec Glass, president of the Alaska State Medical Association, the professional organization for physicians, said doctors are concerned about Alaska's cost disparities.
He came to Anchorage from San Francisco to practice neurology in a good community to raise children. With only three neurology practices in the Anchorage area, he said he has more bargaining power with insurance companies and can negotiate higher rates than physicians in San Francisco, although the cost of living there is near the highest in the country.
But Glass and other doctors said the insurance companies add to the market's lack of transparency. Lists of in-network and out-of-network doctors are often inaccurate or out of date. Patients have no way of knowing what they will pay until the insurance company and provider negotiate each claim.
There are solutions to these problems.
Outside Alaska, managed care organizations bring the entire system in-house, so they can pay reasonable salaries and control costs. That hasn't happened here, possibly because most Alaskans are already covered by government-funded programs, including those for seniors, veterans and Alaska Natives, leaving too few patients for a managed care system.
The state of Alaska could use its power to increase competition. For example, the attorney general intervened with antitrust laws when Safeway bought Carrs grocery stores in 1999. A grocery monopoly is a lot less expensive than a medical cartel.
The Alaska Legislature could pass laws requiring transparent, outcome-based pricing. Contractors and auto mechanics give firm total price bids in advance. So could hospitals and doctors, with exceptions for emergencies.
There are many other ideas. I'll write more about them. But there is a catch. For any solution to work, those who are getting rich from the current system will have to receive less.
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